scx-20231231

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, 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						January 17, 2024
Class A Common Shares						6,954,519
Class B Common Shares						550,478

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, our clinical results and other future conditions. The words “anticipate”, “believe”, “contemplate”, “continue”, “could”, “estimate”, “expect”, “forecast”, “goal”, “intend”, “may”, “plan”, “potential”, “predict”, “project”, “should”, “target”, “will”, “would”, or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed in our Annual Report on Form 10-K and other filings with the Securities Exchange Commission (the “SEC”). 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 Annual Report on Form 10-K, as amended, for the year ended June 30, 2023.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make or collaborations or strategic partnerships we may enter into. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

THE L. S. STARRETT COMPANY

CONTENTS


			Page No.

Part I.	Financial Information:

	Item 1.	Financial Statements	2

		Condensed Consolidated Balance Sheets (unaudited)– December 31, 2023 (unaudited) and June 30, 2023	4

		Condensed Consolidated Statements of Operations (unaudited) – three and six months ended December 31, 2023 and December 31, 2022	6

		Condensed Consolidated Statements of Comprehensive Income (Loss), (unaudited) – three and six months ended December 31, 2023 and December 31, 2022	7

		Condensed Consolidated Statements of Stockholders' Equity (unaudited) – three and six months ended December 31, 2023 and December 31, 2022	8

		Condensed Consolidated Statements of Cash Flows (unaudited) - six months ended December 31, 2023 and December 31, 2022	9

		Notes to Unaudited Condensed Consolidated Financial Statements	10-18

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

	Item 4.	Controls and Procedures	24

Part II.	Other Information:

	Item 1A.	Risk Factors	26

	Item 6.	Exhibits	27

SIGNATURES			28

THE L. S. STARRETT COMPANY

Condensed Consolidated Balance Sheets

(in thousands except share data)

(unaudited)


	12/31/2023		06/30/2023
ASSETS
Current assets:
Cash	$	5,684	$	10,454
Accounts receivable (less allowance for credit losses of $546 and $449, respectively)	34,826		36,611
Inventories	61,284		65,414
Prepaid expenses and other current assets	10,950		9,723
Total current assets	112,744		122,202

Property, plant and equipment, net	44,852		39,375
Right of use assets	4,421		4,931

Deferred tax assets, net	15,667		17,056
Intangible assets, net	4,829		4,672
Goodwill	1,015		1,015
Other assets	3,534		3,551
Total assets	$	187,062	$	192,802

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt	$	4,403	$	4,961
Current lease liability	1,604		1,689
Accounts payable	13,487		15,047
Accrued expenses	12,162		11,579
Accrued compensation	4,613		6,287
Total current liabilities	36,269		39,563

Other tax obligations	2,899		2,884
Long-term lease liability	2,966		3,423
Long-term debt, net of current portion and debt costs	3,103		5,273
Postretirement benefit and pension obligations	10,699		12,192
Total liabilities	55,936		63,335
Contingencies (Note 12)
Stockholders' equity:
Class A Common stock $1 par 20,000,000 shares authorized; 8,361,535 issued, 6,953,641 outstanding at December 31, 2023 and 6,853,673 outstanding at June 30, 2023)	6,954		6,854
Class B Common stock $1 par (10,000,000 shares authorized; 852,825 issued, 551,564 outstanding at December 31, 2023 and 576,396 outstanding at June 30, 2023	552		576
Additional paid-in capital	58,050		57,825
Retained earnings	113,672		112,147
Accumulated other comprehensive loss	(48,102)		(47,935)
Total stockholders' equity	131,126		129,467
Total liabilities and stockholders’ equity	$	187,062	$	192,802

See Notes to unaudited Condensed Consolidated Financial Statements

THE L. S. STARRETT COMPANY

Condensed Consolidated Statements of Operations

(in thousands except per share data)

(unaudited)


	3 Months Ended						6 Months Ended
	12/31/2023			12/31/2022			12/31/2023			12/31/2022

Net sales	$	62,076		$	66,775		$	122,712		$	127,236
Cost of goods sold	43,112			45,199			84,212			85,460
Gross profit	18,964			21,576			38,500			41,776
% of Net sales	30.5		%	32.3		%	31.4		%	32.8		%

Restructuring charges	—			54			—			244
Selling, general and administrative expenses	16,470			15,561			33,548			31,855

Operating income	2,494			5,961			4,952			9,677

Other (expense), net	(526)			(1,121)			(890)			(1,797)

Income before income taxes	1,968			4,840			4,062			7,880

Income tax expense	2,362			1,709			2,537			2,693

Net (loss) income	$	(394)		$	3,131		$	1,525		$	5,187


Basic (loss) income per share	$	(0.05)		$	0.42		$	0.20		$	0.71
Diluted (loss) income per share	$	(0.05)		$	0.42		$	0.20		$	0.69

Weighted average outstanding shares used in per share calculations:
Basic	7,501			7,405			7,469			7,354
Diluted	7,501			7,541			7,623			7,511

See Notes to unaudited Condensed Consolidated Financial Statements

THE L. S. STARRETT COMPANY

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)


	3 Months Ended				6 Months Ended
	12/31/2023		12/31/2022		12/31/2023		12/31/2022

Net (loss) income	$	(394)	$	3,131	$	1,525	$	5,187
Other comprehensive income (loss):
Currency translation gain (loss), net of tax	2,308		2,716		(97)		(90)
Pension and postretirement plans, net of tax	(36)		(36)		(70)		(61)
Other comprehensive income (loss)	2,272		2,680		(167)		(151)

Total comprehensive income	$	1,878	$	5,811	$	1,358	$	5,036

See Notes to unaudited Condensed Consolidated Financial Statements

THE L. S. STARRETT COMPANY

Condensed Consolidated Statements of Stockholders' Equity

(in thousands) (unaudited)

For the Three and Six-Month Period Ended December 31, 2023:


	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

Total comprehensive (loss) income	—		—		—		(394)		2,272		1,878
Repurchase of shares	—		—		(3)		—		—		(3)
Issuance of stock	—		5		35		—		—		40
Stock-based compensation	17		—		205		—		—		222
Conversion	4		(4)		—		—		—		—
Balance December 31, 2023	$	6,954	$	552	$	58,050	$	113,672	$	(48,102)	$	131,126

Accumulated balance consists of:
Translation loss									$	(55,937)
Pension and postretirement plans, net of taxes									7,835
									$	(48,102)

For the Three and Six-Month Period Ended December 31, 2022:


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

Balance June 30, 2022	$	6,683	$	610	$	57,143	$	89,059	$	(51,066)	$	102,429
Total comprehensive income (loss)	—		—		—		2,056		(2,831)		(775)
Repurchase of shares	—		(1)		(5)		—		—		(6)
Stock-based compensation	76		—		109		—		—		185
Conversion	12		(12)		—		—		—		—
Balance September 30, 2022	$	6,771	$	597	$	57,247	$	91,115	$	(53,897)	$	101,833

Total comprehensive income	—		—		—		3,131		2,680		5,811
Repurchase of shares	—		—		(3)		—		—		(3)
Issuance of stock	—		34		50		—		—		84
Stock-based compensation	25		—		160		—		—		185
Conversion	7		(7)		—		—		—		—
Balance December 31, 2022	$	6,803	$	624	$	57,454	$	94,246	$	(51,217)	$	107,910








Accumulated balance consists of:
Translation loss									$	(60,166)
Pension and postretirement plans, net of taxes									8,949
									$	(51,217)

See Notes to unaudited Condensed Consolidated Financial Statements

THE L. S. STARRETT COMPANY

Condensed Consolidated Statements of Cash Flows

(in thousands) (unaudited)


	6 Months Ended
	12/31/2023		12/31/2022

Cash flows from operating activities:

Net income	$	1,525	$	5,187

Non-cash operating activities:
Depreciation	2,779		2,585
Amortization	525		720
Stock-based compensation	287		370
Net long-term tax obligations	1		91
Deferred taxes	1,374		977
Postretirement benefit and pension obligations	295		314
Working capital changes:
Accounts receivable	1,962		4,530
Inventories	4,158		(3,307)
Other current assets	(1,229)		(1,098)
Other current liabilities	(2,842)		(4,818)
Prepaid pension expense	(1,860)		(1,147)
Other	136		70
Net cash provided by operating activities	7,111		4,474

Cash flows from investing activities:
Purchases of property, plant and equipment	(8,316)		(3,713)
Software development	(683)		(477)
Net cash (used in) investing activities	(8,999)		(4,190)

Cash flows from financing activities:
Proceeds from borrowing	6,000		1,575
Debt repayments	(8,781)		(7,508)
Proceeds from common stock issued	40		84
Shares repurchased	(26)		(9)
Net cash (used in) financing activities	(2,767)		(5,858)

Effect of exchange rate changes on cash	(115)		8

Net (decrease) in cash	(4,770)		(5,566)
Cash, beginning of period	10,454		14,523
Cash, end of period	$	5,684	$	8,957

Supplemental cash flow information:
Interest paid	458		802
Income taxes paid, net	$	2,117	$	3,360

See Notes to unaudited Condensed Consolidated Financial Statements

THE L. S. STARRETT COMPANY

Notes to unaudited Condensed Consolidated Financial Statements

December 31, 2023

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

The unaudited Condensed Consolidated Financial Statements as of and for the six months ended December 31, 2023 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 information and with the instructions of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. These unaudited Consolidated 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 audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K, as amended, for the year ended June 30, 2023. The balance sheet as of June 30, 2023 has been derived from the audited Condensed Consolidated Financial Statements as of and for the year ended June 30, 2023. 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.

Accounts Receivable and Allowance for Credit Losses

Trade accounts receivable are recorded at invoiced amount and do not bear interest. The allowance for credit losses is the Company's estimate of current expected credit losses on its existing accounts receivable and determined based on historical customer assessments, current financial conditions and reasonable and supportable forecasts. Account balances are charged off against the allowance when the Company determines the receivable will not be recovered.

Fair Value Measurements

Certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities are carried at cost, which approximates their fair value because of their short-term maturity. See Notes 10 and 11 to the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for financial assets and liabilities held at carrying amount on the unaudited Condensed Consolidated Balance Sheet.

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 unaudited Condensed Consolidated Financial Statements and accompanying notes. Note 1 within the notes to the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q and Note 2 to the Company’s audited Condensed Consolidated Financial Statements included in the Annual Report on Form 10-K, as amended, for the year ended June 30, 2023 describes the significant accounting policies and methods used in the preparation of the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

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 audited Consolidated Financial Statements entitled “Financial Information by Segment” included in our Annual Report on Form 10-K, as amended, for the year ended June 30, 2023. The chief operating decision maker, who is the Company’s President and CEO, allocates resources and assesses performance based on three segments: North America Industrial "NAI", International Industrial "INI" and Global Test and Measurement "GTM".

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 on Form 10-K, as amended, for the year ended June 30, 2023. Financial results for each reportable segment are as follows (in thousands):


	NAI		INI		GTM		Unallocated		Total
Three Months ended December 31, 2023

Sales1	$	19,814	$	26,425	$	15,837	$	—	$	62,076

Operating Income (Loss)	$	(185)	$	2,227	$	2,520	$	(2,068)	$	2,494

Three Months ended December 31, 2022

Sales2	$	22,780	$	26,051	$	17,944	$	—	$	66,775

Operating Income (Loss)	$	176	$	3,796	$	3,314	$	(1,325)	$	5,961

1.Excludes $348 of NAI segment intercompany sales to the INI segment, $114 of GTM segment intercompany sales to the INI segment, $3,560 of INI segment intercompany sales to NAI and $279 of GTM intercompany sales to NAI.

2.Excludes $546 of NAI segment intercompany sales to the INI segment, $161 of GTM segment intercompany sales to the INI segment, $3,992 of INI segment intercompany sales to NAI and $258 of GTM intercompany sales to NAI.


	NAI			INI		GTM		Unallocated		Total
Six months ended December 31, 2023

Sales1	$	39,284		$	51,799	$	31,629	$	—	$	122,712
Operating Income (Loss)	$	(869)		$	4,987	4,892		$	(4,058)	$	4,952

Six months ended December 31, 2022

Sales2	$	45,151	0	$	49,350	$	32,735	$	—	$	127,236
Operating Income (Loss)	$	876		$	6,485	$	5,592	$	(3,277)	$	9,677

1.Excludes $681 of NAI segment intercompany sales to the INI segment, $192 of GTM segment intercompany sales to the INI segment, $7,036 of INI segment intercompany sales to NAI and $979 of GTM intercompany sales to NAI.

2.Excludes $1,198 of NAI segment intercompany sales to the INI segment, $436 of GTM segment intercompany sales to the INI segment, $8,617 of INI segment intercompany sales to NAI and $668 of GTM intercompany sales to NAI.

Note 3: Revenue from Contracts with Customers

Under ASC Topic 606, the Company is required to present a refund liability and a return asset within the unaudited Condensed Consolidated Balance Sheet. As of December 31, 2023 and June 30, 2023, the balance of the return asset was $0.2 million and $0.1 million, respectively, and the balance of the refund liability as of December 31, 2023 and June 30, 2023 was $0.3 million and $0.1 million, respectively. They are presented within prepaid expenses and other current assets and accrued expenses, respectively, on the unaudited Condensed Consolidated Balance Sheets.

The Company, in general, warrants its products against certain defects in material and workmanship when used as designed, for a period of up to one 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 $0.3 million and $0.3 million at December 31, 2023 and June 30, 2023, respectively, located in Accounts Payable in the Condensed Consolidated Balance Sheets.

Disaggregation of Revenue

The Company operates in three reportable segments. 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, 2023 and 2022 (in thousands):


	Three Months Ended				Six Months Ended
	12/31/2023		12/31/2022		12/31/2023		12/31/2022

United States	$	33,132	$	37,620	$	65,908	$	71,892
Canada & Mexico	1,792		2,067		3,550		4,278
Brazil	20,209		20,057		39,639		37,305
United Kingdom	3,095		3,294		6,630		6,494
China	1,879		1,978		3,336		3,665
Australia & New Zealand	1,969		1,759		3,649		3,601

Total Sales	$	62,076	$	66,775	$	122,712	$	127,236

Note 4: Leases

Operating lease cost amounted to $0.5 million and $1.0 million for the three and six months ended December 31, 2023 and $0.8 million and $1.0 million for the three and six months ended December 31, 2022. As of December 31, 2023, the Company’s right-of-use assets "ROU", lease obligations and remaining cash commitment on these leases were as follows (in thousands):

Right-of-Use
Assets

Operating Lease
Obligations

Remaining Cash
Commitment

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