Other Income, Net
Other income, net increased $1.1 million from $0.8 in fiscal 2011 to $1.9 million in fiscal 2012 primarily due to foreign currency exchange rate changes. Income Taxes
The effective tax rate was a benefit of 700% for fiscal 2012. The rate reflects federal, state and foreign adjustments for permanent book tax differences. The principal reason for the rate significantly greater than the US normalized combined federal and state tax rate of approximately 40% includes the very low book income which causes even small dollar adjustments to have a very large impact on the tax rate. One significant item which reduced tax expense is income earned in foreign countries taxed at rates lower than the US tax rate.
There were no significant changes in valuation allowances relating to carryforwards for foreign NOL’s, foreign tax credits and certain state NOL’s. The Company continues to believe that it is more likely than not that it will be able to utilize its domestic federal net operating loss carryforward of approximately $16.8 million.
Significant Fourth Quarter Activity
As discussed in Note 16, the Company recorded a $9.1 million loss before income taxes in the fourth quarter of fiscal 2012 compared to a $4.5 million profit in fiscal 2011 as $15.7 million of the annual $17.2 million pension expense was recorded in the fourth quarter of fiscal 2012. The “mark to market” method of pension accounting which the Company adopted in fiscal 2011 specifies the pension liability must be valued on the last day of the fiscal year and the resulting pension expense adjustment must be recorded in the fourth quarter.
Consolidated sales decreased $1.2 million or 2% from $71.2 million in fiscal 2011 to $70.0 million in fiscal 2012 with North America representing a $1.2 million increase and International a $2.4 million decrease. The impact of the $15.9 million non- cash pension expense in fiscal 2012 significantly distorts fourth quarter gross margin and selling, general and administrative comparisons to fiscal 2011.
Fiscal 2011 Compared to Fiscal 2010
As further explained in Note 2 to the consolidated financial statements in fiscal 2011, the Company changed its fiscal year end from the last Saturday in June to June 30. This change facilitated an improved closing process and conformed North American to International subsidiaries’ year end. In fiscal 2010, the Company changed the fiscal year end of its international subsidiaries to that of the Company. Those subsidiaries previously reported on a one-month lag. Management has concluded that the effects of the change from a fiscal to a calendar year end and the inclusion of the additional month for its international subsidiaries in fiscal 2010 are immaterial to the consolidated financial statements.
Overview
The Company began to experience an economic upturn in the second quarter of fiscal 2010. To service higher demand the Company began to increase manufacturing output, inventory raw material purchases, and selling, general, and administrative expenses globally in the third quarter of fiscal 2010. Sales increased $21.5 million or 24% in the second half of fiscal 2011 compared to the first half of fiscal 2010. Sales in the first half of 2011 were $23.7 million or 26% higher than in the first half of 2010. The Company experienced higher backorder levels in the first half of fiscal 2011 as a result of the inability to quickly adjust inventory and manufacturing staffing levels to match demand, however, this backorder position decreased in the second half of fiscal 2011.
Net sales for fiscal 2011 increased $41.1 million or 20% compared to fiscal 2010 due to global economic recovery and increased market penetration. Gross margins improved $25.4 million from $56.4 million or 28% of sales in fiscal 2010 to $81.8 million or 33% of sales in fiscal 2011. Selling, general and administrative expenses increased $6.7 million or 10% from $64.1 million in fiscal 2010 to $70.8 million in fiscal 2011. Operating income increased $21.8 million from a loss of $9.4 million in fiscal 2010 to a profit of $12.4 million in fiscal 2011.
12 B12
10-K
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