þ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
New York | 16-0959303 | |
(State or other jurisdiction of | (IRS Employer Identification Number) | |
incorporation or organization) | ||
130 Commerce Way, East Aurora, New York | 14052 | |
(Address of principal executive offices) | (Zip code) |
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller Reporting Company o |
2
Item 1. | Financial Statements |
October 1, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
Current Assets: |
||||||||
Cash and Cash Equivalents |
$ | 20,612 | $ | 22,709 | ||||
Accounts Receivable, net of allowance for doubtful accounts |
37,036 | 30,941 | ||||||
Inventories |
40,015 | 37,763 | ||||||
Other Current Assets |
6,724 | 5,727 | ||||||
Total Current Assets |
104,387 | 97,140 | ||||||
Property,
Plant and Equipment net of accumulated depreciation and amortization of $28,684 and $25,990 respectively |
40,819 | 30,873 | ||||||
Deferred Income Taxes |
5,769 | 6,883 | ||||||
Other Assets |
3,119 | 3,342 | ||||||
Intangible Assets, net of accumulated amortization |
4,721 | 5,040 | ||||||
Goodwill |
7,516 | 7,610 | ||||||
Total Assets |
$ | 166,331 | $ | 150,888 | ||||
Current Liabilities: |
||||||||
Current Maturities of Long-term Debt |
$ | 5,297 | $ | 5,314 | ||||
Accounts Payable |
9,974 | 10,583 | ||||||
Accrued Expenses |
11,869 | 10,016 | ||||||
Billings in Excess of Recoverable Costs and Accrued Profits on
Uncompleted Contracts |
347 | 1,519 | ||||||
Customer Advance Payments and Deferred Revenue |
4,787 | 3,853 | ||||||
Total Current Liabilities |
32,274 | 31,285 | ||||||
Long-term Debt |
29,356 | 33,264 | ||||||
Other Liabilities |
8,460 | 9,124 | ||||||
Total Liabilities |
70,090 | 73,673 | ||||||
Shareholders Equity: |
||||||||
Common Stock, $.01 par value Authorized 20,000,000 Shares, issued
9,363,452 in 2011 and 9,092,536 in 2010 |
94 | 89 | ||||||
Convertible Class B Stock, $.01 par value Authorized 5,000,000
Shares, issued 3,376,661 in 2011 and 3,553,726 in 2010 |
34 | 25 | ||||||
Additional Paid-in Capital |
17,004 | 14,337 | ||||||
Accumulated Other Comprehensive Income (Loss) |
(79 | ) | (2 | ) | ||||
Retained Earnings |
81,469 | 65,047 | ||||||
98,522 | 79,496 | |||||||
Less Treasury Stock: 528,341 shares in both 2011 and 2010 |
2,281 | 2,281 | ||||||
Total Shareholders Equity |
96,241 | 77,215 | ||||||
Total Liabilities and Shareholders Equity |
$ | 166,331 | $ | 150,888 | ||||
3
Nine Months Ended | Three Months Ended | |||||||||||||||||
October 1, | October 2, | October 1, | October 2, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||
Sales |
$ | 167,007 | 143,931 | $ | 56,404 | $ | 49,906 | |||||||||||
Costs and Expenses: |
||||||||||||||||||
Cost of products sold |
123,860 | 108,807 | 42,149 | 37,013 | ||||||||||||||
Gross Profit |
43,147 | 35,124 | 14,255 | 12,893 | ||||||||||||||
Selling, general and administrative expenses |
19,849 | 17,183 | 6,360 | 5,679 | ||||||||||||||
Income from operations |
23,298 | 17,941 | 7,895 | 7,214 | ||||||||||||||
Interest expense, net of interest income of $96 and
$24 for the nine months and $82 and $7 for the
three months ended 2011 and 2010, respectively |
1,461 | 1,962 | 390 | 641 | ||||||||||||||
Income Before Income Taxes |
21,837 | 15,979 | 7,505 | 6,573 | ||||||||||||||
Provision for Income Taxes |
5,415 | 5,502 | 840 | 1,926 | ||||||||||||||
Net Income |
16,422 | 10,477 | $ | 6,665 | $ | 4,647 | ||||||||||||
Retained Earnings: |
||||||||||||||||||
Beginning of period |
65,047 | 50,099 | ||||||||||||||||
End of period |
$ | 81,469 | $ | 60,576 | ||||||||||||||
Earnings per share: |
||||||||||||||||||
Basic |
$ | 1.36 | $ | 0.88 | $ | 0.55 | $ | 0.39 | ||||||||||
Diluted |
$ | 1.28 | $ | 0.85 | $ | 0.52 | $ | 0.37 | ||||||||||
Average Common Shares Outstanding: |
||||||||||||||||||
Basic |
12,104 | 11,885 | 12,125 | 11,895 | ||||||||||||||
Diluted |
12,863 | 12,318 | 12,926 | 12,474 | ||||||||||||||
4
October 1, 2011 | October 2, 2010 | |||||||
Cash Flows from Operating Activities: |
||||||||
Net Income |
$ | 16,422 | $ | 10,477 | ||||
Adjustments to Reconcile Net Income to Cash Provided by Operating
Activities: |
||||||||
Depreciation and Amortization |
3,592 | 3,657 | ||||||
Provision for Non-Cash Losses on Inventory and Receivables |
450 | 993 | ||||||
Stock Compensation Expense |
807 | 681 | ||||||
Deferred Tax Expense |
689 | 1,288 | ||||||
Other |
(359 | ) | (44 | ) | ||||
Cash Flows from Changes in Operating Assets and Liabilities: |
||||||||
Accounts Receivable |
(6,215 | ) | 1,906 | |||||
Inventories |
(2,790 | ) | (4,041 | ) | ||||
Accounts Payable |
(596 | ) | 2,961 | |||||
Other Current Assets and Liabilities |
2,141 | 250 | ||||||
Billings in Excess of Recoverable Costs and Accrued Profits on
Uncompleted Contracts |
(1,172 | ) | (688 | ) | ||||
Customer Advanced Payments and Deferred Revenue |
934 | (2,920 | ) | |||||
Income Taxes |
(832 | ) | 417 | |||||
Supplemental Retirement and Other Liabilities |
(150 | ) | (331 | ) | ||||
Cash Provided By Operating Activities |
12,921 | 14,606 | ||||||
Cash Flows from Investing Activities: |
||||||||
Capital Expenditures |
(12,875 | ) | (2,574 | ) | ||||
Other |
| (207 | ) | |||||
Cash Used For Investing Activities |
(12,875 | ) | (2,781 | ) | ||||
Cash Flows from Financing Activities: |
||||||||
Net Payments For Long-term Debt |
(3,897 | ) | (5,831 | ) | ||||
Debt Acquisition Costs |
(112 | ) | | |||||
Proceeds from Exercise of Stock Options |
1,694 | 1,084 | ||||||
Income Tax Benefit from Exercise of Stock Options |
196 | | ||||||
Other |
(16 | ) | 22 | |||||
Cash Used For Financing Activities |
(2,135 | ) | (4,725 | ) | ||||
Effect of Exchange Rates on Cash |
(8 | ) | 2 | |||||
(Decrease) Increase in Cash and Cash Equivalents |
(2,097 | ) | 7,102 | |||||
Cash and Cash Equivalents at Beginning of Period |
22,709 | 14,949 | ||||||
Cash and Cash Equivalents at End of Period |
$ | 20,612 | $ | 22,051 | ||||
5
6
(in thousands) | Asset | Liability | Level 1 | Level 2 | Level 3 | |||||||||||||||
Interest rate swaps |
||||||||||||||||||||
October 1, 2011 |
$ | | $ | ( 450 | ) | $ | | $ | (450 | ) | $ | | ||||||||
December 31, 2010 |
| (520 | ) | | (520 | ) | |
| The fair value measurement of goodwill in the Test Systems reporting unit is $2.4
million. The inputs used to calculate the fair value were a combination of revenue growth
rates and profit margins based on internal forecasts, terminal value, and weighted-average
cost of capital used to discount future cash flows. There was no change in fair value from
December 31, 2010. |
7
| The fair value measurement of indefinite-lived trade name intangible assets in the Test
Systems reporting unit is $0.5 million. The inputs used to calculate the fair value were
internal forecasts used to estimate discounted future cash flows. There was no change in
fair value from December 31, 2010. |
| The fair value measurement of amortized intangible assets in the Test Systems reporting
unit is $3.5 million. The inputs used to calculate the fair value were internal forecasts
used to estimate undiscounted future cash flows. There was no change in fair value from
December 31, 2010. |
a) | An interest rate swap with a notional amount of approximately $2.6 million,
entered into on February 2006, related to the Companys Series 1999 New York Industrial
Revenue Bond which effectively fixes the rate at 3.99% plus a spread based on the
Companys leverage ratio on this obligation through January, 2016. |
b) | An interest rate swap with a notional amount of $10.0 million. The swap
effectively fixes the LIBOR rate at 2.115% on the notional amount (which decreases in
concert with the scheduled note repayment schedule).The swap agreement became effective
October 1, 2009 and expires January 30, 2014. |
8
9
October 1, | December 31, | |||||||
(in thousands) | 2011 | 2010 | ||||||
Finished Goods |
$ | 8,386 | $ | 8,437 | ||||
Work in Progress |
8,680 | 6,274 | ||||||
Raw Material |
22,949 | 23,052 | ||||||
$ | 40,015 | $ | 37,763 | |||||
Foreign | ||||||||||||
December 31, | Currency | October 1, | ||||||||||
(in thousands) | 2010 | Translation | 2011 | |||||||||
Aerospace |
$ | 5,210 | $ | (94 | ) | $ | 5,116 | |||||
Test Systems |
2,400 | | 2,400 | |||||||||
Total |
$ | 7,610 | $ | (94 | ) | $ | 7,516 | |||||
October 1, 2011 | December 31, 2010 | |||||||||||||||||||
Weighted | Gross Carrying | Accumulated | Gross Carrying | Accumulated | ||||||||||||||||
(in thousands) | Average Life | Amount | Amortization | Amount | Amortization | |||||||||||||||
Patents |
12 Years | $ | 1,271 | $ | 661 | $ | 1,271 | $ | 586 | |||||||||||
Trade Names |
N/A | 1,053 | | 1,053 | | |||||||||||||||
Completed and
Unpatented Technology |
10 - 15 Years | 3,177 | 1,161 | 3,177 | 972 | |||||||||||||||
Government Contracts |
6 Years | 347 | 347 | 347 | 342 | |||||||||||||||
Backlog and Customer
Relationships |
3 - 20 Years | 3,385 | 2,344 | 3,385 | 2,293 | |||||||||||||||
Total Intangible Assets |
$ | 9,233 | $ | 4,513 | $ | 9,233 | $ | 4,193 | ||||||||||||
10
Nine Months | Three Months Ended | |||||||||||||||
October 1, | October 2, | October 1, | October 2, | |||||||||||||
(in thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Net income |
$ | 16,422 | $ | 10,477 | $ | 6,665 | $ | 4,647 | ||||||||
Other comprehensive income: |
||||||||||||||||
Foreign currency translation adjustments |
(191 | ) | 125 | (394 | ) | 172 | ||||||||||
Accumulated Retirement Liability Adjustment, net
of tax of $37 and $13 in 2011 and $38 and $12
in 2010, for the nine and three months ended,
respectively. |
69 | 70 | 24 | 23 | ||||||||||||
Gain (Loss) on derivatives, net of tax of $24 and
$5 in 2011 and $101 and $26 in 2010, for the
nine and three months ended, respectively. |
45 | (188 | ) | 9 | (49 | ) | ||||||||||
Comprehensive income |
$ | 16,345 | $ | 10,484 | $ | 6,304 | $ | 4,793 | ||||||||
October 1, | December 31, | |||||||
(in thousands) | 2011 | 2010 | ||||||
Accumulated foreign currency translation |
$ | 1,131 | $ | 1,322 | ||||
Accumulated loss on derivative adjustment |
(293 | ) | (338 | ) | ||||
Accumulated retirement liability adjustment |
(917 | ) | (986 | ) | ||||
Accumulated other comprehensive income (loss) |
$ | (79 | ) | $ | (2 | ) | ||
Nine months Ended | Three Months Ended | |||||||||||||||
October 1, | October 2, | October 1, | October 2, | |||||||||||||
(in thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Service cost |
$ | 36 | $ | 30 | $ | 12 | $ | 10 | ||||||||
Interest cost |
246 | 246 | 82 | 82 | ||||||||||||
Amortization of prior service cost |
81 | 81 | 27 | 27 | ||||||||||||
Amortization of net actuarial losses |
9 | | 3 | | ||||||||||||
Net periodic cost |
$ | 372 | $ | 357 | $ | 124 | $ | 119 | ||||||||
11
Nine Months Ended | Three Months Ended | |||||||||||||||
October 1, | October 2, | October 1, | October 2, | |||||||||||||
(in thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Service cost |
$ | | $ | 3 | $ | | $ | 1 | ||||||||
Interest cost |
21 | 39 | 7 | 13 | ||||||||||||
Amortization of prior service cost |
18 | 18 | 6 | 6 | ||||||||||||
Amortization of net actuarial (gains) losses |
(3 | ) | 9 | (1 | ) | 3 | ||||||||||
Net periodic cost |
$ | 36 | $ | 69 | $ | 12 | $ | 23 | ||||||||
Nine Months Ended | Three Months Ended | |||||||||||||||
October 1, | October 2, | October 1, | October 2, | |||||||||||||
(in thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Balance at beginning of period |
$ | 1,699 | $ | 3,147 | $ | 1,390 | $ | 2,703 | ||||||||
Warranties issued |
1,245 | 1,481 | 258 | 543 | ||||||||||||
Warranties settled |
(1,759 | ) | (1,692 | ) | (806 | ) | (923 | ) | ||||||||
Reassessed warranty exposure |
87 | (1,144 | ) | 430 | (531 | ) | ||||||||||
Balance at end of period |
$ | 1,272 | $ | 1,792 | $ | 1,272 | $ | 1,792 | ||||||||
12
Nine Months Ended | Three Months Ended | |||||||||||||||
October 1, | October 2, | October 1, | October 2, | |||||||||||||
(in thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Sales |
||||||||||||||||
Aerospace |
$ | 155,650 | $ | 132,813 | $ | 53,509 | $ | 46,024 | ||||||||
Test Systems |
11,357 | 11,118 | 2,895 | 3,882 | ||||||||||||
Total |
$ | 167,007 | $ | 143,931 | $ | 56,404 | $ | 49,906 | ||||||||
Operating Profit and Margins |
||||||||||||||||
Aerospace |
$ | 28,223 | $ | 22,269 | $ | 9,897 | $ | 8,778 | ||||||||
18 | % | 17 | % | 19 | % | 19 | % | |||||||||
Test Systems |
(1,360 | ) | (1,371 | ) | (832 | ) | (565 | ) | ||||||||
(12 | )% | (12 | )% | (29 | )% | (15 | )% | |||||||||
Total Operating Profit |
26,863 | 20,898 | 9,065 | 8,213 | ||||||||||||
Deductions from Operating Profit |
||||||||||||||||
Interest Expense |
1,461 | 1,962 | 390 | 641 | ||||||||||||
Corporate Expenses and Other |
3,565 | 2,957 | 1,170 | 999 | ||||||||||||
Income Before Income Taxes |
$ | 21,837 | $ | 15,979 | $ | 7,505 | $ | 6,573 | ||||||||
(in thousands) | October 1, 2011 | December 31, 2010 | ||||||
Aerospace |
$ | 115,943 | $ | 96,393 | ||||
Test Systems |
15,533 | 17,752 | ||||||
Corporate |
34,855 | 36,743 | ||||||
Total Assets |
$ | 166,331 | $ | 150,888 | ||||
Nine Months Ended | Three Months Ended | |||||||||||||||
October 1, | October 2, | October 1, | October 2, | |||||||||||||
(in thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Basic earnings per share weighted average shares |
12,104 | 11,885 | 12,125 | 11,894 | ||||||||||||
Net effect of dilutive stock options |
759 | 433 | 801 | 580 | ||||||||||||
Diluted earnings per share weighted average shares |
12,863 | 12,318 | 12,926 | 12,474 | ||||||||||||
13
14
Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS |
Nine Months Ended | Three Months Ended | |||||||||||||||
October 1, | October 2, | October 1, | October 2, | |||||||||||||
(in thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Sales |
$ | 167,007 | $ | 143,931 | $ | 56,404 | $ | 49,906 | ||||||||
Gross Margin |
25.8 | % | 24.4 | % | 25.3 | % | 25.8 | % | ||||||||
SG&A Expenses as a Percentage of Sales |
11.9 | % | 11.9 | % | 11.3 | % | 11.4 | % | ||||||||
Interest Expense, net of interest income |
$ | 1,461 | $ | 1,962 | $ | 390 | $ | 641 | ||||||||
Effective Tax Rate |
24.8 | % | 34.4 | % | 11.2 | % | 29.3 | % | ||||||||
Net Earnings |
$ | 16,422 | $ | 10,477 | $ | 6,665 | $ | 4,647 |
15
16
Nine Months Ended | Three Months Ended | |||||||||||||||
October 1, | October 2, | October 1, | October 2, | |||||||||||||
(in thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Sales |
$ | 155,650 | $ | 132,813 | $ | 53,509 | $ | 46,024 | ||||||||
Operating profit |
$ | 28,223 | $ | 22,269 | $ | 9,897 | $ | 8,778 | ||||||||
Operating Margin |
18.1 | % | 16.8 | % | 18.5 | % | 19.1 | % |
October 1, | Dec 31, | |||||||
2011 | 2010 | |||||||
Total Assets |
$ | 115,943 | $ | 96,393 | ||||
Backlog |
$ | 101,352 | $ | 91,573 |
Nine Months Ended | Three Months Ended | |||||||||||||||
October 1, | October 2, | October 1, | October 2, | |||||||||||||
(in thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Commercial Transport |
$ | 102,456 | $ | 80,963 | $ | 35,259 | $ | 28,627 | ||||||||
Military |
25,916 | 25,267 | 8,737 | 7,349 | ||||||||||||
Business Jet |
20,425 | 17,257 | 6,363 | 5,285 | ||||||||||||
FAA/Airport |
6,853 | 9,326 | 3,150 | 4,763 | ||||||||||||
$ | 155,650 | $ | 132,813 | $ | 53,509 | $ | 46,024 | |||||||||
Nine Months Ended | Three Months Ended | |||||||||||||||
October 1, | October 2, | October 1, | October 2, | |||||||||||||
(in thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Cabin Electronics |
$ | 81,352 | $ | 63,491 | $ | 28,403 | $ | 22,908 | ||||||||
Aircraft Lighting |
52,657 | 48,720 | 16,936 | 15,400 | ||||||||||||
Airframe Power |
14,788 | 11,276 | 5,020 | 2,953 | ||||||||||||
Airfield Lighting |
6,853 | 9,326 | 3,150 | 4,763 | ||||||||||||
$ | 155,650 | $ | 132,813 | $ | 53,509 | $ | 46,024 | |||||||||
17
Nine Months Ended | Three Months Ended | |||||||||||||||
October 1, | October 2, | October 1, | October 2, | |||||||||||||
(in thousands) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Sales |
$ | 11,357 | $ | 11,118 | $ | 2,895 | $ | 3,882 | ||||||||
Operating profit (loss) |
$ | (1,360 | ) | $ | (1,371 | ) | $ | (832 | ) | $ | (565 | ) | ||||
Operating Margin |
(12.0 | )% | (12.3 | )% | (28.7 | )% | (14.6 | )% |
October 1, | Dec 31, | |||||||
2011 | 2010 | |||||||
Total Assets |
$ | 15,533 | $ | 17,752 | ||||
Backlog |
$ | 8,835 | $ | 8,216 |
18
19
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 4. | Controls and Procedures |
a) | The Companys management, with the participation of the Companys Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys
disclosure controls and procedures as of October 1, 2011. Based on that evaluation, the
Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures were effective as of October 1, 2011. |
||
b) | Changes in Internal Control over Financial Reporting There have been no changes in
our internal control over financial reporting during the most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting. |
20
Item 1. | Legal Proceedings |
Item 2. | Unregistered sales of equity securities and use of proceeds |
(c) Total number of | (d) Maximum | |||||||||||||||
(a) Total | shares Purchased as | Number of Shares | ||||||||||||||
number of | (b) Average | part of Publicly | that May Yet Be | |||||||||||||
shares | Price Paid | Announced Plans or | Purchased Under the | |||||||||||||
Period | Purchased | per Share | Programs | Plans or Programs | ||||||||||||
July 3, July 30, 2011 |
| | | | ||||||||||||
July 31 August 27, 2011 |
| | | | ||||||||||||
August 28 October 1, 2011 |
| | | | ||||||||||||
Total |
| | | |
Item 3. | Defaults Upon Senior Securities |
Item 5. | Other Information |
21
Item 6 | Exhibits |
Exhibit 31.1 | Section 302 Certification Chief Executive Officer |
|
Exhibit 31.2 | Section 302 Certification Chief Financial Officer |
|
Exhibit 32 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
|
Exhibit 101.1* | Instance Document |
|
Exhibit 101.2* | Schema Document |
|
Exhibit 101.3* | Calculation Linkbase Document |
|
Exhibit 101.4* | Labels Linkbase Document |
|
Exhibit 101.5* | Presentation Linkbase Document |
|
Exhibit 101.6* | Definition Linkbase Document |
* | Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are
deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12
of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the
Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under
those sections. |
ASTRONICS CORPORATION (Registrant) |
||||
Date: November 8, 2011 | By: | /s/ David C. Burney | ||
David C. Burney | ||||
Vice President-Finance and Treasurer (Principal Financial Officer) |
22
1. | I have reviewed this quarterly report on Form 10-Q of Astronics Corporation; |
||
2. | Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
||
3. | Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
||
4. | The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is
being prepared; |
||
b. | Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles; |
||
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and |
||
d. | Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and
the audit committee of registrants board of directors (or persons performing equivalent
functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and |
||
b. | Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
/s/ Peter J. Gundermann
|
||
Peter J. Gundermann |
||
President and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Astronics Corporation; |
||
2. | Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
||
3. | Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
report; |
||
4. | The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is
being prepared; |
||
b. | Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles; |
||
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and |
||
d. | Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and
the audit committee of registrants board of directors (or persons performing equivalent
functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information;
and |
||
b. | Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
/s/ David C. Burney
|
||
David C. Burney |
||
Chief Financial Officer |
Dated: November 8, 2011 | /s/ Peter J. Gundermann | |||
Peter J. Gundermann | ||||
Title: | Chief Executive Officer | |||
Dated: November 8, 2011 | /s/ David C. Burney | |||
David C. Burney | ||||
Title: | Chief Financial Officer | |||
Consolidated Condensed Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data | Oct. 01, 2011 | Dec. 31, 2010 |
---|---|---|
Current Assets: | ||
Accumulated Depreciation and Amortization of Property, Plant, and Equipment | $ 28,684 | $ 25,990 |
Shareholders' Equity: | ||
Common Stock, par value | $ 0.01 | $ 0.01 |
Common Stock, shares authorized | 20,000,000 | 20,000,000 |
Common Stock, shares issued | 9,363,452 | 9,092,536 |
Treasury stock, shares | 528,341 | 528,341 |
Common Class B Member | ||
Shareholders' Equity: | ||
Common Stock, par value | $ 0.01 | $ 0.01 |
Common Stock, shares authorized | 5,000,000 | 5,000,000 |
Common Stock, shares issued | 3,376,661 | 3,553,726 |
Consolidated Condensed Statements of Operations and Retained Earnings (Unaudited) (USD $) In Thousands, except Per Share data | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Oct. 01, 2011 | Oct. 02, 2010 | Oct. 01, 2011 | Oct. 02, 2010 | |
Consolidated Condensed Statements of Operations and Retained Earnings [Abstract] | ||||
Sales | $ 56,404 | $ 49,906 | $ 167,007 | $ 143,931 |
Costs and Expenses: | ||||
Cost of products sold | 42,149 | 37,013 | 123,860 | 108,807 |
Gross Profit | 14,255 | 12,893 | 43,147 | 35,124 |
Selling, general and administrative expenses | 6,360 | 5,679 | 19,849 | 17,183 |
Income from operations | 7,895 | 7,214 | 23,298 | 17,941 |
Interest expense, net of interest income of $96 and $24 for the nine months and $82 and $7 for the three months ended 2011 and 2010, respectively | 390 | 641 | 1,461 | 1,962 |
Income Before Income Taxes | 7,505 | 6,573 | 21,837 | 15,979 |
Provision for Income Taxes | 840 | 1,926 | 5,415 | 5,502 |
Net Income | 6,665 | 4,647 | 16,422 | 10,477 |
Retained Earnings: | ||||
Beginning of period | 65,047 | 50,099 | ||
End of period | $ 81,469 | $ 60,576 | $ 81,469 | $ 60,576 |
Earnings per share: | ||||
Basic | $ 0.55 | $ 0.39 | $ 1.36 | $ 0.88 |
Diluted | $ 0.52 | $ 0.37 | $ 1.28 | $ 0.85 |
Average Common Shares Outstanding: | ||||
Basic | 12,125 | 11,895 | 12,104 | 11,885 |
Diluted | 12,926 | 12,474 | 12,863 | 12,318 |
Document and Entity Information | 9 Months Ended |
---|---|
Oct. 01, 2011 | |
Entity Registrant Name | ASTRONICS CORP |
Entity Central Index Key | 0000008063 |
Document Type | 10-Q |
Document Period End Date | Oct. 01, 2011 |
Amendment Flag | false |
Document Fiscal Year Focus | 2011 |
Document Fiscal Period Focus | Q3 |
Current Fiscal Year End Date | --12-31 |
Entity Well-known Seasoned Issuer | No |
Entity Voluntary Filers | No |
Entity Current Reporting Status | Yes |
Entity Filer Category | Accelerated Filer |
Entity Common Stock, Shares Outstanding | 12,211,772 |
Common Class A Member | |
Entity Common Stock, Shares Outstanding | 9,184,906 |
Common Class B Member | |
Entity Common Stock, Shares Outstanding | 3,026,866 |
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Sales to Major Customers | 9 Months Ended |
---|---|
Oct. 01, 2011 | |
Sales to Major Customers [Abstract] | |
Sales to Major Customers |
6) Sales to Major Customers
The Company has a significant concentration of business with two customers.
Sales to Panasonic Avionics Corporation amounted to 36% and 27% of consolidated sales for the
nine months ended October 1, 2011 and October 2, 2010 respectively and 39% and 24% of consolidated
sales for the three months ended October 1, 2011 and October 2, 2010, respectively. Accounts
receivable from this customer amounted to $13.5 million and $6.5 million as of October 1, 2011 and
December 31, 2010, respectively.
Sales to the United States Government amounted to 10% and 14% of consolidated sales for the
nine months ended October 1, 2011 and October 2, 2010 respectively and 9% and 17% of consolidated
sales for the three months ended October 1, 2011 and October 2, 2010, respectively. Accounts
receivable from this customer amounted to $3.8 million and $7.0 million as of October 1, 2011 and
December 31, 2010, respectively.
|
Legal Proceedings | 9 Months Ended |
---|---|
Oct. 01, 2011 | |
Legal Proceedings [Abstract] | |
Legal Proceedings |
11) Legal Proceedings
The Company is subject to various legal proceedings, claims, and litigation arising in the
ordinary course of business. While the outcome of these matters is currently not determinable, we
do not expect these matters will have a material adverse effect on our business, financial
position, results of operations, or cash flows. However, the results of these matters cannot be
predicted with certainty. Should the Company fail to prevail in any legal matter or should several
legal matters be resolved against the Company in the same reporting period, then the financial
results of that particular reporting period could be materially adversely affected.
On November 11, 2010, AE Liquidation Inc. filed an action in the United States Bankruptcy
Court for the District of Delaware (AE Liquidation, Inc., et al v. Luminescent Systems Inc., and AE
Liquidation, Inc., et al., v Astronics Advanced Electronic Systems
Corp.) seeking to
recover $1.4 million of alleged preferential payments received from Eclipse Aviation Corporation.
The Company disputes the Trustee’s allegations and believes any loss, as a result of future
proceedings would not have a material adverse effect on our business. We intend to defend this
claim vigorously.
We are a defendant in an action filed in the Regional State Court of Mannheim, Germany
(Lufthansa Technik AG v. Astronics Advanced Electronics Systems Corp.) relating to an allegation of
patent infringement. The damages sought include injunctive relief, as well as monetary damages.
We dispute the allegation and intend to vigorously defend ourselves in this action. At this time
we are unable to provide a reasonable estimate of our potential liability or the potential amount
of loss related to this action, if any. If the outcome of this litigation is adverse to us, our
results and financial condition could be materially affected.
|
Inventories | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 01, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories |
2) Inventories
Inventories are stated at the lower of cost or market, cost being determined in accordance
with the first-in, first-out method. Inventories are as follows:
The Company records valuation reserves to provide for excess, slow moving or
obsolete inventory or to reduce inventory to the lower of cost or market value. In determining the
appropriate reserve, the Company considers the age of inventory on hand, the overall inventory
levels in relation to forecasted demands as well as reserving for specifically identified inventory
that the Company believes is no longer salable.
|
Segment Information | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Oct. 01, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information |
8) Segment Information
Below are the sales and operating profit by segment for the nine months and three months ended
October 1, 2011 and October 2, 2010 and a reconciliation of segment operating profit to earnings
before income taxes. Operating profit is the net sales less cost of sales and other operating
expenses excluding interest and other expenses and corporate expenses. Cost of sales and other
operating expenses are directly identifiable to the respective segment.
Identifiable Assets
|
Earnings Per Share | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Oct. 01, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share |
9) Earnings Per Share
The Company made a one-for-ten distribution of Class B Stock to holders of both Common and
Class B Stock. Stockholders received one share of Class B Stock for every ten shares of Common and
Class B Stock held on the record date of August 16, 2011. Fractional shares were paid in cash and
not significant. All share quantities, share prices and per share data reported throughout this
report have been restated to reflect the impact of this distribution.
Basic and diluted weighted-average shares outstanding are as follows:
|
Product Warranties | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Oct. 01, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Product Warranties [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Product Warranties |
7) Product Warranties
In the ordinary course of business, the Company warrants its products against defects in
design, materials and workmanship typically over periods ranging from twelve to sixty months. The
Company determines warranty reserves needed by product line based on experience and current facts
and circumstances. Activity in the warranty accrual is summarized as follows:
|
Goodwill and Intangible Assets | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Oct. 01, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets |
3) Goodwill and Intangible Assets
The following table summarizes the changes in the carrying amount of goodwill through October
1, 2011:
The following table summarizes acquired intangible assets as follows:
All acquired intangible assets other than goodwill and trade names are being amortized.
Amortization expense was approximately $0.3 million and $0.4 million for the nine months ended and
$0.1 million and $0.1 million for the three months ended October 1, 2011 and October 2, 2010,
respectively. Amortization expense for each of the next five years is estimated to be
approximately $0.1 million for the balance of 2011 and $0.4 million each for 2012, 2013, 2014 2015
and 2016.
|
Comprehensive Income and Accumulated Other Comprehensive Income | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Comprehensive Income and Accumulated Other Comprehensive Income [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Income and Accumulated Other Comprehensive Income |
4) Comprehensive Income and Accumulated Other Comprehensive Income
The components of comprehensive income are as follows:
The components of accumulated other comprehensive income (loss) are as follows:
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Recent Accounting Pronouncements | 9 Months Ended |
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Oct. 01, 2011 | |
Recent Accounting Pronouncements [Abstract] | |
Recent Accounting Pronouncements |
12) Recent Accounting Pronouncements
The Company’s management has reviewed recent accounting pronouncements issued through the date
of the issuance of financial statements.
In May 2011, the FASB issued ASU No. 2011-04, which updated the guidance in ASC Topic 820,
Fair Value Measurement. The amendments in this Update generally represent clarifications of Topic
820, but also include some instances where a particular principle or requirement for measuring fair
value or disclosing information about fair value measurements has changed. This Update results in
common principles and requirements for measuring fair value and for disclosing information about
fair value measurements in accordance with U.S. GAAP and International Financial Reporting
Standards. The amendments in this Update are to be applied prospectively. For public entities, the
amendments are effective during interim and annual periods beginning after December 15, 2011, and
early application is not permitted. This guidance will become effective for us in the first quarter
of 2012.The adoption of this guidance is not expected to have a material impact on our financial
position or results of operations.
In June 2011, the FASB issued ASU No. 2011-05, which updated the guidance in ASC Topic 220,
Comprehensive Income. Under the amendments in this Update, an entity has the option to present the
total of comprehensive income, the components of net income, and the components of other
comprehensive income either in a single continuous statement of comprehensive income or in two
separate but consecutive statements. In both choices, an entity is required to present each
component of net income along with total net income, each component of other comprehensive income
along with a total for other comprehensive income, and a total amount for comprehensive income.
This Update eliminates the option to present the components of other comprehensive income as part
of the statement of changes in stockholders’ equity. The amendments in this Update do not change
the items that must be reported in other comprehensive income or when an item of other
comprehensive income must be reclassified to net income. The amendments in this Update should be
applied retrospectively. For public entities, the amendments are effective for fiscal years, and
interim periods within those years, beginning after December 15, 2011, and early application is
permitted. This guidance will become effective for us in the first quarter of 2012. The adoption of
this guidance is not expected to have a material impact on our financial position or results of
operations.
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Supplemental Retirement Plan and Related Post Retirement Benefits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Retirement Plan and Related Post Retirement Benefits |
5) Supplemental Retirement Plan and Related Post Retirement Benefits
The Company has a non-qualified supplemental retirement defined benefit plan for certain
executives. The following table sets forth information regarding the net periodic pension cost for
the plan.
Participants in the non-qualified supplemental retirement plan are entitled to paid medical, dental
and long-term care insurance benefits upon retirement under the plan. The following table sets
forth information regarding the net periodic cost recognized for those benefits:
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Consolidated Condensed Statements of Operations and Retained Earnings (Unaudited) (Parenthetical) (USD $) In Thousands | 3 Months Ended | 9 Months Ended | ||
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Oct. 01, 2011 | Oct. 02, 2010 | Oct. 01, 2011 | Oct. 02, 2010 | |
Costs and Expenses: | ||||
Interest income | $ 82 | $ 7 | $ 96 | $ 24 |
Basis of Presentation | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Basis of Presentation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation |
1) Basis of Presentation
The accompanying unaudited statements have been prepared in accordance with U.S. generally
accepted accounting principles for interim financial information. Accordingly, they do not include
all of the information and footnotes required by U.S. generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation have been included.
Operating Results
The results of operations for any interim period are not necessarily indicative of results for
the full year. Operating results for the nine and three month periods ended October 1, 2011 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2011.
The balance sheet at December 31, 2010 has been derived from the audited financial statements
at that date, but does not include all of the information and footnotes required by U.S. generally
accepted accounting principles for complete financial statements.
For further information, refer to the financial statements and footnotes thereto included in
Astronics Corporation’s 2010 annual report on Form 10-K.
Description of the Business
Astronics is a leading supplier of advanced, high-performance lighting systems, electrical
power generation systems, aircraft safety systems, electronics systems for the global aerospace
industry as well as test, training and simulation systems primarily for the military. We sell our
products to airframe manufacturers (OEM’s) in the commercial transport, business jet and military
markets as well as FAA/Airport, OEM suppliers, and aircraft operators around the world. The
Company has two reportable segments, Aerospace and Test Systems. The Aerospace segment designs and
manufactures products for the global aerospace industry. The Test Systems segment designs,
develops, manufactures and maintains communications and weapons test systems and training and
simulation devices for military applications.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.
Acquisitions are accounted for under the purchase method and, accordingly, the operating results
for the acquired companies are included in the consolidated statements of earnings from the
respective dates of acquisition.
Revenue and Expense Recognition
Revenue Recognition in the Aerospace Segment
In the Aerospace segment, revenue is recognized on the accrual basis at the time of
shipment of goods and transfer of title. There are no significant contracts allowing for right of
return.
Revenue Recognition in the Test Systems Segment
In the Test Systems segment, revenue is recognized primarily from long-term, fixed-price
contracts using the percentage-of-completion method of accounting, measured by multiplying the
estimated total contract value by the ratio of actual contract costs incurred to date to the
estimated total contract costs. Substantially all long-term contracts are with U.S. government
agencies and contractors thereto. The Company makes significant estimates involving its usage of
percentage-of-completion accounting to recognize contract revenues. The Company periodically
reviews contracts in process for estimates-to-completion, and revises estimated gross profit
accordingly. While the Company believes its estimated gross profit on contracts in process is
reasonable, unforeseen events and changes in circumstances can take place in a subsequent
accounting period that may cause the Company to revise its estimated gross profit on one or more of
its contracts in process. Accordingly, the ultimate gross profit realized upon completion of such
contracts can vary significantly from estimated amounts between accounting periods.
Expenses
Cost of products sold includes the costs to manufacture products such as direct materials and
labor and manufacturing overhead as well as all engineering and developmental costs. Shipping and
handling costs are expensed as incurred and are included in costs of products sold. The Company is
engaged in a variety of engineering and design activities as well as
basic research and development activities directed to the substantial improvement or new
application of the Company’s existing technologies. These costs are expensed when incurred and
included in cost of sales. Research and development, design and related engineering amounted to
approximately $26.6 million and $21.0 million for the nine months ended and $9.5 million and $6.9
million for the three months ended October 1, 2011 and October 2, 2010, respectively.
Selling, general and administrative expenses include costs primarily related to our sales and
marketing departments and administrative departments.
Fair Value
ASC Topic 820, “Fair value Measurements and Disclosures”, (“ASC Topic 820”) defines fair
value, establishes a framework for measuring fair value and expands the related disclosure
requirements. This statement applies under other accounting pronouncements that require or permit
fair value measurements. The statement indicates, among other things, that a fair value measurement
assumes that the transaction to sell an asset or transfer a liability occurs in the principal
market for the asset or liability or, in the absence of a principal market, the most advantageous
market for the asset or liability. ASC Topic 820 defines fair value based upon an exit price model.
ASC Topic 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used
to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets
or liabilities.
Level 2 inputs are quoted prices for similar assets and liabilities in active
markets or inputs that are observable for the asset or liability, either directly or
indirectly through market corroboration, for substantially the full term of the financial
instrument.
Level 3 inputs are unobservable inputs based on our own assumptions used to measure
assets and liabilities at fair value.
A financial asset or liability’s classification within the hierarchy is determined based on
the lowest level input that is significant to the fair value measurement. The following table
provides the financial assets and liabilities carried at fair value measured on a recurring basis
as of October 1, 2011 and December 31, 2010:
Interest rate swaps are securities with no quoted readily available Level 1 inputs, and
therefore are measured at fair value using inputs that are directly observable in active markets
and are classified within Level 2 of the valuation hierarchy, using the income approach.
In accordance with the provisions of ASC Topic 350 “Intangibles — Goodwill and Other” the
Company estimates the fair value of reporting units, utilizing unobservable Level 3 inputs. Level
3 inputs require significant management judgment due to the absence of quoted market prices or
observable inputs for assets of a similar nature. The Company utilizes a discounted cash flow
analysis to estimate the fair value of reporting units utilizing unobservable inputs. The fair
value measurement of the reporting unit under the step-one and step-two analysis of the goodwill
impairment test are classified as Level 3 inputs.
Intangible assets that are amortized are evaluated for recoverability whenever adverse effects
or changes in circumstances indicate that the carrying value may not be recoverable. The
recoverability test consists of comparing the undiscounted projected cash flows with the carrying
amount. Should the carrying amount exceed undiscounted projected cash flows, an impairment loss
would be recognized to the extent the carrying amount exceeds fair value. For indefinite-lived
intangible assets, the impairment test consists of comparing the fair value, determined using the
relief from royalty method, with its carrying amount. An impairment loss would be recognized for
the carrying amount in excess of its fair value.
At October 1, 2011, the fair value of goodwill and intangible assets classified using Level 3
inputs were as follows:
The Company concluded that no indicators of goodwill and intangibles impairment existed and an
interim test was not performed as of October 1, 2011.
Financial Instruments
The Company’s financial instruments consist primarily of cash and cash equivalents, accounts
receivable, accounts payable, notes payable, long-term debt and interest rate swaps. The Company
performs periodic credit evaluations of its customers’ financial condition and generally does not
require collateral and the Company does not hold or issue financial instruments for trading
purposes. Due to their short-term nature the carrying value of cash and equivalents, accounts
receivable, accounts payable, and notes payable approximate fair value. The carrying value of the
Company’s variable rate long-term debt also approximates fair value due to the variable rate
feature of these instruments as well as the lack of changes in the Company’s credit history. The
carrying value of the subordinated promissory note approximates its fair value based on
management’s estimation that a current interest rate would not differ materially from the stated
rate. The Company’s interest rate swaps are recorded at fair value as described under “Fair
Value.”
Derivatives
The Company records all derivatives on the balance sheet at fair value with the related gains
or losses deferred in shareholders’ equity as a component of Accumulated Other Comprehensive Income
(Loss) (AOCI) and any ineffectiveness is recorded to the income statement. The accounting for
changes in the fair value of derivatives depends on the intended use and resulting designation. The
Company’s use of derivative instruments was limited to a cash flow hedge for interest rate risk
associated with long-term debt. Interest rate swaps are used to adjust the proportion of total debt
that is subject to variable and fixed interest rates. The interest rate swaps are designated as
hedges of the amount of future cash flows related to interest payments on variable-rate debt that,
in combination with the interest payments on the debt, convert a portion of the variable-rate debt
to fixed-rate debt. At October 1, 2011, we had interest rate swaps consisting of the following:
To the extent the interest rate swaps are not perfectly effective in offsetting the change in
the value of the payments being hedged; the ineffective portion of these contracts is recognized in
earnings immediately. All of the Company’s cash flow hedges are considered to be highly effective.
Amounts to be reclassified to income through the remainder of 2011 are not expected to be
significant.
Long-term Debt and Notes Payable
The Company extended and modified its existing credit facility by entering into a Second
Amended and Restated Credit Agreement (the “Credit Agreement”), dated as of August 31, 2011, with
HSBC Bank USA, National Association, Bank of America, N.A. and Manufacturers and Traders Trust
Company. The Credit Agreement provides for the continuation of the Company’s revolving credit line
in the amount of $35 million for an additional five years through August 31, 2016 and for the
continuation of the Company’s existing $18 million term loan maturing January 30, 2014, with
interest on both loans at a rate of LIBOR plus between 1.50% and 2.50% based on the Company’s
Leverage Ratio.
The balance of the term note was $18.0 million and $21.0 million on October 1, 2011 and
December 31, 2010, respectively. The Company had no balance outstanding on its revolving credit
facility at October 1, 2011 and December 31, 2010, respectively. The revolving credit facility
provides for borrowing up to $35.0 million less outstanding letters of credit. For working
capital requirements, the Company had available on its credit facility $23.2 million and $22.5
million at October 1, 2011 and December 31, 2010, respectively. The credit facility allocates up to
$20 million of the revolving credit line for the issuance of letters of credit, including certain
existing letters of credit totaling approximately $11.8 million at October 1, 2011. In addition,
the Company is required to pay a commitment fee quarterly at a rate of between
0.25% and 0.35% per annum on the unused portion of the total revolving credit commitment, also
based on the Company’s Leverage Ratio.
The Company’s obligations under the Credit Agreement are jointly and severally guaranteed by
Astronics Advanced Electronic Systems Corp., Luminescent Systems, Inc. and DME Corporation, each a
wholly-owned domestic subsidiary of the Company. The obligations are secured by a first priority
lien on substantially all of the Company’s and the guarantors’ assets and 100% of the issued and
outstanding equity interest of each subsidiary.
In the event of voluntary or involuntary bankruptcy of the Company or any
subsidiary, all unpaid principal and other amounts owing under the Credit Agreement automatically
become due and payable. Other events of default, such as failure to make payments as they become
due and breach of financial and other covenants, give the Agent the option to declare all such
amounts immediately due and payable.
At October 1, 2011, we were in compliance with all of the covenants pursuant to the credit
facility.
Foreign Currency Translation
The Company accounts for its foreign currency translation in accordance with ASC Topic 830,
Foreign Currency Translation. The aggregate transaction gain or loss included in determining net
income was insignificant for the periods ending October 1, 2011 and October 2, 2010.
Income Taxes
The FASB issued ASC Topic 740-10 “Overall — Uncertainty in Income Taxes” (“ASC Topic 740-10”)
which clarifies the accounting and disclosure for uncertainty in tax positions, as defined. ASC
Topic 740-10 seeks to reduce the diversity in practice associated with certain aspects of the
recognition and measurement related to accounting for income taxes. The Company is subject to the
provisions of ASC Topic 740-10 and has analyzed filing positions in all of the federal and state
jurisdictions where it is required to file income tax returns, as well as all open tax years in
these jurisdictions.
Should the Company need to accrue a liability for unrecognized tax benefits, any interest
associated with that liability will be recorded as interest expense. Penalties, if any, would be
recognized as operating expenses. There are no penalties or interest liability accrued as of
October 1, 2011 and December 31, 2010. The years under which we conducted our evaluation coincided
with the tax years currently still subject to examination by major federal and state tax
jurisdictions, those being 2010 for federal purposes and 2008 through 2010 for state purposes.
Accounting Pronouncements Adopted in 2011
On January 1, 2011, the Company adopted the new provisions of Accounting Standards Update
(“ASU”) No. 2010-28, Intangibles—Goodwill and Other (Topic 350) (“ASU 2010-28”). ASU 2010-28
clarifies the requirement to test for impairment of goodwill. ASC Topic 350 has required that
goodwill be tested for impairment under Step 2 if the carrying amount of a reporting unit exceeds
its fair value. Under ASU 2010-28, when the carrying amount of a reporting unit is zero or
negative an entity must assume that it is more likely than not that a goodwill impairment exists,
perform an additional Step 2 test to determine whether goodwill has been impaired and calculate the
amount of that impairment. The impact on the Company’s financial statements is not anticipated to
be significant.
On January 1, 2011, the Company adopted the new provisions of ASU No. 2010-29, Disclosure of
Supplementary Pro Forma information for Business Combinations (Topic 805) (“ASU 2010-29”). ASC
Topic 350 has required pro forma revenue and earnings disclosure requirements for business
combinations. ASU 2010-29 clarifies the requirements for disclosure of supplementary pro forma
information for business combinations. The amendments in this update specify that if a public
entity presents comparative financial statements, the entity should disclose revenue and earnings
of the combined entity as though the business combination(s) that occurred during the current year
had occurred as of the beginning of the comparable prior annual reporting period only. The
amendments in this Update also expand the supplemental pro forma disclosures under Topic 805 to
include a description of the nature and amount of material, nonrecurring pro forma adjustments
directly attributable to the business combination included in the reported pro forma revenue and
earnings. The impact on the Company’s disclosures was not significant.
In March 2011, the SEC issued Staff Accounting Bulletin (SAB) 114. This SAB revises or
rescinds portions of the interpretive guidance included in the codification of the Staff Accounting
Bulletin Series. This update is intended to make the relevant interpretive guidance consistent
with current authoritative accounting guidance issued as a part of the FASB’s Codification. The
principal changes involve revision or removal of accounting guidance references and other
conforming changes to ensure consistency of referencing through the SAB Series. The effective date
for SAB 114 is March 28, 2011. The adoption of the new guidance did not have a material impact on
the Company’s consolidated financial statements.
On September 15, 2011, the Financial Accounting Standards Board issued ASU No. 2011-08,
Intangibles — Goodwill and Other (Topic 350). The amendments in this Update will allow an entity to
first assess qualitative factors to determine
whether it is necessary to perform the two-step quantitative goodwill impairment test. Under
these amendments, an entity would not be required to calculate the fair value of a reporting unit
unless the entity determines, based on a qualitative assessment, that it is more likely than not
that its fair value is less than its carrying amount. The amendments are effective for annual and
interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The
Company elected to adopt this pronouncement in 2011 as early adoption is permitted. The impact on
the Company’s financial statements is not anticipated to be significant.
Loss contingencies
Loss contingencies may from time to time arise from situations such as warranty claims and
other legal actions. Loss contingencies are recorded as liabilities when it is probable that a
liability has been incurred and the amount of the loss is reasonably estimable. Disclosure is
required when there is a reasonable possibility that the ultimate loss will exceed the recorded
provision. Contingent liabilities are often resolved over long time periods. In recording
liabilities for probable losses, management is required to make estimates and judgments regarding
the amount or range of the probable loss. Management continually assesses the adequacy of estimated
loss contingencies and, if necessary, adjusts the amounts recorded as better information becomes
known.
|
Income Taxes | 9 Months Ended |
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Oct. 01, 2011 | |
Income Taxes [Abstract] | |
Income Taxes |
10) Income Taxes
The effective tax rate was 24.8% and 34.4% for the nine months and 11.2% and 29.3% for
the three months ended October 1, 2011 and October 2, 2010, respectively. The effective tax rate
for the 2011 third quarter and 2011 year-to-date was impacted primarily by the reversal of
uncertain tax position reserves of approximately $1.3 million relating to the tax
years ended 2006 through 2010. Also impacting the tax rate for the 2011 third quarter and 2011
year-to-date was the domestic production deduction amounting to approximately $0.2 million and $0.6
million respectively and the recognition of research & development tax credits for 2011 in the net
amount of approximately $0.0 million and $0.2 million for the third quarter and year-to-date
respectively.
The effective tax rate for the third quarter of 2010 and the first nine months of 2010 was
impacted by higher state and foreign taxes, the domestic production deduction as well as the
impact of research & development tax credits in the net amount of $0.3 million and $0.4 million for
the nine months and third quarter of 2010, respectively.
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