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 February 25, 2001
Commission file number 0-12611
AULT INCORPORATED
MINNESOTA 41-0842932
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(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 March 21, 2001
--------------------- --------------
No par value 4,512,782 shares
Total pages 15
Exhibits Index on Page 14
PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Amounts Per Share)
(Unaudited)
-------------------------------------------------------
Third Quarter Ended Nine Months Ended
------------------------- -------------------------
Feb. 25 Feb. 27 Feb. 25 Feb. 27
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net Sales $ 22,248 $ 17,570 $ 70,163 $ 45,491
Cost of Goods Sold 17,304 13,154 54,659 33,796
---------- ---------- ---------- ----------
Gross Profit 4,944 4,416 15,504 11,695
Operating Expenses:
Marketing 1,552 1,381 5,009 3,890
Design Engineering 792 863 2,322 2,466
General and Administrative 1,602 1,291 4,881 3,659
---------- ---------- ---------- ----------
3,946 3,535 12,212 10,015
---------- ---------- ---------- ----------
Operating Income 998 881 3,292 1,680
Other Income (Expense):
Interest Expense (143) (131) (427) (240)
Interest Income 8 3 58 20
Other 279 (59) 507 (55)
---------- ---------- ---------- ----------
144 (187) 138 (275)
---------- ---------- ---------- ----------
Income Before Income Taxes 1,142 694 3,430 1,405
Income Taxes 426 180 1,240 368
---------- ---------- ---------- ----------
Net Income $ 716 $ 514 $ 2,190 $ 1,037
========== ========== ========== ==========
Earnings Per Share
Basic $ 0.16 $ 0.12 $ 0.49 $ 0.24
Diluted $ 0.15 $ 0.11 $ 0.47 $ 0.22
Common and Equivalent Shares
Outstanding
Basic 4,495,121 4,393,224 4,475,793 4,378,045
Diluted 4,715,262 4,773,523 4,705,762 4,694,671
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 2
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
February 25, May 28,
2001 2000
------------ ------------
Assets:
Current Assets
Cash and Cash Equivalents $ 1,207 $ 2,419
Available-for-sale Investments 497
Trade Receivables, Less Allowance for Doubtful Accounts of
$528,000 at February 25, 2001; $94,000 at May 28, 2000 19,741 15,899
Inventories(Note 2) 14,141 14,260
Prepaid Expenses and Other 567 983
Deferred Taxes 211 211
------------ ------------
Total Current Assets 35,867 34,269
Other Assets:
Intangibles, less accumulated amortization of $226,000 at
February 25, 2001; $150,000 at May 28, 2000 1,278 1,354
Deferred Taxes 75 72
Other 14 24
------------ ------------
1,367 1,450
Property Equipment and Leasehold
Improvements:
Land 1,669 1,583
Building 6,512 5,261
Machinery and Equipment 7,526 7,123
Office Furniture 1,427 1,265
E.D.P. Equipment 2,145 1,675
------------ ------------
19,279 16,907
Less Accumulated Depreciation 7,102 6,370
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12,177 10,537
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$ 49,411 $ 46,256
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 3
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
February 25, May 28,
2001 2000
------------ ------------
Liabilities and Stockholders' Equity:
Current Liabilities
Note Payable to Bank $ 3,807 $ 2,158
Current Maturities of Long-Term Debt (Note 3) 459 802
Accounts Payable 11,081 11,763
Accrued Compensation 636 538
Accrued Commissions 1,016 746
Other 296 135
Income Tax Payable 436 419
------------ ------------
Total Current Liabilities 17,731 16,561
Long-Term Debt, Less Current Maturities (Note 3) 3,384 3,657
Retirement and Severance Benefits 346 233
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 4,512,782 on
February 25, 2001; and 4,445,432 on May 28, 2000; 20,471 20,275
Notes Receivable arising from the sale of common stock (100) (145)
Accumulated Other Comprehensive Loss (895) (548)
Retained Earnings 8,474 6,223
------------ ------------
27,950 25,805
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$ 49,411 $ 46,256
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 4
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
February 25, February 27,
2001 2000
------------ ------------
Cash Flows From Operating Activities
Net Income: $ 2,190 $ 1,037
Adjustments to Reconcile Net Income to Net Cash
Used in Operating Activities:
Depreciation 733 643
Amortization 75
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 (3,930) (2,736)
Inventories (850) (3,119)
Prepaid and Other Expenses 300 (690)
Increase (Decrease) in:
Accounts Payable (274) 2,207
Accrued Expenses 707 689
Income Tax Payable (33) 214
------------ ------------
Net Cash Used in Operating Activities (1,027) (1,755)
------------ ------------
Cash Flows From Investing Activities:
Purchase of Equipment and Leasehold Improvements (2,428) (5,069)
Proceeds from the sale of securities 554 542
------------ ------------
Net Cash Used in Investment Activities (1,874) (4,527)
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Cash Flows From Financing Activities:
Net Borrowings on Revolving Credit Agreements 2,128 906
Proceeds from Issuance of Common Stock 203 39
Principal Payments on Long-Term Borrowings (561) 32
Proceeds from Long-Term Borrowings 3,300
Retire Common Stock (13)
------------ ------------
Net Cash Provided by Financing Activities 1,757 4,093
------------ ------------
Effect of Foreign Currency Exchange Rate Changes
on Cash (68) 207
------------ ------------
Decrease in Cash and Cash Equivalents (1,212) (1,982)
Cash and Cash Equivalents at Beginning of Period 2,419 3,303
------------ ------------
Cash and Cash Equivalents at End of Period $ 1,207 $ 1,321
============ ============
Supplemental Disclosures of Cash Flow Information-
Cash payments for:
Interest $ 427 $ 109
Taxes 1,227 138
Page 5
AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRD QUARTER ENDED FEBRUARY 25, 2001
1 Summary of Consolidation Principles
The accompanying consolidated financial statements include the accounts of Ault
Incorporated, its wholly owned subsidiaries, Ault Shanghai and Ault Korea
Corporation, and its wholly owned subsidiary, 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.
The balance sheet of the Company as of February 25, 2001 and the related
statements of income and cash flows for the nine months ended 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 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 generally accepted accounting principles
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 May 28, 2000 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.
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 results 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 was 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.
2 Inventories
The components of inventory (in thousands) at February 25, 2001 and May 28, 2000
are as follows:
February 25, May 28,
2001 2000
------------ ------------
Raw Materials $ 8,372 $ 7,275
Work-in-process 304 406
Finished Goods 5,465 6,579
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$ 14,141 $ 14,260
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Page 6
AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRD QUARTER ENDED FEBRUARY 25, 2001
3 Long-term Debt
Long-term debt (in thousands) including current maturities contain the
following:
FEBRUARY 25, MAY 28,
2001 2000
------------ ------------
Various Term Loans, 7.2% - 8.0% interest due in monthly
installments through December 2003, secured by
equipment $ 319 $ 494
Various note payables, 7.5% interest due in quarterly
installments through April 2002, unsecured 417 735
Term loan, 7.94% interest rate due in monthly installments
through September 2005, secured by furniture 224 265
Term loan, 8.05% interest rate due in monthly installments to
February 2015, secured by Minneapolis building 2,883 2,965
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Total $ 3,843 $ 4,459
Less Current Maturities 459 802
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$ 3,384 $ 3,657
============ ============
4 Stockholders' Equity
Nine Months
Ended February 25,
2001
------------------
($000)
Total Stockholders' Equity - May 28, 2000 $ 25,805
Net Income $ 2,190
Net change in Foreign currency translation
adjustment (347)
-------------
Comprehensive Income 1,843
Stock Compensation 51
Issue 74,205 shares of common stock in
accordance with stock option plan 203
Adjust retained earnings for the change in
subsidiary fiscal year end 61
7,855 shares of common stock acquired and
retired for payment of receivables (13)
-------------
Total Stockholders' Equity $ 27,950
=============
5 Net Income 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 average common and common equivalent shares is the result of
outstanding stock options.
Nine Months Ended
-----------------
February 25, 2001 February 27, 2000
----------------- -----------------
Income Applicable to Common Shareholders $ 2,190 $ 1,037
Basic - Weighted Average Shares Outstanding 4,475,793 4,378,045
Diluted Effect of Stock Options 229,969 316,626
Diluted - Weighted Average Shares Outstanding 4,705,762 4,694,671
Basic Earnings per Share $ 0.49 $ 0.24
============ ============
Diluted Earnings per Share $ 0.47 $ 0.22
============ ============
Page 7
AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THIRD QUARTER ENDED FEBRUARY 25, 2001
6 Accounting Pronouncements
On June 4, 2001 the Company is required to adopt 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 free-standing 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 free-standing derivatives and to not enter into
contracts with terms that cannot be designated as normal purchases or sales.
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. SAB No.
101 is to be implemented by the Company no later than the fourth quarter of
fiscal 2001. Management is reviewing SAB No. 101 and believes that it will not
have a material effect on financial statements on the current year.
In the fourth quarter of Fiscal 2001, the Company will be required to adopt the
Emerging Issues Task Force (EITF) issue number 00-10, ACCOUNTING FOR SHIPPING
AND HANDLING FEES AND COSTS. This EITF will require the Company to reclass
certain shipping and handling costs that were netted in sales and cost of goods
sold. This will result in a $1,790,000 and $1,074,000 increase to sales and cost
of goods sold in the 2000 and 1999 statements of income, respectively. If this
EITF was implemented at February 25, 2001 it would have resulted in a $1,137,000
and $1,530,000 increase to sales and cost of sales for the nine months ended
February 25, 2001 and February 27, 2000, respectively.
Page 8
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Third Quarter Ended February 25, 2001
($000) Fiscal Fiscal Increase / (Decrease)
-------------------------
2001 2000 Amount Percent
-------------------------------------------------
Net Sales $22,248 $17,570 $4,678 27%
Operating Income 998 881 117 13%
Net sales were $22,248,000 for the third quarter of fiscal 2001 up 27% from
$17,570,000 for the third quarter of fiscal 2000. The growth was primarily due
to significantly higher power supply volume to major OEMs of high-speed ADSL
modems of $1,000,000. The quarter also includes growing business volumes with
OEMs of PDAs of $2,000,000. In addition, the Company has continued growth in the
Asian markets, which amounted to $2,000,000.
Gross margin for the third quarter was 22.2 percent as a percent of sales,
compared with 21.8 percent for the first quarter this year and 22.2 percent for
the second quarter of this year. Third quarter gross margin last year was 25.1
percent. Margins continue to be affected by a growth in lower-margin linear
power supplies used by our ADSL customers ($217,000).
As a percentage of sales, operating expenses declined to 17.7 percent in the
third quarter of fiscal 2001, down from 20.1 percent in the third quarter of
fiscal 2000. Operating expenses were $3,946,000 for the third quarter of fiscal
2001 up 11.6% from $3,535,000 for the third quarter of fiscal 2000. The increase
is due to bad debt expense of $175,000 relating to a customer who has filed
chapter 11, the creation of a new subsidiary in Shanghai, China with office
expenses of $115,000, and other variable costs associated with the increase in
sales.
Nine Months Ended February 25, 2001
($000) Fiscal Fiscal Increase / (Decrease)
-------------------------
2001 2000 Amount Percent
-------------------------------------------------
Net Sales $70,163 $45,491 $24,672 54%
Operating Income 3,292 1,680 1,612 96%
Net sales were $70,163,000 for the first nine months of fiscal 2001 up 54% from
$45,491,000 for the first nine months of fiscal 2000. The growth was primarily
due to significantly higher power supply volume to major OEMs of high-speed ADSL
modems of $6,000,000, PDAs of $4,000,000. The Company is also benefiting from
growing business volumes with OEMs serving the medical equipment market of
$2,000,000 and distributors $500,000. In addition, the Company has experienced
growth in both European and Asian markets of $4,000,000 each.
Operating income totaled $3,292,000 for the first nine months of fiscal 2001 and
$1,680,000 for the same period in fiscal 2000 equaling, respectively, 4.7% and
3.7% of net sales. Several factors partially offset the positive impact of
Ault's strong sales growth. Bad debt expense increased ($400,000) related to a
customer-filing chapter 11. Gross margins decreased due to a shift in the sales
mix toward lower-margin linear power supplies ($684,000). In response, the
Company is re-engineering the entire line of power supplies to reduce
manufacturing costs. The Company has completed one new family of products,
replaced two product families and two families are almost complete. The
significant growth of Asian sales also had a near-term negative impact on gross
margins. As an aggressive new undertaking, the Asian sales effort entails the
normal array of start-up costs and pricing initiatives ($60,000). The Company is
forecasting strong Asian sales for the remainder of fiscal 2001, and believes
that margins on this business should improve as the year progresses. To further
strengthen margins, the Company is also implementing a global procurement system
that will leverage purchasing power for key electronic components.
Page 9
ORDER BACKLOG: The Company's order backlog at February 25, 2001 totaled
$10,991,000 compared to $17,877,000 at May 28, 2000. The order backlog
represents sales for approximately nine weeks and reflected the posture of many
OEMs to limit their contractual commitments to the best lead-times of their
suppliers. This requires the Company to place greater reliability on its ability
to forecast customer needs and requirements for on-time shipment of products.
NON-OPERATING INCOME AND EXPENSES: Other income of $565,000 for the nine months
of fiscal 2001 represented interest income $58,000, currency exchange rate gains
by the Korean subsidiary $300,000, realized gain on the sale of securities
available for sale $56,000 and income derived from rented portions of the Korean
manufacturing facility $15,000. Other income of ($35,000) for the same period in
fiscal 2000 represented interest income $20,000, currency exchange rate loses by
the Korean subsidiary ($40,000) and income derived from rented portions of the
Korean manufacturing facility $15,000. The Company incurred interest expenses of
$427,000 in the first nine months of fiscal 2001 and $240,000 in the same period
of fiscal 2000, paid on bank credit facilities and long-term borrowings. The
interest expense increase is primarily related to additional debt on the new
building in Minneapolis.
INCOME TAX: The Company had pre-tax income of $3,430,000 for the first nine
months in fiscal 2001 on which it accrued US and Korean income taxes totaling
$1,240,000. During the same period in fiscal 2000 the Company had pre-tax income
of $1,405,000 on which US and Korean income taxes totaling $368,000 were
accrued. The effective tax rate for the first nine months of fiscal 2001 is 36%
and 26% in the same period of fiscal 2000. The effective income tax rate has
changed year to year due to the anticipated change in Research and Development
credits that would be taken.
NET INCOME: The Company reported basic per share earnings of $0.49 for the first
nine months of fiscal 2001 based on 4,476,000 outstanding weighted average
shares, compared to basic per share earnings of $0.24 for the same period of
fiscal 2000, based on 4,378,000 outstanding weighted average shares. For the
first nine months of fiscal 2001 the Company reported diluted per share earnings
of $0.47 based on 4,706,000 outstanding weighted average shares, compared to
diluted per share earnings of $0.22 for the same period in fiscal 2000, which
were based on 4,695,000 outstanding weighted average shares.
LIQUIDITY AND CAPITAL RESOURCES
The following table describes the Company's liquidity and financial position on
February 25, 2001, and on May 28, 2000:
February 25, May 28,
2001 2000
------------ ------------
($000) ($000)
Working capital $18,136 $17,708
Cash 1,207 $ 2,419
Securities Available for Sale 497
Unutilized bank credit facilities 4,000 $ 4,041
Cash Provided by(used in) operations (1,027) (2,426)
CURRENT WORKING CAPITAL POSITION
As of February 25, 2001, the Company had current assets of $35,867,000 and
current liabilities of $17,731,000, which amounted to working capital of
$18,136,000 and current ratio of 2.0 to 1.0. This represents a change from its
working capital of $17,708,000 as of May 28, 2000. 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.
CASH AND INVESTMENTS: As of February 25, 2001, the Company had cash and
securities totaling $1,207,000, compared to $2,916,000 as of May 28, 2000. The
decrease is primarily due to timing of payables and receivables.
Page 10
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.
CASH FLOWS FOR FISCAL 2001
OPERATIONS: Operations used $1,207,000 of cash during the first nine months of
fiscal 2001 due principally to the following activities in trade receivables,
inventories and accounts payables:
(a) Increases in trade receivables mainly due to the increased net sales
in fiscal 2001 and to a general slow down of payments by our customers
used $3,930,000 of cash.
(b) Increases in inventories used $850,000 of cash. The increases are due
primarily to inventory increases in Korea.
(c) Decreases in accounts payable used $274,000 of cash from liabilities
associated with the accelerated payments to our Chinese subcontractors
for the Chinese New Year used $1,000,000 of cash while increased
purchases of material to support customer orders and emergency
stockings of finished product provided $700,000 in cash. Increased
liabilities for these purposes are anticipated for the remainder of
fiscal year 2001.
INVESTING ACTIVITIES: Investing activities used net cash of $1,874,000 relating
to the construction of a new facility in Korea ($1,300,000) the purchase of
manufacturing and IS equipment ($1,000,000) and the sale of securities available
for sale provided $500,000. The Company is committed to completing the facility
in Korea for approximately an additional $1,000,000. This will be paid for by
funds already received from the sale of the existing building. This should be
complete by the end of the fourth quarter.
FINANCING ACTIVITIES: Financing activities provided net cash of $1,757,000,
primarily comprised of borrowings for raw material purchases in Korea and
general funding due to the requirements of the building construction in Korea.
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE FLUCTUATIONS: The effect of translating
the Korean financial statements, which were prepared in Won to US dollars, had a
decrease effect on cash of approximately $68,000 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 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 2001.
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
February 25, 2001 February 27, 2000
---------------------------------------
($000) ($000)
US $44,786 $35,441
Korea 5,636 2,235
Belgium 2,728 1,350
UK 5,087 2,538
China 4,791 583
Canada 1,987 1,426
Other Foreign 5,148 1,918
---------------------------------------
Total $70,163 $45,491
=======================================
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 is required to adopt 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 free-standing 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 free-standing derivatives and to not enter into
contracts with terms that cannot be designated as normal purchases or sales.
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. SAB No.
101 is to be implemented by the Company no later than the fourth quarter of
fiscal 2001. Management is reviewing SAB No. 101 and believes that it will not
have a material effect on financial statements on current year.
In the fourth quarter of Fiscal 2001, the Company will be required to adopt the
Emerging Issues Task Force (EITF) issue number 00-10, ACCOUNTING FOR SHIPPING
AND HANDLING FEES AND COSTS. This EITF will require the Company to reclass
certain shipping and handling costs that were netted in sales and cost of goods
sold. This will result in a $1,790,000 and $1,074,000 increase to sales and cost
of goods sold in the 2000 and 1999 statements of income, respectively. If this
EITF was implemented at February 25, 2001 it would have resulted in a $1,137,000
and $1,530,000 increase to sales and cost of sales for the nine months ended
February 25, 2001 and February 27, 2000, respectively.
IMPACT OF FOREIGN OPERATIONS AND CURRENCY CHANGES:
Products manufactured by the Korean subsidiary contributed a large portion of
total sales. The value of the Won had no significant impact on the Company's
consolidated sales for the quarter. 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 value
decrease of $347,000 during the first nine months of the year, the majority
relating to the Korean currency fluctuations.
Page 12
FORWARD LOOKING INFORMATION
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. The company realized an exchange gain of $300,000 for the nine months
ended February 25, 2001 and a loss of $40,000 for the same period ending
February 27, 2000.
As of February 25, 2001, 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 changes would
impact earnings and cash flows.
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PART II
ITEMS 1-3 OTHER INFORMATION: Not Applicable
ITEMS 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
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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: April 11, 2001 /s/ Frederick M. Green
--------------------- -----------------------------------
Frederick M. Green, President
Chief Executive Officer and
Chairman
DATED: April 11, 2001 /s/ Donald L. Henry
--------------------- -----------------------------------
Donald L. Henry
Chief Financial Officer
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