scx-20230930

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			September 30, 2023


☐			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						October 24, 2023
Class A Common Shares						6,934,387
Class B Common Shares						549,319


			Page No.

Part I.	Financial Information:

	Item 1.	Financial Statements	4

		Condensed Consolidated Balance Sheets – September 30, 2023 (unaudited) and June 30, 2023	4

		Condensed Consolidated Statements of Operations (unaudited)– three months ended September 30, 2023 and September 30, 2022	5

		Condensed Consolidated Statements of Comprehensive (Loss) (unaudited) – three months ended September 30, 2023 and September 30, 2022	6

		Condensed Consolidated Statements of Stockholders' Equity (unaudited) – three months ended September 30, 2023 and September 30, 2022	7

		Condensed Consolidated Statements of Cash Flows (unaudited) - three months ended September 30, 2023 and September 30, 2022	8

		Notes to Unaudited Condensed Consolidated Financial Statements	9-18

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20

	Item 4.	Controls and Procedures	20

Part II.	Other Information:

	Item 1A.	Risk Factors	21

	Item 6.	Exhibits	22

SIGNATURES			23


	9/30/2023		6/30/2023
ASSETS
Current assets:
Cash	$	12,529	$	10,454
Accounts receivable (less allowance for credit losses of $508 and $449, respectively)	34,506		36,611
Inventories	65,126		65,414
Prepaid expenses and other current assets	9,859		9,723
Total current assets	122,020		122,202

Property, plant and equipment, net	42,600		39,375
Right of use assets	4,630		4,931

Deferred tax assets, net	17,313		17,056
Intangible assets, net	4,774		4,672
Goodwill	1,015		1,015
Other assets	3,417		3,551
Total assets	$	195,769	$	192,802

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt	$	5,270	$	4,961
Current lease liability	1,625		1,689
Accounts payable	16,587		15,047
Accrued expenses	11,646		11,579
Accrued compensation	6,379		6,287
Total current liabilities	41,507		39,563

Other tax obligations	2,859		2,884
Long-term lease liability	3,149		3,423
Long-term debt, net of current portion	7,944		5,273
Postretirement benefit and pension obligations	11,320		12,192
Total liabilities	66,779		63,335
Contingencies (Note 12)

Stockholders' equity:
Class A Common stock $1 par (20,000,000 shares authorized; 8,340,540 issued, and 6,932,646 outstanding at September 30, 2023 and 8,265,033 issued and 6,853,673 outstanding at June 30, 2023)	6,933		6,854
Class B Common stock $1 par (10,000,000 shares authorized; 851,907 issued 551,039 outstanding at September 30, 2023 and 875,192 issued and 576,396 outstanding at June 30, 2023)	551		576
Additional paid-in capital	57,813		57,825
Retained earnings	114,067		112,147
Accumulated other comprehensive loss	(50,374)		(47,935)
Total stockholders' equity	128,990		129,467
Total liabilities and stockholders’ equity	$	195,769	$	192,802


	Three Months Ended
	9/30/2023			9/30/2022

Net sales	$	60,636		$	60,461
Cost of goods sold	41,100			40,261
Gross profit	19,536			20,200
% of Net sales	32.2		%	33.4		%

Restructuring charges	—			190
Selling, general and administrative expenses	17,077			16,294

Operating income	2,459			3,716

Other (expense)	(365)			(676)

Income before income taxes	2,094			3,040

Income tax expense	174			984

Net income	$	1,920		$	2,056


Basic income per share	$	0.26		$	0.28
Diluted income per share	$	0.25		$	0.27

Weighted average outstanding shares used in per share calculations:
Basic	7,437			7,304
Diluted	7,608			7,505


	Common Stock Outstanding				Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Class A		Class B

Balance June 30, 2023	$	6,854	$	576	$	57,825	$	112,147	$	(47,935)	$	129,467
Total comprehensive income (loss)	—		—		—		1,920		(2,439)		(519)
Repurchase of shares	—		(2)		(21)		—		—		(23)
Stock-based compensation	56		—		9		—		—		65
Conversion	23		(23)		—		—		—		—
Balance September 30, 2023	$	6,933	$	551	$	57,813	$	114,067	$	(50,374)	$	128,990














Accumulated balance consists of:
Translation loss									$	(58,245)
Pension and postretirement plans, net of taxes									7,871
									$	(50,374)


	NAI		INI		GTM		Unallocated		Total
Three Months Ended September 30, 2023

Sales1	$	19,470	$	25,374	$	15,792	$	—	$	60,636

Operating Income (Loss)	$	(683)	$	2,760	$	2,371	$	(1,989)	$	2,459

Three Months Ended September 30, 2022

Sales2	$	22,371	$	23,299	$	14,791	$	—	$	60,461

Operating Income (Loss)	$	700	$	2,880	$	2,278	$	(2,142)	$	3,716


	Right-of-Use Assets		Operating Lease Obligations		Remaining Cash Commitment
Operating leases	$	4,630	$	4,773	$	5,486


	9/30/2023		6/30/2023
Raw material and supplies	$	36,975	$	36,402
Goods in process and finished parts	20,153		20,978
Finished goods	34,305		34,414
	91,433		91,794
LIFO Reserve	(26,307)		(26,380)
Total Inventory	$	65,126	$	65,414


	9/30/2023		6/30/2023
Trademarks and trade names	$	2,070	$	2,070
Customer relationships	630		630
Software development	9,429		11,149

Other intangible assets	101		105
Gross intangible assets	12,230		13,954
Accumulated amortization and impairment	(7,456)		(9,282)
Net intangible assets	$	4,774	$	4,672


	09/30/2023		06/30/2023
Sales related programs (commissions, rebates, distributor programs, warranty and related)	$	2,893	$	2,590
Income taxes	192		509
Professional fees	2,412		2,237
Other	1,319		1,499
Current portion pension cost	2,215		2,216
Taxes other than income tax	1,950		1,888
Workers compensation and employee deposits	377		491
Freight	288		149
Total	$	11,646	$	11,579


	9/30/2023		6/30/2023
Short-term and current maturities

Loan and Security Agreement (Term Loan)	$	2,168	$	1,495
Brazil Loans	3,102		3,466
Subtotal short-term and current maturities	5,270		4,961
Long-term debt (net of current portion)
Loan and Security Agreement (Term Loan)	3,284		1,957
Loan and Security Agreement (Line of Credit)	4,897		2,897
Brazil Loans	145		827
Debt Reacquisition Cost	(382)		(408)


Subtotal long-term debt	7,944		5,273
Total Debt	$	13,214	$	10,234


	Three Months Ended
	9/30/2023		9/30/2022

Cash flows from operating activities:

Net income	$	1,920	$	2,056

Non-cash operating activities:
Depreciation	1,377		1,288
Amortization	260		363
Stock-based compensation	65		185
Net long-term tax obligations	23		18
Deferred taxes	(454)		356
Postretirement benefit and pension obligations	153		162
Working capital changes:
Accounts receivable	1,057		3,135
Inventories	(892)		(5,022)
Other current assets	(370)		(1,740)
Other current liabilities	2,511		31
Prepaid pension expense	(903)		(263)
Other	71		59
Net cash provided by operating activities	4,818		628

Cash flows from investing activities:
Purchases of property, plant and equipment	(3,145)		(960)
Software development	(367)		(202)
Net cash (used in) investing activities	(3,512)		(1,162)

Cash flows from financing activities:

Proceeds from line of credit borrowings	2,000		575
Term debt repayments	(1,047)		(2,663)


Shares repurchased	(23)		(6)
Net cash provided by (used in) financing activities	930		(2,094)

Effect of exchange rate changes on cash	(161)		7


	Three Months Ended
	9/30/2023		9/30/2022
North America
United States	$	32,777	$	34,272
Canada & Mexico	1,758		2,212
	34,535		36,484
International
Brazil	19,430		17,248
United Kingdom	3,535		3,201
China	1,456		1,686
Australia & New Zealand	1,680		1,842
	26,101		23,977

Total Sales	$	60,636	$	60,461


	Three Months Ended
	9/30/2023		9/30/2022

Interest cost	1,552		1,482
Expected return on plan assets	(1,098)		(1,032)
Amortization of net loss	10		10
	$	464	$	460


	Three Months Ended
	9/30/2023		9/30/2022
Service cost	$	5	$	6
Interest cost	17		18
Amortization of prior service credit	(369)		(369)
Amortization of net loss	31		44
	$	(316)	$	(301)


Lending Institution	Interest Rate		Beginning Date	Ending Date	Outstanding Balance
Itau	4.52	%	October 2021	September 2024	$	2,286
Itau	4.98	%	February 2022	February 2024	609
Brasil	4.95	%	August 2022	July 2025	289
Brasil	3.80	%	September 2022	August 2024	63


					$	3,247


	Three Months Ended
(Amounts in thousands)	9/30/2023			09/30/2022			$ Change favorable (unfavorable)		% Change
Net sales	$	60,636		$	60,461		$	149	0.2	%
Gross profit	19,536			20,200			(664)		(3.3)	%
% of net sales	32.2		%	33.4		%

Restructuring charges	—			190			190		(100.0)	%
Selling, general and administrative expenses	17,077			16,294			(783)		(4.8)	%
% of net sales	28.2		%	27.3		%

Operating income	2,459			3,716			(1,249)		(33.6)	%

Other (expense), net	(365)			(676)			311		(46.0)	%

Income before income taxes	2,094			3,040			(946)		(31.1)	%

Income tax expense	174			984			810		82.3	%

Net income	$	1,920		$	2,056		$	(136)	(6.6)	%


GAAP to Non-GAAP reconciliation:
	Three Months Ended
(Amounts in thousands)	09/30/23		09/30/22		$ Change favorable (unfavorable)		% Change
Operating income as reported	$	2,459	$	3,716	$	(1,257)	(33.8)	%
Add back restructuring charges	—		190		(190)		(100.0)	%
Non- GAAP adjusted operating income	$	2,459	$	3,906	$	(1,918)	(49.1)	%


	Three Months Ended September 2023														Three Months Ended September 2022
(Amounts in thousands)	NAI			INI			GTM			Corporate		Total			NAI			INI			GTM			Corporate		Total
Net sales	$	19,470		$	25,374		$	15,792		$	—	$	60,636		$	22,371		$	23,299		$	14,791		—		$	60,461
Gross profit	3,928			9,776			5,832			—		19,536			5,415			8,952			5,833			—		20,200
% of net sales	20.2		%	38.5		%	36.9		%			32.2		%	24.2		%	38.4		%	39.4		%	—		33.4		%
Restructuring charges	—			—			—			—		—			—			—			—			190		190
Selling, general and administrative expenses	4,611			7,016			3,461			1,989		17,077			4,715			6,072			3,555			1,952		16,294
% of net sales	23.7		%	27.7		%	21.9		%			28.2		%	21.1		%	26.1		%	24.0		%	—		26.9		%
Operating (loss) income	$	(683)		$	2,760		$	2,371		$	(1,989)	$	2,459		$	700		$	2,880		$	2,278		$	(2,142)	$	3,716
% of net sales	(3.5)		%	10.9		%	15.0		%			4.1		%	3.1		%	12.4		%	15.4		%	—		6.1		%


Cash flows (in thousands)	Three Months Ended
	9/30/2023		9/30/2022

Cash provided by operating activities	$	4,818	$	628
Cash (used in) investing activities	(3,512)		(1,162)
Cash provided by (used in) financing activities	930		(2,094)
Effect of exchange rate changes on cash	(161)		7

Net increase (decrease) in cash	$	2,075	$	(2,621)


3a			Restated Articles of Organization as amended, filed with Form 10-K for the year ended June 30, 2012 filed September 12, 2012, is hereby incorporated by reference.

3b			Amended and Restated Bylaws, filed with Form 10-Q for the quarter ended December 31, 2012 filed February 7, 2013, is hereby incorporated by reference

4a			Rights Agreement dated as of November 2, 2010 between the Company and Mellon Investor Services LLC, as Rights Agent (together with exhibits, including the Form of Rights Certificate, and the Summary of Rights to Purchase Shares of Class A Common Stock), filed with Form 10-Q for the quarter ended September 25, 2010, filed November 4, 2010 is hereby incorporated by reference.

4b			Amendment No. 1 to Rights Agreement dated as of February 5, 2013 by and between the Company and Computershare Shareowner Services LLC, filed with Form 10-Q for the quarter ended December 31, 2012, filed February 7, 2013 is hereby incorporated by reference.

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

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

32.1+			Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2+			Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, Chapter 63 of Title 18, United States Code, as a dopted p ursuant 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 September 30, 2023 are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (I) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statement of Stockholders' Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


		THE L. S. STARRETT COMPANY (Registrant)


Date	November 10, 2023	/S/ Douglas A. Starrett
		Douglas A. Starrett - President and CEO (Principal Executive Officer)

Date	November 10, 2023	/S/ John C. Tripp
		John C. Tripp - CFO and Treasurer (Principal Accounting Officer)

SEC Form 10-Q filed by L.S. Starrett Company