SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended July 4, 1998
[ ] 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 16-0959303
_________________________________________________________________
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1801 Elmwood Avenue, Buffalo, New York 14207
_________________________________________________________________
(Address of Principal Executive Office) (Zip Code)
716-447-9013
_________________________________________________________________
(Registrant's Telephone Number, Including Area Code)
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
(or such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
As of July 4, 1998, 4,330,772 shares of $.01 par value common
stock and 703,489 shares of $.01 par value Class B common stock
were outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ASTRONICS CORPORATION
Consolidated Balance Sheet
July 4, 1998
With Comparative Figures for December 31, 1997
ASSETS
(Dollars in Thousands)
July 4, 1998 December 31,
(Unaudited) 1997
____________ ____________
Current Assets:
Cash $ 146 $ 740
Accounts receivable 5,087 4,443
Inventories:
Finished goods 1,311 1,740
Work in process 1,191 879
Raw material 2,475 2,142
Prepaid expenses 330 415
________ ________
Total current assets 10,540 10,359
Property, Plant and Equipment 38,194 34,773
Less accumulated depreciation
and amortization 17,926 16,613
________ ________
Net property, plant and
equipment 20,268 18,160
Other Assets 1,667 1,722
________ ________
$ 32,475 $ 30,241
======== ========
See notes to financial statements.
ASTRONICS CORPORATION
Consolidated Balance Sheet
July 4, 1998
With Comparative Figures for December 31, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
(Dollars in Thousands)
July 4, 1998 December 31,
(Unaudited) 1997
____________ ____________
Current Liabilities:
Current maturities of long-term
debt $ 445 $ 1,194
Accounts payable 2,284 2,564
Accrued expenses 1,518 1,942
Income taxes 38 360
________ ________
Total current liabilities 4,285 6,060
Long-Term Debt 4,650 2,110
Long-Term Obligations under
Capital Leases 992 1,194
Deferred Income Taxes 847 822
Deferred Compensation 1,918 1,857
Shareholders' Equity:
Common stock, $.01 par value
Authorized 10,000,000 shares,
issued 4,672,718 in 1998,
4,642,910 in 1997 47 46
Class B common stock, $.01 par value
Authorized 5,000,000 shares,
issued 703,489 in 1998, 715,797
in 1997 7 7
Additional paid-in capital 2,538 2,520
Retained earnings 18,206 16,640
________ ________
20,798 19,213
Less shares in Treasury, at cost 1,015 1,015
________ ________
Total shareholders' equity 19,783 18,198
$ 32,475 $ 30,241
======== ========
See notes to financial statements.
ASTRONICS CORPORATION
Consolidated Statement of Income and Retained Earnings
Period Ended July 4, 1998
With Comparative Figures for 1997
(Dollars in Thousands)
(Unaudited)
SIX MONTHS THREE MONTHS
1998 1997 1998 1997
Net Sales $ 21,353 $ 19,313 $ 10,296 $ 9,688
Costs and Expenses:
Cost of products sold 14,953 13,240 7,261 6,597
Selling, general and
administrative expenses 3,765 3,825 1,661 1,952
Interest expenses, net of
interest income of $0 in
1998 and $ 13 in 1997 180 235 103 126
_______ _______ _______ _______
Total costs and expenses 18,898 17,300 9,025 8,675
_______ _______ _______ _______
Income before taxes 2,455 2,013 1,271 1,013
Provision for income taxes 889 784 450 367
_______ _______ _______ _______
Net Income 1,566 1,229 821 646
_______ _______ _______ _______
Retained Earnings:
January 1 16,640 13,089
_______ _______
July 4 $18,206 $14,318
======= =======
Earnings per share:
Basic $ .31 $ .25 $ .16 $ .13
======= ======= ======= =======
Diluted $ .29 $ .23 $ .15 $ .12
======= ======= ======= =======
See notes to financial statements.
ASTRONICS CORPORATION
Consolidated Statement of Cash Flows
Six Months Ended July 4, 1998
With Comparative Figures for 1997
(Dollars in Thousands)
July 4, 1998 December 31,
(Unaudited) 1997
____________ ____________
Cash Flows from Operating
Activities:
Net income $ 1,566 $ 1,229
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization 1,388 1,342
Provision for doubtful accounts 44 (43)
Provision for deferred taxes 25 187
Cash flows from changes in
operating assets and liabilities:
Accounts receivable (688) (380)
Inventories (216) (72)
Prepaid expenses 85 451
Accounts payable (280) 257
Accrued expenses (424) (346)
Income taxes (322) (951)
Deferred compensation 61 74
________ ________
Net Cash provided (used) by Operating
Activities: $ 1,239 $ 1,748
________ ________
Cash Flows from Investing
Activities:
Change in other assets (20) (41)
Capital expenditures (3,420) (1,882)
________ ________
Net Cash provided (used) by
Investing Activities $ (3,440) $ (1,923)
________ ________
Cash Flows from Financing
Activities:
New long-term debt 2,560 950
Principal payments on long-term
debt and capital lease
obligations (971) (1,323)
Proceeds from issuance of stock 18 149
Purchase of Treasury Stock 0 (532)
________ ________
Net Cash provided (used) by
Financing Activities $ 1,607 $ (756)
________ ________
Net increase (decrease) in Cash
and Cash Equivalents (594) (931)
Cash and Cash Equivalents at
Beginning of Year 740 1,130
________ ________
Cash and Cash Equivalents at
July 4 $ 146 $ 199
======== ========
Disclosure of cash payments for:
Interest $ 171 $ 254
Income taxes 1,188 1,548
See notes to financial statements.
ASTRONICS CORPORATION
Notes to Financial Statements
July 4, 1998
1) The interim financial statements are unaudited, but, in the
opinion of management, reflect all adjustments necessary for
a fair presentation of results for such periods. The
results of operations for any interim period are not
necessarily indicative of results for the full year. These
financial statements should be read in conjunction with the
financial statements and notes thereto contained in the
Company's annual report for the year ended December 31,
1997.
ASTRONICS CORPORATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following table sets forth as a percent of net sales certain
items reflected in the financial data and the percentage increase
(decrease) of such items as compared to the prior period.
Percent of Net Period-to-Period
Sales
Three months Increase (Decrease)
ended July 4,
1998 1997 1997-1998
Net Sales:
Aerospace and Electronics 54.7% 50.6% 19.3%
Specialty Packaging 45.3 49.4 1.6%
______ ______
100.0% 100.0% 10.6%
Cost of products sold 70.0 68.6 12.9%
Selling, general and
administrative expenses 17.6 19.8 (1.6)%
Interest expenses, net .9 1.2 (23.4)%
______ ______
88.5% 89.6% 9.2%
Income before provision
for income taxes 11.5% 10.4% 22.0%
Provision for taxes 4.2 4.0 13.4%
______ ______
Net Income 7.3% 6.4% 27.4%
====== ======
INTRODUCTION Astronics Corporation operates in two business
segments: Aerospace and Electronics; and Specialty
Packaging. The Company changed the name of its
Electronics Systems segment in 1997 to Aerospace
and Electronics to better reflect its products and
market focus. This business segment designs,
manufactures and markets electroluminescent lamps
and incorporates them into escape path lighting
systems, aircraft cockpit lighting systems,
military aircraft formation lighting, and
ruggedized and avionics keyboards.
On April 24, 1998, the Company announced that the
United States Air Force had selected its
Luminescent Systems Inc. subsidiary to design,
develop and manufacture night vision lighting
modification kits for the NVIS F-16 program. The
contract with the Air Force is potentially valued
in excess of $50,000,000. The initial award is for
377 F-16 aircraft to be completed by the end of
1999 for a value in excess of $16,000,000. An
additional 779 units, upon exercise of the
government's option, would be manufactured in the
following two years.
On July 1, 1997, the Company renegotiated the
interest rate terms on its Revolving Line of
Credit. Under the new terms, the Company's
interest rate is LIBOR plus 100 basis points, or
the bank's prime rate. No other terms or
conditions were changed in the agreement,
On October 30, 1996, effective September 30, 1996,
Astronics Corporation sold its Rodgard Division, a
manufacturer of thick walled elastomeric products.
Sales for the nine months of 1996 totaled
$1,494,000.
SALES A new record for Second Quarter sales was achieved
with a sales increase of 6.3 percent over the
record established in 1997. Sales were $10,296,000
compared to $9,688,000 in 1997 and $9,683,000 in
1996. Sales for the First Half of 1998 increased
10.6 percent (also a new record for the first six
months of the year), compared to a 6.9 percent
increase in 1997 from continuing operations
[eliminating the Rodgard Division sales for 1996].
Sales in the Aerospace and Electronics business
segment increased 19.3 percent in 1998, while they
were nominally the same in 1997, based on
continuing operations. In 1996, sales increased
87.3 percent, substantially the result of the
November 1995 acquisition of Loctite Luminescent
Systems, Inc. Sales in 1998 have been strong in
formation lighting systems, panels for airplane
cockpit systems, and egress lighting systems for
commercial airplanes. The Company's order activity
has increased in 1998. Pricing is nominally the
same as in 1997.
Sales in the Specialty Packaging segment increased
nominally (1.6 percent) in 1998, compared to 16.7
percent in 1997 and 8.4 percent in 1996. 1998
sales have been affected by customer timing,
reflecting closer management of their inventories.
The Company continues to expand its market share
through focus on customer service with on-time
deliveries, high quality products and short
turnaround times. Price increases have been
nominal, but the pressure to reduce pricing
continues to moderate.
BACKLOG The Company's backlog increased 84.7 percent over
the Second Quarter of 1997 to a new all time
record of $20,401,000. This compares to
$10,800,000 at December 31, 1997. The backlog at
the end of the Second Quarter of 1997 was
$11,048,000. The backlog is composed of
$18,781,000 in the Aerospace and Electronics
segment and $1,620,000 in the Specialty Packaging
segment.
EXPENSES Cost of products sold increased slightly in 1998
to 70.0 percent of sales compared to 68.6 percent
in 1997 and 72.1 percent of sales in 1996. The
increase in 1998 reflects higher material and
employee costs. Material costs were 20.4 percent
of sales in 1998, compared to 19.7 percent in
1997, and compared to 24.9 percent in 1996.
Employee cost increases reflect additional
personnel supporting the technical aspects of the
businesses. These costs were 29.9 percent of
sales in 1998, compared to 28.8 percent in 1997
and 27.1 percent in 1996. The decrease in overall
product costs in 1997 resulted from improved
productivity and the reduction of tooling and
supply costs in technology transitions. As a
percent of sales, the Company experienced slightly
higher rental and repair costs, while the
remaining general categories decreased as a
percentage of sales. While costs increased at a
greater rate than sales, 12.9 percent compared to
10.6 percent, actual Gross Profit dollars
increased to $6,400,000 in 1998, compared to
$6,073,000 in 1997, and $5,369,000 in 1996.
Selling, general and administrative expenses,
which tend to be more fixed in nature, continued
to decrease as a percentage of sales: 17.6 percent
of sales in 1998, 19.8 percent of sales in 1997,
and 19.9 percent of sales in 1996. The majority of
these costs are for employee services (60.4
percent), marketing expenses (14.4 percent), and
operating supplies (14.5 percent). These
percentages of total selling, general and
administrative costs are for 1998, but similar
percentages were experienced in the prior years.
The Company has a policy that it reserves all
trade receivables over 120 days (150 days in
1996), or earlier if there are substantial
questions. During this quarter, the Company
recovered $13,000 in previously classified
doubtful accounts, compared to an expense in 1997
of $66,000, and an expense of $184,000 in 1996. As
a total, these expenses decreased 1.6 percent
while sales were growing at 10.6 percent.
Operating Profit dollars increased to $2,635,000
in 1998, compared to $2,248,000 in 1997, and
$1,543,000 in 1996.
INTEREST Interest costs, net, decreased in 1998 by $55,000
to $180,000. In 1997 interest costs decreased
compared to an increase in 1996. The 1998 and
1997 decrease in total indebtedness reflect the
strong positive cash flow which allows steady
reduction of indebtedness. The 1996 increase in
interest costs reflected the financing of the
November 1995 acquisition of Loctite Luminescent
Systems, Inc. As a percent of sales, net interest
costs were .8 percent of sales in 1998, 1.2
percent of sales in 1997, and 2.4 percent of sales
in 1996. While the Company increased its borrowing
for the acquisition in 1995, and for working
capital in late 1995 and early in 1996, 1997 and
1998, it has steadily reduced prior debt as
scheduled.
The Company changed its reinvestment of available
overnight funds policy to offset bank fees;
therefore, no interest was earned in 1998. The
revolving line of credit is priced at LIBOR plus
100 basis points. Gross interest expense was
$180,000 in 1998, $248,000 in 1997, and $462,000
in 1996.
SUMMARY As a result of the continuing increases in sales
at a greater rate than the increase of expenses,
income before taxes increased to 11.5 percent of
sales in 1998, compared to 10.4 percent of sales
in 1997, and compared to 5.7 percent of sales in
1996. The Company reported income before taxes of
$2,455,000 in 1998, compared to $2,013,000 in
1997, and $1,089,000, in 1996.
TAXES The Company's tax provision takes into account the
federal and state taxes for which it is liable.
The Company records its tax expense under the FASB
109 guidelines. The 1998 provision for taxes
increased 13.4 percent, compared to a sales
increase of 10.6 percent. The increase is mostly
related to timing issues. The 1998 provision for
taxes is $899,000, or 4.2 percent of sales,
compared to the 1997 tax provision of $784,000, or
4.1 percent of sales, which compares to $346,000,
or 1.8 percent of sales, in 1996. The 1996 tax
provision reflected favorable changes in the New
York State tax law for the First Half of 1996 and
for the 1995 year.
NET INCOME Net income for the First Half of 1998 established
a new record: $1,566,000, or $.29 per diluted
share, compared to $1,229,000, or $.23 per diluted
share in 1997, and compared to $743,000, or $.14
per diluted share in 1996.
LIQUIDITY Cash flow from operating activities was $1,239,000
in 1998, compared to $1,748,000 in 1997. The cash
generation was lower in 1998 as the Company
invested an additional $688,000 in receivables and
$216,000 in inventory. The amount invested in 1997
was $380,000 and $72,000, respectively. The
Company invested $3,420,000 in new equipment in
1998, compared to $1,882,000 in 1997. The Company
reduced its indebtedness in 1998 by $971,000 while
borrowing $2,560,000 for working capital. This
compares to a reduction in indebtedness of
$1,323,000 in 1997, when the Company borrowed
$950,000 for working capital purposes. In May
1998, the Company made the final installment on a
five-year term loan.
The Company has a $10,000,000 revolving line of
credit available for additional working capital
needs, of which it had utilized $4,200,000 at the
end of the Second Quarter of 1998, compared to
$3,450,000 at the end of the Second Quarter of
1997. The Company feels that its beginning cash
balance, the cash flow from internal operations
and the available balance of the revolving line of
credit are adequate to meet the Company's
operational and investment plans for 1998.
COMMITMENTS The Company has outstanding commitments for
capital investments of approximately $2,800,000 at
July 4, 1998, compared to $4,000,000 at June 28,
1997. During the Second Quarter of 1997, the
Company repurchased its shares of common stock
owned by ATRO Companies Profit Sharing/401(k) Plan
for $532,000. The Company has commitments for
items that it purchases in the normal ongoing
affairs of the business. The Company is not aware
of any obligations in excess of normal market
conditions, nor of any long-term commitments that
would affect its financial condition.
The Company has committed to the purchase of land
and to the construction of a new facility for the
Aerospace and Electronics business unit in New
Hampshire. The initial plans are for an
approximately 80,000 square foot building along
with additional manufacturing equipment. The
estimated costs are $7,600,000 for the project,
which would be completed in mid-1999. The Company
acquired the land in late July and plans to start
actual construction of the facility in mid-August.
Currently, the Company leases three buildings in
the Lebanon, New Hampshire area for its
production, engineering, marketing and
administrative purposes. The Business Authority of
New Hampshire has induced the Company for the
issuance of $7,250,000 in tax exempt Industrial
Revenue Bonds.
YEAR 2000 The Company employs several different computer
systems for financial, engineering, manufacturing
and administrative purposes. The Company purchases
these systems, both hardware and software.
Therefore, it does have programmers writing code
internally. In the last year, the Company was able
to install upgrades to some of its systems that
are Year 2000 compliant. Other systems will be
upgraded in 1998 or in 1999, which the vendors
have promised to be Year 2000 compliant. In the
case of some software, the Company is installing a
totally new software package that meets the Year
2000 issue as well as other desired improvements.
The Company has addressed the Year 2000 issue by
identifying software usage by equipment, or
application. Then the Company classified that
usage on a critical, non-critical basis to
determine priority. Once this was accomplished, an
individual was assigned responsibility to resolve
each issue. A testing procedure was developed to
allow the Company to verify that the solutions do
meet the Year 2000 issues. The Company is also in
the process of obtaining letters or reports from
major and critical suppliers as to their ability
to meet the Year 2000 issues. At this time, the
Company is not aware of any vendor's (software or
operating) schedule that would affect the
continuous operations of the business. The total
invested for software upgrades to date is
approximately $75,000, and the Company anticipates
another $100,000 being spent for upgrades and new
software in 1998. The Company is expensing these
costs as they are incurred. The Company continues
to monitor this area.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Securities Holders.
None
Item 5. Other Information.
Pursuant to new amendments to Rule 14a-4(c) under the
Securities Exchange Act of 1934, as amended, if a
shareholder who intends to present a proposal at the
1999 Annual Meeting of Shareholders does not notify the
Company of such proposal on or prior to February 1,
1999, then management proxies would be allowed to use
their discretionary voting authority to vote on the
proposal when the proposal is raised at the annual
meeting, even though there is no discussion of the
proposal in the proxy statement for that meeting.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 11. Computation of Per Share Earnings.
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.
DATED: August 18, 1998
ASTRONICS CORPORATION
___________________________________
/S/ John M. Yessa
___________________________________
John M. Yessa
Vice President-Finance and Treasurer
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
(in thousands, except for per share data)
Quarter Ended July 4
1998 1997 1996
Net income $ 1,566 $ 1,229 $ 743
======= ======= ======
Basic earnings per share
weighted average shares 5,029 5,002 4,796
Net effect of dilutive stock
options 348 347 406
_______ _______ ______
Diluted earnings per share
weighted average shares 5,377 5,349 5,202
======= ======= ======
Basic earnings per share $ .31 $ .25 $ .15
======= ======= ======
Diluted earnings per share $ .29 $ .23 $ .14
======= ======= ======