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, 2002
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 33765
(Address of principal executive offices)
(Zip Code)
Registrant's telephone no., including area code: (727) 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 Valcue $.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 24, 2002, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $67,892,000.
As of April 24, 2002, the issuer had 3,919,845 shares of Common Stock
outstanding, net of treasury shares.
________________________________________________________________________________
Documents Incorporated by Reference
Document Part of 10K
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Proxy Statement for the 2002 Part II, Items 10, 11, 12 and 13
Annual Meeting of Stockholders
PART I
THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH ARE INTENDED TO BE COVERED BY
THE SAFE HARBORS CREATED THEREUNDER. FORWARD-LOOKING STATEMENTS CAN BE
IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL,"
"SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE," "CONTINUE," "PLANS" AND "INTENDS."
ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE FORWARD-
LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE, ANY OF THE ASSUMPTIONS COULD
BE INACCURATE AND THEREFORE, 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 HEREIN IN "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Item l. Business.
--------
Aerosonic Corporation ("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 Company is principally engaged in one business segment: The manufacture of
aircraft instruments ("Instruments"). The Company consists of three
geographical locations and four operating divisions. The divisions are; the
Clearwater, Florida Instrument Division ('Clearwater Instruments"), the
Aerosonic Wichita, Kansas Division ("Kansas Instruments"), Avionic Specialties,
Inc. ("Avionics"), a Virginia Corporation wholly owned by the Company and
Precision Component Division ("Precision Components").
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.
Kansas Instruments is the source inspection location for our Wichita customers
and is the primary location for Clearwater Instruments' repair business.
Avionics was a division of Teledyne Industries, Inc. prior to its acquisition by
Aerosonic Corporation in January 1993. Avionics maintains three major product
lines in the aircraft instrument segment: 1) Angle of Attack ("AOA")/Stall
Warning Systems; 2) Integrated Multifunction Probe (IMFP), an integrated air
data sensor; and 3) Engine Vibration Monitoring System (EVMS), an aircraft
health and usage monitor. In August 1998, the Company formed a new division
entitled Precision Components, to perform precision high volume machining of
mechanical components, which was not significant to operations in fiscal year
2002, 2001 or 2000.
2
Industry
A wide range of information, including airspeed, altitude and fuel levels, is
critical for the proper and safe operation of an aircraft.
Redundant systems are a vital element of aircraft design and safety. The Company
is an industry leader in the manufacturing of mechanical instrument systems.
These instruments are used both for primary flight data and standby redundant
instruments in cockpits that use electronic displays for primary flight data.
Mechanical instruments operate completely independent of the aircraft's primary
electrical system, which is used to power the computer based display panels.
Pilots find comfort in being able to check operation and accuracy of the
displays against the reliable independent mechanical device.
The Company's three-inch product line was industry standard for many years. The
additional information now available in the cockpit has made panel space more
valuable. This has opened a new opportunity for smaller two-inch standby
instruments. The Company has a full line of two-inch instruments that benefit
the aircraft in space and weight.
Pilots use air data for a number of important purposes, including maintaining
safe separation from other aircraft. Until recently, aircraft on a similar
flight path at altitudes exceeding 29,000 feet have been required to maintain a
vertical separation of at least 2,000 feet. As air travel has increased, U.S.
and international aviation organizations have sought ways to increase traffic
flow on high traffic routes. Reduced vertical separation minimums ("RVSM") have
adopted a vertical separation of 1,000 feet on certain highly traveled routes.
Safe travel on RVSM routes requires that an aircraft's altimeter and test
equipment associated with the altimeter is extremely accurate. The Company
manufactures an Air Data Test Set that exceeds the tight tolerances of the new
RVSM requirements. The technology used to develop this test equipment is
adaptable for use in an electronic based altimeter system. RVSM is mandated
between 29,000 and 41,000 feet and scheduled to be implemented worldwide by
2005.
Strategy
The Company's goal is to continue to reposition its products for profitable
growth by maintaining dominance within niche markets. The Company intends to
focus on the development of profitable long-term contracts. New aircraft
cockpits are increasingly being developed through strategic alliances with
market leaders. The Company is well positioned to take advantage of these
strategic alliances. Expected sales increases will be derived through new
product introduction and further penetration of existing markets. The Company
continues to hold a competitive advantage derived from its philosophy of
vertical integration. The Company is more than 80% vertically integrated.
3
Products and Distribution
The Company's products are sold to manufacturers of commercial and private
aircraft, both domestic and foreign, and the U.S. military services. For the
fiscal year ended January 31, 2002, approximately 60% of the Company's total
sales were to the private sector and 40% to military services. Domestic sales
of the Company's products are made to many different commercial (non-government)
customers. During fiscal year 2002, there was only one commercial customer
representing over 10% of total revenues. The aggregate percentage of foreign
sales were 26%, 23% and 31% for the fiscal years ended January 31, 2002, 2001
and 2000 respectively.
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 distributors (who resell to
aircraft operators).
The Company produces a full line, of both three- and two-inch, mechanical and
electro-mechanical cockpit instruments. These instruments require no backup
power, as they transfer valuable flight data to the pilot using only the air
pressure (from the aircraft probes) as a power source. The company also
manufactures a state of the art Air Data Test Set used by aircraft OEMS, repair
centers and the US Military.
The Integrated Multifunction Probe (IMFP) is a combination of existing
technologies: the Angle of Attack/Air Data Sensing Probe and pressure sensing
electronics. This integrated approach to providing aircraft air data reduces
the customers' system complexity on aircraft troubleshooting and logistics
support while increasing reliability and decreasing system costs.
The Engine Vibration Monitoring System (EVMS) is an onboard aircraft health and
usage monitoring system. This system provides the user with useful data as to
the health of the aircraft as well as the ability to assess engine/system
performance against manufacturer standards.
The Angle of Attack (AOA)/Stall Warning product line has undergone a redesign of
its basic components. The Combined Stall Warning Transmitter takes existing
technologies of AOA and Stall Warning and combines them into a single TSO C54
Stall Warning Transmitter. This combined instrument dramatically reduced the
system weight and increased the system reliability.
Precision Components operates as a high-volume, high-precision machining
operation. Products produced by Precision Components are a variety of
mechanical parts primarily related to the optics industry. Some of the products
include the mechanical components for rifle scopes, printing presses,
microscopes and tank gun sights. The majority of the products produced by the
division are under long-term agreements.
4
Customers
The Company primarily markets its products to the original equipment
manufacturers (OEMs), particularly the manufacturers of corporate and private
jets as well as contractors of military jets. Customers include, among others,
the United States government and the majority of OEM's throughout the world.
The Company's products reach the private aircraft owners through our network of
authorized distributors.
Contracts
The Company's contracts are normally for production or development. Production
contracts are typically fixed-price over a three to five year period.
Fixed-price contracts provide for a firm fixed price on a variety of products
and quantities of those products. These contracts allow the Company to
negotiate better overall prices that fit into customers production programs.
These long-term commitments also allow the Company to capitalize on quantity
based price reduction for raw materials. Under the firm fixed-price contracts,
the Company agrees to perform for an agreed-upon price. Accordingly, the Company
derives benefits from cost savings, but bears the risk of cost overruns.
Development contracts provide resources for technology advancement necessary for
development of various products. The Company negotiates for and generally
receives progress payments from customers that correlate with the costs
incurred. Early in FY 2003, notification was received that a derivative of the
IMFP had been selected for use on the Joint Strike Fighter (JSF). The
requirements for JSF probe will require a new design based on the IMFP with
development beginning in FY 2003.
Sales and Marketing
The Company has generally focused sales efforts on government and military
entities, OEMs and resellers. The Company intends to increase sales efforts with
respect to retrofit, modifications and repair programs.
The Company, due to the system impact of its components, is involved at a very
early stage with the aircraft manufacturer's engineers to implement its system
into the aircraft design. All components are integrated to the safe operation
of the airplane.
In several segments of the worldwide market, the Company uses distributors and
representatives to enhance its customer contact and broaden technical scope.
The Company also makes use of dealers, where appropriate, to streamline the
handling of spare parts orders.
In January of fiscal year 2001, the Company moved the repair operation to the
Kansas facility. The Company believes this will improve its ability to provide
prompt and effective repair and upgrade service.
5
Government Regulation
The manufacture and installation of the Company's products in aircraft owned and
operated in the United States is governed by U.S. Federal Aviation
Administration (FAA) regulations. The most significant of these regulations, to
the Company, is the Technical Standard Order (TSO) and Type Certificate (TC) or
supplemental Type Certificate (STC) certifications. TSO outlines the minimum
standards that a certain type of equipment has to meet to be TSO certified.
Many OEMs and Retrofitters prefer TSO-certified aviation equipment because it
acts as an industry-wide stamp of approval. The Company also sells its products
to European and other non-US OEMs, which typically require approval from the
Joint Aviation Authorities (JAA).
The Company holds TSO approval on over 400 different instruments. This provides
a significant advantage to the Company and its customers in reducing the time
required obtaining TSO approval on new instruments. Most new instruments
qualify for approval based on similarity. The Company also has many instruments
with JAA approval.
With respect to RVSM air data products, the FAA also requires that these
products be RVSM-certified before they are used in flight. This certification
process may be undertaken in conjunction with the TC/STC certification process.
RVSM certification requires ground and flight tests and an analysis of flight
data to ensure the accuracy, reliability, system safety and mean time between
failure rates of the product. The RVSM certification process typically lasts one
to three months.
Quality Assurance
Product quality is imperative to the aviation industry. The Company strives to
maintain the highest standards within each of the divisions.
The Company is recognized by Lockheed as a Star Supplier and by Boeing as a Q100
supplier. The Q100 program uses multilevel criteria to identify the top 100
worldwide suppliers to the Boeing Company.
The Company is ISO 9001 certified. ISO 9001 standards are an international
consensus on effective management practices for ensuring that a company can
consistently deliver its products and related services in a manner that meets or
exceeds customer quality requirements. ISO 9001 standards outline the minimum
requirements a quality system must meet to achieve this certification. As an
ISO 9001-certified manufacturer, the Company can represent to its customers that
it maintains high quality industry standards in the education of employees and
the design and manufacture of its products. In addition, the Company's products
undergo extensive quality control testing prior to being delivered to customers.
As part of the Company's quality assurance procedures, the Company maintains
detailed records of test results and quality control processes.
6
Patents and Licenses
The Company has patents on certain commercial and military products such as air
data probes. The Company also has certain registered trademarks. The patents
and intellectual property portfolio, in the aggregate, is valuable to
operations, however the Company does not believe the business, as a whole, is
materially dependent on any single patent, trademark or copyright.
Research and Development
The Company expended approximately $1,022,000, $780,000 and $801,000 in research
and development costs for potential new products and enhancements during the
fiscal years 2002, 2001 and 2000. There are approximately 25 engineers working
at the Company, on a full- or part-time basis, involved in these activities.
Research at Avionics Specialties in fiscal 2002 was primarily concerned with the
development and qualification of the Integrated Multi Function Probe (IMFP).
Discussions with the European JAA certification authorities revealed that they
require new and very severe icing tests for all new certifications. The severity
of these new requirements has required a substantial effort to evaluate and have
also required a change in the IMFP heater design during the past year.
Qualification of the IMFP for Military programs, including icing, is nearing
completion with the civilian (FAA/JAA) qualification tests to follow. Flight-
testing of the military versions on the US F-16 and the Korean T-50 will
commence early in FY 2003. A third customer for the military version of the IMFP
was added during FY 2002 when it was selected for use on the Aermacchi MB339
trainer aircraft. Early in FY 2003, notification was received that a derivative
of the IMFP had been selected for use on the Joint Strike Fighter (JSF). The
requirements for JSF probe will require a new design based on the IMFP with
development beginning in FY 2003. The completion of the IMFP development and the
start of the JSF probe development will be the focus of the majority of the
Research and Development activities in the next year.
During the past year, the combined stall warning and angle of attack transmitter
(SWTx) and the Engine and Vibration Monitoring System (EVMS) continued to have
new development activities related to their use on new aircraft types. The SWTx
will be under development for use on the British Aerospace Nimrod and Swearingen
SJ-30 aircraft. Initial hardware and software for these programs has been
delivered and they will both have continuing flight test this year. A new
program to develop an Angle of Attack transmitter with digital output and self
test but without stall warning capability has also begun with Gulfstream
Aerospace as the initial customer. This new program and continuing development
of the SWTx and EVMS for new aircraft will account for the remainder of the
development effort in FY 2003.
The Company continued development of enhancements to its existing product line.
Product enhancement activities included software enhancements for the air data
test set to meet a market demand for additional functionality.
7
Competition
The markets for the Company's products are highly competitive and characterized
by several industry niches in which a number of manufacturers specialize. 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.
The Company believes that the principal competitive factors are price,
development cycle time, responsiveness to customer preferences, product quality,
technology, reliability and variety of products. Management believes that the
Company's significant and long-standing customer relationships reflect its
ability to compete favorably with respect to these factors.
Manufacturing, Assembly and Material Acquisition
The Company's manufacturing processes, excluding certain electronic products,
includes manufacturing principally all components and subassemblies for the
instruments, the assembly of those components and testing of products at various
stages in the manufacturing and assembly process.
The Company manufactures or has the capability to manufacture, principally all
components and subassemblies for the instruments. Raw materials, such as, glass
lenses, raw metals and castings are generally available from a number of sources
and in sufficient quantities to meet current requirements, subject to normal
lead times. The Company believes that retaining the ability to completely
manufacture the instruments allows the Company the flexibility to respond to
customers quickly and control the quality of its products.
When appropriate, less critical component parts are purchased under short and
long term supply agreements. These purchased parts are normally standard parts
that can be easily obtained from a variety of suppliers. This allows the
company to lower overhead expenses and maintain control required to meet the
exacting tolerances demanded in the industry.
Employees
As of the fiscal year ended January 3l, 2002, the Company employed approximately
264 employees in its business operations. This consisted of 128 Clearwater
Instrument employees, 10 Kansas Instrument employees, 114 Avionics employees and
12 Precision Component employees. The Company's future success depends on the
ability to attract, train and retain quality personnel. The Company's employees
are not represented by labor unions and Management regards its relations with
its employees to be good.
8
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, which is used by
both Clearwater Instruments and the Precision Components, is mortgaged in
accordance with an Industrial Revenue Bond executed in l988. (See Note 6,
"Financial Statements".)
The Charlottesville, Virginia property was purchased from Teledyne Industries in
April 1994 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.
9
Item 3. Legal Proceedings.
-----------------
The Company remains involved in litigation with its former President and Chief
Executive Officer, David Goldman and his company Mil-Spec Finishers, Inc. The
Case was originally scheduled to go to trial in June of 2001. However, Mr.
Goldman and Mil-Spec Finishers filed Chapter 7 Bankruptcy on May 25, 2001.
Accordingly, all actions pending in the litigation were automatically stayed
pursuant to the bankruptcy code. The Company has elected to pursue Mr. Goldman
and Mil-Spec Finishers, Inc. in the Bankruptcy Court.
Additionally, from time to time the Company can be involved in certain claims
and legal actions arising in the ordinary course of business. In the opinion of
management, at this time there are no claims or legal actions that will 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.
10
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, 2002 and January 3l, 2001 is as follows:
Fiscal Year Ended January 31, 2002
----------------------------------
Quarter Bid Bid
----------------------------------------------------------------------
1 High 16.750 Low 12.000
----------------------------------------------------------------------
2 High 19.750 Low 16.250
----------------------------------------------------------------------
3 High 20.500 Low 18.010
----------------------------------------------------------------------
4 High 21.350 Low 18.400
----------------------------------------------------------------------
Fiscal Year Ended January 31, 2001
----------------------------------
Quarter Bid Bid
----------------------------------------------------------------------
1 High 11.130 Low 9.125
----------------------------------------------------------------------
2 High 10.640 Low 9.125
----------------------------------------------------------------------
3 High 10.440 Low 8.125
----------------------------------------------------------------------
4 High 12.500 Low 9.875
----------------------------------------------------------------------
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 24, 2002, the Company's outstanding shares of common stock were
owned by approximately 2,165 shareholders of record.
11
Item 6. Selected Financial Data.
-----------------------
The following selected financial data for the five years in the period ended
January 31, 2002 have been derived from the Company's Consolidated Financial
Statements.
Years Ended January 31,
-----------------------
2002 2001 2000 1999 1998
------------------- ------------------ ------------------ ----------------- ------------------
Revenue $ 27,424,000 $ 24,672,000 $ 23,271,000 $ 19,670,000 $ 19,326,000
=================== ================== ================== ================= ==================
Income from
Continuing operations $ 1,040,000 $ 456,000 $ 260,000 $ 353,000 $ 1,201,000
=================== ================== ================== ================= ==================
Basic and diluted earnings
per share from
Continuing operations $ 0.27 $ 0.12 $ 0.07 $ 0.09 $ 0.31
=================== ================== ================== ================= ==================
Total assets $ 22,219,000 $ 21,473,000 $ 22,774,000 $ 20,417,000 $ 18,315,000
=================== ================== ================== ================= ==================
Long-term obligations $ 3,495,000 $ 4,448,000 $ 3,906,000 $ 3,396,000 $ 3,572,000
=================== ================== ================== ================= ==================
12
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
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.
Results of Operations
Revenues
Revenues increased $2,752,000, or 11%, to $27,424,000 for fiscal year 2002 from
$24,672,000 for fiscal year 2001. This growth was attributed to several areas
including expanded core instrument sales, repairs and riflescope components.
Revenues increased $1,401,000, or 6%, to $24,672,000 for fiscal year 2001 from
$23,271,000 for fiscal year 2000. The increase was attributable to increased
penetration on new models and panel retrofit for RVSM requirements. RVSM has
also provided a significant increase in demand for the Air Data Test Set. The
increases in sales were offset by decreased sales of the Angle of Attack product
as the Company neared the completion of a large contract to retrofit Tornado
fighter jets.
Cost of Sales
Cost of sales increased $1,508,000 or 10%, to $17,162,000, or 63% of revenues,
for fiscal year 2002 from $15,654,000 or 63% of revenues, for fiscal year 2001.
The increase in dollar amount was related partly to the increase in revenues as
well as higher research and development costs.
Cost of sales increased $734,000, or 5%, to $15,654,000, or 63% of revenues, for
fiscal year 2001 from $14,920,000 or 64% of revenues, for fiscal year 2000. The
increase in dollar amount was related to the increase in revenues, and the
decrease in percentage of revenues was primarily related to the Company
capitalizing on material acquisition related to long term contracts and the sale
of higher margin products.
Selling General and Administrative Expenses
Selling, general and administrative expense increased $215,000, or 3%, to
$8,133,000, or 30% of revenue, for fiscal year 2002 from $7,918,000, or 32% of
revenues for fiscal year 2001. The increased spending is attributable to
increased employee compensation and employee benefit related costs.
Selling, general and administrative expense increased $461,000, or 6%, to
$7,918,000, or 32% of revenue, for fiscal year 2001 from $7,457,000, or 32% of
revenues for fiscal year 2000. The increased spending is attributable to the
legal expense increase of $285,000 to $461,000 from $176,000 in fiscal year 2000
and the environmental expense increase of $72,000 to $155,000 from $83,000 in
fiscal year 2000. This was offset by decreased general and administrative labor
costs.
13
Interest Expense
Net interest expense decreased $58,000 to $413,000 in fiscal year 2002 from net
interest expense of $471,000 in fiscal year 2001. The net interest expense
decrease was primarily due to lower average outstanding debt during the year and
decreased interest rates.
Net interest expense increased $55,000 to $471,000 in fiscal year 2001 from net
interest expense of $416,000 in fiscal year 2000. The net interest expense
increase was primarily due to higher average outstanding debt during the year
and increased interest rates.
Other, net
Other income, net decreased $130,000 to ($6,000) in fiscal year 2002 from other
income, net $124,000 in fiscal year 2001. The decrease was primarily related to
sale of property in Newport Arkansas during fiscal year 2001.
Other income, net increased $120,000 to $124,000 in fiscal year 2001 from other
income, net $4,000 in fiscal year 2000. The increase was primarily related to
sale of property in Newport Arkansas. The gain on the sale of land was
approximately $131,000.
Income Tax Expense
Income tax expense was $670,000 for fiscal year 2002 as compared to $297,000 for
fiscal year 2001. The increased amount is related to the higher income before
tax. The effective rate decreased 1.93% to 37.47% in fiscal year 2002 from 39.4%
in fiscal year 2001. The decrease in the effective tax rate is due to the
elimination of a permanent difference in the current year.
Income tax expense was $297,000 for fiscal year 2001 as compared to $222,000 for
fiscal year 2000. The increased amount is related to the higher income before
tax. The effective rate decreased 6.6% to 39.4% in fiscal year 2001 from 46% in
fiscal year 2000. The decrease in the effective rate was attributable to the
lower non-deductible expenses in fiscal year 2001 compared to fiscal year 2000
and is consistent with fiscal year 1999
Net Income
As a result of the factors described above, our net income increased $584,000 or
128% to $1,040,000, or 3.8% of revenue, for fiscal year 2002 from $456,000 or 2%
of revenues, for fiscal year 2001. Earnings per share increased $ .15 or 125%
to $ .27 for fiscal year 2002 from $ .12 in fiscal year 2001.
As a result of the factors described above, our net income increased $196,000 or
75% to $456,000, or 2% of revenue, for fiscal year 2001 from $260,000 or 1% of
revenues, for fiscal year 2000. Earnings per share increased $ .05 or 71% to $
..12 for fiscal year 2001 from $ .07 in fiscal year 2000.
14
Liquidity and Capital Resources
Cash flows from operating activities increased to $1,811,000 for fiscal year
2002 as compared to cash flow of $1,711,000 for fiscal year 2001. The increase
was primarily attributable to decreased accounts receivable and increased net
income.
Cash flows from operating activities increased to $1,711,000 for fiscal year
2001 as compared to cash flow used of $724,000 for fiscal year 2000. The
increase was primarily attributable to decreased accounts receivable, decreased
inventory and increased net income.
Cash flow used in investing activities was $703,000 for fiscal year 2002 as
compared to $238,000 for fiscal year 2001. The increase was primarily
attributable to the increase in purchases of machinery and equipment and
Building Improvements.
Cash flow used in investing activities was $238,000 for fiscal year 2001 as
compared to $558,000 for fiscal year 2000. The decrease was primarily
attributable to the decrease in purchases of large equipment for the Precision
Components Division.
Cash flow used in financing activities was $480,000 for fiscal year 2002 as
compared to cash used of $1,360,000 in fiscal year 2001. This decrease was a
direct result of the increased cash flow from operations and the decrease in
Long Term Debt.
Cash flow used in financing activities was $1,360,000 for fiscal year 2001 as
compared to cash provided of $528,000 in fiscal year 2000. This decrease was a
direct result of the increased cash flow from operations and the decrease in
large purchase of equipment
To accommodate fluctuation in cash flow the Company has a $1,000,000 revolving
credit facility, which expires in May 2002 and bears interest at the trailing
90-day treasury index plus 2.75%. At January 31, 2002, there was approximately
$500,000 available under this facility.
The Company's current ratio was approximately 3.84 to 1 at January 31, 2002
compared to 4.25 to 1 at January 31, 2001. In addition, working capital
increased by $312,000 to $12,916,000 in fiscal year 2002 as compared to
$12,604,000 in fiscal year 2001. The increase primarily remained stable
compared to prior year.
Future capital requirements depend on numerous factors, including research and
development, expansion of products lines, Precision Components Division and
other factors. Management believes that cash and cash equivalents, together
with the Company's cash flow from operations and current borrowing arrangements
will provide for these necessary capital expenditures. Furthermore, the Company
may develop and introduce new or enhanced products, respond to competitive
pressures, invest or acquire businesses or technologies or respond to
unanticipated requirements or developments, which would require additional
resources.
15
The Company does not believe that inflation has had a material effect on the
Company's financial position or results of operations. However, the Company can
not predict the future effects of inflation.
Acquisitions
Currently, the Company has no arrangements or understandings with respect to any
acquisitions. However, the Company continues to monitor acquisition
opportunities.
Environmental Matters
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
January 31, 2000 the company had utilized all amounts originally recorded in
other accrued expenses, and phase-one remediation had been completed.
During the third quarter of fiscal year 2001 management assessed the post-
remediation monitoring expense related to the environmental clean up of 1993
would cost approximately $125,000. This amount was accrued and expensed during
the third quarter, fiscal year 2001. Approximately $10,000 remains accrued in
Other accrued expenses at January 31, 2002.
16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The primary market risk exposure for the Company is interest rate risk. The
Company does not currently utilize any financial instruments to manage interest
rate risk.
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 15 and are included in this Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
--------------------
Not applicable.
17
PART III
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 2002.
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 2002.
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 2002.
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
2002.
18
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 24, 2002
--------------------- ---------------
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 Date: April 24, 2002
--------------------- ---------------
J. Mervyn Nabors
President, Chief Executive Officer
and Chairman of the Board
/s/ David A. Baldini Date: April 24, 2002
--------------------- ---------------
David A. Baldini
Vice Chairman of the Board
and Vice President
/s/ Eric J. McCracken Date: April 24, 2002
----------------------- ---------------
Eric J. McCracken
Executive Vice President,
Chief Financial Officer and Director
/s/ P. Mark Perkins Date: April 24, 2002
-------------------- ---------------
P. Mark Perkins
Executive Vice President and Director
/s/ William C. Parker Date: April 24, 2002
----------------------- ---------------
William C. Parker, Director
/s/ Todd Beard Date: April 24, 2002
--------------- ---------------
Todd Beard, Director
/s/ Dan Garwacki Date: April 24, 2002
----------------- ---------------
Dan Garwacki, Director
19
Aerosonic Corporation and Subsidiary
Table of Contents
---------------------------------------------------------------------------------------
Page(s)
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements:
Consolidated Balance Sheets - January 31, 2002 and 2001 F-3
Consolidated Statements of Income - For the Years Ended
January 31, 2002, 2001 and 2000 F-4
Consolidated Statements of Shareholders' Equity - For the Years Ended
January 31, 2002, 2001 and 2000 F-5
Consolidated Statements of Cash Flows - For the Years Ended
January 31, 2002, 2001 and 2000 F-6
Notes to Consolidated Financial Statements F7 - F16
PRICEWATERHOUSECOOPERS [LOGO]
PricewaterhouseCoopers LLP
Suite 1500
101 E. Kennedy Blvd.
Tampa FL 33602
Telephone (813) 229 0221
Facsimile (813) 229 3646
Report of Independent Certified Public Accountants
To the Board of Directors and Shareholders
of Aerosonic Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Aerosonic
Corporation and its subsidiary at January 31, 2002 and 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended January 31, 2002 in conformity with accounting principles
generally accepted in the United States of America. 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 of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
/s/ PricewaterhouseCoopers, LLP
March 29, 2002
F-2
Aerosonic Corporation and Subsidiary
Consolidated Balance Sheets
January 31, 2002 and 2001
2002 2001
----------- ------------
Assets
Current assets:
Cash and cash equivalents $ 1,705,000 $ 1,077,000
Receivables, net of allowance for doubtful accounts
of $81,000 and $77,000 4,263,000 5,055,000
Inventories 10,948,000 9,949,000
Prepaid expenses 131,000 122,000
Deferred income taxes 422,000 295,000
-------------- -------------
Total current assets 17,469,000 16,498,000
============== =============
Property, plant and equipment, net 4,233,000 4,157,000
Capitalized software costs and other assets, net 517,000 818,000
---------------- -------------
Total assets $ 22,219,000 $ 21,473,000
================ =============
Liabilities and Shareholders' Equity
Current liabilities:
Long-term debt and notes payable due within one year $ 1,027,000 $ 1,019,000
Revolving credit facilities 500,000 -
Accounts payable, trade 793,000 1,252,000
Compensation and benefits 884,000 849,000
Income taxes payable 406,000 153,000
Accrued expenses and other liabilities 943,000 621,000
-------------- -------------
Total current liabilities 4,553,000 3,894,000
============== =============
Long-term debt and notes payable due after one year 3,347,000 4,335,000
Deferred income taxes 148,000 113,000
-------------- -------------
Total liabilities 8,048,000 8,342,000
============== =============
Commitments and contingencies (Note 10)
Shareholders' equity:
Common stock, $.40 par value; authorized 8,000,000 shares,
issued and outstanding 3,986,262 1,595,000 1,595,000
Additional paid-in capital 4,457,000 4,457,000
Retained earnings 8,740,000 7,700,000
Less treasury stock: 66,417 shares in 2002 and 2001, at cost (621,000) (621,000)
Total shareholders' equity 14,171,000 13,131,000
-------------- -------------
Total liabilities and shareholders' equity $ 22,219,000 $ 21,473,000
============== =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
Aerosonic Corporation and Subsidiary
Consolidated Statements of Income
For the Years Ended January 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------
2002 2001 2000
--------------- -------------- --------------
Net sales $ 27,424,000 $ 24,672,000 $ 23,271,000
Cost of sales 17,162,000 15,654,000 14,920,000
--------------- -------------- --------------
Gross profit 10,262,000 9,018,000 8,351,000
Selling, general and administrative expenses 8,133,000 7,918,000 7,457,000
--------------- -------------- --------------
Operating income 2,129,000 1,100,000 894,000
--------------- -------------- --------------
Other income (deductions):
Interest expense (413,000) (471,000) (416,000)
Miscellaneous (expense) income (6,000) 124,000 4,000
--------------- -------------- --------------
(419,000) (347,000) (412,000)
--------------- -------------- --------------
Income from before income
taxes 1,710,000 753,000 482,000
Income tax expense 670,000 297,000 222,000
--------------- -------------- --------------
Net income $ 1,040,000 $ 456,000 $ 260,000
=============== ============== ==============
Basic and diluted earnings per share $ .27 $ .12 $ .07
=============== ============== ==============
Basic weighted average shares outstanding 3,919,845 3,917,687 3,937,078
=============== ============== ==============
Diluted weighted average shares outstanding 3,919,845 3,917,687 3,937,078
=============== ============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
Aerosonic Corporation and Subsidiary
Consolidated Statements of Shareholders' Equity
For the Years Ended January 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------
Additional Total
Common Paid-In Retained Treasury Shareholders'
Stock Capital Earnings Stock Equity
------------- --------------- -------------- --------------- -------------
Balances at January 31, 1999 $ 1,595,000 $ 4,335,000 $ 6,984,000 $ (164,000) $ 12,750,000
Net income - - 260,000 - 260,000
Purchase of 43,500 shares of treasury stock - - - (542,000) (542,000)
Reissuance of 13,696 shares of treasury stock - 101,000 - 69,000 170,000
Employee stock bonus of 500 shares - 4,000 - 2,000 6,000
------------- --------------- -------------- --------------- -------------
Balances at January 31, 2000 1,595,000 4,440,000 7,244,000 (635,000) 12,644,000
Net income - - 456,000 - 456,000
Purchase of 15,500 shares of treasury stock - - - (157,000) (157,000)
Reissuance of 17,046 shares of treasury stock - 15,000 - 162,000 177,000
Employee stock bonus of 1,000 shares - 2,000 - 9,000 11,000
------------- --------------- -------------- --------------- -------------
Balances at January 31, 2001 1,595,000 4,457,000 7,700,000 (621,000) 13,131,000
Net income - - 1,040,000 - 1,040,000
------------- --------------- -------------- --------------- -------------
Balances at January 31, 2002 $ 1,595,000 $ 4,457,000 $ 8,740,000 $ (621,000) $ 14,171,000
============= =============== ============== =============== =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
Aerosonic Corporation and Subsidiary
Consolidated Statements of Cash Flows
For the Years Ended January 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------
2002 2001 2000
----------------- --------------- -----------------
Cash flows from operating activities:
Net income $ 1,040,000 $ 456,000 $ 260,000
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Allowance for doubtful accounts - 27,000 (23,000)
Stock compensation - 188,000 176,000
Depreciation 603,000 543,000 530,000
Amortization 275,000 175,000 30,000
Gain on sale of property - (131,000) -
Deferred income taxes (92,000) (44,000) (109,000)
Changes in assets and liabilities:
Receivables 792,000 267,000 (932,000)
Income tax receivable - - 13,000
Inventories (999,000) 657,000 (1,718,000)
Prepaid expenses (9,000) 6,000 33,000
Capitalized software costs and other assets 50,000 (135,000) (489,000)
Accounts payable, trade (459,000) (566,000) 981,000
Income taxes payable 253,000 104,000 180,000
Accrued expenses and other liabilities 357,000 164,000 344,000
------------------ --------------- -----------------
Net cash provided by (used in) operating activities 1,811,000 1,711,000 (724,000)
------------------ --------------- -----------------
Cash flows from investing activities:
Capital expenditures (703,000) (238,000) (558,000)
------------------ --------------- -----------------
Net cash used in investing activities (703,000) (238,000) (558,000)
------------------ --------------- -----------------
Cash flows from financing activities:
Proceeds from long-term debt and notes payable - - 1,974,000
Proceeds/(payments) from revolving credit facilities 500,000 (447,000) 174,000
Purchase of treasury stock - (157,000) (542,000)
Principal payments on long-term debt and notes payable (980,000) (756,000) (1,078,000)
----------------- --------------- -----------------
Net cash (used in) provided by financing activities (480,000) (1,360,000) 528,000
----------------- --------------- -----------------
Net increase (decrease) in cash and cash equivalents 628,000 113,000 (754,000)
Cash and cash equivalents at beginning of year 1,077,000 964,000 1,718,000
----------------- --------------- -----------------
Cash and cash equivalents at end of year $ 1,705,000 $ 1,077,000 $ 964,000
================= =============== =================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 393,000 $ 472,000 $ 485,000
Income taxes $ 417,000 $ 165,000 $ 139,000
Noncash investing and financing activities:
Settlement of notes payable from sale of property $ - $ 150,000 $ -
Conversion of line of credit to note payable $ - $ 1,800,000 $ -
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
Aerosonic Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------
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 from its plants located in Florida, Virginia and Kansas. 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 Instrument,
Precision Component Division and Wichita, Kansas Instrument division) and its
wholly owned subsidiary, Avionics Specialties, Inc. All significant
intercompany balances and transactions have been eliminated in consolidation.
Critical Accounting Policies and Estimates
The preparation of the financial statement in conformity with accounting
principles generally accepted in the United States of America requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. On an on-going basis, the Company
evaluates its estimates, including those related to accounts receivable and
inventory. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
Reclassifications
Certain prior year amounts have been reclassified to conform with current
year presentation. These reclassifications did not have any effect on total
assets, liabilities, shareholders' equity or net income.
Cash and Cash Equivalents
The Company considers all short-term investments purchased with an original
maturity 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 cash equivalents and
receivables. As of January 31, 2002 and 2001, 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.
F-7
Aerosonic Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Provisions are made for any inventory
deemed excess or obsolete.
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. Expenditures for repairs and improvements
that significantly add to the productive capacity or extend the useful life
of an asset are capitalized. Repair and maintenance charges are expensed as
incurred. Property under a capital lease is amortized over the lease terms.
The useful lives of property, plant and equipment for purposes of computing
deprecation are:
Land and improvements 15-20 years
Buildings and improvements 25-30 years
Machinery and equipment 3-10 years
Patterns, dies, and tools 3-5 years
Furniture and fixtures 5-10 years
Valuation Assessment of Long-Lived Assets
Management periodically evaluates long-lived assets for potential
impairment and will reserve for impairment whenever events or changes in
circumstances indicate the carrying amount of the assets may not be fully
recoverable. As of January 31, 2002, management does not believe that any
assets are impaired.
Research and Development
Research and development costs are expensed as incurred. Research and
development expense approximated $1,022,000, $780,000 and $801,000, during
the years ended January 31, 2002, 2001 and 2000, respectively.
Capitalized Software Costs and Other Assets
Included in capitalized software costs and other assets are capitalized
software, which are recorded at cost less accumulated amortization.
Production costs for computer software that is to be utilized as an
integral part of a product is capitalized when both (a) technological
feasibility is established for the software and (b) all research and
development activities for the other components of the product have been
completed. Amortization is charged to expense on a straight line method
over three years from the date the product becomes available for general
release to customers. Software costs of $24,000 and $131,000 were
capitalized during the years ended January 31, 2002 and 2001, respectively.
Total capitalized costs were $905,000 and
F-8
Aerosonic Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------
$881,000 at January 31, 2002 and 2001, respectively. Accumulated
amortization amounted to $497,000 and $222,000 at January 31, 2002 and
2001, respectively.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) 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. A
valuation allowance is provided against the future benefit of deferred tax
assets if it is determined that it is more likely than not that the future
tax benefits associated with the deferred tax asset will not be realized.
Revenue Recognition
The Company generally recognizes revenue from sales of its products when
the following have occurred: evidence of a sale arrangement exists;
delivery has occurred or services have been rendered; our price to the
buyer is fixed or determinable; and collectibility is reasonable assured.
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.
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.
Environmental Expenditures
The Company accrues for environmental expenses resulting from existing
conditions that relate to past operations when the costs are probable and
reasonably estimable.
Computation of Earnings Per Share
Basic earnings per share is computed using the weighted average of common
stock outstanding. Diluted earnings per share is computed using the
treasury stock method. There was no dilutive common stock outstanding
during the years ended January 31, 2002, 2001, and 2000.
Segment Reporting
As of January 31, 2002 management does not believe the Company has any
reportable segments as defined in SFAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information."
F-9
Aerosonic Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------
2. Receivables
Receivables at January 31, 2002 and 2001 consisted of the following:
2002 2001
------------ ------------
Trade, less allowance for doubtful accounts of $81,000
and $77,000 in 2002 and 2001, respectively $ 4,169,000 $ 5,000,000
Officers and employees 94,000 55,000
------------ ------------
$ 4,263,000 $ 5,055,000
============ ============
3. Inventories
Inventories at January 31, 2002 and 2001 consisted of the following:
2002 2001
------------ ------------
Raw materials and work in process $ 10,456,000 $ 9,591,000
Finished goods 492,000 358,000
------------- ------------
$ 10,948,000 $ 9,949,000
============= ============
4. Property, Plant and Equipment
Property, plant and equipment at January 31, 2002 and 2001 consisted of the following:
2002 2001
------------ ------------
Land and improvements $ 468,000 $ 467,000
Buildings and improvements 3,566,000 3,455,000
Machinery and equipment 4,800,000 4,885,000
Patterns, dies, and tools 345,000 240,000
Furniture and fixtures 1,150,000 603,000
----------- ------------
10,329,000 9,650,000
Less accumulated depreciation and amortization 6,096,000 5,493,000
----------- ------------
$ 4,233,000 $ 4,157,000
=========== ============
Depreciation expense was $603,000, $543,000 and $530,000 for the years
ended January 31, 2002, 2001 and 2000. Certain components of property,
plant and equipment are pledged as collateral for debt obligations (Note
6).
F-10
Aerosonic Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------
5. Income Taxes
Income tax expense for the years ended January 31, 2002, 2001 and 2000
consisted of:
2002 2001 2000
---------- ---------- ----------
Current:
Federal $ 663,000 $ 295,000 $ 287,000
State 99,000 46,000 44,000
---------- ---------- ----------
762,000 341,000 331,000
========== ========== ==========
Deferred:
Federal (79,000) (39,000) (95,000)
State (13,000) (5,000) (14,000)
(92,000) (44,000) (109,000)
---------- ---------- ----------
$ 670,000 $ 297,000 $ 222,000
========== ========== ==========
Federal tax rate 34.00% 34.00% 34.00%
Increase in taxes resulting from:
State income taxes, net of federal tax benefit 3.30% 3.30% 3.30%
Other-primarily non-deductible expenses 0.17% 2.10% 8.70%
---------- ---------- ----------
Effective tax rate 37.47% 39.40% 46.00%
========== ========== ==========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at January
31, 2002 and 2001 are as follows:
2002 2001
---------- ----------
Current deferred tax assets:
Accounts receivable $ 30,000 $ (3,000)
Inventories, principally due to additional
costs inventoried for tax purposes
pursuant to the Tax Reform Act of 1986 303,000 227,000
Compensated absences, principally due to
accrual for financial reporting services 96,000 62,000
Other (7,000) 9,000
--------- ---------
Total current deferred tax assets 422,000 295,000
Deferred tax liabilities:
Property, plant and equipment, principally due to differences in
depreciation and capitalized interest 148,000 113,000
Total non-current deferred tax liabilities 148,000 113,000
--------- ---------
Net deferred tax asset $ 274,000 $ 182,000
========= =========
F-11
Aerosonic Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------
6. Long-Term Debt and Notes Payable
Long-term debt and notes payable at January 31, 2002 and 2001 consisted of
the following:
2002 2001
-------------- -------------
Note payable $ 1,053,000 $ 1,234,000
Industrial development revenue bonds 817,000 890,000
Mortgage note payable 577,000 611,000
Note payable, equipment 758,000 1,005,000
Note payable, II 1,169,000 1,614,000
-------------- -------------
4,374,000 5,354,000
Less current maturity 1,027,000 1,019,000
-------------- -------------
Long-term debt and notes payable, less current maturity $ 3,347,000 $ 4,335,000
============== =============
The amount of long-term debt and notes payable maturing in each of the
fiscal years 2003, 2004, 2005 and thereafter approximates $1,027,000,
$1,341,000, and $1,041,000 and $923,000, respectively.
Note Payable
The note payable is payable in monthly installments beginning in October
1998 through September 30, 2003 including interest at the 90-day average of
the 90-day treasury bill plus 2.75% (4.91% and 8.04% at January 31, 2002
and 2001 respectively). The note payable is collateralized by accounts
receivable and inventory.
Industrial Development Revenue Bonds
The industrial development revenue bonds are payable in quarterly principal
installments of approximately $19,000 and monthly interest installments
through December 2012 and bear interest at 90% of prime. The bonds are
collateralized by property, plant and equipment located in Clearwater,
Florida. The pledged collateral has a carrying value of approximately
$1,270,000 at January 31, 2002. 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 outstanding balance of
$817,000 is subject to accelerated maturity upon a material, adverse change
in financial condition or operation which in the opinion of the Trustee
materially affect the borrower's ability to repay the obligation as defined
in the loan agreement.
Mortgage Note Payable
The mortgage note is payable in monthly installments through May 2009,
including interest at 7.5% through May 1999 and prime plus 1 percent
thereafter. 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 $1,315,000 at
January 31, 2002.
F-12
Aerosonic Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------
Note Payable, Equipment
During September 1999, the Company converted its equipment revolving credit
facility into a note payable. The note payable is payable in monthly
installments beginning in September 1999 through September 2004 including
interest at 8.05%. The note payable is collateralized by all machinery and
equipment at the Clearwater location.
Note Payable, II
During July 2000, the Company converted $1,800,000 of its Revolving Credit
Facility (Note 7) into a long term note payable. This note bears interest
at the rate of 8.71% per annum until October 31, 2000; on October 31, 2000
the interest rate shall be adjusted to 275 basis points over the "trailing
90 day average of the 90 day Treasury bill rate" on the last day of each of
the Company's fiscal calendar quarters (4.91% and 8.61% at January 31, 2002
and 2001, respectively). This note is payable in thirty-seven monthly
principal installments of $37,103, plus accrued interest, with the
outstanding principal balance due on or before September 30, 2003. This
note is collateralized by receivables, inventory and general intangibles.
The Company's long-term debt agreements 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
requirement to maintain: a debt to tangible net worth ratio of 1.0:1, a
current ratio of 2.0:1 and a long-term debt service coverage of 1.25:1. The
Company is in compliance with all of the above debt covenants at January
31, 2002.
SFAS 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 carrying
amount of long-term debt and notes payable at January 31, 2002 and 2001
approximates fair value due to their adjustable rates which change
frequently.
7. Revolving Credit Facilities
During July 2000, the Company acquired a revolving credit facility in the
amount of $1,000,000 to replace the prior facility that matured in June
2000. The interest is payable monthly and bears interest at the rate of
8.71% per annum until October 31, 2000; on October 31, 2000 the interest
rate shall be adjusted to 275 basis points over the "trailing 90 day
average of the 90 day Treasury bill rate" on the last day of each of the
Company's fiscal calendar quarters. This note is due and payable on demand,
and if no demand is made, is due and payable May 30, 2001. The Company
extended the revolving credit facility under the same terms. Approximately
$500,000 of additional credit was available under this facility at January
31, 2002. The revolving credit facility matures in May 2002. The average
interest rate under this facility for the year ended January 31, 2002 was
7.10%. The revolving credit facility agreement is collateralized by
F-13
Aerosonic Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------
receivables, inventory and general intangibles, and is subject to the same
covenants that are included in the Company's long-term debt agreements.
8. Major Customer Information
Sales to U.S. Government agencies, when combined, represented 10 percent
or more of net sales and amounted to approximately $10,972,000, $7,180,000
and $5,869,000 for the years ended January 31, 2002, 2001 and 2000,
respectively. Sales to an additional customer represented 10 percent or
more of net sales and amounted to $2,619,000 and $2,996,000 for the years
ended 2002 and 2001, respectively. Foreign sales for the years ended
January 31, 2002, 2001 and 2000 represented 10 percent or more of net sales
and amounted to approximately $7,126,000, $5,671,000 and $7,116,000,
respectively. All foreign sales contracts are payable in U.S. dollars. No
other customer sales totaled greater than 10 percent of net sales for years
ended January 31, 2002, 2001 or 2000.
Receivables at January 31, 2002 included approximately $508,000, $840,000
and $382,000 due from the U.S. Government, an additional customer and
foreign customers, respectively. Receivables at January 31, 2001 included
approximately $824,000, $1,035,000 and $545,000 due from the U.S.
Government, an additional customer and foreign customers, respectively. No
other customers represented greater than 10 percent of receivables at
January 31, 2002 or 2001.
9. 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 15% 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 year ended January 31, 2002, the
Company contributed cash that amounted approximately $177,000. During the
years ended January 31, 2001 and 2000, the Company issued 17,046 and 13,696
shares of treasury stock, respectively, in partial payment of the Plan.
These stock contributions were accounted for as non-cash transactions.
In March 1993, the Board of Directors adopted, subject to shareholder
approval, an Incentive Stock Option Plan, which provided 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.
F-14
Aerosonic Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------
At January 31, 2002, there are no remaining options available for grant or
exercise under the plan. SFAS No. 123, "Accounting for Stock-Based
Compensation," establishes financial accounting and reporting standards for
stock-based employee compensation plans. The Company has adopted the
disclosure only provisions of SFAS No. 123 but applies Accounting
Principles Board (APB) Option No. 25 and related interpretations in
accounting for its plan. SFAS No. 123 and APB No. 25 have no material
financial accounting or reporting impact on the Company for the years ended
January 31, 2002, 2001 and 2000.
10. Commitments and Contingencies
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 January 31, 2000, the Company had utilized all amounts
originally recorded in other accrued expenses, and phase-one remediation
had been completed.
During the third quarter of 2001, management assessed the post-remediation
monitoring expense related to the environmental clean up of 1993 would cost
approximately $125,000. This amount was accrued and expensed during the
third quarter of 2001. Approximately $10,000 remains accrued in other
accrued expenses at January 31, 2002.
At January 31, 2002, the Company was committed to future purchases
primarily for materials of approximately $4,420,000.
The Company entered into various operating leases in fiscal year 2002 to
lease certain equipment. Total rental expense was approximately $49,000 for
the year ended January 31, 2002. The future minimum rental payments under
leases that have initial or remaining noncancelable lease terms in excess
of one year at January 31, 2002 is as follows:
Operating
Leases
-----------
2003 $ 141,000
2004 141,000
2005 141,000
2006 106,000
2007 68,000
-----------
Total minimum lease payments $ 597,000
===========
The Company remains involved in litigation with its former President and
Chief Executive Officer, David Goldman and his company Mil-Spec Finishers,
Inc. The Case was originally scheduled to go to trial in June of 2001.
However, Mr. Goldman and Mil-Spec Finishers filed Chapter 7 Bankruptcy on
May 25, 2001. Accordingly, all actions pending in the litigation were
automatically stayed pursuant to the bankruptcy code.
F-15
Aerosonic Corporation and Subsidiary
Notes to Consolidated Financial Statements
For the Years Ended January 31, 2002, 2001 and 2000
--------------------------------------------------------------------------------
Additionally, from time to time the Company can be involved in certain
claims and legal actions arising in the ordinary course of business. In the
opinion of management, at this time there are no claims or legal actions
that will have a material adverse effect on the Company's financial
position, results of operations, or liquidity.
11. Quarterly Data (unaudited):
Quarter Ended
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April 30 July 31 October 31 January 31
--------------- -------------- -------------- --------------
2002
Net sales $ 6,522,000 $ 7,431,000 $ 6,994,000 $ 6,477,000
Gross profit 2,318,000 2,863,000 2,338,000 2,743,000
Income from operations 442,000 703,000 443,000 541,000
Net income 180,000 376,000 204,000 280,000
Earnings per share (EPS) - basic 0.05 0.1 0.05 0.07
Earnings per share (EPS) - diluted 0.05 0.1 0.05 0.07
2001
Net sales $ 6,484,000 $ 5,632,000 $ 5,706,000 $ 6,850,000
Gross profit 2,090,000 1,954,000 2,080,000 2,894,000
Income (loss) from operations 248,000 334,000 (178,000) 696,000
Net income (loss) 91,000 120,000 (193,000) 438,000
Earnings (loss) per share (EPS) - basic 0.02 0.03 (0.05) 0.12
Earnings (loss) per share (EPS) - diluted 0.02 0.03 (0.05) 0.12
F-16