10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	December 31, 2019
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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common - $1.00 Per Share Par Value	SCX	New York Stock Exchange
Class B Common - $1.00 Per Share Par Value	Not applicable	Not applicable

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 every Interactive Data File required to be submitted 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 such files). 

YES ☒       NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth 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	January 24, 2020
Class A Common Shares	6,279,632
Class B Common Shares	681,219

1

 THE L. S. STARRETT COMPANY

CONTENTS

				Page No.
Part I.		Financial Information:
		Item 1.	Financial Statements
			Consolidated Balance Sheets – December 31, 2019 (unaudited) and June 30, 2019	3
			Consolidated Statements of Operations – three and six months ended December 31, 2019 and December 31, 2018 (unaudited)	4
			Consolidated Statements of Comprehensive Income (Loss) – three and six months ended December 31, 2019 and December 31, 2018 (unaudited)	5
			Consolidated Statements of Stockholders' Equity – three and six months ended December 31, 2019 and 2018 (unaudited)	6
			Consolidated Statements of Cash Flows - six months ended December 31, 2019 and December 31, 2018 (unaudited)	7
			Notes to Unaudited Consolidated Financial Statements	8-18
		Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19-21
		Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
		Item 4.	Controls and Procedures	21
Part II.	Other Information:
	Item 1A.		Risk Factors	22
	Item 6.		Exhibits	23
SIGNATURES				24

2

PART I.              FINANCIAL INFORMATION

ITEM 1.             FINANCIAL STATEMENTS

THE L. S. STARRETT COMPANY

Consolidated Balance Sheets (unaudited)

(in thousands except share data)

	12/31/2019			06/30/2019
ASSETS
Current assets:
Cash	$	9,382		$	15,582
Accounts receivable (less allowance for doubtful accounts of $685 and $685, respectively)		33,992			35,980
Inventories		65,110			61,790
Prepaid expenses and other current assets		6,420			6,623
Total current assets		114,904			119,975
Property, plant and equipment, net		38,364			36,679
Right of use assets		5,507			-
Taxes receivable		1,706			1,666
Deferred tax assets, net		18,145			18,639
Intangible assets, net		8,110			8,460
Goodwill		4,668			4,668
Total assets	$	191,404		$	190,087
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt	$	4,154		$	4,065
Current lease liability		2,027			-
Accounts payable		11,730			12,881
Accrued expenses		7,879			8,699
Accrued compensation		4,819			7,035
Total current liabilities		30,609			32,680
Other tax obligations		2,746			2,587
Long-term lease liability		3,544			-
Long-term debt, net of current portion		18,628			17,541
Postretirement benefit and pension obligations		51,258			53,900
Total liabilities		106,785			106,708
Stockholders' equity:
Class A Common stock $1 par (20,000,000 shares authorized; 6,279,632 outstanding at December 31, 2019 and 6,206,525 outstanding at June 30, 2019)		6,280			6,207
Class B Common stock $1 par (10,000,000 shares authorized; 681,219 outstanding at December 31, 2019 and 689,577 outstanding at June 30, 2019)		681			690
Additional paid-in capital		55,522			55,276
Retained earnings		82,525			80,487
Accumulated other comprehensive loss		(60,389	)		(59,281	)
Total stockholders' equity		84,619			83,379
Total liabilities and stockholders’ equity	$	191,404		$	190,087

See Notes to Unaudited Consolidated Financial Statements

3

THE L. S. STARRETT COMPANY

Consolidated Statements of Operations (unaudited)

(in thousands except per share data)

	3 Months Ended						6 Months Ended
	12/31/2019			12/31/2018			12/31/2019			12/31/2018
Net sales	$	56,864		$	56,532		$	108,978		$	108,433
Cost of goods sold		38,228			37,984			72,639			73,226
Gross margin		18,636			18,548			36,339			35,207
% of net sales		32.8	%		32.8	%		33.3	%		32.5	%
Selling, general and administrative expenses		15,874			15,100			32,132			30,823
Operating income		2,762			3,448			4,207			4,384
Other expense		(887	)		(457	)		(1,056	)		(451	)
Income before income taxes		1,875			2,991			3,151			3,933
Income tax expense		615			1,065			1,113			1,423
Net income	$	1,260		$	1,926		$	2,038		$	2,510
Basic income per share	$	0.18		$	0.27		$	0.29		$	0.36
Diluted income per share	$	0.18		$	0.27		$	0.29		$	0.35
Weighted average outstanding shares used in per share calculations:
Basic		6,955			7,018			6,930			7,022
Diluted		7,015			7,067			7,011			7,077

See Notes to Unaudited Consolidated Financial Statements

4

THE L. S. STARRETT COMPANY

Consolidated Statements of Comprehensive Income (Loss) (unaudited)

 (in thousands)

	3 Months Ended					6 Months Ended
	12/31/2019			12/31/2018		12/31/2019			12/31/2018
Net income	$	1,260		$	1,926	$	2,038		$	2,510
Other comprehensive income (loss):
Currency translation gain (loss), net of tax		2,674			696		(1,065	)		(875	)
Pension and postretirement plans, net of tax		(23	)		-		(43	)		-
Other comprehensive income (loss)		2,651			696		(1,108	)		(875	)
Total comprehensive income	$	3,911		$	2,622	$	930		$	1,635

See Notes to Unaudited Consolidated Financial Statements

5

THE L. S. STARRETT COMPANY

Consolidated Statements of Stockholders' Equity

For the Three and Six-Month Period Ended December 31, 2019 and 2018

(in thousands except per share data) (unaudited)

For the Three and Six-Month Period Ended December 31, 2019
 

	Common Stock Outstanding					Additional Paid-in			Retained		Accumulated Other Comprehensive
	Class A		Class B			Capital			Earnings		Loss			Total
Balance June 30, 2019	$	6,207	$	690		$	55,276		$	80,487	$	(59,281	)	$	83,379
Total comprehensive income (loss)		-		-			-			778		(3,759	)		(2,981	)
Repurchase of shares		-		(2	)		(8	)		-		-			(10	)
Stock-based compensation		57		-			157			-		-			214
Conversion		6		(6	)		-			-		-			-
Balance September 30, 2019	$	6,270	$	682		$	55,425		$	81,265	$	(63,040	)	$	80,602
Total comprehensive income		-		-			-			1,260		2,651			3,911
Repurchase of shares		-		-			(3	)		-		-			(3	)
Issuance of stock		-		7			30			-		-			37
Stock-based compensation		2		-			70			-		-			72
Conversion		8		(8	)		-			-		-			-
Balance December 31, 2019	$	6,280	$	681		$	55,522		$	82,525	$	(60,389	)	$	84,619
Accumulated balance consists of:
Translation loss											$	(50,624	)
Pension and postretirement plans, net of taxes												(9,765	)
											$	(60,389	)

For the Three and Six-Month Period Ended December 31, 2018

	Common Stock Outstanding						Additional Paid-in			Retained		Accumulated Other Comprehensive
	Class A			Class B			Capital			Earnings		Loss			Total
Balance June 30, 2018	$	6,302		$	720		$	55,641		$	74,368	$	(49,160	)	$	87,871
Total comprehensive income (loss)		-			-			-			584		(1,571	)		(987	)
Transfer of historical translation adjustment		-			-			-			40		(40	)		-
Repurchase of shares		-			(2	)		(11	)		-		-			(13	)
Issuance of stock		-			2			10			-		-			12
Stock-based compensation		17			-			90			-		-			107
Conversion		10			(10	)		-			-		-			-
Balance September 30, 2018	$	6,329		$	710		$	55,730		$	74,992	$	(50,771	)	$	86,990
Total comprehensive income		-			-			-			1,926		696			2,622
Repurchase of shares		(154	)		(1	)		(766	)		-		-			(921	)
Issuance of stock		-			6			22			-		-			28
Stock-based compensation		2			-			65			-		-			67
Conversion		5			(5	)		-			-		-			-
Balance December 31, 2018	$	6,182		$	710		$	55,051		$	76,918	$	(50,075	)	$	88,786
Accumulated balance consists of:
Translation loss												$	(49,841	)
Pension and postretirement plans, net of taxes													(234	)
												$	(50,075	)

See Notes to Unaudited Consolidated Financial Statements

6

THE L. S. STARRETT COMPANY

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	6 Months Ended
	12/31/2019			12/31/2018
Cash flows from operating activities:
Net income	$	2,038		$	2,510
Non-cash operating activities:
Depreciation		2,430			2,561
Amortization		1,109			1,155
Stock-based compensation		286			174
Net long-term tax obligations		192			111
Deferred taxes		484			532
Postretirement benefit and pension obligations		58			323
Working capital changes:
Accounts receivable		1,825			1,118
Inventories		(4,088	)		(3,294	)
Other current assets		41			(1,393	)
Other current liabilities		(3,784	)		1,160
Prepaid pension expense		(2,933	)		(2,498	)
Other		85			347
Net cash (used in) provided by operating activities		(2,257	)		2,806
Cash flows from investing activities:
Purchases of property, plant and equipment		(4,663	)		(1,877	)
Software development		(718	)		(695	)
Net cash used in investing activities		(5,381	)		(2,572	)
Cash flows from financing activities:
Proceeds from borrowing		3,989			1,000
Debt repayments		(2,813	)		(1,534	)
Proceeds from common stock issued		37			40
Shares repurchased		(13	)		(934	)
Net cash (used in) provided by financing activities		1,200			(1,428	)
Effect of exchange rate changes on cash		238			(206	)
Net decrease in cash		(6,200	)		(1,400	)
Cash, beginning of period		15,582			14,827
Cash, end of period	$	9,382		$	13,427
Supplemental cash flow information:
Interest paid	$	502		$	428
Income taxes paid, net		1,180			1,221
Supplemental disclosure of non-cash activities:
Recognition of right-of-use assets		6,149			-
Recognition of operating lease liability		6,149			-

See Notes to Unaudited Consolidated Financial Statements

7

THE L. S. STARRETT COMPANY

Notes to Consolidated Financial Statements (unaudited)

December 31, 2019

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

The unaudited interim financial statements have been prepared by The L.S. Starrett Company (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial reporting.  Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements.  These unaudited financial statements, which, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation, should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019.  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 Company’s “fiscal year” begins July 1st and ends June 30th.

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, 2019 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements.

Note 2: 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, 2019. 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 the unallocated column in the table below. Other income and expense, including interest income and expense, and income taxes are excluded entirely from the table below. There were no significant changes in the segment operations or in the segment assets from the Annual Report. Financial results for each reportable segment are as follows (in thousands):

	North American Operations		International Operations		Unallocated			Total
Three Months ended December 31, 2019
Sales1	$	33,098	$	23,766	$	-		$	56,864
Operating Income (Loss)	$	2,547	$	1,725	$	(1,510	)	$	2,762
Three Months ended December 31, 2018
Sales2	$	34,628	$	21,904	$	-		$	56,532
Operating Income (Loss) 3	$	3,081	$	1,741	$	(1,374	)	$	3,448

1. Excludes $1,049 of North American segment intercompany sales to the International segment, and $3,855 of International segment intercompany sales to the North American segment.

2. Excludes $1,047 of North American segment intercompany sales to the International segment, and $3,744 of International segment intercompany sales to the North American segment.

3. As a result of the adoption of ASU 2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”, the respective line items in the Consolidated Statement of Operations for Fiscal 2019 have been reclassified.

	North American Operations		International Operations		Unallocated			Total
Six Months ended December 31, 2019
Sales1	$	64,106	$	44,872	$	-		$	108,978
Operating Income (Loss)	$	4,751	$	2,889	$	(3.433	)	$	4,207
Six Months ended December 31, 2018
Sales2	$	64,828	$	43,605	$	-		$	108,433
Operating Income (Loss) 3	$	3,453	$	3,860	$	(2,929	)	$	4,384

1. Excludes $2,016 of North American segment intercompany sales to the International segment, and $8,097 of International segment intercompany sales to the North American segment.

2. Excludes $2,180 of North American segment intercompany sales to the International segment, and $7,063 of International segment intercompany sales to the North American segment.

3. As a result of the adoption of ASU 2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”, the respective line items in the Consolidated Statement of Operations for Fiscal 2019 have been reclassified.

8

Note 3:  Revenue from Contracts with Customers

On July 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers, and all the related amendments (“ASC Topic 606”), using the modified retrospective method. In addition, the Company elected to apply certain of the permitted practical expedients within the revenue recognition guidance and make certain accounting policy elections, including those related to significant financing components, sales taxes and shipping and handling activities. Most of the changes resulting from the adoption of ASC Topic 606 on July 1, 2018 were changes in presentation within the Unaudited Consolidated Balance Sheet. Therefore, while the Company made adjustments to certain opening balances on its July 1, 2018 Unaudited Consolidated Balance Sheet, the Company made no adjustment to opening Retained Earnings.

The core principle of ASC Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods and 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 application of the FASB’s guidance on revenue recognition requires the Company to recognize the amount of revenue and consideration that the Company expects to receive in exchange for goods and services transferred to our customers. To do this, the Company applies the five-step model prescribed by the FASB, which requires us to: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the Company satisfies a performance obligation.

The Company accounts for a contract or purchase order when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when control of the product passes to the customer, which is upon shipment, unless otherwise specified within the customer contract or on the purchase order as delivery, and is recognized at the amount that reflects the consideration the Company expects to receive for the products sold, including various forms of discounts. When revenue is recorded, estimates of returns are made and recorded as a reduction of revenue. Contracts with customers are evaluated to determine if there are separate performance obligations related to timing of product shipment that will be satisfied in different accounting periods. When that is the case, revenue is deferred until each performance obligation is met. No revenue was deferred as of December 31, 2019. Purchase orders are of durations less than one year. As such, the Company applies the practical expedient in ASC paragraph 606-10-50-14 and does not disclose information about remaining performance obligations that have original expected durations of one year or less, for which work has not yet been performed.

Certain taxes assessed by governmental authorities on revenue producing transactions, such as value added taxes, are excluded from revenue and recorded on a net basis.

Performance Obligations

The Company’s primary source of revenue is derived from the manufacture and distribution of metrology tools and equipment, saw blades and related products sold to distributors. The Company recognizes revenue for sales to our customers when transfer of control of the related good or service has occurred. All of the Company’s revenue was recognized under the point in time approach for the three and six months ended December 31, 2019 and 2018. Contract terms with certain metrology equipment customers could result in products and services being transferred over time as a result of the customized nature of some of the Company’s products, together with contractual provisions in the customer contracts that provide the Company with an enforceable right to payment for performance completed to date; however, under typical terms, the Company does not have the right to consideration until the time of shipment from its manufacturing facilities or distribution centers, or until the time of delivery to its customers. If certain contracts in the future provide the Company with this enforceable right of payment, the timing of revenue recognition from products transferred to customers over time may be slightly accelerated compared to the Company’s right to consideration at the time of shipment or delivery.

The Company’s typical payment terms vary based on the customer, geographic region, and the type of goods and services in the contract or purchase order. The period of time between invoicing and when payment is due is typically not significant. Amounts billed and due from the Company’s customers are classified as accounts receivables on the Consolidated Balance Sheets. As the Company’s standard payment terms are usually less than one year, the Company has elected the practical expedient under ASC paragraph 606-10-32-18 to not assess whether a contract has a significant financing component.

9

The Company’s customers take delivery of goods, and they are recognized as revenue at the time of transfer of control to the customer, which is usually at the time of shipment, unless otherwise specified in the customer contract or purchase order. This determination is based on applicable shipping terms, as well as the consideration of other indicators, including timing of when the Company has a present right to payment, when physical possession of products is transferred to customers, when the customer has the asset, and provisions in contracts regarding customer acceptance.

While unit prices are generally fixed, the Company provides variable consideration for certain customers, typically in the form of promotional incentives at the time of sale. The Company utilizes the most likely amount to estimate the effect of uncertainty on the amount of variable consideration to which the Company would be entitled. The most likely amount method considers the single most likely amount from a range of possible consideration amounts. The most likely amounts are based upon the contractual terms of the incentives and historical experience with each customer. The Company records estimates for cash discounts, promotional rebates, and other promotional allowances in the period the related revenue is recognized (“Customer Credits”). The provision for Customer Credits is recorded as a reduction from gross sales and reserves for Customer Credits are presented within accrued expenses on the Unaudited Consolidated Balance Sheets. Actual Customer Credits have not differed materially from estimated amounts for each period presented. Amounts billed to customers for shipping and handling are included in net sales and costs associated with shipping and handling are included in cost of sales. The Company has concluded that its estimates of variable consideration are not constrained according to the definition within the new standard. Additionally, the Company applies the practical expedient in ASC paragraph 606-10-25-18B and accounts for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment activity, rather than a separate performance obligation.

With the adoption of ASC Topic 606, the Company reclassified certain amounts related to variable consideration. Under ASC Topic 606, the Company is required to present a refund liability and a return asset within the Unaudited Consolidated Balance Sheet, whereas in periods prior to adoption, the Company presented the estimated margin impact of expected returns as a contra-asset within accounts receivable. The changes in the refund liability are reported in net sales, and the changes in the return asset are reported in cost of sales in the Unaudited Consolidated Statements of Operations. As a result, the balance sheet presentation was adjusted beginning in Fiscal 2019. As of December 31, 2019, the balance of the return asset is $0.1 million and the balance of the refund liability is $0.2 million, and they are presented within prepaid expenses and other current assets and accrued expenses, respectively, on the Unaudited Consolidated Balance Sheet. The Company, in general, warrants its products against certain defects in material and workmanship when used as designed, for a period of up to 1 year. The Company does not sell extended warranties.

Contract Balances

Contract assets primarily relate to the Company’s rights to consideration for work completed but not billed at the reporting date on contracts with customers. Contract assets are transferred to receivables when the rights become unconditional. Contract liabilities primarily relate to contracts where advance payments or deposits have been received, but performance obligations have not yet been met, and therefore, revenue has not been recognized. The Company had no contract asset balances, but had contract liability balances of $0.6 million at December 31, 2019 located in Accounts Payable in the Consolidated Balance Sheets.

Disaggregation of Revenue

The Company operates in two reportable segments: North America and International. ASC Topic 606 requires further disaggregation of an entity’s revenue. In the following table, the Company's net sales by shipping origin are disaggregated accordingly for the three and six months ended December 31, 2019 and 2018 (in thousands):

	Three Months Ended				Six Months Ended
	12/31/19		12/31/18		12/31/19		12/31/18
North America
United States	$	31,085	$	32,413	$	59,708	$	60,360
Canada & Mexico		2,013		2,215		4,398		4,468
		33,098		34,628		64,106		64,828
International
Brazil		15,000		12,519		27,822		24,886
United Kingdom		5,372		5,657		10,603		11,673
China		1,653		2,052		3,167		3,761
Australia & New Zealand		1,741		1,676		3,280		3,285
		23,766		21,904		44,872		43,605
Total Sales	$	56,864	$	56,532	$	108,978	$	108,433

10

Note 4: Recent Accounting Pronouncements

The Company adopted, prospectively, Accounting Standards Codification 842, Leases ("ASC 842") July 1, 2019. As a result, the Company updated its significant accounting policies for leases below. Refer to Note 5 Commitments and Contingencies for additional information related to the Company's lease arrangements and the impact of the adoption of ASC 842 on the Company's Consolidated Financial Statements.

The Company has leased buildings, manufacturing equipment and autos that are classified as operating lease right-of use "ROU" assets and operating lease liabilities in the Company's Consolidated Balance Sheet. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date for leases exceeding 12 months. Minimum lease payments include only the fixed lease component of the agreement.

The Company estimates its incremental borrowing rate for its leases using a portfolio approach based on the respective weighted average term of the agreements. The estimation considers the market rates of the Company's outstanding borrowings and rates of external outstanding borrowings including market comparisons. Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of goods sold and sales, general and administrative expenses.

The Company adopted the standard beginning this fiscal year. The Company has elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized. The Company also elected the package of practical expedients permitted within the new standard, which among other things, allows the Company to carry forward historical lease classification. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage, are not included in the ROU assets or operating lease liabilities. These are expensed as incurred and recorded as variable lease expense. The Company determines if an arrangement is a lease at the inception of a contract. Operating lease ROU assets and operating lease liabilities are stated separately in the Consolidated Balance Sheet.

In preparation for adoption of the standard, the Company has implemented internal controls such as updated accounting policies and expanded data gathering procedures to comply with the additional disclosure requirements. The adoption had a material impact on the Company’s Consolidated Balance Sheets, but did not have a material impact on our Consolidated Statements of Operations or Consolidated Statements of Cash Flows (unaudited). The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.

Adoption of this standard resulted in the recognition of additional ROU assets and lease liabilities for operating leases and had the following impact to the reported results as of June 30, 2019 on our Consolidated Financial Statements (in thousands):

Consolidated Balance Sheet	As Reported June 30, 2019		New Lease Standard Adjustment		Adjusted July 1, 2019
Right-of-Use Asset		-	$	6,149	$	6,149
Current portion of operating lease obligations		-	$	1,798	$	1,798
Operating long-term lease obligations		-	$	4,351	$	4,351

The Company adopted ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715) in FY19: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost “NPBC”. This update requires that an employer disaggregate the service cost component from the other components of NPBC. In addition, only the service cost component will be eligible for capitalization. The Company amended the U.S. defined benefit pension plan “U.S. Plan” to freeze benefit accruals effective December 31, 2016. Consequently, the U.S. Plan is closed to new participants and current participants no longer earn additional benefits. The amendments in this update are required to be applied retrospectively for the presentation of the service cost component and the other components of NPBC in the Consolidated Statement of Operations and prospectively. The Consolidated Statement of Operations and related disclosure are recorded accordingly.

The retrospective reclassification to FY 2019 by quarter follows (in thousands):

	Increase (Decrease) to Net Income
	Q1 FY19			Q2 FY19			Q3 FY19			Q4 FY19			FY2019
Cost of goods sold	$	127		$	127		$	127		$	329		$	710
Selling, general and administrative		41			41			41			97			220
Other income (expense) net		(168	)		(168	)		(168	)		(426	)		(930	)
	$	-		$	-		$	-		$	-		$	-

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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. The Company declined the reclassification option upon adopting this standard July 1, 2019. The new standard did not have a material impact on the Company’s financial position and results of operations upon adoption.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and subsequent amendment to the guidance, ASU 2018-19 in November 2018. The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. The amendment will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2018-19 clarifies that receivables arising from operating leases are accounted for using lease guidance and not as financial instruments. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. This ASU is effective for annual periods beginning after December 15, 2019, and interim periods therein. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. The Company is currently evaluating the impact of the adoption of this standard on its 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 it 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 reporting periods and interim periods within those annual 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 our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement ('Topic 820'): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." The ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. The Company is currently evaluating the effect, if any, that ASU 2018-13 will have on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." ASU 2018-14 removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and added additional disclosures. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2020. The amendments in ASU 2018-14 must be applied on a retrospective basis. The Company is currently assessing the effect, if any, that ASU 2018-14 will have on its consolidated financial statements.

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Note 5: Commitments and Contingencies

Operating lease cost amounted to $0.6 million and $1.2 million for the three months and six months period ended December 31, 2019. As of December 31, 2019, the Company’s right-of-use assets, lease obligations and remaining cash commitment on these leases (in thousands):

	Right-of-Use Assets		Operating Lease Obligations		Remaining Cash Commitment
Operating leases	$	5,507	$	5,572	$	6,629

The Company has other operating lease agreements with commitments of less than one year or that are not significant. The Company elected the practical expedient option and as such, these lease payments are expensed as incurred. The Company’s weighted average discount rate and remaining term on lease liabilities is approximately 9.0% and 4.3 years. As of December 31, 2019, the Company’s financing leases are de minimis. The foreign exchange impact affecting the operating leases are de minimis.

The Company entered into $0.2 million and $0.3 million in operating lease commitments in the three and six months ended December 31, 2019.  At December 31, 2019, the Company had the following fiscal year minimum operating lease commitments (in thousands):

Six months ending December 31, 2019	Operating Lease
	Commitments
2020 remaining	$	1,215
2021		2,250
2022		905
2023		731
2024		703
Thereafter		825
Subtotal	$	6,629
Imputed interest		(1,057	)
Total		5,572

Note 6:  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 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 December 31, 2019, there were 20,000 stock options and 260,008 restricted stock units outstanding. In addition, there were 119,533 shares available for grant under the 2012 Stock Plan as of December 31, 2019.

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

No stock options were granted during the six months ended December 31, 2019 and 2018.

The weighted average contractual term for stock options outstanding as of December 31, 2019 was 3 years.  The aggregate intrinsic value of stock options outstanding as of December 31, 2019 was less than $0.1 million.  Stock options exercisable as of December 31, 2019 were 20,000 shares.  In recognizing stock compensation expense for the 2012 Stock Incentive Plan, management has estimated that there will be no forfeitures of options.

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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 110,500 RSU awards with a fair value of $5.53 per RSU granted during the six months ended December 31, 2019. There were 47,494 RSUs settled, and no RSUs forfeited during the six months ended December 31, 2019.  The aggregate intrinsic value of RSU awards outstanding as of December 31, 2019 was $1.5 million. As of December 31, 2019, 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 three and six month periods ended December 31, 2019 were $0.1 million and $0.2 million  and 2018 was $0.1 million, and $0.2 million respectively.  As of December 31, 2019, there was $2.2 million of total unrecognized compensation costs related to outstanding stock-based compensation arrangements. Of this cost, $1.7 million relates to performance based RSU grants that are not expected to be awarded. The remaining $0.5 million is expected to be recognized over a weighted average period of 2.4 years.

Note 7:   Inventories

Inventories consist of the following (in thousands):

	12/31/2019			6/30/2019
Raw material and supplies	$	29,006		$	26,106
Goods in process and finished parts		15,811			17,464
Finished goods		44,000			41,500
		88,817			85,070
LIFO Reserve		(23,707	)		(23,280	)
	$	65,110		$	61,790

LIFO inventories were $13.5 million and $9.8 million at December 31, 2019 and June 30, 2019, respectively, such amounts being approximately $23.7 million and $23.3 million, respectively, less than if determined on a FIFO basis.  The use of LIFO, as compared to FIFO, resulted in a $0.1 million and $0.4 million increase in cost of sales for the three- and six-months period ended December 31, 2019 compared to a $0.3 million and $0.6 million decrease for the three- and six-month periods ended December 31, 2018.

Note 8:   Goodwill and Intangible Assets

The Company’s acquisition of Bytewise in 2011 and a private software company in 2017 resulted in the recognition of goodwill totaling $4.7 million. 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 it carrying amount. Determining the fair value of a reporting unit is subjective and requires the use of significant estimates and assumptions.

The Company performed a qualitative analysis of its Bytewise reporting unit for its October 1, 2019 annual assessment of goodwill (commonly referred to as “Step Zero”). From a qualitative perspective, in evaluating whether it is more likely than not that the fair value of a reporting unit exceeds it 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 the Bytewise reporting unit exceeded it carrying amount as of October 1, 2019. If future results significantly vary from current estimates and related projections due to changes in industry or market conditions, the Company may be required to record impairment charges.

Determining the fair value of a reporting unit is subjective and requires the use of the significant estimates and assumptions. The Company estimates 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 key assumptions utilized in the discounted cash flow model includes 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 overall economic conditions. Any unfavorable material changes to these key assumptions could potentially impact the Company’s fair value determinations.

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The Company last performed a quantitative analysis for its February 1, 2019 annual assessment of goodwill associated with its purchase of a private software company. 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.  Under the quantitative analysis, the 2019 fair value assessment of the software development company’s goodwill exceeded the carrying amount.  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 will perform the annual Step one assessment as of February 1, 2020. 

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

	12/31/2019			6/30/2019
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		9,671			8,952
Other intangible assets		325			325
Total		20,604			19,885
Accumulated amortization		(12,494	)		(11,425	)
Total net balance	$	8,110		$	8,460

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 2020 and for each of the next five years and thereafter, is as follows (in thousands):

2020 (Remainder of year)	$	1,012
2021		1,761
2022		1,531
2023		1,179
2024		881
2025		673
Thereafter		1,073
	$	8,110

Note 9:  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 Company has a postretirement medical and life insurance benefit plan for U.S. employees. The Company also has defined contribution plans.

The U.K. defined benefit plan was closed to new entrants in fiscal 2009.

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.

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Net periodic benefit costs for all of the Company's defined benefit pension plans are recorded in Other income (expense) in the Consolidated Statements of Operations (unaudited) (in thousands):

	Three Months Ended						Six Months Ended
	12/31/2019			12/31/2018			12/31/2019			12/31/2018
Service cost	$	-		$	-		$	-		$	-
Interest cost		1,366			1,500			2,715			3,006
Expected return on plan assets		(1,309	)		(1,279	)		(2,603	)		(2,563	)
Amortization of net loss		9			7			19			14
	$	66		$	228		$	131		$	457

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

	Three Months Ended						Six Months Ended
	12/31/2019			12/31/2018			12/31/2019			12/31/2018
Service cost	$	19		$	18		$	37		$	36
Interest cost		60			67			120			133
Amortization of prior service credit		(135	)		(135	)		(269	)		(269	)
Amortization of net loss		21			8			42			15
	$	(35	)	$	(42	)	$	(70	)	$	(85	)

For the six-month period ended December 31, 2019, the Company contributed $2.3 million to the U.S. and $0.5 million to the UK pension plans. The Company estimates that it will contribute an additional $4.9 million for the remainder of fiscal 2020.

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 accumulated other comprehensive loss.

Note 10:   Debt

Debt is comprised of the following (in thousands):

	12/31/2019		6/30/2019
Short-term and current maturities
Loan and Security Agreement (Bytewise)	$	1,805	$	1,765
Brazil Loans		2,349		2,300
		4,154		4,065
Long-term debt (net of current portion)
Loan and Security Agreement (Bytewise)		1,728		2,641
Loan and Security Agreement (Line of Credit)		16,900		14,900
		18,628		17,541
	$	22,782	$	21,606

On December 31, 2019, the Company entered into the Tenth Amendment of its Loan and Security Agreement “Tenth Amendment”. Under the revised agreement, the credit limit for the Revolving Loan was increased from $23.0 million to $25.0 million. In addition, the Company entered into a new $10.0 million 5-year Term Loan with a fixed interest rate of 4.0%. The Company did not drawdown additional funds under the Tenth Amendment during the three-month period ended December 31, 2019. The new Term Loan will require interest only payments for 12 months and will convert to a term loan requiring both interest and principal payments commencing January 1, 2021. Also, under the Tenth Amendment, the credit limit for external borrowing was increased from $2.5 million to $5.0 million. The new Term Loan will be used to retire the outstanding balance, beginning in 2020, of approximately $3.5 million of the $15.5 million Bytewise term loan (November, 2011), resulting in an available balance of approximately $6.5 million.

The financial covenants under the new agreement are: 1) a Fixed Charge Coverage Ratio must exceed 1:15. The Fixed Charge Coverage Ratio is based upon EBITDA less dividends, unfunded Capital Expenditures, less required pension payments divided by the current portion of term loans, excluding, the Line of Credit and external debt; and 2) maintain consolidated Cash and available Credit Line of not less than $7.5 million on the closing date of any quarter. The Company was in compliance with the covenants of the new Loan Agreement as of December 31, 2019.

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The obligations under the Tenth Amendment are unsecured unless a triggering event occurs. A triggering event would be failure on a quarterly basis to meet the thresholds of the Fixed Charge Coverage Ratio described above.

Prior to Tenth Amendment, the Line of Credit and a Term Loan (“Credit Facility”), was last amended in January 2018.  Borrowings under the Line of Credit were not to exceed $23.0 million.  The Line of Credit had an interest rate of LIBOR plus 1.5%, and was to expire on April 30, 2021.  The Tenth Amendment moved the expiration date to April 30, 2022.    The effective interest rate on the Line of Credit under the Loan and Security Agreement for the three months ended December 31, 2019 and 2018 was 3.7% and 3.9%, respectively.  As of December 31, 2019, $16.9 million was outstanding on the Line of Credit.

Availability under the Line of Credit remains 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 of $25.0 million. A 0.25% commitment fee is charged on the unused portion of the Line of Credit.

The financial covenants of the previous Loan and Security Agreement “Credit Facility” were: 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 of not less than $10.0 million at any time. As of December 31, 2019, the Company was in compliance with all the financial debt covenants related to its Loan and Security Agreement.

The obligations under the previous Credit Facility were unsecured. In the event of certain triggering events, such obligations would have become secured by the assets of the Company’s domestic subsidiaries. A triggering event would have occurred when the Company failed to achieve any of the financial covenants noted above in consecutive quarters.

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 $3.5 million at December 31, 2019.

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. In February 2019, the Company’s Brazilian subsidiary, again, began refinancing debt among Santander, Bradesco and Brazil Bank as follows as of 12/31/2019 (in thousands):

Lending Institution	Interest Rate	Beginning Date	Ending Date	Outstanding Balance
Santander	5.30%	February 2019	February 2020	$	157
Bradesco	4.27%	March 2019	March 2020		124
Bradesco	4.00%	April 2019	April 2020		783
Brazil Bank	3.11%	September 2019	September 2020		500
Santander	10.76%	Overdraft	account		785
				$	2,349

Note 11:   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 enacted in the United States. The Act reduces the U.S. federal corporate tax rate from a graduated rate of 35% to a flat rate of 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. Other impacts of tax reform that became effective for the Company beginning in fiscal 2019 include the provisions related to Global Intangible Low Taxed Income (“GILTI”), Foreign Derived Intangible Income (“FDII”), Base Erosion Anti Abuse Tax (“BEAT”), and limitation on tax deductibility of interest expenses.

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The GILTI provisions are expected to have the most significant impact to the Company. Under the new law, U.S. taxes are imposed on foreign income in excess of a deemed return on tangible assets of its foreign subsidiaries. In general, this foreign income will effectively be taxed at an additional 10.5% tax rate reduced by any available current year foreign tax credits. The ability to benefit foreign tax credits may be limited under the GILTI rules as a result of the utilization of net operating losses, foreign sourced income and other potential limitations within the foreign tax credit calculation.

The tax expense for the second quarter of fiscal 2020 was $0.6 million on a profit before tax of $1.9 million (an effective tax rate of 33%). The tax expense for the second quarter of fiscal 2019 was $1.1 million on a profit before tax of $3.0 million (an effective tax rate of 36%). The tax rate for both fiscal 2020 and fiscal 2019 was higher than the U.S. statutory tax rate of 21% primarily due to the Global Intangible Low Taxed Income (“GILTI”) provisions, which became effective in fiscal 2019, and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%.

For the first half of fiscal 2020, tax expense was $1.1 million on profit before tax of $3.2 million (an effective tax rate of 35%). For the first half of fiscal 2019, tax expense was $1.4 million on profit before tax of $3.9 million (an effective tax rate of 36%). The tax rate for both fiscal 2020 and fiscal 2019 was higher than the U.S. statutory tax rate of 21% primarily due to the Global Intangible Low Taxed Income (“GILTI”) provisions, which became effective in fiscal 2019, and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%.

U.S. Federal tax returns for years prior to fiscal 2016 are generally no longer subject to review by tax authorities; however, tax loss carryforwards from earlier years are still subject to adjustment. As of December 31, 2019, 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 2013 – present. During the next twelve months, it is possible there will be a reduction of $0.1 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 U.S. federal and foreign 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 and certain state net operating loss carryforwards that will expire in the near future unutilized.

Note 12:  Contingencies

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

Note 13:  Facility Closure

The Company decided in January 2018 to significantly reduce the operations in its facility in Mt. Airy, North Carolina, and move most operations to a smaller building. The Company is also considering selling the facility with a lease back provision to accommodate remaining operations. While there are no definitive plans set yet, the Company believes that the sale could happen within the current fiscal year, yet based on past experience, the immediate sale is not probable. 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, 2019, the carrying value of the building is $2.1 million, and based on comparable sales data sourced from the Company’s real estate agent, the Company believes that the current fair value of the building exceeds its carrying value.

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ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Three months ended December 31, 2019 and December 31, 2018

Overview

Revenue was level in the second quarter 2019 as declines in the core precision hand tool and saw product lines were offset by a 12% growth in the high-end metrology group. Excluding the unfavorable impact of foreign exchange, particularly in Brazil, revenue would have increased 3%.

The North American precision hand tool business experienced a decline in sales as distributors continued to reduce previously accumulated inventory. The successful implementation of a new production planning system has improved fulfillment rates and reduced backorders providing shorter lead times to distributors.  International sales increased $1.9 million led by a 10% gain in Brazil.

Net sales increased $0.4 million or 1% from $56.5 million in fiscal 2019 to $56.9 million in fiscal 2020 with North America posting a decline of $1.5 million and international posting gains of $1.9 million. Operating income decreased $0.7 million as a $0.1 million increase in gross margin was more than offset by a $0.8 million increase in selling, general and administrative expenses.

Net Sales

North American sales decreased $1.5 million or 4% from $34.6 million in fiscal 2019 to $33.1 million in fiscal 2020 due primarily to lower order levels for precision hand tools from distributors who were continuing to reduce inventory levels.   International sales increased $1.9 million from $21.9 million in fiscal 2019 to $23.8 million in fiscal 2020 primarily due to increased volumes in Brazil and Scotland offsetting the impact of unfavorable currency fluctuations.

Gross Margin

Gross margin increased $0.1 million, but remained flat at 33% of sales in fiscal 2019 compared to 33% of sales in fiscal 2020.

North American gross margins decreased $0.4 million from $10.4 million or 30% of sales in fiscal 2019 to $10.0 million or 30% of sales in fiscal 2020 principally due to decreased sales volume of precision measuring tools and relatively stable fixed overhead.

International gross margins increased $0.5 million based on higher sales volume in Brazil.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $0.8 million or 5% from $15.1 million in fiscal 2019 to $15.9 million in fiscal 2019.

North American expenses, including Corporate, increased 0.3 million from $8.7 million in fiscal 2019 to $9.0 million in fiscal 2020 as a result of higher organizational cost and non-recurring expenses related to executive recruitment.

International expenses increased $0.5 million or 8% due principally to higher commissions related to increased sales in Brazil.

Other Income (expense)

Other expense increased $0.4 million principally due to unrealized foreign exchanges losses.

 Income Taxes 

The tax expense for the second quarter of fiscal 2020 was $0.6 million on a profit before tax of $1.9 million or an effective tax rate of 33%. The tax expense for the second quarter of fiscal 2019 was $1.1 million on a profit before tax of $3.0 million or an effective tax rate of 36%. The tax rate for both fiscal 2020 and fiscal 2019 was higher than the U.S. statutory tax rate of 21% primarily due to the Global Intangible Low Taxed Income (“GILTI”) provisions, which became effective in fiscal 2019, and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%.

19

Net Income

The Company recorded net income of $1.3 million or $0.18 per diluted share in the second quarter of fiscal 2020 compared to net income of $1.9 million or $0.27 per diluted share in fiscal 2019 principally due to a $0.7 million decrease in operating income.

Six months ended December 31, 2019 and December 31, 2018

Overview 

Net sales increased $0.6 million or 1% from $108.4 million in fiscal 2019 to $109.0 million in fiscal 2020. Operating income decreased from $4.4 million in fiscal 2019 to $4.2 million in fiscal 2020. The change was the result of a $1.1 million increase in gross margin offset by a $1.3 million increase in selling, general and administrative expenses.

Net Sales

North American sales decreased $0.7 million or 1% from $64.8 million in fiscal 2019 to $64.1 million in fiscal 2020.

International sales increased $1.2 million or 3% from $43.7 million in fiscal 2019 to $44.9 million in fiscal 2020 based upon continued growth in Brazil.

Gross Margin

Gross margin increased $1.1 million or 3% and improved to 33% of sales in fiscal 2020 from 32% of sales in fiscal 2019.

North American gross margins increased $1.3 million or 7.0% in fiscal 2020 compared to fiscal 2019 as increased sales volume of high margin metrology equipment offset lower sales of precision hand tools.

International gross margins decreased $0.2 million despite increased sales due to higher raw materials costs caused by the strengthening USD, particularly in Brazil. Customer price increases have been implemented, but slightly lagging the increase in costs.

Selling, General and Administrative Expenses

Selling, general and administrative expense increased $1.3 million or 4.0% from $30.8 million in fiscal 2019 to $32.1 million in fiscal 2020.

North American expenses, including Corporate, increased $0.4 million or 2% due primarily to non-recurring executive recruitment costs.

International expenses increased $0.9 million or 6% as increased selling and marketing spending of $1.2 million was offset by $0.3 million favorable currency adjustments related primarily to the weaker Brazilian Real.

Other Income (expense)

Other expense increased $0.6 million from fiscal 2019 to fiscal 2020 principally due to unrealized foreign exchange losses.                                                                           

Income Taxes

The tax expense for the first half of fiscal 2020 was $1.1 million on a profit before tax of $3.2 million or an effective tax rate of 35%. The tax expense for the first half of fiscal 2019 was $1.4 million on a profit before tax of $3.9 million or an effective tax rate of 36%. The tax rate for both fiscal 2020 and fiscal 2019 was higher than the U.S. statutory tax rate of 21% primarily due to the Global Intangible Low Taxed Income (“GILTI”) provisions, which became effective in fiscal 2019, and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%.

20

Net Income

The Company recorded net income of $2.0 million or $0.29 per diluted share in the first half of fiscal 2020 compared to net income of $2.5 million or $0.35 per diluted share in fiscal 2019 principally due to unrealized foreign exchange losses.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows (in thousands)	Six Months Ended
	12/31/2019			12/31/2018
Cash (used in) provided by operating activities	$	(2,257	)	$	2,806
Cash (used in) provided by investing activities		(5,381	)		(2,572	)
Cash (used in) provided by financing activities		1,200			(1,428	)
Effect of exchange rate changes on cash		238			(206	)
Net decrease in cash	$	(6,200	)	$	(1,400	)

Fiscal 2020 net cash flow for the three and six months periods ended December 31, 2019 decreased $5.1 million and $6.2 million compared to the three and six months periods ending December 31, 2018 principally due to higher inventory levels and increased capital equipment investments.

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 $25 million line of credit in connection with the Tenth Amendment of the Loan and Security Agreement, of which, $16.9 million was outstanding as of December 31, 2019.  In addition, the Company entered into a new $10.0 million 5-year Term Loan with a fixed interest rate of 4.0%.  The financial covenants under the new agreement are: 1) a Fixed Charge Coverage Ratio must exceed 1:15. The Fixed Charge Coverage Ratio is based upon EBITDA less dividends, unfunded Capital Expenditures, less required pension payments divided by the current portion of term loans, excluding, the Line of Credit and external debt; and 2) maintain consolidated Cash and available Credit Line of not less than $7.5 million on the closing date of any quarter. The Company was in compliance with the covenants of the amended Loan Agreement as of December 31, 2019.

The effective interest rate on the borrowings under the Loan and Security Agreement during the six months ended December 31, 2019 and 2018 was 3.7% and 3.9% respectively.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any material off-balance sheet arrangements as defined under the Securities and Exchange Commission rules.

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, 2019.

ITEM 4.             CONTROLS AND PROCEDURES

The Company's management, under the supervision and with the participation of the Company's President and Chief Executive Officer and Chief Financial Officer, has evaluated the Company's disclosure controls and procedures as of December 31, 2019, and they have concluded that our disclosure controls and procedures were effective as of such date. All information required to be filed in this report was recorded, processed, summarized and reported within the time period required by the rules and regulations of the Securities and Exchange Commission, and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2019, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

There have been no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the quarter ended December 31, 2019.

21

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, 2019. There have been no material changes from the factors disclosed in our Form 10-K for the year ended June 30, 2019.

22

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 December 31, 2019 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.

23

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	January 31, 2020	/S/R. Douglas A. Starrett
		Douglas A. Starrett - President and CEO (Principal Executive Officer)
Date	January 31, 2020	/S/R. John C. Tripp
		John C. Tripp - Treasurer and CFO (Principal Accounting Officer)

24

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: January 31, 2020	/S/	Douglas A. Starrett
		Douglas A. Starrett Chief Executive Officer

EX-31.B

EXHIBIT 31.b

CERTIFICATIONS

I, John C. Tripp, 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: January 31, 2020	/S/	John C. Tripp
		John C. Tripp Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATIONS

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

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

The Quarterly Report on Form 10-Q for the quarter ended December 31, 2019 (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	January 31, 2020	/S/ Douglas A. Starrett
		Douglas A. Starrett Chief Executive Officer
Date	January 31, 2020	/S/ John C. Tripp
		John C. Tripp 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

Note 9 - Pension and Post-retirement Benefits (Tables)

6 Months Ended

Dec. 31, 2019

Notes Tables

Schedule of Net Benefit Costs [Table Text Block]

	Three Months Ended						Six Months Ended
	12/31/2019			12/31/2018			12/31/2019			12/31/2018
Service cost	$	-		$	-		$	-		$	-
Interest cost		1,366			1,500			2,715			3,006
Expected return on plan assets		(1,309	)		(1,279	)		(2,603	)		(2,563	)
Amortization of net loss		9			7			19			14
	$	66		$	228		$	131		$	457

	Three Months Ended						Six Months Ended
	12/31/2019			12/31/2018			12/31/2019			12/31/2018
Service cost	$	19		$	18		$	37		$	36
Interest cost		60			67			120			133
Amortization of prior service credit		(135	)		(135	)		(269	)		(269	)
Amortization of net loss		21			8			42			15
	$	(35	)	$	(42	)	$	(70	)	$	(85	)

XML

Note 4 - Recent Accounting Pronouncements (Tables)

6 Months Ended

Dec. 31, 2019

Notes Tables

Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]

Consolidated Balance Sheet	As Reported June 30, 2019		New Lease Standard Adjustment		Adjusted July 1, 2019
Right-of-Use Asset		-	$	6,149	$	6,149
Current portion of operating lease obligations		-	$	1,798	$	1,798
Operating long-term lease obligations		-	$	4,351	$	4,351

	Increase (Decrease) to Net Income
	Q1 FY19			Q2 FY19			Q3 FY19			Q4 FY19			FY2019
Cost of goods sold	$	127		$	127		$	127		$	329		$	710
Selling, general and administrative		41			41			41			97			220
Other income (expense) net		(168	)		(168	)		(168	)		(426	)		(930	)
	$	-		$	-		$	-		$	-		$	-

XML

Note 13 - Facility Closure

6 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Restructuring and Related Activities Disclosure [Text Block]

Note

1

3

:  Facility Closure

The Company decided in

January 2018

to significantly reduce the operations in its facility in Mt. Airy, North Carolina, and move most operations to a smaller building. The Company is also considering selling the facility with a lease back provision to accommodate remaining operations. While there are

no

definitive plans set yet, the Company believes that the sale could happen within the current fiscal year, yet based on past experience, the immediate sale is

not

probable. 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, 2019,

the carrying value of the building is

$2.1

million, and based on comparable sales data sourced from the Company’s real estate agent, the Company believes that the current fair value of the building exceeds its carrying value.

XML

Note 8 - Goodwill and Intangible Assets (Details Textual) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2019	Jun. 30, 2019
Goodwill, Ending Balance	$ 4,668	$ 4,668
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 9 - Pension and Post-retirement Benefits - Net Periodic Costs (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Pension Plan [Member]
Service cost
Interest cost	1,366	1,500	2,715	3,006
Expected return on plan assets	(1,309)	(1,279)	(2,603)	(2,563)
Amortization of net loss	9	7	19	14
Total	66	228	131	457
Post Retirement Medical Plan [Member]
Service cost	19	18	37	36
Interest cost	60	67	120	133
Amortization of net loss	21	8	42	15
Total	(35)	(42)	(70)	(85)
Amortization of prior service credit	$ (135)	$ (135)	$ (269)	$ (269)

XML

Note 11 - Income Taxes (Details Textual) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018	Jun. 30, 2019
Additional Tax Rate On Foreign Income			10.50%
Income Tax Expense (Benefit), Total	$ 615	$ 1,065	$ 1,113	$ 1,423
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest, Total	$ 1,875	$ 2,991	$ 3,151	$ 3,933
Effective Income Tax Rate Reconciliation, Percent, Total	33.00%	36.00%	35.00%	36.00%
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent					21.00%
Deferred Tax Assets, Valuation Allowance, Total	$ 0		$ 0
Foreign Tax Authority [Member]
Effective Income Tax Rate Reconciliation, Foreign Income Tax Rate Differential, Percent					34.00%
Foreign Tax Authority [Member] | Secretariat of the Federal Revenue Bureau of Brazil [Member]
Unrecognized Tax Benefits, Ending Balance	$ 100		$ 100

XML

Consolidated Balance Sheets (Current period Unaudited) - USD ($) $ in Thousands	Dec. 31, 2019	Jun. 30, 2019
ASSETS
Cash	$ 9,382	$ 15,582
Accounts receivable (less allowance for doubtful accounts of $685 and $685, respectively)	33,992	35,980
Inventories	65,110	61,790
Prepaid expenses and other current assets	6,420	6,623
Total current assets	114,904	119,975
Property, plant and equipment, net	38,364	36,679
Right of use assets	5,507
Taxes receivable	1,706	1,666
Deferred tax assets, net	18,145	18,639
Intangible assets, net	8,110	8,460
Goodwill	4,668	4,668
Total assets	191,404	190,087
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current maturities of debt	4,154	4,065
Current lease liability	2,027
Accounts payable	11,730	12,881
Accrued expenses	7,879	8,699
Accrued compensation	4,819	7,035
Total current liabilities	30,609	32,680
Other tax obligations	2,746	2,587
Long-term lease liability	3,544
Long-term debt, net of current portion	18,628	17,541
Postretirement benefit and pension obligations	51,258	53,900
Total liabilities	106,785	106,708
Stockholders' equity:
Additional paid-in capital	55,522	55,276
Retained earnings	82,525	80,487
Accumulated other comprehensive loss	(60,389)	(59,281)
Total stockholders' equity	84,619	83,379
Total liabilities and stockholders’ equity	191,404	190,087
Common Class A [Member]
Stockholders' equity:
Common stock	6,280	6,207
Common Class B [Member]
Stockholders' equity:
Common stock	$ 681	$ 690

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
Balance at Jun. 30, 2018	$ 6,302	$ 720	$ 55,641	$ 74,368	$ (49,160)	$ 87,871
Total comprehensive income (loss)				584	(1,571)	(987)
Repurchase of shares		(2)	(11)			(13)
Stock-based compensation	17		90			107
Conversion	10	(10)
Issuance of stock		2	10			12
Transfer of historical translation adjustment				40	(40)
Balance at Sep. 30, 2018	6,329	710	55,730	74,992	(50,771)	86,990
Balance at Jun. 30, 2018	6,302	720	55,641	74,368	(49,160)	87,871
Total comprehensive income (loss)						1,635
Balance at Dec. 31, 2018	6,182	710	55,051	76,918	(50,075)	88,786
Balance at Sep. 30, 2018	6,329	710	55,730	74,992	(50,771)	86,990
Total comprehensive income (loss)				1,926	696	2,622
Repurchase of shares	(154)	(1)	(766)			(921)
Stock-based compensation	2		65			67
Conversion	5	(5)
Issuance of stock		6	22			28
Balance at Dec. 31, 2018	6,182	710	55,051	76,918	(50,075)	88,786
Translation loss					(49,841)
Pension and postretirement plans, net of taxes					(234)
Total					(50,075)
Total						(59,281)
Balance at Jun. 30, 2019	6,207	690	55,276	80,487	(59,281)	83,379
Total comprehensive income (loss)				778	(3,759)	(2,981)
Repurchase of shares		(2)	(8)			(10)
Stock-based compensation	57		157			214
Conversion	6	(6)
Balance at Sep. 30, 2019	6,270	682	55,425	81,265	(63,040)	80,602
Balance at Jun. 30, 2019	6,207	690	55,276	80,487	(59,281)	83,379
Total comprehensive income (loss)						930
Balance at Dec. 31, 2019	6,280	681	55,522	82,525	(60,389)	84,619
Balance at Sep. 30, 2019	6,270	682	55,425	81,265	(63,040)	80,602
Total comprehensive income (loss)				1,260	2,651	3,911
Repurchase of shares			(3)			(3)
Stock-based compensation	2		70			72
Conversion	8	(8)
Issuance of stock		7	30			37
Balance at Dec. 31, 2019	6,280	681	55,522	82,525	(60,389)	84,619
Translation loss					(50,624)
Pension and postretirement plans, net of taxes					(9,765)
Total					$ (60,389)	$ (60,389)

XML

Note 13 - Facility Closure (Details Textual) - USD ($) $ in Thousands	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2019	Jun. 30, 2019
Property, Plant and Equipment, Net, Ending Balance		$ 38,364	$ 36,679
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		$ 2,100

XML

Note 9 - Pension and Post-retirement Benefits

6 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Pension and Other Postretirement Benefits Disclosure [Text Block]

Note

9

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

The U.K. defined benefit plan was closed to new entrants in fiscal

2009.

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.

Net periodic benefit costs for all of the Company's defined benefit pension plans are recorded in Other income (expense) in the Consolidated Statements of Operations (unaudited) (in thousands):

	Three Months Ended						Six Months Ended
	12/31/2019			12/31/2018			12/31/2019			12/31/2018
Service cost	$	-		$	-		$	-		$	-
Interest cost		1,366			1,500			2,715			3,006
Expected return on plan assets		(1,309	)		(1,279	)		(2,603	)		(2,563	)
Amortization of net loss		9			7			19			14
	$	66		$	228		$	131		$	457

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

	Three Months Ended						Six Months Ended
	12/31/2019			12/31/2018			12/31/2019			12/31/2018
Service cost	$	19		$	18		$	37		$	36
Interest cost		60			67			120			133
Amortization of prior service credit		(135	)		(135	)		(269	)		(269	)
Amortization of net loss		21			8			42			15
	$	(35	)	$	(42	)	$	(70	)	$	(85	)

For the

six

-month period ended

December 31, 2019,

the Company contributed

$2.3

million to the U.S. and

$0.5

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

$4.9

million for the remainder of fiscal

2020.

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 accumulated other comprehensive loss.

XML

Note 5 - Commitments and Contingencies

6 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

Note

5:

Commitments and Contingencies

Operating lease cost amounted to

$0.6

million and

$1.2

million for the

three

months and

six

months period ended

December 31, 2019.

As of

December 31, 2019,

the Company’s right-of-use assets, lease obligations and remaining cash commitment on these leases (in thousands):

	Right-of- U se Assets		Operating Lease Obligations		Remaining Cash Commitment
Operating leases	$	5,507	$	5,572	$	6,629

The Company has other operating lease agreements with commitments of less than

one

year or that are

not

significant. The Company elected the practical expedient option and as such, these lease payments are expensed as incurred. The Company’s weighted average discount rate and remaining term on lease liabilities is approximately

9.0%

and

4.3

years. As of

December 31, 2019,

the Company’s financing leases are de minimis. The foreign exchange impact affecting the operating leases are de minimis.

The Company entered into

$0.2

million and

$0.3

million in operating lease commitments in the

three

and

six

months ended

December 31, 2019. 

At

December 31, 2019,

the Company had the following fiscal year minimum operating lease commitments (in thousands):

Six months ending December 3 1 , 2019	Operating Lease
	Commitments
2020 remaining	$	1,215
2021		2,250
2022		905
2023		731
2024		703
Thereafter		825
Subtotal	$	6,629
Imputed interest		(1,057	)
Total		5,572

XML

Note 2 - Segment Information - Summary of Financial Results for Reportable Segments (Details) - USD ($)	3 Months Ended				6 Months Ended
	Dec. 31, 2019		Dec. 31, 2018		Dec. 31, 2019		Dec. 31, 2018
Sales	$ 56,864,000	[1]	$ 56,532,000	[2]	$ 108,978,000	[3]	$ 108,433,000	[4]
Operating Income (Loss)	2,762,000		3,448,000	[5]	4,207,000		4,384,000	[5]
North American Segment [Member]
Sales	33,098,000	[1]	34,628,000	[2]	64,106,000	[3]	64,828,000	[4]
Operating Income (Loss)	2,547,000		3,081,000	[5]	4,751,000		3,453,000	[5]
International [Member]
Sales	23,766,000	[1]	21,904,000	[2]	44,872,000	[3]	43,605,000	[4]
Operating Income (Loss)	1,725,000		1,741,000	[5]	2,889,000		3,860,000	[5]
Unallocated [Member]
Sales		[1]		[2]		[3]		[4]
Operating Income (Loss)	$ (1,510,000)		$ (1,374,000)	[5]	$ (3,433)		$ (2,929,000)	[5]

[1] Excludes $1,049 of North American segment intercompany sales to the International segment, and $3,855 of International segment intercompany sales to the North American segment.

[2] Excludes $1,047 of North American segment intercompany sales to the International segment, and $3,744 of International segment intercompany sales to the North American segment.

[3] Excludes $2,016 of North American segment intercompany sales to the International segment, and $8,097 of International segment intercompany sales to the North American segment.

[4] Excludes $2,180 of North American segment intercompany sales to the International segment, and $7,063 of International segment intercompany sales to the North American segment.

[5] As a result of the adoption of ASU 2017-07 "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost", the respective line items in the Consolidated Statement of Operations for Fiscal 2019 have been reclassified.

XML

Note 5 - Commitments and Contingencies (Details Textual) $ in Millions	3 Months Ended	6 Months Ended
	Dec. 31, 2019 USD ($)	Dec. 31, 2019 USD ($)
Operating Lease, Cost	$ 0.6	$ 1.2
Operating Lease, Weighted Average Discount Rate, Percent	9.00%	9.00%
Operating Lease, Weighted Average Remaining Lease Term	4 years 109 days	4 years 109 days
Operating Lease, Payments	$ 0.2	$ 0.3

XML

Note 7 - Inventories (Details Textual) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018	Jun. 30, 2019
LIFO Inventory Amount	$ 13.5		$ 13.5		$ 9.8
Inventory Difference Using FIFO Basis	23.7		23.7		$ 23.3
Cost of Sales [Member]
Inventory, LIFO Reserve, Effect on Income, Net, Total	$ 0.1	$ (0.3)	$ 0.4	$ (0.6)

XML

Note 10 - Debt

6 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Debt Disclosure [Text Block]

Note

10

:   Debt

Debt is comprised of the following (in thousands):

	12/31/2019		6/30/2019
Short-term and current maturities
Loan and Security Agreement (Bytewise)	$	1,805	$	1,765
Brazil Loans		2,349		2,300
		4,154		4,065
Long-term debt (net of current portion)
Loan and Security Agreement (Bytewise)		1,728		2,641
Loan and Security Agreement (Line of Credit)		16,900		14,900
		18,628		17,541
	$	22,782	$	21,606

On

December 31, 2019,

the Company entered into the Tenth Amendment of its Loan and Security Agreement “Tenth Amendment”. Under the revised agreement, the credit limit for the Revolving Loan was increased from

$23.0

million to

$25.0

million. In addition, the Company entered into a new

$10.0

million

5

-year Term Loan with a fixed interest rate of

4.0%.

 The Company did

not

drawdown additional funds under the Tenth Amendment during the

three

-month period ended

December 31, 2019. 

The new Term Loan will require interest only payments for

12

months and will convert to a term loan requiring both interest and principal payments commencing

January 1, 2021. 

Also, under the Tenth Amendment, the credit limit for external borrowing was increased from

$2.5

million to

$5.0

million. The new Term Loan will be used to retire the outstanding balance, beginning in

2020,

of approximately

$3.5

million of the

$15.5

million Bytewise term loan (

November, 2011),

resulting in an available balance of approximately

$6.5

million.

The financial covenants under the new agreement are:

1

) a Fixed Charge Coverage Ratio must exceed

1:15.

The Fixed Charge Coverage Ratio is based upon EBITDA less dividends, unfunded Capital Expenditures, less required pension payments divided by the current portion of term loans, excluding, the Line of Credit and external debt; and

2

) maintain consolidated Cash and available Credit Line of

not

less than

$7.5

million on the closing date of any quarter. The Company was in compliance with the covenants of the new Loan Agreement as of

December 31, 2019.

The obligations under the Tenth Amendment are unsecured unless a triggering event occurs. A triggering event would be failure on a quarterly basis to meet the thresholds of the Fixed Charge Coverage Ratio described above.

Prior to Tenth Amendment, the Line of Credit and a Term Loan (“Credit Facility”), was last amended in

January 2018. 

Borrowings under the Line of Credit were

not

to exceed

$23.0

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

1.5%,

and was to expire on

April 30, 2021. 

The Tenth Amendment moved the expiration date to

April 30, 2022.    

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

three

months ended

December 31, 2019

and

2018

was

3.7%

and

3.9%,

respectively.  As of

December 31, 2019,

$16.9

million was outstanding on the Line of Credit.

Availability under the Line of Credit remains 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 of

$25.0

million. A

0.25%

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

The financial covenants of the previous Loan and Security Agreement “Credit Facility” were:

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 of

not

less than

$10.0

million at any time. As of

December 31, 2019,

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

The obligations under the previous Credit Facility were unsecured. In the event of certain triggering events, such obligations would have become secured by the assets of the Company’s domestic subsidiaries. A triggering event would have occurred when the Company failed to achieve any of the financial covenants noted above in consecutive quarters.

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

$3.5

million at

December 31, 2019.

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. In

February 2019,

the Company’s Brazilian subsidiary, again, began refinancing debt among Santander, Bradesco and Brazil Bank as follows as of

12/31/2019

(in thousands):

Lending Institution	Interest Rate	Beginning Date	Ending Date	Outstanding Balance
Santander	5.30%	February 2019	February 2020	$	157
Bradesco	4.27%	March 2019	March 2020		124
Bradesco	4.00%	April 2019	April 2020		783
Brazil Bank	3.11%	September 2019	September 2020		500
Santander	10.76%	Overdraft	account		785
				$	2,349

XML

Note 6 - Stock-based Compensation

6 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

Note

6

:  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 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

December 31, 2019,

there were

20,000

stock options and

260,008

restricted stock units outstanding. In addition, there were

119,533

shares available for grant under the

2012

Stock Plan as of

December 31, 2019.

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

No

stock options were granted during the

six

months ended

December 31, 2019

and

2018.

The weighted average contractual term for stock options outstanding as of

December 31, 2019

was

3

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

December 31, 2019

was less than

$0.1

million.  Stock options exercisable as of

December 31, 2019

were

20,000

shares.  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

110,500

RSU awards with a fair value of

$5.53

per RSU granted during the

six

months ended

December 31, 2019.

There were

47,494

RSUs settled, and

no

RSUs forfeited during the

six

months ended

December 31, 2019. 

The aggregate intrinsic value of RSU awards outstanding as of

December 31, 2019

was

$1.5

million. As of

December 31, 2019,

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

three

and

six

month periods ended

December 31, 2019

were

$0.1

million and

$0.2

million  and

2018

was

$0.1

million, and

$0.2

million respectively.  As of

December 31, 2019,

there was

$2.2

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

$1.7

million relates to performance based RSU grants that are

not

expected to be awarded. The remaining

$0.5

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

2.4

years.

XML

Note 6 - Stock-based Compensation (Details Textual) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended		6 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018	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	119,533		119,533
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term			3 years
Share-based Payment Arrangement, Expense	$ 0.1	$ 0.1	$ 0.2	$ 0.2
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	$ 0.5		$ 0.5
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition			2 years 146 days
Share-based Payment Arrangement, 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		20,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	$ 0.1		$ 0.1
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	20,000		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, Options, Outstanding, Number, Ending Balance	260,008		260,008
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross				0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value	$ 1.5		$ 1.5
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			110,500
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value			$ 5.53
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period			47,494
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Forfeited in Period			0
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	2.2		$ 2.2
Portion Relating to RSU Grants Not Expected to be Awarded [Member] | The 2012 Stock Incentive Plan [Member]
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	$ 1.7		$ 1.7
Minimum [Member] | Share-based Payment Arrangement, 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] | Share-based Payment Arrangement, 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

XML

Note 2 - Segment Information (Details Textual) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)
Number of Reportable Segments			2
Intersegment Eliminations [Member] | North American Segment [Member]
Revenue from Contract with Customer, Including Assessed Tax	$ 1,049	$ 1,047	$ 2,016	$ 2,180
Intersegment Eliminations [Member] | International Segment [Member]
Revenue from Contract with Customer, Including Assessed Tax	$ 3,855	$ 3,744	$ 8,097	$ 7,063

XML

Note 4 - Recent Accounting Pronouncements - Consolidated Statement of Financial Condition (Details) - USD ($) $ in Thousands	3 Months Ended					6 Months Ended		12 Months Ended
	Dec. 31, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Dec. 31, 2019	Dec. 31, 2018	Jun. 30, 2019	Jul. 01, 2019
Operating leases, Right-of-Use Assets	$ 5,507					$ 5,507			$ 6,149
Current portion of operating lease obligations	2,027					2,027			1,798
Operating long-term lease obligations	3,544					3,544			4,351
Cost of goods sold	38,228			$ 37,984		72,639	$ 73,226
Selling, general and administrative	15,874			15,100		32,132	30,823
Other income (expense) net	$ (887)			(457)		$ (1,056)	$ (451)
Accounting Standards Update 2016-02 [Member]
Operating leases, Right-of-Use Assets									6,149
Current portion of operating lease obligations									1,798
Operating long-term lease obligations									$ 4,351
Accounting Standards Update 2017-07 [Member] | Restatement Adjustment [Member]
Cost of goods sold		329	$ 127	127	$ 127			710
Selling, general and administrative		97	41	41	41			220
Other income (expense) net		$ (426)	$ (168)	$ (168)	$ (168)			$ (930)

XML

Note 5 - Commitments and Contingencies (Tables)

6 Months Ended

Dec. 31, 2019

Notes Tables

Assets And Liabilities Lessee [Table Text Block]

	Right-of- U se Assets		Operating Lease Obligations		Remaining Cash Commitment
Operating leases	$	5,507	$	5,572	$	6,629

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

Six months ending December 3 1 , 2019	Operating Lease
	Commitments
2020 remaining	$	1,215
2021		2,250
2022		905
2023		731
2024		703
Thereafter		825
Subtotal	$	6,629
Imputed interest		(1,057	)
Total		5,572

XML

Significant Accounting Policies (Policies)

6 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

The unaudited interim financial statements have been prepared by The L.S. Starrett Company (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial reporting.  Accordingly, they do

not

include all of the information and notes required by generally accepted accounting principles for complete financial statements.  These unaudited financial statements, which, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation, should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form

10

-K for the year ended

June 30, 2019.  

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 Company’s “fiscal year” begins

July

1st

and ends

June

30th.

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, 2019

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

XML

Note 10 - Debt (Tables)

6 Months Ended

Dec. 31, 2019

Notes Tables

Schedule of Debt [Table Text Block]

	12/31/2019		6/30/2019
Short-term and current maturities
Loan and Security Agreement (Bytewise)	$	1,805	$	1,765
Brazil Loans		2,349		2,300
		4,154		4,065
Long-term debt (net of current portion)
Loan and Security Agreement (Bytewise)		1,728		2,641
Loan and Security Agreement (Line of Credit)		16,900		14,900
		18,628		17,541
	$	22,782	$	21,606

Schedule of Short-term Debt [Table Text Block]

Lending Institution	Interest Rate	Beginning Date	Ending Date	Outstanding Balance
Santander	5.30%	February 2019	February 2020	$	157
Bradesco	4.27%	March 2019	March 2020		124
Bradesco	4.00%	April 2019	April 2020		783
Brazil Bank	3.11%	September 2019	September 2020		500
Santander	10.76%	Overdraft	account		785
				$	2,349

XML

Note 10 - Debt - Short-term Debt (Details) - Notes Payable to Banks [Member] $ in Thousands	Dec. 31, 2019 USD ($)
Outstanding Balance	$ 2,349
Five Point Three Percent Short Term Loan [Member] | Santander Bank [Member]
Interest Rate	5.30%
Outstanding Balance	$ 157
Four Point Two Seven Percent Short Term Loan [Member] | Bradesco Bank [Member]
Interest Rate	4.27%
Outstanding Balance	$ 124
Four Point Zero Percent Short Term Loan [Member] | Bradesco Bank [Member]
Interest Rate	4.00%
Outstanding Balance	$ 783
Three Point One One Percent Short Term Loan Member | Brazil Bank Member
Interest Rate	3.11%
Outstanding Balance	$ 500
Ten Point Seven Six Percent Short Term Loan [Member] | Santander Bank [Member]
Interest Rate	10.76%
Outstanding Balance	$ 785

XML

Note 7 - Inventories - Components of Inventories (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Jun. 30, 2019
Raw material and supplies	$ 29,006	$ 26,106
Goods in process and finished parts	15,811	17,464
Finished goods	44,000	41,500
Total, before LIFO Reserve	88,817	85,070
LIFO Reserve	(23,707)	(23,280)
Total	$ 65,110	$ 61,790

XML

Note 9 - Pension and Post-retirement Benefits (Details Textual) $ in Millions	6 Months Ended
	Dec. 31, 2019 USD ($)
Defined Benefit Plan, Expected Future Employer Contributions, Remainder of Fiscal Year	$ 4.9
Pension Plan [Member] | UNITED STATES
Defined Benefit Plan, Plan Assets, Contributions by Employer	2.3
Pension Plan [Member] | Foreign Plan [Member]
Defined Benefit Plan, Plan Assets, Contributions by Employer	$ 0.5

XML

Consolidated Balance Sheets (Current period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Dec. 31, 2019	Jun. 30, 2019
Allowance for doubtful accounts	$ 685	$ 685
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)	6,279,632	6,206,525
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)	681,219	689,577

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Cash flows from operating activities:
Net income	$ 2,038	$ 2,510
Non-cash operating activities:
Depreciation	2,430	2,561
Amortization	1,109	1,155
Stock-based compensation	286	174
Net long-term tax obligations	192	111
Deferred taxes	484	532
Postretirement benefit and pension obligations	58	323
Working capital changes:
Accounts receivable	1,825	1,118
Inventories	(4,088)	(3,294)
Other current assets	41	(1,393)
Other current liabilities	(3,784)	1,160
Prepaid pension expense	(2,933)	(2,498)
Other	85	347
Net cash (used in) provided by operating activities	(2,257)	2,806
Cash flows from investing activities:
Purchases of property, plant and equipment	(4,663)	(1,877)
Software development	(718)	(695)
Net cash used in investing activities	(5,381)	(2,572)
Cash flows from financing activities:
Proceeds from borrowing	3,989	1,000
Debt repayments	(2,813)	(1,534)
Proceeds from common stock issued	37	40
Shares repurchased	(13)	(934)
Net cash (used in) provided by financing activities	1,200	(1,428)
Effect of exchange rate changes on cash	238	(206)
Net decrease in cash	(6,200)	(1,400)
Cash, beginning of period	15,582	14,827
Cash, end of period	9,382	13,427
Supplemental cash flow information:
Interest paid	502	428
Income taxes paid, net	1,180	1,221
Supplemental disclosure of non-cash activities:
Recognition of right-of-use assets	6,149
Recognition of operating lease liability	$ 6,149

XML

Note 3 - Revenue From Contracts With Customers (Details Textual) $ in Thousands		6 Months Ended
	Jul. 01, 2018 USD ($)	Dec. 31, 2019 USD ($)
Adjustments to Additional Paid in Capital, Dividends in Excess of Retained Earnings	$ 0
Contract with Customer, Asset, after Allowance for Credit Loss, Total		$ 0
Contract with Customer, Liability, Total		$ 600
Number of Reportable Segments		2
Prepaid Expenses and Other Current Assets [Member]
Contract with Customer, Right to Recover Product, Total		$ 100
Accrued Expenses [Member]
Contract with Customer, Refund Liability, Total		$ 200

XML

Note 5 - Commitments and Contingencies - Operating Leases (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Jul. 01, 2019	Jun. 30, 2019
Operating leases, Right-of-Use Assets	$ 5,507	$ 6,149
Operating leases. Operating Lease Obligations	5,572
Operating leases, Remaining Cash Commitment	$ 6,629

XML

Note 12 - Contingencies

6 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note

1

2

:  Contingencies

The Company is involved in certain legal matters, which arise, in the normal course of business. These matters are

not

expected to have a material impact on the Company’s financial condition, results of operations or cash flows.

XML

Note 8 - Goodwill and Intangible Assets

6 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

Note

8

:   Goodwill and Intangible Assets

The Company’s acquisition of Bytewise in

2011

and a private software company in

2017

resulted in the recognition of goodwill totaling

$4.7

million. 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 it carrying amount. Determining the fair value of a reporting unit is subjective and requires the use of significant estimates and assumptions.

The Company performed a qualitative analysis of its Bytewise reporting unit for its

October 1, 2019

annual assessment of goodwill (commonly referred to as “Step Zero”). From a qualitative perspective, in evaluating whether it is more likely than

not

that the fair value of a reporting unit exceeds it 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 the Bytewise reporting unit exceeded it carrying amount as of

October 1, 2019.

If future results significantly vary from current estimates and related projections due to changes in industry or market conditions, the Company

may

be required to record impairment charges.

Determining the fair value of a reporting unit is subjective and requires the use of the significant estimates and assumptions. The Company estimates 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 key assumptions utilized in the discounted cash flow model includes 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 overall economic conditions. Any unfavorable material changes to these key assumptions could potentially impact the Company’s fair value determinations.

The Company last performed a quantitative analysis for its

February 1, 2019

annual assessment of goodwill associated with its purchase of a private software company. 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.  Under the quantitative analysis, the

2019

fair value assessment of the software development company’s goodwill exceeded the carrying amount.  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 will perform the annual Step

one

assessment as of 

February 1, 2020. 

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

	12/31/201 9			6/30/201 9
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		9,671			8,952
Other intangible assets		325			325
Total		20,604			19,885
Accumulated amortization		(12,494	)		(11,425	)
Total net balance	$	8,110		$	8,460

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

2020

and for each of the next

five

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

2020 (Remainder of year)	$	1,012
2021		1,761
2022		1,531
2023		1,179
2024		881
2025		673
Thereafter		1,073
	$	8,110

XML

Note 4 - Recent Accounting Pronouncements

6 Months Ended

Dec. 31, 2019

Notes to Financial Statements

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

Note

4:

Recent A

ccounting Pronouncements

The Company adopted, prospectively, Accounting Standards Codification

842,

Leases ("ASC

842"

)

July 1, 2019.

As a result, the Company updated its significant accounting policies for leases below. Refer to Note

5

Commitments and Contingencies for additional information related to the Company's lease arrangements and the impact of the adoption of ASC

842

on the Company's Consolidated Financial Statements.

The Company has leased buildings, manufacturing equipment and autos that are classified as operating lease right-of use "ROU" assets and operating lease liabilities in the Company's Consolidated Balance Sheet. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date for leases exceeding

12

months. Minimum lease payments include only the fixed lease component of the agreement.

The Company estimates its incremental borrowing rate for its leases using a portfolio approach based on the respective weighted average term of the agreements. The estimation considers the market rates of the Company's outstanding borrowings and rates of external outstanding borrowings including market comparisons. Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of goods sold and sales, general and administrative expenses.

The Company adopted the standard beginning this fiscal year. The Company has elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized. The Company also elected the package of practical expedients permitted within the new standard, which among other things, allows the Company to carry forward historical lease classification. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage, are

not

included in the ROU assets or operating lease liabilities. These are expensed as incurred and recorded as variable lease expense. The Company determines if an arrangement is a lease at the inception of a contract. Operating lease ROU assets and operating lease liabilities are stated separately in the Consolidated Balance Sheet.

In preparation for adoption of the standard, the Company has implemented internal controls such as updated accounting policies and expanded data gathering procedures to comply with the additional disclosure requirements. The adoption had a material impact on the Company’s Consolidated Balance Sheets, but did

not

have a material impact on our Consolidated Statements of Operations or Consolidated Statements of Cash Flows (unaudited). The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.

Adoption of this standard resulted in the recognition of additional ROU assets and lease liabilities for operating leases and had the following impact to the reported results as of

June 30, 2019

on our Consolidated Financial Statements (in thousands):

Consolidated Balance Sheet	As Reported June 30, 2019		New Lease Standard Adjustment		Adjusted July 1, 2019
Right-of-Use Asset		-	$	6,149	$	6,149
Current portion of operating lease obligations		-	$	1,798	$	1,798
Operating long-term lease obligations		-	$	4,351	$	4,351

The Company adopted ASU

No.

2017

-

07,

Compensation-Retirement Benefits (Topic

715

) in

FY19:

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost “NPBC”. This update requires that an employer disaggregate the service cost component from the other components of NPBC. In addition, only the service cost component will be eligible for capitalization. The Company amended the U.S. defined benefit pension plan “U.S. Plan” to freeze benefit accruals effective

December 31, 2016.

Consequently, the U.S. Plan is closed to new participants and current participants

no

longer earn additional benefits. The amendments in this update are required to be applied retrospectively for the presentation of the service cost component and the other components of NPBC in the Consolidated Statement of Operations and prospectively. The Consolidated Statement of Operations and related disclosure are recorded accordingly.

The retrospective reclassification to FY

2019

by quarter follows (in thousands):

	Increase (Decrease) to Net Income
	Q1 FY19			Q2 FY19			Q3 FY19			Q4 FY19			FY2019
Cost of goods sold	$	127		$	127		$	127		$	329		$	710
Selling, general and administrative		41			41			41			97			220
Other income (expense) net		(168	)		(168	)		(168	)		(426	)		(930	)
	$	-		$	-		$	-		$	-		$	-

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. The Company declined the reclassification option upon adopting this standard

July 1, 2019.

The new standard did

not

have a material impact on the Company’s financial position and results of operations upon adoption.

In

June 2016,

the FASB issued ASU

2016

-

13,

“Financial Instruments - Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments,” and subsequent amendment to the guidance, ASU

2018

-

19

in

November 2018.

The standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are

not

measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. The amendment will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets

not

excluded from the scope that have the contractual right to receive cash. ASU

2018

-

19

clarifies that receivables arising from operating leases are accounted for using lease guidance and

not

as financial instruments. The amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. This ASU is effective for annual periods beginning after

December 15, 2019,

and interim periods therein. Early adoption is permitted for annual periods beginning after

December 15, 2018,

and interim periods therein. The Company is currently evaluating the impact of the adoption of this standard on its 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 it 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 reporting periods and interim periods within those annual 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 our consolidated financial statements.

In

August 2018,

the FASB issued ASU

No.

2018

-

13,

"Fair Value Measurement ('Topic

820'

): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." The ASU modifies the disclosure requirements in Topic

820,

Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level

3

fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level

3

fair value measurements. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after

December 15, 2019.

The Company is currently evaluating the effect, if any, that ASU

2018

-

13

will have on its consolidated financial statements.

In

August 2018,

the FASB issued ASU

No.

2018

-

14,

"Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic

715

-

20

): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." ASU

2018

-

14

removes certain disclosures that are

not

considered cost beneficial, clarifies certain required disclosures and added additional disclosures. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after

December 15, 2020.

The amendments in ASU

2018

-

14

must be applied on a retrospective basis. The Company is currently assessing the effect, if any, that ASU

2018

-

14

will have on its consolidated financial statements.

XML

Note 8 - Goodwill and Intangible Assets (Tables)

6 Months Ended

Dec. 31, 2019

Notes Tables

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

	12/31/201 9			6/30/201 9
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		9,671			8,952
Other intangible assets		325			325
Total		20,604			19,885
Accumulated amortization		(12,494	)		(11,425	)
Total net balance	$	8,110		$	8,460

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

2020 (Remainder of year)	$	1,012
2021		1,761
2022		1,531
2023		1,179
2024		881
2025		673
Thereafter		1,073
	$	8,110

XML

Note 3 - Revenue From Contracts With Customers (Tables)

6 Months Ended

Dec. 31, 2019

Notes Tables

Disaggregation of Revenue [Table Text Block]

	Three Months Ended				Six Months Ended
	12/31/19		12/31/18		12/31/19		12/31/18
North America
United States	$	31,085	$	32,413	$	59,708	$	60,360
Canada & Mexico		2,013		2,215		4,398		4,468
		33,098		34,628		64,106		64,828
International
Brazil		15,000		12,519		27,822		24,886
United Kingdom		5,372		5,657		10,603		11,673
China		1,653		2,052		3,167		3,761
Australia & New Zealand		1,741		1,676		3,280		3,285
		23,766		21,904		44,872		43,605
Total Sales	$	56,864	$	56,532	$	108,978	$	108,433

XML

Note 2 - Segment Information

6 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note

2:

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, 2019.

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 the unallocated column in the table below. Other income and expense, including interest income and expense, and income taxes are excluded entirely from the table below. There were

no

significant changes in the segment operations or in the segment assets from the Annual Report. Financial results for each reportable segment are as follows (in thousands):

	North American Operations		International Operations		Unallocated			Total
Three Months ended December 31, 201 9
Sales 1	$	33,098	$	23,766	$	-		$	56,864
Operating Income (Loss)	$	2,547	$	1,725	$	(1,510	)	$	2,762
Three Months ended December 31, 201 8
Sales 2	$	34,628	$	21,904	$	-		$	56,532
Operating Income (Loss) 3	$	3,081	$	1,741	$	(1,374	)	$	3,448

1. Excludes $1,049 of North American segment intercompany sales to the International segment, and $3,855 of International segment intercompany sales to the North American segment.

2. Excludes $1,047 of North American segment intercompany sales to the International segment, and $3,744 of International segment intercompany sales to the North American segment.

3. As a result of the adoption of ASU 2017 - 07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”, the respective line items in the Consolidated Statement of Operations for Fiscal 2019 have been reclassified.

	North American Operations		International Operations		Unallocated			Total
Six Months ended December 31, 201 9
Sales 1	$	64,106	$	44,872	$	-		$	108,978
Operating Income (Loss)	$	4,751	$	2,889	$	(3.433	)	$	4,207
Six Months ended December 31, 201 8
Sales 2	$	64,828	$	43,605	$	-		$	108,433
Operating Income (Loss) 3	$	3,453	$	3,860	$	(2,929	)	$	4,384

1. Excludes $2,016 of North American segment intercompany sales to the International segment, and $8,097 of International segment intercompany sales to the North American segment.

2. Excludes $2,180 of North American segment intercompany sales to the International segment, and $7,063 of International segment intercompany sales to the North American segment.

3. As a result of the adoption of ASU 2017 - 07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”, the respective line items in the Consolidated Statement of Operations for Fiscal 2019 have been reclassified.

XML

Document And Entity Information - shares	6 Months Ended
	Dec. 31, 2019	Jan. 24, 2020
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	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Dec. 31, 2019
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q2
Amendment Flag	false
Title of 12(b) Security	Common Stock
Entity Interactive Data Current	Yes
Common Class A [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding (in shares)		6,279,632
Common Class B [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding (in shares)		681,219

XML

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2019	Dec. 31, 2018
Net income	$ 1,260	$ 1,926	$ 2,038	$ 2,510
Other comprehensive income (loss):
Currency translation gain (loss), net of tax	2,674	696	(1,065)	(875)
Pension and postretirement plans, net of tax	(23)		(43)
Other comprehensive income (loss)	2,651	696	(1,108)	(875)
Total comprehensive income	$ 3,911	$ 2,622	$ 930	$ 1,635

XML

Note 8 - Goodwill and Intangible Assets - Finite-lived Intangible Assets (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Jun. 30, 2019
Intangible assets, gross	$ 20,604	$ 19,885
Accumulated amortization	(12,494)	(11,425)
	8,110	8,460
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	9,671	8,952
Other Intangible Assets [Member]
Intangible assets, gross	$ 325	$ 325

XML

Note 10 - Debt (Details Textual)			1 Months Ended	3 Months Ended			6 Months Ended
	Dec. 31, 2019 USD ($)	Nov. 22, 2011 USD ($)	Jan. 31, 2018	Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)	Dec. 31, 2018	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)	Dec. 30, 2019 USD ($)	Jan. 01, 2018 USD ($)
Line of Credit Facility, Maximum Borrowing Capacity	$ 25,000,000				$ 25,000,000		$ 25,000,000		$ 23,000,000	$ 23,000,000
Repayments of Long-term Debt, Total							2,813,000	$ 1,534,000
Debt Agreement Covenants, Fixed Charge Coverage Ratio, Minimum	0.0667
Debt Agreement Covenants, Consolidated Cash and Available Credit Line, Minimum	$ 7,500,000				$ 7,500,000		7,500,000
Line of Credit Facility, Interest Rate During Period					3.70%	3.90%
Long-term Line of Credit, Total	16,900,000				$ 16,900,000		$ 16,900,000
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
Maximum [Member]
Current Funded Debt to EBITDA Ratio							2.25
Annual Capital Expenditures							$ 15,000,000
Debt Service Coverage Rate							1.25
Minimum [Member]
Current Funded Debt to EBITDA Ratio							1
Debt Service Coverage Rate							1
London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate			1.50%
Term Loan [Member]
Debt Instrument, Face Amount	$ 10,000,000				$ 10,000,000		$ 10,000,000
Debt Instrument, Term	5 years
Debt Instrument, Interest Rate, Stated Percentage	4.00%				4.00%		4.00%
Credit Limit for External Borrowing	$ 5,000,000				$ 5,000,000		$ 5,000,000		$ 2,500,000
Debt Agreement, Remaining Borrowing Capacity	6,500,000				6,500,000		6,500,000
Bytewise Term Loan [Member]
Debt Instrument, Face Amount	15,500,000	$ 15,500,000			15,500,000		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	$ 3,500,000				$ 3,500,000		$ 3,500,000
Bytewise Term Loan [Member] | Forecast [Member]
Repayments of Long-term Debt, Total				$ 3,500,000

XML

Note 7 - Inventories (Tables)

6 Months Ended

Dec. 31, 2019

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	12/31/201 9			6/30/201 9
Raw material and supplies	$	29,006		$	26,106
Goods in process and finished parts		15,811			17,464
Finished goods		44,000			41,500
		88,817			85,070
LIFO Reserve		(23,707	)		(23,280	)
	$	65,110		$	61,790

XML

Note 2 - Segment Information (Tables)

6 Months Ended

Dec. 31, 2019

Notes Tables

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

	North American Operations		International Operations		Unallocated			Total
Three Months ended December 31, 201 9
Sales 1	$	33,098	$	23,766	$	-		$	56,864
Operating Income (Loss)	$	2,547	$	1,725	$	(1,510	)	$	2,762
Three Months ended December 31, 201 8
Sales 2	$	34,628	$	21,904	$	-		$	56,532
Operating Income (Loss) 3	$	3,081	$	1,741	$	(1,374	)	$	3,448

	North American Operations		International Operations		Unallocated			Total
Six Months ended December 31, 201 9
Sales 1	$	64,106	$	44,872	$	-		$	108,978
Operating Income (Loss)	$	4,751	$	2,889	$	(3.433	)	$	4,207
Six Months ended December 31, 201 8
Sales 2	$	64,828	$	43,605	$	-		$	108,433
Operating Income (Loss) 3	$	3,453	$	3,860	$	(2,929	)	$	4,384

XML

Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands	3 Months Ended				6 Months Ended
	Dec. 31, 2019		Dec. 31, 2018		Dec. 31, 2019		Dec. 31, 2018
Net sales	$ 56,864,000	[1]	$ 56,532,000	[2]	$ 108,978,000	[3]	$ 108,433,000	[4]
Cost of goods sold	38,228,000		37,984,000		72,639,000		73,226,000
Gross margin	$ 18,636,000		$ 18,548,000		$ 36,339,000		$ 35,207,000
% of net sales	32.80%		32.80%		33.30%		32.50%
Selling, general and administrative	$ 15,874,000		$ 15,100,000		$ 32,132,000		$ 30,823,000
Operating income	2,762,000		3,448,000	[5]	4,207,000		4,384,000	[5]
Other expense	(887,000)		(457,000)		(1,056,000)		(451,000)
Income before income taxes	1,875,000		2,991,000		3,151,000		3,933,000
Income tax expense	615,000		1,065,000		1,113,000		1,423,000
Net income	$ 1,260,000		$ 1,926,000		$ 2,038,000		$ 2,510,000
Basic income per share (in dollars per share)	$ 0.18		$ 0.27		$ 0.29		$ 0.36
Diluted income per share (in dollars per share)	$ 0.18		$ 0.27		$ 0.29		$ 0.35
Weighted average outstanding shares used in per share calculations:
Basic (in shares)	6,955		7,018		6,930		7,022
Diluted (in shares)	7,015		7,067		7,011		7,077

[1] Excludes $1,049 of North American segment intercompany sales to the International segment, and $3,855 of International segment intercompany sales to the North American segment.

[2] Excludes $1,047 of North American segment intercompany sales to the International segment, and $3,744 of International segment intercompany sales to the North American segment.

[3] Excludes $2,016 of North American segment intercompany sales to the International segment, and $8,097 of International segment intercompany sales to the North American segment.

[4] Excludes $2,180 of North American segment intercompany sales to the International segment, and $7,063 of International segment intercompany sales to the North American segment.

[5] As a result of the adoption of ASU 2017-07 "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost", the respective line items in the Consolidated Statement of Operations for Fiscal 2019 have been reclassified.

XML

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

6 Months Ended

Dec. 31, 2019

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 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, 2019.  

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 Company’s “fiscal year” begins

July

1st

and ends

June

30th.

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, 2019

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

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Note 8 - Goodwill and Intangible Assets - Estimated Aggregate Amortization Expense (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Jun. 30, 2019
2020 (Remainder of year)	$ 1,012
2021	1,761
2022	1,531
2023	1,179
2024	881
2025	673
Thereafter	1,073
	$ 8,110	$ 8,460

XML

Note 10 - Debt - Debt Schedule (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Jun. 30, 2019
Loan and Security Agreement (Bytewise)	$ 4,154	$ 4,065
Short-term and current maturities	4,154	4,065
Long-term debt (net of current portion)	18,628	17,541
Long-term debt	22,782	21,606
Bytewise Term Loan [Member]
Long-term debt (net of current portion)	1,728	2,641
Line of Credit [Member]
Long-term debt (net of current portion)	16,900	14,900
Bytewise Term Loan [Member]
Loan and Security Agreement (Bytewise)	1,805	1,765
Brazil Loans [Member]
Outstanding Balance	$ 2,349	$ 2,300

XML

Note 3 - Revenue From Contracts With Customers - Revenue From Contracts With Customers (Details) - USD ($)	3 Months Ended				6 Months Ended
	Dec. 31, 2019		Dec. 31, 2018		Dec. 31, 2019		Dec. 31, 2018
Net sales	$ 56,864,000	[1]	$ 56,532,000	[2]	$ 108,978,000	[3]	$ 108,433,000	[4]
North American Segment [Member]
Net sales	33,098,000	[1]	34,628,000	[2]	64,106,000	[3]	64,828,000	[4]
International Segment [Member]
Net sales	23,766,000		21,904,000		44,872,000		43,605,000
UNITED STATES | North American Segment [Member]
Net sales	31,085,000		32,413,000		59,708,000		60,360,000
Canada and Mexico [Member] | North American Segment [Member]
Net sales	2,013,000		2,215,000		4,398,000		4,468,000
BRAZIL | International Segment [Member]
Net sales	15,000,000		12,519,000		27,822,000		24,886,000
UNITED KINGDOM | International Segment [Member]
Net sales	5,372,000		5,657,000		10,603,000		11,673,000
CHINA | International Segment [Member]
Net sales	1,653,000		2,052,000		3,167,000		3,761,000
Australia and New Zealand [Member] | International Segment [Member]
Net sales	$ 1,741,000		$ 1,676,000		$ 3,280,000		$ 3,285,000

[1] Excludes $1,049 of North American segment intercompany sales to the International segment, and $3,855 of International segment intercompany sales to the North American segment.

[2] Excludes $1,047 of North American segment intercompany sales to the International segment, and $3,744 of International segment intercompany sales to the North American segment.

[3] Excludes $2,016 of North American segment intercompany sales to the International segment, and $8,097 of International segment intercompany sales to the North American segment.

[4] Excludes $2,180 of North American segment intercompany sales to the International segment, and $7,063 of International segment intercompany sales to the North American segment.

XML

Note 5 - Commitments and Contingencies - Operating Lease Commitments (Details) $ in Thousands	Dec. 31, 2019 USD ($)
2020 remaining	$ 1,215
2021	2,250
2022	905
2023	731
2024	703
Thereafter	825
Subtotal	6,629
Imputed interest	(1,057)
Operating leases. Operating Lease Obligations	$ 5,572

XML

Note 7 - Inventories

6 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Inventory Disclosure [Text Block]

Note

7

:   Inventories

Inventories consist of the following (in thousands):

	12/31/201 9			6/30/201 9
Raw material and supplies	$	29,006		$	26,106
Goods in process and finished parts		15,811			17,464
Finished goods		44,000			41,500
		88,817			85,070
LIFO Reserve		(23,707	)		(23,280	)
	$	65,110		$	61,790

LIFO inventories were

$13.5

million and

$9.8

million at

December 31, 2019

and

June 30, 2019,

respectively, such amounts being approximately

$23.7

million and

$23.3

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

$0.1

million and

$0.4

million increase in cost of sales for the

three

- and

six

-months period ended

December 31, 2019

compared to a

$0.3

million and

$0.6

million decrease for the

three

- and

six

-month periods ended

December 31, 2018.

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Note 3 - Revenue From Contracts With Customers

6 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

Note

3:

  

Revenue from Contract

s

with Customers

On

July 1, 2018,

the Company adopted ASC Topic

606,

Revenue from Contracts with Customers, and all the related amendments (“ASC Topic

606”

), using the modified retrospective method. In addition, the Company elected to apply certain of the permitted practical expedients within the revenue recognition guidance and make certain accounting policy elections, including those related to significant financing components, sales taxes and shipping and handling activities. Most of the changes resulting from the adoption of ASC Topic

606

on

July 1, 2018

were changes in presentation within the Unaudited Consolidated Balance Sheet. Therefore, while the Company made adjustments to certain opening balances on its

July 1, 2018

Unaudited Consolidated Balance Sheet, the Company made

no

adjustment to opening Retained Earnings.

The core principle of ASC Topic

606

is that an entity recognizes revenue to depict the transfer of promised goods and 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 application of the FASB’s guidance on revenue recognition requires the Company to recognize the amount of revenue and consideration that the Company expects to receive in exchange for goods and services transferred to our customers. To do this, the Company applies the

five

-step model prescribed by the FASB, which requires us to: (

1

) identify the contract with the customer; (

2

) identify the performance obligations in the contract; (

3

) determine the transaction price; (

4

) allocate the transaction price to the performance obligations in the contract; and (

5

) recognize revenue when, or as, the Company satisfies a performance obligation.

The Company accounts for a contract or purchase order when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when control of the product passes to the customer, which is upon shipment, unless otherwise specified within the customer contract or on the purchase order as delivery, and is recognized at the amount that reflects the consideration the Company expects to receive for the products sold, including various forms of discounts. When revenue is recorded, estimates of returns are made and recorded as a reduction of revenue. Contracts with customers are evaluated to determine if there are separate performance obligations related to timing of product shipment that will be satisfied in different accounting periods. When that is the case, revenue is deferred until each performance obligation is met.

No

revenue was deferred as of

December 31, 2019.

Purchase orders are of durations less than

one

year. As such, the Company applies the practical expedient in ASC paragraph

606

-

10

-

50

-

14

and does

not

disclose information about remaining performance obligations that have original expected durations of

one

year or less, for which work has

not

yet been performed.

Certain taxes assessed by governmental authorities on revenue producing transactions, such as value added taxes, are excluded from revenue and recorded on a net basis.

Performance Obligations

The Company’s primary source of revenue is derived from the manufacture and distribution of metrology tools and equipment, saw blades and related products sold to distributors. The Company recognizes revenue for sales to our customers when transfer of control of the related good or service has occurred. All of the Company’s revenue was recognized under the point in time approach for the

three

and

six

months ended

December 31, 2019

and

2018.

Contract terms with certain metrology equipment customers could result in products and services being transferred over time as a result of the customized nature of some of the Company’s products, together with contractual provisions in the customer contracts that provide the Company with an enforceable right to payment for performance completed to date; however, under typical terms, the Company does

not

have the right to consideration until the time of shipment from its manufacturing facilities or distribution centers, or until the time of delivery to its customers. If certain contracts in the future provide the Company with this enforceable right of payment, the timing of revenue recognition from products transferred to customers over time

may

be slightly accelerated compared to the Company’s right to consideration at the time of shipment or delivery.

The Company’s typical payment terms vary based on the customer, geographic region, and the type of goods and services in the contract or purchase order. The period of time between invoicing and when payment is due is typically

not

significant. Amounts billed and due from the Company’s customers are classified as accounts receivables on the Consolidated Balance Sheets. As the Company’s standard payment terms are usually less than

one

year, the Company has elected the practical expedient under ASC paragraph

606

-

10

-

32

-

18

to

not

assess whether a contract has a significant financing component.

The Company’s customers take delivery of goods, and they are recognized as revenue at the time of transfer of control to the customer, which is usually at the time of shipment, unless otherwise specified in the customer contract or purchase order. This determination is based on applicable shipping terms, as well as the consideration of other indicators, including timing of when the Company has a present right to payment, when physical possession of products is transferred to customers, when the customer has the asset, and provisions in contracts regarding customer acceptance.

While unit prices are generally fixed, the Company provides variable consideration for certain customers, typically in the form of promotional incentives at the time of sale. The Company utilizes the most likely amount to estimate the effect of uncertainty on the amount of variable consideration to which the Company would be entitled. The most likely amount method considers the single most likely amount from a range of possible consideration amounts. The most likely amounts are based upon the contractual terms of the incentives and historical experience with each customer. The Company records estimates for cash discounts, promotional rebates, and other promotional allowances in the period the related revenue is recognized (“Customer Credits”). The provision for Customer Credits is recorded as a reduction from gross sales and reserves for Customer Credits are presented within accrued expenses on the Unaudited Consolidated Balance Sheets. Actual Customer Credits have

not

differed materially from estimated amounts for each period presented. Amounts billed to customers for shipping and handling are included in net sales and costs associated with shipping and handling are included in cost of sales. The Company has concluded that its estimates of variable consideration are

not

constrained according to the definition within the new standard. Additionally, the Company applies the practical expedient in ASC paragraph

606

-

10

-

25

-

18B

and accounts for shipping and handling activities that occur after the customer has obtained control of a good as a fulfillment activity, rather than a separate performance obligation.

With the adoption of ASC Topic

606,

the Company reclassified certain amounts related to variable consideration. Under ASC Topic

606,

the Company is required to present a refund liability and a return asset within the Unaudited Consolidated Balance Sheet, whereas in periods prior to adoption, the Company presented the estimated margin impact of expected returns as a contra-asset within accounts receivable. The changes in the refund liability are reported in net sales, and the changes in the return asset are reported in cost of sales in the Unaudited Consolidated Statements of Operations. As a result, the balance sheet presentation was adjusted beginning in Fiscal

2019.

As of

December 31, 2019,

the balance of the return asset is

$0.1

million and the balance of the refund liability is

$0.2

million, and they are presented within prepaid expenses and other current assets and accrued expenses, respectively, on the Unaudited Consolidated Balance Sheet. The Company, in general, warrants its products against certain defects in material and workmanship when used as designed, for a period of up to

1

year. The Company does

not

sell extended warranties.

Contract Balances

Contract assets primarily relate to the Company’s rights to consideration for work completed but

not

billed at the reporting date on contracts with customers. Contract assets are transferred to receivables when the rights become unconditional. Contract liabilities primarily relate to contracts where advance payments or deposits have been received, but performance obligations have

not

yet been met, and therefore, revenue has

not

been recognized. The Company had

no

contract asset balances, but had contract liability balances of

$0.6

million at

December 31, 2019

located in Accounts Payable in the Consolidated Balance Sheets.

Disaggregation of Revenue

The Company operates in

two

reportable segments: North America and International. ASC Topic

606

requires further disaggregation of an entity’s revenue. In the following table, the Company's net sales by shipping origin are disaggregated accordingly for the

three

and

six

months ended

December 31, 2019

and

2018

(in thousands):

	Three Months Ended				Six Months Ended
	12/31/19		12/31/18		12/31/19		12/31/18
North America
United States	$	31,085	$	32,413	$	59,708	$	60,360
Canada & Mexico		2,013		2,215		4,398		4,468
		33,098		34,628		64,106		64,828
International
Brazil		15,000		12,519		27,822		24,886
United Kingdom		5,372		5,657		10,603		11,673
China		1,653		2,052		3,167		3,761
Australia & New Zealand		1,741		1,676		3,280		3,285
		23,766		21,904		44,872		43,605
Total Sales	$	56,864	$	56,532	$	108,978	$	108,433

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Note 11 - Income Taxes

6 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

11:

   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 enacted in the United States. The Act reduces the U.S. federal corporate tax rate from a graduated rate of

35%

to a flat rate of

21%,

requires companies to pay a

one

-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. Other impacts of tax reform that became effective for the Company beginning in fiscal

2019

include the provisions related to Global Intangible Low Taxed Income (“GILTI”), Foreign Derived Intangible Income (“FDII”), Base Erosion Anti Abuse Tax (“BEAT”), and limitation on tax deductibility of interest expenses.

The GILTI provisions are expected to have the most significant impact to the Company. Under the new law, U.S. taxes are imposed on foreign income in excess of a deemed return on tangible assets of its foreign subsidiaries. In general, this foreign income will effectively be taxed at an additional

10.5%

tax rate reduced by any available current year foreign tax credits. The ability to benefit foreign tax credits

may

be limited under the GILTI rules as a result of the utilization of net operating losses, foreign sourced income and other potential limitations within the foreign tax credit calculation.

The tax expense for the

second

quarter of fiscal

2020

was

$0.6

million on a profit before tax of

$1.9

million (an effective tax rate of

33%

). The tax expense for the

second

quarter of fiscal

2019

was

$1.1

million on a profit before tax of

$3.0

million (an effective tax rate of

36%

). The tax rate for both fiscal

2020

and fiscal

2019

was higher than the U.S. statutory tax rate of

21%

primarily due to the Global Intangible Low Taxed Income (“GILTI”) provisions, which became effective in fiscal

2019,

and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of

34%.

For the

first

half of fiscal

2020,

tax expense was

$1.1

million on profit before tax of

$3.2

million (an effective tax rate of

35%

). For the

first

half of fiscal

2019,

tax expense was

$1.4

million on profit before tax of

$3.9

million (an effective tax rate of

36%

). The tax rate for both fiscal

2020

and fiscal

2019

was higher than the U.S. statutory tax rate of

21%

primarily due to the Global Intangible Low Taxed Income (“GILTI”) provisions, which became effective in fiscal

2019,

and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of

34%.

U.S. Federal tax returns for years prior to fiscal

2016

are generally

no

longer subject to review by tax authorities; however, tax loss carryforwards from earlier years are still subject to adjustment. As of

December 31, 2019,

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

2013

– present. During the next

twelve

months, it is possible there will be a reduction of

$0.1

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 U.S. federal and foreign 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 and certain state net operating loss carryforwards that will expire in the near future unutilized.