Open Runway

Open Runway

By Bob Andelman | Contributing Writer

The new year is off to a fine start at Clearwater-based Aerosonic Corp. The manufacturer of precision flight instruments announced the settlement of a long-simmering class-action lawsuit, learned who killed one of its employees and saw its stock shoot up.

And that was just January.

In the suit, company officials were accused of inflating financial results to boost Aerosonic's stock (AMEX: AIM). It caused the company to restate millions of dollars in earnings in March 2003, put the stock in freefall (it reached a high of $27.50 a share in May 2002) and ultimately caused the company to structure a $5.4 million settlement, of which it paid $800,000 and its insurance company paid the balance.

"It was an amazing relief," says Mark Perkins, executive vice president of Aerosonic and the man responsible for its headquarters facility. "It was quite a distraction for the management team to be dealing with all the things associated with something of that magnitude."

Relief also came in hearing from police who killed a wellliked and long-time machine shop employee. While many employees remained shocked at the situation, Perkins said he and the staff were glad the case has been solved.

The third step in facilitating a happy new year has come in a rebound of its stock price.

Aerosonic doesn't have deep layers of management, so the people responsible for its day-to-day operations also handled the day-to-day demands of lawyers on both sides as well as an SEC inquiry - which concluded without further incident in October 2004. Under Aerosonic's unusual structure, its chairman, president and CEO, David A. Baldini, is stationed in Charlottesville, Va.; he travels back and forth between operations there and corporate headquarters in Clearwater.

The lawsuit and its aftermath "really made us look at ourselves," says Perkins.

"It was a public company that didn't get out to the public. It taught us how to settle those things; I think it made us better managers of the company. It certainly made us understand better what it means to be public. I think it changed our view of the responsibilities of being public and what that means to everybody. We try to operate in a more transparent manner now. We're driven more to the performance of the company than ever before. The shareholders invested their money and they deserve people who are ethical and who will communicate with them. There was little communication from this company to its shareholders for years. Aerosonic wasn't helping to define its future. Now it does."

Focused growth

The settlement was officially announced Jan. 1. Internally, though, Aerosonic had already moved on.

"We escrowed the amount of money we had to pay some time ago," Perkins says. "We've been focused on growing the company without that interference for the last six months."

That renewed focus was reflected pretty quickly on Wall Street. The stock closed on Feb. 22 at $6.70, up from its 52-week low of $3.75 although down from its 52-week high of $8.69. In November, Aerosonic reported revenue of $27 million for the first nine months of 2005, compared with $23 million for the same period in 2004.

And between the time the class action was settled and the settlement announced, Forbes magazine recognized the turnaround by naming Aerosonic to its "200 Best Small Companies" list in its October issue.

Perkins, 49, is in his second tour of duty at Aerosonic. The first time around, in the mid-1980s, he worked in sales under company founder Herbert Frank, who died more than a decade ago. Perkins joined the board of directors in 1997 and rejoined the company full time in 1998. He is now charged with management and oversight of the sales and profitability of the Clearwater facility, in addition to communications with shareholders and potential investors.

All of Aerosonic's products have one main purpose: deliver flight-critical information to pilots from the air outside their crafts. And the company's 160 employees manufacture, from the ground up, almost every one of the 500 component units it delivers to customers every month. There is a great deal of machining, assembly and calibration done at its Clearwater operation.

Aerosonic still maintains an old-fashioned system in which it can manufacture almost all the structural parts of its products. It employs skilled machinists, model makers, inspectors, calibrators, solderers and an engineering group that designs the things it builds. It also conducts its own functional tests, simulating the environments the equipment will see.

"We make a wide range of products that go into a cockpit," Perkins says. "When you get into any Blackhawk helicopter since the beginning of that program, there are four different types of indicator that we supply - standard altitude, encoding altitude, air speed and vertical speed. We tend to be in fleets that are large, including Blackhawks, Seahawks, Chinooks, Apache Longbows and F-15s."

The company's biggest customer is the U.S. Armed Forces, supplying its devices for aircraft while they're in active production and then continuing to provide support, replacement and repair. Aerosonic has also enjoyed a nice climb in its growing commercial aviation business as well, Perkins says.

Movin' on

Now, about that murder: David J. Lunz, then 56, was shot to death in his home in Sunshine Estates near Lake Tarpon in early March 2003 - a month after his wife died of breast cancer. There were no signs of forced entry. Almost three years later, police in North Carolina arrested Lunz's son and an alleged accomplice on charges of first-degree murder.

"(Lunz) was a wonderful guy who worked in our machine shop," Perkins recalls. "To work alongside someone and then they're not there - it's shocking to know anyone that's been murdered."

That's why getting closure last month was so important at Aerosonic. Tenured employees - and there are an awful lot of them here - could breathe a little easier knowing Lunz's murder was solved and that it was a family member, not a random crime committed by a stranger.

"The people who work here tend to stay a long time," Perkins says. "We have people who have been here for 40 years. Our salaries are on the high side for Pinellas County. We're proud of the people here and we try to protect and keep them as best we can."

Aerosonic takes care of employees in a different way, too.

Every year, the company draws names out of a hat to take an employee to each of its two major trade shows, the business aircraft show and the helicopter show.

"They get to go with the sales team to represent us," Perkins says. "The first time we pulled a name out of the hat it was a machinist who had been with us 17 years. He had never been on an airplane, let alone ever been to Las Vegas, where the show was held that year. Our customers were impressed that it wasn't just the suits representing the company and it's a real eye-opener for people who work in Clearwater to see how big this company really is outside its four walls - and how big it can be. That program is one of the things I'm proudest of, getting people to understand what we do in the outside world."

Rejoining the outside world was important to Aerosonic. As the class action suit dragged on, there was some limited discussion of taking the company private again.

"At this size, it would make sense to either go private or grow bigger," Perkins says. "We've opted to become a company that gets bigger and makes more sense to be public."

Among the paths that Aerosonic will likely to take will be through the rapidly developing private helicopter and light aircraft markets; it recently won a contract from Cessna to be a supplier on its new Mustang line.

"For us to get where we need to be, the organization's organic growth path is not going to be enough," Perkins says. "We feel in today's world you have to be at least a $100 million company; some would say more. We have set our sights and that would include acquisitions. Not just for revenue gain but for technology gain; they'll help us move into new products faster."

AT A GLANCE

AEROSONIC Consolidated statement of operations

2005 2004 2003

Revenue 30,721,000 31,113,000 25,672,000

Cost of sales 22,654,000 22,494,000 16,783,000

Gross margin 8,067,000 8,619,000 8,889,000 Selling, gen., admin. exp. 7,996,000 8,421,000 7,776,000

Operating income 71,000 198,000 1,113,000 

Net income 1,541,000 540,000 1,006,000

(Source: Aerosonic's 10-k report filed with the SEC on April 18, 2005).