Significant Fourth Quarter Activity
The Company recorded a $4.5 million profit before taxes in the fourth quarter of fiscal 2011 compared to a comparable $1.5 million loss in fiscal 2010.
Consolidated sales increased $7.4 million or 12 % from $63.9 million in fiscal 2010 to $71.3 million in fiscal 2011 with North America representing $7.3 million of the increase. International sales increase was modest due to three months of sales in fiscal 2011 compared to four months in fiscal 2010. The four months in fiscal 2010 for International was a result of dropping the one month lag. Higher sales and improved margins generated a $5.3 million increase in gross margins which more than offset a $0.6 million increase in selling, general and administrative expenses resulting in a $4.7 million net contribution to profits. The remaining $1.5 comparative profit improvement was principally due to losses of $1.7 million related to restructuring and impairment charges in fiscal 2010 compared to no similar costs in fiscal 2011.
FINANCIAL INSTRUMENT MARKET RISK
Market risk is the potential change in a financial instrument’s value caused by fluctuations in interest and currency exchange rates, and equity and commodity prices. The Company’s operating activities expose it to risks that are continually monitored, evaluated and managed. Proper management of these risks helps reduce the likelihood of earnings volatility.
The Company does not engage in tracking, market-making or other speculative activities in derivatives markets. The Company does not enter into long-term supply contracts with either fixed prices or quantities. The Company engages in an immaterial amount of hedging activity to minimize the impact of foreign currency fluctuations and had $2.0 million in forward currency contracts outstanding at June 30, 2012. Net foreign monetary assets are approximately $35 million as of June 30, 2012.
A 10% change in interest rates would not have a significant impact on the aggregate net fair value of the Company’s interest rate sensitive financial instruments or the cash flows or future earnings associated with those financial instruments. A 10% increase in interest rates would not have a material impact on our borrowing costs. See Note 12 to the Consolidated Financial Statements for details concerning the Company’s long-term debt outstanding of $29.4 million.
LIQUIDITY AND CAPITAL RESOURCES 2012
Cash provided by operations Cash used in investing activities
Cash provided by (used in) financing activities $
Years ended in June ($000) 2011
3,524 $
(25,870) 20,050
5,189 $
(10,141) 3,860
2010
29,708 (9,011) (9,994)
The Company has a working capital ratio of 5.0 as of June 30, 2012 as compared to 3.9 as of June 30, 2011. Cash, short-term investments, accounts receivable and inventories represent 90% and 92% of current assets in fiscal 2012 and fiscal 2011, respectively. The Company had accounts receivable turnover of 6.0 in fiscal 2012 compared to 6.2 in fiscal 2011 and an inventory turnover ratio of 2.8 in fiscal 2012 compared to 3.2 in fiscal 2011.
Net cash provided by operations of $3.5 million in fiscal 2012 is principally due to operating performance improvement (excluding a non-cash pension expense increase of $16.4 million) partially offset by higher inventory levels.
The Company has invested $25.9 million in fiscal 2012. The Bytewise acquisition represented $15.1 million and investments in plant and equipment accounted for an additional $10.8 million.
The Company increased debt $22.2 million in fiscal 2012 compared to fiscal 2011 principally to finance the Bytewise acquisition and higher working capital requirements.
Effects of translation rate changes on cash primarily result from the movement of the U.S. dollar against the British Pound, the Euro and the Brazilian Real. The Company uses a limited number of forward contracts to hedge some of this activity and a natural hedge strategy of paying for foreign purchases in local currency when economically advantageous.
Liquidity and Credit Arrangements
The Company believes it maintains sufficient liquidity and has the resources to fund its operations in the near term. In addition to its cash and short-term investments, the Company has maintained a $23.0 million line of credit, of which, $0.2 million is reserved for letters of credit and $15.5 million was outstanding as of June 30, 2012.
14 B14
10-K
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