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
___________________
For the Fiscal Year Ended January 31, 1997 Commission File Number 0-4988
AEROSONIC CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 74-1668471
------------------------------------ ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1212 North Hercules Avenue
Clearwater, Florida 34625
-------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone no., including area code: (813) 461-3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - Par Value $.40
-----------------------------
(Title of Class)
Indicate by check mark whether the 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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ] .
As of April 25, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $23,634,829.
As of April 25, 1997, the issuer had 3,830,490 shares of Common Stock
outstanding, net of treasury shares.
________________________________________________________________________________
Documents Incorporated by Reference
Document Part of 10K
-------- -----------
Proxy Statement for the 1997 Part II, Items 10, 11, 12 and 13
Annual Meeting of Stockholders
<PAGE>
PART I
Item 1. Business.
---------
Aerosonic Corporation ("the Company") is principally engaged in one business
segment: the manufacture of aircraft instruments ("Instruments"). Prior to June
1996, the Company was engaged in a second business segment: the manufacture of
ordnance products ("Ordnance") which consisted of military products as well as
commercial truck and automotive parts. The sale of this segment is more fully
described in Note 8 to the Consolidated Financial Statements and, accordingly,
has been presented as discontinued operations.
The Company was incorporated under the laws of Delaware in l969, and in l970
merged with a Florida company (formerly known as "Aerosonic Corporation"). As
used herein, unless the context requires otherwise, "Aerosonic" or the "Company"
includes Aerosonic Corporation and its operating subsidiary, Avionics
Specialties, Inc.
The aircraft instrument segment consists of three operating divisions: The
Clearwater, Florida Instrumentation Division ("Clearwater Instruments"), the
Aerosonic Wichita, Kansas Instrumentation Division and Avionics Specialties,
Inc. ("Avionics"), a Virginia Corporation wholly owned by Aerosonic Corporation.
Clearwater Instruments was started in 1953 and primarily manufactures
Altimeters, Airspeed Indicators, Rate of Climb Indicators, Microprocessor
Controlled Air Data Test Sets, and a variety of other flight instrumentation.
Avionics was a division of Teledyne Industries, Inc. prior to January 1993.
Avionics maintains four major product lines in the aircraft instrument segment:
1) Angle of Attack ("AOA")/Stall Warning Systems; 2) Inertial-Lead Vertical
Speed Indicator ("IVSI"); 3) Power Analyzer and Recorder ("PAR") System (a
turbine engine monitoring system); 4) Vibration Monitoring and Analysis. For a
description of the general development of these businesses, see the narrative
below.
2
<PAGE>
PRODUCTS, SERVICES AND RECENT BUSINESS DEVELOPMENTS
PRODUCTS AND DISTRIBUTION
The Company's products are sold to the U.S. military services and to
manufacturers of commercial and private aircraft, both domestic and foreign.
Commercial sales increased to $16,098,000 from $13,773,000 in the prior fiscal
year. Sales to the U.S. military have decreased to $4,134,000 during the current
fiscal year from $5,193,000 in the prior fiscal year. For the year ended January
31, l997, approximately 76% of the Company's total sales were to the private
sector and the remaining 24% to the military services.
Most of the Company's instrument sales are made directly through Company
employees to original equipment manufacturers or to the military, with the
Company's remaining sales being made through other dealers (who resell to
aircraft operators).
The products manufactured by the Company, together with the approximate
percentage of total sales contributed by each such product for the years ended
January 31, l997, 1996 and 1995 are as follows:
1997 1996 1995
AOA/Stall Warning Systems 38% 33% 27%
Other Aircraft Instruments 13% 27% 19%
Repairs 13% 12% 9%
Altimeters 10% 9% 8%
Air Speed Indicators 11% 8% 8%
Spare Parts 10% 3% 2%
Ordnance - Commercial 2% 7% 4%
Ordnance - Military 3% 1% 23%
---------- ---------- ----------
100% 100% 100%
========== ========== ==========
The aggregate amount of foreign sales were $6,208,000, $4,751,000 and $3,104,000
for the years ended January 31, 1997, 1996 and 1995, respectively. Domestic
sales of the Company's products are made to many different commercial
(non-government) customers, none of which comprised over ten percent (l0%) of
total sales during the year ended January 3l, l997.
3
<PAGE>
BACKLOG
The Company sales order backlog as of January 3l, l997 was $18,512,000, as
compared to $15,212,000 in the previous fiscal year. The Instrument backlog
includes $6,821,000, which is related to Avionics, and $11,691,000, which is
related to Clearwater Instruments. Management estimates that approximately 85%
of the total backlog, or $15,735,000, can reasonably be expected to be filled
during the current fiscal year.
U.S. Government contracts are subject to termination at the election of the
Government and contain specific procedures for equitable settlement in the event
of termination. It is not possible to predict whether, or to what extent, the
present backlog may be reduced or postponed in the event of reductions or
changes in U.S. Government programs. Some U.S. Government contracts contain
fixed price options for future performance and are subject to exercise by the
Government within specified time periods. These options are not included in the
Company's contractual backlog. The U.S. Government represents approximately 27%
of the Company's backlog at January 31, 1997.
EMPLOYEES
As of the year ended January 3l, l997, the Company employed approximately 274
employees in its business operations. This consisted of 166 Clearwater
Instrument employees and 108 Avionics employees. The Company's employees are not
represented by labor unions. Management regards its relations with its employees
to be good.
RESEARCH AND DEVELOPMENT
The Company expended approximately $460,000 and $504,000 in research and
development costs for potential new products and enhancements during the years
ended January 31, 1997 and 1996. There are approximately nineteen engineers at
Aerosonic and Avionics, on a full- or part-time basis, involved in these
activities. Aerosonic has completed the initial development stage of a new
Microprocessor Controlled Air Data Test Set. Market acceptance has been
exceptionally higher than predicted by management. Due to the proprietary and
highly competitive nature of some of the Company's new products under
development, management chooses not to enunciate specific programs.
Research and development at Avionics Specialties has focused on extending the
Angle of Attack product line to achieve increased functionality. The new Stall
Warning Transmitter and Liquid Crystal Display for the Angle of Attack is
complete and has been tested and qualified both internally and externally. An
Angle of Attack Transmitter incorporating a "built-in" stall warning computer is
in the final stage of development and is scheduled for external testing and
qualification during late 1997. The transmitter incorporating air data functions
has progressed from the laboratory and wind tunnel to its first flight test. The
successful results of this early testing has generated considerable interest in
the concept. Further flight testing in conjunction with Lockheed will utilize an
F-16 as a test vehicle during early 1997. This testing will explore a much wider
range of altitudes and airspeeds, including supersonic flight.
4
<PAGE>
Development on the PAR product line continues to result in new features and
functions as technology progresses. Additional options now available include
extended storage using PC card technology, "real-time" data reporting and data
acquisition through satellite communications.
COMPETITION
Most of the Company's products are sold in highly competitive markets. The
Company manufactures a larger variety of aircraft instruments than its
competitors, who, in most instances, compete with the Company on no more than a
few types of aircraft instruments. Some competitors have larger overall sales
and financial resources than the Company. Management believes that the Company's
products are priced to sell competitively with those of its competitors.
RAW MATERIALS
The principal materials used in the Company's manufacturing processes are glass
lenses, raw metals and castings. These items, as well as other raw materials,
parts and components used by the Company's instrument divisions are generally
available from a number of sources and in sufficient quantities to meet current
requirements subject to normal lead times.
Item 2. Properties.
-----------
The following sets forth the locations and general characteristics of the
Company's principal plants:
Approximate No. Square Feet
Location of Factory and Office Area
-------- -- -----------------------
Clearwater, Florida 90,000
Wichita, Kansas 7,500
Charlottesville, Virginia 53,000
All properties are well maintained, fully occupied by the Company and suitable
for the Company's present level of production. All locations operate more than
one shift, five days a week. The property in Wichita, Kansas is owned by the
Company and is unencumbered. The Clearwater, Florida property is mortgaged in
accordance with an Industrial Revenue Bond executed in l988. (See Note 7,
"Financial Statements".)
The Charlottesville, Virginia property was purchased from Teledyne Industries in
April 1994 for $1,260,000, and is mortgaged by a long-term note with the
Company's bank. The property consists of a 53,000 square foot manufacturing
facility on approximately 12 acres of land.
The Company sold its Newport, Arkansas manufacturing operation during fiscal
1994. The land and building are still owned by Aerosonic and leased to the
purchaser under a five-year lease agreement with a purchase option.
5
<PAGE>
Item 3. Legal Proceedings.
------------------
SENSONICS, INC. V. AEROSONIC: In 1993, the Company was named as a co-defendant
in a patent infringement suit filed by Sensonics Inc. claiming that the Company
infringed Sensonics' expired patent for an electromagnetical tapping device that
the Company used as a component part. During June 1996, the Company's Board of
Directors approved a proposed settlement of the lawsuit for $2,000,000. Pursuant
to this settlement, the Company recorded a $225,000, $960,000 and $815,000
provision for the settlement of litigation during the years ended January 31,
1997, 1996 and 1995, respectively. All amounts related to the settlement were
paid during the year ended January 31, 1997.
The Company was sued in September of 1996 by David S. Goldman, former President
and Chief Executive Officer of Aerosonic Corporation, for an alleged breach of a
consulting agreement between Mr. Goldman and the Company. The suit seeks damages
in excess of $15,000. The Company has filed a motion to dismiss this action,
which is currently under review. During fiscal year 1997, the Company sued Mr.
Goldman and Mil-Spec Finishers, Inc., a former subcontractor to Aerosonic
Corporation controlled by Mr. Goldman, seeking damages in excess of $15,000, for
alleged fraud and misappropriation of funds, appropriation of corporate
opportunity, breach of fiduciary duty and conversion.
The Company is also involved in certain claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of the above matters will not have a material adverse effect on the
Company's financial position, results of operations, or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
None.
6
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Security Holder
-----------------------------------------------------------------------
Matters.
--------
The Company's Common Stock is traded on the American Stock Exchange under the
symbol "AIM". The range of high and low bid quotations as reported by the
American Stock Exchange for each of the quarters of the fiscal years ended
January 3l, l997 and January 3l, l996 is as follows:
Fiscal Year Ended January 31, 1997
- ----------------------------------
Quarter Bid Bid
- --------------------------------------------
1 High 2 Low 1-5/16
- --------------------------------------------
2 High 3 Low 1-1/2
- --------------------------------------------
3 High 3 Low 1-7/8
- --------------------------------------------
4 High 4-3/8 Low 2-5/8
- --------------------------------------------
Fiscal Year Ended January 31, 1996
- ----------------------------------
Quarter Bid Bid
- --------------------------------------------
1 High 2-7/16 Low 2-1/4
- --------------------------------------------
2 High 2-1/2 Low 2-1/8
- --------------------------------------------
3 High 2-5/8 Low 2-1/8
- --------------------------------------------
4 High 2-3/16 Low 1-7/8
- --------------------------------------------
During those same periods, no cash dividends were paid. The payment of future
dividends, if any, on the Company's common stock and the amount thereof will be
dependent upon the Company's earnings, financial requirements, and other factors
deemed relevant by the Company's Board of Directors.
As of April 25, l997, the Company's outstanding shares of common stock were
owned by 2,350 shareholders of record.
7
<PAGE>
Item 6. Selected Financial Data.
------------------------
<TABLE>
<CAPTION>
The following selected financial data for the five years in the period ended January 31, 1997 have been
derived from the Company's Consolidated Financial Statements.
Years Ended January 31,
-----------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue $ 20,232,000 $ 17,360,000 $ 17,774,000 $ 19,417,000 $ 13,643,000
============ ============ ============ ============ ============
Income (loss) from
continuing operations $ 1,123,000 $ (1,293,000) $ (299,000) $ 1,712,000 $ $777,000
============ ============ ============ ============ ============
Income (loss) from
continuing operations per share $ 0.29 $ (0.34) $ (0.08) $ 0.45 $ 0.20
============ ============ ============ ============ ============
Total assets $ 17,215,000 $ 17,851,000 $ 17,965,000 $ 18,293,000 $ 18,686,000
============ ============ ============ ============ ============
Long-term obligations $ 2,444,000 $ 2,814,000 $ 3,114,000 $ 2,880,000 $ 3,969,000
============ ============ ============ ============ ============
* Included in net income for the year ended January 31, 1993 is $70,000, or $.02 per share, resulting
from the cumulative effect of the change in accounting for income taxes.
</TABLE>
8
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
Results of Operations.
----------------------
This item contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
the results anticipated in these forward-looking statements as a result of
certain factors set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and notes thereto included elsewhere
herein.
DISCONTINUED OPERATIONS
During the fiscal years ended 1997 and 1996, the Company operated in two
business segments i) the Ordnance Division and ii) the Instrument Division.
In order to focus on its core business, the Company decided to discontinue the
Ordnance Division and during May 1996, the Company sold substantially all of the
assets of this segment. The $1,700,000 sale, consisting primarily of property
and equipment, was paid in cash and resulted in a $41,000 gain.
For financial reporting purposes, the Company is accounting for the disposition
of its Ordnance segment as a discontinued operation. Accordingly, the Company's
Consolidated Statements of Operations present the results of the Company's
discontinued operations separately from the results of Company's continuing
operations.
RESULTS OF CONTINUING OPERATIONS
Net sales for fiscal 1997 were $20,232,000 which represent a $2,872,000 or 17%
increase from the prior year. Clearwater Instrument Division sales increased by
35% in the current year to $10,074,000 as compared to $7,448,000 in the
preceding year. The Avionics Division sales were $10,158,000, a 9% increase over
the prior year.
Net Sales for fiscal 1996 were $17,360,000 which represent a $414,000 or 2%
decrease from the prior year. Clearwater Instrument Division sales increased 8%
during fiscal 1996 to $8,046,000 compared to $7,448,000 during fiscal 1995.
Avionics Division sales were $9,314,000, a 10% decrease from fiscal year 1995.
The increase in sales during fiscal 1997 is attributable to an overall expansion
in the aircraft marketplace inclusive of increased requirements for new
production aircraft and modification of existing aircraft worldwide. The
increase in Fiscal 1996 sales from the preceding year was attributable to a
general upward trend within the aircraft industry both domestically and
worldwide.
9
<PAGE>
The sales increase experienced by Avionics during fiscal 1997 was primarily
attributed to the resumption of sales of the F-16 to the U.S. Government and
consequently increased orders within the AOA/Stall Warning Systems line of
business. Sales for the F-16 products were $716,000 in fiscal 1997 as compared
to $98,000 in the preceding year. Similarly, the decrease in sales during Fiscal
1996 from the preceding year was primarily due to the U.S. Government
rescheduling shipments for the F-16 aircraft due to excess inventory. Sales for
these products were $98,000 in fiscal 1996 as compared to $1,096,000 for the
prior fiscal year.
GROSS MARGINS
The Company's gross margin percentage increased to 35% during fiscal 1997
compared to 25% in the prior year. Exclusive of a $925,000 write-off of
inventory during fiscal 1996, the Company's gross margin percentage approximates
30%. These increases result from a 17% increase in sales with only a 1% increase
in cost of goods sold. This is primarily due to strong management efforts to
minimize costs within the manufacturing and service processes of the Company. In
addition, management has focused on expanding the profitable product lines.
During fiscal 1996, the Company wrote-off $925,000 of inventory, of which
$545,000 had been reclassified as "long-term" inventory in the previous year.
Exclusive of the write-off, the Company's gross profit percentage was 30% as
compared to 29% in the prior year.
SELLING GENERAL AND ADMINISTRATIVE EXPENSES
As a percentage of total sales, selling, general and administrative expenses
decreased to 24% during fiscal 1997 from 27% and 25% during fiscal years 1996
and 1995, respectively. This primarily results from cost reduction efforts by
management to improve the overall profitability of the Company.
PROVISION FOR SETTLEMENT OF LITIGATION
In connection with the Sensonics litigation previously described under Item 3.
Legal Proceedings, the Company recorded provisions totaling $225,000, $960,000
and $815,000 during fiscal years 1997, 1996 and 1995, respectively.
INTEREST EXPENSE
Interest expense for fiscal l997, net of interest income, totaled $278,000
compared to $280,000 in the prior year. The Company's short- and long-term
borrowings increased by $428,000 during fiscal 1997 compared to $3,821,000 at
the end of fiscal 1996.
Interest expense for fiscal 1996, net of interest income, increased $54,000 from
fiscal 1995, due to increased rates and periodic utilization of the Company's
line of credit. The Company's short- and long-term borrowings decreased by
$110,000 during fiscal 1996 compared to $3,931,000 at the end of fiscal 1995.
10
<PAGE>
INCOME TAX EXPENSE
Income tax expense increased in fiscal 1997 to ($606,000) as compared to income
tax benefit of $517,000 during fiscal 1996. The increase was primarily due to
increases in pretax income. Income tax benefit (expense) as a percent of income
before taxes was approximately 35% in fiscal 1997, and 29% in fiscal 1996.
Income tax benefit increased during fiscal 1996 to $517,000 as compared to an
income tax benefit of $165,000 during fiscal 1995. The increase was primarily
due to increases in pretax income. Income tax benefit as percent of income
before taxes was approximately 29% during fiscal 1996 and 36% during fiscal
1995.
EARNINGS PER SHARE
The Company recorded net income of $924,000, or $.24 per share during fiscal
1997 as compared to a net loss of $1,886,000, or ($.50) per share in the
preceding year. Included in this prior year loss was a provision for settlement
of the Sensonics litigation of $960,000.
Net Income from continuing operations (exclusive of the ordnance segment) was
$1,123,000 or $.29 per share during fiscal 1997 as compared to a net loss of
$1,293,000, or ($.34) per share in the preceding year.
Net loss during fiscal 1995 totaled $211,000 or ($.06) per share. This was
inclusive of a provision for settlement of the Sensonics litigation of $815,000.
Net loss from continuing operations (exclusive of the ordnance segment) was
$299,000 or ($.08) per share during fiscal 1995 which includes the $815,000
Sensonics provision.
Net loss from discontinued ordnance operations was $199,000 or ($.05) per share
during fiscal 1997 as compared to a net loss of $593,000 or ($.16) per share
during the preceding year.
Net income from discontinued ordnance operations was $88,000 or .02 per share
during fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Management considers liquidity to be the Company's ability to generate adequate
cash to meet its short- and long-term business needs. The principal internal
source of such cash is the Company's operations, while external sources include
borrowings under the Company's credit facilities.
Net cash used in operating activities during fiscal year l997 was $528,000
compared to net cash generated of $289,000 in the prior year. During fiscal year
1997, significant net cash used in operating activities resulted primarily from
decreases in accrued expenses (payment of settlement expenses related to the
Sensonics AND OTHER LITIGATION) and increases in inventories. During fiscal year
1996, cash was generated primarily by noncash-expending depreciation, the
write-off of inventories and increases in accounts payable and accrued expenses.
11
<PAGE>
Net cash generated through investing activities during fiscal 1997 was
$1,340,000 compared to net cash used of $742,000 in the prior year. The sale of
the Ordnance Division during fiscal year 1997 provided $1,700,000 in cash from
investing activities. Capital expenditures during fiscal year 1997 of $399,000
primarily consisted of machinery and equipment used in the Instrument Division.
These expenditures were funded by operations. Capital expenditures during fiscal
year 1996 of $1,156,000 were funded from a $450,000 long-term note and working
capital provided from operations.
Net cash generated through financing activities during fiscal year 1997 was
$428,000 compared to net cash used of $110,000 in the prior year. The proceeds
and uses of the Company's credit facilities are outlined in the Consolidated
Statements of Cash Flows and Note 7 to the Consolidated Financial Statements.
The Company has a $2,000,000 line of credit facility, which expires on July 15,
1997 and bears interest at the prime rate. At January 31, 1997, there were
approximately $750,000 available under this facility.
The Company's current ratio was strong at 3 to 1 at January 31, 1997 compared to
2 to 1 at January 31, 1996. In addition, working capital increased by $2,725,000
to $8,489,000 in fiscal year 1997. The increase primarily relates to the payment
of Sensonics litigation costs accrued for at January 31, 1996, increases in cash
and inventories and reductions of current maturities of long-term debt and notes
payable.
Funds necessary for future capital expenditures, notes payable and long-term
debt payments and other cash flow needs in the ordinary course of business are
expected to be funded primarily from current cash resources and internally
generated funds.
ACQUISITIONS
Currently, the Company has no arrangements or understandings with respect to any
acquisitions. However, the Company continues to monitor acquisition
opportunities.
ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No.
128 is designed to modify the earnings per share information provided in
financial statements by simplifying existing earnings per share data on an
international basis. SFAS No. 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods. Early
application is not permitted. Management is currently assessing the impact of
SFAS No. 128 on the Company's presentation of earnings per share data.
12
<PAGE>
Other Matters
- -------------
Major emphasis is being devoted to sales expansion in the marketplace with a
totally restructured marketing concept. During fiscal 1997, the Company
established a new division, the Aerosonic Customer Support Division. This unit
is located "on-site" in Clearwater, Florida and will react independently from
"order-in" to "order-out" requirements for all repair and overhaul and spare
parts requirements for the Aerosonic Clearwater division.
Avionics Specialties will continue their marketing and operations independently
as previous.
The Company is currently utilizing the theory of synergy corporate-wide to
reduce selling, general and administrative costs and to better utilize the
personnel assets already in existence. This should allow a streamlining of
production flow and realize the goal of inventory reduction.
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
The consolidated financial statements and supplementary data required by Item 8
are listed in the index beginning on page 14 and are included in this Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and
----------------------------------------------------------------------
Financial Disclosure.
---------------------
Not applicable.
Item l0. Directors and Executive Officers.
---------------------------------
Information concerning the Directors and Executive Officers of the Company is
incorporated by reference to the Company's definitive proxy statement which will
be filed with the Securities and Exchange Commission (Commission) within 120
days after the close of fiscal 1997.
Item ll. Executive Compensation.
-----------------------
Information concerning executive compensation is hereby incorporated by
reference to the Company's definitive proxy statement which will be filed with
the Commission within 120 days after the close of fiscal 1997.
13
<PAGE>
Item l2. Security Ownership of Certain Beneficial Owners to Management.
--------------------------------------------------------------
Information concerning security ownership of certain beneficial owners and
management is hereby incorporated by reference to the Company's definitive proxy
statement which will be filed with the Commission within 120 days after the
close of fiscal 1997.
Item l3. Certain Relationships and Related Transactions.
-----------------------------------------------
Information concerning certain relationships and related transactions is hereby
incorporated by reference to the Company's definitive proxy statement which will
be filed with the Commission within 120 days after the close of fiscal 1997.
Item l4. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
----------------------------------------------------------------
(a) (1) Financial Statements:
The following consolidated financial statements of the Company are included
herein.
Page
----
Report of Independent Accountants 15
Consolidated Balance Sheets at January 31, 1997 and 1996 16
Consolidated Statements of Operations for the years ended
January 31, 1997, 1996 and 1995 17
Consolidated Statements of Shareholders' Equity for the years
ended January 31, 1997, 1996 and 1995 18
Consolidated Statements of Cash Flows for the years ended
January 31, 1997, 1996 and 1995 19
Notes to Consolidated Financial Statements 20-28
(a) (2) Financial Statement Schedules:
All schedules have been omitted inasmuch as the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the Company's
Consolidated Financial Statements, including the notes thereto.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Aerosonic Corporation
Clearwater, Florida
We have audited the accompanying 1997 and 1996 consolidated financial statements
of Aerosonic Corporation and subsidiary listed in the index on page 14 of this
Form 10-K. 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 audits 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 that our audits provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Aerosonic
Corporation and subsidiary as of January 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Tampa, Florida
April 4, 1997
15
<PAGE>
Aerosonic Corporation and Subsidiary
Consolidated Balance Sheets
January 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,250,000 $ 10,000
Receivables 3,398,000 3,370,000
Income tax receivable 149,000 436,000
Inventories 7,286,000 6,050,000
Costs and estimated earnings in excess
of billings on uncompleted contract 58,000 262,000
Prepaid expenses 66,000 37,000
Deferred income taxes 344,000 956,000
------------ ------------
Total current assets 12,551,000 11,121,000
------------ ------------
Property, plant and equipment, net 4,491,000 6,415,000
Deferred income taxes 53,000 43,000
Other assets 120,000 272,000
------------ ------------
4,664,000 6,730,000
------------ ------------
$ 17,215,000 $ 17,851,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and notes payable $ 1,805,000 $ 1,007,000
Accounts payable, trade 964,000 969,000
Compensation and benefits 772,000 963,000
Accrued litigation costs 0 1,775,000
Other accrued expenses 521,000 643,000
------------ ------------
Total current liabilities 4,062,000 5,357,000
Long-term debt and notes payable, net of current maturities 1,944,000 2,814,000
Note payable, related party 500,000 0
Deferred income taxes 582,000 491,000
------------ ------------
Total liabilities 7,088,000 8,662,000
------------ ------------
Commitments and contingencies (Note 13)
Shareholders' equity:
Common stock, $.40 par value; authorized 8,000,000 shares,
issued 3,986,262 shares 1,595,000 1,595,000
Additional paid-in capital 3,410,000 3,410,000
Retained earnings 5,430,000 4,506,000
Less treasury stock; 178,753 shares in 1997 and 186,772
shares in 1996, at cost (308,000) (322,000)
------------ ------------
Total shareholders' equity 10,127,000 9,189,000
------------ ------------
$ 17,215,000 $ 17,851,000
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
16
<PAGE>
Aerosonic Corporation and Subsidiary
Consolidated Statements of Operations
for the years ended January 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net sales $ 20,232,000 $ 17,360,000 $ 17,774,000
Cost of goods sold 13,225,000 13,063,000 12,675,000
------------ ------------ ------------
Gross profit 7,007,000 4,297,000 5,099,000
Selling, general, and administrative expenses 4,767,000 4,754,000 4,513,000
------------ ------------ ------------
Operating income (loss) 2,240,000 (457,000) 586,000
------------ ------------ ------------
Other deductions:
Provision for settlement of litigation (Note 13) (225,000) (960,000) (815,000)
Interest expense, net (278,000) (280,000) (226,000)
Other, net (8,000) (113,000) (9,000)
------------ ------------ ------------
(511,000) (1,353,000) (1,050,000)
------------ ------------ ------------
Income (loss) from continuing operations before income taxes 1,729,000 (1,810,000) (464,000)
Income tax benefit (expense) (606,000) 517,000 165,000
------------ ------------ ------------
Income (loss) from continuing operations 1,123,000 (1,293,000) (299,000)
Discontinued ordnance operations:
Income (loss) from discontinued operations, net of
income tax benefit (expense) of $94,000, $353,000
and ($32,000), respectively (240,000) (593,000) 88,000
Gain on sale of discontinued operations 41,000 0 0
------------ ------------ ------------
Net income (loss) $ 924,000 $ (1,886,000) $ (211,000)
============ ============ ============
Earnings (loss) per share:
Continuing operations $ 0.29 $ (0.34) $ (0.08)
Discontinued operations (0.05) (0.16) 0.02
------------ ------------ ------------
Earnings (loss) per share $ 0.24 $ (0.50) $ (0.06)
============ ============ ============
Weighted average number of common and common
equivalent shares outstanding 3,806,173 3,797,690 3,793,814
============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
17
<PAGE>
Aerosonic Corporation and Subsidiary
Consolidated Statements of Shareholders' Equity
for the years ended January 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Retained Treasury Shareholders'
Stock Capital Earnings Stock Equity
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balances at February 1, 1994 $ 1,595,000 $ 3,394,000 $ 6,603,000 $ (304,000) $ 11,288,000
Net loss 0 0 (211,000) 0 (211,000)
Acquisition of 20,000 common shares 0 0 0 (49,000) (49,000)
Reissuance of 10,810 shares of treasury stock 0 13,000 0 17,000 30,000
----------- ----------- ----------- ----------- ------------
Balances at January 31, 1995 1,595,000 3,407,000 6,392,000 (336,000) 11,058,000
Net loss 0 0 (1,886,000) 0 (1,886,000)
Reissuance of 7,799 shares of treasury stock 0 3,000 0 14,000 17,000
----------- ----------- ----------- ----------- ------------
Balances at January 31, 1996 1,595,000 3,410,000 4,506,000 (322,000) 9,189,000
Net income 0 0 924,000 0 924,000
Reissuance of 8,019 shares of treasury stock 0 0 0 14,000 14,000
----------- ----------- ----------- ----------- ------------
Balances at January 31, 1997 $ 1,595,000 $ 3,410,000 $ 5,430,000 $ (308,000) $ 10,127,000
=========== =========== =========== =========== ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
18
<PAGE>
Aerosonic Corporation and Subsidiary
Consolidated Statements of Cash Flows
for the years ended January 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 924,000 $(1,886,000) $ (211,000)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Increase (decrease) in allowance for doubtful accounts 27,000 13,000 (13,000)
Write-off of inventory 0 925,000 0
Depreciation 674,000 789,000 810,000
Gain on disposal of equipment 0 (11,000) (53,000)
Gain on disposal of ordnance division (41,000) 0 0
Deferred income taxes 693,000 (479,000) (270,000)
Gain on sale of unconsolidated subsidiary 0 (48,000) 0
Provision for litigation 0 960,000 0
Changes in current assets and liabilities:
Receivables (55,000) (7,000) (11,000)
Income tax receivable 287,000 (146,000) (290,000)
Inventories (1,254,000) (694,000) 1,425,000
Cost and estimated earnings in excess of billings on
uncompleted contract 204,000 28,000 (290,000)
Prepaid expenses (29,000) 27,000 120,000
Other assets 121,000 (78,000) (125,000)
Accounts payable (5,000) 291,000 (1,081,000)
Accrued expenses (2,074,000) 605,000 751,000
----------- ----------- -----------
Net cash provided by (used in) operating activities (528,000) 289,000 762,000
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of property and equipment 9,000 79,000 280,000
Proceeds from sale of ordnance division 1,700,000 0 0
Investment in unconsolidated subsidiary 0 0 (100,000)
Proceeds from sale of investment in and repayment of
advances to unconsolidated subsidiary 0 282,000 0
Capital expenditures (399,000) (1,156,000) (1,825,000)
Collection of note receivable 30,000 53,000 25,000
----------- ----------- -----------
Net cash provided by (used in) investing activities 1,340,000 (742,000) (1,620,000)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt and notes payable 2,524,000 3,225,000 1,100,000
Proceeds from related party notes payable 1,250,000 0 0
Principal payments on long-term debt and notes payable (2,596,000) (3,335,000) (811,000)
Principal payments on related party notes payable (750,000) 0 0
Payments to acquire treasury stock 0 0 (49,000)
----------- ----------- -----------
Net cash provided by (used in) financing activities 428,000 (110,000) 240,000
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 1,240,000 (563,000) (618,000)
Cash and cash equivalents at beginning of year 10,000 573,000 1,191,000
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,250,000 $ 10,000 $ 573,000
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 353,000 $ 294,000 $ 280,000
=========== =========== ===========
Income taxes $ 0 $ 7,000 $ 287,000
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
19
<PAGE>
AEROSONIC CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS - The primary business of Aerosonic Corporation and
subsidiary (the Company) is to manufacture and sell aircraft
instrumentation to government and commercial users (instrument division)
from its plants located in Florida, Virginia and Kansas. Prior to June
1996, the Company also sold non-munitions components for artillery
projectiles to the U.S. Government and automotive and truck parts to
commercial customers (ordnance division) from its plant located in Florida.
The sale of this division is more fully described in Note 8. The Company's
customers are located worldwide.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the financial statements of Aerosonic Corporation (which operates as the
Clearwater, Florida and Wichita, Kansas Instrument divisions) and its
wholly owned subsidiary, Avionics Specialties, Inc. All significant
intercompany balances and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS - For purposes of the consolidated balance sheets
and consolidated statements of cash flows, the Company considers all
short-term investments purchased with original maturity dates of three
months or less to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK - Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
cash and receivables. As of January 31, 1997 and 1996, substantially all of
the Company's cash balances, including amounts representing outstanding
checks, were deposited with high credit quality financial institutions.
During the normal course of business, the Company extends credit to
customers conducting business in the aviation industry worldwide.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at
cost. Depreciation on plant and equipment is calculated on the
straight-line method over the estimated useful lives of the assets. Upon
disposition, the cost and related accumulated depreciation are removed from
the accounts and any related gain or loss is reflected in earnings.
RESEARCH AND DEVELOPMENT - Research and development costs are expensed as
incurred. Research and development approximated to $460,000, $504,000, and
$407,000 during the years ended January 31, 1997, 1996 and 1995,
respectively.
INCOME TAXES - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement carrying
amounts and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse.
Revenue Recognition - The Company generally recognizes revenue from sales
of its products on the accrual basis on the date such products are shipped.
In certain circumstances, the U.S. Government accepts title to products
while still on the Company's premises. The Company records these items as
sales when the government accepts title in writing and assumes all other
risks and rewards of ownership.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED:
REVENUE RECOGNITION, CONTINUED - The Company follows the
percentage-of-completion method of accounting for income on one long-term
engineering service contract. Under this method, contract revenue is
computed as that percentage of estimated total revenue that costs incurred
to date bear to total estimated costs, after giving effect to the most
recent estimates of costs to complete. Revisions in costs and revenue
estimates are reflected in the period in which the revisions are
determined. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined without regard to
the percentage-of-completion.
EARNINGS PER SHARE - Earnings per share has been computed by dividing net
income by the weighted average number of common and common equivalent
shares outstanding. Common equivalent shares represent stock options and
are included in the computation unless they are antidilutive.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS - The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements. Estimates
also affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial Accounting
Standards No. 107 "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of the fair value of certain financial instruments.
Cash, accounts receivable, short-term borrowings, accounts payable and
accrued liabilities are reflected in the financial statements at fair value
because of the short-term maturity of these instruments. The fair values of
the Company's long-term debt, notes payable and credit letters of credit
are disclosed in Note 7.
NEW ACCOUNTING PRONOUNCEMENT - In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share." SFAS No. 128 is designed to modify the
earnings per share information provided in financial statements by
simplifying existing earnings per share data on an international basis.
SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Early
application is not permitted. Management is currently assessing the impact
of SFAS No. 128 on the Company's presentation of earnings per share data.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform with 1997 presentation.
2. RECEIVABLES:
Receivables consisted of the following at January 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Trade, less allowance for doubtful accounts of $97,000
in 1997 and $70,000 in 1996 $ 3,279,000 $ 3,319,000
Officers and employees 6,000 15,000
Current notes receivable and other 113,000 36,000
----------- -----------
$ 3,398,000 $ 3,370,000
=========== ===========
</TABLE>
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. INVENTORIES:
Inventories at January 31, 1997 and 1996 consisted of the following:
1997 1996
Instruments:
Raw materials and work in process $6,843,000 $5,233,000
Finished goods 443,000 554,000
---------- ----------
7,286,000 5,787,000
Ordnance - raw materials and work in process 263,000
---------- ----------
$7,286,000 $6,050,000
========== ==========
During fiscal year 1996, the Company wrote off inventory, resulting in a
non-cash transaction of approximately $925,000.
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following at January 31,
1997 and 1996:
1997 1996
Land and improvements $ 462,000 $ 461,000
Buildings and improvements 3,162,000 3,119,000
Machinery and equipment 3,565,000 5,985,000
Patterns, dies, and tools 161,000 194,000
Furniture and fixtures 418,000 383,000
----------- -----------
7,768,000 10,142,000
Less accumulated depreciation and amortization 3,277,000 3,727,000
----------- -----------
$ 4,491,000 $ 6,415,000
=========== ===========
5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACT:
The Company has one long-term contract to provide engineering services,
which is recorded on the percentage of completion method. Costs and
estimated earnings in excess of billings on this contract at January 31,
1997 and 1996 are comprised of the following:
1997 1996
Costs incurred to date $1,935,000 $1,726,000
Estimated earnings 391,000 385,000
---------- ----------
2,326,000 2,111,000
Less billings to date 2,268,000 1,849,000
---------- ----------
$ 58,000 $ 262,000
========== ==========
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. INCOME TAXES:
Income tax (expense) benefit for the years ended January 31, 1997, 1996 and
1995 consisted of:
1997 1996 1995
Continuing operations:
Current:
Federal $ 69,000 $ 38,000 $(93,000)
State 0 0 (12,000)
------------- -------------- -------------
69,000 38,000 (105,000)
------------- -------------- -------------
Deferred:
Federal (585,000) 451,000 256,000
State (90,000) 28,000 14,000
------------- -------------- -------------
(675,000) 479,000 270,000
------------- -------------- -------------
$(606,000) $ 517,000 $$165,000
============= ============== =============
Discontinued operations
Current:
Federal $ 94,000 $ 353,000 $(30,000)
State 0 0 (2,000)
------------- -------------- -------------
$ 94,000 $ 353,000 $(32,000)
============= ============== =============
Total
Current:
Federal $ 163,000 $ 391,000 $(123,000)
State 0 0 (14,000)
------------- -------------- -------------
163,000 391,000 (137,000)
------------- -------------- -------------
Deferred:
Federal (585,000) 451,000 256,000
State (90,000) 28,000 14,000
------------- -------------- -------------
(675,000) 479,000 270,000
------------- -------------- -------------
$(512,000) $ 870,000 $133,000
============= ============== =============
The following is a reconciliation of the statutory federal income tax rate
to the actual effective income tax rate for the years ended January 31,
1997, 1996 and 1995:
1997 1996 1995
Federal tax rate (35.00)% 35.00 % 35.00 %
Increase in taxes resulting from:
State income taxes, net of federal
tax benefit 0.00 1.10 3.60
Other (0.66) (4.50) 0.10
---------- --------- --------
Effective tax rate (35.66)% 31.60 % 38.70 %
========== ========= ========
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. INCOME TAXES, CONTINUED:
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at January
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current deferred tax assets:
Accrued litigation costs $ 0 $ 662,000
Accounts receivable, principally due to allowance
for doubtful accounts 36,000 26,000
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the Tax
Reform Act of 1986 125,000 138,000
Compensated absences, principally due to accrual for
financial reporting purposes 96,000 56,000
Accrued warranty liability 30,000 27,000
Other 110,000 184,000
Valuation allowance (53,000) (137,000)
--------- ---------
Total current deferred tax assets 344,000 956,000
--------- ---------
Non-current deferred tax assets:
State net operating loss 61,000 49,000
Valuation allowance (8,000) (6,000)
--------- ---------
Total non-current deferred tax assets 53,000 43,000
--------- ---------
Total deferred tax assets 397,000 999,000
--------- ---------
Deferred tax liabilities:
Property, plant and equipment, principally due to
differences in depreciation and capitalized interest 582,000 491,000
Total gross deferred tax liabilities 582,000 491,000
--------- ---------
Net deferred tax asset (liability) $(185,000) $ 508,000
========= =========
</TABLE>
The Company has established a valuation allowance of approximately $61,000
as of January 31, 1997 which primarily relates to state net operating loss
carryforwards. State operating loss carryforwards of approximately
$1,850,000 will expire during the years 2011 through 2012. The result is a
decrease of $82,000 in the valuation allowance from January 31, 1996.
Management has assessed that it is more likely than not that the remaining
net deferred tax assets after valuation allowance will be realized through
future taxable earnings and the reversal of certain timing differences.
During November 1996, the Company was notified of an examination by the
Internal Revenue Service for the years ended January 31, 1995 and 1994. The
examination was completed during April 1997 without material impact on the
Company's financial statements.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. CREDIT FACILITIES , LONG-TERM DEBT AND NOTES PAYABLE:
Long-term debt and notes payable at January 31, 1997 and 1996 consisted of
the following
1997 1996
Industrial development revenue bonds $1,188,000 $1,262,000
Revolving credit facility 1,250,000 295,000
Acquisition loan 400,000 800,000
Mortgage note payable 904,000 978,000
Equipment loans 7,000 486,000
Note payable, related party 500,000
---------- ----------
4,249,000 3,821,000
Less current maturities 1,805,000 1,007,000
---------- ----------
Long-term debt and notes payable,
less current maturities $2,444,000 $2,814,000
========== ==========
The amount of long-term debt and notes payable maturing in each of the
fiscal years 1999, 2000, 2001 and 2002 approximates $147,000 annually.
INDUSTRIAL DEVELOPMENT REVENUE BONDS - The industrial development revenue
bonds are payable in quarterly principal and monthly interest installments
through December 2012 and bear interest at 90 percent of prime. The bonds
are collateralized by property, plant and equipment located in Clearwater,
Florida. The pledged collateral has a carrying value of approximately
$2,655,000 at January 31, 1997. The mortgage and underlying bonds may be
redeemed by the holder, in whole, at the principal amount plus accrued
interest on the 10th, 15th, or 20th anniversary date of the mortgage and
underlying bonds. If the tax exempt status of the bond is revoked or
impaired, certain portions could become immediately payable, or the
interest rate will be increased. In addition, the total of $1,262,000 is
subject to accelerated maturity.
REVOLVING CREDIT FACILITY - The Company has available a $2,000,000 line of
credit. Interest is payable monthly at prime and principal is payable on
demand. The line of credit agreement, which expires July 15, 1997, is
collateralized by equipment and receivables, and is subject to the same
covenants included in the Company's long-term debt agreements. The
collateralized assets had an approximate carrying value of $2,711,000 at
January 31, 1997. Approximately $750,000 of additional credit was available
under this facility at January 31, 1997. The weighted average interest rate
under this facility for the years ended January 31, 1997 and 1996 was 8.25%
and 8.81%, respectively.
The Company is required to maintain compensating bank balances equal to
five percent of total amounts available under the line of credit, plus five
percent of the outstanding borrowings.
ACQUISITION LOAN - The acquisition loan represents financing related to the
purchase of Avionics Specialties, Inc. The loan bears interest at prime
plus1/4percent and is payable in monthly installments through January 1998.
The loan is collateralized by equipment and receivables which have a
carrying value of $5,022,000 at January 31, 1997.
MORTGAGE NOTE PAYABLE - The mortgage note is payable in monthly
installments through May 2009, including interest at 7 1/2 percent through
May 1999 and prime plus 1 percent thereafter. The lender has a put option
exercisable in May 2001. The note is collateralized by substantially all
property, plant and equipment at the Avionics Specialties, Inc. location.
The collateralized property has a carrying value of approximately
$1,784,000 at January 31, 1997.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. CREDIT FACILITIES, LONG-TERM DEBT AND NOTES PAYABLE, CONTINUED:
EQUIPMENT LOANS - The Company has one outstanding equipment loan at January
31, 1997 totaling $7,000. The loan bears interest at prime plus1/4percent
and is payable in monthly installments through maturity in August 2000. The
loan was paid in full during February 1997.
An equipment loan which bore interest at prime plus1/4percent approximated
$412,000 at January 31, 1996. The loan was payable in monthly installments
through satisfaction during January 1997.
NOTE PAYABLE, RELATED PARTY - The note payable, related party consists of a
term loan owed to a shareholder of the Company. The loan, which is
uncollateralized, is payable in full at maturity during May 2001 and bears
interest at prime.
The Company's long-term debt agreements and the line of credit agreement
include certain restrictive covenants, including restrictions on dividends
(dividends during any single calendar year cannot exceed 25 percent of net
income for that year), limitations on business acquisitions and sales of
assets, and the maintenance of certain financial ratios as well as minimum
working capital and tangible net worth requirements, as defined.
The carrying amount of long-term debt and notes payable at January 31, 1997
approximates fair value. The prime rate of interest at January 31, 1997 was
8.25%.
8. DISCONTINUED OPERATIONS - SALE OF ORDNANCE DIVISION:
During June 1996, the Company sold substantially all assets of its ordnance
division. The sale, which totaled $1,700,000, resulted in a $41,000 gain.
Identifiable assets of approximately $2,076,000 at January 31, 1996
consisted primarily of property and equipment.
Information summarizing discontinued ordnance operations for the years
ended January 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net sales $ 945,000 $ 1,606,000 $ 6,620,000
=========== =========== ===========
Income (loss) from discontinued operations
before income taxes $ (293,000) $ (946,000) $ 120,000
Income tax benefit (expense) 94,000 353,000 (32,000)
----------- ----------- -----------
Net income (loss) from discontinued operations $ (199,000) $ (593,000) $ 88,000
=========== =========== ===========
</TABLE>
9. MAJOR CUSTOMER INFORMATION:
Sales to U. S. Government agencies, when combined, represented 10 percent
or more of net sales and amounted to $5,079,000, $5,193,000, and
$13,355,000 for the years ended January 31, 1997, 1996 and 1995,
respectively. Foreign sales for the years ended January 31, 1997, 1996 and
1995 represented 10 percent or more of net sales and amounted to
$6,208,000, $4,751,000, and $3,104,000 respectively. All foreign sales
contracts are payable in U.S. dollars therefore avoiding any foreign
currency exchange risk. Receivables, trade at January 31, 1997, included
approximately $863,000 in receivables due from U.S. Government agencies,
substantially all of which have been collected as of April 15, 1997.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. BENEFIT PLANS:
Effective February 1, 1993, the Company adopted a tax-deferred savings plan
which covers substantially all employees of the Company. Under the plan,
participants may elect to contribute up to 10% of pre-tax earnings. The
Company will fund a 100% matching contribution, up to 3% of the
participant's yearly compensation. Such matching contributions will be made
in cash or common stock of the Company. Additional contributions may be
made at the Company's discretion. For the years ended January 31, 1997,
1996 and 1995, the Company's contribution was $165,000, $145,000, and
$141,000, respectively. During the years ended January 31, 1997, 1996 and
1995, the Company issued 8,019, 7,799 and 10,810 shares of treasury stock,
respectively, in partial payment of the Plan. These stock contributions
were properly accounted for as non-cash transactions.
In March 1993, the Board of Directors adopted, subject to shareholder
approval, an Incentive Stock Option Plan, which provides for the granting
of 300,000 shares of the Company's authorized but unissued common stock to
key employees. Under the plan, options granted may be either incentive
stock options as defined by the Internal Revenue code, or non-qualified
stock options. Options may be granted at prices not less than fair market
value at the date of option grant. The option price for incentive stock
options granted to an optionee who possesses more than 10% total combined
voting power of value of the Company may not be less than 110% of the fair
market value at the date of option grant. The stock options will be
exercisable over a period determined by the Board of Directors, but no
longer than five years after the date they are granted.
As of January 31, 1994, options for 120,500 common shares were outstanding
at an exercise price of $3.00 per share, of which 13,500, 22,000 and 13,000
were canceled during the years ended January 31, 1997, 1996 and 1995,
respectively. There were no options granted during the years ended January
31, 1997, 1996 and 1995. As of January 31, 1997, no options had been
exercised and the remaining 72,000 options were fully vested and
exercisable.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation," establishes financial accounting and reporting
standards for stock-based employee compensation plans. This statement has
no financial accounting or reporting impact on the Company for the years
ended January 31, 1997 and 1996.
11. INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARY:
During the year ended January 31, 1995, the Company acquired 50% of the
outstanding stock of a newly formed corporate joint venture (A&M
Specialties, Inc.). The Company accounted for its investment using the
equity method of accounting; however, the investee generated nominal
earnings (less than $10,000) during the period ended January 31, 1995 and,
therefore, no adjustment of the Company's investment was made during that
period.
During the year ended January 31, 1995, the Company sold equipment to A&M
Specialties, Inc. for $160,000 in exchange for a note, which resulted in a
non-cash transaction.
During the year ended January 31, 1996, the Company sold its investment in
A&M Specialties, Inc., which resulted in a $48,000 gain.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. RELATED PARTY TRANSACTIONS:
The Company purchased painting services of approximately $14,000, and
$470,000 during the years ended January 31, 1996 and 1995, respectively,
from an entity owned by a shareholder and former Chief Executive Officer
and Chairman of the Board of Directors of the Company. The Company has
filed a lawsuit related to these services as described in Note 13.
During the year ended January 31, 1997, the Company obtained short-term
financing totaling $500,000 from a shareholder and officer. The loan, which
was fully repaid during the year, was non-interest bearing and
uncollateralized.
During the year ended January 31, 1997, the Company obtained long-term
financing from a shareholder totaling $750,000 at origination. Principal
repayments totaling $250,000 were made during the year. The terms of the
note are more fully described in Note 7.
13. COMMITMENTS AND CONTINGENCIES:
In 1993, the Company was named as a co-defendant in a patent infringement
suit filed by Sensonics Inc. claiming that the Company infringed Sensonics'
expired patent for an electromagnetical tapping device that the Company
used as a component part. During May 1996, the Company's Board of Directors
approved a proposed settlement of the lawsuit for $2,000,000. Pursuant to
this settlement, the Company recorded a $225,000, $960,000 and $815,000
provision for the settlement of litigation during the years ended January
31, 1997, 1996 and 1995, respectively. All amounts related to the
settlement were paid by the Company during the year ended January 31, 1997.
The Company was sued in September of 1996 by David S. Goldman, former
President and Chief Executive Officer of Aerosonic Corporation, for an
alleged breach of a consulting agreement between Mr. Goldman and the
Company. The suit seeks damages in excess of $15,000. The Company has filed
a motion to dismiss this action, which is currently under review. During
fiscal year 1997, the Company sued Mr. Goldman and Mil-Spec Finishers,
Inc., a former subcontractor to Aerosonic Corporation controlled by Mr.
Goldman, seeking damages in excess of $15,000, for alleged fraud and
misappropriation of funds, appropriation of corporate opportunity, breach
of fiduciary duty and conversion.
The Company is also involved in certain claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of the above matters will not have a material adverse effect on
the Company's financial position, results of operations, or liquidity.
At January 31, 1997, the Company was committed to future purchases
primarily for materials of approximately $2,070,000. At January 31, 1997,
the Company had an additional $79,000 letter of credit which guarantees
trade activities. The contract amount of all of the Company's letters of
credit is a reasonable estimate of their fair value, as the value for each
is fixed over the life of the commitment.
28
<PAGE>
(a) (3) Exhibits:
Exhibit 27 - Financial Data Schedule (Electronic filing only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
quarter ended January 31, 1997.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AEROSONIC CORPORATION
(Registrant)
By: /s/ J. Mervyn Nabors Date: April 28 ,1997
----------------------------- --------------
J. Mervyn Nabors, President
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of l934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ J. Mervyn Nabors
--------------------------------------
J. Mervyn Nabors Date: April 28 ,1997
President, Chief Executive Officer --------------
and Chairman of the Board
/s/ William C. Parker
--------------------------------------
William C. Parker Date: April 28 ,1997
Executive Vice President and Director --------------
/s/ David A. Baldini
--------------------------------------
David A. Baldini Date: April 28 ,1997
Vice President and Director --------------
/s/ Eric J. McCracken
--------------------------------------
Eric J. McCracken Date: April 28 ,1997
Chief Financial Officer and Director --------------
/s/ Richard A. Frank
--------------------------------------
Richard A. Frank Date: April 28 ,1997
Director --------------
/s/ Joseph P. Sherman
--------------------------------------
Joseph P. Sherman, Jr. Date: April 28 ,1997
Director --------------
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AEROSONIC CORPORATION FOR THE TWELVE MONTHS ENDED
JANUARY 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 1,250
<SECURITIES> 0
<RECEIVABLES> 3,495
<ALLOWANCES> 97
<INVENTORY> 7,286
<CURRENT-ASSETS> 12,551
<PP&E> 7,768
<DEPRECIATION> 3,277
<TOTAL-ASSETS> 17,215
<CURRENT-LIABILITIES> 4,062
<BONDS> 0
0
0
<COMMON> 1,595
<OTHER-SE> 8,532
<TOTAL-LIABILITY-AND-EQUITY> 17,215
<SALES> 20,232
<TOTAL-REVENUES> 20,232
<CGS> 13,225
<TOTAL-COSTS> 13,225
<OTHER-EXPENSES> 4,767
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 278
<INCOME-PRETAX> 1,729
<INCOME-TAX> (606)
<INCOME-CONTINUING> 1,123
<DISCONTINUED> (240)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 924
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
