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 are working on one shift, five days a week. The property in Wichita, Kansas is owned by the Company and is unencumbered. The Clearwater, Florida property is mortgaged in accordance with an IRB executed in l988. (See Note 11, "Financial Statements".)
The Charlottesville, Virginia property was purchased from Teledyne Industries, in April 1994, for $1,260,000 and is mortgaged by a long-term note with the Company's bank. The property consists of a 53,000 square foot manufacturing facility on approximately 12 acres of land.
The Company sold its Newport, Arkansas manufacturing operation during fiscal 1994. The land and building are still owned by Aerosonic and leased to the purchaser under a five-year lease agreement with a purchase option.
Item 3.
Item 3. Legal Proceedings
Sensonics, Inc. v. Aerosonic: In 1993, the Company was named as a co- defendant in a patent infringement suit filed by Sensonics, Inc. claiming that the Company infringed Sensonics' expired patent for an electromagnetical tapping device that the Company used as a component part in approximately seventeen hundred altimeters. Aerosonic asserted defenses of patent invalidity, unenforceability and noninfringement. After a three-day bench trial, the United States District Court for the Middle District of Florida entered judgment in favor of Sensonics in the amount of $815,000 plus costs and post-judgment interest (judgment was joint and several with respect to the Company and the co-defendant). Aerosonic appealed the decision to the United States Court of Appeals for the Federal Circuit, and the execution of the judgment was stayed upon the Company and the co-defendant each obtaining a $500,000 irrevocable bank letter of credit for the Court. Sensonics cross- appealed from the decision. As a result, the Company recorded the $815,000 basic judgment as a liability during the fourth quarter of the year ended January 31, 1995. Subsequent to January 31, 1995, the co-defendant in this case became the Company's Chairman of the Board, President and Chief Operating Officer. On July 21, 1995, the Company's Board of Directors voted to indemnify the co-defendant.
	On April 24, 1996, the Court of Appeals for the Federal Circuit rendered an opinion on the patent infringement lawsuit brought by Sensonics, Inc. The court decision awarded Sensonics additional monetary damages for the patent infringement as well as prejudgement interest and court costs. The court also remanded the case to United District Court for the Middle District of Florida (Tampa) for a determination of whether attorney fees should be assessed against Aerosonic. The remand has not been taken, and Sensonics has not entered a judgment on the award. Additionally, post-judgment interest at the federal interest rate will continue to run from the date of the judgment. Pursuant to this judgment, for the year ended January 31, 1996, the Company has recorded an additional $960,000 which increases the total provision for settlement of patent litigation to $1,775,000.
During fiscal year 1996, the Company became aware of possible litigation arising from a fee dispute between the Company's former Chairman of the Board, President and Chief Operating Officer and prior legal counsel in connection with the appeal of the Sensonics decision. As of January 31, 1996, no suit had been initiated. However, if the claim for approximately $111,000 is asserted, it is anticipated that it will be vigorously contested. No accrual for loss for indemnification has been recorded as of January 31, 1996.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5.
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, l996 and January 3l, l995 is as follows:
During those same periods, no cash dividends were paid.
As of April l, l996, the Company's outstanding shares of common stock were owned by 2,469 shareholders of record.
Item 6.
Item 6. Selected Financial Data.
* Included in net income for the year ended January 31, 1993 is $100,000, or $.03 per share, resulting from the cumulative effect of the change in accounting for income taxes.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Fiscal l996 to l995 - -------------------
Results of Operations
Net sales for fiscal year ended January 3l, l996 ("fiscal l996") were $18,966,000, which represents a 22% decrease from the prior fiscal year. The Ordnance Division had sales of $1,606,000 in the current year as compared to sales of $6,620,000 for fiscal l995. The Clearwater Instrument Division sales increased 8% in the current year to $8,046,000 as compared to $7,448,000 for fiscal l995. The Avionics Division sales were $9,314,000, a 10% decrease from fiscal year 1995.
Ordnance sales for the prior year consisted of the Military Base Closure contract. This contract was completed during the third fiscal quarter of 1995. Sales during fiscal 1996 were primarily truck and automotive parts totaling $1,381,000.
The reduction in Avionics sales is primarily due to the government rescheduling shipments for the aircraft due to excess inventory. Sales of instruments for this product were $98,000 in fiscal 1996 as compared to $1,096,000 for the prior fiscal year.
The Clearwater Instrument Division has shown an 8% increase for the year, as well as a 13% increase for the fourth quarter as compared to the prior year quarter. After several declining years, the aircraft industry in general is showing an upward trend worldwide.
Included in cost of goods sold was a $925,000 write-off of inventory, of which $545,000 had been reclassified as "long-term inventory" in the previous year ended January 31, 1995. Exclusive of the write-off, cost of sales were 75% as a percentage of sales as compared to 77% in the prior year.
Selling, general and administrative ("SG&A") expenses were $5,282,000 as compared to $5,014,000 in the prior year. Included in SG&A expenses for this fiscal year was a $220,000 accrual for restructuring costs. The Company has implemented a restructuring and cost reduction program in order to position itself to take advantage of the positive industry trend mentioned above.
Interest expense for fiscal l996, net of offsetting interest income of $27,000, increased $50,000 from fiscal 1995, due to increased rates and periodic utilization of the Company's line of credit. The Company's long- term borrowings decreased to $3,526,000 compared to $3,931,000 at the end of fiscal 1995.
The Company recorded an additional $960,000 provision for settlement of the patent litigation (See Note 13 of the Notes to Consolidated Financial Statements). This amount was in addition to the $815,000 provided in the previous year.
Fiscal l995 to l994 - -------------------
Results of Operations
Net sales for fiscal year ended January 3l, l995 ("fiscal l995") were $24,394,000, which represents a 2% increase over the prior fiscal year. The Ordnance Division had sales of $6,620,000 in the current year compared to sales of $4,589,000 for fiscal l994. The Clearwater Instrument Division sales decreased 27% in the current year to $7,448,000 as compared to $10,260,000 for fiscal l994. The Avionics Division sales were $10,326,000, a 13% increase over prior year.
Ordnance sales increase resulted from the completion of the Military Base Closure contract which provided $4,651,000 revenue during fiscal 1995. Included in Military Base Closure sales was a $438,000 equitable adjustment resulting from the Stop Work Order reported in Fiscal 1994. The Ordnance Division has been in the process of converting its military ordnance operation to truck and automotive manufacturing. Truck and automotive part sales during fiscal 1995 were $982,000.
The reduction in Clearwater Instrument sales is primarily the result of the current decrease in government spending. Avionics sales increase can be attributed to sales of its PAR system which were $1,286,000 in fiscal 1995 as compared to $191,000 in the prior year.
Cost of goods sold increased by $1,667,000 and the overall gross profit percentage in fiscal l995 was 23% of net sales as compared to 29% of net sales in the prior fiscal year. The lower gross margin was the result of the following factors: 1) lower margin Ordnance sales have increased over prior year; 2) there has been an increase in lower margin sales of "After Market/General Aviation" Instruments; 3) initial low margin sales on "in- process" Vibration and Analysis contracts, which Avionics acquired from Helitune Inc. in May 1994.
Selling, general and administrative ("SG&A") expenses decreased by $220,000 from the prior year. The decrease in SG&A expenses resulted primarily from cost reduction efforts by management to partially offset the effect of fewer government contracts.
Interest expense for fiscal l995, net of offsetting interest income of $45,000, totaled $247,000, an increase of $31,000 from fiscal 1994. The Company's long-term borrowings increased to $3,931,000 compared to $3,642,000 at the end of fiscal 1994. This increase resulted from the mortgage loan to purchase the Charlottesville, Virginia property.
Other income of $54,000 was primarily an aggregate gain on the sale of machinery and equipment.
The Company showed a net loss of $211,000, or $.06 per share. Included in this loss was a provision for settlement of the Sensonics litigation of $815,000. Without the provision, pretax income would have been $471,000, income tax expense would have been $178,000 and net income would have been $293,000, or $.08 per share.
Liquidity and Capital Resources - -------------------------------
Net cash provided by operating activities in fiscal l996 was $289,000 compared to $762,000 in fiscal l995. On January 31, 1996, the Company had a balance of $295,000 in its short-term line of credit. Working capital decreased by $1,675,000 to $5,807,000. A significant cause for the decrease was an increase in the litigation costs provision related to the Sensonics patent litigation. In addition, the Company funded $706,000 of capital expenditures from working capital. Another factor affecting working capital was an increase of $825,000 in the combined total of current income tax receivable and current deferred income taxes.
The Company wrote off $925,000 of inventory, of which $545,000 was classified as long-term in the prior year and included in non-current assets. Additionally the Company sold its investment in the unconsolidated subsidiary at a profit of $48,000.
Capital expenditures during the year were $1,156,000, primarily for machinery used in the Instrument Division. These expenditures were funded by a $450,000 long-term note and the remaining was funded by working capital provided from operations. The Company does not anticipate any additional borrowings during the upcoming year to meet its contractual obligations for ongoing operations. However, the Company expects to utilize its line of credit availability, as well as cash generated from operations, in order to meet its liability related to the Sensonics' litigation.
Shareholders' equity decreased to $9,189,000, or $2.42 per share at the end of fiscal l996 as compared to $11,058,000, or $2.92 per share at the end of the prior year. The Company, from time to time, purchases shares of its own common stock in a private purchase and on the open exchange. At January 31, 1996, the Company was holding 186,772 shares in treasury. The Company has, subsequent to April 1, l996, used 8,019 shares to fund a portion of the Company's tax deferred savings plan.
Item 8.
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 and are included in this Form 10-K.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure .
None.
Item l0. Directors and Executive Officers.
Incorporated by Reference.
Item ll. Executive Compensation.
Incorporated by Reference.
Item l2. Security Ownership of Certain Beneficial Owners to Management.
Incorporated by Reference.
Item l3. Certain Relationships and Related Transactions.
Incorporated by Reference.
Item l4. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Exhibits -
Exhibit 27: Financial Data Schedule
Financial Statement Schedules - The financial statement schedules required by Item 14