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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 December 2, 2001
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 December 21, 2001
--------------------- -----------------
No par value 4,538,522 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)
---------------------------------------------------------------
Second Quarter Ended Six Months Ended
----------------------------- -----------------------------
Dec. 2 Nov. 26 Dec. 2 Nov. 26
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net Sales $ 9,953 $ 26,573 $ 20,254 $ 48,491
Cost of Goods Sold 8,587 20,752 16,479 37,971
------------ ------------ ------------ ------------
Gross Profit 1,366 5,821 3,775 10,520
Operating Expenses:
Marketing 953 1,927 1,964 3,457
Design Engineering 603 758 1,291 1,530
General and Administrative 2,548 1,767 3,668 3,279
------------ ------------ ------------ ------------
4,104 4,452 6,923 8,266
------------ ------------ ------------ ------------
Operating (Loss) Income (2,738) 1,369 (3,148) 2,254
Other Income (Expense):
Interest Expense (137) (132) (285) (284)
Interest Income 30 23 61 50
Other (68) 28 (252) 228
------------ ------------ ------------ ------------
(175) (81) (476) (6)
------------ ------------ ------------ ------------
Income (Loss) Before Income Taxes (2,913) 1,288 (3,624) 2,248
Income Tax (Benefit) Expense (853) 475 (918) 800
------------ ------------ ------------ ------------
Net Income (Loss) Before Accounting Change (2,060) 813 (2,706) 1,448
Cumulative Effect of Accounting Change, Net of Tax (50)
------------ ------------ ------------ ------------
Net Income (Loss) $ (2,060) $ 813 $ (2,706) $ 1,398
============ ============ ============ ============
Earnings (Loss) Per Share
Basic:
Net (Loss) Income Before Accounting Change $ (0.45) $ 0.18 $ (0.60) $ 0.32
Cumulative Effect of Accounting Change (0.01)
------------ ------------ ------------ ------------
Basic (Loss) Earnings Per Share $ (0.45) $ 0.18 $ (0.60) $ 0.31
Diluted:
Net (Loss) Income Before Accounting Change $ (0.45) $ 0.17 $ (0.60) $ 0.31
Cumulative Effect of Accounting Change (0.01)
------------ ------------ ------------ ------------
Basic (Loss) Earnings Per Share $ (0.45) $ 0.17 $ (0.60) $ 0.30
Common and Equivalent Shares Outstanding:
Basic 4,537,522 4,479,825 4,536,536 4,468,129
Diluted 4,537,522 4,751,542 4,536,536 4,703,082
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 2
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
December 2, June 3,
2001 2001
------------ ------------
Assets:
Current Assets
Cash and Cash Equivalents $ 6,691 $ 3,723
Trade Receivables, Less Allowance for Doubtful Accounts of
$1,844,000 at December 2, 2001; $621,000 at June 3, 2001 6,488 12,361
Inventories (Note 2) 9,974 12,423
Prepaid Expenses and Other 1,387 747
Deferred Taxes 364 364
------------ ------------
Total Current Assets 24,904 29,618
Other Assets:
Intangibles, less accumulated amortization of $301,000 at
December 2, 2001; $251,000 at June 3, 2001 1,203 1,253
Other 260 10
------------ ------------
1,463 1,263
Property Equipment and Leasehold
Improvements:
Land 1,676 1,675
Building 7,677 5,554
Machinery and Equipment 7,600 7,517
Office Furniture 1,494 1,433
E.D.P. Equipment 2,222 2,215
Construction in Progress 1,533
------------ ------------
20,669 19,927
Less Accumulated Depreciation 7,756 7,351
------------ ------------
12,913 12,576
------------ ------------
$ 39,280 $ 43,457
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 3
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
December 2, June 3,
2001 2001
------------ ------------
Liabilities and Stockholders' Equity:
Current Liabilities
Note Payable to Bank $ 5,419 $ 4,003
Current Maturities of Long-Term Debt (Note 3) 378 617
Accounts Payable 3,785 5,285
Accrued Compensation 570 467
Accrued Commissions 313 708
Other 186 698
------------ ------------
Total Current Liabilities 10,651 11,778
Long-Term Debt, Less Current Maturities (Note 3) 2,898 3,035
Deferred Tax Liability 213 213
Retirement and Severance Benefits 34 302
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 4,537,522 on
December 2, 2001; 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 (903) (935)
Retained Earnings 5,774 8,480
------------ ------------
25,484 28,129
------------ ------------
$ 39,280 $ 43,457
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 4
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
December 2, November 26,
2001 2000
------------ ------------
Cash Flows From Operating Activities
Net (Loss) Income: $ (2,706) $ 1,398
Adjustments to Reconcile Net Income to Net Cash
Used in Operating Activities:
Depreciation 387 468
Amortization 50 50
Provision for Bad Debt 1,355 240
Adjustment Related to Change in subsidiary Year End 61
Stock Compensation 44
Changes in Assets and Liabilities:
(Increase) Decrease In:
Trade Receivables 4,346 (3,608)
Inventories 2,799 (682)
Prepaid and Other Expenses 44 (294)
Increase (Decrease) in:
Accounts Payable (1,726) 1,750
Accrued Expenses (756) 637
Income Tax Payable\Receivable (1,059) 19
------------ ------------
Net Cash Provided by Operating Activities 2,734 83
------------ ------------
Cash Flows From Investing Activities:
Purchase of Equipment and Leasehold Improvements (724) (1,071)
Decrease in Other Assets 8
------------ ------------
Net Cash Used in Investment Activities (724) (1,063)
------------ ------------
Cash Flows From Financing Activities:
Net Borrowings on Revolving Credit Agreements 1,313 1,311
Proceeds from Issuance of Common Stock 29 74
Principal Payments on Long-Term Borrowings (388) (385)
------------ ------------
Net Cash Provided by Financing Activities 954 1,000
------------ ------------
Effect of Foreign Currency Exchange Rate Changes
on Cash 4 (239)
------------ ------------
Increase (Decrease) in Cash and Cash Equivalents 2,968 (219)
Cash and Cash Equivalents at Beginning of Period 3,723 2,419
------------ ------------
Cash and Cash Equivalents at End of Period $ 6,691 $ 2,200
============ ============
Page 5
AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SECOND QUARTER ENDED DECEMBER 2, 2001
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 December 2, 2001 and the related
statements of income and cash flows for the three and six months ended December
2, 2001 and November 26, 2000 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 December 2, 2001 and November 26,
2000, 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 December 2, 2001 and June 3, 2001
are as follows:
December 2, June 3,
2001 2001
----------- -----------
Raw Materials $ 5,773 $ 6,584
Work-in-process 470 550
Finished Goods 3,731 5,289
----------- -----------
$ 9,974 $ 12,423
=========== ===========
Page 6
AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SECOND QUARTER ENDED DECEMER 2, 2001
3 Long-term Debt
Long-term debt (in thousands) including current maturities contain the
following:
December 2, June 3,
2001 2001
------------ ------------
Various term loans, 7.2% - 8.0% interest, due in monthly
installments through December 2003, secured by
equipment $ 198 $ 273
Various note payables, 6.75% interest, due in quarterly
installments through April 2002, unsecured guaranteed by
the Korean government 100 314
Term loan, 7.94% interest, due in monthly installments
through September 2005, secured by furniture 182 211
Term loan, 8.05% interest, due in monthly installments to
February 2015, secured by Minneapolis building 2,796 2,854
------------ ------------
Total $ 3,276 $ 3,652
Less current maturities 378 617
------------ ------------
$ 2,898 $ 3,035
============ ============
4 Stockholders' Equity
Six Months Ended
December 2, 2001
----------------
($000)
Total Stockholders' Equity - June 3, 2001 $ 28,129
Net Loss $ (2,706)
Net change in Foreign currency translation
adjustment 32
-----------
Comprehensive Income (Loss) (2,674)
Issue 9,000 shares of common stock in
accordance with stock option plan 29
------------
Total Stockholders' Equity $ 25,484
============
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.
Six Months Ended
----------------
December 2, 2001 November 26, 2000
---------------- -----------------
Income (Loss) Applicable to Common
Shareholders (in thousands) $ (2,706) $ 1,398
Basic - Weighted Average Shares Outstanding 4,536,536 4,468,129
Diluted Effect of Stock Options -- 234,953
Diluted - Weighted Average Shares Outstanding 4,536,536 4,703,082
Basic Income (Loss) per Share $ (0.60) $ 0.31
========== ==========
Diluted Income (Loss) per Share $ (0.60) $ 0.30
========== ==========
Page 7
AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SECOND QUARTER ENDED DECEMER 2, 2001
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. Identifiable intangible assets 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
Second Quarter Ended December 2, 2001
($000) Increase / (Decrease)
Fiscal Fiscal ------------------------
2002 2001 Amount Percent
------------------------------------------------
Net Sales $9,953 $26,573 $(16,620) (63%)
Operating Income (Loss) (2,738) 1,369 (4,107) (300%)
Net sales were $9,953,000 for the second quarter of fiscal 2002 down 63% from
$26,573,000 for the second quarter of fiscal 2001. The decrease is due to the
economic slowdown, primarily in the telecommunication and data communication
industries.
Gross margin for the second quarter was 13.7 percent as a percent of sales,
compared with 23.4 percent for the first quarter this year. Second quarter gross
margin last year was 21.9 percent. Margins in the second quarter of fiscal year
2002 were affected by an inventory write down of $780,000 due to identification
of obsolete inventory caused by the continued economic slowdown.
Operating expenses were $4,104,000 for the second quarter of fiscal 2002 down
7.8% from $4,452,000 for the second quarter of fiscal 2001. Commission expenses
decreased by $570,000 due to lower revenues in the second quarter of fiscal
2002. Bad debt expense increased $1,310,000 due to the increased likelihood of
bad debts arising from the continued economic slowdown. The Company had a charge
of $63,000 for restructuring and severance costs from the November 2001
restructuring. The Company also reduced expenses and increased efficiencies
during the second quarter of 2002. This resulted in a savings of $1,151,000 for
the second quarter of 2002.
Six Months Ended December 2, 2001
($000) Increase / (Decrease)
Fiscal Fiscal ------------------------
2002 2001 Amount Percent
------------------------------------------------
Net Sales $20,254 $48,491 $(28,237) (58%)
Operating Income (Loss) (3,148) 2,254 (5,402) (240%)
Net sales were $20,254,000 for the first six months of fiscal 2002 down 58% from
$48,491,000 for the first six months of fiscal 2001. The decrease is due to the
economic slowdown, primarily in the telecommunication and data communication
industries.
Operating loss totaled $3,148,000 for the first six months of fiscal 2002
compared to operating income of $2,254,000 for the same period in fiscal 2001.
The decrease of $28,237,000 in sales reduced operating income by $6,165,000.
This decrease was partially offset by a reduction of commission expense of
$900,000. Due to the economic slowdown bad debt reserve was increased by
$1,310,000 and the inventory reserve was increased by $780,000. The Company also
recorded a charge for restructuring cost of $63,000. 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 half of fiscal
2002. This resulted in a savings of $1,816,000 for the first six months of
fiscal 2002.
ORDER BACKLOG: The Company's order backlog at December 2, 2001 totaled
$9,320,000 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 $252,000 for the first six
months of fiscal 2002 and other income was $228,000 for the same period in
fiscal 2001. The difference is represented by fiscal 2002 having a currency
exchange rate loss of $252,000 while the same period of fiscal 2001 had a
currency exchange rate gain of $210,000 by the Korean subsidiary. The Company
had interest income of $61,000 in the first half of fiscal 2002 and $50,000 for
the same period in fiscal 2001. The Company incurred interest expenses of
$252,000 in the first six months of fiscal 2002 and $228,000 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 $3,624,000 for the first six
months in fiscal 2002 on which it accrued a consolidated income tax benefit of
$918,000. During the same period in fiscal 2001 the Company had pre-tax income
of $2,248,000 on which US and Korean income taxes totaling $800,000 were
accrued. The effective tax rate was a benefit of 25.3% for the first six months
of fiscal 2002, and a charge of 35.6% for the same period in fiscal 2001. In the
first six months of fiscal 2002 the Company has not taken benefit from the
foreign loss carryforwards the loss generated because it is not more likely than
not they will be able to use such losses.
NET INCOME: The Company reported basic per share loss of $(0.60) for the first
six months of fiscal 2002, based on 4,537,000 outstanding weighted average
shares, compared to basic per share income of $0.31 for the same period of
fiscal 2001, based on 4,468,000 outstanding weighted average shares. For the
first six months of fiscal 2002 the Company reported diluted per share loss of
$(0.60), based on 4,537,000 outstanding weighted average shares, compared to
diluted per share income of $0.30 for the same period in fiscal 2001, which was
based on 4,703,000 outstanding weighted average shares.
LIQUIDITY AND CAPITAL RESOURCES
The following table describes the Company's liquidity and financial position on
December 2, 2001, and on June 3, 2001:
December 2, June 3,
2001 2001
----------- -----------
($000) ($000)
Working capital $14,253 $17,840
Cash and cash equivalents 6,691 3,723
Unutilized bank credit facilities 2,775 4,767
Cash Provided by operations (six and twelve months
ended respectfully) 2,734 1,953
CURRENT WORKING CAPITAL POSITION
As of December 2, 2001, the Company had current assets of $24,904,000 and
current liabilities of $10,651,000, which amounted to working capital of
$14,253,000 and a current ratio of 2.3 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 December 2, 2001.
CASH AND INVESTMENTS: As of December 2, 2001, the Company had cash and
securities totaling $6,691,000, compared to $3,723,000 as of June 3, 2001. The
increase was due to an increase in bank debt of $2,000,000 and 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 $2,734,000 of cash during the first six months
of fiscal 2002 due principally to the following activities:
(a) The loss net of depreciation and amortization used cash of $2,269,000.
(b) Decreases in trade receivables mainly due to the decreased net sales in
fiscal 2002 provided $5,701,000 of cash net of write offs.
(c) Decreases in inventories provided $2,799,000 of cash net of write offs.
The decrease is due to the decreases in net sales in fiscal 2002.
(d) Decreases in accrued expenses and accounts payable used $3,541,000 of
cash. The decrease is due to the decrease in net sales for fiscal 2002.
INVESTING ACTIVITIES: Investing activities used net cash of $724,000 relating to
the completion of the new Korean facility.
FINANCING ACTIVITIES: Financing activities provided net cash of $954,000,
comprised of an additional $2,000,000 borrowing on the US line of credit,
$687,000 payment on the Korean line of credit, $388,000 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 $4,000 during the first six 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
six 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.
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:
Six Months Ended
December 2, 2001 November 26, 2000
---------------- -----------------
($000) ($000)
US $14,846 $30,304
Korea 2,208 4,871
Belgium 111 2,704
UK 1,208 3,121
China 680 1,631
Canada 454 1,621
Other Foreign 747 4,239
---------------- -----------------
Total $20,254 $48,491
================ =================
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 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. Identifiable intangible assets 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 $32,000 during the first six
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.
The Company is exposed to certain market risks on outstanding variable interest
rate obligations totaling $2 million at December 2, 2001. Market risk is the
potential loss arising from the adverse changes in market rates and prices, such
as interest rates. Market risk is estimated as the potential increase in fair
value resulting from a hypothetical one percent increase in interest rates which
would result in an annual interest expense increase of approximately $20,000
Page 13
PART II
ITEMS 1-3 OTHER INFORMATION: Not Applicable
ITEM 4 Submission of Matters to a Vote of Security Holders;
The following matter was voted upon at the Annual Meeting of Stockholders held
on September 25, 2001, and received the votes set forth below:
All of the following persons nominated were elected to serve as directors and
received the number of votes set opposite their respective names:
For Withheld
----------------- ------------------
F. Green 4,326,415 67,323
J. Colwell 4,326,315 67,423
C. Barnett 4,326,315 67,423
D. Johnson 4,326,315 67,423
J. Kassakian 4,326,415 67,323
F. Sims 4,326,315 67,423
M. Walker 4,326,415 67,323
D. Larkin 4,326,315 67,423
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
Page 14
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: /s/ Frederick M. Green
--------------------- -----------------------------------
Frederick M. Green, President
Chief Executive Officer and
Chairman
DATED: /s/ Donald L. Henry
--------------------- -----------------------------------
Donald L. Henry
Chief Financial Officer
Page 15