UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


			For the quarterly period ended			March 31, ~~2021~~2022


☐			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						April ~~29, 2021~~19, 2022
Class A Common Shares						~~6,453,544~~6,666,824
Class B Common Shares						~~650,010~~591,577

THE L. S. STARRETT COMPANY

CONTENTS


			Page No.

Part I.	Financial Information:

	Item 1.	Financial Statements	3

		Consolidated Balance Sheets – March 31, ~~2021~~2022 (unaudited) and June 30, 20202021	3

		Consolidated Statements of Operations (unaudited)– three~~three~~ and nine months e ~~nded~~ended March 31, ~~2021~~2022 and March 31, ~~2020~~2021	4

		Consolidated Statements of Comprehensive Income (Loss) (unaudited) – three~~three~~ and nine months ended~~ended~~ March 31, ~~2021~~ 2022and March 31, ~~2020~~2021	5

		Consolidated Statements of Stockholders' Equity (unaudited) – three and nine months endedMarch 31, ~~2021~~ 2022and March 31, ~~2020~~2021	6-7

		Consolidated Statements of Cash Flows (unaudited) -nine months ended March 31, ~~2021~~2022 and March 31, ~~2020~~2021	8

		Notes to Unaudited Consolidated Financial Statements	9~~-19~~-21

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2120

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

	Item 4.	Controls and Procedures	27

Part II.	Other Information:

	Item 1A.	Risk Factors	28

	Item 6.	Exhibits	3029

SIGNATURES			3130

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE L. S. STARRETT COMPANY

Consolidated Balance Sheets

(in thousands except share data)

(unaudited)3/31/2021 6/30/2020
ASSETS
Current assets:
Cash $ 11,247 $ 13,458
Accounts receivable (less allowance for doubtful accounts of $583 and $736, respectively) 34,467 29,012
Inventories 52,536 52,987
Prepaid expenses and other current assets 10,355 8,641
Total current assets 108,605 104,098
Property, plant and equipment, net 35,001 37,090
Right of use assets 4,186 4,465
Deferred tax assets, net 23,513 21,018
Intangible assets, net 4,935 4,997
Goodwill 1,015 1,015
Total assets $ 177,255 $ 172,683
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt $ 6,895 $ 4,532
Current lease liability 1,247 1,905
Accounts payable 12,089 7,579
Accrued expenses 7,745 8,838
Accrued compensation 5,663 4,980
Total current liabilities 33,639 27,834
Other tax obligations 2,761 2,532
Long-term lease liability 3,027 2,655
Long-term debt, net of current portion 18,530 26,341
Postretirement benefit and pension obligations 61,948 67,338
Total liabilities 119,905 126,700
Stockholders' equity:
Class A Common stock $1 par (20,000,000 shares authorized; 6,451,960 outstanding at March 31, 2021 and 6,308,025 outstanding at June 30, 2020) 6,452 6,308
Class B Common stock $1 par (10,000,000 shares authorized; 651,968 outstanding at March 31, 2021 and 679,680 outstanding at June 30, 2020) 652 680
Additional paid-in capital 56,329 55,762
Retained earnings 69,638 58,648
Accumulated other comprehensive loss (75,721) (75,415)
Total stockholders' equity 57,350 45,983
Total liabilities and stockholders’ equity $ 177,255 $ 172,683
(unaudited)


	03/31/2022		06/30/2021
ASSETS
Current assets:
Cash	$	8,020	$	9,105
Accounts receivable (less allowance for doubtful accounts of $705 and $665, respectively)	41,415		35,076
Inventories	73,075		60,572
Prepaid expenses and other current assets	15,018		14,467
Total current assets	137,528		119,220

Property, plant and equipment, net	38,927		35,992
Right of use assets	5,606		4,298

Deferred tax assets, net	18,077		19,073
Intangible assets, net	4,713		4,888
Goodwill	1,015		1,015
Total assets	$	205,866	$	184,486

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt	$	22,832	$	15,959
Current lease liability	1,535		1,650
Accounts payable	17,908		17,229
Accrued expenses	11,091		8,811
Accrued compensation	5,590		8,040
Total current liabilities	58,956		51,689

Other tax obligations	3,024		2,866
Long-term lease liability	4,231		2,734
Long-term debt, net of current portion	9,405		6,010
Postretirement benefit and pension obligations	33,977		37,652
Total liabilities	109,593		100,951

Stockholders' equity:
Class A Common stock $1 par(20,000,000 shares authorized; 6,664,600 outstanding at March 31, 2022 and 6,475,307 outstanding at June 30, 2021)	6,665		6,475
Class B Common stock $1 par (10,000,000 shares authorized; 594,372 outstanding at March 31, 2022 and 633,505 outstanding at June 30, 2021)	594		634
Additional paid-in capital	56,948		56,507
Retained earnings	84,225		74,181
Accumulated other comprehensive loss	(52,159)		(54,262)
Total stockholders' equity	96,273		83,535
Total liabilities and stockholders’ equity	$	205,866	$	184,486

See Notes to Unaudited Consolidated Financial Statements

THE L. S. STARRETT COMPANY

Consolidated Statements of Operations

(in thousands except per share data) ~~(unaudited)~~

3 Months Ended 9 Months Ended
3/31/2021 3/31/2020 3/31/2021 3/31/2020
Net sales $ 54,944 $ 49,998 $ 158,408 $ 158,976
Cost of goods sold 36,795 35,154 107,082 107,793
Gross margin 18,149 14,844 51,326 51,183
% of net sales 0 0 0 0
Selling, general and administrative expenses 13,511 14,780 41,126 46,912
Restructuring charges 788 0 1,518 0
Gain on sale of building 0 0 (3,204) 0
Operating income 3,850 64 11,886 4,271
Other income (expense), net 663 223 236 (833)
Income before income taxes 4,513 287 12,122 3,438
Income tax expense (benefit) 1,496 (326) 1,132 787
Net income $ 3,017 $ 613 $ 10,990 $ 2,651
Basic income per share $ 0.42 $ 0.09 $ 1.56 $ 0.38
Diluted income per share $ 0.41 $ 0.09 $ 1.50 $ 0.38
Weighted average outstanding shares used in per share calculations:
Basic $ 7,104 $ 6,962 $ 7,058 $ 6,941
Diluted $ 7,390 $ 7,022 $ 7,335 $ 7,017
(unaudited)


	3 Months Ended						9 Months Ended
	03/31/2022			03/31/2021			03/31/2022			03/31/2021

Net sales	$	60,479		$	54,944		$	183,311		$	158,408
Cost of goods sold	39,459			36,795			123,197			107,082
Gross margin	21,020			18,149			60,114			51,326
% of Net sales	34.8		%	33.0		%	32.8		%	32.4		%

Restructuring charges	658			788			658			1,518
Gain on sale of building	—			—			—			(3,204)
Selling, general and administrative expenses	14,988			13,511			45,750			41,126

Operating income	5,374			3,850			13,706			11,886

Other income, net	684			663			249			236

Income before income taxes	6,058			4,513			13,955			12,122

Income tax expense	1,774			1,496			3,911			1,132

Net income	$	4,284		$	3,017		$	10,044		$	10,990


Basic income per share	$	0.59		$	0.42		$	1.39		$	1.56
Diluted income per share	$	0.57		$	0.41		$	1.34		$	1.50

Weighted average outstanding shares used in per share calculations:
Basic	7,256			7,104			7,208			7,058
Diluted	7,492			7,390			7,480			7,335

See Notes to Unaudited Consolidated Financial Statements

THE L. S. STARRETT COMPANY

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)


		3 Months Ended				9 Months Ended					3 Months Ended				9 Months Ended
		3/31/2021		3/31/2020		3/31/2021		3/31/2020			03/31/2022		03/31/2021		03/31/2022		03/31/2021

Net income	Net income	$	3,017	$	613	$	10,990	$	2,651	Net income	$	4,284	$	3,017	$	10,044	$	10,990
Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Currency translation (loss), net of tax		(3,835)		(9,813)		(225)		(10,878)
Currency translation gain (loss), net of tax										Currency translation gain (loss), net of tax	6,807		(3,835)		2,325		(225)
Pension and postretirement plans, net of tax	Pension and postretirement plans, net of tax	(60)		(21)		(81)		(64)		Pension and postretirement plans, net of tax	(89)		(60)		(222)		(81)
Other comprehensive (loss)		(3,895)		(9,834)		(306)		(10,942)
Other comprehensive income (loss)										Other comprehensive income (loss)	6,718		(3,895)		2,103		(306)

Total comprehensive income (loss)	Total comprehensive income (loss)	$	(878)	$	(9,221)	$	10,684	$	(8,291)	Total comprehensive income (loss)	$	11,002	$	(878)	$	12,147	$	10,684

See Notes to Unaudited Consolidated Financial Statements

THE L. S. STARRETT COMPANY

Consolidated Statements of Stockholders' Equity

(in thousands) (unaudited)

For the ~~three~~Three and ~~nine months ended~~Nine-Month Period Ended March 31, ~~2021:~~

Common Stock
Outstanding Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Class A Class B
Balance June 30, 2020 $ 6,308 $ 680 $ 55,762 $ 58,648 $ (75,415) $ 45,983
Total comprehensive income (loss) — — — 4,116 (258) 3,858
Repurchase of shares — (2) (4) — — (6)
Stock-based compensation 8 — 359 — — 367
Conversion 26 (26) — — — 0
Balance September 30, 2020 $ 6,342 $ 652 $ 56,117 $ 62,764 $ (75,673) $ 50,202
Total comprehensive income — — — 3,857 3,847 7,704
Repurchase of shares — — (1) — — (1)
Issuance of stock — 8 17 — — 25
Stock-based compensation 103 — 51 — — 154
Conversion 3 (3) — — — 0
Balance December 31, 2020 $ 6,448 $ 657 $ 56,184 $ 66,621 $ (71,826) $ 58,084
Total comprehensive income (loss) — — — 3,017 (3,895) (878)
Repurchase of shares — (1) (3) — — (4)
Stock-based compensation — — 148 — — 148
Conversion 4 (4) — — — 0
Balance March 31, 2021 $ 6,452 $ 652 $ 56,329 $ 69,638 $ (75,721) $ 57,350
Accumulated balance consists of:
Translation loss $ (62,099)
Pension and postretirement plans, net of taxes (13,622)
$ (75,721)
2022:


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

Balance June 30, 2021	$	6,475	$	634	$	56,507	$	74,181	$	(54,262)	$	83,535
Total comprehensive income (loss)	—		—		—		3,232		(3,677)		(445)
Repurchase of shares	—		(2)		(14)		—		—		(16)
Stock-based compensation	119		—		55		—		—		174
Conversion	25		(25)		—		—		—		—
Balance September 30, 2021	$	6,619	$	607	$	56,548	$	77,413	$	(57,939)	$	83,248

Total comprehensive income (loss)	—		—		—		2,528		(938)		1,590
Repurchase of shares	—		—		(7)		—		—		(7)
Issuance of stock	7		8		102		—		—		117
Stock-based compensation	11		—		226		—		—		237
Conversion	7		(7)		—		—		—		—
Balance December 31, 2021	$	6,644	$	608	$	56,869	$	79,941	$	(58,877)	$	85,185

Total comprehensive income	—		—		—		4,284		6,718		11,002
Repurchase of shares	—		(3)		(14)		—		—		(17)
Stock-based compensation	10		—		93		—		—		103
Conversion	11		(11)		—		—		—		—
Balance March 31, 2022	$	6,665	$	594	$	56,948	$	84,225	$	(52,159)	$	96,273

Accumulated balance consists of:
Translation loss									$	(53,722)
Pension and postretirement plans, net of taxes									1,563
									$	(52,159)

THE L. S. STARRETT COMPANY

Consolidated Statements of Stockholders' Equity

(in thousands) (unaudited)

For the ~~three~~Three and ~~nine months ended~~Nine-Month Period Ended March 31, ~~2020:~~2021:


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

Balance June 30, 2020	$	6,308	$	680	$	55,762	$	58,648	$	(75,415)	$	45,983
Total comprehensive income (loss)	—		—		—		4,116		(258)		3,858
Repurchase of shares	—		(2)		(4)		—		—		(6)
Stock-based compensation	8		—		359		—		—		367
Conversion	26		(26)		—		—		—		—
Balance September 30, 2020	$	6,342	$	652	$	56,117	$	62,764	$	(75,673)	$	50,202

Total comprehensive income	—		—		—		3,857		3,847		7,704
Repurchase of shares	—		—		(1)		—		—		(1)
Issuance of stock	—		8		17		—		—		25
Stock-based compensation	103		—		51		—		—		154
Conversion	3		(3)		—		—		—		—
Balance December 31, 2020	$	6,448	$	657	$	56,184	$	66,621	$	(71,826)	$	58,084

Total comprehensive income (loss)	—		—		—		3,017		(3,895)		(878)
Repurchase of shares	—		(1)		(3)		—		—		(4)
Stock-based compensation	—		—		148		—		—		148
Conversion	4		(4)		—		—		—		—
Balance March 31, 2021	$	6,452	$	652	$	56,329	$	69,638	$	(75,721)	$	57,350


Accumulated balance consists of:
Translation loss									$	(62,099)
Pension and postretirement plans, net of taxes									(13,622)
									$	(75,721)

Common Stock
Outstanding Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive
Loss Total
Class A Class B
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 (loss) — — — 1,260 2,651 3,911
Repurchase of shares — — (3) — — (921)
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
Total comprehensive income (loss) — — — 613 (9,834) (9,221)
Repurchase of shares — (1) (3) — — (4)
Stock-based compensation 10 — 114 — — 124
Conversion 7 (7) — — — 0
Balance March 31, 2020 $ 6,297 $ 673 $ 55,633 $ 83,138 $ (70,223) $ 75,518
Accumulated balance consists of:
Translation loss $ (60,437)
Pension and postretirement plans, net of taxes (9,786)
$ (70,223)

See Notes to Unaudited Consolidated Financial Statements

THE L. S. STARRETT COMPANY

Consolidated Statements of Cash Flows

(in thousands) (unaudited)


		9 Months Ended					9 Months Ended
		3/31/2021		3/31/2020			03/31/2022		03/31/2021

Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:

Net income	Net income	$	10,990	$	2,651	Net income	$	10,044	$	10,990

Non-cash operating activities:	Non-cash operating activities:					Non-cash operating activities:
Gain from sale of real estate	Gain from sale of real estate	(3,204)		0		Gain from sale of real estate	—		(3,204)
Depreciation	Depreciation	3,912		3,735		Depreciation	3,913		3,912
Amortization	Amortization	911		1,540		Amortization	957		911
Stock-based compensation	Stock-based compensation	669		410		Stock-based compensation	514		669
Net long-term tax obligations	Net long-term tax obligations	117		163		Net long-term tax obligations	126		117
Deferred taxes	Deferred taxes	(2,279)		264		Deferred taxes	937		(2,279)
Postretirement benefit and pension obligations	Postretirement benefit and pension obligations	(11)		92		Postretirement benefit and pension obligations	(1,058)		(11)
Working capital changes:
Changes in operating assets and liabilities:						Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(4,580)		2,876		Accounts receivable	(5,900)		(4,580)
Inventories	Inventories	1,391		(3,097)		Inventories	(11,053)		1,391
Other current assets	Other current assets	(1,813)		(831)		Other current assets	(5)		(1,813)
Other current liabilities	Other current liabilities	2,803		(5,463)		Other current liabilities	139		2,803
Prepaid pension expense	Prepaid pension expense	(6,374)		(6,360)		Prepaid pension expense	(2,342)		(6,374)
Other	Other	189		159		Other	937		189
Net cash provided by (used in) operating activities		2,721		(3,861)
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(2,791)		2,721

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property, plant and equipment	Purchases of property, plant and equipment	(4,048)		(7,595)		Purchases of property, plant and equipment	(6,883)		(4,048)
Software development	Software development	(849)		(1,023)		Software development	(782)		(849)
Proceeds from sale of real estate	Proceeds from sale of real estate	5,214		0		Proceeds from sale of real estate	—		5,214
Net cash provided by (used in) investing activities		317		(8,618)
Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	(7,665)		317

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from borrowing		12,581		11,556
Proceeds from borrowings						Proceeds from borrowings	39,875		12,581
Debt repayments	Debt repayments	(17,924)		(4,666)		Debt repayments	(29,488)		(17,924)
Proceeds from common stock issued	Proceeds from common stock issued	25		37		Proceeds from common stock issued	117		25
Shares repurchased	Shares repurchased	(11)		(17)		Shares repurchased	(40)		(11)
Net cash (used in) provided by financing activities		(5,329)		6,910
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	10,464		(5,329)

Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	80		202		Effect of exchange rate changes on cash	(1,093)		80

Net decrease in cash	Net decrease in cash	(2,211)		(5,367)		Net decrease in cash	(1,085)		(2,211)
Cash, beginning of period	Cash, beginning of period	13,458		15,582		Cash, beginning of period	9,105		13,458
Cash, end of period	Cash, end of period	$	11,247	$	10,215	Cash, end of period	$	8,020	$	11,247

Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Interest paid	Interest paid	$	673	$	737	Interest paid	$	690	$	673
Income taxes paid, net	Income taxes paid, net	3,535		1,304		Income taxes paid, net	2,614		3,535

See Notes to Unaudited Consolidated Financial Statements

THE L. S. STARRETT COMPANY

Notes to Unaudited Consolidated Financial Statements

March 31, ~~2021~~2022

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

The unaudited interim consolidated financial statements as of and for the nine months ended March 31, ~~2021~~2022 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 consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, ~~2020.~~2021. The balance sheet as of June 30, ~~2020~~2021 has been derived from the audited consolidated financial statements as of and for the year ended June 30, ~~2020.~~2021. 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, ~~2020~~2021 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements.

Throughout the ~~COVID-19~~ pandemic crisis, the Company's main focus has been on protecting the health and well-being of its employees, and the long-term financial health of the Company. ~~The COVID-19 pandemic continues~~It remains very difficult for management to ~~have~~predict when this crisis will no longer be a ~~negative~~risk to future sales and operations. To the extent that pandemic-related events do not provide evidence about conditions that existed at the balance-sheet date, the Company considers it necessary to disclose it cannot estimate all aspects of the impact on ~~certain sectors~~the financial statements as a result of the Company's Sales, particularly in Industrial and Capital Equipment markets. Products sold through Consumer channels, principally in Brazil, have returned to or even exceed pre-pandemic levels. Some uncertainty still exists when trying to predict a full recovery across the whole company.on-going pandemic.

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, ~~2020.~~2021. The Company’s business is aggregated into 2 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 on Form 10-K.~~Report. Financial results for each reportable segment are as follows (in thousands):


		North American Operations		International Operations		Unallocated		Total			North American Operations		International Operations		Unallocated		Total
Three months ended March 31, 2021
Three Months ended March 31, 2022										Three Months ended March 31, 2022

Sales1	Sales1	$	32,519	$	22,425	$	0	$	54,944	Sales1	$	36,288	$	24,191	$	—	$	60,479

Operating Income (Loss)	Operating Income (Loss)	2,931		2,692		(1,773)		$	3,850	Operating Income (Loss)	$	4,663	$	2,627	$	(1,917)	5,374

Three Months ended March 31, 2020
Three Months ended March 31, 2021										Three Months ended March 31, 2021

Sales2	Sales2	$	33,369	$	16,629	$	0	$	49,998	Sales2	$	32,519	$	22,425	$	—	$	54,944

Operating Income (Loss)	Operating Income (Loss)	$	1,337	$	448	$	(1,721)	$	64	Operating Income (Loss)	$	2,931	$	2,692	$	(1,773)	$	3,850

1.Excludes $1,148 of North American segment intercompany sales to the International segment, and $4,402 of International segment intercompany sales to the North American segment.

2.Excludes $1,338 of North American segment intercompany sales to the International segment, and $3,197 of International segment intercompany sales to the North American segment.


	North American Operations		International Operations		Unallocated		Total
Nine Months ended March 31, 2022

Sales1	$	102,763	$	80,548	$	—	$	183,311
Operating Income (Loss)	$	8,713	$	10,604	$	(5,611)	$	13,706

Nine months ended March 31, 2021

Sales2	$	85,609	$	72,799	$	—	$	158,408
Operating Income (Loss)	$	8,611	$	8,804	$	(5,529)	$	11,886

2.1.Excludes ~~$1,063~~$2,827 of North American segment intercompany sales to the International segment, and ~~$2,722~~$14,150 of International segment intercompany sales to the North American segment.

North
American
Operations International
Operations Unallocated Total
Nine Months ended March 31, 2021
Sales1
$ 85,609 0 $ 72,799 $ 0 $ 158,408
Operating Income (Loss) 8,611 8,804 $ (5,529) $ 11,886
Nine months ended March 31, 2020
Sales2
$ 97,475 $ 61,501 $ 0 $ 158,976
Operating Income (Loss) $ 6,217 $ 3,069 $ (5,015) $ 4,271
1

1.2.Excludes $3,075 of North American segment intercompany sales to the International segment, and $8,593 of International segment intercompany sales to the North American segment.

2.~~Excludes $3,079 of North American segment intercompany sales to the International segment, and $10,820 of International segment intercompany sales to the North American segment.~~

Note 3: Revenue from Contracts with Customers

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 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 March 31, 2021 and June 30, 2020. 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 nine months ended March 31, 2021 and 2020. 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 receivable 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 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.

Under ASC Topic 606, the Company is required to present a refund liability and a return asset within the Unaudited Consolidated Balance Sheet. As of March 31, ~~2021,~~2022 and June 30, ~~2020,~~2021, the balance of the return asset iswas $0.1 millionand $0.2 million, ~~and $0.1 million~~respectively, and the balance of the refund liability isas of March 31, 2022 and June 30, 2021 was $0.2 ~~million and $0.2 million respectively.~~million. They are presented within prepaid expenses and other current assets and accrued expenses, respectively, on the 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 1one 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 0no contract asset balances, but had contract liability balances of$0.9 million and $0.6 million ~~and $0.4 million~~ at March 31, ~~2021~~2022 and June 30, ~~2020~~2021, respectively, located in Accounts Payable in the Consolidated Balance Sheets.

Disaggregation of Revenue

The Company operates in 2 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 nine~~ months ended March 31, ~~2021~~2022 and ~~2020~~2021 (in thousands):


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		3/31/2021		3/31/2020		3/31/2021		3/31/2020			03/31/2022		03/31/2021		03/31/2022		03/31/2021
North America	North America									North America
United States	United States	$	30,307	$	31,288	$	79,989	$	90,996	United States	$	34,181	$	30,307	$	97,049	$	79,989
Canada & Mexico	Canada & Mexico	2,212		2,081		5,620		6,479		Canada & Mexico	2,107		2,212		5,714		5,620
		32,519		33,369		85,609		97,475			36,288		32,519		102,763		85,609
International	International									International
Brazil	Brazil	14,901		8,729		47,302		36,551		Brazil	15,980		14,901		54,063		47,302
United Kingdom	United Kingdom	4,269		5,333		14,818		15,936		United Kingdom	4,750		4,269		14,254		14,818
China	China	1,655		1,338		5,240		4,505		China	1,899		1,655		5,761		5,240
Australia & New Zealand	Australia & New Zealand	1,600		1,229		5,439		4,509		Australia & New Zealand	1,562		1,600		6,469		5,439
		22,425		16,629		72,799		61,501			24,191		22,425		80,548		72,799

Total Sales	Total Sales	$	54,944	$	49,998	$	158,408	$	158,976	Total Sales	$	60,479	$	54,944	$	183,311	$	158,408

Note 4: Recent Accounting Pronouncements

~~Recently Issued Accounting Standards not yet adopted:~~

In ~~August 2018,~~June 2016, the FASB issued ASU ~~No. 2018-14, "Compensation~~2016-13, “Financial Instruments - 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, effective for the Company July 1, 2021.. 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.

In November 2019, FASB issued ASU 2019-10, which (1) provides a framework to stagger effective dates for future major accounting standards and (2) amends the effective dates of certain major new accounting standards. Of those standards affected the following is the only one not yet implemented by the Company. Financial Instruments Credit Losses ~~ASU 2016-13 (ASC~~(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 was permitted for annual periods beginning after December 15, 2018, and interim periods therein. This pronouncement was extended for Small Reporting Companies and for the Company ~~beginning~~to July 1, 2022. The ~~Company does not expect the~~ adoption of this standard todoes not have a material impact on the financial position and results of operations.

In ~~December 2019,~~August 2018, the FASB issued ASU ~~2019-12, Income Taxes (Topic 740). The amendments in this Update simplify the accounting for income taxes by removing the following exceptions:~~

~~a) Exception~~No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the ~~incremental approach~~Disclosure Requirements for ~~intra-period tax allocation when there is a loss from continuing operations~~Defined Benefit Plans." ASU 2018-14 removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and ~~income or a gain from other items (for example, discontinued operations or other comprehensive income)~~

~~b) Exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment~~

~~c) Exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary~~

~~d) Exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss~~added additional disclosures. This ASU was effective for the ~~year.~~

~~The amendments in this Update also simplify the accounting for income taxes by doing the following:~~

a) Requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax. Requiring that an entity evaluate when a step up in the tax basis of

~~goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction.~~

b) Specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements. However, an entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both

~~not subject to tax and disregarded by the taxing authority.~~

~~c) Requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date.~~

~~d) Making minor Codification improvements for income taxes related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method..~~

~~The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years,~~Company beginning ~~after December 15, 2020 or~~ July 1, 2021 ~~for the Company.~~and applied on a retrospective basis. The ~~Company is currently assessing the effect, if any, on its consolidated financial statements.~~

In March 2020, FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The amendments in this Update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of)

reference rate reform on financial reporting. Optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in this Update apply to contract modifications that replace a reference rate affected by reference rate reform (including rates referenced in fallback provisions) and contemporaneous modifications of other contract terms related to the replacement of the reference rate (including contract modifications to add or change fallback provisions). The Company currently has no hedging type contracts or others tied to reference rates where this standard would have a material impact to the Company's accounting. The first amendment to the amended and restated loan and security agreement with TD Bank dated September 17, 2020 increased the maximum interest charged on the Line Of Credit from and annual interest rate of 2.25% plus LIBOR to 3.50% plus LIBOR, but ultimately our interest rate is capped accordingly in this agreement. The Company does not believe the adoption of this standard ~~has~~did not have a material impact on the financial position and results of ~~operations.~~operations or the required disclosures.

Note 5: Leases

Operating lease cost amounted to ~~$0.6~~$0.5 million and ~~$1.8~~$2.1 million for the three and nine months period ended March 31, 2022 and $0.6 million and $1.8 million for the three and nine months period ended December 31, 2021. As of March 31, ~~2021,~~2022, the Company’s right-of-use assets "ROU", lease obligations and remaining cash commitment on these leases (in thousands):

Right-of-Use
Assets Operating Lease
Obligations Remaining Cash
Commitment
Operating leases $ 4,186 $ 4,274 $ 5,081


	Right-of-Use Assets	Operating Lease Obligations	Remaining Cash Commitment
Operating leases	$5,606	$5,766	$6,925

In March, the Company adopted a restructuring plan to close down Starrett Japan and Singapore operating units and continue to service that region out of Brazil and China with company agents servicing those countries. In the June quarter the Company expects to reduce its ROU asset and liabilities $0.1 million.

In September 2021, the Company entered into a six year lease in China for 100,682 square feet and recorded a right-of-use asset for $2.6 million. In July 2021, Starrett UK leased space to another company for annual rent of $0.2 million and incremental applicable service charges. The lease is a 20 year agreement with a contract review in 2026. The fees are recorded in Other Income in the Company's Consolidated Statement of Operations.

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 ~~4.1~~4.4 years. As of March 31, ~~2021,~~2022, the Company’s financing leases are de minimis. The foreign exchange impact affecting the operating leases ~~are~~was de ~~minimis.~~minimis in the March quarter and $0.1 million for the nine months ending March 31, 2022.

The Company entered into ~~$0.9~~$0.2 million and $2.8 million in new operating lease commitments and incurred de minimis exchange impact during the nine months ended March 31, 2021. In December 2020, the Company completed a sale and leaseback of its Mount Airy NC Facility (see note 13) and recognized a Right-Of-Use ("ROU") asset based on leasing 66,000 square feet in the amount of $0.8 million for a three year lease with an option for 2 more years.

commitments.

At March 31, ~~2021,~~2022, the Company had the following fiscal year minimum operating lease commitments (in thousands):


Nine months ended March 31, 2021		Operating Lease Commitments
2021 (Remainder of year)		$	574
2022		1,318
Nine months ended March 31, 2022				Nine months ended March 31, 2022	Operating Lease Commitments
2022 (Remainder of year)				2022 (Remainder of year)	$552
2023	2023	1,122		2023	1,813
2024	2024	917		2024	1,541
2025	2025	639		2025	1,143
2026				2026	1,050
Thereafter	Thereafter	511		Thereafter	826
Subtotal	Subtotal	$	5,081	Subtotal	$6,925
Imputed interest	Imputed interest	(806)		Imputed interest	(1,159)
Total	Total	4,274		Total	5,766

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. There are no shares available under the 2012 Plan.

On September 1, 2021, the Board of Directors adopted The L.S. Starrett Company 2021 Long Term Incentive Plan (the “2021 Stock Plan”). The 2021 Stock Plan was approved by shareholders on October 13, 2021.

Both the 2012 and 2021 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 2021 and 2012 Stock ~~Plan provides~~Plans provide for the issuance of up to 500,000 shares of common stock.

~~Options~~

Under both plans, options granted vest in periods ranging from one year to three years and expire ten years after the grant date. Restricted stock units (“RSU”) granted generally vest from one year to three years. Vested restricted stock units will be settled in shares of common stock. As of March 31, ~~2021,~~2022, there were ~~8,250~~0 stock options and ~~260,977~~196,307 restricted stock units outstanding. There were ~~10,477~~441,901 shares available for grant under the ~~2012~~2021 Stock Plan as of March 31, ~~2021.~~2022.

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).

~~NaN~~No stock options were granted during the nine months ended March 31, ~~2021~~2022 and ~~2020.~~2021.

~~The weighted average contractual term for~~There were no stock options outstanding as of March 31, ~~2021 was 1.8 years. The aggregate intrinsic value of~~2022. There were no stock ~~options outstanding as of March 31, 2021 was less than $0.1 million. Stock~~ options exercisable as of March 31, ~~2021 were 8,250 shares.~~2022. In recognizing stock compensation expense for the 2012 and 2021 Stock Incentive Plan, management has estimated that there will be 0no 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 ~~297,140~~80,500 RSU awards with a fair value of ~~$3.36~~$11.35 per RSU granted during the nine months ended March 31, ~~2021.~~2022. There were ~~102,670~~133,995 RSUs settled, and ~~3,834~~11,174 RSUs forfeited during the nine months ended March 31, ~~2021.~~2022. The aggregate intrinsic value of RSU awards outstanding as of March 31, ~~2021~~2022 was ~~$1.7~~$1.5 million. As of March 31, ~~2021,~~2022, all vested awards have 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. There are no longer any new entrants into this plan.

Compensation expense related to all stock-based plans for the three and nine-month periods ended March 31, ~~2021~~2022 were $0.1 million and ~~$0.6~~$0.4 million as compared to the prior year three and nine months of $0.1 million and ~~$0.3~~$0.6 million, respectively. As of March 31, ~~2021,~~2022, there was ~~$2.4~~$2.8 million of total unrecognized compensation costs related to outstanding stock-based compensation arrangements. Of this cost, ~~$1.7~~$2.1 million relates to performance based RSU grants that are not expected to be awarded. The remaining $0.7 million is expected to be recognized over a weighted average period of ~~1.8~~2.0 years.

Note 7: Inventories

Inventories consist of the following (in thousands):


		3/31/2021		6/30/2020			03/31/2022		06/30/2021
Raw material and supplies	Raw material and supplies	$	29,149	$	26,255	Raw material and supplies	$	36,064	$	29,271
Goods in process and finished parts	Goods in process and finished parts	13,673		13,694		Goods in process and finished parts	21,627		16,096
Finished goods	Finished goods	34,087		37,579		Finished goods	41,752		37,344
		76,909		77,528			99,443		82,711
LIFO Reserve	LIFO Reserve	(24,373)		(24,541)		LIFO Reserve	(26,368)		(22,139)
		$	52,536	$	52,987		$	73,075	$	60,572

Of the Company’s ~~$52.5~~$73.1 million and ~~$53.0~~$60.6 million total inventory at March 31, ~~2021~~2022 and June 30, ~~2020,~~2021, respectively, the ~~$24.4~~$26.4 million and ~~$24.5~~$22.1 million LIFO reserves belong to the U.S. Precision Tools and Saws Manufacturing “Core U.S.” business. The Core U.S. business total inventory was ~~$27.9~~$37.5 million on a FIFO basis and ~~$3.5~~$11.2 million on a LIFO basis at March 31, ~~2021.~~2022. The Core U.S. business had total Inventory, on a FIFO basis, of ~~$33.1~~$27.9 million and ~~$8.6~~$5.7 million on a LIFO

basis as of June 30, ~~2020.~~2021. The use of LIFO, as compared to FIFO, resulted in a ~~$0.5~~$4.3 million ~~decrease~~increase in cost of sales for the goods sold in the ~~nine months~~period ending March 31, ~~2021~~2022 compared to ~~$0.3~~$0.4 million increase in the nine months ~~ending~~ended March 31, ~~2020.~~2021.

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 oftotaling $4.7 million. During the fourth quarter of fiscal year 2020 the Company ~~considering the COVID-19 pandemic a triggering event for the private software company and Bytewise due to a drop in sales,~~ tested impairment of intangible assets according to ASC 360 "Property, Plant and Equipment" and determined the carrying value was deemed to be recoverable at Bytewise but not at the private software company where the impairment of intangibles was calculated. The Company concluded that intangible assets of the private software company were impaired by $2.9 million.

The Company then, according to ASC 350 Intangibles -Goodwill and Other, conducted a step one analysis performed based on the update carrying value for each reporting unit. Goodwill was determined to be impaired $0.6 million at the private software company and ~~goodwill~~Goodwill of $3.0 million was impaired at the Bytewise reporting unit as of June 30, 2020. As a result, the balance of ~~goodwill~~Goodwill at Bytewise is 0zero and $1.0 million at the private software company as of ~~March~~December 31, ~~2021.~~2020.

The Company will continue to perform an annual assessment of goodwill associated with its purchase of a private software company. If future results significantly vary from current estimates, related projections, or business assumptions due to changes in industry or market conditions, the Company may be required to perform an impairment analysis prior to our annual test date if a triggering event is identified. As of March 31, ~~2021, we~~2022 , the Company did not identify a triggering event.

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


	03/31/2022		6/30/2021
Trademarks and trade names	2,070		2,070
Completed technology	—		2,010
Customer relationships	630		630
Software development	11,025		10,244

Total	13,725		14,954
Accumulated amortization and impairment	(9,012)		(10,066)
Total net balance	$	4,713	$	4,888

3/31/2021 6/30/2020
Trademarks and trade names 2,070 2,070
Completed technology 2,010 2,010
Customer relationships 630 630
Software development 10,293 9,445
Total 15,003 14,155
Accumulated amortization and impairment (10,068) (9,158)
Total net balance $ 4,935 $ 4,997

The category completed technology became fully amortized in November 2021. 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 2021 and for each of the next five years and thereafter, is as follows (in thousands):


2021 (Remainder of year)		$	387
2022		1,331
2022 (Remainder of year)				2022 (Remainder of year)	$	359
2023	2023	1,096		2023	1,309
2024	2024	825		2024	1,039
2025	2025	666		2025	879
2026	2026	401		2026	669
2027				2027	298
Thereafter	Thereafter	229		Thereafter	160
Total net balance	Total net balance	$	4,935	Total net balance	$	4,713

Note 9: Pension and Post-retirement Benefits

The Company has 2 defined benefit pension plans, one for U.S. employees and another for U.K. employees. The Company has a postretirement medical insurance benefit plan for U.S. employees. ~~As of January 1, 2021, the Company no longer provided Life Insurance benefits for retirees.~~ 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 the Company's defined benefit pension plans are located in Other (expense), net in Consolidated Statements of Operations except (in the table below) for service cost. Service cost are in cost of sales and selling, general and administrative expenses. Net periodic benefit costs consist of the following (in thousands):


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		3/31/2021		3/31/2020		3/31/2021		3/31/2020			03/31/2022		03/31/2021		03/31/2022		03/31/2021
Service cost		$	0	$	0	$	0	$	0
Interest cost	Interest cost	1,120		1,362		3,351		4,077		Interest cost	1,026		1,120		3,090		3,351
Expected return on plan assets	Expected return on plan assets	(1,115)		(1,305)		(3,336)		(3,908)		Expected return on plan assets	(1,092)		(1,115)		(3,290)		(3,336)
Amortization of net loss	Amortization of net loss	13		9		40		28		Amortization of net loss	14		13		42		40
		$	18	$	66	$	55	$	197		$	(52)	$	18	$	(158)	$	55

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


		Three Months Ended				Nine Months Ended					Three Months Ended				Nine Months Ended
		3/31/2021		3/31/2020		3/31/2021		3/31/2020			03/31/2022		03/31/2021		03/31/2022		03/31/2021
Service cost	Service cost	$	21	$	18	$	64	$	55	Service cost	$	9	$	21	$	27	$	64
Interest cost	Interest cost	51		60		154		180		Interest cost	12		51		37		154
Amortization of prior service credit	Amortization of prior service credit	(134)		(134)		(403)		(403)		Amortization of prior service credit	(369)		(134)		(1,106)		(403)
Amortization of net loss	Amortization of net loss	41		20		124		62		Amortization of net loss	48		41		142		124
		$	(21)	$	(36)	$	(61)	$	(106)		$	(300)	$	(21)	$	(900)	$	(61)

For the three ~~and nine month period~~months ended March 31, ~~2021,~~2022 the Company did not contribute in the U.S. to the pension plan and contributed $0.3 million in the UK. For the nine month periods ended March 31, 2022, the Company contributed ~~$2.6~~$1.5 million, ~~and $5.4 million, respectively~~ in the U.S. and ~~$0.3 million and $0.7~~$0.8 million in the UK pension plans. Based upon the actuarial valuations performed on the Company’s defined benefit plans as of June 30, 2021, the contribution for fiscal 2022 for the U.S. plans would require a contribution of $5.6 million and the U.K. plan would require one of $1.0 million. However, as a result of the American Rescue Plan Act of 2021, the minimum required company contribution for the U.S. Plan in fiscal 2022 was reduced from $5.6 million to $0.6 million. The Company ~~estimates~~believes that itgovernment regulation is only a small part of deciding the pension funding, and as a result, has contributed more than the federal requirement. The Company will ~~contribute an additional $1.8 million for~~evaluate the ~~remainder of fiscal 2021.~~U.S. future contribution on a quarterly basis.

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):


		3/31/2021		6/30/2020			03/31/2022		06/30/2021
Short-term and current maturities	Short-term and current maturities					Short-term and current maturities
Loan and Security Agreement (Line of credit)						Loan and Security Agreement (Line of credit)	15,013		9,153
Loan and Security Agreement (Term Loan)	Loan and Security Agreement (Term Loan)	1,732		597		Loan and Security Agreement (Term Loan)	1,660		1,509
Brazil Loans	Brazil Loans	5,163		3,935		Brazil Loans	6,159		5,297
		6,895		4,532			22,832		15,959
Long-term debt (net of current portion)	Long-term debt (net of current portion)					Long-term debt (net of current portion)
Loan and Security Agreement (Term Loan)	Loan and Security Agreement (Term Loan)	6,147		5,941		Loan and Security Agreement (Term Loan)	4,758		6,010
Loan and Security Agreement (Line of Credit)		12,384		20,400
Brazil Loans						Brazil Loans	4,647		—
		18,530		26,341			9,405		6,010
		$	25,425	$	30,873		$	32,237	$	21,969

See Note 12 Subsequent events: On April 29, 2022, the Company and certain of the Company’s domestic subsidiaries entered into a new Loan and Security agreement with HSBC Bank USA.

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 ~~Line of credit~~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 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~~Under the Tenth Amendment, the credit limit for external borrowing was increased from $2.5 million to $5.0 million.

On June 25, 2020, the Borrowers and TD Bank entered into an amendment and restatement (the “Amendment and Restatement”) of the Loan Agreement. The Amendment and Restatement waived the fixed charge coverage ratio for the quarter ended June 30, 2020. In addition, the Amendment and Restatement clarifies that certain non-cash adjustments to the definition of EBITDA are permitted under the Loan Agreement, as amended. In addition, the Amendment and Restatement increases the permitted borrowings from a foreign bank from $5.0 million to $15.0 million and permits the Company to draw the remainder of the outstanding balance under the Loan Agreement.

Pursuant to the terms of the Company’s Amended and Restated Loan and Security Agreement of June 25, 2020, the “First Amendment” to this loan agreement was executed on September 17, 2020, which include, among other things, (i) pause testing of the Fixed Charge Coverage Ratio until September 30, 2021 and (ii) establishment of a new minimum cumulative EBITDA and minimum liquidity covenants in lieu thereof. TD Bank updated its security interests in the Company’s U.S. based assets, increased the maximum interest charged on the Line Of Credit from ~~and~~an annual interest rate of 2.25% plus ~~LIBOR~~Libor to 3.50% plus ~~LIBOR,~~Libor, and amended the borrowing base for the line of credit from 80% of Qualified AR and 50% of the lower of Cost or Market of US inventory values to 80% of qualified AR plus 85% of the Net Orderly Liquidation Value ~~("NOLV")~~(NOLV) of US Inventory plus 62.5% of total appraised US real estate values.

As a result of this change, the Company is projected to maintain its current borrowing capacity of $25,000,000 under the Line of Credit. The Company underwent a series of appraisals and field exams in all US locations as part of restructuring this agreement and will provide additional reporting supporting the borrowing base and covenants certifications. This minimum adjusted EBITDA covenant iswas based on the Company’s plan for a slow pandemic recovery throughout ~~fiscal 2021~~FY21 and the impact of the Company’s restructuring plan initiatives. ~~Under this amendment, the Company also agreed to apply all proceeds from the sale~~As of US real estate assets, except the Mt. Airy, North Carolina facility, against the principle balance of the term loan and line of credit. The Company agreed to apply the lesser of 50% or $2 million of the net proceeds from the sale of that facility against the principal balance of the Term Loan. Upon closing of the transaction during the quarter ending December 31, 2020, $2 million was applied against the principal balance of the Term Loan. The Agreement will revert to the existing covenant package for the quarter ending September 30, 2021, ~~and every quarter thereafter.~~the agreement has reverted to the prior covenant package. The Company was compliant with the minimum liquidity requirement and the minimum ~~adjusted cumulative EBITDA~~fixed charge coverage ratio required bank covenants as of March 31, 2022.

Total debt increased $10.3 million during the nine months ended March 31, 2022, $5.5 million of which was an increase in Brazil. This is in response to increased working capital levels required to meet strong customer demand and counteract pandemic related supply chain disruptions and increased transit times.

During the nine months ended March 31, 2022 the Brazilian subsidiary realized a build-up of ICMS (sales tax) credits, a consequence of the fiscal 2021 restructuring activities which increased the manufacturing activity and, therefore, raw material imports into Brazil. As the Company's Brazilian subsidiary is ~~expected~~now exporting a larger proportion of its sales, its ability to ~~comply~~re-claim these ICMS credits has been diminished. The Company is actively mitigating this consequence by filing applications with the ~~covenants over~~relevant tax authorities to change the ~~next twelve months.~~methodology of charging and re-claiming ICMS on imports and domestic sales so that this credit is subsequently relieved and does not increase at this rate again. This new methodology is common for similar sized, export focused companies in Brazil.

Availability under the Line of Credit remains subject to a borrowing base comprised of Accounts Receivable, Inventory, and Real Estate. 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 Company’s Brazilian subsidiary incurs short-term loans with local banks in order to support the Company’s strategic initiatives. The loans are backed by the entity’s US dollar denominated export receivables. The Company’s Brazilian subsidiary has the following loans of March 31, ~~2021~~2022 (in thousands):

Lending Institution Interest Rate Beginning Date Ending Date Outstanding Balance
Bradesco 5.18 % May 2020 May 2021 $ 288
Santander
10.18 % November 2020 May 2021 $ 263
Brazil Bank 4.30 % September 2020 August 2021 $ 991
Brazil Bank 3.38 % November. 2020 November 2021 $ 900
Bradesco 2.37 % December 2020 December 2021 $ 1,000
Bradesco 4.74 % December 2020 December 2021 $ 527
Santander 5.98 % February 2021 February 2022 $ 1,194
$ 5,163


Lending Institution	Interest Rate	Beginning Date	Ending Date	Outstanding Balance
Banco do Brasil SA	2.80%	May 2021	May 2022	$	20
Banco Bradesco SA	1.88%	July 2021	July 2022	$	671
Banco Bradesco SA	2.05%	August 2021	July. 2022	$	284
Banco Santander (Brasil) S.A	2.15%	August 2021	July 2022	$	399
Banco do Brasil SA	2.10%	August 2021	August 2022	$	1,299
Banco Itaú Unibanco	4.52%	October 2021	September 2024	$	4,000
Banco Santander (Brasil) S.A	2.71%	December 2021	July 2022	$	1,000
Banco Bradesco SA	2.05%	January 2022	January 2023	$	1,000
Banco Itaú Unibanco	4.98%	February 2022	February 2024	2,133

				$	10,806

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. Beginning in fiscal 2019, the Company incorporated certain provisions of the Act in the calculation of the tax provision and effective tax rate, including the provisions related to the Global Intangible Low Taxed Income (“GILTI”), Foreign Derived Intangible Income (“FDII”), Base Erosion Anti Abuse Tax (“BEAT”), as well as other provisions, which limit ~~the ability to deduct~~tax deductibility of expenses.

The GILTI provisions ~~are expected to~~ have had 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.

In July 2020, the IRS issued final regulations and additional proposed regulations that address the application of the high-taxed exclusion from GILTI. Under these regulations, the Company can make an annual election to exclude from its GILTI inclusion, income from its foreign subsidiaries that’s effective income tax rate exceeds 18.9% for that year. The regulations must be applied for tax years beginning after July 23, 2020 but companies have the option to apply retroactively for tax years beginning after December 31, 2017 and before July 23, 2020. In the first quarter of fiscal 2021 the Company recognized a discrete tax benefit of ($2.7) million related to the impact of electing to apply the high-tax exclusion retroactively for fiscal year 2019 and fiscal year 2020.

For the three month period ended March 31, 2022, the Company recognized tax expense of $1.8 million on a profit before tax of $6.1 million or an effective tax rate of 29%. For the three month period ended March 31, 2021, the Company recognized tax expense of $1.5 million on a profit before tax of $4.5 million or an effective tax rate of 33%. The tax rate for both fiscal 2022 and fiscal 2021 was higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%. , offset by tax credits and permanent deductions generated from research expenses.

For the ~~three~~nine month period ended March 31, ~~2020,~~2022, the Company recognized tax ~~benefit~~expense of ~~$(0.3)~~$3.9 million on a profit before tax of ~~$0.3~~$14.0 million or an effective tax rate of ~~(100)%~~28%. ~~The tax rate for fiscal 2020~~This was ~~lower~~higher than the U.S. statutory tax rate of 21% primarily due to the GILTI

provisions and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by discrete tax benefits recognized from excess stock compensation deductions, tax credits, and ~~the impact of~~ permanent ~~deductible and nondeductible items and~~deductions generated from research ~~credits. The impact of these items on the tax rate is substantial based on the Company’s profit being $0.3 million in the third quarter of 2020.~~

expenses. For the nine month period ended March 31, ~~2021,~~2021. the Company recognized a tax ~~provision~~expense of $1.1 million on a profit before tax of $12.1 million or an effective tax rate of 9%~~. Before~~.This was lower than the U.S. statutory tax rate of 21% primarily due to the discrete benefits relating to legislation enacted during the first quarter of fiscal 2021 in the amount of ($2.7) million related to the impact of the GILTI high-tax exclusion and ($0.2) million related to the impact of the increase in UK corporate tax rate on the net deferred tax ~~asset, tax expense was $4.1 million or 34% of pre-tax income. This was higher than~~asset. Other factors impacting the ~~U.S. statutory~~ tax rate ~~of 21% primarily due to~~include the GILTI provisions and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by tax credits and permanent deductions generated from research expenses. For the nine month period ended March 31, 2020. the Company recognized tax expense of $0.8 million on a profit before tax of $3.4 million or an effective tax rate of 24%. The tax rate for fiscal 2020 was higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions, and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%.

U.S. Federal tax returns for years prior to fiscal ~~2017~~2018 are generally no longer subject to review by tax authorities; however, tax loss carryforwards from earlier years are still subject to adjustment. As of March 31, ~~2021,~~2022, 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 thethe 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 2015 – 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 included in taxable income. While the Company continues to believe that forecasted future taxable income provide sufficient evidence to, more likely than not, support the realization of the tax benefits provided by those differences; the impact of COVID-19 may significantly impact its ability to forecast future pre-tax earnings in certain jurisdictions. ~~If its forecasts are significantly impacted, the Company may need to record a valuation allowance on some or all its deferred tax assets as soon as the current fiscal year end.~~

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: Restructuring

In March 2022, the Company adopted restructuring plans at a total projected cost of $1.6 million, of which $0.9 million related to the closure of its distribution and sales centers in Singapore and Japan, and $0.7 million for the refinancing of the Company's domestic credit facilities. The Company will continue to service Asia out of Brazil and China, and the plan is expected to be completed by June 30, 2022. The cost to close the Singapore and Japan operations is comprised of $0.6 million in headcount reduction, $0.2 in fixed asset and lease disposal, and $0.1 million in professional fees The Company anticipates an annualized savings reflected in the Consolidated Statements of Operations in Selling, General and Administrative expenses for this project of $0.6 million.

In the quarter ending March 31, 2022, the Company recorded $0.7 million in restructuring charges, of which $0.4 million was accrued and $0.1 million was incurred in relation to headcount reduction costs related to the Singapore and Japan closure and $0.2 million was incurred in relation to the refinancing of the Company's domestic credit facilities. Additional restructuring charges anticipated for both the Japan and Singapore closure and the residual amount for the refinancing of the Company's domestic credit facilities will be recorded as incurred in the quarter ending June 30, 2022.

Note ~~12:~~13: Contingencies

The Company is involved in certain legal matters, which arise, in the normal course of business. ~~Management believes~~The Company does not believe it is ~~not~~ reasonably possible that these matters will have a material ~~negative~~ impact on the Company's financial condition ~~results of operations~~ or cash ~~flows.~~

~~Note 13: Facility Sale and Leaseback~~flows

The Company completed a sale and leaseback of the Mount Airy, North Carolina facility in December 2020. The Company sold 3 buildings amounting to 313,000 square feet with proceeds of $5.2 million. The carrying value of the property was $2.0 million resulting in a gain in the amount of $3.2 million. The Company entered into an operating lease for 66,000 square feet for on-going operations and recorded a right-of-use asset of $0.8 million. The lease term is for three years with an option for ~~two~~ ~~more years.~~

Note 14: ~~Restructuring~~Subsequent Events

On April 29, 2022, the Company and certain of the Company’s domestic subsidiaries entered into a new Loan and Security agreement with HSBC Bank USA.

These new credit facilities replaced the Company’s previous TD Bank credit facilities and are comprised of a $30 million revolving line of credit with a $10 million uncommitted accordion provision, a $12.1 million term loan and a $7 million Capital Expenditure draw down credit facility. The Facilities are secured by a valid first-priority security interest on substantially all existing and future assets of the Company and its domestic subsidiaries.

The interest rate on the new facilities is based on a grid which uses the percentage of the remaining availability of the revolving credit line to determine the floating margin to be added to the one month or three-month Secured Overnight Financing Rate, herein "SOFR". The initial rate for the first three months of the agreement is the one-month SOFR plus 1.60%. The new credit facilities mature on April 29, 2027.

Availability under the revolving line of credit is secured by and subject to a borrowing base comprised of eligible inventory and accounts receivable. The percentage of receivables included in the borrowing base is 90% for domestic investment grade and foreign insured accounts, 85% for domestic accounts that are neither investment grade nor insured, and 75% of foreign uninsured accounts. The percentage of inventory included in the borrowing base is the lower of 65% of the value of eligible inventory at cost or 85% of the net orderly liquidation value of eligible inventory at cost. The initial borrowing base is estimated at about $19 million. Receivables and inventory are reported monthly to HSBC and subject to an annual field exam and inventory appraisal by an independent auditor commissioned by the Bank. The Company believes that the agreement provides an initial borrowing base sufficient for current domestic working capital needs and flexibility to accommodate potential growth-related working capital needs.

Availability under the Term Loan facility was comprised of 70% of the fair market value of the Borrowers’ eligible real estate, which included facilities located in Westlake, Ohio, and Waite Park, Minnesota and totaled $4.6 million; and 85% of the net orderly liquidation value of the Borrowers’ machinery and equipment, capped at $7.5 million. The real estate portion of the Term facility is subject to a 12.5 year straight line amortization paid quarterly, and the machinery and equipment portion of the facility is subject to a 6.67 year straight line amortization, also paid quarterly. The term loan is subject to equal quarterly installments of $373,650, payable on the last day of each fiscal quarter.

The ~~COVID-19 pandemic created~~capital expenditure loan facility is available for the purchase of new machinery and equipment at 80% of the net invoice value of new machinery and equipment purchases, with a ~~negative impact on global sales. The impact was felt as early as January 2020 in~~draw period of eighteen months past the ~~Company’s operation in Suzhou, China and most significantly in March 2020 in North America and in~~closing date, with any amount outstanding under the ~~UK. The Company took austerity measures, reducing payroll and managing variable operational spending~~facility subject to ~~help mitigate the shortfall. In addition, the Company is investing in~~ a strategic realignment focused on a lower cost structure, long term, designed to maximize our global factory utilization. In June 2020, the Company recorded a $1.6 million restructuring charge of which $1.0 million remained in accrued expenses on the Consolidated Balance Sheets at fiscal 2020 year end. That accrued expense balance was 0 as of March 31, 2021. Total restructuring cost of $4.3 million, with $1.2 million in the U.S. and $3.1 million internationally, is expected to drive annual savings of $10-14 million beginning in fiscal 2021 as planned implementation throughout the year, with full annual savings realized in fiscal 2022. These savings will be reflected in the Consolidated Statements of Operations in a reduction to cost of goods sold and selling, general and administrative expenses.3.75% amortization rate per quarter.

The new credit facilities contain financial covenants with respect to a minimum fixed charge coverage ratio of 1.00, measured on a trailing twelve-month basis, for both the U.S. borrowing companies tested quarterly and the Consolidated L.S. Starrett Company ~~adopted this plan in order to consolidate~~tested semi-annually. The Loan and Security agreement also contains the customary affirmative and negative covenants, including limitations on indebtedness, liens, acquisitions, asset dispositions, fundamental corporate changes, excess pension contributions, and certain ~~saw manufacturing operations for greater efficiency. This restructuring is strategic to improving manufacturing utilization globally~~customary events of default. Upon the occurrence or continuation of an event of default, the Lender may terminate all commitments and ~~will be completed in fiscal 2021. Since~~facilities, and require the ~~project was announced in~~immediate payment of the quarter ended June 2020, $3.0 million has been charged as restructuring expense including $1.5 million that was incurred in the nine months ended March 31, 2021. The Company expects to charge an additional $1.3 million in the remaining three months of fiscal 2021. The Company has recorded a gain on the sale of property, plantentire unpaid principal balances, accrued interest, and ~~equipment internationally of $0.2 million, related to restructuring. The Company does not expect a material amount of disposal costs.~~

all other obligations.

2019

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

RESULTS OF OPERATIONS

Use of Non- ~~U.S.~~ GAAP Financial Measures

In "Management's discussion and analysis on financial condition and results of operations" in this quarterly report on Form 10-Q, we discuss ~~non-U.S.~~non- GAAP financial measures related to currency-neutral sales, ~~revenues,~~ as well as adjusted operating ~~income to adjust for restructuring costs and the gain on the sale of assets that are reflected in one period but not the other in order to show comparative operational performance.~~income.

We present these ~~non-U.S.~~non- GAAP financial measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by eliminating items that we do not believe are indicative of our core operating performance. Such ~~non-U.S.~~non- GAAP financial measures assist investors in understanding the ongoing operating performance of the Company by presenting financial results between periods on a more comparable basis. Such measures should be considered in addition to, and not in lieu of, the financial measures calculated and presented in accordance with accounting principles generally accepted in the United States of America (“~~U.S.~~ GAAP”). Currency-neutral ~~sales~~numbers are calculated using actual exchange rates in use during the comparative prior year period to enhance the visibility of the underlying business trends excluding the impact of translation arising from foreign currency exchange rate fluctuations. Adjusted operating income adjusts for restructuring costs and the gain on the sale of assets in order to show comparative operational performance. We include a reconciliation of currency-neutral revenues and adjusted operating income to its comparable ~~U.S.~~ GAAP financial measures.

References to currency-neutral ~~revenues~~sales and adjusted operating income should not be considered in isolation or as a substitute for other financial measures calculated and presented in accordance with ~~U.S.~~ GAAP and may not be comparable to similarly titled ~~non U.S~~non- GAAP financial measures used by other companies. In evaluating these ~~non-U.S. GAAP~~non-GAAP financial measures, investors should be aware that in the future we may incur expenses or be involved in transactions that are the same as or similar to some of the adjustments in this presentation. Our presentation of ~~non-U.S. GAAP~~non-GAAP financial measures should not be construed to imply that its future results will be unaffected by any such adjustments. ~~Non-U.S. GAAP~~Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under ~~U.S.~~ GAAP.

Please see Note 2 regarding segment results of operations. 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 following tables as well as Note 2. These tables above are included to better explain our consolidated operational performance by showing more detail by business segment and reconciling ~~U.S.~~ GAAP operating income and adjusted operating income.

The following table represents key results of operations on a consolidated basis for the ~~periods indicated:~~

Three Months Ended (unaudited) Nine Months Ended (unaudited)
(Amounts in thousands) 3/31/2021 3/31/2020 $ Change favorable (unfavorable) % Change 3/31/2021 3/31/2020 $ Change favorable (unfavorable) % Change
Net sales $ 54,944 $ 49,998 $ 4,946 9.9 % $ 158,408 $ 158,976 $ (568) (0.4) %
Gross margin 18,149 14,844 3,305 22.3 % 51,326 51,183 143 0.3 %
% of net sales 33.0 % 29.7 % 32.4 % 32.2 %
Selling, general and administrative expenses 13,511 14,780 1,269 8.6 % 41,126 46,912 5,786 12.3 %
% of net sales 24.6 % 29.6 % 26.0 % 29.5 %
Restructuring charges 788 0 (788) (100.0) % 1,518 0 (1,518) (100.0) %
Gain on sale of building 0 0 — — % (3,204) 0 3,204 100.0 %
GAAP Operating income as reported 3,850 64 3,786 5916.1 % 11,886 4,271 7,615 178.3 %
Other income (expense), net 663 223 440 197.3 % 236 (833) 1,069 128.3 %
Income before income taxes 4,513 287 4,226 1472.6 % 12,122 3,438 8,684 252.6 %
Income tax expense (benefit) 1,496 (326) (1,822) 558.9 % 1,132 787 (345) (43.8) %
Net income $ 3,017 $ 613 $ 2,404 392.2 % $ 10,990 $ 2,651 $ 8,339 314.6 %

three months and nine months ended March 31, 2022 and March 31, 2021:

U.S. GAAP to Non-U.S GAAP reconciliation:
Three Months Ended Nine Months Ended
(Amounts in thousands) 03/31/2021 3/31/2020 $ Change favorable (unfavorable) % Change 3/31/2021 3/31/2020 $ Change favorable (unfavorable) % Change
Operating income as reported $ 3,850 $ 64 $ 3,786 5916 % $ 11,886 $ 4,271 $ 7,615 178 %
Removing restructuring charges (adding back) 788 — (788) — 1,518 — (1,518) —
Less gain on sale of building — — — — (3,204) — 3,204 —
Adjusted operating income $ 4,638 $ 64 $ 4,574 7147 % $ 10,200 $ 4,271 $ 5,929 139 %
% of net sales 8.4 % 0.1 % 8.3 basis points 6.4 % 2.7 % 3.8 basis point

2220


	Three Months Ended										Nine Months Ended
(Amounts in thousands)	03/31/22			03/31/2021			$ Change favorable (unfavorable)		% Change		03/31/2022			03/31/2021			$ Change favorable (unfavorable)	% Change
Net sales	$	60,479		$	54,944		$	5,535	10.1	%	$	183,311		$	158,408		24,903	15.7	%
Gross margin	21,020			18,149			2,871		15.8��	%	60,114			51,326			8,788	17.1	%
% of net sales	34.8		%	33.0		%					32.8		%	32.4		%

Selling, general and administrative expenses	14,988			13,511			(1,477)		(10.9)	%	45,750			41,126			(4,624)	(11.2)	%
% of net sales	24.8		%	24.6		%					25.0		%	26.0		%

Restructuring charges	658			788			130		(100.0)	%	658			1,518			860	(100.0)	%
Gain on sale of building	—			—			—		—	%	—			(3,204)			(3,204)	100.0	%

Operating income	5,374			3,850			1,524		39.6	%	13,706			11,886			1,820	15.3	%

Other income, net	684			663			21		3.1	%	249			236			13	(5.4)	%

Income before income taxes	6,058			4,513			1,545		34.2	%	13,955			12,122			1,833	15.1	%

Income tax expense	1,774			1,496			(278)		(18.6)	%	3,911			1,132			(2,779)	(245.5)	%

Net income	$	4,284		$	3,017		1,267		42.0	%	$	10,044		$	10,990		(946)	(8.6)	%


GAAP to Non-GAAP reconciliation:
	Three Months Ended							Nine Months Ended
(Amounts in thousands)	03/31/22		03/31/2021		$ Change favorable (unfavorable)	% Change		03/31/2022		03/31/2021		$ Change favorable (unfavorable)	% Change
Operating income as reported	5,374		3,850		1,524	39.6	%	13,706		11,886		1,820	15.3	%
Add back restructuring charges	658		788		(130)	(16.5)	%	658		1,518		(860)	(56.6)	%
Less gain on sale of building	—		—		—	—	%	—		(3,204)		3,204	100.0	%
Non- GAAP adjusted operating income	6,032		4,638		1,394	30.1	%	14,365		10,200		4,165	40.8	%
% of net sales	10.0	%	8.4	%				7.8	%	6.4	%

The following table represents key results of operations for three months ending March 31, 2022 and 2021 based on our business aggregated into two reportable segments according to geography of operations: North American Operations and ~~2020~~International Operations as reflected in the table below:


	Three Months Ended March 31, 2022											Three Months Ended March 31, 2021
(Amounts in thousands)	North America			International			Corporate		Total			North America			International			Corporate		Total
Net sales	$	36,288		$	24,191		$	—	$	60,479		$	32,519		$	22,425		$	—	$	54,944
Gross margin	11,713			9,306			—		21,019			9,741			8,409					18,149
% of net sales	32.3		%	38.5		%			34.8		%	30.0		%	37.5		%			33.0		%

Selling, general and administrative expenses	6,789			6,282			1,917		14,989			6,627			5,111			1,772		13,510
% of net sales	18.7		%	26.0		%			24.8		%	20.4		%	22.8		%			24.6		%

Restructuring charges	261			397			—		658			182			606			—		788
Gain on sale of building	—			—			—		—			—			—			—		—

Operating income (loss)	$	4,663		$	2,627		$	(1,917)	$	5,373		$	2,932		$	2,692		$	(1,772)	$	3,851
% of net sales	12.9		%	10.9		%			8.9		%	9.0		%	12.0		%			7.0		%
Add back restructuring charges	261			397			—		658			182			606			—		788
Less gain on sale of building	—			—			—		—			—			—			—		—

Non-GAAP adjusted operating income	$	4,924		$	3,024		$	(1,917)	$	6,031		$	3,114		$	3,298		$	(1,772)	$	4,639
% of net sales	13.6		%	12.5		%			10.0		%	9.6		%	14.7		%			8.4		%

The following table represents key results of operations for nine months ending March 31, 2022 and 2021 based on our business aggregated into two reportable segments according to geography of operations : North American Operations and International Operations:

Three Months Ended March 2021 (unaudited) Three Months Ended March 2020 (unaudited)
(Amounts in thousands) North America International Corporate Total North America International Corporate Total
Net sales $ 32,519 $ 22,425 — $ 54,944 33,369 16,629 0 49,998
Gross margin (loss) 9,741 8,408 — 18,149 8,802 6,149 (107) 14,844
% of net sales 30.0 % 37.5 % 33.0 % 26.4% 37.0% 29.7%
Selling, general and administrative expenses 6,628 5,111 1,773 13,511 7,465 5,701 1,614 14,780
% of net sales 20.4 % 22.8 % 24.6 % 22.4% 34.3% 29.6%
Restructuring charges 182 605 — 788 — — — —
Operating income $ 2,931 $ 2,692 $ (1,773) $ 3,850 1,337 448 (1,721) 64
% of net sales 9.0 % 12.0 % 7.0 % 4.0 % 2.7 % 0.1 %

U.S. GAAP to Non-U.S. GAAP reconciliation:
Three Months Ended March 2021 Three Months Ended March 2020
(Amounts in thousands) North America International Corporate Total North America International Corporate Total
Operating income as reported $ 2,931 $ 2,692 $ (1,773) $ 3,850 $ 1,337 $ 448 $ (1,721) $ 64
Restructuring charges 182 605 — 788 — — — —
Adjusted operating income $ 3,113 $ 3,297 $ (1,773) $ 4,638 $ 1,337 $ 448 $ (1,721) $ 64
% of net sales 9.6 % 14.7 % 8.4 % 4.0 % 2.7 % 0.1 %


	Nine Months Ended March 31, 2022											Nine Months Ended March 31, 2021
(Amounts in thousands)	North America			International			Corporate		Total			North America			International			Corporate		Total
Net sales	$	102,763		$	80,548		$	—	$	183,311		$	85,609		$	72,800		$	—	$	158,408
Gross margin	29,568			30,545			—		60,113			24,500			26,826			—		51,326
% of net sales	28.8		%	37.9		%			32.8		%	28.6		%	36.8		%			32.4		%

Selling, general and administrative expenses	20,594			19,544			5,611		45,749			18,257			17,340			5,529		41,126
% of net sales	20.0		%	24.3		%			25.0		%	21.3		%	23.8		%			26.0		%

Restructuring charges	261			397			—		658			836			682			—		1,518
Gain on sale of building	—			—					—			(3,204)			—			—		(3,204)

Operating income (loss)	$	8,713		$	10,604		$	(5,611)	$	13,706		$	8,612		$	8,805		$	(5,529)	$	11,886
% of net sales	8.5		%	13.2		%			7.5		%	10.1		%	12.1		%			7.5		%
Add back restructuring charges	261			397			—		658			836			682			—		1,518
Less gain on sale of building	—			—			—		—			(3,204)			—			—		(3,204)

Non-GAAP adjusted operating income	$	8,974		$	11,001		$	(5,611)	$	14,364		$	6,244		$	9,486		$	(5,529)	$	10,200
% of net sales	8.7		%	13.7		%			7.8		%	7.3		%	13.0		%			6.4		%

2322

~~The following table represents key results of operations for nine months ending March 31, 2021~~


US GAAP to NON-U.S. GAAP Reconciliation

(Amounts in Thousands)	Quarter Ended 3/31/2022	Comparison to Quarter Ended 12/31/2020				Fiscal 2022 YTD 3/31/2022	Comparison Fiscal 2021 YTD 3/31/2021
		3/31/2021	$ Change	% Change			3/31/2021	$ Change	% Change
Net Sales, as reported	$60,478	$54,944	$5,534	10.1	%	$183,310	$158,408	$24,902	15.7	%
Change when converting FY22 sales in non USD functional currencies at the same exchange rates used in the comparison period	(1,270)	-				(2,531)	-
FY22 Currency Neutral Net Sales	$59,208	$54,944	$4,264	7.8	%	$180,779	$158,408	$22,371	14.1	%


	Three Months Ended				Nine Month Ended
	03/31/22		03/31/2021		03/31/22		03/31/2021
Net income	$	4,284	$	3,017	$	10,044	$	10,990
Less Gain on sale	—		—		—		(3,204)
Less GILTI Recalculation 9-30-20	—		—		—		(2,608)
Non-GAAP adjusted Net Income	$	4,284	$	3,017	$	10,044	$	5,178

Shares diluted	7,492		7,390		7,480		7,335

Diluted EPS as reported	$	0.57	$	0.41	$	1.34	$	1.50
Non-GAAP adjusted diluted EPS	$	0.57	$	0.41	$	1.34	$	0.71

Three-month and ~~2020 based on our business aggregated into two reportable segments according to geography of operations: North American Operations and International Operations:~~

Nine Months Ended March 2021 (unaudited) Nine Months Ended March 2020 (unaudited)
(Amounts in thousands) North America International Corporate Total North America International Corporate Total
Net sales $ 85,609 $ 72,799 $ — $ 158,408 $ 97,475 $ 61,501 $ — $ 158,976
Gross margin 24,500 26,826 — 51,326 28,472 22,679 32 51,183
% of net sales 28.6 % 36.8 % 32.4 % 29.2 % 36.9 % 32.2 %
Selling, general and administrative expenses 18,257 17,340 5,529 41,126 $ 22,255 $ 19,610 $ 5,047 $ 46,912
% of net sales — — — — — —
Restructuring charges 836 682 — 1,518 — — — —
Gain on sale of building (3,204) — — (3,204) — — — —
Operating income $ 8,611 $ 8,804 $ (5,529) $ 11,886 $ 6,217 $ 3,069 $ (5,015) $ 4,271
% of net sales 10.1 % 12.1 % 7.5 % 6.4 % 5.0 % 2.7 %

U.S. GAAP to Non-U.S. GAAP reconciliation:
Nine Months Ended March 2021 Nine Months Ended March 2020
(Amounts in thousands) North America International Corporate Total North America International Corporate Total
Operating income as reported $ 8,611 $ 8,804 $ (5,529) $ 11,886 $ 6,217 $ 3,069 $ (5,015) $ 4,271
Restructuring charges 836 682 — 1,518 — — — —
Gain on sale of building (3,204) — — (3,204) — — — —
Adjusted operating income $ 6,243 $ 9,486 $ (5,529) $ 10,200 $ 6,217 $ 3,069 $ (5,015) $ 4,271
% of net sales 7.3 % 13.0 % 6.4 % 6.4 % 5.0 % 2.7 %

~~Three and Nine Months~~Nine-month Periods Ended March 31, ~~2021~~2022 and March 31, ~~2020~~2021

Overview

New order intake remained strong across all areas of the business during the nine months ended March 31, 2022, representing an increase of over 21% compared to the nine months ended March 31, 2021 . As a result, backlog remained at historically high levels, over 69% higher as of March 31, 2022 compared to March 31, 2021. The Company expects this trend to continue throughout the remainder of Fiscal 2022.

Net sales in the ~~quarter~~three months ended March 31, ~~2021~~2022 were ~~$55.0 million, up $5.0~~$60.5 million, an ~~improvement~~increase of ~~10.0%~~$5.5 million, or 10.1% compared to ~~$50.0~~$54.9 million in the ~~quarter~~three months ended March 31, ~~2020.~~2021. Net Sales in the nine months ended March 31, ~~2021 of $158.4~~2022 were $183.3 million, compared to ~~$159.0~~$158.4 million for the ~~same~~ nine ~~month period ending~~months ended March 31, ~~2020, were lower by $0.6~~2021, representing an improvement of $24.9 million, or ~~0.4%~~15.7%. ~~Foreign~~

Although foreign currency translation ~~negatively impacted reported~~impact in aggregate has been minimal over the first nine months of Fiscal 2022, the United States Dollar has weakened in the quarter just ended on March 31, 2022, particularly in relation to the Brazilian Real. This has had the impact of inflating Net Sales by $2.5 million through the nine months ending on March 31, 2022. Currency neutral net sales ~~by $2.6 million~~ for the three months ended March 31, ~~2021. On a foreign~~2022 were $59.2 million, an increase of $4.3 million or 7.8% compared to $54.9 million in the three months ended March 31, 2021. For the nine months ended March 31, 2022, currency neutral ~~basis,~~net sales inwere lower than reported sales at $180.8 million, representing an increase of $22.4 million, or 14.1% over the ~~quarter ending~~$158.4 million reported for the nine months ended March 31, 2021 increased 15.0% from the quarter ending March 31, 2020. Over the nine month period ending March 31, 2021, the unfavorable currency impact on reported Net Sales was $12.8 million. Therefore, on a currency neutral basis, Net Sales have increased by 7.7% for the first nine months of this fiscal year compared to last fiscal year.2021.

Operating income in the ~~quarter~~three months ended March 31, ~~2021~~2022 of ~~$3.8~~$5.4 million or 7%8.9% of sales, was ~~an improvement of $3.7~~$1.5 million ~~over~~or 39.6% higher than the ~~same~~Operating income reported for three ~~month period ending~~months ended March 31, ~~2020.~~2021. Operating income in the nine ~~month periods ending March 31, 2021 and March 31, 2020 was increased by 178% to $11.9 million from $4.3 million in the prior fiscal year. Adjusting to compare operationally, in the three~~ months ended March 31, ~~2021, removing restructuring cost~~2022 of ~~$0.8~~$13.7 million ~~adjusted operating income~~ was ~~$4.6~~$1.8 million or ~~8.4% of sales versus $0.1 million or 0.1% of sales for~~15.3% higher than the ~~three month~~same period ~~ending March 31, 2020. In the nine months period ended March 31, 2021 as compared to 2020, when removing the impact of $1.5 million in restructuring charges and the~~last year, which included a $3.2 million gain on the sale of ~~our~~the Mt. Airy, North Carolina building and $1.5 million of restructuring charges or $0.8 million more in restructuring than the nine months ended March 31, 2022. Eliminating the restructuring cost and the one-time gain on the sale of the Mt. Airy North Carolina facility from the nine months ended March 31, 2021 and the restructuring cost in ~~December, 2020,~~nine

months ended March 31, 2022, non-GAAP adjusted operating income ~~was $10.2~~increased 40.8% or $4.2 million ~~or 6.4%~~to $14.4 million which is 7.8% on sales of ~~sales versus $4.3~~$183.3 million ~~or 2.7% of sales in~~for the ~~same nine-month period ending in~~nine months ended March ~~2020.~~31, 2022.

~~This improvement is the result of aligning our cost structure to current pandemic demand and on-going restructuring, and strong sales growth internationally, especially in Brazil.~~ The Company continues to benefit from its restructuring activities completed in Fiscal 2021 that have

resulted in a reduction of excess production capacity and selling, general and administrative ~~expenses~~expenses. However, pandemic related challenges have continued to evolve in relation to supply chain, freight costs, logistics, wage inflation and labor shortages which impact plant utilization in North America. These challenges are offsetting those restructuring gains in the short term, and are expected to continue throughout the remainder of ~~$1.3 million~~fiscal 2022. In an effort to mitigate the impact of these challenges, the Company implemented price increases in the first quarter of fiscal 2022 in Brazil and in the U.S.. Additional price increases and surcharges on shipped orders were implemented on a rolling basis throughout the third quarter of fiscal 2022. Price increases and surcharges were successfully implemented and taking nearly full effect during the quarter ended March 31, 2022, resulting in an overall improvement of gross margin to 34.8%, representing an improvement of 390 basis points from the quarter ending December 31, 2021.

Net income for the three months ~~ending~~ended March 31, 2022 was $4.3 million which included $0.7 million of restructuring expense, and was $1.3 million or 42.0% higher than the Net Income reported for the three months ended March 31, 2021 ~~and $5.8~~of $3.0 million inwhich included $0.8 million of restructuring expense.

Net income for the nine months ~~ending~~ended March 31, 2022 was $10.0 million, including $0.7 million of restructuring expense as compared to $11.0 million for the nine months ended March 31, 2021. The nine months ended March 31, 2021 ~~compared to~~included the ~~same periods respectively ending March 31, 2020.~~

~~As presented on separate lines on the Consolidated Statements of Operations are a~~$3.2 million gain on the sale of the Company’s Mt. Airy, North Carolina facility and $1.5 million of restructuring expense. Diluted earnings per share "EPS" were $0.57 compared to $0.41 in the three months ended March 31, 2022 versus the prior year. Diluted EPS were $1.34 compared to $1.50 in the nine months ended March 31, 2022 versus the prior year which included a gain of $3.2 million on a building sale and ~~$1.5~~a $2.6 million GILTI tax credit in September 2020 . In removing those two items the Non-GAAP adjusted diluted EPS would be $0.71.

In March 2022, the Company adopted restructuring ~~charges~~plans at a total projected cost of $1.6 million, of which ~~$0.8~~$0.9 million related to the closure of its distribution and sales centers in ~~the U.S.~~Singapore and Japan, and $0.7 million ~~internationally associated with~~for the ~~fiscal year 2021~~refinancing of the Company's domestic credit facilities. The Company will continue to service Asia out of Brazil and China, and the plan ~~as disclosed~~is expected to be completed by June 30, 2022. The cost to close the Singapore and Japan operations is comprised of $0.6 million in headcount reduction, $0.2 in fixed asset and lease disposal, and $0.1 million in professional fees The Company anticipates an annualized savings reflected in the ~~June 30, 2020 Form 10-K as well as~~Consolidated Statements of Operations in Selling, General and Administrative expenses for this project of $0.6 million. (See Note ~~14.~~12 Restructuring)

~~Net income improved~~The COVID pandemic has recently impacted our operation in Suzhou, China and still could have an impact globally. Along with the on-going global supply chain slowing, the Suzhou China operation is impacted by ~~$2.4 million~~government controls as it relates to ~~$3.0 million~~pandemic related cases and it affects the Company's ability to bring in material and ship finished product to third-party customers and Starrett intercompany partners. Currently, it has not materially affected the Company's Consolidated Statement of Operations, but it remains very difficult for management to predict pandemic related resolution. As a result, management continues its planning process and expects its Suzhou plant to continue to have logistical difficulties in the quarter ~~ended March 31, 2021, and by $8.3 million to $11.0 million in the nine month period~~ ending ~~March 31, 2021 compared to the same periods respectively ending March 31, 2020.~~

June 30, 2022.

Net Sales

The Company’s net sales for the ~~quarter~~three months ended March 31, ~~2021~~2022 were ~~$55.0~~$60.5 million versus ~~$50.0~~$54.9 million for the same period a year prior. North America sales of ~~$32.5~~$36.3 million ~~a decline of $0.9 million in quarter ended March 31, 2021 from $33.4 million in 2020, were more than offset by~~represents an increase of ~~$5.8~~$3.8 million ~~in International sales to $22.4 million~~or 11.6% in the quarter ended March 31, 2022. International Sales increase of $24.2 million during the quarter ended March 31, 2022 from $22.4 million during the quarter ended March 31, 2021, ~~versus $16.6~~an increase of $1.8 million ~~in 2020.~~or 7.9%. The Company continues to achieve year on year sales growth ~~internationally when compared to last year. The quarter ending March 31, 2021 has seen a resurgence in North American sales relative to International sales, as order intake~~across all geographical areas and ~~shipped sales in our North American~~ product ~~lines are steadily returning to pre- pandemic levels.~~offerings.

During nine months ended March 31, 2022 as compared to 2021, North American sales increased $17.2 million or 20.0% while international sales increased $7.7 million or 10.6%. Consolidated Net Sales in the nine months ended March 31, ~~2021 as~~2022 were $183.3 million, compared to ~~2020, North American sales decreased $11.8~~$158.4 million ~~or 12.2% while International sales increased $11.3 million or 18.4%. However, on a currency neutral basis, International Sales have increased by 38.9%~~ for ~~the nine months ending March 31, 2021 compared to~~ the same nine months ~~a year earlier. This is primarily due to a much weaker Brazilian currency, where sales measured in local currency have increased by 69.0% in the nine month period ending~~ended March 31, 2021, ~~compared to the year prior.~~representing an improvement of $24.9 million, or 15.7%.

Gross Margin

Gross margin increased ~~$3.3~~$2.9 million or ~~22.3%~~15.8% for the three months, and ~~$0.1~~$8.8 million, or 17.1% for the nine months ~~ending on~~ended March 31, ~~2021~~2022 as compared to the year ~~prior. Total gross~~prior, primarily as a result of higher sales. Gross margin as a percentage of sales ~~improved by 3.3~~increased 1.7 percentage points ~~from 29.7% to 33.0%~~ for the three ~~month period ending~~months, and increased 0.4 percentage points for the nine months ended March 31, ~~2021~~2022 compared to the prior year.

Although gross margins have generally improved, the evolution of many challenges related to the COVID-19 pandemic have partially offset the impact of the Company's restructuring activities. These include an increase in material and freight costs, and longer transit times which impact all sectors or the Company’s business. In North America, labor shortages and associated wage inflation continue to drive up costs and impact plant utilization. Although North American gross margin shows some improvement compared to the prior year, fiscal 2021 restructuring efforts are partially offset by the aforementioned labor shortages and wage inflation. International gross margin is more affected by material and freight cost increases, supply chain disruptions and increased transit times.

In an effort to mitigate the impact of these challenges, the Company implemented price increases in the first quarter of fiscal 2022 in Brazil and the U.S.. Additional price increases and surcharges on shipped orders were implemented on a rolling basis throughout the third quarter of fiscal 2022. Price increases and surcharges were implemented and took nearly full effect during the quarter ended March 31, ~~2020. The quarter on quarter~~2022, resulting in an overall improvement ~~is a result~~ of lower production overheads and capacity achieved as a result of our restructuring program, and higher plant utilization due to higher production levels. For the nine month comparative period ending March 31, 2021, total gross margin ~~as percent~~to 34.8%, which is an improvement of ~~sales improved by 0.2 percentage~~390 basis points from ~~32.2% to 32.4%. The restructuring benefits of reducing production capacity and costs were starting to be realized beginning in~~ the quarter ~~ending March~~ended December 31, 2021. The Company expects these trends to continue through the remainder of this fiscal year.

For the three months ~~ending~~ended March 31, ~~2021,~~2022, North American gross margin measured as a percent of ~~Net Sales~~net sales improved by ~~3.60~~2.3 percentage points from ~~26.4%~~30.0% to ~~30.0%~~32.3%, compared to the ~~three month~~three-month period ~~ending~~ended March 31, ~~2020, on a similar level of Net Sales for the quarter.~~2021. International gross margin ~~improved~~increased by ~~0.5~~1.0 percentage ~~points~~point from ~~37.0% at~~37.5% during the ~~end of the three month~~three-month period ~~ending~~ended March 31, ~~2020~~2021 to ~~37.5%~~38.5% for the ~~three month~~three-month period ~~ending~~ended March 31, ~~2021.~~2022 .

For the nine ~~month period ending~~months ended March 31, ~~2021,~~2022, North American gross margin measured as a ~~percent~~percentage of Net Sales ~~declined~~improved from ~~29.2%~~28.6% to ~~28.6% due to lower plant utilization on much lower production volumes, when compared to the nine month period ending March 31, 2020.~~28.8%. International gross margin ~~measured~~as a percentage of net sales also increased from 36.8% to 37.9% for the ~~same way declined from 36.9% to 36.8%~~nine months ended from March 31, ~~2020~~2021 to March 31, ~~2021~~2022 respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ~~decreased $1.3~~increased $1.5 million or ~~8.6%~~10.9% during the quarter ended March 31, ~~2021~~2022 compared to ~~2020. The Company continues~~the quarter ended March 31, 2021, representing 24.8% of Net Sales for the quarter ended March 31, 2022 compared to ~~align our cost structure to demand with a reduction~~24.6% in ~~selling, general and administrative headcount of 122 when comparing these two quarters.~~the prior year quarter ended March 31, 2021 .

Selling, general and administrative expenses ~~decreased $5.8~~increased $4.6 million or ~~12.3%~~11.2% during nine months ended March 31, 2022 compared to 2021, however as a percentage of net sales it has declined from 26.0% for the nine months ended March 31, 2021 ~~compared~~ to ~~2020. Corporate expenses are up $0.5 million or 9.6% while~~25.0% for the ~~rest of~~nine months ended March 31, 2021.

The Company has continued to benefit from selling, general and administrative reductions enacted as part of the fiscal 2021 restructuring programs, as evidenced in the decline of these costs ~~are down 12.7%.~~as a percentage of net sales. This was partially offset by some variable selling costs tied to the higher level of sales, and temporary salary reductions enacted during the initial phase of the pandemic, which have since been restored.

Other Income (Expense)

For the three and nine months period ended March 31, 2022 other expense was $0.7 million and $0.2 million, respectively. For the three and nine months period ended March 31, 2021 other expense was $0.7 million and $0.2 million.

Income Taxes

For the ~~three~~nine month period ended March 31, ~~2020,~~2022, the Company recognized tax expense of ~~$(0.3)~~$3.9 million on a profit before tax of ~~$0.3~~$14.0 million or an effective tax rate of ~~(100)%~~28%. ~~The tax rate for fiscal 2020~~This was ~~lower~~higher than the U.S. statutory tax rate of 21% primarily due to the GILTI provisions and the jurisdictional mix of earnings, particularly Brazil with a statutory rate of 34%, offset by discrete tax benefits recognized from excess stock compensation deductions, tax credits, and ~~the impact of~~ permanent ~~deductible and nondeductible items and~~deductions generated from research ~~credits. The impact of these items on the tax rate is substantial based on the Company’s profit being $0.3 million in the third quarter of 2020.~~

~~Net Income~~

Net income for the quarter ended March 31, 2021 and 2020 was $3.0 million and $0.6 million respectively, an increase of $2.4 million. Net income for the nine months ended March 31, 2021 and 2020 increased to $11.0 million, up $8.3 million, a 315% increase over the $2.7 million in 2020.

LIQUIDITY AND CAPITAL RESOURCES


Cash flows (in thousands)	Cash flows (in thousands)	Nine Months Ended				Cash flows (in thousands)	Nine Months Ended
		3/31/2021		3/31/2020			03/31/2022	03/31/2021

Cash provided by (used in) operating activities		$	2,721	(3,861)
Cash provided by (used in) investing activities		317		(8,618)
Cash (used in) provided by financing activities		(5,329)		6,910
Cash (used in) provided by operating activities						Cash (used in) provided by operating activities	(2,791)	2,721
Cash (used in) provided by investing activities						Cash (used in) provided by investing activities	(7,665)	317
Cash provided by (used in) financing activities						Cash provided by (used in) financing activities	10,464	(5,329)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	80		202		Effect of exchange rate changes on cash	(1,093)	80

Net (decrease) in cash	Net (decrease) in cash	$	(2,211)	$	(5,367)	Net (decrease) in cash	$(1,085)	$(2,211)

Net cash flows for the nine months ended March 31, ~~2021~~2022 provided a decrease in cash of ~~$2.2~~$1.1 million compared to a decrease in cash of ~~$5.4~~$2.2 million for the nine month period ending March 31, 2020. Cash provided by operations increased to $2.7 million due to improved operating performance and working capital management which was partially offset by investing $2.5 million on a cash basis in restructuring. Cash provided by investing activities increased to $0.3 million, largely as a result of $5.2 million proceeds from the sale of the Mount Airy, North Carolina facility in December 2020. This was offset with capital investment in our factories which were part of the fiscal 2021 restructuring program. With the building sale and improved operating cash flows, the Company was able to reduce its overall debt during the nine months ended March 31, 2021. Cash used in operations was $2.8 million due to increases in working capital required to meet strong customer demand and counteract supply chain disruptions and increased transit times. The Company has invested $(6.9) million in new equipment and increased borrowing $10.4 million in the nine months ended March 31, 2022.

During the nine months ended March 31, 2022 the Brazilian subsidiary realized a build-up of ICMS (sales tax) credits, a consequence of the fiscal 2021 ~~by $5.4 million.~~restructuring activities which increased the manufacturing activity and, therefore, raw material imports into Brazil. As ~~a result~~ the Company's ~~debt repayments were greater than proceeds from debt~~Brazilian subsidiary is now exporting a larger proportion of its sales, its ability to re-claim these ICMS credits has been diminished. The Company is actively mitigating this consequence by ~~$5.3 million.~~filing applications with the relevant tax authorities to change the methodology of charging and re-claiming ICMS on imports and domestic sales so that this credit is subsequently relieved and does not increase at this rate again. This new methodology is common for similar sized, export focused companies in Brazil.

Liquidity and Credit Arrangements

The ~~Company believes it maintains sufficient liquidity and has~~new credit facilities with HSBC replaced the resources to fund its operations. During fiscal 2021 the Company implemented a restructuring plan to address changes in its business as a result of the COVID-19 pandemic. This plan included reducing payroll, consolidation of certain operations and managing variable costs.

~~The Company worked with~~Company’s previous TD Bank ~~to amend the current~~credit facilities and are comprised of a $30 million revolving line of credit, a $12.1 million term loan ~~agreement which resulted in~~and a ~~number of changes such as amendments to the financial covenants through June 2021.~~$7 million Capital Expenditure draw down credit facility. The Company believes that existing cash and cash expected to be

provided by future operating activities, augmented by the plans highlighted above, are adequate to satisfy its working capital, capital expenditure requirements and other contractual obligations for at least the next 12 months. If the Company's expectations are incorrect or the impact from the COVID-19 pandemic worsens then it may need to take advantage of unanticipated strategic opportunities to strengthen our financial position, which could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

~~On June 25, 2020, the Borrowers and TD Bank entered into an amendment and restatement (the “Amendment and Restatement”) of the Loan Agreement.~~ The ~~Amendment and Restatement waived the~~credit facilities contain financial covenants with respect to a minimum fixed charge coverage ratio of 1.00, measured on a trailing twelve-month basis, for both the ~~quarter ended June 30, 2020.~~U.S Borrowing companies tested quarterly and the Consolidated L.S. Starrett Company tested semi-annually. The Loan and Security agreement also contains the customary affirmative and negative covenants, including limitations on indebtedness, liens, acquisitions, asset dispositions, fundamental corporate changes, excess pension contributions, and certain customary events of default. Upon the occurrence or continuation of an event of default, the Lender may terminate all commitments and facilities, and require the immediate payment of the entire unpaid principal balances, accrued interest, and all other obligations. As of April 29, 2022, the Company was in compliance with all covenants required to be tested at that time.

Pursuant to the terms of the Company’s Amended and Restated Loan and Security Agreement of June 25, 2020, the “First Amendment” to this loan agreement was executed on September 17, 2020, which include, among other things, (i) pause testing of the Fixed Charge Coverage Ratio until September 30, 2021 and (ii) establishment of a new minimum cumulative EBITDA and minimum liquidity covenants in lieu thereof. TD Bank perfected its security interests in the Company’s U.S. based assets, increased the maximum interest charged on the Line Of Credit from an annual interest rate of 2.25% plus LIBOR to 3.50% plus LIBOR, and amended the borrowing base for the line of credit from 80% of Qualified AR and 50% of the lower of Cost or Market of US inventory values to 80% of qualified AR plus 85% of the Net Orderly Liquidation Value ("NOLV") of US Inventory plus 62.5% of total appraised US real estate values.

As a result of this change, the Company is projected to maintain its current borrowing capacity of $25,000,000 under the Line of Credit. The Company underwent a series of appraisals and field exams in all US locations as part of restructuring this agreement. In addition, the Company will provide additional reporting to TD Bank, including monthly profit and loss statements, balance sheets, cash flow statements and forecasting. This minimum adjusted EBITDA covenant is based on the Company’s plan for a slow pandemic recovery throughout FY21 and the impact of the Company’s restructuring plan initiatives. Under this amendment, the Company also agreed to apply all proceeds from the sale of US real estate assets, except the Mt. Airy, North Carolina facility, against the principle balance of the term loan and line of credit. The Company agreed to apply the lesser of 50% or $2 million of the net proceeds from the sale of that facility against the principal balance of the Term Loan. Upon closing of the transaction during the quarter ending December 31, 2020, $2 million was applied against the principal balance of the Term Loan. The Agreement will revert to the existing covenant package for the quarter ending September 30, 2021 and every quarter thereafter. The Company expects to be in compliance with the covenants over the next twelve months.

The effective interest rate on the borrowings under the TD Bank Loan and Security Agreement during the nine months ~~ending~~ended March 31, 2022 and 2021 was 1.9% and 1.9% respectively. The effective rate for the nine months ended March 31, 2021 ~~and~~was lower than that specified in the First Amendment to the loan agreement which was executed on September 17, 2020 ~~was 2.2% and 3.5% respectively.~~(See Note 10).

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

One 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, ~~2020.~~2021.

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 and Treasurer, has evaluated the Company's disclosure controls and procedures as of March 31, ~~2021,~~2022, 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.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended March 31, ~~2021~~2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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, ~~2020.~~2021. There have been no material changes from the factors disclosed in our Form 10-K for the year ended June 30, ~~2020 other than what is set forth below;~~

On October 1, 2020, the Company was notified by the New York Stock Exchange (the “NYSE”) that it was not in compliance with the continued listing standard set forth in Section 802.01B of the NYSE Listed Company Manual because the Company’s average market capitalization was less than $50 million over a consecutive 30 trading-day period and the stockholders’ equity of the Company was less than $50 million. On March 4, 2021 the NYSE notified the Company that L.S. Starrett is now considered a company back in compliance in relation to the NYSE's quantitative continued listing standards. This decision comes as a result of the Company’s achievement of compliance with the NYSE’s minimum market capitalization and shareholders’ equity requirements over the past two quarters.

However, in accordance with the NYSE’s Listed Company Manual, the Company will be subject to a 12-month follow-up period within which the Company will be reviewed to ensure that the Company does not once again fall below any of the NYSE’s continued listing standards. If within 12 months of this letter the Company is again determined to be below any of the continued listing standards, the NYSE will gain an understanding of the reason(s) for falling below such standards, which may include a re-evaluation of the Company’s originally reviewed method of financial recovery. The NYSE will then take the appropriate action, which, depending on circumstances, may include truncating the compliance procedures described in the NYSE Listed Company Manual or beginning the initiation of NYSE trading suspension procedures. The Company will, of course, be subject to the NYSE’s normal continued listing monitoring.

~~As the Company is now back in compliance, the (“.BC”) indicator will no longer be transmitted beginning with the opening of trading on March 5,~~ 2021. ~~Additionally, the Company will no longer be noted as being below continued listing standards on the NYSE’s web site (www.nyse.com).~~

Increased information technology security threats and more sophisticated computer crime pose a risk to our systems, networks, products and services. Any inadequacy, interruption, integration failure or security failure with respect to our information technology could harm our ability to effectively operate our business.

The efficient operation of the Company's business is dependent on its information systems, including its ability to operate them effectively and to successfully implement new technologies, systems, controls and adequate disaster recovery systems. In addition, the Company must protect the confidentiality of data of its business, employees, customers and other third parties. Information technology security threats -- from user error to cybersecurity attacks designed to gain unauthorized access to our systems, networks and data – are increasing in frequency and sophistication. Cybersecurity attacks may range from random attempts to coordinated and targeted attacks, including sophisticated computer crime and advanced persistent threats. On October 7, 2020 our information technology ("IT") systems were exposed to a ransomware attack, which partially impaired certain IT systems for a short period of time. We do not believe we experienced any material losses related to the ransom ware attack and although we continually attempt to improve upon our security we consider that one attack resolved.

These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. Cybersecurity attacks could also include attacks targeting customer data or the security, integrity and/or reliability of the hardware and software installed in our products. It is possible that our information technology systems and networks, or those managed by third parties, could have vulnerabilities, which could go unnoticed for a period of time. The possible failure of the Company's information systems to perform as designed or its failure to implement and operate them effectively could disrupt the Company's business or subject it to liability and thereby harm its profitability. While the Company continues to enhance the applications contained in the Enterprise Resource Planning (ERP) system as well as improvements to other operating systems,

there can be no guarantee that the actions and controls we have implemented and are implementing, or which we cause or have caused third party service providers to implement, will be sufficient to protect our systems, information or other property.

ITEM 6. EXHIBITS


10a			The Loan and Security Agreement dated April 29, 2022 by and among the L.S. Starrett Company, Tru-Stone Technologies, Inc., Starrett Kinemetric Engineering, Inc. and Starrett Bytewise Developement, Inc. and HSBC Bank USA, National Association incorporated by reference.
31a			Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

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

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

101			The following materials from The L. S. Starrett Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2020~~2022 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.

3029

SIGNATURES

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


		THE L. S. STARRETT COMPANY (Registrant)


Date	May ~~7, 2021~~9, 2022	/S/R. Douglas A. Starrett
		Douglas A. Starrett - President and CEO (Principal Executive Officer)

Date	May ~~7, 2021~~9, 2022	/S/R. John C. Tripp
		John C. Tripp - Treasurer and CFO (Principal Accounting Officer)

3130


	(unaudited)3/31/2021		6/30/2020
ASSETS
Current assets:
Cash	$	11,247	$	13,458
Accounts receivable (less allowance for doubtful accounts of $583 and $736, respectively)	34,467		29,012
Inventories	52,536		52,987
Prepaid expenses and other current assets	10,355		8,641
Total current assets	108,605		104,098

Property, plant and equipment, net	35,001		37,090
Right of use assets	4,186		4,465

Deferred tax assets, net	23,513		21,018
Intangible assets, net	4,935		4,997
Goodwill	1,015		1,015
Total assets	$	177,255	$	172,683

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of debt	$	6,895	$	4,532
Current lease liability	1,247		1,905
Accounts payable	12,089		7,579
Accrued expenses	7,745		8,838
Accrued compensation	5,663		4,980
Total current liabilities	33,639		27,834

Other tax obligations	2,761		2,532
Long-term lease liability	3,027		2,655
Long-term debt, net of current portion	18,530		26,341
Postretirement benefit and pension obligations	61,948		67,338
Total liabilities	119,905		126,700

Stockholders' equity:
Class A Common stock $1 par (20,000,000 shares authorized; 6,451,960 outstanding at March 31, 2021 and 6,308,025 outstanding at June 30, 2020)	6,452		6,308
Class B Common stock $1 par (10,000,000 shares authorized; 651,968 outstanding at March 31, 2021 and 679,680 outstanding at June 30, 2020)	652		680
Additional paid-in capital	56,329		55,762
Retained earnings	69,638		58,648
Accumulated other comprehensive loss	(75,721)		(75,415)
Total stockholders' equity	57,350		45,983
Total liabilities and stockholders’ equity	$	177,255	$	172,683


	Three Months Ended (unaudited)										Nine Months Ended (unaudited)
(Amounts in thousands)	3/31/2021			3/31/2020			$ Change favorable (unfavorable)		% Change		3/31/2021			3/31/2020			$ Change favorable (unfavorable)		% Change
Net sales	$	54,944		$	49,998		$	4,946	9.9	%	$	158,408		$	158,976		$	(568)	(0.4)	%
Gross margin	18,149			14,844			3,305		22.3	%	51,326			51,183			143		0.3	%
% of net sales	33.0		%	29.7		%					32.4		%	32.2		%

Selling, general and administrative expenses	13,511			14,780			1,269		8.6	%	41,126			46,912			5,786		12.3	%
% of net sales	24.6		%	29.6		%					26.0		%	29.5		%

Restructuring charges	788			0			(788)		(100.0)	%	1,518			0			(1,518)		(100.0)	%
Gain on sale of building	0			0			—		—	%	(3,204)			0			3,204		100.0	%

GAAP Operating income as reported	3,850			64			3,786		5916.1	%	11,886			4,271			7,615		178.3	%

Other income (expense), net	663			223			440		197.3	%	236			(833)			1,069		128.3	%

Income before income taxes	4,513			287			4,226		1472.6	%	12,122			3,438			8,684		252.6	%

Income tax expense (benefit)	1,496			(326)			(1,822)		558.9	%	1,132			787			(345)		(43.8)	%

Net income	$	3,017		$	613		$	2,404	392.2	%	$	10,990		$	2,651		$	8,339	314.6	%


	Three Months Ended March 2021 (unaudited)											Three Months Ended March 2020 (unaudited)
(Amounts in thousands)	North America			International			Corporate		Total			North America		International		Corporate	Total

Net sales	$	32,519		$	22,425		—		$	54,944		33,369		16,629		0	49,998
Gross margin (loss)	9,741			8,408			—		18,149			8,802		6,149		(107)	14,844
% of net sales	30.0		%	37.5		%			33.0		%	26.4%		37.0%			29.7%

Selling, general and administrative expenses	6,628			5,111			1,773		13,511			7,465		5,701		1,614	14,780
% of net sales	20.4		%	22.8		%			24.6		%	22.4%		34.3%			29.6%



Restructuring charges	182			605			—		788			—		—		—	—


Operating income	$	2,931		$	2,692		$	(1,773)	$	3,850		1,337		448		(1,721)	64
% of net sales	9.0		%	12.0		%			7.0		%	4.0	%	2.7	%		0.1	%


U.S. GAAP to Non-U.S. GAAP reconciliation:
	Three Months Ended March 2021											Three Months Ended March 2020
(Amounts in thousands)	North America			International			Corporate		Total			North America			International			Corporate		Total

Operating income as reported	$	2,931		$	2,692		$	(1,773)	$	3,850		$	1,337		$	448		$	(1,721)	$	64
Restructuring charges	182			605			—		788			—			—			—		—
Adjusted operating income	$	3,113		$	3,297		$	(1,773)	$	4,638		$	1,337		$	448		$	(1,721)	$	64
% of net sales	9.6		%	14.7		%			8.4		%	4.0		%	2.7		%			0.1		%


	Nine Months Ended March 2021 (unaudited)											Nine Months Ended March 2020 (unaudited)
(Amounts in thousands)	North America			International			Corporate		Total			North America			International			Corporate		Total
Net sales	$	85,609		$	72,799		$	—	$	158,408		$	97,475		$	61,501		$	—	$	158,976
Gross margin	24,500			26,826			—		51,326			28,472			22,679			32		51,183
% of net sales	28.6		%	36.8		%			32.4		%	29.2		%	36.9		%			32.2		%

Selling, general and administrative expenses	18,257			17,340			5,529		41,126			$	22,255		$	19,610		$	5,047	$	46,912
% of net sales	—			—					—			—			—					—



Restructuring charges	836			682			—		1,518			—			—			—		—
Gain on sale of building	(3,204)			—			—		(3,204)			—			—			—		—

Operating income	$	8,611		$	8,804		$	(5,529)	$	11,886		$	6,217		$	3,069		$	(5,015)	$	4,271
% of net sales	10.1		%	12.1		%			7.5		%	6.4		%	5.0		%			2.7		%


U.S. GAAP to Non-U.S. GAAP reconciliation:
	Nine Months Ended March 2021											Nine Months Ended March 2020
(Amounts in thousands)	North America			International			Corporate		Total			North America			International			Corporate		Total
Operating income as reported	$	8,611		$	8,804		$	(5,529)	$	11,886		$	6,217		$	3,069		$	(5,015)	$	4,271
Restructuring charges	836			682			—		1,518			—			—			—		—
Gain on sale of building	(3,204)			—			—		(3,204)			—			—			—		—
Adjusted operating income	$	6,243		$	9,486		$	(5,529)	$	10,200		$	6,217		$	3,069		$	(5,015)	$	4,271
% of net sales	7.3		%	13.0		%			6.4		%	6.4		%	5.0		%			2.7		%