UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



ý	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~July 4, 2015~~April 2, 2016



¨	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 filer	ý	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, 22,126,070~~April 2, 2016, 25,520,160 shares of common stock were outstanding consisting of ~~17,270,738~~19,428,339 shares of common stock ($.01 par value) and ~~4,855,332~~6,091,821 shares of Class B common stock ($.01 par value).

~~Table of Contents~~

TABLE OF CONTENTS



			PAGE
PART 1I	FINANCIAL INFORMATION

	Item 1	Financial Statements:

		• Consolidated Condensed Balance Sheets as of ~~July 4, 2015~~April 2, 2016 and December 31, ~~2014~~2015	3

		• Consolidated Condensed Statements of Operations for the Three ~~and Six~~ Months Ended ~~July~~April 2, 2016 and April 4, 2015 ~~and June 28, 2014~~	4

		• Consolidated Condensed Statements of Comprehensive Income for the Three ~~and Six~~ Months Ended ~~July~~April 2, 2016 and April 4, 2015 ~~and June 28, 2014~~	5

		• Consolidated Condensed Statements of Cash Flows for the ~~Six~~Three Months Ended ~~July~~April 2, 2016 and April 4, 2015 ~~and June 28, 2014~~	6

		• Notes to Consolidated Condensed Financial Statements	7~~-18~~-17

	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18 – 2623

	Item 3	Quantitative and Qualitative Disclosures about Market Risk	2523

	Item 4	Controls and Procedures	2523

PART II	OTHER INFORMATION

	Item 1	Legal Proceedings	2624

	Item 1a	Risk Factors	2624

	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	2625

	Item 3	Defaults Upon Senior Securities	2725

	Item 4	Mine Safety Disclosures	2725

	Item 5	Other Information	2725

	Item 6	Exhibits	2725

SIGNATURES			2826

~~Table of Contents~~

Part 1I – Financial Information

Item 1. Financial Statements

ASTRONICS CORPORATION

Consolidated Condensed Balance Sheets

~~July 4, 2015~~April 2, 2016 with Comparative Figures for December 31, ~~2014~~2015

(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 Accounts	98,836			88,888			106,177			95,277
Inventories	133,418			115,053			118,666			115,467
Prepaid Expenses and Other Current Assets	18,057			20,680			16,403			20,662
Total Current Assets	274,078			245,818			257,037			249,967
Property, Plant and Equipment, Net of Accumulated Depreciation	126,329			116,316			123,971			124,742
Other Assets	8,995			5,632			11,438			10,889
Intangible Assets, Net of Accumulated Amortization	114,230			94,991			105,633			108,276
Goodwill	114,578			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 Payable	38,609			27,903			30,089			27,138
Accrued Expenses and Other Current Liabilities	35,996			33,465			27,516			35,758
Customer Advance Payments and Deferred Revenue	32,588			45,052			34,878			38,757
Total Current Liabilities	109,895			109,216			95,147			104,232
Long-term Debt	228,469			180,212			169,682			167,210
Other Liabilities	43,698			45,305			38,019			37,576
Total Liabilities	382,062			334,733			302,848			309,018
Shareholders’ Equity:
Common Stock	222			219			257			256
Accumulated Other Comprehensive Loss	(14,840		)	(11,949		)	(13,117		)	(15,064		)
Other Shareholders’ Equity	270,766			239,907			323,833			315,033
Total Shareholders’ Equity	256,148			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.

~~Table of Contents~~

ASTRONICS CORPORATION

Consolidated Condensed Statements of Operations

Three ~~and Six~~ Months Ended ~~July 4, 2015~~April 2, 2016 With Comparative Figures for ~~2014~~2015

(Unaudited)

(In thousands, except per share data)


	Six Months Ended				Three Months Ended				Three 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 Sold	245,180		242,307		123,704		131,361		120,047		121,476
Gross Profit	89,614		73,207		49,452		43,202		39,483		40,162
Selling, General and Administrative Expenses	43,916		37,099		21,297		20,721		21,884		22,619
Income from Operations	45,698		36,108		28,155		22,481		17,599		17,543
Interest Expense, Net of Interest Income	2,357		4,882		1,111		2,559		1,087		1,246
Income Before Income Taxes	43,341		31,226		27,044		19,922		16,512		16,297
Provision for Income Taxes	14,968		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.

~~Table of Contents~~

ASTRONICS CORPORATION

Consolidated Condensed Statements of Comprehensive Income

Three ~~and Six~~ Months Ended ~~July 4, 2015~~April 2, 2016 With Comparative Figures for ~~2014~~2015

(Unaudited)

(In thousands)


	Six Months Ended						Three Months Ended					Three 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 Tax	323			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.

~~Table of Contents~~

ASTRONICS CORPORATION

Consolidated Condensed Statements of Cash Flows

~~Six~~Three Months Ended ~~July 4, 2015~~April 2, 2016

With Comparative Figures for ~~2014~~2015

(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 Amortization	12,545			10,309			6,546			6,127
Provisions for Non-Cash Losses on Inventory and Receivables	957			510			563			(74		)
Stock Compensation Expense	1,143			866			597			506
Deferred Tax Benefit	(576		)	(2,765		)	(468		)	(40		)
Non-Cash Earnout Liability Adjustment	(1,268		)	(83		)
Other	158			(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 Payable	9,192			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 Taxes	4,610			2,684			4,245			2,416
Supplemental Retirement and Other Liabilities	820			615			341			409
Cash Provided By Operating Activities	20,875			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 Debt	55,000			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 Options	638			804			451			402
Income Tax Benefit from Exercise of Stock Options	708			1,261			529			708
Cash Provided By Financing Activities	50,013			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 Equivalents	2,570			(33,810		)
(Decrease) Increase in Cash and Cash Equivalents							(2,770		)	1,366
Cash and Cash Equivalents at Beginning of Period	21,197			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.

~~Table of Contents~~

ASTRONICS CORPORATION

Notes to Consolidated Condensed Financial Statements

~~July 4, 2015~~April 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, 2015~~April 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, ~~2014~~2015 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 ~~2014~~2015 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 ~~Corporation~~LLC (“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 ~~developmental~~development 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 ~~July~~April 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, 2015~~April 2, 2016 and ~~June 28, 2014.~~

~~Table of Contents~~

~~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 ~~July~~April 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 ~~2015~~2016

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 Progress	31,202		28,488		23,482		23,977
Raw Material	69,432		57,802		66,889		63,720
	$	133,418	$	115,053	$	118,666	$	115,467

~~Table of Contents~~

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 Improvements	78,900		74,755		79,514		78,989
Machinery and Equipment	83,380		73,062		91,656		89,514
Construction in Progress	5,417		4,757		3,294		3,282
	178,859		162,582		185,651		182,930
Less Accumulated Depreciation	52,530		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
Patents	6 Years	$	2,146	$	1,171	$	2,146	$	1,077	5 Years	$	2,146	$	1,311	$	2,146	$	1,264
Non-compete Agreement	5 Years	2,600		238		—		—		4 Years	2,500		604		2,500		479
Trade Names	9 Years	10,230		1,748		8,304		1,288		8 Years	10,250		2,451		10,217		2,216
Completed and Unpatented Technology	7 Years	24,079		5,584		18,107		4,396		6 Years	24,115		7,401		24,056		6,795
Backlog and Customer Relationships	12 Years	107,928		24,012		93,448		20,253
Backlog										Less than 1 Year	11,202		10,997		11,202		10,793
Customer Relationships										12 Years	96,577		18,393		96,472		16,770
Total Intangible Assets	8 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 Ended				Three 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 ~~2015~~2016 and for each of the next five years is summarized as follows:


(In thousands)
2015	$	11,452
2016	10,791		$	10,770
2017	10,361		10,336
2018	10,048		10,023
2019	9,647		9,622
2020	9,094		9,088
2021			9,042

~~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.~~

~~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 Restated~~Company's Credit Agreement ~~(the “Agreement”). On the closing date, there were $180.5 million~~consists 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 in~~On January 13, 2016, the ~~Original Facility were rolled into~~Company 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 now~~credit facility from September 26, ~~2019.~~2019 to January 13, 2021. At ~~July 4, 2015~~April 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 the~~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 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 with~~Company 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 ~~30.9~~35.6 to 1 at ~~July 4, 2015.~~April 2, 2016. The Company’s leverage ratio was ~~1.7~~1.29 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.

~~Table of Contents~~

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 Ended						Three 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
Acquisitions	500			790			—			—			—			500
Warranties Issued	1,139			876			401			547			661			738
Warranties Settled	(1,427		)	(803		)	(701		)	(469		)	(885		)	(726		)
Reassessed Warranty Exposure	223			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 ~~July~~April 2, 2016 and April 4, 2015, ~~and June 28, 2014,~~ respectively. The ~~effective~~ tax rate ~~for~~in the ~~second~~first quarter ~~and first six months~~ of ~~2015 and 2014 were lower than~~2016 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.~~

~~Table~~fourth quarter of ~~Contents~~2015.

9) Shareholders’ Equity

The changes in shareholders’ equity for the ~~six~~three months ended ~~July 4, 2015~~April 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 Options	3			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 Expense	1,143								597
Exercise of Stock Options	1,343								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 Tax	323								131
End of Period	$	(14,840	)						$	(13,117	)
RETAINED EARNINGS
Beginning of Period	$	190,248							$	257,168
Net Income	28,373								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 - Basic 22,055
21,616
22,100
21,684
Net Effect of Dilutive Stock Options 765
1,032
736
954
Weighted Average Shares - Diluted 22,820
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 - Basic	25,561	25,313
Net Effect of Dilutive Stock Options	838	914
Weighted Average Shares - Diluted	26,399	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 no~~The number of common shares covered by out-of-the-money stock options at ~~July 4, 2015.~~April 2, 2016 was approximately 102,000 shares.

~~Table of Contents~~

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 Benefit	4,454			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 ~~loss~~income (loss) are as follows:


	Six Months Ended						Three Months Ended						Three 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 Cost	260			265			130			129			110			130
Amortization of Net Actuarial Losses	237			54			119			27			91			118
Tax Benefit	(174		)	(111		)	(87		)	(50		)	(70		)	(87		)
Retirement Liability Adjustment	323			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 Ended				Three 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 Cost	422		376		211		188		225		211
Amortization of Prior Service Cost	247		260		124		130		104		124
Amortization of Net Actuarial Losses	225		54		112		27		86		112
Net Periodic Cost	$	991	$	814	$	495	$	407	$	459	$	495

~~Table of Contents~~

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 Ended				Three 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 Cost	19		16		10		8		11		10
Amortization of Prior Service Cost	13		12		6		6		6		6
Amortization of Net Actuarial Losses	12		—		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 ~~three~~two 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 ~~three~~two 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, 2015~~April 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 ~~guarantees~~guarantee specified in the decision, the Company may be required to ~~cease~~offer a recall of products which are in the distribution ~~of infringing products~~channels 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.

~~Table of Contents~~

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 by~~Court issued its ruling on claim construction, holding that the ~~ultimate determination made by~~sole 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 to~~would 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 ~~July~~April 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 Ended						Three 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 Sales													138,309			142,352

Test Systems	60,327			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 Sales													21,221			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 Systems	7,638			2,335			9,863			4,030			2,210			(2,225		)
	12.7		%	3.2		%	24.1		%	7.6		%	10.4		%	(11.5		)%
Total Operating Profit	51,311			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 Income	2,357			4,882			1,111			2,559			1,087			1,246
Corporate Expenses and Other	5,613			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 Systems	91,817		69,247		75,051		64,934
Corporate	27,969		25,182		25,014		33,425
Total Assets	$	638,210	$	562,910	$	613,821	$	609,243

~~Table of Contents~~

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 fair~~Fair 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 establishes~~The 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, 2015~~contingent 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, 2015 Current Liabilities $ (308 ) —
—
$ (308 )
December 31, 2014 Current Liabilities —
—
—
—
July 4, 2015 Other Liabilities $ (175 ) —
—
$ (175 )
December 31, 2014 Other Liabilities $ (1,651 ) —
—
$ (1,651 )

~~Our~~2015, 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,~~ ~~the~~The Company estimates the fair value of reporting units, utilizing unobservable Level 3 inputs. Level 3 inputs require significant management judgment due to the absence of quoted market prices or observable inputs for assets of a similar nature. The Company utilizes a discounted cash flow analysis to estimate the fair value of reporting units utilizing unobservable inputs. The fair value measurement of the reporting unit under the step-one and step-two analysis of the 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

~~Table of Contents~~

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 ~~authoritative~~Accounting 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 early~~Early adoption ~~of the standard, but~~is 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 that~~impacts 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.~~

~~Table of Contents~~



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 ~~motions~~motion systems, aircraft structures, ~~engineering design &~~avionics products, systems certification and ~~avionics~~other 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, future~~Future growth and profitability of the ~~test~~Test 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.

~~Table of Contents~~

CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK


	Six Months Ended						Three Months Ended						Three 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 Margin	26.8		%	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 Sales	13.1		%	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 Rate	34.5		%	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 QUARTERLY~~FIRST QUARTER RESULTS

Consolidated sales for the ~~second~~first quarter of ~~2015~~2016 were ~~$173.2~~$159.5 million, down ~~slightly~~1.3% 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 Aerospace~~primarily due to lower sales ~~helped to offset lower Test Systems segment sales. The 2015 second quarter included $7.1~~volume. Engineering and development (“E&D”) costs were $23.3 million, ~~in sales~~up 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 quarter~~2015 first quarter. As a percent of ~~2015 from $131.4 million for the same period last year. Cost of products sold~~sales, E&D was 14.6% and 13.8% in the ~~second quarter~~first 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 ~~increase~~effective tax rate for the first quarter was ~~due primarily to the incremental SG&A costs of Armstrong, which added $1.6 million to SG&A~~30.4%, compared with 34.4% in the ~~second~~first quarter of ~~2015, including $0.7 million~~2015. The tax rate in the first quarter of ~~amortization expense for acquired intangible assets~~2016 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 second~~2016 first quarter were ~~$0.77~~$0.44 compared with ~~$0.58~~$0.41 in the ~~prior year~~prior-year period.

CONSOLIDATED ~~YEAR-TO-DATE RESULTS~~OUTLOOK

Consolidated sales ~~for~~in 2016 are forecasted to be in the ~~first six months~~range 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

~~Table of Contents~~

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, ~~while~~which 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 consolidated~~Consolidated backlog at ~~July 4, 2015~~April 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 capital~~The effective tax rate for 2016 is expected to be approximately 29% to 32%.

Capital equipment spending in ~~2015~~2016 is planned to be in the range of $20 million to ~~$27~~$25 million. E&D costs are estimated to ~~be in~~continue 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.

~~Table of Contents~~

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 Margin	13.5		%	16.4		%

Aerospace Sales by Market
(In thousands)
Commercial Transport	$	113,396		$	120,194
Military	12,280			9,258
Business Jet	6,525			8,092
Other	6,108			4,808
	$	138,309		$	142,352
Aerospace Sales by Product Line
(In thousands)
Electrical Power & Motion	$	75,392		$	69,570
Lighting & Safety	40,566			42,077
Avionics	7,474			17,367
Systems Certification	4,606			4,574
Structures	4,163			3,956
Other	6,108			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 Margin 15.9 % 15.7 % 15.3 % 17.1 %

Aerospace Sales by Market
(In thousands)
Commercial Transport $ 227,823
$ 195,790
$ 107,629
$ 96,504
Military 19,827
21,310
10,569
12,352
Business Jet 17,153
18,175
9,061
8,308
Other 9,719
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 & Safety 79,985
74,598
37,907
39,507
Avionics 29,030
25,250
11,663
12,497
Systems Certification 10,344
—
5,771
—
Structures 8,029
7,343
4,074
3,704
Other 9,719
10,222
4,911
5,164
$ 274,522
$ 243,895
$ 132,170
$ 121,523


(In thousands)	July 4, 2015		December 31, 2014		April 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 ~~QUARTERLY~~FIRST QUARTER RESULTS

Aerospace segment sales ~~increased~~decreased 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.

~~Table of Contents~~

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 $12.6~~sales 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 increased~~This increase was offset by ~~$5.0 million. Sales of~~a $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 increased~~prior 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 months~~Avionics 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 ~~2015~~2016 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 ~~second~~first quarter of ~~2015~~2016 was ~~$236.3~~$214.8 million with approximately ~~$187.6~~$184.2 million expected to be shipped over the remaining part of ~~2015~~2016 and ~~$214.6~~$195.9 million is expected to ship over the next 12 months.

TEST SYSTEMS SEGMENT


	Six Months Ended						Three Months Ended						Three Months Ended
(In thousands)	July 4, 2015			June 28, 2014			July 4, 2015			June 28, 2014			April 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 Margin	12.7		%	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
Military	24,014			14,162			9,479			9,920
Semiconductor													$	7,137		$	4,752
Aerospace & Defense													14,084			14,534
	$	60,272		$	71,619		$	40,986		$	53,040		$	21,221		$	19,286


(In thousands)	July 4, 2015		December 31, 2014		April 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 ~~QUARTERLY~~FIRST QUARTER RESULTS

~~Sales in~~Test Systems segment sales increased $1.9 million to $21.2 million when compared with the ~~second~~first quarter of ~~2015 decreased $12.0~~2015. Semiconductor test sales were up $2.4 million to ~~$41.0~~$7.1 million, ~~compared to~~more 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 ~~$4.0~~an 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.

~~Table of Contents~~

~~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 months~~quarter of ~~2014. The~~2015. 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 months~~quarter of ~~2014 reflects inventory step-up costs of $15.0~~2016 and $2.8 million ~~that reduced normal operating margins~~ in ~~that~~the prior-year period.

TEST SYSTEMS OUTLOOK

We expect sales for the Test Systems segment for ~~2015~~2016 to be in the range of ~~$135~~$93 million to ~~$145~~$110 million. The Test Systems segment’s backlog at the end of the ~~second~~first quarter of ~~2015~~2016 was ~~$115.7~~$62.0 million with approximately ~~$75.4~~$45.7 million expected to be shipped over the remaining part of ~~2015~~2016 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 ~~six~~three 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 ~~six~~three months of ~~2015~~2016 when compared with the first ~~six~~three months of ~~2014.~~2015.

Investing Activities:

Cash used for investing activities was ~~$67.6~~$2.5 million for the first ~~six~~three months of ~~2015~~2016 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 ~~2015~~2016 relate to borrowings and payments on our senior credit facility to fund operations, and purchases of treasury stock as part of the ~~acquisition~~buyback 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 with~~The Company’s obligations under the ~~funding~~Credit 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 increase~~other 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 in~~On January 13, 2016, the ~~Original Facility were rolled into~~Company 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 now~~credit facility from September 26, ~~2019.~~

2019 to January 13, 2021. At ~~July 4, 2015~~April 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 ~~Libor~~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~~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 was replaced with~~Company 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

~~Table of Contents~~

~~July 4, 2015, the Company was in compliance with all of the covenants pursuant to the credit facility. Our~~The Company’s interest coverage ratio was ~~30.9~~35.6 to 1 ~~and the~~at April 2, 2016. The Company’s leverage ratio was ~~1.7~~1.3 to 1 at ~~July 4, 2015.~~April 2, 2016.

The Company’s cash needs for working capital, debt service and capital equipment during ~~2015~~2016 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, 2015~~April 2, 2016 was ~~$352.0~~$276.8 million compared with ~~$370.7~~$274.4 million at December 31, ~~2014~~2015 and ~~$326.8~~$378.5 million at ~~June 28, 2014.~~April 4, 2015.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The ~~following table represents~~Company'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 Obligations 108,107
101,219
6,828
60
—
Interest on Long-term Debt 19,835
3,989
8,448
7,067
331
Supplemental Retirement Plan and Post Retirement Obligations 21,780
202
807
804
19,967
Operating Leases 9,295
1,849
4,104
3,194
148
Other Long-term Liabilities 620
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’s~~and commercial commitments ~~for goods and services~~have 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 ~~2015~~2016 have not been significant.

CRITICAL ACCOUNTING POLICIES

Refer to the Company’s annual report on Form 10-K for the year ended December 31, ~~2014~~2015 for a complete discussion of the Company’s critical accounting policies.

~~Table of Contents~~

RECENT ACCOUNTING PRONOUNCEMENTS

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

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.

~~Table of Contents~~

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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~~Astronics 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.

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.



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	$33.05	129,093	$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.

~~Table of Contents~~

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.

~~Table of Contents~~

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, 2015~~May 5, 2016	By:	/s/ David C. Burney
			David C. Burney Executive Vice President and Chief Financial Officer (Principal Financial Officer)

2826



(In thousands)	Classification	Total			Level 1	Level 2	Level 3
Acquisition contingent consideration
July 4, 2015	Current Liabilities	$	(308	)	—	—	$	(308	)
December 31, 2014	Current Liabilities	—			—	—	—
July 4, 2015	Other Liabilities	$	(175	)	—	—	$	(175	)
December 31, 2014	Other Liabilities	$	(1,651	)	—	—	$	(1,651	)



	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 Obligations	108,107		101,219		6,828		60		—
Interest on Long-term Debt	19,835		3,989		8,448		7,067		331
Supplemental Retirement Plan and Post Retirement Obligations	21,780		202		807		804		19,967
Operating Leases	9,295		1,849		4,104		3,194		148
Other Long-term Liabilities	620		19		503		26		72
Total Contractual Obligations	$	390,808	$	108,593	$	26,017	$	230,716	$	25,482