ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Ault Incorporated (herein "Ault" or "Company") was incorporated under the laws of the State of Minnesota in 1961. The Company designs, manufactures, and markets external power conversion products and is a leading domestic supplier of such products to original equipment manufacturers (OEMs) of data communications equipment, telecommunications equipment, portable medical equipment, and microcomputers and related peripherals.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in only one industry segment - the manufacture and sale of power conversion devices.
(c) NARRATIVE DESCRIPTION OF THE BUSINESS
Ault's power conversion products are used to adapt alternating current (AC) to provide a source of power at various levels up to 90 watts for a wide variety of electronic equipment. Most of the Company's products are located outside the equipment they power as wall plug-in or as in-line components and are generally referred to as external power conversion products. A small portion of the Company's products are located inside the equipment they power, when this feature is required by OEM customers, and are generally known as internal power conversion devices. External power conversion products, in contrast to more widely used internal power conversion devices, enable designers of electronic equipment to remove heat and hazardous voltages from the end product thereby allowing the end product to function more safely and effectively. Also, by removing the power conversion feature from inside the end product, the OEM is afforded greater flexibility in designing and styling. These advantages have particular application in the Company's target markets where advances in semiconductor technology have reduced power requirements of many items of equipment to levels supplied by the Company's products, where rapid growth and strong competition have resulted in competitive pressure to bring new products to market quickly, and where there is increasing emphasis on smaller and portable products that perform increasingly sophisticated functions. Ault's business strategy is to offer OEMs in these markets an expanding line of high quality power conversion products and devices, related design engineering and flexible customer services.
(1) PRODUCTS
Ault's product line includes the four major types of external power conversion products: switching power supplies, linear power supplies, battery chargers and transformers. The Company's power conversion products are capable of providing power at most output levels which OEMs expect from an external device. The Company's design and application engineers work closely with customers to assure that these products are appropriately customized to meet each OEM customer's precise power conversion product requirements.
The following table summarizes the proportion of sales of each of the Company's four major product categories for its last three fiscal years ended May 28, 2000:
SALE OF PRODUCTS BY CATEGORY AS A PERCENTAGE OF TOTAL SALES
Years Ended
May 28, May 30, May 31, Product Type 2000 1999 1998
Switching Power Supplies 41% 49% 37% Linear Power Supplies 31 17 15 Transformers 17 25 40 Battery Chargers 11 9 8 Total 100% 100% 100%
POWER SUPPLIES. The Company's power supplies provide all power conversion elements for electronic equipment in power outputs ranging from 1 to 90 watts. These products contain a component level transformer, which reduces the voltage level, as well as other circuitry and components which convert alternating current (AC) to direct current (DC) and, in most cases, maintain voltage within specific limits.
* SWITCHING POWER SUPPLIES. The Company believes the market for switching power supplies is generally the fastest growing segment of the overall external power conversion product market. Switching power supplies use switching transistors to convert power from AC to DC and are more energy efficient and considerably smaller and lighter in weight than linear units with comparable power outputs. For power requirements exceeding 12 watts, switching power supplies are generally more cost effective. The Company currently manufactures these products up to 90 watts of power. The applications in which these products are currently used include telecommunications products, data communications products, modems, computers and computer peripherals, medical equipment, microprocessor controlled systems, security systems, automatic teller terminals, test equipment, multiplexers, digital cameras and point of sales equipment.
The Company's switching power supply products include a family of universal input power supplies which provide output power from input power sources ranging from 90 to 265 volts. This family of power supplies can be used in virtually any country for applications such as local area networks ("LANs"), printer and fiber optic links. The Company also designs universal input switching power supplies specifically for medical markets. The Company believes it offers the widest range of external switching power supply products currently available for medical applications.
The company designs and manufactures switching power supplies principally for external applications, but also designs and manufactures these products for internal power when such action enhances customer relations.
* HIGH DENSITY SWITCHING POWER SUPPLIES. In fiscal 1997, the Company introduced product families based upon patented high density power conversion technology. This technology enables the Company to offer switching power supply products less than one-half the size of its existing switching power supplies which provide comparable power output. The Company's high density switching power supplies provide approximately 45 watts to 90 watts of power. Technologies acquired from the purchase of LZR Electronics in fiscal 1999 enabled the Company to offer high density power supplies with considerably higher power ranges. The addition of these products allow the Company to compete for product applications currently not served by the Company or its competitors, including routers, servers and wireless communications that operate on higher power ranges.
* LINEAR POWER SUPPLIES. Linear power supplies are larger and generally less expensive than switching power supplies because their design is based on technology employing steel laminations with windings of copper wire rather than switching transistors. Linear power supplies tend to be used when the wattage output required is relatively low. Ault manufactures linear power supplies that provide up to 11 watts of regulated power and 70 watts of unregulated power. The Company's linear power supplies are used in a variety of applications, including modems, telecommunications products, local area networks, microprocessor controlled systems, test equipment and multiplexers.
* TRANSFORMERS. The Company manufactures a wide variety of wall plug-in transformers, as part of its full range of power conversion products. Transformers are used primarily in applications where OEMs desire to remove heat, electromagnetic interference and weight from electronic equipment, while incorporating the rest of the power conversion system within the product. These products reduce AC voltage from approximately 110 volts (230 volts in some countries) down to lower voltage that range from 5 to 60 volts AC. The Company's product line also includes highly customized transformers that operate within stringent power output tolerances, features that are not offered by most of the Company's competitors. The Company's transformers are utilized in a broad spectrum of applications, including modems, telephone sets, multimedia products and scanners.
* BATTERY CHARGERS. Ault has been an innovator in battery charging technology since the early 1980s. Ault specializes in providing custom designed, advanced solutions for manufacturers of portable and battery powered equipment. Applications for the Company's battery chargers include medical devices, mobile telecom devices, notebook computers, global positioning equipment and radio frequency communications products.
The Company's products serve the entire range of widely used battery chemistries such as nickel cadmium, sealed lead acid, gel cell and nickel-metal hydride. In addition, the Company has developed battery chargers for the particular requirements of emerging battery chemistries such as zinc air, lithium ion and lithium polymer. The Company is committed to supporting these new emerging chemistries and to developing battery charger products to be introduced as this new battery chemistries become commercially accepted.
The Company sells primarily "smart" battery chargers as distinguished from trickle chargers. Smart charger products use integrated circuits to control various charging characteristics while allowing for fast charge time and extended battery life. Trickle charging is typically used for slow (8 to 10 hours) charging and/or standby battery maintenance.
The Company believes that the demand for high quality battery chargers will continue to increase to accommodate the growing sophistication of portable electronic equipment.
(2) MARKETS AND CUSTOMERS
The Company's marketing efforts are directed primarily toward OEMs producing non-consumer electronic equipment for telecommunications, data communications, computer peripheral and medical applications. These markets are characterized by trends toward smaller, portable products capable of performing increasingly sophisticated functions, as well as intense competitive pressure to rapidly introduce new products and product enhancements. Based on its expertise in customizing a broad range of products to meet customer requirements, the Company believes it is well positioned to serve the needs of its OEM customers as they respond to these trends and competitive factors.
Historically, the most significant market for the Company's products has been OEMs of telecommunications/data communications equipment, and in fiscal 2000 sales in this market represented approximately 64% of net sales. The Company's products power cable and ADSL modems, network termination equipment (devices which interface between telephone network and the customer's PBX or other telephone system), line conditioning equipment (devices which prepare telephone lines for the transmission of
computer generated data), and various items of equipment ancillary to business telephones, including speaker phones, automatic dialers, caller identification units and alpha numeric displays, low to medium speed PC modems and multiplexers (equipment which enables the simultaneous transmission of multiple channels of information over the same telephone line).
The Company believes the telecommunications/data communications market is growing at a rapid rate and is devoting significant portions of its product development effort toward introduction of new product families for applications in this combined market.
In fiscal 2000 approximately 24% of the Company's net sales were to OEMs of computers and computer peripherals such as digitizers, printers, plotters, portable terminals, point of sales scanners and optical character readers, LAN hardware and multimedia speakers for computer applications.
Approximately 9% of net sales in fiscal 2000 were to OEMs of portable medical equipment such as infusion pumps, patient monitoring systems, apnea monitors, and portable terminals for patient history input diagnostics.
The balance of approximately 3% of the Company's net sales in fiscal 2000 was to OEMs of various industrial equipment, including digital cameras and mine safety devices.
(3) DESIGN ENGINEERING AND PRODUCT DEVELOPMENT
Design engineering teams at the Company's facilities in the United States, Peoples Republic of China and South Korea are responsible for developing new power conversion products and customizing existing products to meet customer needs. The Company also utilizes the significant engineering resources of its Asian subcontractors for the development of products targeted for subcontract manufacturing. The Company's product development activities are divided equally between developing products to satisfy customer needs and new products based upon anticipated customer needs and market trends. New product development opportunities are evaluated based upon criteria such as global market potential, return on investment and technological advantages. The Company believes that its collaborative efforts with customers, combined with its forward-looking concern for power technology and market trends, have enabled it to gain a reputation as a leading innovator in the development of new external power conversion products.
(4) SALES AND DISTRIBUTION
The Company markets its products primarily in the U.S. and Canada through a network of 20 manufacturer representatives employing approximately 115 salespersons, each of whom represents, in addition to Ault's products, several different but complementary product lines of other manufacturers. The Company also sells through four national distributor organizations which employ over 1,000 salespersons. The Company selects representatives based upon their industry knowledge as well as account expertise with products that are synergistic with the Company's products. Individual salespersons are trained, mentored and technically assisted by the Company's application engineers and other sales administration staff. Any reduction in the efforts of these manufacturer representatives or distributors could adversely affect the Company's business and operating results.
The Company begins the sales process by identifying a potential customer or market; researching the target or potential customer's total business, product and strategic needs; and then preparing a total solution proposal that includes engineering, product development, safety agency approvals, logistics and project development processes, coordinating pilot runs and assisting OEMs with their product introductions. Among the logistics services provided by the Company are warehousing of finished products for unscheduled requirements and customs clearance in order to facilitate just-in-time production schedules.
The Company focuses its selling efforts primarily on OEMs in the U.S. and Canada. Many of the larger OEM customers of the Company manufacture and sell their products globally. As a result, the Company has extended its presence to markets throughout the world.
The Company's sales in the Pacific Rim are primarily to customers in South Korea, China and Australia. Certain of the Company's products have already obtained required MITI (Ministry of International Trade and Industry) approvals in Japan and actions are being taken to establish a sales administrative presence in that country to further strengthen opportunity for selling in the Japanese market.
The Company markets its products in Europe through a network of distributors who are managed through the Company's European sales office.
(5) SAFETY AGENCY CERTIFICATION
The power conversion system is potentially the most hazardous element in most electronic equipment because the power supply modifies standard power to a level appropriate for such equipment. Virtually all of the Company's customers require that the power conversion products supplied by the Company meet or exceed established international safety and quality standards, since many of the Company's products are used in conjunction with equipment which are distributed through the world. In response to these customer requirements, the vast majority of the Company's products are designed and manufactured in accordance with certification requirements of many safety agencies, including Underwriters Laboratories Incorporated ("UL") in the United States; the Canadian Standards Association (CSA) in Canada; Technischer Uberwachungs-Verein ("TUV") in Germany; the British Approval Board for Telecommunication ("BABT") in the United Kingdom; the International Electrotechnical Committee ("IEC"), a European standards organization and ("CE") a standard for the European Community. In addition, some of the Company's products have also received Japanese MITI approval. For certain safety applications, the Company's products conform to FCC Class B requirements which regulate the levels of electronic magnetic interference that may be emitted by electronic equipment. Unlike most of its competitors, the Company is a certified test laboratory for UL, CSA and TUV and is able to conduct most certification tests at its plant in Minneapolis. This procedure reduces the time required to obtain safety certifications. The Company's Minneapolis and South Korean facilities are certified to ISO 9001.
(6) INNOVATIVE TEAM APPROACH
The Company uses a team-based organizational structure consisting of seven teams. The Company's customer base is divided into six geographical regions with a specific Ault team assigned to manage the needs of customers in each region. A seventh team, Ault Express, manages the requirements of customers who have orders of certain minimum annual levels. Each team is headed by a coordinator selected by the president and an assistant coordinator who is elected annually by the team. The teams consist of people from all areas of the business, including salespersons from manufacturer representative organizations and national distributors as well as the Company's own production personnel, engineers, technicians, administrative personnel and others. Guided by a written statements of corporate values, these teams are charged with responsibility for all aspects of the customer relationship, including sales, manufacturing, design engineering and other support functions with a view to achieving continuous improvements in customer service. The Company believes that its innovative implementation of this team-based organizational structure provides competitive advantages by increasing communication with customers as well as facilitating responsiveness to the needs of the Company's diverse worldwide customer base. In 1996, Ault received recognition for its innovative approach from the trade publication of the American Manufacturing Association.
(7) COMPETITION
The Company competes primarily with various manufacturers of external power conversion products. The industry is highly fragmented, with manufacturers generally focusing their marketing on specific segments. The Company has experienced strong competition from Taiwanese-based manufacturers principally on price. Many of these competitors have a smaller presence in the external conversion market than the Company, although several are engaged in more than one business and have significantly greater financial resources.
No single company dominates the overall external power conversion product market, and the Company's competitors vary depending upon the particular power conversion product category. The companies with which Ault competes most directly in each of its major product categories are: Leader Electronics, Inc. and Golden Pacific Electronics, Inc. for transformers; Dee Van Enterprise Co., Ltd and Sino American Electronics Company., Ltd. for linear power supplies; Potrans Electrical Corp., Ltd. and Phihong Enterprise Co., Ltd. for switching power supplies; and Engineering Design Sales, Inc. and Xenotronics Company for battery chargers.
The Company competes on the basis of the quality and performance of its products, the breadth of its product line, customer service, dependability in meeting delivery schedules, design engineering services, and price. The Company believes it is currently one of a small number of companies that design, manufacture and obtain certifying agency approvals for the full range of external power conversion devices which OEMs consider in designing their electronic product.
The Company provides a total solution approach to the OEM's entire external power conversion product needs through its commitment to reliable partnerships and its delivery of high quality products supported by solution-oriented design engineering. In addition, the presence of Ault Korea and Ault China and the expanding arrangements with subcontract manufacturers in China and Thailand, provide the Company with additional strength to compete effectively when price is the primary consideration.
Internal power conversion products continue to be used for most electronic equipment, and as a result the Company experiences competition from numerous companies providing such internal products, including both OEMs and independent suppliers. With the trend toward lower power requirements in portable electronic equipment and with the increasing availability of smaller, competitively-priced internal switching power supplies, certain customers of the Company may choose to return to internal power supplies in place of the external power conversion products they currently purchase. In relation to this competition, the Company stresses the several advantages of external power conversion products, which generally can be obtained with only a relatively small increase in unit cost.
(8) MANUFACTURING AND SOURCES OF SUPPLY
The Company's manufacturing operations consist of assembly and integration of electronic components to meet product specifications and design requirements for a variety of power conversion applications. Manufacturing is currently conducted at the Company's facility in Minneapolis, Minnesota; Seoul, South Korea; Xianghe, China and at four locations in China and Thailand using subcontract manufacturers. Ault typically manufactures prototypes and low volume products at its facility in Minneapolis, Minnesota.
A number of the components and raw material integral to the manufacture of the Company's products are purchased from a single supplier or a limited number of suppliers. Electronic components and raw material used in the Company's products are nevertheless generally available from a large number of suppliers, although from time to time shortages of particular items are experienced.
Quality and reliability are emphasized in both the design and manufacture of the Company's products. This emphasis is reflected in the ISO 9001 certification of the Company's Minneapolis facility in 1991 and of its South Korea facility in 1998. The Company tests 100% of its finished products against its own and the customers' specifications, then ships the products in custom-engineered, protective packaging to minimize any damage during shipment.
The Company has subcontract manufacturing arrangements with business partners in Thailand and two in China. The Company does not have long-term commitments from the subcontractors and the subcontractors build product for the Company pursuant to individual purchase orders. The Company selects its subcontract manufacturers based upon their ability to manufacture high quality products, the sufficiency of their engineering capabilities to support products being manufactured; and their ability to meet required delivery times. In addition, each of the Company's subcontract manufacturers is regularly reviewed by the Company's Taiwanese-based Director of Far East Operations with respect to product quality and other performance criteria.
(9) SIGNIFICANT CUSTOMERS: BACKLOG
The Company sells its products to over 400 customers and it is the Company's objective to maintain a diversified customer base and to avoid, where practicable, dependence upon a single customer. In fiscal 2000, there were no customers that accounted for more than 10% of sales.
The Company enters into buying commitments and other scheduling agreements with certain customers. For its larger customers, these agreements allow for order increases and decreases within scheduled limits and include cancellation charges for completed and in-process products and procured materials. Most products are shipped within 4 to 10 weeks of an order.
(10) WARRANTIES
The Company provides up to a three-year parts and labor warranty against defects in materials or workmanship on all of its products. Servicing and repairs are conducted at the Company's manufacturing facilities in Minneapolis and South Korea. The Company's warranty expenses have not been significant.
(11) PATENTS
The Company holds no significant patents.
(12) SEASONALITY
As indicated by ITEM 8(b) SUPPLEMENTAL FINANCIAL INFORMATION, net sales of the Company have reflected a certain degree of seasonality. The Company's first quarter falls during the summer months and during the first quarter of fiscal 1999 and fiscal 2000, the Company recorded levels of sales which were generally lower than sales that were recorded for the succeeding periods. The Company attributes this seasonality to the buying patterns of its customers, the timing of industry trade shows where new products are introduced and to other factors. The Company believes that similar seasonality trends will be experienced in the future.
(13) EMPLOYEES
As of August 11, 2000, the Company employed approximately 565 full-time employees at its facilities as follows:
South Korea China Taiwan US Total
Manufacturing 126 180 45 351 Engineering 24 20 20 64 Marketing 9 15 11 35 General and Administrative 32 25 1 57 115 ---- ---- ---- ---- ----
Total 191 240 1 133 565
None of the Company's employees are represented by a labor organization and the Company has never experienced a work stoppage or interruption due to a labor dispute. Management believes that its relations with its employees are good.
(14) EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information with respect to the executive officers of the Company is set forth:
(15) RISK FACTORS
The following risk factors are relevant to an understanding of the business matters discussed herein:
* TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT. The electronic equipment market is characterized by rapidly changing technology and shorter product life cycles. The Company's future success will continue to depend upon its ability to enhance its current products and to develop new products that keep pace with technological developments and respond to changes in customer requirements. Any failure by the Company to respond adequately to technological changes and customer requirements or any significant delay in new product introductions could have a material adverse effect on the Company's business and results of operations. In addition, there can be no assurance that new products to be developed by the Company will achieve market acceptance. See "Business-Design Engineering and Product Development."
* FLUCTUATION IN FINANCIAL RESULTS. The Company's financial results are subject to fluctuation due to various factors, including general business cycles in the Company's markets, the mix of products sold, the stage of each product in its life cycle and the rate and cost of development of new products. In addition, component and material costs, the timing of orders from and shipments of products to customers and deferral or cancellation of orders from major customers could adversely affect financial results. Price competition in the markets in which the Company competes is intense, and could result in a decline in gross margin, which in turn could adversely impact the Company's profitability.
* DEPENDENCE ON OUTSIDE CONTRACTORS. The Company currently depends on third parties located in foreign countries for a significant portion of the manufacture and assembly of certain of its products. Some of these countries are economically troubled areas. The Company's reliance on such outside contractors reduces its control over quality and delivery schedules. While the Company takes an active role in overseeing quality control with its third party manufacturers, the failure by one or more of these subcontractors to deliver quality products or to deliver products in a timely manner could have a material adverse effect on the Company's operations. In addition, the Company's third-party manufacturing arrangements are short-term in nature and could be terminated with little or no notice. If this happened, the Company would be compelled to seek alternative sources to manufacture certain of its products. There can be no assurance that any such attempts by the Company would result in suitable arrangements with new third-party manufacturers. See "Manufacturing and Sources of Supply."
* DEPENDENCE ON KEY PERSONNEL; MANAGEMENT OF GROWTH. The Company's success depends in part upon the continued services of many of its highly skilled personnel involved in management, engineering and sales, and upon its ability to attract and retain additional highly qualified employees. The loss of service of any of these key personnel could have a material adverse effect on the Company. The Company does not have key-person life insurance on any its employees. In addition, the Company's future success will depend on the ability of its officers and key employees to manage growth successfully and to attract, retain, motivate and effectively utilize the team approach to manage its employees. If the Company's management is unable to manage growth effectively, the Company's business and results of operations could be adversely affected.
* ANTI-TAKEOVER CONSIDERATIONS. Certain anti-takeover provisions of the Minnesota Business Corporation Act and the ability of the Board of Directors to issue preferred stock without stockholder approval under the Company's Right Plan may have the effect of delaying or preventing a change in control or merger of the Company. These provisions could delay, discourage, hinder or preclude an unsolicited acquisition of the Company, could make it less likely that stockholders receive a premium for their shares as a result of any such attempt and could adversely affect the market price of the Common Stock. See "Note 7 - Stockholders' Equity" under NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Export Sales by the U.S. Operations in fiscal year 2000 represented 15.2% of the Company's gross sales most of which were to OEMs in Europe and Canada. All other revenues were derived from domestic sales principally in the U.S. For other financial information about foreign and domestic operations and export sales including the amount of export sales for the last 3 years, refer to "Note 9 - Segment Information and Foreign Operations" under NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
ITEM 2.
ITEM 2. PROPERTIES
The Company's headquarters and US manufacturing facility is located in Brooklyn Park, a suburb of Minneapolis, Minnesota and is approximately 65,000 square feet in size.
The Company's subsidiary, Ault Korea Corporation, operates in a 36,000 square foot facility in Suwon City in the province of Kyungki-Do, Korea. The Company will relocate to a new facility, also located in Suwon City, during fiscal 2001.
Ault China, a subsidiary of Ault Korea Corporation, occupies a 40,000 square foot leased facility in The Province of Xianghe in China. The lease expires in the year 2050.
Management considers all of the Company's properties to be well maintained and current manufacturing arrangements, including subcontract arrangements in China and Thailand, are believed to be adequate for manufacturing requirements.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
No material litigation or other claims are presently pending against the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable. PART II.
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
Ault common shares are traded on the NASDAQ market under the symbol AULT. The following table presents the range of closing bid prices for the Company's common stock on the NASDAQ Market for fiscal 2000 and 1999.
Fiscal 2000 Fiscal 1999 ----------- ----------- $ $ $ $ Quarter High Low High Low
1st 7.437 7.038 6.125 3.375 2nd 6.946 6.565 7.375 6.600 3rd 8.222 7.680 8.375 6.200 4th 7.794 7.240 11.875 6.750
(b) Holders
As of August 11, 2000 there were 279 shareholders of record for the Company's common stock. This number of record stockholders does not include beneficial owners of common stock whose shares are held of record by Depository Trust under the name CEDE & Co.
(c) Dividends
Ault has not paid cash dividends on its common shares, and, under present policy of its Board of Directors to retain any earnings for use in the business, does not anticipate paying cash dividends on its common shares in the foreseeable future.
ITEM 6.
ITEM 6. SELECTED FINANCIAL SUMMARY
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The following table describes the Company's working capital position at May 28, 2000, and at May 30, 1999:
May 28, May 30, 2000 1999 ---------------- ---------------- ($000) ($000) Working capital 17,708 16,364 Cash 2,419 3,303 Securities available for sale 497 850
Unutilized bank credit facilities 4,041 4,073 Cash provided by (used in) operations (2,426) (1,145)
CURRENT WORKING CAPITAL POSITION
At May 28, 2000, the Company had current assets of $34,269,000 and current liabilities of $16,561,000 representing working capital of $17,708,000 and a current ratio of 2.1. This represents an improvement from working capital of $16,364,000 at May 30, 1999. 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: At May 28, 2000, the Company had cash and securities totaling $2,916,000, down from $4,153,000 at May 30, 1999. This decrease in cash was principally because of payments made to acquire and relocate to a new manufacturing and office facility in Minneapolis, Minnesota. Some of this cash outlay was offset by a cash receipt from the sale of Korean real estate in the fourth quarter.
CREDIT FACILITIES: The Company maintains credit facilities with US Bank and with Korea Exchange Bank. See Note 3, under NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
The credit arrangement with US Bank includes: (a) A revolving credit facility of $4.0 million, secured by Company assets. At May 28, 2000, there were no borrowings against this facility. (b) One or more term loans, each up to $400,000. At May 28, 2000, borrowings totaling $494,000 were outstanding on three term loans.
The South Korean credit facility is approximately $2.2 million of which borrowings at May 28, 2000 totaled $2,159,000
CASH FLOWS FOR 2000
OPERATIONS: Operations used $2,426,000 of cash during fiscal 2000 due principally to the following activities: (a) Increases in trade receivables mainly due to the increased net sales in fiscal 2000 used $5,432,000 of cash. Further use of cash from increased net sales is anticipated for fiscal 2001. (b) Increases in inventories used $5,210,000 of cash. The increases are due principally to customer requirements that the Company carry additional finished products to support short-term needs. This is a normal business practice in the power supply market. (c) Increases in accrued expenses and accounts payable provided $6,570,000 of cash from liabilities associated with purchases of material to support customer orders.
INVESTING ACTIVITIES: Investing activities used net cash of $2,435,000 relating principally to the construction of the new manufacturing/office facility in Minneapolis offset by the sale of Korean real estate.
FINANCING ACTIVITIES: Financing activities provided net cash of $3,925,000, comprised principally of borrowings in connection with the construction of the new manufacturing/office facility in Minneapolis.
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE FLUCTUATIONS: The effect of translating the Korean financial statements, which were prepared in Won, to US dollars, resulted in a net asset value increase of $51,000 during the year, which related principally to long-term inter-company receivables.
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 fiscal 2001.
CASH FLOWS FOR FISCAL 1999
OPERATIONS: Operations used $1,145,000 of cash during fiscal 1999 due principally to the following activities in trade receivables, inventories, accounts payables and accrued expenses: (a) Increases in trade receivables, mainly due to the increased net sales in fiscal 1999, used $4,025,000 of cash. (b) Increases in inventories used $253,000 of cash. The increases are due principally to customer requirements that the Company carry additional stock of finished products. This is a typical business practice in the power supply industry. No changes are anticipated over the near term. (c) Increases in accounts payable and accrued expenses provided $466,000 of cash from liabilities associated with purchases of material to support customer orders.
INVESTING ACTIVITIES: Investing activities used net cash of $4,487,000 relating principally to: (a) Manufacturing and tooling equipment obtained and goodwill, net of amortization, recognized from the purchase of LZR Electronics, Inc. (b) Purchases of manufacturing and tooling equipment amounting to $1,544,000, required to support normal operations. (c) Purchase of land in South Korea. Acquired at a cost of $445,000, the land will be the site of a new Korean manufacturing facility. The Korean Government has acquired the current site, for a public improvement project.
FINANCING ACTIVITIES: Financing activities provided net cash of $2,745,000, principally due to the following transactions: (a) Borrowings under the revolving credit facilities provided $729,000 of cash. (b) Proceeds from long-term borrowings provided $1,491,000 of cash for equipment, working capital and a mortgage loan. The mortgage loan was acquired on the South Korean property that is to be the site for the subsidiary's manufacturing facility. The current facility has been acquired by the Korean Government, as discussed under "Investing Activities". (c) Payments from notes receivable from the sales of common stock provided $59,000 and proceeds from the issuance of common stock provided $636,000. LZR Electronics, Inc. converted the Company's promissory note that was issued as discussed under Cash and Investments. (d) Principal payments on long-term borrowings used $170,000 of cash.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MAY 28, 2000
$000 Fiscal Fiscal Increase / (Decrease) ------------------------ 2000 1999 Amount Percent ------------------------------------------------- Net Sales $66,123 $50,938 $15,185 30% Operating Income 3,605 2,592 1,013 39%
Net sales were $66,123,000 for fiscal 2000 up 30% from $50,938,000 for fiscal 1999. The growth was primarily due to significantly higher power supply shipments to major OEMs of high-speed ADSL modems. The Company is also benefiting from growing business volumes with OEMs serving the wireless communication, medical equipment and cable modem markets. The Company is a supplier for several major cable modem manufacturers and believes the market for cable modems will remain strong.
The gross margin for fiscal 2000 was 24.9%, compared to 27.5% for fiscal 1999. Several factors partially offset the positive impact of Ault's strong fiscal 2000 sales growth. During the second half, gross margins were affected by a shift in the sales mix toward lower-margin linear power supplies. In response, the Company is re-engineering the entire line of power supplies to reduce manufacturing costs. The significant growth of Asian sales also had a impact on gross margins. As an aggressive new undertaking, the Asian sales effort entails the normal array of start-up costs and pricing initiatives. The Company is forecasting strong Asian sales in fiscal 2001, and believes that margins on this business should improve as the year progresses. Finally, significantly higher air and maritime freight costs as well as high capacity utilization in shipping from Asia, resulting from the dramatic increase in fuel prices, also affected margins. The Company has started passing through increased fuel costs. The move has not affected business activities. To further strengthen margins, the Company is also implementing a global procurement system that will leverage purchasing power for key electronic components.
Operating income totaled $3,605,000 for fiscal 2000 and $2,592,000 for the same period in fiscal 1999 equaling, respectively, 5.5% and 5.1% of net sales. The operating expense change was incurred principally due to (1) facility sales and relocations (2) Asian start-up costs (3) commissions paid to sales representatives on the increased sales and (4) continued support of strategic initiatives, including new product and sales development:
FACILITY SALE AND RELOCATION: The company realized a gain on the sale of Korean real estate of $1,500,000, which was partially offset by the relocation of the Gaithersburg, Maryland site to Minneapolis, as well as the moves of both the Shanghai sales office and the Beijing factory.
NEW PRODUCT DEVELOPMENT: Service to customers continues as a strong strategic focus of the Company. The Company's engineering activities are directed to developing products for various customer applications. In addition to data convergence and portable medical products, these applications include uninterruptible power supplies, hubs, routers and switchers for the networking market.
SALES DEVELOPMENT: During the latter half of fiscal 1999, the Company opened sales offices in Shanghai and in Europe and strengthened the Korean sales office.
The Company's order backlog at May 28, 2000 totaled $17,877,000 compared to $12,963,000 at May 30, 1999. The order backlog represents sales for approximately twelve weeks and reflects 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.
Other expenses of ($274,000) for fiscal 2000 and income of $402,000 for the same period in fiscal 1999 represented principally interest income, currency exchange rate gains (losses) on foreign contracts by the Korean subsidiary and income derived from rented portions of the Korean manufacturing facility. The Company incurred interest expenses of $406,000 in fiscal 2000 and $146,000 in fiscal 1999. The increase is primarily due to the mortgage on the new facility in Minneapolis.
FISCAL YEAR MAY 30, 1999
$000 Fiscal Fiscal Increase / (Decrease) ------------------------ 1999 1998 Amount Percent -------------------------------------------------
Net Sales $50,938 $41,136 $9,802 24% Operating Income 2,592 1,887 705 37%
Net sales were $50,938,000 for fiscal 1999 up 24% from $41,136,000 for fiscal 1998. The improvement in fiscal 1999 is primarily due to strong growth in sales within the telecommunications and data communications markets. In fiscal 1999, the Company acquired the assets of the power supply division of LZR Electronics, a closely held corporation located in Gaithersburg, Maryland. Prior to being acquired by Ault, LZR had annual revenues of approximately $6.5 million in calendar 1997 and 1998.
The Company's order backlog at May 30, 1999 totaled $12,963,000 compared to $15,340,000 at May 31, 1998. The order backlog at May 30, 1999 represented sales for approximately thirteen weeks
Gross profit increased to $14,018,000 or 27.5% of net sales for fiscal 1999, $10,761,000 or 26.2% of net sales for 1998. The improvements are due principally to the greater proportions in the sales mix of battery chargers, as well as linear and switching power supplies, which have higher margins as compared to transformer products. Revenue from shipments of transformers, traditionally a lower margin product, decreased during fiscal 1999 compared to fiscal 1998.
Operating expenses were $11,427,000 or 22.4% of net sales in fiscal 1999, as compared to $8,883,000 equaling 21.6% of net sales for fiscal 1998. The increased expenditures were incurred principally due to (1) sales commissions paid to sales representatives on the larger sales in fiscal 1999, (2) integration of LZR into the Company, and (3) continued support of strategic initiatives to achieve the following purposes:
1. Strengthen the Company's sales and marketing competitive position in the US and Asia. 2. Enhance Asian manufacturing supervision. 3. Provide and maintain direct communication links between Ault US and Ault Korea. 4. Install and maintain programs to upgrade the quality of management information services. 5. Certify products for sale in broader foreign markets and to respond more expeditiously to customer requirements. 6. Upgrade logistic support to provide forecasting techniques necessary to meet product delivery lead-times and to support US Customs requirements necessitated by increased foreign business activities.
Operating income totaled $2,592,000 for fiscal 1999 and $1,877,000 for fiscal 1998 equaling, respectively, 5.1% and 4.6% of net sales. The improvements in operating income for fiscal 1999 are due principally to the greater sales and better gross margin on the mix of products, as previously discussed.
Other income of $402,000 for fiscal 1999 and $197,000 for fiscal 1998 represented principally interest income, currency exchange rate gains on foreign contracts by the Korean subsidiary and income derived from rented portions of the Korean manufacturing facility. The Company incurred interest expenses of $146,000 in fiscal 1999 and $148,000 in fiscal 1998 principally on bank credit facilities and long-term borrowings.
INFORMATION ABOUT PRODUCTS AND SERVICES: The Company's business operations are comprised of principally one activity--the design, manufacture and sale of equipment for converting electric power to a level used by OEMs principally in computer peripherals, data 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:
FISCAL YEAR ENDING May 28, May 30, 2000 1999 ($000) ($000) ------ ------
US $51,685 $42,076 Canada 2,667 1,977 Ireland 1,663 2,884 Korea 4,381 1,572 Belgium 2,495 435 Other Foreign 3,232 1,994 ----- ----- Total $66,123 $50,938
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.
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 year because the predominant portions of the subsidiary's sales were made under inter-company contracts with the US operations. Sales by the subsidiary in its local market are not material in amounts in contrast to its inter-company sales. The Company's US operations have no significant exposure to currency risks because the predominant portions of its foreign contracts are made in US dollars.
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 generally.
ACCOUNTING PRONOUNCEMENTS - In June 1998, FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 as amended by SFAS No. 138, ACCOUNTING FOR CERTAIN HEDGING ACTIVITIES, AN AMENDMENT OF FASB NO. 133, requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. In July 1999, FASB issued SFAS No. 137 delaying the effective date of SFAS No. 133 for one year to fiscal years beginning after June 15, 2000, with earlier adoption encouraged. Management has not yet determined the effects SFAS No. 133 will have on its financial position or the results of its operations. The Company will be required to adopt SFAS No. 133 in fiscal 2002.
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. The Company is currently reviewing SAB No. 101 and its effects on the financial statements, but has not yet determined the effect on its financial position or results of its operations.
ITEM 7A.
ITEM 7A. 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 net exchange gain or foreign loss arising from this was not material in 2000, 1999 and 1998. The Company anticipates that it will continue to have exchange gains or losses in the future.
At the end of fiscal 2000, the company had an investment portfolio of fixed income securities of $497,000. These securities, like all fixed income instruments, are subject to interest rate risk and will decline in value if market interest rates increase.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
(a) Financial Statements
Index to Consolidated Financial Statements
Page
* Independent Auditors' Reports 18
* Consolidated Balance Sheets, May 28, 2000 and May 30, 1999. 20
* Consolidated Statements of Income for the Years Ended May 28, 2000, May 30, 1999, and May 31, 1998. 22
* Consolidated Statements of Stockholders' Equity for the Years Ended May 28, 2000, May 30, 1999, and May 31, 1998. 23
* Consolidated Statements of Cash Flows for the Years Ended May 28, 2000, May 30, 1999, and May 31, 1998. 24
* Notes to Consolidated Financial Statements 25
(b) Supplemental Financial Information
* Quarterly Financial Data 36
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors Ault Incorporated and Subsidiary Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheet of Ault Incorporated and Subsidiary (the Company) as of May 28, 2000 and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended. Our audit also included the financial statement schedule listed in the index as Item 14.a.(2). These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these 2000 consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 2000 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 2000 consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall 2000 consolidated financial statement presentation. We believe our audit provides a reasonable basis for our opinion.
In our opinion, such 2000 consolidated financial statements present fairly, in all material respects, the financial position of Ault Incorporated and Subsidiary as of May 28, 2000 and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
Minneapolis, Minnesota July 24, 2000
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors Ault Incorporated and Subsidiary Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheet of Ault Incorporated and Subsidiary (the Company) as of May 30, 1999 and the related consolidated statements of income, stockholders' equity, and cash flows for each of the two fiscal years in the period ended May 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ault Incorporated and Subsidiary as of May 30, 1999 and the results of its operations and its cash flows for each of the two fiscal years in the period ended May 30, 1999, in conformity with generally accepted accounting principles.
McGladrey & Pullen, LLP
Minneapolis, Minnesota July 9, 1999
AULT INCORPORATED AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS MAY 28, 2000 AND MAY 30, 1999
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
AULT INCORPORATED AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS MAY 28, 2000 AND MAY 30, 1999
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
AULT INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED MAY 28, 2000, MAY 30, 1999, AND MAY 31, 1998
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
AULT INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
AULT INCORPORATED AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MAY 28, 2000, MAY 30, 1999, AND MAY 31, 1998
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
AULT INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 28, 2000 AND MAY 30, 1999 - --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - The Company and its subsidiary operate in one business segment which includes the design, manufacturing, and marketing of power conversion products, principally to original equipment manufacturers of data communications equipment, microcomputers and related peripherals, telecommunications equipment, and portable medical equipment. Sales are to customers worldwide, and credit is granted based upon the credit policies of the Company.
A summary of the Company's significant accounting policies follows:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of Ault Incorporated, its wholly owned subsidiary, Ault Korea Corporation, and its wholly owned subsidiary, Ault Xianghe Co. Ltd. (located in China), which commenced operations in May 1997. 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 Statement of Financial Accounting Standards (SFAS) No. 52.
FISCAL YEAR - The Company operates on a 52- to 53-week fiscal year. The fiscal years for the financial statements presented end on May 28, 2000, May 30, 1999, and May 31, 1998, all of which contain 52 weeks.
ACQUISITION - On December 1, 1998, the Company acquired the power supply division of LZR Electronics, Inc., a manufacturer, developer, and seller of power supplies, for approximately $3,050,000. The purchase method has been used to account for this transaction, with results of operations included in the financial statements from the date of acquisition.
Unaudited pro forma results of operations for the year ended May 30, 1999, as though the Company had acquired LZR Electronics, Inc. as of May 31, 1998, are as follows:
Revenues $ 54,050,000 Net income 2,018,000 Basic earnings per share 0.48 Diluted earnings per share 0.46
AULT INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 28, 2000 AND MAY 30, 1999 - --------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
MAY 30, Acquisition of LZR Electronics, Inc. - Fair value of assets purchased: Inventories $ 1,863,260 Prepaid expenses 48,366 Property and equipment 193,298 Goodwill 1,400,000 ------------ Total assets purchased 3,504,924
Liabilities assumed and debt issued: Accounts payable (421,080) Accrued expenses (29,335) Convertible note payable (500,000) ------------ Cash purchase price $ 2,554,509 ============
CASH AND CASH EQUIVALENTS - The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.
The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents consist primarily of short-term commercial paper.
AVAILABLE-FOR-SALE INVESTMENTS - Investments are classified as available-for-sale securities and consist primarily of preferred stock that will be held for indefinite periods of time, including securities that may be sold in response to changes in market interest, needs for liquidity, or changes in the availability or yield of alternative investments. These securities are carried at fair market value.
INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out) or market.
INTANGIBLES - Intangibles consist primarily of goodwill, which is being amortized using the straight-line method over its economic useful life, which has been estimated to be 15 years.
DEPRECIATION - Depreciation is based on the estimated useful lives of the individual assets. The methods and estimated useful lives are as follows:
LONG-TERM DEBT - The fair value of the long-term debt is estimated based on interest rates for the same or similar debt offered to the Company having the same or similar remaining maturities and collateral requirements. The carrying value of the long-term debt approximates fair value.
AULT INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 28, 2000 AND MAY 30, 1999 - --------------------------------------------------------------------------------
RETIREMENT AND SEVERANCE BENEFITS - Retirement and severance benefits represents the accrual of compensation expense, net of deposits, for the Korean operations' employees that is payable upon termination of employment.
The Company does not fund the retirement and severance benefits accrued, but rather provides for the estimated accrued liability under the plans as of the balance sheet date. Under the National Pension Scheme of Korea, the Company is required to transfer a certain portion of the retirement allowances of employees to the National Pension Fund. The amount transferred reduces the retirement and severance benefit liability recorded in the consolidated financial statements.
REVENUE RECOGNITION - Revenue from product sales is recognized when shipped.
DESIGN ENGINEERING - Design engineering costs are those incurred for research, design, and development of new products and redesign of existing products. These costs are expensed currently.
ADVERTISING EXPENSE - The Company expenses advertising costs as incurred. Advertising expenses of approximately $171,000, $229,000, and $294,000 were charged to operations during the periods ended May 28, 2000, May 30, 1999, and May 31, 1998, respectively.
SALE OF KOREAN FACILITY - The Company's facility in Korea was expropriated by the government for the construction of a provincial road. In the fourth quarter the company received expropriation proceeds and recognized a gain on the disposition of $1,524,879. At May 28, 2000 the company was still operating in the facility while it is in the process of building a new facility. All proceeds received for relocation have been deferred.
INCOME TAXES - Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Investment tax credits, research and development credits, and job credits are accounted for by the flow-through method whereby they reduce income taxes currently payable and the provision for income taxes in the period the assets giving rise to such credits are placed in service. To the extent such credits are not currently utilized on the Company's tax return, deferred tax assets, subject to considerations about the need for a valuation allowance, are recognized for the carryforward amount.
LONG-LIVED ASSETS - In accordance with Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, the Company reviews its long-lived assets and intangibles related to those assets periodically to determine potential impairment by comparing the carrying value of the long-lived assets outstanding with estimated future cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future cash flows be less than the carrying value, the Company would recognize an impairment loss. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the long-lived assets and intangibles. To date, management has determined that no impairment of long-lived assets exists.
EARNINGS PER SHARE - Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period adjusted by common share equivalents related to stock options (when dilutive), warrants, and the employee stock purchase plan. Options to purchase 196,812, 227,413, and 217,435 shares of common stock were outstanding during the fiscal years ended May 28, 2000, May 30, 1999, and May 31, 1998, respectively, but were excluded from the computation of common stock equivalents because they were anti-dilutive.
AULT INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 28, 2000 AND MAY 30, 1999 - --------------------------------------------------------------------------------
The following table reflects the calculation of basic and diluted earnings per share:
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
COMPREHENSIVE INCOME - The Company's comprehensive income consists of net income, foreign currency translation adjustments, and unrealized gains and losses on certain investments in debt and equity securities.
RECLASSIFICATIONS - Certain fiscal year 1999 and 1998 amounts have been reclassified to be consistent with the 2000 presentation. These reclassifications had no impact on net income or stockholders' equity as previously reported.
ACCOUNTING PRONOUNCEMENTS - In June 1998, FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 as amended by SFAS No. 138, ACCOUNTING FOR CERTAIN HEDGING ACTIVITIES, AN AMENDMENT OF FASB NO. 133, requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. In July 1999, FASB issued SFAS No. 137 delaying the effective date of SFAS No. 133 for one year to fiscal years beginning after June 15, 2000, with earlier adoption encouraged. Management has not yet determined the effects SFAS No. 133 will have on its financial position or the results of its operations. The Company will be required to adopt SFAS No. 133 in fiscal 2002.
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. The Company is currently reviewing SAB No. 101 and its effects on the financial statements, but has not yet determined the effect on its financial position or results of its operations.
AULT INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 28, 2000 AND MAY 30, 1999 - --------------------------------------------------------------------------------
2. INVENTORIES
The components of inventory at May 28, 2000 and May 30, 1999 are as follows:
MAY 28, MAY 30, 2000 1999
Raw materials $ 7,275,273 $ 4,958,646 Work-in-process 406,626 216,341 Finished goods 6,578,670 3,875,618 ------------- ------------- $ 14,260,569 $ 9,050,605 ============= =============
3. FINANCING ARRANGEMENT AND LONG-TERM DEBT
FINANCING ARRANGEMENT - The Company has a financing agreement, which includes a $4,000,000 revolving line-of-credit agreement through December 1, 2000. Interest on advances is at the bank's reference rate less one-half percent, 9.0 percent and 7.75 percent at May 28, 2000 and May 30, 1999. All advances are due on demand and are secured by substantially all assets of the Company. There were no advances outstanding on the revolving line of credit at May 28, 2000 and $729,133 advances outstanding at May 30, 1999. Also, the Company's Korean subsidiary maintains a $2,200,000 credit facility agreement to cover bank overdrafts, short-term financing, and export financing. Advances outstanding relating to the Korean facility were $2,158,377 and $698,481 at May 28, 2000 and May 30, 1999, respectively.
LONG-TERM DEBT -
AULT INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 28, 2000 AND MAY 30, 1999 - --------------------------------------------------------------------------------
Maturities of long-term debt for years subsequent to May 28, 2000 are as follows:
4. INCOME TAXES
Pretax income (loss) for domestic and foreign operations was as follows:
The components of the provision for income taxes are as follows:
The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the fiscal years ended May 28, 2000, May 30, 1999, and May 31, 1998, due to the following:
AULT INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 28, 2000 AND MAY 30, 1999 - --------------------------------------------------------------------------------
Net deferred taxes consist of the following components:
The components giving rise to the net deferred tax asset described above have been included in the consolidated balance sheet:
The Company has assessed its past earnings history and trends, budgeted sales, and expiration of dates of carryforwards and has determined that it is more likely than not that its deferred tax assets will be realized.
At May 28, 2000, the Company had research and development tax credit carryforwards of approximately $116,000 available to reduce future income taxes in Minnesota for income tax purposes. These credits expire in varying amounts beginning in 2009 through 2015.
5. EMPLOYEE BENEFIT PLANS
PROFIT SHARING PLAN - The Company has a profit sharing plan covering substantially all U.S. employees. The Company is required to match 25 percent of the employees' first 6 percent of contributions and may make additional contributions to the plan to the extent authorized by the Board of Directors. The contribution amounts charged to operating expenses in the fiscal years ended May 28, 2000, May 30, 1999, and May 31, 1998 approximated $63,000, $45,000, and $39,000, respectively.
STOCK PURCHASE PLAN - On March 10, 1996, the Company established a stock purchase plan in which up to 100,000 shares of common stock may be purchased by employees. The purchase price is equal to the lesser of 85 percent of the fair market value of the shares on the date the phase commences or 85 percent of the fair market value of the shares on the termination date of the phase. Each phase is one year from the commencement date of a phase. There were 11,359, 11,766, and 10,825 shares purchased under this plan during the fiscal year ended May 28, 2000, May 30, 1999, and May 31, 1998, respectively.
6. STOCK OPTION PLAN
The Company's 1986 and 1996 stock option plan has reserved 600,000 and 500,000 common shares, respectively, for issuance under qualified and nonqualified stock options for its key employees and directors. Option prices are the market value of the stock at the time the option was granted. Options become exercisable as determined at the date of grant by a committee of the Board of Directors. Options expire ten years after the date of grant unless an earlier expiration date is set at the time of grant.
AULT INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 28, 2000 AND MAY 30, 1999 - --------------------------------------------------------------------------------
The Company has adopted the disclosure-only provisions of SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Accordingly, no compensation cost has been recognized for the stock option plan. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date for awards in 2000, 1999, and 1998 consistent with the provisions of SFAS No. 123, the Company's net income and net income per share would have changed to the pro forma amounts indicated below:
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2000, 1999, and 1998:
Additional information relating to all outstanding options as of May 28, 2000, May 30, 1999, and May 31, 1998 is as follows:
AULT INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 28, 2000 AND MAY 30, 1999 - --------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at May 28, 2000:
7. STOCKHOLDERS' EQUITY
The Board of Directors is empowered to establish and to designate classes and series of preferred shares and to set the terms of such shares, including terms with respect to redemption, dividends, liquidation, conversion, and voting rights. The Restated Articles of Incorporation provide that the preferred shares are senior to the common shares with respect to dividends and liquidation. No preferred shares have been issued.
The Company has a shareholders' rights plan. Under this plan, a Class A, Junior Participating Preferred Stock with no par value was created. In addition, a dividend of one right was declared for each share of common stock at an exercise price of $36 per right and a redemption price of $0.001 per right. Each right is equal to a right to purchase one one-hundredth of a share of the Class A, Junior Participating Preferred Stock. 100,000 shares of preferred stock are reserved for the exercise of the rights. No rights were exercised during the years ended May 28, 2000, May 30, 1999, and May 31, 1998.
The Company has notes receivable from certain officers of the Company arising from the sale of common stock recorded as an offset to stockholders' equity. The notes are due in September 2001.
In December 1996, the Company completed a secondary stock offering of 1,840,000 shares of common stock. In connection with this offering, warrants to purchase 112,000 shares of common stock were issued. These warrants are exercisable at $7.80 per share through December 2001.
8. COMMITMENT AND CONTINGENCIES
OPERATING LEASES - The Company leased its United States plant under an operating lease through August 1999 before moving into its newly constructed facility. In addition, certain equipment and motor vehicles are leased under operating leases with terms of approximately 36 months.
Approximate minimum annual rental commitments at May 28, 2000 are as follows:
2001 $ 114,000 2002 101,000 2003 94,000 2004 80,000 ---------- $ 389,000 ==========
AULT INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 28, 2000 AND MAY 30, 1999 - --------------------------------------------------------------------------------
Total rental expense for the fiscal years ended May 28, 2000, May 30, 1999, and May 31, 1998 was approximately $304,000, $511,000, and $391,000, respectively.
9. SEGMENT INFORMATION AND FOREIGN OPERATIONS
FASB has issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. This statement requires disclosure of certain information for each reportable segment, including general information, profit and loss information, segment assets, etc.
The Company conducts its business within one reportable segment: the power conversion product industry. Foreign manufacturing is done by the Korean subsidiary, including its wholly owned subsidiary located in China, and certain nonaffiliated companies in China and Thailand. All United States manufacturing is done by Ault Incorporated. A summary of the Company's revenues, net income, and identifiable assets by geographic area is presented below:
Sales from the subsidiary to the parent company are based upon profit margins which represent competitive pricing of similar products.
EXPORT SALES - The Company also had foreign export sales amounting to 15.2, 14.3, and 27.1 percent of total sales for the fiscal years ended May 28, 2000, May 30, 1999, and May 31, 1998, respectively.
OTHER FOREIGN PRODUCTION - In addition to the manufacturing done by the Korean subsidiary, the Company has subcontracting agreements for the purchase of finished assemblies from certain manufacturers in China and Thailand. Total purchases under these agreements were approximately $29,944,000, $20,525,000, and $15,340,000 for the fiscal years ended May 28, 2000, May 30, 1999, and May 31, 1998, respectively.
AULT INCORPORATED AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MAY 28, 2000 AND MAY 30, 1999 - --------------------------------------------------------------------------------
10. MAJOR CUSTOMER
The Company had no customers with revenues and accounts receivable of more than 10% of the total during the fiscal year ended May 28, 2000.
The Company had a major customer during the fiscal years ended May 30, 1999 and May 31, 1998, as follows:
MAY 30, MAY 31, 1999 1998
Customer A: Sales percentage 13.3% 2.3% Accounts receivable percentage 9.2 8.3
ITEM 8(b). SUPPLEMENTAL FINANCIAL INFORMATION
QUARTERLY FINANCIAL DATA (Unaudited) (Amounts in Thousands, Except Per Share Data)
FISCAL QUARTERS
1ST 2ND 3RD 4TH
Net Sales $ 13,535 $ 14,386 $ 17,570 $ 20,632
Gross Profit 3,576 3,703 4,416 4,741
Income Before Income Taxes 294 417 694 1,519
Net Income 212 311 514 826
Earnings Per Share Basic $ 0.05 $ 0.07 $ 0.12 $ 0.19 Diluted 0.05 0.07 0.11 0.17
Net Sales $ 11,337 $ 11,046 $ 13,965 $ 14,590
Gross Profit 3,062 3,051 3,806 4,099
Income Before Income Taxes 718 656 942 532
Net Income 475 463 606 444
Net Income Per Share: Basic $ 0.11 $ 0.11 $ 0.14 $ 0.10 Diluted 0.11 0.11 0.14 0.10
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
As previously reported on form 8-K current report dated February 10, 2000, the company dismissed McGladrey & Pullen, LLP as our independent public accountants and engaged Deloitte Touche LLP as our new independent public accountants. The company hereby incorporates by reference the information contained under item 4 of the February 10, 2000 8-K as filed on March 20, 2000 and as amended by an amendment to the 8-K filed March 31, 2000.
PART III.
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by Item 405 under Registration S-K with respect to the Company's executive officers is contained under Item 1, Narrative Description of The Business -- Executive Officers of the Registrant. The information required by this item with respect to directors will be presented under the caption "Election of Directors" in the Company's definitive proxy statement for its Annual Meeting to be held on September 26, 2000 and is expressly incorporated herein by reference. Such proxy statement will be filed with the Securities and Exchange Commission not later than 120 days from the end of the Company's 2000 fiscal year.
Information called for by item 405 under Regulation S-K with respect to the information relating to compliance with 16(a) of the Exchange Act is presented under the caption "Compliance with Section 16(a) of the Securities Exchange Act 1934" in the Company's definitive proxy statement for its Annual Meeting to be held on September 26, 2000 and is expressly incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 403 under Regulation S-K, to the extent applicable, will be set forth under the caption "Executive Compensation and Other Information" under "General" in the Company's definitive proxy materials for its September 26, 2000 Annual Meeting to be filed within 120 days from the end of the Company's fiscal 2000 which information is expressly incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item 403 under Regulation S-K, to the extent applicable, will be set forth under the caption "Security Ownership of Principal Shareholders and Management" in the Company's definitive proxy statement for its September 26, 2000 Annual Meeting to be filed within 120 days from the end of the Company's fiscal year 2000, which information is expressly incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable.
PART IV.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND REPORTS
(1) THE FOLLOWING FINANCIAL STATEMENTS ARE INCLUDED IN PART II, ITEM 8: PAGE
Independent Auditors' Reports 18
Consolidated Financial Statements
-- Balance Sheets, May 28, 2000 and May 30, 1999. 20
-- Consolidated Statements of Income for the Years 22 Ended May 28, 2000, May 30, 1999 and May 31, 1998.
-- Consolidated Statements of Stockholders' Equity for 23 the Years Ended May 28, 2000, May 30, 1999 and May 31, 1998.
-- Consolidated Statements of Cash Flows for the Years 24 Ended May 28, 2000, May 30, 1999 and May 31, 1998.
-- Notes to Consolidated Financial Statements 25
(2) THE FOLLOWING FINANCIAL STATEMENTS SCHEDULE FOR THE YEARS ENDED MAY 28, 2000, MAY 30, 1999 AND MAY 31, 1998 ARE SUBMITTED HEREIN FOLLOWING THE SIGNATURE PAGE OF THIS REPORT.
-- Independent Auditors' Report on the Supplementary Information 41 Schedule for 1999 and 1998
-- Schedule II - Valuation and Qualifying Accounts 42
All other Schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(3) EXHIBITS
(a) The Exhibits required to be filed with this report or incorporated by reference are listed in the Exhibit Index, which follows the Financial Statements Schedules.
(b) Reports on Form 8-K during 3 months ended May 28, 2000 - None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Ault Incorporated has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AULT INCORPORATED
/s/ Frederick M. Green August 28, 2000 Frederick M. Green President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints FREDERICK M. GREEN and DONALD HENRY as his true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.
Signature Title Date
/s/ Frederick M. Green President, Chief Executive Officer August 28, 2000 - ----------------------- and Director Frederick M. Green
/s/ Donald Henry Vice President, Treasurer, Chief August 28, 2000 - ----------------------- Financial Officer, Assistant Donald Henry Secretary and Controller*
/s/ Matthew A. Sutton Director August 28, 2000 - ----------------------- Matthew A. Sutton
/s/ Frank L. Sims Director August 28, 2000 - ----------------------- Frank L. Sims
/s/ Delbert W. Johnson Director August 28, 2000 - ----------------------- Delbert W. Johnson
/s/ John G. Kassakian Director August 28, 2000 - ----------------------- John G. Kassakian
/s/ David J. Larkin Director August 28, 2000 - ----------------------- David J. Larkin
/s/ James M. Duddleston Director August 28, 2000 - ----------------------- James M. Duddleston
*Principal Financial Officer and Principal Accounting Officer
*******************************************************************
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF
AULT INCORPORATED
FOR
YEAR ENDED MAY 28, 2000
*******************************************************************
FINANCIAL STATEMENT SCHEDULES
*******************************************************************
INDEPENDENT AUDITORS' REPORT ON THE SUPPLEMENTARY INFORMATION
To the Board of Directors Ault Incorporated and Subsidiary Minneapolis, Minnesota
Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The consolidated supplemental schedule II is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the 1999 and 1998 basic consolidated financial statements and, in our opinion, the 1999 and 1998 confirmation is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.
McGladrey & Pullen, LLP
Minneapolis, Minnesota July 9, 1999
SCHEDULE II
AULT INCORPORATED AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED MAY 28, 2000, MAY 30, 1999, AND MAY 31, 1998
(a) Represents charge-off of accounts receivable, net of recoveries.
*******************************************************************
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OF
AULT INCORPORATED
FOR
YEAR ENDED MAY 28, 2000
*******************************************************************
EXHIBITS
*******************************************************************
AULT INCORPORATED
EXHIBIT INDEX TO FORM 10-K FOR THE YEAR ENDED MAY 28, 2000
Required Registration S-K Exhibit Items
SK Reference
Title of Documents Location
3(a) Restated Articles of Filed as Exhibit 3(a) to Form 10-K for Incorporation, as amended fiscal 1988 and incorporated herein by reference
3(b) Bylaws, as amended Filed as Exhibit 3(b) to Registration Statement No. 2-85224 and incorporated herein by reference
3(c) Amendment to Articles of Filed herewith as Exhibit 3(c) Fiscal 1999 Incorporation and incorporated herein by reference.
4.1 Rights Agreement Filed electronically on Form 8-K for March 1996 and herein incorporated by reference
10.1 Management Incentive Filed as Exhibit 10(b) to Registration Compensation Plan Statement 2-85224 and incorporated herein by reference
10.2 1986 Employee Stock Option Filed as Exhibit 10(c) to Form 10-K for Plan fiscal 1987 and incorporated herein by reference
10.3 Financing Agreement on Filed as Exhibit 10(f) to Form 10-K for Credit Facility fiscal 1995 and incorporated herein by reference
10.4 First and Second Amendments Filed electronically as Exhibit 10(g) to to Financing Agreement on Form 10-K for fiscal 1996 and herein Credit Facility incorporated by reference
10.5 Employee Stock Purchase Plan Filed electronically Commission File #333-4609 and herein incorporated by reference
10.6 1986 Employee stock Filed electronically. Commission File Option plan, Amended #333-4609 and herein incorporated by reference
10.7 1996 Employee stock Filed electronically. Commission File Option plan #333-4609 and herein incorporated by reference
21 Subsidiary of Registrant Filed as Exhibit 21 to Form 10-K for fiscal 1997 and incorporated herein by reference
23 Consent of Independent Filed herewith at page 45 Auditors
27 Financial Data Schedule Filed electronically
Pursuant to provisions of Item 601(b)(A)(iii)(a) of Regulation S-K, copies of instruments defining the rights of holders of long-term debt of the Company are not being filed and in lieu thereof, Company agrees to furnish copies thereof to the Securities and Exchange Commission upon request.