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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 3, 2002
Commission file number 0-12611
AULT INCORPORATED
MINNESOTA 41-0842932
------------------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7105 Northland Terrace
Minneapolis, Minnesota 55428-1028
---------------------------------
(Address of principal executive offices)
Registrant's telephone number: (763) 592-1900
Indicate by check mark whether 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, and (2) has been subject to such filing requirements
for the past 90 days.
YES _X_ NO ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock April 10, 2002
--------------------- ----------------
No par value 4,553,610 shares
Total pages 15
Exhibits Index on Page 14
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PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Amounts Per Share)
(Unaudited)
-----------------------------------------------------------
Third Quarter Ended Nine Months Ended
--------------------------- ---------------------------
March 3 Feb. 25 March 3 Feb. 25
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net Sales $ 9,484 $ 22,677 $ 29,738 $ 71,168
Cost of Goods Sold 7,527 17,745 24,006 55,716
----------- ----------- ----------- -----------
Gross Profit 1,957 4,932 5,732 15,452
Operating Expenses:
Marketing 865 1,552 2,829 5,009
Design Engineering 611 792 1,902 2,322
General and Administrative 1,126 1,602 4,794 4,881
----------- ----------- ----------- -----------
2,602 3,946 9,525 12,212
----------- ----------- ----------- -----------
Operating (Loss) Income (645) 986 (3,793) 3,240
Other Income (Expense):
Interest Expense (124) (143) (409) (427)
Interest Income 31 8 92 58
Other 47 279 (205) 507
----------- ----------- ----------- -----------
(46) 144 (522) 138
----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes (691) 1,130 (4,315) 3,378
Income Tax (Benefit) Expense (81) 422 (999) 1,222
----------- ----------- ----------- -----------
Net Income (Loss) Before Accounting Change (610) 708 (3,316) 2,156
Cumulative Effect of Accounting Change, Net of Tax 50
----------- ----------- ----------- -----------
Net Income (Loss) $ (610) $ 708 $ (3,316) $ 2,106
=========== =========== =========== ===========
Earnings (Loss) Per Share
Basic:
Net (Loss) Income Before Accounting Change $ (0.13) $ 0.16 $ (0.73) $ 0.48
Cumulative Effect of Accounting Change (0.01)
----------- ----------- ----------- -----------
Basic (Loss) Earnings Per Share $ (0.13) $ 0.16 $ (0.73) $ 0.47
Diluted:
Net (Loss) Income Before Accounting Change $ (0.13) $ 0.15 $ (0.73) $ 0.46
Cumulative Effect of Accounting Change (0.01)
----------- ----------- ----------- -----------
Diluted (Loss) Earnings Per Share $ (0.13) $ 0.15 $ (0.73) $ 0.45
Common and Equivalent Shares Outstanding:
Basic 4,538,489 4,495,121 4,537,187 4,475,793
Diluted 4,538,489 4,773,523 4,537,187 4,705,762
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 2
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
March 3, June 3,
2002 2001
------- -------
Assets:
Current Assets
Cash and Cash Equivalents $ 4,665 $ 3,723
Trade Receivables, Less Allowance for Doubtful Accounts of $597,000
at March 3, 2002; $621,000 at June 3, 2001 5,792 12,361
Inventories (Note 2) 9,350 12,423
Prepaid Expenses and Other 1,416 747
Deferred Taxes 364 364
------- -------
Total Current Assets 21,587 29,618
Other Assets:
Intangibles, less accumulated amortization of $326,000 at March 3,
2002; $251,000 at June 3, 2001 1,178 1,253
Other 258 10
------- -------
1,436 1,263
Property Equipment and Leasehold
Improvements:
Land 1,704 1,675
Building 7,691 5,554
Machinery and Equipment 7,623 7,517
Office Furniture 1,513 1,433
E.D.P. Equipment 2,225 2,215
Construction in Progress 1,533
------- -------
20,756 19,927
Less Accumulated Depreciation 8,032 7,351
------- -------
12,724 12,576
------- -------
$35,747 $43,457
======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 3
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
March 3, June 3,
2002 2001
-------- --------
Liabilities and Stockholders' Equity:
Current Liabilities
Note Payable to Bank $ 2,851 $ 4,003
Current Maturities of Long-Term Debt (Note 3) 277 617
Accounts Payable 3,576 5,285
Accrued Compensation 555 467
Accrued Commissions 332 708
Other 201 698
-------- --------
Total Current Liabilities 7,792 11,778
Long-Term Debt, Less Current Maturities (Note 3) 2,827 3,035
Deferred Tax Liability 213 213
Retirement and Severance Benefits 58 302
Stockholders' Equity:
Preferred Stock, No Par Value, Authorized,
1,000,000 Shares; None Issued
Common Shares, No Par Value, Authorized
10,000,000 Shares; Issued and Outstanding 4,538,522 on
March 3, 2002; and 4,528,522 on June 3, 2001; 20,713 20,684
Notes Receivable arising from the sale of common stock (100) (100)
Accumulated Other Comprehensive Loss (920) (935)
Retained Earnings 5,164 8,480
-------- --------
24,857 28,129
-------- --------
$ 35,747 $ 43,457
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 4
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
March 3, February 25,
2002 2001
------- -------
Cash Flows From Operating Activities
Net (Loss) Income: $(3,316) $ 2,106
Adjustments to Reconcile Net Income to Net Cash
Used in Operating Activities:
Depreciation 662 733
Amortization 75 75
Provision for Bad Debt 1,415
Adjustment Related to Change in subsidiary Year End 61
Realized Gain from Sale of Securities Available for Sale
(56)
Stock Compensation 51
Changes in Assets and Liabilities:
(Increase) Decrease In:
Trade Receivables 4,954 (3,930)
Inventories 3,348 (766)
Prepaid and Other Expenses 142 300
Increase (Decrease) in:
Accounts Payable (1,910) (274)
Accrued Expenses (707) 706
Income Tax Payable\Receivable (1,168) (33)
------- -------
Net Cash Provided (Used) by Operating Activities 3,495 (1,027)
------- -------
Cash Flows From Investing Activities:
Purchase of Equipment and Leasehold Improvements (810) (2,428)
Proceeds from the sale of Securities 554
------- -------
Net Cash Used in Investment Activities (810) (1,874)
------- -------
Cash Flows From Financing Activities:
Net Borrowings (Payments) on Revolving Credit Agreements (1,218) 2,128
Proceeds from Issuance of Common Stock 29 203
Retire Common Stock (13)
Principal Payments on Long-Term Borrowings (557) (561)
------- -------
Net Cash Provided (Used) by Financing Activities (1,746) 1,757
------- -------
Effect of Foreign Currency Exchange Rate Changes
on Cash 3 (68)
------- -------
Increase (Decrease) in Cash and Cash Equivalents 942 (1,212)
Cash and Cash Equivalents at Beginning of Period 3,723 2,419
------- -------
Cash and Cash Equivalents at End of Period $ 4,665 $ 1,207
======= =======
Page 5
AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRD QUARTER ENDED MARCH 3, 2002
---------------------------------
1 Summary of Consolidation Principles
-------------------------------------
The accompanying consolidated financial statements include the accounts of Ault
Incorporated, its wholly owned subsidiaries, Ault Shanghai, Ault Korea
Corporation, and Ault Xianghe Co. Ltd. All significant intercompany transactions
have been eliminated. The foreign currency translation adjustment in footnote 4
represents the translation into United States dollars of the Company's
investment in the net assets of its foreign subsidiaries in accordance with the
provisions of FASB Statement No. 52.
Effective May 29, 2000 the company changed its fiscal year end for its Korean
subsidiary from May 31 to April 30 and will consolidate the subsidiary for
financial reporting purposes on a one-month lag basis. This change was done to
facilitate timely and accurate consolidation and in order to meet financial
reporting deadlines of the Company. The result of operations for the subsidiary
for May 2000 ($61,000 net loss) was included in the consolidated results of
operations for the first quarter of fiscal 2001. Retained earnings were adjusted
during the first quarter of fiscal 2001 to eliminate the subsidiary net loss for
May 2000, which was included in operations for the year-ended May 28, 2000. The
effect of the change in year-end for future periods is expected to be
insignificant.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101 REVENUE RECOGNITION IN FINANCIAL STATEMENTS.
SAB No. 101 summarizes certain of the SEC staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. As a
result, the Company changed the method of accounting for certain sales
transactions. Historically, the Company recognized revenue upon shipment of
products to certain customers because, even though some products were shipped
FOB destination, we used a common carrier and thus gave up substantially all the
risks of ownership. Under the new accounting method adopted retroactive to May
29, 2000, the Company now recognizes revenue upon delivery of products to these
customers. The cumulative effect of the change on prior years resulted in a
non-cash charge to income of $50,000 (net of taxes of $27,000) for the year
ended June 3, 2001.
For the three months ended August 27, 2000, the Company recognized $234,000 in
revenue that was included in the cumulative effect adjustment as of May 29,
2000. The effect of the revenue in the first quarter was to increase income by
$50,000 (after reduction for income taxes of $27,000).
The balance sheet of the Company as of March 3, 2002 and the related statements
of operations and cash flows for the three and nine months ended March 3, 2002
and February 25, 2001 have been prepared without being audited. In the opinion
of the management, these statements reflect all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the position of Ault
Incorporated and subsidiaries as of March 3, 2002 and February 25, 2001, and the
results of operations and cash flows for all periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. Therefore, these
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's June 3, 2001 Form 10-K.
The results of operations for the interim periods are not necessarily indicative
of results that will be realized for the full fiscal year.
2 Inventories
-------------
The components of inventory (in thousands) at March 3, 2002 and June 3, 2001 are
as follows:
March 3, June 3,
2002 2001
-------- --------
Raw Materials $5,375 $6,584
Work-in-process 496 550
Finished Goods 3,479 5,289
-------- --------
$9,350 $12,423
======== ========
Page 6
AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRD QUARTER ENDED MARCH 3, 2002
---------------------------------
3 Long-term Debt
----------------
Long-term debt (in thousands) including current maturities contain the
following:
March 3, June 3,
2002 2001
------ ------
Various term loans, 7.2% - 8.0% interest, due in monthly
installments through December 2003, secured by
equipment $ 170 $ 273
Various note payables, 6.75% interest, due in quarterly
installments through April 2002, unsecured guaranteed by
the Korean government -- 314
Term loan, 7.94% interest, due in monthly installments
through September 2005, secured by furniture 167 211
Term loan, 8.05% interest, due in monthly installments to
February 2015, secured by Minneapolis building 2,767 2,854
------ ------
Total $3,104 $3,652
Less current maturities 277 617
------ ------
$2,827 $3,035
====== ======
4 Stockholders' Equity
----------------------
Nine Months Ended
March 3, 2002
-------------
($000)
Total Stockholders' Equity - June 3, 2001 $28,129
Net Loss $(3,316)
Net change in Foreign currency translation
adjustment 15
-------
Comprehensive Income (Loss) (3,301)
Issue 9,000 shares of common stock in
accordance with stock option plan 29
-------
Total Stockholders' Equity $24,857
========
5 Net Income (Loss) Per Common Share
------------------------------------
Basic and diluted earnings per share are presented in accordance with Statement
of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE. The
difference between weighted average common and common equivalent shares is the
result of outstanding stock options.
Nine Months Ended
--------------------------
March 3, February 25,
2002 2001
----------- -----------
Income (Loss) Applicable to Common
Shareholders (in thousands) $ (3,316) $ 2,106
Basic - Weighted Average Shares Outstanding 4,537,187 4,475,793
Diluted Effect of Stock Options -- 229,969
Diluted - Weighted Average Shares Outstanding 4,537,187 4,705,762
Basic Income (Loss) per Share $ (0.73) $ 0.47
=========== ===========
Diluted Income (Loss) per Share $ (0.73) $ 0.45
=========== ===========
Page 7
AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRD QUARTER ENDED MARCH 3, 2002
---------------------------------
6 Accounting Pronouncements
---------------------------
On June 4, 2001 the Company adopted Statement of Financial Accounting Standard
(SFAS) No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as
amended by SFAS No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND
CERTAIN HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that all derivatives, including those embedded in other contracts, be recognized
as either assets or liabilities and that those financial instruments be measured
at fair value. The accounting for changes in the fair value of derivatives
depends on their intended use and designation. Management has reviewed the
requirements of SFAS No. 133 and has determined that the Company has no
freestanding or embedded derivatives. All agreements that contain provisions
meeting the definition of a derivative also meet the requirements of, and have
been designated as normal purchases or sales. The Company's policy is to not use
freestanding derivatives and to not enter into contracts with terms that cannot
be designated as normal purchases or sales.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, BUSINESS COMBINATIONS and No. 142
GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001 and that the use of the pooling-of-interest method is no longer
allowed. SFAS No. 142 requires that upon adoption, amortization of goodwill will
cease and instead, the carrying value of goodwill will be evaluated for
impairment on an annual basis. Intangible assets with finite lives will continue
to be amortized over their useful lives and reviewed for impairment in
accordance with SFAS No. 121 ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 142 is effective for the
Company in its fiscal year beginning June 3, 2002. The Company is evaluating the
impact of the adoption of these standards and has not yet determined the effect
of adoption on its financial position and results of operations.
Page 8
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Third Quarter Ended March 3, 2002
---------------------------------
Increase/(Decrease)
($000) Fiscal Fiscal -------------------
2002 2001 Amount Percent
-------- ------- -------- ---------
Net Sales $9,484 $22,677 $(13,192) (58%)
Operating Income (Loss) (645) 986 (1,631) (165%)
Net sales were $9,484,000 for the third quarter of fiscal 2002 down 58% from
$22,676,000 for the third quarter of fiscal 2001. The decrease is due to the
economic slowdown, primarily in the telecommunication and data communication
industries.
Gross margin for the third quarter was 20.6 percent as a percent of sales,
compared with 21.7 percent for the third quarter of last year. The decrease is
due to rework cost of $50,000 in Asia and a $25,000 payment to a former business
partner in Asia.
Operating expenses were $2,602,000 for the third quarter of fiscal 2002 down
34.1% from $3,946,000 for the third quarter of fiscal 2001. Commission expenses
decreased by $250,000 due to lower revenues in the third quarter of fiscal 2002.
The Company also reduced expenses and increased efficiencies during the third
quarter of 2002. This resulted in a savings of $1,094,000 for the third quarter
of 2002.
Nine Months Ended March 3, 2002
-------------------------------
Increase/(Decrease)
($000) Fiscal Fiscal -------------------
2002 2001 Amount Percent
-------- ------- -------- ---------
Net Sales $29,738 $71,167 $(41,429) (58%)
Operating Income (Loss) (3,793) 3,240 (7,033) (217%)
Net sales were $29,738,000 for the first nine months of fiscal 2002 down 58%
from $71,167,000 for the first nine months of fiscal 2001. The decrease is due
to the economic slowdown, primarily in the telecommunication and data
communication industries.
Operating loss totaled $3,793,000 for the first nine months of fiscal 2002
compared to operating income of $3,240,000 for the same period in fiscal 2001.
The decrease of $41,429,000 in sales reduced operating income by $9,140,000. Due
to the economic slowdown bad debt expense was increased by $1,310,000 and the
inventory obsolescence expense was increased by $780,000. The Company also
recorded a charge for restructuring cost of $63,000. This decrease was partially
offset by a reduction of commission expense of $1,150,000. The Company's Korean
subsidiary recorded a reduction of expenses of $200,000 from a business
interruption payment due to moving into their new facility. The Company has been
decreasing expenses and increasing efficiencies during the first nine months of
fiscal 2002. This resulted in a savings of $2,910,000 for the first nine months
of fiscal 2002.
ORDER BACKLOG: The Company's order backlog at March 3, 2002 totaled $8,578,000
compared to $10,792,000 at June 3, 2001. The order backlog represents sales for
approximately eleven weeks. Many OEMs limit their contractual commitments to the
best lead-times of their suppliers.
Page 9
NON-OPERATING INCOME AND EXPENSES: Other expense was $205,000 for the first nine
months of fiscal 2002 and other income was $507,000 for the same period in
fiscal 2001. The difference is represented by fiscal 2002 having a currency
exchange rate loss of $135,000 while the same period of fiscal 2001 had a
currency exchange rate gain of $300,000 by the Korean subsidiary. The Company
had interest income of $92,000 in the first nine months of fiscal 2002 and
$58,000 for the same period in fiscal 2001. The Company incurred interest
expenses of $409,000 in the first nine months of fiscal 2002 and $427,000 in the
same period of fiscal 2001, paid on bank credit facilities and long-term
borrowings.
INCOME TAX: The Company had a pre-tax loss of $4,315,000 for the first nine
months in fiscal 2002 on which it accrued a consolidated income tax benefit of
$999,000. During the same period in fiscal 2001 the Company had pre-tax income
of $3,378,000 on which US and Korean income taxes totaling $1,222,000 were
accrued. The effective tax rate was a benefit of 23.2% for the first nine months
of fiscal 2002, and a charge of 36.2% for the same period in fiscal 2001. In the
first nine months of fiscal 2002 the Company has not taken benefit from the
foreign loss carryforwards that the loss generated because it is not likely that
the benefit will be utilized.
NET INCOME: The Company reported basic per share loss of $(0.73) for the first
nine months of fiscal 2002, based on 4,537,000 outstanding weighted average
shares, compared to basic per share income of $0.47 for the same period of
fiscal 2001, based on 4,476,000 outstanding weighted average shares. For the
first nine months of fiscal 2002 the Company reported diluted per share loss of
$(0.73), based on 4,537,000 outstanding weighted average shares, compared to
diluted per share income of $0.45 for the same period in fiscal 2001, which was
based on 4,706,000 outstanding weighted average shares.
LIQUIDITY AND CAPITAL RESOURCES
The following table describes the Company's liquidity and financial position on
March 3, 2002, and on June 3, 2001:
March 3, June 3,
2002 2001
-------- --------
($000) ($000)
Working capital $ 13,795 $ 17,840
Cash and cash equivalents 4,665 3,723
Unutilized bank credit facilities 4,849 4,767
Cash Provided by operations (nine and
twelve months ended, respectfully) 3,495 1,953
CURRENT WORKING CAPITAL POSITION
As of March 3, 2002, the Company had current assets of $21,587,000 and current
liabilities of $7,792,000, which amounted to working capital of $13,795,000 and
a current ratio of 2.8 to 1.0. This represents a decrease from its working
capital of $17,840,000 as of June 3, 2001. The Company relies on its credit
facilities and cash flows from operations as sources of working capital to
support normal growth in revenue, capital expenditures and attainment of profit
goals. The Company has not committed any funds to capital expenditures as of
March 3, 2002.
CASH AND INVESTMENTS: As of March 3, 2002, the Company had cash and securities
totaling $4,665,000, compared to $3,723,000 as of June 3, 2001. The increase was
due to cash generated in operations.
CREDIT FACILITIES: The Company maintains two credit facilities. Its primary
credit facility is with US Bank and a facility with Korea Exchange Bank supports
the South Korean subsidiary.
Page 10
CASH FLOWS FOR FISCAL 2002
OPERATIONS: Operations provided $3,495,000 of cash during the first nine months
of fiscal 2002 due principally to the following activities:
(a) The loss net of depreciation, amortization and bad debt
reserve used cash of $1,164,000.
(b) Decreases in trade receivables mainly due to the decreased net
sales in fiscal 2002 provided $4,954,000 of cash.
(c) Decreases in inventories provided $3,348,000 of cash net of
obsolescence expense. The decrease is due to the decreases in
net sales in fiscal 2002.
(d) Decreases in accrued expenses and accounts payable used
$3,785,000 of cash. The decrease is due to the decrease in net
sales for fiscal 2002.
INVESTING ACTIVITIES: Investing activities used net cash of $810,000 relating to
the completion of the new Korean facility.
FINANCING ACTIVITIES: Financing activities used net cash of $1,746,000,
comprised of $1,218,000 payment on the Korean line of credit, $557,000 payment
on long-term debt, and $29,000 from proceeds from the issuance of common stock.
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE FLUCTUATIONS: The effect of translating
the Korean financial statements, which were prepared in Won to US dollars, had
an increase effect on cash of approximately $3,000 during the first nine months
of the year. The effect of translating the Chinese financial statements, which
were prepared in Yuan to US dollars, had minimal effect on cash for the first
nine months of the fiscal year.
SUMMARY: The Company's cash and working capital positions are sound, and
together with its credit facilities, are adequate to support the Company's
strategies for the remainder of fiscal 2002 and into fiscal 2003.
INFORMATION ABOUT PRODUCTS AND SERVICES: The Company's business operations are
comprised of one activity--the design, manufacture and sale of equipment for
converting electric power to a level used by OEMs in data
communications/telecommunications and medical markets to charge batteries,
and/or power equipment. The Company supports these power requirements by making
available to the OEMs products that have various technical features. These
products are managed as one product segment under the Company's internal
organizational structure and the Company does not consider any financial
distinctive measures, including net profitability and segmentation of assets to
be meaningful to performance assessment.
Page 11
INFORMATION ABOUT REVENUE BY GEOGRAPHY
Distribution of revenue from the US, from each foreign country that is the
source of significant revenue and from all other foreign countries as a group
are as follows:
Nine Months Ended
March 3, February 25,
2002 2001
--------------------
($000) ($000)
US $20,577 $45,791
Korea 3,304 5,636
Belgium 305 2,728
UK 1,820 5,087
China 1,693 4,791
Canada 684 1,987
Other Foreign 1,355 5,148
--------------------
Total $29,738 $71,168
====================
The Company considers a country to be the geographic source of revenue if it has
contractual obligations, including obligation to pay for trade receivable
invoices.
ACCOUNTING PRONOUNCEMENTS
On June 4, 2001 the Company adopted Statement of Financial Accounting Standard
(SFAS) No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, as
amended by SFAS No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND
CERTAIN HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that all derivatives, including those embedded in other contracts, be recognized
as either assets or liabilities and that those financial instruments be measured
at fair value. The accounting for changes in the fair value of derivatives
depends on their intended use and designation. Management has reviewed the
requirements of SFAS No. 133 and has determined that the Company has no
freestanding or embedded derivatives. All agreements that contain provisions
meeting the definition of a derivative also meet the requirements of, and have
been designated as normal purchases or sales. The Company's policy is to not use
freestanding derivatives and to not enter into contracts with terms that cannot
be designated as normal purchases or sales.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141, BUSINESS COMBINATIONS and No. 142
GOODWILL AND OTHER INTANGIBLE ASSETS. SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001 and that the use of the pooling-of-interest method is no longer
allowed. SFAS No. 142 requires that upon adoption, amortization of goodwill will
cease and instead, the carrying value of goodwill will be evaluated for
impairment on an annual basis. Intangible assets with finite lives will continue
to be amortized over their useful lives and reviewed for impairment in
accordance with SFAS No. 121 ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 142 is effective for the
Company in its fiscal year beginning June 3, 2002. The Company is evaluating the
impact of the adoption of these standards and has not yet determined the effect
of adoption on its financial position and results of operations.
IMPACT OF FOREIGN OPERATIONS AND CURRENCY CHANGES:
The Company will experience normal valuation changes as the Korean and Chinese
currency fluctuates. The effect of translating the Korean and Chinese financial
statements resulted in a net asset increase of $15,000 during the first nine
months of fiscal 2002.
Page 12
FORWARD LOOKING STATEMENTS
From time to time, in reports filed with the Securities and Exchange Commission,
in press releases, and in other communications to shareholders or the investing
public, the Company may make forward-looking statements concerning possible or
anticipated future results of operations or business developments which are
typically preceded by the words "believes", "expects", "anticipates", "intends"
or similar expressions. For such forward-looking statements, the Company claims
the protection of the safe harbor for forward-looking statements contained in
the Private Securities Litigation Reform Act of 1995. Shareholders and the
investing public should understand that such forward-looking statements are
subject to risks and uncertainties that could cause results or developments to
differ significantly from those indicated in the forward-looking statements.
Such risks and uncertainties include, but are not limited to, the overall level
of sales by original equipment manufacturers (OEMs) in the telecommunications,
data communications, computer peripherals and the medical markets; buying
patterns of the Company's existing and prospective customers; the impact of new
products introduced by competitors; delays in new product introductions; higher
than expected expense related to sales and new marketing initiatives;
availability of adequate supplies of raw materials and components; fuel prices;
and other risks affecting the Company's target markets.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company experiences foreign currency gains and losses, which are reflected
in the financial statements, due to the strengthening and weakening of the U.S.
dollar against currencies of the Company's foreign subsidiaries. The Company
anticipates that it will continue to have exchange gains or losses in the
future.
As of March 3, 2002, the Company only had fixed rate debt outstanding. Thus,
interest rate fluctuations would not impact interest expense or cash flows. If
the Company were to undertake additional debt, an interest rate change would
impact earnings and cash flows.
Page 13
PART II
ITEMS 1-3 OTHER INFORMATION: Not Applicable
ITEM 4 Submission of Matters to a Vote of Security Holders: Not Applicable
ITEM 5 OTHER INFORMATION: Not Applicable
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
Reference Title of Document Location
--------- ----------------- --------
Part 1 Exhibits
(a) None
(b) None
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AULT INCORPORATED
(REGISTRANT)
DATED: 04/10/02 /s/ Frederick M. Green
--------------------- -----------------------------------
Frederick M. Green, President
Chief Executive Officer and
Chairman
DATED: 04/10/02 /s/ Donald L. Henry
--------------------- -----------------------------------
Donald L. Henry
Chief Financial Officer
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