Document And Entity Information
Document And Entity Information - shares | 3 Months Ended | |
Sep. 30, 2016 | Oct. 27, 2016 | |
Common Class A [Member] | ||
Document Information [Line Items] | ||
Entity Common Stock, Shares Outstanding (in shares) | 6,279,715 | |
Common Class B [Member] | ||
Document Information [Line Items] | ||
Entity Common Stock, Shares Outstanding (in shares) | 767,527 | |
Entity Registrant Name | STARRETT L S CO | |
Entity Central Index Key | 93,676 | |
Trading Symbol | scx | |
Current Fiscal Year End Date | --06-30 | |
Entity Filer Category | Accelerated Filer | |
Entity Current Reporting Status | Yes | |
Entity Voluntary Filers | No | |
Entity Well-known Seasoned Issuer | No | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2016 | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q1 | |
Amendment Flag | false |
Consolidated Balance Sheets (Cu
Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands | Sep. 30, 2016 | Jun. 30, 2016 |
Common Class A [Member] | ||
Stockholders' equity: | ||
Common stock | $ 6,274 | $ 6,250 |
Common Class B [Member] | ||
Stockholders' equity: | ||
Common stock | 768 | 773 |
Cash | 21,307 | 19,794 |
Accounts receivable (less allowance for doubtful accounts of $843 and $887, respectively) | 27,360 | 34,367 |
Inventories | 59,018 | 56,321 |
Current deferred income tax assets | 4,518 | |
Prepaid expenses and other current assets | 7,808 | 5,911 |
Total current assets | 115,493 | 120,911 |
Property, plant and equipment, net | 39,983 | 41,010 |
Income taxes receivable | 2,603 | 2,655 |
Deferred income tax assets | 29,266 | 25,284 |
Intangible assets, net | 6,309 | 6,490 |
Goodwill | 3,034 | 3,034 |
Other assets | 2,224 | 2,214 |
Total assets | 198,912 | 201,598 |
Notes payable and current maturities of long-term debt | 1,560 | 1,543 |
Accounts payable | 8,538 | 8,981 |
Accrued expenses | 5,570 | 6,372 |
Accrued compensation | 4,501 | 4,922 |
Total current liabilities | 20,169 | 21,818 |
Long-term debt, net of current portion | 16,713 | 17,109 |
Other income tax obligations | 4,398 | 3,813 |
Deferred income tax liabilities | 187 | |
Postretirement benefit and pension obligations | 66,708 | 67,158 |
Total liabilities | 107,988 | 110,085 |
Additional paid-in capital | 55,376 | 55,227 |
Retained earnings | 81,286 | 81,228 |
Accumulated other comprehensive loss | (52,780) | (51,965) |
Total stockholders' equity | 90,924 | 91,513 |
Total liabilities and stockholders’ equity | $ 198,912 | $ 201,598 |
Consolidated Balance Sheets (C3
Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands | Sep. 30, 2016 | Jun. 30, 2016 |
Common Class A [Member] | ||
Common stock, par value (in dollars per share) | $ 1 | $ 1 |
Common stock, authorized (in shares) | 20,000,000 | 20,000,000 |
Common stock, outstanding (in shares) | 6,273,574 | 6,249,563 |
Common Class B [Member] | ||
Common stock, par value (in dollars per share) | $ 1 | $ 1 |
Common stock, authorized (in shares) | 10,000,000 | 10,000,000 |
Common stock, outstanding (in shares) | 768,336 | 772,742 |
Allowance for doubtful accounts | $ 843 | $ 887 |
Consolidated Statements of Oper
Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands | 3 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | ||
Net sales | $ 48,913,000 | [1] | $ 51,038,000 |
Cost of goods sold | 34,999,000 | 35,186,000 | |
Gross margin | $ 13,914,000 | $ 15,852,000 | |
% of Net sales | 28.40% | 31.10% | |
Selling, general and administrative expenses | $ 15,421,000 | $ 15,673,000 | |
Restructuring charges | 343,000 | ||
Operating income (loss) | (1,850,000) | 179,000 | |
Other income | 237,000 | 303,000 | |
Gain on sale of building | 3,089,000 | ||
Income before income taxes | 1,476,000 | 482,000 | |
Income tax expense | 717,000 | 660,000 | |
Net income (loss) | $ 759,000 | $ (178,000) | |
Basic and diluted income (loss) per share (in dollars per share) | $ 0.11 | $ (0.03) | |
Weighted average outstanding shares used in per share calculations: | |||
Basic (in shares) | 7,028 | 7,014 | |
Diluted (in shares) | 7,059 | 7,014 | |
Dividends per share declared (in dollars per share) | $ 0.10 | $ 0.10 | |
[1] | Excludes $2,357 of North American segment sales to the International segment and $3,082 of International segment sales to the North American segment. |
Consolidated Statements of Comp
Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Net income (loss) | $ 759 | $ (178) |
Other comprehensive loss: | ||
Translation loss | (768) | (9,780) |
Pension and postretirement plans, net of tax of $0 and $0 respectively | (47) | |
Other comprehensive loss | (815) | (9,780) |
Total comprehensive loss | $ (56) | $ (9,958) |
Consolidated Statements of Com6
Consolidated Statements of Comprehensive Loss (Unaudited) (Parentheticals) - USD ($) | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Pension and postretirement plans, tax | $ 0 | $ 0 |
Consolidated Statements of Stoc
Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) $ in Thousands | Common Stock [Member]Common Class A [Member] | Common Stock [Member]Common Class B [Member] | Additional Paid-in Capital [Member] | Retained Earnings [Member] | AOCI Attributable to Parent [Member] | Total |
Accumulated balance consists of: | ||||||
$ (51,965) | ||||||
Balance at Jun. 30, 2016 | $ 6,250 | $ 773 | $ 55,227 | $ 81,228 | $ (51,965) | 91,513 |
Total comprehensive income (loss) | 759 | (815) | (56) | |||
Dividends ($0.10 per share) | (701) | (701) | ||||
Repurchase of shares | (2) | (18) | (20) | |||
Issuance of stock | 5 | 56 | 61 | |||
Stock-based compensation | 16 | 111 | 127 | |||
Conversion | 3 | (3) | ||||
Balance at Sep. 30, 2016 | $ 6,274 | $ 768 | $ 55,376 | $ 81,286 | (52,780) | 90,924 |
Accumulated balance consists of: | ||||||
Translation loss | (42,654) | |||||
Pension and postretirement plans, net of taxes | (10,126) | |||||
$ (52,780) | $ (52,780) |
Consolidated Statements of Sto8
Consolidated Statements of Stockholders' Equity (Unaudited) (Parentheticals) | 3 Months Ended |
Sep. 30, 2016$ / shares | |
Retained Earnings [Member] | |
Dividends per share declared (in dollars per share) | $ 0.10 |
Dividends per share declared (in dollars per share) | $ 0.10 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Cash flows from operating activities: | ||
Net income (loss) | $ 759 | $ (178) |
Non-cash operating activities: | ||
Gain on sale of building | (3,089) | |
Depreciation | 1,390 | 1,558 |
Amortization | 364 | 333 |
Stock-based compensation | 127 | 144 |
Net long-term tax obligations | 603 | 433 |
Deferred taxes | 281 | 42 |
Postretirement benefit and pension obligations | 939 | 780 |
Income from equity method investment | (10) | (47) |
Working capital changes: | ||
Accounts receivable | 6,562 | 6,799 |
Inventories | (3,165) | (2,298) |
Other current assets | (1,953) | (827) |
Other current liabilities | (1,296) | (826) |
Prepaid pension expense | (1,159) | (1,051) |
Other | 138 | (5) |
Net cash provided by operating activities | 491 | 4,857 |
Cash flows from investing activities: | ||
Additions to property, plant and equipment | (889) | (2,003) |
Software development | (183) | (162) |
Proceeds from sale of building | 3,321 | |
Net cash provided by (used) in investing activities | 2,249 | (2,165) |
Cash flows from financing activities: | ||
Proceeds from long-term borrowings | 750 | |
Long-term debt repayments | (379) | (547) |
Proceeds from common stock issued | 61 | 64 |
Shares purchased | (20) | (107) |
Dividends paid | (701) | (704) |
Net cash used in financing activities | (1,039) | (544) |
Effect of exchange rate changes on cash | (188) | (317) |
Net increase in cash | 1,513 | 1,831 |
Cash, beginning of period | 19,794 | 11,108 |
Cash, end of period | 21,307 | 12,939 |
Supplemental cash flow information: | ||
Interest paid | 161 | 163 |
Income taxes paid, net | $ 34 | $ 295 |
Note 1 - Basis of Presentation
Note 1 - Basis of Presentation and Summary of Significant Account Policies | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Basis of Presentation and Significant Accounting Policies [Text Block] | Note 1: Basis of Presentation and Summary of Significant Account Policies The unaudited interim financial statements as of and for the three months ended September 30, 2016, have been prepared by The L.S. Starrett Company (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial reporting. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. These unaudited financial statements, which, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation, should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016. Operating results are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year. The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect amounts reported in the consolidated financial statements and accompanying notes. Note 2 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended June 30, 2016 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. |
Note 2 - Recent Accounting Pron
Note 2 - Recent Accounting Pronouncements | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
New Accounting Pronouncements and Changes in Accounting Principles [Text Block] | Note 2: Recent A ccounting Pronouncements In May 2014, the FASB issued a new standard related to the “Revenue from Contracts with Customers” which amends the existing accounting standards for revenue recognition. The standard requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. This standard is applicable for fiscal years beginning after December 15, 2017 and for interim periods within those years. Earlier application will be permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company expects to adopt this standard on July 1, 2017. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements. In July 2015, the FASB issued ASU No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory." Previous to the issuance of this ASU, ASC 330 required that an entity measure inventory at the lower of cost or market. ASU 2015-11 specifies that “market” is defined as “net realizable value,” or the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. Application is to be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of ASU No. 2015-11 will not have a material impact on our consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. The ASU requires that organizations that lease assets recognize assets and liabilities on the balance sheet for the rights and obligations created by those leases. The ASU will affect the presentation of lease related expenses on the income statement and statement of cash flows and will increase the required disclosures related to leases. This ASU is effective for annual periods beginning after December 15, 2018, and interim periods thereafter, with early adoption permitted. The Company is currently evaluating the impact of ASU No. 2016-02 on its consolidated financial statements. It is expected that a key change upon adoption will be the balance sheet recognition of leased assets and liabilities and that any changes in income statement recognition will not be material. In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting." The ASU affects the accounting for employee share-based payment transactions as it relates to accounting for income taxes, accounting for forfeitures, and statutory tax withholding requirements. This ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those periods with early adoption permitted. The Company has adopted the new guidance prospectively in the first quarter of fiscal 2017. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements. |
Note 3 - Stock-based Compensati
Note 3 - Stock-based Compensation | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Disclosure of Compensation Related Costs, Share-based Payments [Text Block] | Note 3: Stock-based Compensation On September 5, 2012, the Board of Directors adopted The L.S. Starrett Company 2012 Long Term Incentive Plan (the “2012 Stock Plan”). The 2012 stock plan was approved by shareholders on October 17, 2012. The 2012 Stock Plan permits the granting of the following types of awards to officers, other employees and non-employee directors: stock options; restricted stock awards; unrestricted stock awards; stock appreciation rights; stock units including restricted stock units; performance awards; cash-based awards; and awards other than previously described that are convertible or otherwise based on stock. The 2012 Stock Plan provides for the issuance of up to 500,000 shares of common stock. Options granted vest in periods ranging from one year to three years and expire ten years after the grant date. Restricted stock units (“RSU”) granted generally vest from one year to three years. Vested restricted stock units will be settled in shares of common stock. As of September 30, 2016, there were 20,000 stock options and 105,634 restricted stock units outstanding. In addition, there were 346,600 shares available for grant under the 2012 Stock Plan as of September 30, 2016. For stock option grants the fair value of each grant is estimated at the date of grant using the Binomial Options pricing model. The Binomial Options pricing model utilizes assumptions related to stock volatility, the risk-free interest rate, the dividend yield, and employee exercise behavior. Expected volatilities utilized in the model are based on the historic volatility of the Company’s stock price. The risk free interest rate is derived from the U.S. Treasury Yield curve in effect at the time of the grant. The expected life is determined using the average of the vesting period and contractual term of the options (Simplified Method). No stock options were granted during the three months ended September 30, 2016 and 2015. The weighted average contractual term for stock options outstanding as of September 30, 2016 was 6.25 years. There was no intrinsic value of stock options outstanding as of September 30, 2016. Stock options exercisable as of September 30, 2016 were 20,000. In recognizing stock compensation expense for the 2012 Stock Incentive Plan management has estimated that there will be no forfeitures of options. The Company accounts for stock options and RSU awards by recognizing the expense of the grant date fair value ratably over vesting periods generally ranging from one year to three years. The related expense is included in selling, general and administrative expenses. There were 45,000 RSU awards with a fair value of $10.86 per RSU granted during the three months ended September 30, 2016. There were 12,733 RSUs settled during the three months ended September 30, 2016. The aggregate intrinsic value of RSU awards outstanding as of September 30, 2016 was $1.0 million. As of September 30, 2016 all vested awards had been issued and settled. On February 5, 2013, the Board of Directors adopted The L.S. Starrett Company 2013 Employee Stock Ownership Plan (the “2013 ESOP”). The purpose of the plan is to supplement existing Company programs through an employer funded individual account plan dedicated to investment in common stock of the Company, thereby encouraging increased ownership of the Company while providing an additional source of retirement income. The plan is intended as an employee stock ownership plan within the meaning of Section 4975 (e) (7) of the Internal Revenue Code of 1986, as amended. U.S. employees who have completed a year of service are eligible to participate. Compensation expense related to all stock based plans for the three month periods ended September 30, 2016 and 2015 was $0.1 million for both periods. As of September 30, 2016, there was $1.4 million of total unrecognized compensation costs related to outstanding stock-based compensation arrangements. Of this cost $1.1 million relates to performance based RSU grants that are not expected to be awarded. The remaining $0.3 million is expected to be recognized over a weighted average period of 1.8 years. |
Note 4 - Inventories
Note 4 - Inventories | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Inventory Disclosure [Text Block] | Note 4: Inventories Inventories consist of the following (in thousands): 9/30/2016 6/30/2016 Raw material and supplies $ 28,517 $ 29,209 Goods in process and finished parts 15,778 16,459 Finished goods 43,516 39,449 87,811 85,117 LIFO Reserve (28,793 ) (28,796 ) Inventories $ 59,018 $ 56,321 LIFO inventories were $11.5 million and $10.5 million at September 30, 2016 and at June 30, 2016, respectively, such amounts being approximately $28.8 million less than if determined on a FIFO basis. The use of LIFO, as compared to FIFO, resulted in no material change in cost of sales for the three months ended September 30, 2016 compared to a $0.1 million increase in the three months ended September 30, 2015. |
Note 5 - Goodwill and Intangibl
Note 5 - Goodwill and Intangible Assets | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Goodwill and Intangible Assets Disclosure [Text Block] | Note 5: Goodwill and Intangible Assets The Company’s acquisition of Bytewise in 2011 gave rise to goodwill. The Company performed a qualitative analysis in accordance with ASU 2011-08 for its October 1, 2015 annual assessment of goodwill (commonly referred to as “Step Zero”). From a qualitative perspective, in evaluating whether it is more likely than not that the fair value of the reporting unit exceeds its respective carrying amount, relevant events and circumstances were taken into account, with greater weight assigned to events and circumstances that most affect the fair value or the carrying amounts of its assets. Items that were considered included, but were not limited to, the following: macroeconomic conditions, industry and market conditions, cost factors, overall financial performance and changes in management or key personnel. After assessing these and other factors the Company determined that it was more likely than not that the fair value of the reporting unit exceeded its carrying amount as of October 1, 2015. Amortizable intangible assets consist of the following (in thousands): 9/30/2016 6/30/2016 Non-compete agreement $ 600 $ 600 Trademarks and trade names 1,480 1,480 Completed technology 2,358 2,358 Customer relationships 4,950 4,950 Software development 2,585 2,402 Other intangible assets 325 325 Total 12,298 12,115 Accumulated amortization (5,989 ) (5,625 ) Total net balance $ 6,309 $ 6,490 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 are 14 years for trademarks and trade names, 8 years for non-compete agreements, 10 years for completed technology, 8 years for customer relationships and 5 years for software development. The estimated aggregate amortization expense for the remainder of fiscal 2017 and for each of the next five years and thereafter, is as follows (in thousands): 2017 (Remainder of year) $ 1,213 2018 1,550 2019 1,471 2020 947 2021 544 2022 225 Thereafter 359 |
Note 6 - Pension and Post-retir
Note 6 - Pension and Post-retirement Benefits | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Pension and Other Postretirement Benefits Disclosure [Text Block] | Note 6: Pension and Post-retirement Benefits Net periodic benefit costs for the Company's defined benefit pension plans consist of the following (in thousands): Three Months Ended 9/30/2016 9/30/2015 Service cost $ 791 $ 714 Interest cost 1,552 1,768 Expected return on plan assets (1,306 ) (1,594 ) Amortization of net loss 28 14 $ 1,065 $ 902 Net periodic benefit costs for the Company's post-retirement medical plan and life insurance consists of the following (in thousands): Three Months Ended 9/30/2016 9/30/2015 Service cost $ 23 $ 26 Interest cost 68 72 Amortization of prior service credit (168 ) (195 ) Amortization of net loss 30 4 $ (47 ) $ (93 ) 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, which is the same as the fiscal year end of the Company. Net actuarial gains or losses that are less than 10% of the thresholds noted above are accounted for as part of the accumulated other comprehensive loss. |
Note 7 - Debt
Note 7 - Debt | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Debt Disclosure [Text Block] | Note 7: Debt Debt is comprised of the following (in thousands): 9/30/2016 6/30/2016 Notes payable and current maturities of long term debt Loan and Security Agreement $ 1,560 $ 1,543 Long-term debt Loan and Security Agreement 16,713 17,109 $ 18,273 $ 18,652 The Company amended its Loan and Security Agreement, which includes a Line of Credit and a Term Loan, in January 2015 with changes that took effect on April 25, 2015. Borrowings under the Line of Credit may not exceed $23.0 million. The Line of Credit expires on April 30, 2018 and has an interest rate of LIBOR plus 1.5%. The effective interest rate on the Line of Credit under the Loan and Security Agreement for the three months ended September 30, 2016 and 2015 was 2.4% and 2.1%, respectively. Based upon its three year term, the Line of Credit has been classified as long-term. As of September 30, 2016, $9.4 million was outstanding on the Line of Credit. On November 22, 2011, in conjunction with the Bytewise acquisition, the Company entered into a $15.5 million term loan (the “Term Loan”) under the then existing Loan and Security Agreement. The Term Loan is a ten year loan bearing a fixed interest rate of 4.5% and is payable in fixed monthly payments of principal and interest of $160,640. The Term Loan, had a balance of $8.9 million at September 30, 2016. The material financial covenants of the amended Loan and Security Agreement are: 1) funded debt to EBITDA, excluding non-cash and retirement benefit expenses (“maximum leverage”), not to exceed 2.25 to 1. 2) annual capital expenditures not to exceed $15.0 million, 3) maintain a Debt Service Coverage Rate of a minimum of 1.25 to 1 and 4) maintain consolidated cash plus liquid investments of not less than $10.0 million at any time. The Company was in compliance with all debt covenants as of September 30, 2016. |
Note 8 - Income Taxes
Note 8 - Income Taxes | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Income Tax Disclosure [Text Block] | Note 8: Income Tax 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. The tax expense for the first quarter of fiscal 2017 was $717,000 on a profit before tax of $1,476,000 (an effective tax rate of 48.6%). The tax expense for the first quarter of fiscal 2016 was $660,000 on a profit before tax for the quarter of $482,000 (an effective tax rate of 136.9%). The tax rate in the first quarter of fiscal 2017 is higher than the U.S. statutory rate of approximately 40% as a result of discrete adjustments primarily for the impact of a tax rate change in the U.K. applied to deferred tax assets which increased tax expense by $298,000 in the quarter. The tax rate for the first quarter of fiscal 2016 was higher than the U.S. federal and state statutory rate of approximately 40% primarily due to losses in some foreign jurisdictions for which no tax benefit is recognized. In the first quarter of fiscal 2016, there was a discrete reduction to tax expense of $54,000 related to provision to return adjustments in the UK. U.S. Federal tax returns through fiscal 2012 are generally no longer subject to review by tax authorities; however, tax loss carryforwards from years before fiscal 2012 are still subject to adjustment. As of September 30, 2016, the Company has substantially resolved all open income tax audits and there were no other local or federal income tax audits in progress. In international jurisdictions including Australia, Brazil, Canada, China, Germany, Mexico, New Zealand, Singapore and the UK, which comprise a significant portion of the Company’s operations, the years that may be examined vary by country. The Company’s most significant foreign subsidiary in Brazil is subject to audit for the calendar years 2011 – 2015. The Company has identified no new uncertain tax positions during the three month period ended September 30, 2016 for which it is currently likely that the total amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months. 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 deferred tax liabilities are recorded to reflect the impact arising from these differences on future tax payments. With respect to recorded deferred tax assets, the Company assesses the likelihood that the asset will be realized by addressing the positive and negative evidence to determine whether realization is more likely than not to occur. If realization is in doubt because of uncertainty regarding future profitability, the Company provides a valuation allowance related to the asset to the extent that it is more likely than not that the deferred tax asset will not be realized. Should any significant changes in the tax law or the estimate of the necessary valuation allowance occur, the Company would record the impact of the change, which could have a material effect on the Company’s financial position. No valuation allowance has been recorded for the Company’s domestic deferred tax assets related to temporary differences in items included in taxable income. The Company continues to believe that due to forecasted future taxable income and certain tax planning strategies available, it is more likely than not that it will be able to utilize the tax benefit provided by those differences. In the U.S., there is a valuation allowance against foreign tax credits to the extent they are limited. In certain other countries where Company operations are in a loss position, the deferred tax assets for tax loss carryforwards and other temporary differences are fully offset by a valuation allowance. In November 2015, the FASB issued Accounting Standards Update No. 2015-17 ("ASU 2015-17") regarding ASC Topic 740 "Income Taxes: Balance Sheet Classification of Deferred Taxes." The amendments in ASU 2015-17 eliminate the requirement to bifurcate Deferred Taxes between current and non-current on the balance sheet and requires that all deferred tax liabilities and assets be classified as noncurrent on the balance sheet. The amendments for ASU 2015-17 can be applied retrospectively or prospectively and early adoption is permitted. The Company has adopted the new guidance prospectively in the first quarter of fiscal 2017. Implementation has no effect on the Consolidated Statement of Operations but does result in a change in classification of $4.5 million of deferred tax assets from short-term to long-term. |
Note 9 - Contingencies
Note 9 - Contingencies | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Commitments and Contingencies Disclosure [Text Block] | Note 9: Contingencies The Company is involved in certain legal matters which arise in the normal course of business. These matters are not expected to have a material impact on the Company’s financial condition, results of operations or cash flows. |
Note 10 - Segment Information
Note 10 - Segment Information | 3 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Segment Reporting Disclosure [Text Block] | Note 10. 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, 2016. Our 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. Other income and expense, including interest income and expense, and income taxes are excluded entirely from the table below. The restructuring charge of $343,000 is included in the unallocated column. There were no significant changes in the segment operations or in the segment assets from the Annual Report. Financial results for each reportable segment are as follows (in thousands): North American Operations International Operations Unallocated Total Three Months ended September 30, 2016 Sales 1 $ 28,403 $ 20,510 $ — $ 48,913 Operating Income (Loss) $ 152 $ (866 ) $ (1,916 ) $ (1,850 ) Three Months ended September 30, 2015 Sales 2 $ 32,411 $ 18,627 $ — $ 51,038 Operating Income (Loss) $ 2,826 $ (1,048 ) $ (1,599 ) $ 179 1 Excludes $2,357 of North American segment intercompany sales to the International segment and $3,082 of International segment intercompany sales to the North American segment. 2 Excludes $1,910 of North American segment intercompany sales to the International segment and $2,262 of International segment intercompany sales to the North American segment. |
Significant Accounting Policies
Significant Accounting Policies (Policies) | 3 Months Ended |
Sep. 30, 2016 | |
Accounting Policies [Abstract] | |
Basis of Accounting, Policy [Policy Text Block] | The unaudited interim financial statements as of and for the three months ended September 30, 2016, have been prepared by The L.S. Starrett Company (the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial reporting. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. These unaudited financial statements, which, in the opinion of management, reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation, should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016. Operating results are not necessarily indicative of the results that may be expected for any future interim period or for the entire fiscal year. The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect amounts reported in the consolidated financial statements and accompanying notes. Note 2 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended June 30, 2016 describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. |
New Accounting Pronouncements, Policy [Policy Text Block] | In May 2014, the FASB issued a new standard related to the “Revenue from Contracts with Customers” which amends the existing accounting standards for revenue recognition. The standard requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. This standard is applicable for fiscal years beginning after December 15, 2017 and for interim periods within those years. Earlier application will be permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company expects to adopt this standard on July 1, 2017. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements. In November 2015, the FASB issued Accounting Standards Update No. 2015-17 ("ASU 2015-17") regarding ASC Topic 740 "Income Taxes: Balance Sheet Classification of Deferred Taxes." The amendments in ASU 2015-17 eliminate the requirement to bifurcate Deferred Taxes between current and non-current on the balance sheet and requires that all deferred tax liabilities and assets be classified as noncurrent on the balance sheet. The amendments for ASU 2015-17 can be applied retrospectively or prospectively and early adoption is permitted. The Company has adopted the new guidance prospectively in the first quarter of fiscal 2017. Implementation has no effect on the Consolidated Statement of Operations but does result in a change in classification of $4.5 million of deferred tax assets from short-term to long-term. In July 2015, the FASB issued ASU No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory." Previous to the issuance of this ASU, ASC 330 required that an entity measure inventory at the lower of cost or market. ASU 2015-11 specifies that “market” is defined as “net realizable value,” or the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. Application is to be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of ASU No. 2015-11 will not have a material impact on the Company’s consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. The ASU requires that organizations that lease assets recognize assets and liabilities on the balance sheet for the rights and obligations created by those leases. The ASU will affect the presentation of lease related expenses on the income statement and statement of cash flows and will increase the required disclosures related to leases. This ASU is effective for annual periods beginning after December 15, 2018, and interim periods thereafter, with early adoption permitted. The Company is currently evaluating the impact of ASU No. 2016-02 on its consolidated financial statements. It is expected that a key change upon adoption will be the balance sheet recognition of leased assets and liabilities and that any changes in income statement recognition will not be material. In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting." The ASU affects the accounting for employee share-based payment transactions as it relates to accounting for income taxes, accounting for forfeitures, and statutory tax withholding requirements. This ASU is effective for annual periods ending after December 15, 2016, and interim periods within those periods with early adoption permitted. The Company has adopted the new guidance prospectively in the first quarter of fiscal 2017. Implementation had no material on the Company’s consolidated financial statements. |
Note 4 - Inventories (Tables)
Note 4 - Inventories (Tables) | 3 Months Ended |
Sep. 30, 2016 | |
Notes Tables | |
Schedule of Inventory, Current [Table Text Block] | 9/30/2016 6/30/2016 Raw material and supplies $ 28,517 $ 29,209 Goods in process and finished parts 15,778 16,459 Finished goods 43,516 39,449 87,811 85,117 LIFO Reserve (28,793 ) (28,796 ) Inventories $ 59,018 $ 56,321 |
Note 5 - Goodwill and Intangi22
Note 5 - Goodwill and Intangible Assets (Tables) | 3 Months Ended |
Sep. 30, 2016 | |
Notes Tables | |
Schedule of Finite-Lived Intangible Assets [Table Text Block] | 9/30/2016 6/30/2016 Non-compete agreement $ 600 $ 600 Trademarks and trade names 1,480 1,480 Completed technology 2,358 2,358 Customer relationships 4,950 4,950 Software development 2,585 2,402 Other intangible assets 325 325 Total 12,298 12,115 Accumulated amortization (5,989 ) (5,625 ) Total net balance $ 6,309 $ 6,490 |
Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block] | 2017 (Remainder of year) $ 1,213 2018 1,550 2019 1,471 2020 947 2021 544 2022 225 Thereafter 359 |
Note 6 - Pension and Post-ret23
Note 6 - Pension and Post-retirement Benefits (Tables) | 3 Months Ended |
Sep. 30, 2016 | |
Post Retirement Medical and Life Insurance Plan [Member] | |
Notes Tables | |
Schedule of Net Benefit Costs [Table Text Block] | Three Months Ended 9/30/2016 9/30/2015 Service cost $ 23 $ 26 Interest cost 68 72 Amortization of prior service credit (168 ) (195 ) Amortization of net loss 30 4 $ (47 ) $ (93 ) |
Pension Plan [Member] | |
Notes Tables | |
Schedule of Net Benefit Costs [Table Text Block] | Three Months Ended 9/30/2016 9/30/2015 Service cost $ 791 $ 714 Interest cost 1,552 1,768 Expected return on plan assets (1,306 ) (1,594 ) Amortization of net loss 28 14 $ 1,065 $ 902 |
Note 7 - Debt (Tables)
Note 7 - Debt (Tables) | 3 Months Ended |
Sep. 30, 2016 | |
Notes Tables | |
Schedule of Debt [Table Text Block] | 9/30/2016 6/30/2016 Notes payable and current maturities of long term debt Loan and Security Agreement $ 1,560 $ 1,543 Long-term debt Loan and Security Agreement 16,713 17,109 $ 18,273 $ 18,652 |
Note 10 - Segment Information (
Note 10 - Segment Information (Tables) | 3 Months Ended |
Sep. 30, 2016 | |
Notes Tables | |
Schedule of Segment Reporting Information, by Segment [Table Text Block] | North American Operations International Operations Unallocated Total Three Months ended September 30, 2016 Sales 1 $ 28,403 $ 20,510 $ — $ 48,913 Operating Income (Loss) $ 152 $ (866 ) $ (1,916 ) $ (1,850 ) Three Months ended September 30, 2015 Sales 2 $ 32,411 $ 18,627 $ — $ 51,038 Operating Income (Loss) $ 2,826 $ (1,048 ) $ (1,599 ) $ 179 |
Note 3 - Stock-based Compensa26
Note 3 - Stock-based Compensation (Details Textual) - USD ($) $ / shares in Units, $ in Millions | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Employee Stock Option [Member] | The 2012 Stock Incentive Plan [Member] | Minimum [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period | 1 year | |
Employee Stock Option [Member] | The 2012 Stock Incentive Plan [Member] | Maximum [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period | 3 years | |
Employee Stock Option [Member] | The 2012 Stock Incentive Plan [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | 0 | 0 |
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period | 10 years | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number | 20,000 | |
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number | 105,634 | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term | 6 years 91 days | |
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number | 20,000 | |
Restricted Stock Units (RSUs) [Member] | The 2012 Stock Incentive Plan [Member] | Minimum [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period | 1 year | |
Restricted Stock Units (RSUs) [Member] | The 2012 Stock Incentive Plan [Member] | Maximum [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period | 3 years | |
Restricted Stock Units (RSUs) [Member] | The 2012 Stock Incentive Plan [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period | 45,000 | |
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value | $ 10.86 | |
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period | 12,733 | |
The 2012 Stock Incentive Plan [Member] | Total Unrecognized Compensation Including Portion Relating to Grants Not Expected to Be Awarded [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding, Aggregate Intrinsic Value | $ 1 | |
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized | 1.4 | |
The 2012 Stock Incentive Plan [Member] | Portion Relating to RSU Grants Not Expected to be Awarded [Member] | ||
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized | $ 1.1 | |
The 2012 Stock Incentive Plan [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant | 346,600 | |
Allocated Share-based Compensation Expense | $ 0.1 | |
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized | $ 0.3 | |
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition | 1 year 292 days | |
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized | 500,000 |
Note 4 - Inventories (Details T
Note 4 - Inventories (Details Textual) - USD ($) | 3 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Jun. 30, 2016 | |
Cost of Sales [Member] | |||
Inventory, LIFO Reserve, Effect on Income, Net | $ 0 | $ 100,000 | |
Inventory Difference Using FIFO Basis | 28,800,000 | $ 28,800,000 | |
LIFO Inventory Amount | $ 11,500,000 | $ 10,500,000 |
Note 4 - Inventories - Inventor
Note 4 - Inventories - Inventories (Details) - USD ($) $ in Thousands | Sep. 30, 2016 | Jun. 30, 2016 |
Raw material and supplies | $ 28,517 | $ 29,209 |
Goods in process and finished parts | 15,778 | 16,459 |
Finished goods | 43,516 | 39,449 |
87,811 | 85,117 | |
LIFO Reserve | (28,793) | (28,796) |
Inventories | $ 59,018 | $ 56,321 |
Note 5 - Goodwill and Intangi29
Note 5 - Goodwill and Intangible Assets (Details Textual) | 3 Months Ended |
Sep. 30, 2016 | |
Trademarks and Trade Names [Member] | |
Finite-Lived Intangible Asset, Useful Life | 14 years |
Noncompete Agreements [Member] | |
Finite-Lived Intangible Asset, Useful Life | 8 years |
Completed Technology [Member] | |
Finite-Lived Intangible Asset, Useful Life | 10 years |
Customer Relationships [Member] | |
Finite-Lived Intangible Asset, Useful Life | 8 years |
Software Developement [Member] | |
Finite-Lived Intangible Asset, Useful Life | 5 years |
Note 5 - Goodwill and Intangi30
Note 5 - Goodwill and Intangible Assets - Finite-lived Intangible Assets (Details) - USD ($) $ in Thousands | Sep. 30, 2016 | Jun. 30, 2016 | Jun. 30, 2015 |
Noncompete Agreements [Member] | |||
Intangible assets, gross | $ 600 | $ 600 | |
Trademarks and Trade Names [Member] | |||
Intangible assets, gross | 1,480 | 1,480 | |
Completed Technology [Member] | |||
Intangible assets, gross | 2,358 | 2,358 | |
Customer Relationships [Member] | |||
Intangible assets, gross | 4,950 | 4,950 | |
Software Developement [Member] | |||
Intangible assets, gross | 2,585 | 2,402 | |
Other Intangible Assets [Member] | |||
Intangible assets, gross | 325 | 325 | |
Intangible assets, gross | 12,298 | 12,115 | |
Accumulated amortization | (5,989) | (5,625) | |
Total net balance | $ 6,309 | $ 6,490 | $ 6,490 |
Note 5 - Goodwill and Intangi31
Note 5 - Goodwill and Intangible Assets - Estimated Aggregate Amortization Expense (Details) $ in Thousands | Sep. 30, 2016USD ($) |
2017 (Remainder of year) | $ 1,213 |
2,018 | 1,550 |
2,019 | 1,471 |
2,020 | 947 |
2,021 | 544 |
2,022 | 225 |
Thereafter | $ 359 |
Note 6 - Pension and Post-ret32
Note 6 - Pension and Post-retirement Benefits - Net Periodic Costs (Details) - Pension Plan [Member] - USD ($) $ in Thousands | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Service cost | $ 791 | $ 714 |
Interest cost | 1,552 | 1,768 |
Expected return on plan assets | (1,306) | (1,594) |
Amortization of net loss | 28 | 14 |
$ 1,065 | $ 902 |
Note 6 - Pensions and Post-reti
Note 6 - Pensions and Post-retirement Benefits - Net Periodic Benefit Costs for Postretirement Medical Plan (Details) - Post Retirement Medical and Life Insurance Plan [Member] - USD ($) $ in Thousands | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Service cost | $ 23 | $ 26 |
Interest cost | 68 | 72 |
Amortization of prior service credit | (168) | (195) |
Amortization of net loss | 30 | 4 |
$ (47) | $ (93) |
Note 7 - Debt (Details Textual)
Note 7 - Debt (Details Textual) | Nov. 22, 2011USD ($) | Sep. 30, 2016USD ($) | Sep. 30, 2015 |
London Interbank Offered Rate (LIBOR) [Member] | |||
Debt Instrument, Basis Spread on Variable Rate | 1.50% | ||
Term Loan [Member] | |||
Long-term Line of Credit | $ 8,900,000 | ||
Debt Instrument, Face Amount | $ 15,500,000 | ||
Debt Instrument, Term | 10 years | ||
Debt Instrument, Interest Rate, Stated Percentage | 4.50% | ||
Line of Credit Facility, Periodic Payment | $ 160,640 | ||
Maximum [Member] | Amended Agreement [Member] | |||
Current Funded Debt to EBITDA Ratio | 2.25 | ||
Maximum [Member] | |||
Annual Capital Expenditures | $ 15,000,000 | ||
Minimum [Member] | |||
Debt Service Coverage Rate | 1.25 | ||
Line of Credit Facility, Maximum Borrowing Capacity | $ 23,000,000 | ||
Line of Credit Facility, Interest Rate During Period | 2.40% | 2.10% | |
Long-term Line of Credit | $ 9,400,000 | ||
Minimum Consolidated Cash and Liquid Investments Pursuant to New Loan and Security Agreement | $ 10,000,000 |
Note 7 - Debt - Debt Schedule (
Note 7 - Debt - Debt Schedule (Details) - USD ($) $ in Thousands | Sep. 30, 2016 | Jun. 30, 2015 |
Notes payable and current maturities of long term debt | ||
Loan and Security Agreement | $ 1,560 | $ 1,543 |
Long-term debt | ||
Loan and Security Agreement | 16,713 | 17,109 |
$ 18,273 | $ 18,652 |
Note 8 - Income Taxes (Details
Note 8 - Income Taxes (Details Textual) - USD ($) | 3 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Reclassification From Current Deferred Tax Assets to Noncurrent Deferred Tax Assets [Member] | ||
Current Period Reclassification Adjustment | $ 4,500,000 | |
Income Tax Expense (Benefit) | 717,000 | $ 660,000 |
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest | $ 1,476,000 | $ 482,000 |
Effective Income Tax Rate Reconciliation, Percent | 48.60% | 136.90% |
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent | 40.00% | 40.00% |
Effective Income Tax Rate Reconciliation, Change in Enacted Tax Rate, Amount | $ 298,000 | |
Effective Income Tax Rate Reconciliation, Change in Enacted Tax Rate, Amount, Return to Provision Adjustment | $ 54,000 |
Note 10 - Segment Information37
Note 10 - Segment Information (Details Textual) | 3 Months Ended | ||
Sep. 30, 2016USD ($) | Sep. 30, 2015USD ($) | ||
North American Segment [Member] | Intersegment Eliminations [Member] | |||
Revenue, Net | $ 2,357,000 | $ 1,910,000 | |
North American Segment [Member] | |||
Revenue, Net | 28,403,000 | [1] | 32,411,000 |
International Segment [Member] | Intersegment Eliminations [Member] | |||
Revenue, Net | 3,082,000 | 2,262,000 | |
International Segment [Member] | |||
Revenue, Net | $ 20,510,000 | [1] | 18,627,000 |
Number of Reportable Segments | 2 | ||
Restructuring Charges | $ 343,000 | ||
Revenue, Net | $ 48,913,000 | [1] | $ 51,038,000 |
[1] | Excludes $2,357 of North American segment sales to the International segment and $3,082 of International segment sales to the North American segment. |
Note 10 - Segment Information -
Note 10 - Segment Information - Financial Results for Reportable Segments (Details) - USD ($) $ in Thousands | 3 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | ||
North American Segment [Member] | |||
Net sales | $ 28,403 | [1] | $ 32,411 |
Operating income | 152 | 2,826 | |
International Segment [Member] | |||
Net sales | 20,510 | [1] | 18,627 |
Operating income | (866) | (1,048) | |
Unallocated [Member] | |||
Net sales | [1] | ||
Operating income | (1,916) | (1,599) | |
Net sales | 48,913 | [1] | 51,038 |
Operating income | $ (1,850) | $ 179 | |
[1] | Excludes $2,357 of North American segment sales to the International segment and $3,082 of International segment sales to the North American segment. |