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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 September 02, 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
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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 September 18, 2001
--------------------- ------------------
No par value 4,537,522 shares
Total pages 13
Exhibits Index on Page 12
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PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Amounts Per Share)
(Unaudited)
Three Months Ended
-----------------------------
September 2, August 27,
2001 2000
------------ ------------
Net Sales $ 10,301 $ 21,918
Cost of Goods Sold 7,892 17,219
------------ ------------
Gross Profit 2,409 4,699
Operating Expenses:
Marketing 1,011 1,530
Design Engineering 688 772
General & Administrative 1,120 1,512
------------ ------------
2,819 3,814
------------ ------------
Operating (Loss) Income (410) 885
Non Operating Income (Expense):
Interest Expense (148) (152)
Interest Income 31 27
Other (184) 200
------------ ------------
(301) 75
------------ ------------
Income (Loss) Before Income Taxes (711) 960
Income Tax (Benefit) Expense (65) 325
------------ ------------
Net Income (Loss) Before Accounting Change (646) 635
Cumulative Effect of Accounting Change, Net of Tax (50)
------------ ------------
Net (Loss) Income $ (646) $ 585
============ ============
Earnings (Loss) Per Share
Basic:
Net (Loss) Income Before Accounting Change $ (0.14) $ 0.14
Cumulative Effect of Accounting Change (0.01)
------------ ------------
Basic (Loss) Earnings Per Share $ (0.14) $ 0.13
============ ============
Diluted:
Net (Loss) Income Before Accounting Change $ (0.14) $ 0.14
Cumulative Effect of Accounting Change (0.01)
------------ ------------
Basic (Loss) Earnings Per Share $ (0.14) $ 0.13
============ ============
Common and equivalent shares outstanding:
Basic 4,535,551 4,455,432
Diluted 4,535,551 4,655,880
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 2
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
September 2, June 3,
2001 2001
------------ ------------
Assets:
Current Assets
Cash and Cash Equivalents $ 3,010 $ 3,723
Trade Receivables, Less Allowance for Doubtful Accounts of
$636,000 at September 2, 2001; $621,000 at June 3, 2001 9,403 12,361
Inventories (Note 2) 11,925 12,423
Prepaid and Other Expenses 599 747
Deferred Taxes 364 364
------------ ------------
Total Current Assets 25,301 29,618
Other Assets:
Intangibles, less accumulated amortization of $276,000 at
September 2, 2001; $251,000 at June 3, 2001 1,228 1,253
Other 11 10
------------ ------------
1,239 1,263
Property Equipment and Leasehold
Improvements:
Land 1,676 1,675
Building 7,743 5,554
Machinery and Equipment 7,560 7,517
Office Furniture 1,454 1,433
E.D.P. Equipment 2,218 2,215
Construction in Progress 1,533
------------ ------------
20,651 19,927
Less Accumulated Depreciation 7,456 7,351
------------ ------------
13,195 12,576
------------ ------------
Total Assets $ 39,735 $ 43,457
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 3
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
September 2, June 3,
2001 2001
------------ ------------
Liabilities and Stockholders' Equity:
Current Liabilities
Note Payable to Bank $ 3,401 $ 4,003
Current Maturities of Long-Term Debt (Note 3) 586 617
Accounts Payable 3,489 5,285
Accrued Compensation 596 467
Accrued Commissions 435 708
Other 385 698
------------ ------------
Total Current Liabilities 8,892 11,778
Long-Term Debt, Less Current Maturities (Note 3) 2,907 3,035
Deferred Tax Liability 213 213
Retirement and Severance Benefits 146 302
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
September 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 (870) (935)
Retained Earnings 7,834 8,480
------------ ------------
27,577 28,129
------------ ------------
$ 39,735 $ 43,457
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 4
AULT INCORPORATED & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
Three Months Ended
September 2, August 27,
2001 2000
------------ ------------
Cash Flows From Operating Activities
Net (Loss) Income: $ (646) $ 585
Adjustments to Reconcile Net (Loss) Income to Net Cash
Used in Operating Activities:
Depreciation 267 214
Amortization 25 25
Adjustment Related to Change in subsidiary Year End 61
Changes in Assets and Liabilities:
(Increase) Decrease In:
Trade Receivables 2,705 (158)
Inventories 605 (1,081)
Prepaid and Other Expenses 453 220
Increase (Decrease) in:
Accounts Payable (1,759) (1,416)
Accrued Expenses (418) 269
Income Tax Payable (207) 306
------------ ------------
Net Cash Provided by (Used in) Operating Activities 1,025 (975)
------------ ------------
Cash Flows From Investing Activities:
Purchase of Equipment and Leasehold Improvements (887) (377)
Decrease in Other Assets 8
------------ ------------
Net Cash Used in Investment Activities (887) (369)
------------ ------------
Cash Flows From Financing Activities:
Net (Payments) Borrowings on Revolving Credit Agreements (712) 776
Proceeds from Issuance of Common Stock 29 59
Principal Payments on Long-Term Borrowings (170) (123)
------------ ------------
Net Cash (Used in) Provided by Financing Activities (853) 712
------------ ------------
Effect of Foreign Currency Exchange Rate Changes
on Cash 2 (63)
------------ ------------
Decrease in Cash and Cash Equivalents (713) (695)
Cash and Cash Equivalents at Beginning of Period 3,723 2,419
------------ ------------
Cash and Cash Equivalents at End of Period $ 3,010 $ 1,724
============ ============
Page 5
AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST QUARTER ENDED SEPTEMBER 2, 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, including its wholly owned subsidiary, Ault Xianghe Co. Ltd. All
significant intercompany transactions have been eliminated. The foreign currency
translation adjustment represents the translation into United States dollars of
the Company's investment in the net assets of its foreign subsidiary 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 September 2, 2001, and the related
statements of income and cash flows for the three months ended September 2, 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 September 2, 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.
Page 6
AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST QUARTER ENDED SEPTEMBER 2, 2001
2. Inventories
The components of inventory (in thousands) at September 2, 2001 and June 3, 2001
are as follows:
September 2, June 3,
2001 2001
------------ ------------
Raw Materials $ 6,352 $ 6,584
Work-in-process 611 550
Finished Goods 4,962 5,289
------------ ------------
$ 11,925 $ 12,423
============ ============
3. Long-term Debt
Long-term debt (in thousands) including current maturities contain the
following:
SEPTEMBER 2, JUNE 3,
2001 2001
------------ ------------
Various Term Loans, 7.2% - 8.0% interest due in monthly
installments through December 2003, secured by
equipment $ 239 $ 273
Various note payables, 6.75% interest due in quarterly
installments through April 2002, unsecured
guaranteed by Korean government 238 314
Term loan, 7.94% interest rate due in monthly installments
through September 2005, secured by furniture 196 211
Term loan, 8.05% interest rate due in monthly installments
to February 2015 2,820 2,854
------------ ------------
Total 3,493 3,652
Less Current Maturities 586 617
------------ ------------
$ 2,907 $ 3,035
============ ============
4. Stockholders' Equity
Three Months Ended
September 2,
2001
------------
($000)
Total Stockholders' Equity - June 3, 2001 $ 28,129
Net Loss $ (646)
Net change in Foreign currency translation
adjustment 65
------------
Comprehensive Income (Loss) (581)
Issue 9,000 shares of common stock in
accordance with stock option plan 29
------------
Total Stockholders' Equity $ 27,577
============
Page 7
AULT INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST QUARTER ENDED SEPTEMBER 2, 2001
5. Net Income Per Common Share
Basic and diluted earnings per share are presented in accordance with SFAS No.
128, EARNINGS PER SHARE. The difference between average common and common
equivalent shares is the result of outstanding stock options and employee stock
purchase plan.
Three Months Ended
------------------
September 2, 2001 August 27, 2000
----------------- ---------------
Income (Loss) Applicable to Common
Shareholders (in thousands) $ (646) $ 585
Basic - Weighted Average Shares Outstanding 4,535,551 4,455,432
Diluted Effect of Stock Options -- 200,448
Diluted - Weighted Average Shares Outstanding 4,535,551 4,655,880
Basic Income (Loss) per Share (.14) .13
Diluted Income (Loss) per Share (.14) .13
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 will require 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
First Quarter Ended September 2, 2001
Increase / (Decrease)
($000) Fiscal Fiscal -----------------------
2002 2001 Amount Percent
----------------------------------------------
Net Sales $10,301 $21,918 ($11,617) (53%)
Operating Income (Loss) (410) 885 (1,295) (146%)
Net sales were $10,301,000 for the first quarter of fiscal 2002 down 53% from
$21,918,000 for the first quarter of fiscal 2001. The decrease is due to the
economic slowdown that has affected our largest customers.
Operating income (loss) totaled ($410,000) for the first quarter of fiscal 2002
and $885,000 for the same period in fiscal 2001. Margins for the first quarter
of fiscal 2002 were 23.4% of sales compared to 21.4% of sales for the same
period in fiscal 2001. During the first quarter of fiscal 2002, the Korean
subsidiary moved a new facility. The move resulted in business interruption
income from the Korean government and was the primary cause of the margin
percent increase. Operating expenses decreased in the first quarter of fiscal
2002 to $2,819,000 from $3,814,000 in the first quarter of fiscal 2001.
Commission expenses decreased by $330,000 due to lower revenue in the first
three months of fiscal 2002. The Company also reduced expenses and increased
efficiencies during the first quarter of 2002. This resulted in a savings of
$665,000 for the first quarter of 2002.
ORDER BACKLOG: The Company's order backlog at September 2, 2001 totaled
$9,662,000 compared to $10,792,000 at June 3, 2001. The order backlog represents
sales for approximately eight weeks. Many OEMs limit their contractual
commitments to the best lead-times of their suppliers.
NON-OPERATING INCOME AND EXPENSE: Other expense was $184,000 for the first
quarter of fiscal 2002 and other income was $200,000 for the same period in
fiscal 2001. The difference is represented by the first quarter of fiscal 2002
having a currency exchange rate loss while the same period of fiscal 2001 had a
currency exchange rate gain by the Korean subsidiary. The Company had interest
income of $31,000 in the first quarter of fiscal 2002 and $27,000 for the same
period in fiscal 2001. The Company incurred interest expenses of $148,000 in the
first three months of fiscal 2002 and $152,000 in the same period of fiscal
2001, paid on bank credit facilities and long-term borrowings
INCOME TAX: The Company had pre-tax loss of $711,000 for the three-month period
in fiscal 2002 on which it accrued a consolidated income taxes benefit of
$65,000. For the three-month period in fiscal 2001 the Company had pre-tax
income of $960,000 on which US and Korean income taxes totaling $325,000 were
accrued. The effective tax rate was a benefit of 9.1% for the first quarter of
2002, and a charge of 33.9% for the same period in fiscal 2001. In the first
quarter 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 a basic per share loss of $(0.14) for the first
quarter of fiscal 2002 based on 4,536,000 outstanding weighted average shares,
compared to basic per share income of $0.13 for the first quarter of fiscal
2001, based on 4,455,000 outstanding weighted average shares. For the three
months of fiscal 2002 the Company reported a diluted per share loss of $(0.14)
based on 4,536,000 outstanding weighted average shares, compared to diluted per
share income of $0.13 for the same period in fiscal 2001, which were based on
4,656,000 outstanding weighted average shares.
Page 9
LIQUIDITY AND CAPITAL RESOURCES
The following table describes the Company's liquidity and financial position on
September 2, 2001, and on June 3, 2001:
September 2, June 3,
2001 2001
------------ ------------
($000) ($000)
Working capital $16,409 $17,840
Cash 3,010 3,723
Unutilized bank credit facilities 4,775 4,767
Cash provided by (used in) operations 1,025 (1,953)
CURRENT WORKING CAPITAL POSITION
As of September 2, 2001, the Company had current assets of $25,301,000 and
current liabilities of $8,892,000 representing working capital of $16,409,000
and a current ratio of 2.8. This represents a decrease in working capital from
$17,840,000 at 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 September 2,
2001.
CASH AND INVESTMENTS: As of September 2, 2001, the Company had cash and
securities totaling $3,010,000, down from $3,723,000 as of June 3, 2001. This
decrease in cash was primarily due to payments on the Company's lines of credit.
CREDIT FACILITIES: The Company maintains two credit facilities, its primary
credit facility is with US Bank and a credit facility with The Korea Exchange
Bank, which supports the South Korean subsidiary.
CASH FLOWS FOR FISCAL 2002
OPERATIONS: Operations provided $1,025,000 of cash during the three months of
fiscal 2002 due principally to the following activities:
(a) The loss net of depreciation, and amortization used cash of $354,000.
(b) Decreases in trade receivables mainly due to the decreased net sales
in fiscal 2002 provided $2,705,000 of cash.
(c) Decreases in inventories provided $605,000 of cash. The decrease is
due to the decrease in net sales in fiscal 2002.
(d) Decreases in accrued expenses and accounts payable used $2,177,000 of
cash. The decrease is due to the decrease in net sales for fiscal
2002.
INVESTING ACTIVITIES: Investing activities used net cash of $887,000 relating to
the completion of the new Korean facility.
FINANCING ACTIVITIES: Financing activities used net cash of $853,000, primarily
comprised of payments on the line of credit 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
an increase effect on cash of approximately $2,000 during the first three 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
three months of the year.
SUMMARY: The Company's cash and working capital positions are sound and,
together with its credit facilities, 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
Page 10
communications/telecommunications and medical markets to charge batteries,
and/or power equipment. The Company supports these power requirements by making
available to the OEM 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.
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:
THREE MONTHS ENDED
September 2, 2001 August 27, 2000
--------------------------------------
($000) ($000)
US $ 7,382 $13,597
Korea 1,121 2,933
Belgium 22 1,247
UK 529 1,101
China 347 783
Canada 416 654
Other Foreign 484 1,603
--------------------------------------
Total $10,301 $21,918
======================================
The Company considers a country to be the geographic source of revenue if it has
contractual obligations, including an obligation to pay for trade receivable
invoices.
IMPACT OF FOREIGN OPERATIONS AND CURRENCY CHANGES:
Products manufactured by the Korean subsidiary contributed a large portion of
total sales. The Company will experience normal valuation changes as the Korean
and Chinese currency fluctuate. The effect of translating the Korean and Chinese
financial statements resulted in a net asset increase of $65,000.
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 which 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.
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
Page 11
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 will require 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's 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.
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 September 2, 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, interest rate changes could
impact earnings and cash flows.
PART II
ITEMS 1-5 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 12
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: October 9, 2001 /s/ Frederick M. Green
--------------------- -----------------------------------
Frederick M. Green, President
Chief Executive Officer and
Chairman
DATED: October 9, 2001 /s/ Donald L. Henry
--------------------- -----------------------------------
Donald L. Henry
Chief Financial Officer
Page 13