FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED October 31, 1998 COMMISSION FILE NO. 0-4988
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AEROSONIC CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 74-1668471
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1212 No. Hercules Avenue, Clearwater, Florida 33765
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(Address of principal executive offices) (Zip Code)
(727) 461-3000
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(Registrant's telephone number, including Area Code)
Non applicable
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 ___
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.40 per share, 3,986,262 number of shares as of October
31, 1998.
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INDEX
AEROSONIC CORPORATION
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Page No.
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PART 1. FINANCIAL INFORMATION
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Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - 3
October 31, 1998 and January 31, 1998
Consolidated Statements of Income - 4
Three and nine months ended October 31, 1998 and 1997
Consolidated Statements of Cash Flows - 5
Nine months ended October 31, 1998 and 1997
Notes to Consolidated Financial Statements - 6
October 31, 1998
Item 2. Management's Discussion and Analysis of 7 - 9
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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2
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PART 1. FINANCIAL INFORMATION
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Item 1. Consolidated Financial Statements
Aerosonic Corporation and Subsidiary
Consolidated Balance Sheets
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<CAPTION>
October 31,
1998 January 31
(unaudited) 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash investments $ 1,815,000 $ 2,075,000
Accounts receivable 4,214,000 3,348,000
Inventory 8,365,000 8,057,000
Costs and estimated earnings in excess of billings on uncompleted
contract 48,000 48,000
Prepaid expenses 495,000 36,000
Deferred income tax benefit 639,000 314,000
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Total current assets 15,576,000 13,878,000
Property, plant and equipment, net 4,560,000 4,369,000
Other assets 134,000 68,000
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$ 20,270,000 $ 18,315,000
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt and notes payable $ 1,532,000 $ 196,000
Accounts payable, trade 925,000 409,000
Compensation and benefits 546,000 619,000
Income taxes payable 72,000 836,000
Other accrued expenses 755,000 662,000
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Total current liabilities 3,830,000 2,722,000
Long-term debt, less current installments 3,128,000 3,376,000
Note payable, related party 0 225,000
Deferred income taxes 491,000 214,000
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Total liabilities 7,449,000 6,537,000
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Shareholders' equity:
Common stock, $.40 par; 8,000,000 shares
authorized; 3,986,262 shares issued 1,595,000 1,595,000
Additional paid-in capital 4,322,000 3,684,000
Retained earnings 7,021,000 6,631,000
Less treasury stock, 76,393 shares at 1/31/98
and 37,159 shares at 10/31/98 (117,000) (132,000)
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Total shareholders' equity 12,821,000 11,778,000
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$ 20,270,000 $ 18,315,000
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Note: The balance sheet at January 31, 1998 has been derived from the
audited financial statements at this date.
See Notes to Consolidated Financial Statements.
3
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Aerosonic Corporation and Subsidiary
Consolidated Statements of Income (Unaudited)
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Three Months Ended Nine Months Ended
October 31 October 31
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1998 1997 1998 1997
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Net sales $ 4,748,000 $ 4,240,000 $ 14,964,000 $ 14,460,000
Cost of goods sold 2,842,000 2,617,000 9,202,000 9,260,000
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Gross Profit 1,906,000 1,623,000 5,762,000 5,200,000
Selling, general and administrative
expenses 1,729,000 1,359,000 4,989,000 4,044,000
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Operating Income 177,000 264,000 773,000 1,156,000
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Other (income) deductions:
Interest expense, net 69,000 47,000 173,000 195,000
Other, net 27,000 (151,000) (10,000) (148,000)
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96,000 (104,000) 163,000 47,000
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Income before income taxes 81,000 368,000 610,000 1,109,000
Income tax expense 30,000 140,000 221,000 397,000
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Net Income $ 51,000 $ 228,000 $ 389,000 $ 712,000
============= ============= ============= ============
Earnings per share: $ 0.01 $ 0.06 $ 0.10 $ 0.18
============= ============= ============= ============
Basic weighted average shares outstanding 3,945,000 3,909,000 3,942,000 3,909,000
============= ============= ============= ============
Diluted weighted average shares outstanding $ 3,945,000 3,909,000 3,943,000 3,909,000
============= ============= ============= ============
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See Notes to Consolidated Financial Statements
4
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Aerosonic Corporation and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
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Nine Months Ended
October 31
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1998 1997
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Cash flows from operating activities:
Net income $ 389,000 $ 712,000
Adjustment to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 470,000 413,000
Stock compensation 415,000 0
Change in deferred income taxes (48,000) (138,000)
Change in current assets & liabilities (1,630,000) (685,000)
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Net cash provided by (used in) operating activities (404,000) 302,000
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Cash flows from investing activities:
Purchase of property, plant and equipment (656,000) (369,000)
Changes in other assets (66,000) 100,000
Exercise of stock options 3,000 173,000
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Net cash provided by (used in) investing activities (719,000) (96,000)
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Cash flows from financing activities:
Proceeds from/(repayment on) long-term debt
and notes payable 1,088,000 (140,000)
Repayment of related party notes payable (225,000) (200,000)
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Net cash provided by (used in) financing activities 863,000 (340,000)
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Net (decrease) in cash and cash investments (260,000) (134,000)
Cash and cash investments, beginning of period 2,075,000 1,250,000
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Cash and cash investments, end of period $ 1,815,000 $ 1,116,000
================= ================
Cash paid for:
Interest $ 249,000 $ 230,000
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Income taxes $ 1,099,000 $ 1,000
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See notes to consolidated financial statements
5
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AEROSONIC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
October 31, 1998
NOTE A - BASIS OF PRESENTATION
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The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and with the instructions to form 10-Q of regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended October 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended January 31,
1999. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on form 10-K for
the year ended January 31, 1998.
NOTE B - ENVIRONMENTAL MATTERS
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As reported in the annual report on form 10-K for the fiscal year ended January
31, 1998, in accordance with a consent agreement signed by the Company in 1993,
the Company's environmental consultant has developed an interim remedial action
plan to contain and remediate certain contamination on and underlying the
Company's property. This plan was submitted to the Florida Department of
Environmental Protection (FDEP) in 1997 and is currently under review and
discussion. During 1997, the company recorded a provision of approximately
$175,000 related to the estimated costs to be incurred under this plan. As of
October 31, 1998, the company has a remaining liability of approximately $59,000
recorded in Other accrued expenses to cover future environmental expenditures
related to the remediation of this site. Before approval of the plan, the FDEP
may require further assessment and testing. Company management believes that any
additional liability in excess of amounts accrued at October 31, 1998 will not
have a material affect on the financial condition of the company.
NOTE C - WEIGHTED AVERAGE COMMON SHARES AND COMMON EQUIVALENTS OUTSTANDING
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COMPUTATION OF EARNINGS PER SHARE
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<CAPTION>
For the three months ended For the nine months ended
October 31, October 31, October 31, October 31,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Basic weighted average common
shares outstanding 3,945,000 3,909,000 3,942,000 3,909,000
Weighted average common equivalents 0 0 1,000 0
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Shares used in diluted EPS calculation 3,945,000 3,909,000 3,943,000 3,909,000
</TABLE>
6
<PAGE>
PART 1. FINANCIAL INFORMATION
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
Company wide net sales for the three months ended October 31, 1998 increased by
12% to $4,748,000 as compared to $4,240,000 for the same period in the preceding
year. Net sales for the nine months ended October 31, 1998 increased by 3% to
$14,964,000 as compared to $14,460,000 for the same period last year.
Net sales for the Clearwater and Kansas Instrument Divisions for the quarter
ended October 31, 1998 totaled $2,431,000 which represents a $106,000 or 5%
increase from the same period in the prior year. Sales for Avionics Specialties
for the quarter ended October 31, 1998 were $2,317,000, a $402,000 or 21%
increase over the same period in the prior fiscal year.
Gross profit as a percentage of net sales improved to 40% in the third quarter
of FY1999 versus 38% during the same period in the prior year. During the nine
months ended October 31, 1998 gross profit as a percentage of net sales improved
to 39% versus 36% during the same period in the prior year. The improvement is
the result of management's continued focus on improving its manufacturing
processes and focus of its sales efforts toward its most highly profitable
product lines.
Selling, General and Administrative expenses increased during both the third
quarter and nine months ended October 31, 1998 due primarily to increased
research and development expenditures. These increased R&D expenditures were
part of the Company's business plan and related to the continued development of
new programs including the new Precision Components Division as well as several
new programs under development at Avionics Specialties, Inc. and the new line of
two-inch instrumentation.
Interest expense totaled $69,000 for the three months ended October 31, 1998
versus $47,000 during the same period in the preceding year. The increase is due
primarily to increased long-term borrowings related to the startup of the new
Precision Components Division. For the third quarter ended October 31, 1998 the
Company recorded a net profit of $51,000, or $0.01 per share. Through the nine
months ended October 31, 1998, the company recorded a net profit of $389,000, or
$0.10 per share.
Working capital increased to $11,746,000 during the nine months ended October
31, 1998 and the Company's current ratio approximated 4.07:1. Significant
sources of cash during the first nine months included funds generated from
operating activities and borrowings under the Company's credit facilities.
Significant uses of cash included a $1,099,000 payment of federal and state
income tax liabilities, which included all of FY'98 and the first nine months of
FY'99. The purchase of property and equipment and repayment of related party
notes payable comprised the majority of other uses of cash. Company management
anticipates that cash flow from operations, existing cash balances and the
availability under the Company's line of credit arrangement will be sufficient
to fund future growth.
7
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YEAR 2000 UPDATE
General
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Aerosonic Corporation's company-wide Year 2000 Project (Project) is proceeding
on schedule. The Project is addressing the issue of computer programs being able
to distinguish between the year 1900 and the year 2000. Since 1995, the Company
has purchased and utilized generic software programs supplied by vendors for its
accounting, manufacturing and payroll functions. Embedded in the cost of these
computer programs from the various vendors, were free software upgrades to
include Year 2000 capabilities.
Project
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Aerosonic's Project is divided into three major sections; software embedded in
products sold to customers, infrastructure (applications software and associated
hardware) and key vendor certifications.
Software developed for use in various product lines has been upgraded to
accommodate the Year 2000 issue. Production deliveries have commenced on
products with the upgraded software. Therefore, Company Management believes that
the Year 2000 issue will not have a material impact on product sales.
Software programs utilized by the Company in its Manufacturing, Accounting and
Payroll functions were all purchased by third-party vendors and included
upgrades for, among other things, the Year 2000 issue. As of October 31, 1998,
all upgrades provided by software vendors, which include compliance with the
Year 2000 issue, have been installed and are undergoing testing to ensure
compliance with the Year 2000 issue. Management expects to complete the testing
of all upgraded software by January 31, 1999.
In May 1998, questionnaires requiring vendor certifications were sent to all key
vendors. These certifications address issues primarily related to the Vendors'
ability to provide uninterrupted service or product flow to the Company into the
new millennium. As of October 31, 1998, approximately 63% of all vendors
questioned completed the questionnaire and certified that they are either in
compliance or will be in compliance prior to the year 2000.
Costs
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The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to the Company's financial position.
Arrangements with all software vendors included free upgrades on an ongoing
basis, to include upgrades for the Year 2000 issue. Incidental costs such as
clerical labor to perform testing of upgraded software, postage and clerical
labor to administer the vendor questionnaires as well management level review of
the results are not expected to materially impact the financial position of the
Company.
8
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Risks
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The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party vendors and customers, the
Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Year 2000 Project is expected
to significantly reduce the Company's level of uncertainty about the Year 2000
problem and, in particular, about the Year 2000 compliance and readiness of its
material external agents. The Company believes that, with the completion of the
Project as scheduled, the possibility of significant interruptions of normal
operations should be reduced.
FORWARD LOOKING STATEMENTS
This document contains statements that constitute "forward-looking " statements
within the meaning of the Securities Act of 1933 and the Securities Act of 1934,
as amended by the Private Securities Litigation Reform Act of 1995.
"Forward-looking" statements contained in this document include the intent,
belief or current expectations of the Company and its senior management team
with respect to the future prospects of the Company's operations, and belief
concerning profits from future operations and the Company's overall future
business prospects, as well as the assumptions upon which such statements are
based. Investors are cautioned that any such forward-looking statements are not
guarantees of future performance, and involve risks, and that actual results may
differ materially from those contemplated by such forward-looking statements.
Important factors currently known to management that could cause actual results
to differ materially from those contemplated by the forward-looking statements
in this document include, but are not limited to, adverse developments with
respect to the operations of the Company's business units, failure to meet
operating objectives or to execute the business plan, and the failure to reach
revenue or profit projections. The Company undertakes no obligation to update or
revise the forward-looking statements contained in this document to reflect
changed assumptions, the occurrence of unanticipated events or changes to future
operating results over time.
9
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PART II. OTHER INFORMATION
AEROSONIC CORPORATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on form 8-K
The company did not file any report on form 8-K during the
three months ended October 31, 1998.
10
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AEROSONIC CORPORATION
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(Registrant)
Date: December 14, 1998
/s/ Eric J. McCracken
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Eric J. McCracken
Executive Vice President
and Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Jan-31-1999
<PERIOD-START> Feb-01-1998
<PERIOD-END> Oct-31-1998
<CASH> 1,815,000
<SECURITIES> 0
<RECEIVABLES> 4,214,000
<ALLOWANCES> 57,000
<INVENTORY> 8,365,000
<CURRENT-ASSETS> 15,576,000
<PP&E> 8,849,000
<DEPRECIATION> 4,289,000
<TOTAL-ASSETS> 21,005,000
<CURRENT-LIABILITIES> 3,830,000
<BONDS> 0
1,595,000
0
<COMMON> 0
<OTHER-SE> 11,962,000
<TOTAL-LIABILITY-AND-EQUITY> 21,005,000
<SALES> 14,964,000
<TOTAL-REVENUES> 14,964,000
<CGS> 9,202,000
<TOTAL-COSTS> 9,202,000
<OTHER-EXPENSES> 4,979,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 173,000
<INCOME-PRETAX> 610,000
<INCOME-TAX> 221,000
<INCOME-CONTINUING> 389,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
