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 October 3, 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 October 3, 1998, 4,338,025 shares of $.01 par value common
stock and 696,236 shares of $.01 par value Class B common stock
were outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ASTRONICS CORPORATION
Consolidated Balance Sheet
October 3, 1998
With Comparative Figures for December 31, 1997
ASSETS
(Dollars in Thousands)
October 3, 1998 December 31,
(Unaudited) 1997
--------------- ------------
Current Assets:
Cash $ 764 $ 740
Accounts receivable 5,589 4,443
Inventories:
Finished goods 1,552 1,740
Work in process 1,277 879
Raw material 2,500 2,142
Prepaid expenses 264 415
-------- --------
Total current assets 11,946 10,359
Property, Plant and Equipment 41,647 34,773
Less accumulated depreciation
and amortization 18,282 16,613
-------- --------
Net property, plant
and equipment 23,365 18,160
Other Assets 1,623 1,722
--------- --------
$ 36,934 $ 30,241
========= ========
See notes to financial statements.
<PAGE>
ASTRONICS CORPORATION
Consolidated Balance Sheet
October 3, 1998
With Comparative Figures for December 31, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
(Dollars in Thousands)
October 3, 1998 December 31,
(Unaudited) 1997
--------------- ------------
Current Liabilities:
Current maturities of long-term debt $ 445 $ 1,194
Accounts payable 3,578 2,564
Accrued expenses 1,552 1,942
Income taxes 205 360
-------- --------
Total current liabilities 5,780 6,060
Long-Term Debt 6,448 2,110
Long-Term Obligations under
Capital Leases 891 1,194
Deferred Income Taxes 830 822
Deferred Compensation 1,950 1,857
Shareholders' Equity:
Common stock, $.01 par value
Authorized 10,000,000 shares, issued
4,679,921 in 1998, 4,642,910 in 1997 47 46
Class B common stock, $.01 par value
Authorized 5,000,000 shares, issued
696,236 in 1998, 715,797 in 1997 7 7
Additional paid-in capital 2,668 2,520
Retained earnings 19,255 16,640
------ ------
21,977 19,213
Less shares in Treasury, at cost 942 1,015
------ ------
Total shareholders' equity 21,035 18,198
-------- --------
$ 36,934 $ 30,241
======== ========
See notes to financial statements.
<PAGE>
ASTRONICS CORPORATION
Consolidated Statement of Income and Retained Earnings
Period Ended October 3, 1998
With Comparative Figures for 1997
(Dollars in Thousands)
(Unaudited)
NINE MONTHS THREE MONTHS
---------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
Net Sales $ 33,042 $ 29,527 $ 11,689 $ 10,214
Costs and Expenses:
Cost of products sold 22,991 20,165 8,038 6,925
Selling, general and
administrative expenses 5,715 5,543 1,950 1,718
Interest expenses, net of
interest income of $0
in 1998 and $14 in 1997 301 349 121 114
------ ------ ------- -------
Total costs and
expenses 29,007 26,057 10,109 8,757
Income before taxes 4,035 3,470 1,580 1,457
Provision for income taxes 1,420 1,304 531 520
------ ------ ------ ------
Net Income 2,615 2,166 1,049 937
====== ======
Retained Earnings:
January 1 16,640 13,089
------- -------
October 3 $ 19,255 $ 15,255
======= =======
Earnings per share:
Basic $ .52 $ .43 $ .21 $ .18
======= ======= ====== ======
Diluted $ .49 $ .41 $ .20 $ .18
======= ======= ====== ======
See notes to financial statements.
<PAGE>
ASTRONICS CORPORATION
Consolidated Statement of Cash Flows
Nine Months Ended October 3, 1998
With Comparative Figures for 1997
(Dollars in Thousands)
(Unaudited)
1998 1997
---- ----
Cash Flows from Operating Activities:
Net income $ 2,615 $ 2,166
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 2,228 2,042
Provision for doubtful accounts 29 (221)
Provision for deferred taxes 8 218
Cash flows from changes in operating
assets and liabilities:
Accounts receivable (1,175) (730)
Inventories (568) 5
Prepaid expenses 151 189
Accounts payable 1,014 294
Accrued expenses (390) (21)
Income taxes (155) (584)
Deferred compensation 93 78
-------- --------
Net Cash provided (used) by Operating
Activities $ 3,850 $ 3,436
-------- --------
Cash Flows from Investing Activities:
Change in other assets (89) (53)
Capital expenditures (7,243) (2,252)
-------- --------
Net Cash provided (used) by Investing
Activities $ (7,332) $ (2,305)
-------- --------
Cash Flows from Financing Activities:
New long-term debt 4,368 --
Principal payments on long-term debt
and capital lease obligations (1,083) (1,734)
Proceeds from issuance of stock 221 153
Purchase of Treasury Stock -- (532)
-------- --------
Net Cash provided (used) by Financing
Activities $ 3,506 $ (2,113)
-------- --------
Net increase (decrease) in Cash and Cash
Equivalents 24 (982)
Cash and Cash Equivalents at Beginning
of Year 740 1,130
-------- --------
Cash and Cash Equivalents at October 3 $ 764 $ 148
======== ========
Disclosure of cash payments for:
Interest $ 320 $ 375
Income taxes 1,568 1,668
See notes to financial statements.
<PAGE>
ASTRONICS CORPORATION
Notes to Financial Statements
October 3, 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.
2) On October 1, 1998, the Company declared a 10 percent share
distribution in Common Stock to holders of Common Stock and
Class B Stock. The record date for this distribution was
October 16, 1998. The distribution date was October 30, 1998.
Cash was paid for fractional shares.
3) On October 28, 1998, the Company signed a Letter of Intent
with Fleet Securities, Inc. for the issuance of $7,250,000 in
tax-exempt bonds through the Business Finance Authority of the
State of New Hampshire. These bonds are to be amortized over
twenty years. At the same time, the Company signed a Letter
of Intent with Fleet National Bank for a Letter of Credit to
support the above transaction. Also, the Company signed a
Letter of Intent to extend its Revolving Credit Line with
Fleet National Bank until June 1, 2001. The Company expects
to complete these transactions by the end of December 1998.
4) On September 11, 1998, the Company signed a Design-Build
contract to construct a manufacturing facility of
approximately 80,000 square feet in Lebanon, NH. The costs of
the construction contract are approximately $5,700,000. The
Company completed the purchase of the land, approximately 10
acres, during the Third Quarter. It has placed several
purchase orders for new equipment. The total project will be
approximately $7,500,000.
5) The restated diluted earnings per share for the past five
years, and by quarter for the last two years are as follows:
1993 $.22
1994 $.24
1995 $.33
1996 $.46
1997 $.61
1997 - 1st Quarter $.10
1997 - 2nd Quarter $.11
1997 - 3rd Quarter $.16
1997 - 4th Quarter $.24
1998 - 1st Quarter $.13
1998 - 2nd Quarter $.14
1998 - 3rd Quarter $.18
<PAGE>
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 Sales Period-to-Period
Nine months ended October 3, Increase (Decrease)
---------------------------- -------------------
1998 1997 1997-1998
---- ---- ---------
Net Sales:
Aerospace and Electronics 53.5% 50.2% 19.2 %
Specialty Packaging 46.5 49.8 4.6 %
------ -----
100.0% 100.0% 11.9 %
Cost of products sold 69.6 68.3 14.0 %
Selling, general and
administrative expenses 17.3 18.8 3.1 %
Interest expenses, net .9 1.2 (13.8)%
----- -----
87.8% 88.3% 11.3 %
Income before provision
for income taxes 12.2% 11.7% 16.3 %
Provision for taxes 4.3 4.4 8.9 %
----- -----
Net Income 7.9% 7.3% 20.7 %
===== =====
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.
<PAGE>
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.
During the Third Quarter of 1998, the New Hampshire operations
of the Aerospace and Electronics segment received their ISO
9001 certification. In the Third Quarter of 1997, the
Specialty Packaging segment received its ISO 9001
certification.
SALES Record sales were reported for the Third Quarter, for the
first nine months of the year, and for the trailing twelve
months. Sales increased 14.5 percent for the quarter to
$11,689,000, up from 1997 Third Quarter sales of $10,214,000,
which were 12.3 percent ahead of 1996 sales of $9,095,000.
The year-to-date sales are $33,042,000, 11.9 percent ahead of
1997 sales of $29,527,000, and 1996 sales of $28,347,000.
Sales were 53.5 percent from the Aerospace and Electronics
segment, compared to 50.2 percent in 1997. Specialty
Packaging accounted for 46.5 percent of sales, compared to
49.8 percent in 1997.
The Aerospace and Electronics segment sales increased 19.2
percent for the first nine months of 1998, compared to an
increase of 4.3 percent in 1997. [This percentage eliminates
the sales of the Rodgard Division, which was sold in late
1996.] In 1996, sales increased substantially as the result of
the November 1995 acquisition of Loctite Luminescent Systems,
Inc. During 1998 sales have been especially strong in three
product lines: 1) military aircraft formation lights,
2) escape path lighting systems, and 3) cockpit lighting
systems. The Company's order activity remains solid. Pricing
for comparable products is nominally the same this year as
last year.
The Specialty Packaging segment sales increased 4.6 percent
for the first nine months of 1998, compared to 16.4 percent in
1997. Our customers' management of their inventories has
affected the timing of sales in 1998. This reflects the just-
in-time philosophy that is prevalent in today's business
world. The Company continues to expand its overall market
share in each of its product lines through focus on customer
service with on-time deliveries, high quality products and
short turnaround times. Pricing remains nominally the same
for similar products.
BACKLOG The Company's current backlog increased 99.6 percent over the
Third Quarter of 1997 to a new all time record of $22,153,000.
This compares to $10,800,000 at December 31, 1997. The
backlog at the end of the Third Quarter of 1997 was
<PAGE>
$11,098,000. The backlog is composed of $20,126,000 in the
Aerospace and Electronics segment and $2,027,000 in the
Specialty Packaging segment.
EXPENSES The cost of products sold increased 14.0 percent in 1998 to
69.6 percent of sales compared to 68.3 percent of sales in
1997 and 72.1 percent of sales in 1996. The increase in 1998
reflects higher material and employee costs. Material costs
were 20.6 percent of sales in 1998, compared to 20.0 percent
of sales in 1997, and compared to 25.3 percent of sales in
1996. The increased material cost relates to product mix
changes. The employee cost increase reflects additional
personnel supporting the technical aspects of the businesses.
These costs were 29.1 percent of sales in 1998, compared to
28.5 percent of sales in 1997 and 26.4 percent of sales 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 higher rental and repair costs,
as another facility was leased in the Aerospace and
Electronics segment to meet production needs. The remaining
expense categories increased at a lower rate than the sales
growth. Overall costs increased 14.0 percent while sales were
increasing 11.9 percent. Actual Gross Profit dollars
increased to $10,051,000 in 1998, compared to $9,362,000 in
1997, and $7,920,000 in 1996.
Selling, general and administrative expenses, which tend to be
more fixed in nature, continued to decrease as a percentage of
sales: 17.3 percent of sales in 1998, 18.8 percent of sales in
1997, and 18.1 percent of sales in 1996. The majority of
these costs are for employee services (58.7 percent in 1998).
Net Operating Profit increased as a percentage of sales as
well in total dollars: 13.1 percent of sales in 1998, totaling
$4,336,000, compared to 12.9 percent of sales in 1997,
totaling $3,819,000, and compared to 9.8 percent of sales in
1996, totaling 2,789,000 in 1996.
INTEREST Interest costs, net, decreased in 1998 by $48,000 to $301,000.
In 1997 interest costs decreased compared to an increase in
1996. The 1998 and 1997 decrease in total indebtedness
reflects 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 .9 percent of sales in 1998, 1.2
percent of sales in 1997, and 2.3 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 scheduled debt.
The Company changed its reinvestment of available overnight
funds policy to offset bank fees; therefore, no interest has
been earned in 1998. The revolving line of credit is priced
at LIBOR plus 100 basis points. Gross interest expense was
$301,000 in 1998, $363,000 in 1997, and $671,000 in 1996.
<PAGE>
INCOME BEFORE
TAXES As a result of the continuing increases in sales at a greater
rate than expenses, income before taxes was 12.2 percent of
sales in 1998, compared to 11.8 percent of sales in 1997, and
compared to 7.5 percent of sales in 1996. The Company
reported income before taxes of $4,035,000 in 1998, compared
to $3,470,000 in 1997, and $2,132,000, 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 8.9 percent, compared to a sales increase
of 11.9 percent. The lower rate reflects the adjustment of
the 1997 tax accrual to actual tax expenses. The company
experienced favorable deductions and allocation formulas,
which resulted in lower actual taxes. The 1998 provision for
taxes is $1,420,000, or 4.3 percent of sales, compared to the
1997 tax provision of $1,304,000, or 4.4 percent of sales,
which compares to $711,000, or 2.5 percent of sales, in 1996.
The effective tax rate in 1998 is 35.2 percent, compared to
37.6 percent in 1997, and 33.3 percent in 1996.
NET INCOME Net income for the first nine months of 1998 established a new
record: $2,615,000, or $.49 per diluted share, compared to
$2,166,000, or $.41 per diluted share in 1997, and compared to
$1,421,000, or $.27 per diluted share in 1996.
LIQUIDITY Cash flow from operating activities was $3,850,000 in 1998,
compared to $3,436,000 in 1997. The Company's working capital
needs to fund its 11.9 percent sales increase is initially
reflected in an increase of $1,175,000 in receivables, and
$568,000 in inventories. This compares to an increase of
$730,000 in receivables last year with inventory being
nominally the same. The Company has invested $7,243,000 in
land, construction in progress on a new building, and new
equipment in 1998. This compares to $2,252,000 in 1997. The
Company reduced its indebtedness in 1998 by $1,083,000 while
borrowing $4,368,000 for working capital. This compares to a
reduction in indebtedness of $1,734,000 in 1997 with no new
usage of its revolving line of credit. 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 $4,969,000 at the end of the Third Quarter of
1998, compared to $2,500,000 at the end of the Third 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 and
1999, after the financing of the land and building project in
New Hampshire. This is discussed below.
COMMITMENTS The Company has outstanding commitments for capital
investments of approximately $1,200,000 at October 3, 1998
[this excluded the project in the next paragraph], compared to
$4,000,000 at September 28, 1997. During the Second Quarter
<PAGE>
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 purchased approximately 10 acres of land and
has committed to the construction of a new facility for the
Aerospace and Electronics business unit in New Hampshire. The
plans are for an approximately 80,000 square foot building
along with additional manufacturing equipment. The estimated
costs, excluding land that has been purchased, are $6,800,000
for the project, which would be completed in mid-1999. The
Company acquired the land in late July and started 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. The
Company is in the process of completing the bond offering,
which should be complete before the end of December 1998.
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 not have programmers writing
code internally. In the last year, the Company has been able
to install Year 2000 compliant upgrades to most of its
systems. At the end of the Third Quarter, Astronics had
converted all of its financial software to Year 2000 compliant
software. The Specialty Packaging systems have been upgraded
to Year 2000 compatibility. The Aerospace and Electronics
software vendor has completed its testing of changes necessary
for compliance, and the intent is to install this software in
the Fourth Quarter. This will complete all critical items
that the Company has been able to identify.
The Company has addressed the Year 2000 issue by identifying
software usage by equipment, or application. Then the Company
classified each 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 schedule that would affect the continuous operations
of the business. The total invested for software upgrades to
date is approximately $100,000, and the Company anticipates
another $40,000 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.
<PAGE>
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.
<PAGE>
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: November 12, 1998
ASTRONICS CORPORATION
-------------------------------------------
/s/ John M. Yessa
-------------------------------------------
(Signature)
John M. Yessa
Vice President-Finance and Treasurer
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
(in thousands, except for per share data)
Quarter Ended October 3
1998 1997 1996
---- ---- ----
Net income $ 2,615 $ 2,166 $ 1,421
======= ======= =======
Basic earnings per share
weighted average shares 5,031 4,991 4,808
Net effect of dilutive
stock options 359 326 432
------- ------- -------
Diluted earnings per share
weighted average shares 5,390 5,317 5,240
======= ======= =======
Basic earnings per share $ .52 $ .43 $ .30
======= ======= =======
Diluted earnings per share $ .49 $ .41 $ .27
======= ======= =======
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> OCT-03-1998
<CASH> 764
<SECURITIES> 0
<RECEIVABLES> 5,786
<ALLOWANCES> 197
<INVENTORY> 5,329
<CURRENT-ASSETS> 11,946
<PP&E> 41,647
<DEPRECIATION> 18,282
<TOTAL-ASSETS> 36,934
<CURRENT-LIABILITIES> 5,780
<BONDS> 0
0
0
<COMMON> 54
<OTHER-SE> 20,981
<TOTAL-LIABILITY-AND-EQUITY> 36,934
<SALES> 33,042
<TOTAL-REVENUES> 33,042
<CGS> 22,991
<TOTAL-COSTS> 29,007
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 301
<INCOME-PRETAX> 4,035
<INCOME-TAX> 1,420
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,615
<EPS-PRIMARY> .52
<EPS-DILUTED> .49
</TABLE>
