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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, 1999 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
----- -----
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, 1999.
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<PAGE>
INDEX
AEROSONIC CORPORATION
Page No.
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PART 1. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets - 3
October 31, 1999 and January 31, 1999
Condensed Consolidated Statements of Income - 4
Three months ended October 31, 1999 and 1998
Condensed Consolidated Statements of Cash Flows - 5
Nine months ended October 31, 1999 and 1998
Notes to Condensed Consolidated Financial Statements - 6
October 31, 1999
Item 2. Management's Discussion and Analysis of 7 - 9
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
2
<PAGE>
PART 1. FINANCIAL INFORMATION
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Item 1. Consolidated Financial Statements
Aerosonic Corporation and Subsidiary
Consolidated Balance Sheets
<TABLE>
<CAPTION>
October 31,
1999 January 31,
(unaudited) 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash investments $ 1,254,000 $ 1,718,000
Accounts receivable 4,794,000 4,394,000
Income tax receivable 174,000 13,000
Inventory 9,816,000 8,888,000
Prepaid expenses 261,000 161,000
Deferred income tax benefit 524,000 391,000
------------ ------------
Total current assets 16,823,000 15,565,000
Property, plant and equipment, net 4,543,000 4,434,000
Other assets 655,000 418,000
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$ 22,021,000 $ 20,417,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt and notes payable $ 542,000 $ 328,000
Revolving credit facilities 2,320,000 2,140,000
Accounts payable, trade 1,497,000 987,000
Compensation and benefits 515,000 685,000
Income taxes payable 1,000 0
Other accrued expenses 252,000 228,000
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Total current liabilities 5,127,000 4,368,000
Long-term debt, less current installments 3,887,000 3,068,000
Deferred income taxes 233,000 231,000
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Total liabilities 9,247,000 7,667,000
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Shareholders' equity:
Common stock, $.40 par; 8,000,000 shares
authorized; 3,986,262 shares issued 1,595,000 1,595,000
Additional paid-in capital 4,440,000 4,335,000
Retained earnings 7,243,000 6,984,000
Less treasury stock, 76,393 shares at 1/31/98
and 57,963 shares at 10/31/99 (504,000) (164,000)
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Total shareholders' equity 12,774,000 12,750,000
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$ 22,021,000 $ 20,417,000
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</TABLE>
Note: The balance sheet at January 31, 1999 has been derived from the
audited financial statements at this date.
See Notes to Consolidated Financial Statements.
3
<PAGE>
Aerosonic Corporation and Subsidiary
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31 October 31
---------------------------------- ----------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 6,237,000 $ 4,748,000 $ 16,992,000 $ 14,964,000
Cost of goods sold 3,987,000 2,842,000 10,689,000 19,202,000
------------ ------------ ------------ ------------
Gross Profit 2,250,000 1,906,000 6,303,000 5,762,000
Selling, general and administrative
expenses 1,994,000 1,729,000 5,592,000 4,989,000
------------ ------------ ------------ ------------
Operating Income 256,000 177,000 711,000 773,000
------------ ------------ ------------ ------------
Other (income) deductions:
Interest expense, net 109,000 69,000 280,000 173,000
Other, net 38,000 27,000 12,000 (10,000)
------------ ------------ ------------ ------------
147,000 96,000 292,000 163,000
------------ ------------ ------------ ------------
Income before income taxes 109,000 81,000 419,000 610,000
Income tax expense 41,000 30,000 158,000 221,000
------------ ------------ ------------ ------------
Net Income $ 68,000 $ 51,000 $ 261,000 $ 389,000
============ ============ ============ ============
Earnings per share: $ 0.02 $ 0.01 $ 0.07 $ 0.10
============ ============ ============ ============
Basic weighted average shares outstanding 3,934,000 3,945,000 3,941,000 3,942,000
============ ============ ============ ============
Diluted weighted average shares outstanding 3,934,000 3,945,000 3,941,000 3,943,000
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
Aerosonic Corporation and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
October 31
-----------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 261,000 $ 389,000
Adjustment to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 518,000 470,000
Stock compensation 176,000 415,000
Change in deferred income taxes (133,000) (48,000)
Change in current assets & liabilities (1,220,000) (1,630,000)
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Net cash provided by (used in) operating activities (398,000) (404,000)
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Cash flows from investing activities:
Purchase of property, plant and equipment (702,000) (656,000)
Changes in other assets (237,000) (66,000)
Exercise of stock options 0 3,000
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Net cash provided by (used in) investing activities (939,000) (719,000)
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Cash flows from financing activities:
Proceeds from/(repayment on) long-term debt
and notes payable 1,213,000 1,088,000
Purchase of treasury stock (340,000) 0
Repayment of related party notes payable 0 (225,000)
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Net cash provided by (used in) financing activities 873,000 863,000
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Net (decrease) in cash and cash investments (464,000) (260,000)
Cash and cash investments, beginning of period 1,718,000 2,075,000
----------- -----------
Cash and cash investments, end of period $ 1,254,000 $ 1,815,000
=========== ===========
Cash paid for:
Interest $ 351,000 $ 230,000
=========== ===========
Income taxes $ 139,000 $ 1,000
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</TABLE>
See notes to consolidated financial statements
5
<PAGE>
AEROSONIC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 31, 1999
NOTE A - BASIS OF PRESENTATION
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The accompanying unaudited condensed consolidated 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, 1999 are not
necessarily indicative of the results that may be expected for the year ended
January 31, 2000. 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, 1999.
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, 1999, 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. 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, 1999 the company had utilized all amounts originally
recorded in Other accrued expenses, and phase-one remediation has been
completed. Management believes that any additional liability for any further
remediation will not have a material affect on the financial position of the
company.
NOTE C - WEIGHTED AVERAGE COMMON SHARES AND COMMON EQUIVALENTS OUTSTANDING
COMPUTATION OF EARNINGS PER SHARE
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
October 31, October 31, October 31, October 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic weighted average common
shares outstanding 3,934,000 3,945,000 3,941,000 3,942,000
Weighted average common equivalents 0 0 0 1,000
--------- --------- --------- ---------
Shares used in diluted EPS calculation 3,934,000 3,945,000 3,941,000 3,943,000
</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, 1999 increased by
31% to $6,237,000 as compared to $4,748,000 for the same period in the preceding
year. For the nine months ended October 31, 1999, net sales increased by 14% to
$16,992,000 from $14,964,000 in the prior year period.
Gross profit as a percentage of net sales equaled 36% in the third quarter of
FY2000 versus 40% during the same period in the prior year. This decrease is
largely the result of higher-than-average sales of a lower margin product, where
a certain OEM customer required expedited deliveries in the third quarter of FY
2000. For the nine months ended October 31, 1999 the gross profit margin equaled
37% as compared to 39% in the prior year period.
Selling, General and Administrative expenses increased during the third quarter
ended October 31, 1999 to $1,994,000 as compared to $1,729,000 during the same
period in the prior fiscal year. However, as a percentage of net sales S,G&A
declined to 32% from 36% in the prior year period. For the nine months ended
October 31, 1999 S,G&A increased to $5,592,000 from $4,989,000 in the prior year
period and as a percentage of net sales remained stable at 33% versus the prior
year period.
Interest expense totaled $109,000 for the three months ended October 31, 1999
versus $69,000 during the same period in the preceding year. For the nine months
ended October 31, 1999 interest expense totaled $280,000 versus $173,000 in the
prior year period. The increase is due primarily to increased short and
long-term borrowings.
For the third quarter ended October 31, 1999 the Company recorded a net profit
of $68,000, or $0.02 per share, compared to a net profit of $51,000, or $0.01
per share during the same period in the preceding year. For the nine months
ended October 31, 1999 the Company's net profit equaled $261,000, or $0.07 per
share as compared to $389,000, or $0.10 per share during the prior year period.
Working capital equaled $11,696,000 at October 31, 1999 and the Company's
current ratio approximated 3.28:1. Significant sources of cash during the first
nine months of FY 2000 included funds generated from borrowings under the
Company's credit facilities and funds generated from operations. Significant
uses of cash during the same period included increases in accounts receivable
and inventory. The purchase of property and equipment comprised the majority of
other uses of cash during the nine months ended October 31, 1999. 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
<PAGE>
YEAR 2000
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
- -------
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, 1999,
all upgrades provided by software vendors, which include compliance and
certification with the Year 2000 issue, have been installed and tested to ensure
compliance with the Year 2000 issue.
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, 1999, 100% of all key vendors and
approximately 95% of all other vendors questioned completed the questionnaire
and certified that they are either in compliance or will be in compliance prior
to the year 2000.
Costs
- -----
The total costs associated with required modifications to become Year 2000
compliant have not been material to the Company's financial position to date.
Additionally, anticipated costs to complete the Year 2000 project are not
anticipated to be material to the Company's financial position. Arrangements
with all software vendors include free upgrades on an ongoing basis, which
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 as management level review of the
results are not expected to materially impact the financial position of the
Company.
8
<PAGE>
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. Aerosonic Corporation believes that the most
reasonably likely worst case scenario would be business interruptions with
trading partners due to problems inherent in their own systems. This problem is
not anticipated to have a significant impact given that the Company trades with
a high number of vendors and customers, thereby minimizing its exposure to any
one trading partner.
Contingency plan
- ----------------
Aerosonic Corporation's contingency plan has been completed and includes a team
to monitor all critical systems through significant date transitions, focusing
primarily on minimizing risks associated with the Company's trading partners.
The team is also prepared to promptly respond to any problems if they arise.
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 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
<PAGE>
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, 1999.
10
<PAGE>
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
---------------------
(Registrant)
Date: December 15, 1999
----------------- -----------------------------------
Eric J. McCracken
Executive Vice President
and Chief Financial Officer
11
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<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000109471
<NAME> Aerosonic Corporation
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<PERIOD-START> FEB-01-1999
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