Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
   
Form 10-Q
 
   
 
ýQuarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended July 4, 2015April 2, 2016
or
 
¨Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                     to                     
Commission File Number 0-7087
 
   
ASTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
 
   

New York
(State or other jurisdiction of
incorporation or organization)
16-0959303
(IRS Employer
Identification Number)
  
130 Commerce Way, East Aurora, New York
(Address of principal executive offices)
14052
(Zip code)
(716) 805-1599
(Registrant’s telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(g) of the Act:
$.01 par value Common Stock, $.01 par value Class B Stock
(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, and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “large accelerated filer”, an “accelerated filer”, a “non-accelerated filer” and a “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filerý Accelerated filer¨
     
Non-accelerated filer
¨  
 Smaller Reporting Company¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
As of July 4, 2015, 22,126,070April 2, 2016, 25,520,160 shares of common stock were outstanding consisting of 17,270,73819,428,339 shares of common stock ($.01 par value) and 4,855,3326,091,821 shares of Class B common stock ($.01 par value).
 



TABLE OF CONTENTS
     PAGE
PART 1I  
      
  Item 1  
      
    
      
    
      
    
      
    
      
    
7-18-17
      
  Item 2 
18 – 2623
      
  Item 3 
      
  Item 4 
      
PART II  
      
  Item 1 
      
  Item 1a 
      
  Item 2 
      
  Item 3 
      
  Item 4 
      
  Item 5 
      
  Item 6 
      

2


Part 1I – Financial Information
Item 1. Financial Statements
ASTRONICS CORPORATION
Consolidated Condensed Balance Sheets
July 4, 2015April 2, 2016 with Comparative Figures for December 31, 20142015
(In thousands)
 
July 4,
2015
 December 31,
2014
April 2,
2016
 December 31,
2015
(Unaudited)  (Unaudited)  
Current Assets:      
Cash and Cash Equivalents$23,767
 $21,197
$15,791
 $18,561
Accounts Receivable, Net of Allowance for Doubtful Accounts98,836
 88,888
106,177
 95,277
Inventories133,418
 115,053
118,666
 115,467
Prepaid Expenses and Other Current Assets18,057
 20,680
16,403
 20,662
Total Current Assets274,078
 245,818
257,037
 249,967
Property, Plant and Equipment, Net of Accumulated Depreciation126,329
 116,316
123,971
 124,742
Other Assets8,995
 5,632
11,438
 10,889
Intangible Assets, Net of Accumulated Amortization114,230
 94,991
105,633
 108,276
Goodwill114,578
 100,153
115,742
 115,369
Total Assets$638,210
 $562,910
$613,821
 $609,243
Current Liabilities:      
Current Maturities of Long-term Debt$2,702
 $2,796
$2,664
 $2,579
Accounts Payable38,609
 27,903
30,089
 27,138
Accrued Expenses and Other Current Liabilities35,996
 33,465
27,516
 35,758
Customer Advance Payments and Deferred Revenue32,588
 45,052
34,878
 38,757
Total Current Liabilities109,895
 109,216
95,147
 104,232
Long-term Debt228,469
 180,212
169,682
 167,210
Other Liabilities43,698
 45,305
38,019
 37,576
Total Liabilities382,062
 334,733
302,848
 309,018
Shareholders’ Equity:      
Common Stock222
 219
257
 256
Accumulated Other Comprehensive Loss(14,840) (11,949)(13,117) (15,064)
Other Shareholders’ Equity270,766
 239,907
323,833
 315,033
Total Shareholders’ Equity256,148
 228,177
310,973
 300,225
Total Liabilities and Shareholders’ Equity$638,210
 $562,910
$613,821
 $609,243
See notes to consolidated condensed financial statements.

3


ASTRONICS CORPORATION
Consolidated Condensed Statements of Operations
Three and Six Months Ended July 4, 2015April 2, 2016 With Comparative Figures for 20142015
(Unaudited)
(In thousands, except per share data)
 
Six Months Ended Three Months EndedThree Months Ended
July 4,
2015
 June 28,
2014
 July 4,
2015
 June 28,
2014
April 2,
2016
 April 4,
2015
Sales$334,794
 $315,514
 $173,156
 $174,563
$159,530
 $161,638
Cost of Products Sold245,180
 242,307
 123,704
 131,361
120,047
 121,476
Gross Profit89,614
 73,207
 49,452
 43,202
39,483
 40,162
Selling, General and Administrative Expenses43,916
 37,099
 21,297
 20,721
21,884
 22,619
Income from Operations45,698
 36,108
 28,155
 22,481
17,599
 17,543
Interest Expense, Net of Interest Income2,357
 4,882
 1,111
 2,559
1,087
 1,246
Income Before Income Taxes43,341
 31,226
 27,044
 19,922
16,512
 16,297
Provision for Income Taxes14,968
 10,575
 9,354
 6,778
5,027
 5,614
Net Income$28,373
 $20,651
 $17,690
 $13,144
$11,485
 $10,683
Earnings Per Share:          
Basic$1.29
 $0.96
 $0.80
 $0.61
$0.45
 $0.42
Diluted$1.24
 $0.91
 $0.77
 $0.58
$0.44
 $0.41
See notes to consolidated condensed financial statements.

4


ASTRONICS CORPORATION
Consolidated Condensed Statements of Comprehensive Income
Three and Six Months Ended July 4, 2015April 2, 2016 With Comparative Figures for 20142015
(Unaudited)
(In thousands)
 
Six Months Ended Three Months EndedThree Months Ended
July 4,
2015
 June 28,
2014
 July 4,
2015
 June 28,
2014
April 2,
2016
 April 4,
2015
Net Income$28,373
 $20,651
 $17,690
 $13,144
$11,485
 $10,683
Other Comprehensive (Loss) Income:       
Other Comprehensive Income (Loss):   
Foreign Currency Translation Adjustments(3,214) (568) 432
 (182)1,816
 (3,646)
Change in Accumulated Loss on Derivatives – Net of Tax
 (8) 
 (28)
Retirement Liability Adjustment – Net of Tax323
 208
 162
 106
131
 161
Other Comprehensive (Loss) Income(2,891) (368) 594
 (104)
Other Comprehensive Income (Loss)1,947
 (3,485)
Comprehensive Income$25,482
 $20,283
 $18,284
 $13,040
$13,432
 $7,198
See notes to consolidated condensed financial statements.

5


ASTRONICS CORPORATION
Consolidated Condensed Statements of Cash Flows
SixThree Months Ended July 4, 2015April 2, 2016
With Comparative Figures for 20142015
(Unaudited)
(In thousands)
 
Three Months Ended
July 4,
2015
 June 28,
2014
April 2,
2016
 April 4,
2015
Cash Flows From Operating Activities:      
Net Income$28,373
 $20,651
$11,485
 $10,683
Adjustments to Reconcile Net Income to Cash Provided By Operating Activities:      
Depreciation and Amortization12,545
 10,309
6,546
 6,127
Provisions for Non-Cash Losses on Inventory and Receivables957
 510
563
 (74)
Stock Compensation Expense1,143
 866
597
 506
Deferred Tax Benefit(576) (2,765)(468) (40)
Non-Cash Earnout Liability Adjustment(1,268) (83)
Other158
 (565)119
 110
Cash Flows from Changes in Operating Assets and Liabilities:      
Accounts Receivable(3,797) (33,723)(10,384) 18,563
Inventories(16,786) 17,736
(3,117) (3,474)
Accounts Payable9,192
 3,702
2,755
 5,517
Accrued Expenses(857) 760
(8,522) (4,535)
Other Current Assets and Liabilities(352) (1,319)214
 (633)
Customer Advanced Payments and Deferred Revenue(13,287) 3,852
(3,831) (8,796)
Income Taxes4,610
 2,684
4,245
 2,416
Supplemental Retirement and Other Liabilities820
 615
341
 409
Cash Provided By Operating Activities20,875
 23,230
543
 26,779
Cash Flows From Investing Activities:      
Acquisition of Business, Net of Cash Acquired(52,615) (67,851)
 (52,615)
Capital Expenditures(12,277) (23,091)(2,450) (7,059)
Other Investing Activities(2,678) 

 (300)
Cash Used For Investing Activities(67,570) (90,942)(2,450) (59,974)
Cash Flows From Financing Activities:      
Proceeds from Long-term Debt55,000
 58,150
10,000
 40,000
Payments for Long-term Debt(6,331) (25,883)(7,604) (5,663)
Purchase of Outstanding Shares for Treasury(4,261) 
Debt Acquisition Costs
 (280)(164) 
Acquisition Earnout Payments(2) (42)
Proceeds from Exercise of Stock Options638
 804
451
 402
Income Tax Benefit from Exercise of Stock Options708
 1,261
529
 708
Cash Provided By Financing Activities50,013
 34,010
Cash (Used For) Provided By Financing Activities(1,049) 35,447
Effect of Exchange Rates on Cash(748) (108)186
 (886)
Increase (Decrease) in Cash and Cash Equivalents2,570
 (33,810)
(Decrease) Increase in Cash and Cash Equivalents(2,770) 1,366
Cash and Cash Equivalents at Beginning of Period21,197
 54,635
18,561
 21,197
Cash and Cash Equivalents at End of Period$23,767
 $20,825
$15,791
 $22,563
See notes to consolidated condensed financial statements.

6


ASTRONICS CORPORATION
Notes to Consolidated Condensed Financial Statements
July 4, 2015April 2, 2016
(Unaudited)
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.
All 2015 share quantities and per share data reported have been restated to reflect the impact of the three-for-twenty Class B stock distribution to shareholders of record on October 8, 2015.
Operating Results
The results of operations for any interim period are not necessarily indicative of results for the full year. Operating results for the three and six months ended July 4, 2015April 2, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.2016.
The balance sheet at December 31, 20142015 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 20142015 annual report on Form 10-K.
Description of the Business
Astronics Corporation (“Astronics” or the “Company”) is a leading supplier of products to the global aerospace, defense, electronics and semiconductor industries. Our products and services include advanced, high-performance electrical power generation, & distribution and motion systems, lighting & safety systems, avionics products, aircraft structures, engineering design and systems certification and automated test systems.
We have operations in the United States (“U.S.”), Canada and France. We design and build our products through our wholly owned subsidiaries Astronics Advanced Electronic Systems Corp. (“AES”); Astronics AeroSat Corporation (“AeroSat”); Ballard Technology, Inc. (“Ballard”); Astronics DME CorporationLLC (“DME”); Luminescent Systems, Inc. (“LSI”); Luminescent Systems Canada, Inc. (“LSI Canada”); Max-Viz, Inc. (“Max-Viz”); Peco, Inc. (“Peco”); PGA Electronic s.a. (“PGA”); Astronics Test Systems, Inc. (“ATS”) and Armstrong Aerospace, Inc. (“Armstrong”).
On January 14, 2015, the Company acquired 100% of the equity of Armstrong, located in Itasca, Illinois. Armstrong is a leading provider of engineering, design and systems certification solutions for commercial aircraft, specializing in connectivity, in-flight entertainment, and electrical power systems. Armstrong is included in our Aerospace segment.
On February 28, 2014, Astronics acquired, through a wholly owned subsidiary ATS, certain assets and liabilities of EADS North America’s Test and Services division, located in Irvine, California. ATS is a leading provider of highly engineered automated test systems, subsystems and instruments for commercial electronics and semiconductor products to both the commercial and defense industries. ATS is included in our Test Systems segment.
Cost of Products Sold, Engineering and Development and Selling, General and Administrative 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 developmentaldevelopment costs. 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 products sold. Research and development, design and related engineering amounted to $21.3$23.3 million and $20.6$22.2 million for the three months ended JulyApril 2, 2016 and April 4, 2015, and June 28, 2014, respectively, and $43.6 million and $37.9 million for the six months ended July 4, 2015 and June 28, 2014, respectively. Selling, general and administrative expenses include costs primarily related to our sales and marketing departments and administrative departments. Interest expense is shown net of interest income. Interest income was insignificant for the three and six months ended July 4, 2015April 2, 2016 and June 28, 2014.

7


Derivatives
In November 2014, the Company terminated its interest rate swap. Ineffectiveness was not significant for the three and six months ended June 28, 2014. The Company classified the cash flows from hedging transactions in the same category as the cash flows from the respective hedged items. No derivative instruments were outstanding at or for the three or six months ended JulyApril 4, 2015.
Foreign Currency Translation
The Company accounts for its foreign currency translation in accordance with Accounting Standards Codification (“ASC”) Topic 830, Foreign Currency Translation. The aggregate transaction gain or loss included in operations was insignificant for the three and six months ended JulyApril 2, 2016 and April 4, 2015 and June 28, 2014.
Loss Contingencies
Loss contingencies may from time to time arise from situations such as 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.2015.
Accounting Pronouncements Adopted in 20152016
There have been no recent accounting pronouncements that have had an impact on the Company’s financial statements.
Reclassification of Prior Year Presentation
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
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:
 
(In thousands)July 4,
2015
 December 31,
2014
April 2,
2016
 December 31,
2015
Finished Goods$32,784
 $28,763
$28,295
 $27,770
Work in Progress31,202
 28,488
23,482
 23,977
Raw Material69,432
 57,802
66,889
 63,720
$133,418
 $115,053
$118,666
 $115,467


8


3) Property, Plant and Equipment
The following table summarizes Property, Plant and Equipment as follows:
(In thousands)July 4,
2015
 December 31,
2014
April 2,
2016
 December 31,
2015
Land$11,162
 $10,008
$11,187
 $11,145
Buildings and Improvements78,900
 74,755
79,514
 78,989
Machinery and Equipment83,380
 73,062
91,656
 89,514
Construction in Progress5,417
 4,757
3,294
 3,282
178,859
 162,582
185,651
 182,930
Less Accumulated Depreciation52,530
 46,266
61,680
 58,188
$126,329
 $116,316
$123,971
 $124,742
4) Intangible Assets
The following table summarizes acquired intangible assets as follows:
 
 July 4, 2015 December 31, 2014  April 2, 2016 December 31, 2015
(In thousands)
Weighted
Average Life
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Weighted
Average Life
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Patents6 Years $2,146
 $1,171
 $2,146
 $1,077
5 Years $2,146
 $1,311
 $2,146
 $1,264
Non-compete Agreement5 Years 2,600
 238
 
 
4 Years 2,500
 604
 2,500
 479
Trade Names9 Years 10,230
 1,748
 8,304
 1,288
8 Years 10,250
 2,451
 10,217
 2,216
Completed and Unpatented Technology7 Years 24,079
 5,584
 18,107
 4,396
6 Years 24,115
 7,401
 24,056
 6,795
Backlog and Customer Relationships12 Years 107,928
 24,012
 93,448
 20,253
BacklogLess than 1 Year 11,202
 10,997
 11,202
 10,793
Customer Relationships12 Years 96,577
 18,393
 96,472
 16,770
Total Intangible Assets8 Years $146,983
 $32,753
 $122,005
 $27,014
6 Years $146,790
 $41,157
 $146,593
 $38,317
All acquired intangible assets other than goodwill and one trade name are being amortized. Amortization expense for acquired intangibles is summarized as follows:
 
Six Months Ended Three Months EndedThree Months Ended
(In thousands)July 4,
2015
 June 28,
2014
 July 4,
2015
 June 28,
2014
April 2,
2016
 April 4,
2015
Amortization Expense$5,772
 $4,904
 $2,920
 $2,437
$2,808
 $2,852

Amortization expense for acquired intangible assets expected for 20152016 and for each of the next five years is summarized as follows:
 
(In thousands)  
2015$11,452
201610,791
$10,770
201710,361
10,336
201810,048
10,023
20199,647
9,622
20209,094
9,088
20219,042


The Company also incurs amortization expense related to other assets. Such amortization expense was not significant in the three or six months ended July 4, 2015 and June 28, 2014.

9

Table of Contents


5) Goodwill
The following table summarizes the changes in the carrying amount of goodwill for 2015:the three months ended April 2, 2016:
 
(In thousands)December 31,
2014
 Acquisition 
Foreign
Currency
Translation
 July 4,
2015
December 31,
2015
 Acquisition 
Foreign
Currency
Translation
 April 2,
2016
Aerospace$100,153
 $15,174
 $(749) $114,578
$115,369
 $
 $373
 $115,742
Test Systems
 
 
 

 
 
 
$100,153
 $15,174
 $(749) $114,578
$115,369
 $
 $373
 $115,742

During the three months ended July 4, 2015, approximately $5.1 million was reclassified from goodwill to intangible assets as the Company continues the evaluation of the purchase price allocation of Armstrong.
6) Long-term Debt and Notes Payable
The Company’s obligations under the Credit Agreement as amended are jointly and severally guaranteed by each domestic subsidiary of the Company other than a non-material subsidiary. The obligations are secured by a first priority lien on substantially all of the Company’s and the guarantors’ assets.
In connection with the funding of the acquisition of ATS, the Company amended its existing credit facility to exercise its option to increase the revolving credit commitment. The credit agreement provided for a $125 million, five-year revolving credit facility maturing on June 30, 2018, of which $58.0 million was drawn to finance the acquisition. In addition, the Company was required to pay a commitment fee quarterly at a rate of between 25 and 50 basis points on the unused portion of the total revolving credit commitment, based on the Company’s leverage ratio.
On September 26, 2014, the Company modified and extended its existing credit facility (the “Original Facility”) by entering into the Fourth Amended and RestatedCompany's Credit Agreement (the “Agreement”). On the closing date, there were $180.5 millionconsists of term loans outstanding and $6 million of revolving loans outstanding under the Original Facility. Pursuant to the Agreement, the Original Facility was replaced with a $350 million revolving credit line with the option to increase the line by up to $150 million. The outstanding balances inOn January 13, 2016, the Original Facility were rolled intoCompany amended the Agreement on the date of entry. In addition,to add a new lender and extend the maturity date of the loans under the Agreement is nowcredit facility from September 26, 2019.2019 to January 13, 2021. At July 4, 2015April 2, 2016 there was $215.0$158.0 million outstanding on the revolving credit facility and there remains $133.9$190.9 million available, net of outstanding letters of credit. The credit facility allocates up to $20 million of the $350 million revolving credit line for the issuance of letters of credit, including certain existing letters of credit. At July 4, 2015,April 2, 2016, outstanding letters of credit totaled $1.1 million.
Covenants in the Agreement have been modified to where theThe maximum permitted leverage ratio of funded debt to Adjusted EBITDA (as defined in the Agreement) is 3.5 to 1, increasing to 4.0 to 1 for up to 2two fiscal quarters following the closing of an acquisition permitted under the Agreement. The Company will pay interest on the unpaid principal amount of the facility at a rate equal to one-, three- or six-month LIBOR plus between 137.5 basis points and 225 basis points based upon the Company’s leverage ratio. The Company will also pay a commitment fee to the lenders in an amount equal to between 17.5 basis points and 35 basis points on the undrawn portion of the credit facility, based upon the Company’s leverage ratio. The fixed charge coverage ratio under the Original Facility has been replaced withCompany must also maintain a minimum interest coverage ratio (Adjusted EBITDA to interest expense) of 3.0 to 1 for the term of the Agreement. The Company’s interest coverage ratio was 30.935.6 to 1 at July 4, 2015.April 2, 2016. The Company’s leverage ratio was 1.71.29 to 1 at July 4, 2015.April 2, 2016.
In the event of voluntary or involuntary bankruptcy of the Company or any subsidiary, all unpaid principal and other amounts owing under the 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, change of control, judgments over a certain amount, and cross default under other agreements give the Agent the option to declare all such amounts immediately due and payable.

10


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 12 to 60 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:
 
Six Months Ended Three Months EndedThree Months Ended
(In thousands)July 4,
2015
 June 28,
2014
 July 4,
2015
 June 28,
2014
April 2,
2016
 April 4,
2015
Balance at Beginning of Period$4,884
 $2,796
 $5,472
 $3,737
$5,741
 $4,884
Acquisitions500
 790
 
 

 500
Warranties Issued1,139
 876
 401
 547
661
 738
Warranties Settled(1,427) (803) (701) (469)(885) (726)
Reassessed Warranty Exposure223
 266
 147
 110
(395) 76
Balance at End of Period$5,319
 $3,925
 $5,319
 $3,925
$5,122
 $5,472
8) Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of tax benefits which are not expected to be realized.
ASC Topic 740-10 Overall - Uncertainty in Income Taxes (“ASC Topic 740-10”) clarifies the accounting and disclosure for uncertainty in tax positions. 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 uncertain tax benefits, any interest associated with that liability will be recorded as interest expense. Penalties, if any, would be recognized as operating expenses. There were no penalties or interest liability accrued as of July 4, 2015 or December 31, 2014, nor were any penalties or interest costs included in expense for the three or six months ended July 4, 2015 and June 28, 2014. 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 2012 through 2014 for federal purposes and 2011 through 2014 for state purposes.
The effective tax rates were approximately 34.5%30.4% and 33.9% for the six months and 34.6% and 34.0%34.4% for the three months ended JulyApril 2, 2016 and April 4, 2015, and June 28, 2014, respectively. The effective tax rate forin the secondfirst quarter and first six months of 2015 and 2014 were lower than2016 was favorably impacted by the inclusion of the federal statutory rate,research and development tax credit due to its permanent reinstatement in the domestic production activity deduction and lower effective tax rates on foreign income.

11

Tablefourth quarter of Contents2015. 


9) Shareholders’ Equity
The changes in shareholders’ equity for the sixthree months ended July 4, 2015April 2, 2016 are summarized as follows:
 
  Number of Shares  Number of Shares
(Dollars and Shares in thousands)Amount 
Common
Stock
 
Convertible
Class B Stock
Amount 
Common
Stock
 
Convertible
Class B Stock
Shares Authorized  40,000
 10,000
  40,000
 10,000
Share Par Value  $0.01
 $0.01
  $0.01
 $0.01
COMMON STOCK          
Beginning of Period$219
 16,608
 5,322
$256
 19,349
 6,220
Conversion of Class B Shares to Common Shares
 569
 (569)
 174
 (174)
Exercise of Stock Options3
 94
 102
1
 34
 46
End of Period$222
 17,271
 4,855
$257
 19,557
 6,092
ADDITIONAL PAID IN CAPITAL          
Beginning of Period$49,659
    $57,865
    
Stock Compensation Expense1,143
    597
    
Exercise of Stock Options1,343
    979
    
End of Period$52,145
    $59,441
    
ACCUMULATED OTHER COMPREHENSIVE LOSS          
Beginning of Period$(11,949)    $(15,064)    
Foreign Currency Translation Adjustment(3,214)    1,816
    
Retirement Liability Adjustment – Net of Tax323
    131
    
End of Period$(14,840)    $(13,117)    
RETAINED EARNINGS          
Beginning of Period$190,248
    $257,168
    
Net Income28,373
    11,485
    
End of Period$218,621
    $268,653
    
TREASURY STOCK     
Beginning of Period$
 
  
Purchase(4,261) 129
  
End of Period$(4,261) 129
  
TOTAL SHAREHOLDERS’ EQUITY          
Beginning of Period$228,177
    $300,225
    
          
End of Period$256,148
    $310,973
    

On February 24, 2016, the Company’s Board of Directors authorized the repurchase of up to $50 million of common stock (the “Buyback Program”). The Buyback Program allows the Company to purchase shares of its common stock in accordance with applicable securities laws on the open market or through privately negotiated transactions. The Buyback Program may be suspended or discontinued at any time. Under this program the Company has repurchased approximately 129,000 shares for $4.3 million.


10) Earnings Per Share
Basic and diluted weighted-average shares outstanding are as follows:
 
 Six Months Ended Three Months Ended
(In thousands)July 4,
2015
 June 28,
2014
 July 4,
2015
 June 28,
2014
Weighted Average Shares - Basic22,055
 21,616
 22,100
 21,684
Net Effect of Dilutive Stock Options765
 1,032
 736
 954
Weighted Average Shares - Diluted22,820
 22,648
 22,836
 22,638
The above information has been adjusted to reflect the impact of the one-for-five distribution of Class B Stock for shareholders of record on September 5, 2014.
 Three Months Ended
(In thousands)April 2,
2016
 April 4,
2015
Weighted Average Shares - Basic25,561
 25,313
Net Effect of Dilutive Stock Options838
 914
Weighted Average Shares - Diluted26,399
 26,227
Stock options with exercise prices greater than the average market price of the underlying common shares are excluded from the computation of diluted earnings per share because they are out-of-the-money and the effect of their inclusion would be anti-dilutive. There were noThe number of common shares covered by out-of-the-money stock options at July 4, 2015.April 2, 2016 was approximately 102,000 shares.

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11) Accumulated Other Comprehensive Loss and Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:
 
(In thousands)July 4,
2015
 December 31,
2014
April 2,
2016
 December 31,
2015
Foreign Currency Translation Adjustments$(6,568) $(3,354)$(6,155) $(7,971)
Retirement Liability Adjustment – Before Tax(12,726) (13,223)(10,711) (10,912)
Tax Benefit4,454
 4,628
3,749
 3,819
Retirement Liability Adjustment – After Tax(8,272) (8,595)(6,962) (7,093)
Accumulated Other Comprehensive Loss$(14,840) $(11,949)$(13,117) $(15,064)
The components of other comprehensive lossincome (loss) are as follows:
 
Six Months Ended Three Months EndedThree Months Ended
(In thousands)July 4,
2015
 June 28,
2014
 July 4,
2015
 June 28,
2014
April 2,
2016
 April 4,
2015
Foreign Currency Translation Adjustments$(3,214) $(568) $432
 $(182)$1,816
 $(3,646)
Change in Accumulated Income on Derivatives:       
Reclassification to Interest Expense
 34
 
 17
Mark to Market Adjustments for Derivatives
 (45) 
 (59)
Tax Expense
 3
 
 14
Change in Accumulated Income on Derivatives
 (8) 
 (28)
Retirement Liability Adjustments:          
Reclassifications to General and Administrative Expense:          
Amortization of Prior Service Cost260
 265
 130
 129
110
 130
Amortization of Net Actuarial Losses237
 54
 119
 27
91
 118
Tax Benefit(174) (111) (87) (50)(70) (87)
Retirement Liability Adjustment323
 208
 162
 106
131
 161
          
Other Comprehensive Loss$(2,891) $(368) $594
 $(104)
Other Comprehensive Income (Loss)$1,947
 $(3,485)

12) Supplemental Retirement Plan and Related Post Retirement Benefits
The Company has two non-qualified supplemental retirement defined benefit plans (“SERP” and “SERP II”) for certain executive officers. The following table sets forth information regarding the net periodic pension cost for the plans.
 
Six Months Ended Three Months EndedThree Months Ended
(In thousands)July 4,
2015
 June 28,
2014
 July 4,
2015
 June 28,
2014
April 2,
2016
 April 4,
2015
Service Cost$97
 $124
 $48
 $62
$44
 $48
Interest Cost422
 376
 211
 188
225
 211
Amortization of Prior Service Cost247
 260
 124
 130
104
 124
Amortization of Net Actuarial Losses225
 54
 112
 27
86
 112
Net Periodic Cost$991
 $814
 $495
 $407
$459
 $495

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Participants in the SERP 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:
 
Six Months Ended Three Months EndedThree Months Ended
(In thousands)July 4,
2015
 June 28,
2014
 July 4,
2015
 June 28,
2014
April 2,
2016
 April 4,
2015
Service Cost$3
 $1
 $2
 $1
$1
 $2
Interest Cost19
 16
 10
 8
11
 10
Amortization of Prior Service Cost13
 12
 6
 6
6
 6
Amortization of Net Actuarial Losses12
 
 7
 
5
 6
Net Periodic Cost$47
 $29
 $25
 $15
$23
 $24
13) Sales to Major Customers
The Company has a significant concentration of business with threetwo major customers, each in excess of 10% of consolidated sales. The loss of any of these customers would significantly, negatively impact our sales and earnings.
Sales to these threetwo customers represented 22%, 14% and 11%15% of consolidated sales for the six months ended July 4, 2015 and 20%, 13% and 18% for the three months ended July 4, 2015.April 2, 2016. Sales to these customers were in the Aerospace and Test Systems segments.segment. Accounts receivable from these customers at July 4, 2015April 2, 2016 was approximately $47.4$31.1 million.
The Company had sales to three customers in the Aerospace and Test Systems segments that represented 17%, 15% and 17% of consolidated sales for the six months ended June 28, 2014 and 15%, 14% and 23% of consolidated sales for the three months ended June 28, 2014.
14) 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 December 29, 2010, Lufthansa Technik AG (“Lufthansa”) filed a Statement of Claim in the Regional State Court of Mannheim, Germany. Lufthansa’s claim asserts that our subsidiary, AES sold, marketed and brought into use in Germany a power supply system which infringes upon a German patent held by Lufthansa. The relief sought by Lufthansa includes requiring AES to stop selling and marketing the allegedly infringing power supply system, a recall of allegedly infringing products sold to commercial customers since November 26, 2003 and compensation for damages. The claim does not specify an estimate of damages and a damages claim will be made by Lufthansa only if it receives a favorable ruling on the determination of infringement. The value of the dispute has been set by the Court to be €2 million. This is an estimate of the commercial value of the matter.



On February 6, 2015, the Regional State Court of Mannheim, Germany rendered its decision that the patent was infringed. The judgment does not require AES to recall products which are already installed in aircraft or have been sold to other end users. On July 15, 2015, Lufthansa advised AES of their intention to enforce the accounting provisions of the decision, which require AES to provide certain financial information regarding sales of the infringing product to enable Lufthansa to make an estimate of requested damages. AES is currently evaluating the information requirements. Additionally, if Lufthansa provides the additional required bank guaranteesguarantee specified in the decision, the Company may be required to ceaseoffer a recall of products which are in the distribution of infringing productschannels in Germany (if any).Germany. No such bank guarantee has been issued to date regarding this provision.date.

The Company appealed and believes it has valid defenses to refute the decision. The appeal process is estimated to extend up to two years. The enforcement of the accounting provision of the decision, as discussed above, has no impact on the appeals process. As a result, we do not currently have sufficient information to provide an estimate of AES’s potential exposure related to this matter. As loss exposure is neither probable nor estimable at this time, the Company has not recorded any liability with respect to this litigation as of July 4, 2015.April 2, 2016.

14


On November 26, 2014, Lufthansa filed a complaint in the United States District for the Western District of Washington. Lufthansa’s complaint in this action alleges that AES manufactures, uses, sells and offers for sale a power supply system which infringes upon a U.S. patent held by Lufthansa. The patent at issue in the U.S. action is based on technology similar to that involved in the German action. However,On April 25, 2016, the U.S. court will not be bound byCourt issued its ruling on claim construction, holding that the ultimate determination made bysole independent claim in the German court.patent is indefinite, rendering all claims in the patent indefinite.  Based on this ruling, AES intends to seek an order dismissing the case on the grounds that the patent is invalid and unenforceable.   Lufthansa may appeal the Court’s ruling.   The Company believes that it has valid defenses to refute Lufthansa’s claims and intends towould vigorously contest this matter vigorously. As this matter is in the early stages of fact discovery, we do not currently have sufficient information to provide an estimate of AES’s potential exposure related to this matter.any appeal.  As loss exposure is neither probable nor estimable at this time, the Company has not recorded any liability with respect to this litigation as of July 4, 2015.April 2, 2016.

15) Segment Information
Below are the sales and operating profit by segment for the three and six months ended JulyApril 2, 2016 and April 4, 2015 and June 28, 2014 and a reconciliation of segment operating profit to income before income taxes. Operating profit is net sales less cost of products sold and other operating expenses excluding interest and corporate expenses. Cost of products sold and other operating expenses are directly identifiable to the respective segment.
 
Six Months Ended Three Months EndedThree Months Ended
(Dollars in thousands)July 4,
2015
 June 28,
2014
 July 4,
2015
 June 28,
2014
April 2,
2016
 April 4,
2015
Sales          
Aerospace$274,522
 $243,895
 $132,170
 $121,523
$138,649
 $142,352
Less Intersegment Sales(340) 
Total Aerospace Sales138,309
 142,352
   
Test Systems60,327
 71,856
 40,986
 53,167
$21,221
 $19,341
Less Intersegment Sales(55) (237) 
 (127)
 (55)
60,272
 71,619
 40,986
 53,040
Total Test Systems Sales21,221
 19,286
Total Consolidated Sales$334,794
 $315,514
 $173,156
 $174,563
$159,530
 $161,638
Operating Profit and Margins          
Aerospace$43,673
 $38,251
 $20,271
 $20,761
$18,691
 $23,402
15.9% 15.7% 15.3% 17.1%13.5% 16.4 %
Test Systems7,638
 2,335
 9,863
 4,030
2,210
 (2,225)
12.7% 3.2% 24.1% 7.6%10.4% (11.5)%
Total Operating Profit51,311
 40,586
 30,134
 24,791
20,901
 21,177
15.3% 12.9% 17.4% 14.2%13.1% 13.1 %
Deductions from Operating Profit          
Interest Expense, Net of Interest Income2,357
 4,882
 1,111
 2,559
1,087
 1,246
Corporate Expenses and Other5,613
 4,478
 1,979
 2,310
3,302
 3,634
Income Before Income Taxes$43,341
 $31,226
 $27,044
 $19,922
$16,512
 $16,297
Identifiable Assets
Assets: 
(In thousands)July 4,
2015
 
December 31,
2014
April 2,
2016
 December 31,
2015
Aerospace$518,424
 $468,481
$513,756
 $510,884
Test Systems91,817
 69,247
75,051
 64,934
Corporate27,969
 25,182
25,014
 33,425
Total Assets$638,210
 $562,910
$613,821
 $609,243



15


16) 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
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 fairFair value is based upon an exit price model. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and involves consideration of factors specific to the asset or liability.
ASC Topic 820 establishesThe Company follows 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.
On a Recurring Basis:
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 asconsisted of July 4, 2015contingent consideration related to certain prior acquisitions, valued at zero at April 2, 2016 and December 31, 2014:
(In thousands)Classification Total Level 1 Level 2 Level 3
Acquisition contingent consideration         
July 4, 2015Current Liabilities $(308) 
 
 $(308)
December 31, 2014Current Liabilities 
 
 
 
July 4, 2015Other Liabilities $(175) 
 
 $(175)
December 31, 2014Other Liabilities $(1,651) 
 
 $(1,651)
Our2015, determind using Level 3 fair value liabilities represent contingent consideration recorded related to the 2011 Ballard acquisition, to be paid up to a maximum of $5.5 million if annual revenue growth targets are met in the years 2012 - 2016 and the 2013 AeroSat acquisition, to be paid up to a maximum of $53.0 million if annual revenue targets are met in the years 2014 and 2015. The change in the balance of contingent consideration during the three and six months ended July 4, 2015 is primarily due to fair value adjustments of $1.3 million, resulting from the re-evaluation of the probability of the achievement of the contingent consideration targets. This adjustment was recorded within SG&A expenses in the statement of operations.inputs.
Contingent consideration payments related to 2014 were insignificant.
The amounts recorded were calculated using an estimate of the probability of future revenue. The varying contingent payments were then discounted to the present value utilizing a discounted cash flow methodology. The contingent consideration liabilities have no observable Level 1 or Level 2 inputs.
On a Non-recurring Basis:
In accordance with the provisions of ASC Topic 350 Intangibles – Goodwill and Other, theThe 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 quantitative 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

16


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 the Company’s indefinite-lived intangible asset, 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 July 4, 2015, the fair value of goodwill and intangible assets classified using Level 3 inputs are comprised of the Armstrong goodwill and intangible assets acquired on January 14, 2015, which are currently valued based on management’s best estimates. When the accounting for the acquisition is finalized, these intangible assets will be valued using discounted cash flow methodology.
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 instruments also approximates fair value due to the variable rate feature of these instruments. As of July 4, 2015,April 2, 2016, the Company concluded that no indicators of impairment relating to intangible assets or goodwill existed and an interim test was not performed.

17) Recent Accounting Pronouncements

In May 2014,March 2016, the Financial Accounting Standards Board (“("FASB”) issued authoritativeAccounting Standards Update (“ASU”) 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”) which simplifies several aspects of the accounting for employee share-based payment transactions.  The guidance regarding revenue recognition.makes several modifications to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. In addition, ASU 2016-09 clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting periods beginning after December 15, 2016, although early adoption is permitted. The Company is currently assessing how the adoption of this standard will impact the financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”) which requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. The standard also requires additional disclosures by lessees and contains targeted changes to accounting by lessors. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. The guidance is required to be adopted at the earliest period presented using a modified retrospective approach. The Company is currently assessing the impact on the financial statements.

In May 2014, the FASB issued ASU 2014-9, Revenue from Contracts with Customers. This new standard is effective for reporting periods beginning after December 15, 2017, pursuant to the issuance of ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date issued in August 2015. The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. On July 9, 2015, the FASB voted to defer the effective date by one year to December 15, 2017 for interim and annual reporting periods beginning after that date and permitted earlyEarly adoption of the standard, butis not before the original effective date of December 15, 2016. Therefore, this authoritative guidance will be effective as of the Company’s first quarter of fiscal 2018.permitted. The Company is currently evaluating the impact thatimpacts of adoption of this guidance will have on its consolidated financial statements and disclosures.the implementation approach to be used.
In April 2015, the FASB issued authoritative guidance regarding the presentation of debt issuance costs. The authoritative guidance requires that all costs incurred to issue debt be presented in the balance sheet as a direct deduction from the carrying value of the debt. This authoritative guidance, which will be applied on a retrospective basis, will be effective as of the Company’s first quarter of fiscal 2016, with early adoption permitted. The Company plans to early adopt by the end of fiscal 2015 with no material impact on its consolidated financial statements and disclosures.
18) Acquisitions
Armstrong Aerospace, Inc.
On January 14, 2015, the Company purchased 100% of the equity of Armstrong for $52.6 million in cash. Armstrong, located in Itasca, Illinois, is a leading provider of engineering, design and certification solutions for commercial aircraft, specializing in connectivity, in-flight entertainment, and electrical power systems. Armstrong is included in our Aerospace segment. This transaction was not considered material to the Company’s financial position or results of operations.
Astronics Test Systems
On February 28, 2014, our wholly owned subsidiary, ATS, purchased substantially all All of the goodwill and

purchased intangible assets and liabilities of the Test and Services Division of EADS North America, Inc.are expected to be deductible for $69.4 million in cash, including a net working capital adjustment of $16.4 million. Located in Irvine, California, ATS is a leading provider of highly-engineered automated test systems, subsystems and instruments for the semiconductor, commercial electronics, commercial aerospace and defense industries. ATS provides fully customized testing systems and support services for these markets. It also designs and manufactures test equipment under the test instrument brands known as Racal and Talon. The acquisition strengthens our service offerings and expertise in the test market. This subsidiary is included in our Test Systems segment.tax purposes over 
15 years. The purchase price allocation for this acquisition has been finalized. Purchased intangible assets are deductible for tax purposes.

17


Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(The following should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Form 10-K for the year ended December 31, 2014.2015.)
OVERVIEW
Astronics Corporation (“Astronics” or the “Company”) is a leading supplier of products to the global aerospace, defense, consumer electronics and semiconductor industries. Our products and services include advanced, high-performance electrical power generation, & distribution and motion systems, lighting & safety systems, avionics products, aircraft structures, engineering design & systems certification and automated test systems.
Our Aerospace segment designs and manufactures products for the global aerospace industry. Product lines include lighting & safety systems, electrical power generation, distribution and motionsmotion systems, aircraft structures, engineering design &avionics products, systems certification and avionicsother products. Our Aerospace customers are the airframe manufacturers (OEM’s)("OEM") that build aircraft for the commercial, military and general aviation markets, suppliers to those OEM’s, aircraft operators such as airlines and branches of the U.S. Department of Defense as well as the Federal Aviation Administration and airport operators. Our Test Systems segment designs, develops, manufactures and maintains automated test systems that support the semiconductor, commercial electronics, aerospace, communications and weapons test systems as well as training and simulation devices for both commercial and military applications. In the Test Systems Segment,segment, Astronics’ products are sold to a global customer base including OEM's and prime government contractors for both commercial electronics and military products.
Our strategy is to increase our value by developing technologies and capabilities either internally or through acquisition, and using those capabilities to provide innovative solutions to the aerospace and defense, commercial electronics, semiconductor and other markets where our technology can be beneficial.
Important factors affecting our growth and profitability are the rate at which new aircraft are produced, government funding of military programs, our ability to have our products designed into new aircraft and the rates at which aircraft owners, including commercial airlines, refurbish or install upgrades to their aircraft. New aircraft build rates and aircraft owners spending on upgrades and refurbishments is cyclical and dependent on the strength of the global economy. Once designed into a new aircraft, the spare parts business is frequently retained by the Company. With the acquisition of ATS in 2014, futureFuture growth and profitability of the testTest Systems business is dependent on developing and procuring new and follow-on business in commercial electronics and semiconductor markets as well as with the military. The nature of our Test Systems business is such that it pursues large multi-year projects. There can be significant periods of time between orders in this business which may result in large fluctuations of sales and profit levels and backlog from period to period.
ACQUISITIONS
On January 14, 2015, the Company purchased 100% of the equity of Armstrong Aerospace, Inc. (“Armstrong”) for $52.6 million in cash. Specializing in connectivity, in-flight entertainment, and electrical power systems, Armstrong is a leading provider of engineering design and certification solutions for commercial aircraft, and is located in Itasca, Illinois. Armstrong is included in our Aerospace segment.
On February 28, 2014, Astronics completed the acquisition of substantially all of the assets and liabilities of EADS North America’s Test and Services division. ATS is located in Irvine, California and is a leading provider of highly engineered automated test systems, subsystems and instruments for the semiconductor, commercial electronics, commercial aerospace and defense industries. The purchase price was $69.4 million in cash. The addition of ATS complements products and technologies that the Test Systems segment offers.

18


CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK
 
Six Months Ended Three Months EndedThree Months Ended
(Dollars in thousands)July 4,
2015
 June 28,
2014
 July 4,
2015
 June 28,
2014
April 2,
2016
 April 4,
2015
Sales$334,794
 $315,514
 $173,156
 $174,563
$159,530
 $161,638
Gross Profit (sales less cost of products sold)$89,614
 $73,207
 $49,452
 $43,202
$39,483
 $40,162
Gross Margin26.8% 23.2% 28.6% 24.7%24.7% 24.8%
Selling, General and Administrative Expenses$43,916
 $37,099
 $21,297
 $20,721
$21,884
 $22,619
SG&A Expenses as a Percentage of Sales13.1% 11.8% 12.3% 11.9%13.7% 14.0%
Interest Expense, Net of Interest Income$2,357
 $4,882
 $1,111
 $2,559
$1,087
 $1,246
Effective Tax Rate34.5% 33.9% 34.6% 34.0%30.4% 34.4%
Net Income$28,373
 $20,651
 $17,690
 $13,144
$11,485
 $10,683
A discussion by segment can be found at “Segment Results of Operations and Outlook” in this MD&A.
CONSOLIDATED QUARTERLYFIRST QUARTER RESULTS
Consolidated sales for the secondfirst quarter of 20152016 were $173.2$159.5 million, down slightly1.3% over the same period last year. Aerospace sales decreased 2.8% to $138.3 million, while Test Systems sales were $21.2 million, an increase of 10% year over year.
Consolidated cost of products sold decreased $1.5 million to $120.0 million from $174.6$121.5 million for the same period last year, as strength in Aerospaceprimarily due to lower sales helped to offset lower Test Systems segment sales. The 2015 second quarter included $7.1volume. Engineering and development (“E&D”) costs were $23.3 million, in salesup from Armstrong Aerospace, Inc. (“Armstrong”), acquired on January 14, 2015. Organic sales for the quarter decreased $8.5 million, or 4.9%, on lower Test System segment sales.
Consolidated cost of products sold decreased $7.7 million to $123.7$22.2 million in the second quarter2015 first quarter. As a percent of 2015 from $131.4 million for the same period last year.  Cost of products soldsales, E&D was 14.6% and 13.8% in the second quarterfirst quarters of 2014 was negatively impacted by $8.7 million related to inventory step-up expense of acquired businesses, as compared to $0.1 million in the second quarter of 2015.  The incremental cost of products sold associated with Armstrong of $5.5 million were largely offset by lower cost of products sold resulting from the decreased sales volume in the Test Systems segment.  Consolidated cost of products sold as a percentage of sales was 71.4% in the second quarter of2016 and 2015, compared with 75.3% in the second quarter of 2014. E&D costs were $21.3 million in the second quarter of 2015 (12.3% of sales), compared to $20.6 million in last year’s second quarter (11.9% of sales).  The increase in E&D costs was attributable to the incremental E&D costs of Armstrong ($1.6 million). respectively.
Selling, general and administrative (“SG&A”) expenses were $21.3$21.9 million, or 12.3%13.7% of sales, in the second quarter of 2015 compared with $20.7$22.6 million, or 11.9%14.0% of sales, in the same period last year.
The increaseeffective tax rate for the first quarter was due primarily to the incremental SG&A costs of Armstrong, which added $1.6 million to SG&A30.4%, compared with 34.4% in the secondfirst quarter of 2015, including $0.7 million2015. The tax rate in the first quarter of amortization expense for acquired intangible assets2016 was favorably impacted by the inclusion of that business.the federal research and development tax credit due to its permanent reinstatement in the fourth quarter of 2015. 
Diluted earnings per share for the 2015 second2016 first quarter were $0.77$0.44 compared with $0.58$0.41 in the prior yearprior-year period.
CONSOLIDATED YEAR-TO-DATE RESULTSOUTLOOK
Consolidated sales forin 2016 are forecasted to be in the first six monthsrange of 2015 increased by $19.3 million, or 6.1%, to $334.8 million from $315.5 million for the same period last year. The acquisition of Armstrong contributed $13.8$665 million to consolidated sales, while consolidated organic sales increased $5.5 million, or 1.7%.

Consolidated cost of products sold increased $2.9$710 million. Approximately $572 million to $245.2$600 million in the first six months of 2015 from $242.3 million for the same period last year.  The increase was due primarily to the incremental cost of products sold associated with Armstrong of $10.4 million, cost of products sold resulting from increased organic sales volume and increased E&D costs.  Cost of products sold in the first six months of 2014 included $17.4 million related to inventory step-up expense, as compared to $0.7 million in the first six months of 2015.  Consolidated cost of products sold as a percentage of sales was 73.2% in the first six months of 2015 compared with 76.8% in the first six months of 2014. E&D costs were $43.6 million in the first six months of 2015 (13.0% of sales), compared to $37.9 million in last year’s second quarter (12.0% of sales).  The increase in E&D costs were largely attributable to the incremental E&D costs of Armstrong ($3.0 million). 
Selling, general and administrative (“SG&A”) expenses were $43.9 million, or 13.1% of sales, in the first six months of 2015 compared with $37.1 million, or 11.8% of sales, in the same period last year. The increase was due primarily to the incremental

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SG&A costs of Astronics Test Systems, Inc. (“ATS”, acquired on February 28, 2014) and Armstrong, which collectively added $4.4 million to SG&A in the first six months of 2015, including $1.7 million of amortization expense for acquired intangible assets of those businesses. Additionally, higher SG&A expense reflects increased headcount and compensation costs to support growth.
Diluted earnings per share for the first six months of 2015 were $1.24 compared with $0.91 for the same period last year period.
The effective tax rates were approximately 34.5% and 33.9% for the six months and 34.6% and 34.0% for the three months ended July 4, 2015 and June 28, 2014, respectively. The effective tax rate for the second quarter and first six months of 2015 and 2014 were lower than the federal statutory rate, due to the domestic production activity deduction and lower effective tax rates on foreign income.

For both the three and six months ended July 4, 2015, the earnings per share increase, as compared to the respective periods in the prior year,is due primarily to the increasein net income.
We expect consolidated sales in 2015 to be between $680 million and $715 million. Approximately $545 million to $570 million of forecasted 2015 revenue is expected from the Aerospace segment, whilewhich represents a decline in the high end of our previous range of $16 million. Expectations for Test Systems segment revenue in 2016 remains relatively unchanged at approximately $135$93 million to $145 million of the forecasted revenue is expected from the Test Systems segment.$110 million.
Our consolidatedConsolidated backlog at July 4, 2015April 2, 2016 was $352.0$276.8 million, of which approximately $263.0$229.8 million is expected to ship in 2015.2016.
We expect our capitalThe effective tax rate for 2016 is expected to be approximately 29% to 32%.
Capital equipment spending in 20152016 is planned to be in the range of $20 million to $27$25 million. E&D costs are estimated to be incontinue at roughly the range of $75 million to $80 million.same rate as 2015.
SEGMENT RESULTS OF OPERATIONS AND OUTLOOK
Operating profit, as presented below, is sales less cost of products sold and other operating expenses, excluding interest expense and other corporate expenses. Cost of products sold and other operating expenses are directly identifiable to the respective segment. Operating profit is reconciled to earnings before income taxes in Note 15 of the Notes to Consolidated Condensed Financial Statements included in this report.

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AEROSPACE SEGMENT
 Three Months Ended
(In thousands)April 2, 2016 April 4, 2015
Sales   
Aerospace$138,649
 $142,352
Less Intersegment Sales(340) 
Total Aerospace Sales$138,309
 $142,352
Operating Profit$18,691
 $23,402
Operating Margin13.5% 16.4%
    
Aerospace Sales by Market   
(In thousands)   
Commercial Transport$113,396
 $120,194
Military12,280
 9,258
Business Jet6,525
 8,092
Other6,108
 4,808
 $138,309
 $142,352
Aerospace Sales by Product Line   
(In thousands)   
Electrical Power & Motion$75,392
 $69,570
Lighting & Safety40,566
 42,077
Avionics7,474
 17,367
Systems Certification4,606
 4,574
Structures4,163
 3,956
Other6,108
 4,808
 $138,309
 $142,352
 Six Months Ended Three Months Ended
(In thousands)July 4, 2015 June 28, 2014 July 4, 2015 June 28, 2014
Sales$274,522
 $243,895
 $132,170
 $121,523
Operating Profit$43,673
 $38,251
 $20,271
 $20,761
Operating Margin15.9% 15.7% 15.3% 17.1%
        
Aerospace Sales by Market       
(In thousands)       
Commercial Transport$227,823
 $195,790
 $107,629
 $96,504
Military19,827
 21,310
 10,569
 12,352
Business Jet17,153
 18,175
 9,061
 8,308
Other9,719
 8,620
 4,911
 4,359
 $274,522

$243,895
 $132,170
 $121,523
Aerospace Sales by Product Line       
(In thousands)       
Electrical Power & Motion$137,415
 $126,482
 $67,844
 $60,651
Lighting & Safety79,985
 74,598
 37,907
 39,507
Avionics29,030
 25,250
 11,663
 12,497
Systems Certification10,344
 
 5,771
 
Structures8,029
 7,343
 4,074
 3,704
Other9,719
 10,222
 4,911
 5,164
 $274,522
 $243,895
 $132,170
 $121,523
(In thousands)July 4, 2015 December 31, 2014April 2, 2016 December 31, 2015
Total Assets$518,424
 $468,481
$513,756
 $510,884
Backlog$236,264
 $223,769
$214,769
 $212,651
AEROSPACE QUARTERLYFIRST QUARTER RESULTS
Aerospace segment sales increaseddecreased by $10.6$4.0 million, or 8.8%2.8%, when compared with the prior year’s second quarter to $132.2 million. Organic sales grew 2.9%, or $3.5$138.3 million and sales from Armstrong added $7.1 million.
Sales to the Commercial Transport market increased $11.1 million, of which $7.1 million was related to the acquisition of Armstrong, primarily comprised of Systems Certification sales. The remaining increase was primarily higher sales of Electrical Power & Motion products which increased $8.0 million or 13.9%, partially offset by lower sales of Avionics products. Sales of Avionics products to the Commercial Transport market decreased by $2.6 million. Sales to the Military market decreased $1.8 million when compared with last year’s second quarter as Electrical Power & Motion and Other product sales decreased. Sales to the Business Jet market increased $0.8 million compared with the same period last year as increased Avionics sales were partially offset by lower Lighting & Safety product sales.
Aerospace operating profit for the second quarter of 2015 was $20.3 million, or 15.3% of sales, compared with $20.8 million, or 17.1% of sales, in the same period last year. Operating margins were negatively affected by increased E&D spending, lower operating margin from the Armstrong business and a general increase of operating costs. Organic Aerospace E&D costs increased $0.4 million compared to last year’s second quarter. Aerospace SG&A expense increased $1.7 million in the second quarter of 2015 as compared with 2014. Incremental SG&A from Armstrong was $1.6 million, including $0.7 million of purchased intangible asset amortization expense for acquired intangible assets.
AEROSPACE YEAR-TO-DATE RESULTS
Aerospace segment sales increased by $30.6 million, or 12.6%, when compared with the prior year’s first six months, to $274.5 million. Organic sales grew 6.9%, or $16.8 million, and sales from Armstrong added $13.8 million.quarter.

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Sales to the Commercial Transport market increased $32.0 million, of which $13.8 million was related to the acquisition of Armstrong, primarily comprised of Systems Certification sales. The remaining increase was primarily higher sales of Electrical Power & Motion Lighting & Safety and Avionics products. Sales of Electrical Power & Motion products to the Commercial Transport market increased approximately $12.6sales grew $5.8 million, or 10.5%8.4%, largely driven by higher sales of in-seat power products, which were up 7.3%. Sales of Lighting & Safety products to the Commercial Transport market increasedThis increase was offset by $5.0 million. Sales ofa $9.9 million decline in Avionics products, to the Commercial Transport market increased by $3.3 million. Sales to the Military market decreased $1.5 million when compared with last year’s first six months,which is largely due to lower sales of Electrical Power & Motion and Other products, partially offset by higher sales of Lighting & Safety products to this market. Sales to the Business Jet market decreased $1.0 million during this period due to lower sales of Lighting & Safety products to this market.satellite antenna systems.
Aerospace operating profit for the first six months of 2015 was $43.7$18.7 million, or 15.9%13.5% of sales, compared with $38.3$23.4 million, or 15.7%16.4% of sales in the same period last year. Operating leverage gained on increasedprior year’s first quarter. Compared with the prior year, operating margins were negatively affected by lower sales volume for the organic business was partially offset by higher organic E&D costs of approximately $2.3 million. Aerospace SG&A expense increased $4.3 million in the first six monthsAvionics product line as well an increase in E&D expenses of 2015 as compared with 2014. Incremental SG&A from Armstrong was $2.7$0.9 million including $1.1 million of purchased intangible asset amortization expense for acquired intangible assets. The first six months of 2014 included inventory step-up costs of $2.4 million that reduced normal operating margins for that period.to $20.3 million.
AEROSPACE OUTLOOK
We expect 20152016 sales for our Aerospace segment to be in the range of $545$572 million to $570$600 million. The Aerospace segment’s backlog at the end of the secondfirst quarter of 20152016 was $236.3$214.8 million with approximately $187.6$184.2 million expected to be shipped over the remaining part of 20152016 and $214.6$195.9 million is expected to ship over the next 12 months.


TEST SYSTEMS SEGMENT
 
Six Months Ended Three Months EndedThree Months Ended
(In thousands)July 4, 2015 June 28, 2014 July 4, 2015 June 28, 2014April 2, 2016 April 4, 2015
Sales$60,327
 $71,856
 $40,986
 $53,167
$21,221
 $19,341
Less Intersegment Sales(55) (237) 
 (127)
 (55)
Net Sales$60,272
 $71,619
 $40,986
 $53,040
$21,221
 $19,286
Operating profit (loss)$7,638
 $2,335
 $9,863
 $4,030
$2,210
 $(2,225)
Operating Margin12.7% 3.2% 24.1% 7.6%10.4% (11.5)%
          
Test Systems Sales by Market          
(In thousands)          
Commercial Electronics$36,258
 $57,457
 $31,507
 $43,120
Military24,014
 14,162
 9,479
 9,920
Semiconductor$7,137
 $4,752
Aerospace & Defense14,084
 14,534
$60,272
 $71,619
 $40,986
 $53,040
$21,221
 $19,286
(In thousands)July 4, 2015 December 31, 2014April 2, 2016 December 31, 2015
Total Assets$91,817
 $69,247
$75,051
 $64,934
Backlog$115,770
 $146,964
$61,995
 $61,713

TEST SYSTEMS QUARTERLYFIRST QUARTER RESULTS
Sales inTest Systems segment sales increased $1.9 million to $21.2 million when compared with the secondfirst quarter of 2015 decreased $12.02015. Semiconductor test sales were up $2.4 million to $41.0$7.1 million, compared tomore than offsetting the same period$0.5 million, or 3%, decline in 2014, a decrease of 22.7%.Aerospace & Defense test sales.
Operating profit in the first quarter of 2016 was $9.9$2.2 million, or 24.1%10.4% of sales, compared with $4.0an operating loss of $2.2 million, or 7.6% of sales in last year’s second quarter. The 2014 second quarter reflects non-recurring purchase accounting-related inventory step-up costs of $8.7 million that reduced normal operating margins for that period. This effect was partially mitigated by a decrease in E&D costs of $1.3 million, to $2.8 million in the second quarter of 2015 from $4.1 million in the prior year period.

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TEST SYSTEMS YEAR-TO-DATE RESULTS
Sales in the first six months of 2015 decreased 15.8% to $60.3 million compared with sales of $71.6 million for the same period in 2014 due to lower shipments to the Commercial Electronics market. Sales to the Commercial Electronics market decreased $21.2 million compared with the same period in 2014, which was partially offset by increased sales of $9.9 million to the Military market.
Operating profit was $7.6 million, or 12.7% of sales, compared with $2.3 million, or 3.2%(11.5%) of sales, in the first six monthsquarter of 2014. The2015. Operating margins were positively affected by higher volume and initiatives to improve operating efficiencies. E&D costs were approximately $3.0 million in the first six monthsquarter of 2014 reflects inventory step-up costs of $15.02016 and $2.8 million that reduced normal operating margins in thatthe prior-year period.
TEST SYSTEMS OUTLOOK
We expect sales for the Test Systems segment for 20152016 to be in the range of $135$93 million to $145$110 million. The Test Systems segment’s backlog at the end of the secondfirst quarter of 20152016 was $115.7$62.0 million with approximately $75.4$45.7 million expected to be shipped over the remaining part of 20152016 and approximately $96.7$50.4 million scheduled to ship over the next 12 months.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities:
Cash provided by operating activities totaled $20.9$0.5 million for the first sixthree months of 2015,2016, as compared with $23.2$26.8 million during the same period in 2014.2015. Cash flow from operating activities decreased primarily due to the impact of increases in net operating assets for the first sixthree months of 20152016 when compared with the first sixthree months of 2014.2015.
Investing Activities:
Cash used for investing activities was $67.6$2.5 million for the first sixthree months of 20152016 compared with $90.9$60.0 million used in the same period of 2014.2015. Cash used for capital expenditures was $2.5 million in the first quarter of 2016 compared with $7.1 million in the prior year period. The Company expects capital spending in 2016 to be in the range of $20 million to $25 million. Cash used for the acquisition of Armstrong in January 2015 was $52.6 million. Cash used for capital expenditures was $12.3 million. The Company expects capital spending in 2015 to be in the range of $20 million to $27 million.


Financing Activities:
The primary financing activities in 20152016 relate to borrowings and payments on our senior credit facility to fund operations, and purchases of treasury stock as part of the acquisitionbuyback program announced on February 24, 2016, under which the Board of Armstrong.Directors authorized the repurchase of up to $50 million of common stock.
On February 28, 2014, in connection withThe Company’s obligations under the fundingCredit Agreement as amended are jointly and severally guaranteed by each domestic subsidiary of ATS, the Company amended its existing credit facility (the “Original Facility”) to exercise its option to increaseother than a non-material subsidiary. The obligations are secured by a first priority lien on substantially all of the revolving credit commitment. Company’s and the guarantors’ assets.
The Company's Credit Agreement provided for a $125 million five-year revolving credit facility maturing on June 30, 2018,consists of which $58.0 million was drawn to finance the acquisition.
On September 26, 2014, we modified and extended the Original Facility by entering into the Fourth Amended and Restated Credit Agreement (the “Agreement”). On the closing date, there were $180.5 million of term loans outstanding, $6 million of revolving loans outstanding and letters of credit with a face amount of $8.7 million outstanding under the Original Facility. Pursuant to the Agreement, the Original Facility was replaced with a $350 million revolving credit line with the option to increase the line by up to $150 million. The outstanding balances inOn January 13, 2016, the Original Facility were rolled intoCompany amended the Agreement on the date of entry. In addition,to add a new lender and extend the maturity date of the loans under the Agreement is nowcredit facility from September 26, 2019.
2019 to January 13, 2021. At July 4, 2015April 2, 2016 there was $215.0$158.0 million outstanding on the revolving credit facility and there remains $133.9$190.9 million available, net of outstanding letters of credit. The credit facility allocates up to $20 million of the $350 million revolving credit line for the issuance of letters of credit, including certain existing letters of credit. At July 4, 2015,April 2, 2016, outstanding letters of credit totaled $1.1 million.
The maximum permitted leverage ratio of funded debt to Adjusted EBITDA (as defined in the Agreement) is 3.5 to 1, increasing to 4.0 to 1 for up to two fiscal quarters following the closing of an acquisition permitted under the Agreement. The Company will pay interest on the unpaid principal amount of the facility at a rate equal to one-, three- or six-month LiborLIBOR plus between 137.5 basis points and 225 basis points based upon the Company’s leverage ratio. The Company will also pay a commitment fee to the Lenderslenders in an amount equal to between 17.5 basis points and 35 basis points on the undrawn portion of the credit facility, based upon the Company’s leverage ratio. The fixed charge coverage ratio under the Original Facility was replaced withCompany must maintain a minimum interest coverage ratio (EBITDA(Adjusted EBITDA to interest expense) of 3.0 to 1 for the term of the Agreement. At

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July 4, 2015, the Company was in compliance with all of the covenants pursuant to the credit facility. OurThe Company’s interest coverage ratio was 30.935.6 to 1 and theat April 2, 2016. The Company’s leverage ratio was 1.71.3 to 1 at July 4, 2015.April 2, 2016.
In the event of voluntary or involuntary bankruptcy of the Company or any subsidiary, all unpaid principal and other amounts owing under the 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, change of control, judgments over a certain amount, and cross default under other agreements give the Agent the option to declare all such amounts immediately due and payable.
The Company’s cash needs for working capital, debt service and capital equipment during 20152016 are expected to be met by cash flows from operations and cash balances and, if necessary, utilization of the revolving credit facility.
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.
BACKLOG
The Company’s backlog at July 4, 2015April 2, 2016 was $352.0$276.8 million compared with $370.7$274.4 million at December 31, 20142015 and $326.8$378.5 million at June 28, 2014.April 4, 2015.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table representsCompany's contractual obligations as of July 4, 2015:
 Payments Due by Period
(In thousands)Total 2015 2016-2017 2018-2019 After 2019
Long-term Debt$231,171
 $1,315
 $5,327
 $219,565
 $4,964
Purchase Obligations108,107
 101,219
 6,828
 60
 
Interest on Long-term Debt19,835
 3,989
 8,448
 7,067
 331
Supplemental Retirement Plan and Post Retirement Obligations21,780
 202
 807
 804
 19,967
Operating Leases9,295
 1,849
 4,104
 3,194
 148
Other Long-term Liabilities620
 19
 503
 26
 72
Total Contractual Obligations$390,808
 $108,593
 $26,017
 $230,716
 $25,482
Notes to Contractual Obligations Table
Purchase Obligations — Purchase obligations are comprised of the Company’sand commercial commitments for goods and serviceshave not changed materially from those disclosed in the normal course of business.Company's Form 10-K for the year ended December 31, 2015.
Long-Term Debt — See Part 1 Financial Information, Item 1 Financial Statements, Note 6, Long-Term Debt and Notes Payable included in this report.
Operating Leases — Operating lease obligations are primarily related to facility leases for our AES, AeroSat, Ballard, DME, Max-Viz, Peco and Luminescent Systems Canada.
MARKET RISK
The Company believes that there have been no material changes in the current year regarding the market risk information for its exposure to interest rate fluctuations. Although the majority of our sales, expenses and cash flows are transacted in U.S. dollars, we have exposure to changes in foreign currency exchange rates related to the Euro and the Canadian dollar. The Company believes that the impact of changes in foreign currency exchange rates in 20152016 have not been significant.

CRITICAL ACCOUNTING POLICIES
Refer to the Company’s annual report on Form 10-K for the year ended December 31, 20142015 for a complete discussion of the Company’s critical accounting policies.


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RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014,March 2016, the Financial Accounting Standards Board (“("FASB”) issued authoritativeAccounting Standards Update (“ASU”) 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”) which simplifies several aspects of the accounting for employee share-based payment transactions.  The guidance regarding revenue recognition.makes several modifications to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. In addition, ASU 2016-09 clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting periods beginning after December 15, 2016, although early adoption is permitted. The Company is currently assessing how the adoption of this standard will impact the financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”) which requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. The standard also requires additional disclosures by lessees and contains targeted changes to accounting by lessors. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. The guidance is required to be adopted at the earliest period presented using a modified retrospective approach. The Company is currently assessing how the adoption of the standard will impact the financial statements.

In May 2014, the FASB issued ASU 2014-9, Revenue from Contracts with Customers. This new standard is effective for reporting periods beginning after December 15, 2017, pursuant to the issuance of ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date issued in August 2015. The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. On July 9, 2015, the FASB voted to defer the effective date by one year to December 15, 2017 for interim and annual reporting periods beginning after that date and permitted earlyEarly adoption of the standard, butis not before the original effective date of December 15, 2016. Therefore, this authoritative guidance will be effective as of the Company’s first quarter of fiscal 2018.permitted. The Company is currently evaluating the impact thatimpacts of adoption of this guidance will have on its consolidated financial statements and disclosures.the implementation approach to be used.
In April 2015, the FASB issued authoritative guidance regarding the presentation of debt issuance costs. The authoritative guidance requires that all costs incurred to issue debt be presented in the balance sheet as a direct deduction from the carrying value of the debt. This authoritative guidance, which will be applied on a retrospective basis, will be effective as of the Company’s first quarter of fiscal 2016, with early adoption permitted. The Company plans to early adopt by the end of fiscal 2015 with no material impact on its consolidated financial statements and disclosures.
FORWARD-LOOKING STATEMENTS
Information included in this report that does not consist of historical facts, including statements accompanied by or containing words such as “may,” “will,” “should,” “believes,” “expects,” “expected,” “intends,” “plans,” “projects,” “approximate,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume” and “assume,” are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to several factors, risks and uncertainties, the impact or occurrence of which could cause actual results to differ materially from the expected results described in the forward-looking statements. Certain of these factors, risks and uncertainties are discussed in the sections of this report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” New factors, risks and uncertainties may emerge from time to time that may affect the forward-looking statements made herein. Given these factors, risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictive of future results. We disclaim any obligation to update the forward-looking statements made in this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Market Risk in Item 2, above.

Item 4. Controls and Procedures
 
a)The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of July 4, 2015.April 2, 2016. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of July 4, 2015.April 2, 2016.

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.

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PART II - OTHER INFORMATION
Item 1. 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 December 29, 2010, Lufthansa Technik AG (“Lufthansa”) filed a Statement of Claim in the Regional State Court of Mannheim, Germany. Lufthansa’s claim asserts that our subsidiary, AESAstronics Advanced Electonic Systems ("AES") sold, marketed and brought into use in Germany a power supply system which infringes upon a German patent held by Lufthansa. The relief sought by Lufthansa includes requiring AES to stop selling and marketing the allegedly infringing power supply system, a recall of allegedly infringing products sold to commercial customers since November 26, 2003 and compensation for damages. The claim does not specify an estimate of damages and a damages claim will be made by Lufthansa only if it receives a favorable ruling on the determination of infringement. The value of the dispute has been set by the Court to be €2 million. This is an estimate of the commercial value of the matter.

On February 6, 2015, the Regional State Court of Mannheim, Germany rendered its decision that the patent was infringed. The judgment does not require AES to recall products which are already installed in aircraft or have been sold to other end users. On July 15, 2015, Lufthansa advised AES of their intention to enforce the accounting provisions of the decision, which require AES to provide certain financial information regarding sales of the infringing product to enable Lufthansa to make an estimate of requested damages. AES is currently evaluating the information requirements. Additionally, if Lufthansa provides the additional required bank guaranteesguarantee specified in the decision, the Company may be required to ceaseoffer a recall of products which are in the distribution of infringing productschannels in Germany (if any).Germany. No such bank guarantee has been issued to date regarding this provision.date.

The Company appealed and believes it has valid defenses to refute the decision. The appeal process is estimated to extend up to two years. The enforcement of the accounting provision of the decision, as discussed above, has no impact on the appeals process. As a result, we do not currently have sufficient information to provide an estimate of AES’s potential exposure related to this matter. As loss exposure is neither probable nor estimable at this time, the Company has not recorded any liability with respect to this litigation as of July 4, 2015.April 2, 2016.

On November 26, 2014, Lufthansa filed a complaint in the United States District for the Western District of Washington. Lufthansa’s complaint in this action alleges that AES manufactures, uses, sells and offers for sale a power supply system which infringes upon a U.S. patent held by Lufthansa. The patent at issue in the U.S. action is based on technology similar to that involved in the German action. However,On April 25, 2016, the U.S. court will not be bound byCourt issued its ruling on claim construction, holding that the ultimate determination made bysole independent claim in the German court.patent is indefinite, rendering all claims in the patent indefinite.  Based on this ruling, AES intends to seek an order dismissing the case on the grounds that the patent is invalid and unenforceable.   Lufthansa may appeal the Court’s ruling.   The Company believes that it has valid defenses to refute Lufthansa’s claims and intends towould vigorously contest this matter vigorously. As this matter is in the early stages of fact discovery, we do not currently have sufficient information to provide an estimate of AES’s potential exposure related to this matter.any appeal.  As loss exposure is neither probable nor estimable at this time, the Company has not recorded any liability with respect to this litigation as of July 4, 2015.April 2, 2016.
Other than this proceeding, we are not party to any significant pending legal proceedings that management believes will result in material adverse effect on our financial condition or results of operations.
Item 1a Risk Factors
In addition to other information set forth in this report, you should carefully consider the factors discussed in Part 1, Item 1A. “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2014,2015, which could materially affect our business, financial condition or results of operations. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations.

Item 2. Unregistered sales of equity securities and use of proceeds
None(c) The following table summarizes our purchases of our common stock for the quarter ended April 2, 2016.

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Period(a) Total Number of Shares Purchased (1)(b) Average Price Paid Per Share(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(d) Maximum Dollar Value of Shares that may yet be Purchased Under the Program (2)
February 28 -
April 2, 2016
132,861$33.05129,093$45,739,193

(1) Includes 3,768 shares transferred to us by employees in connection with the exercise of stock options. The remainder were shares purchased in the open market pursuant to our repurchase program.

(2) On February 24, 2016, the Company’s Board of Directors authorized the repurchase of up to $50 million of common stock.

Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
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
*Submitted electronically herewith.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
   ASTRONICS CORPORATION
   (Registrant)
Date:August 11, 2015May 5, 2016 By:/s/ David C. Burney
    
David C. Burney
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

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