SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1998
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 incorporation (I.R.S. Employer
or organization) Identification No.)
1801 Elmwood Avenue
Buffalo, New York 14207
_________________________________________________________________________
(Address of principal executive office)
Registrant's telephone number
including area code (716) 447-9013
Securities registered pursuant to Section 12(b) of the Act: None
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 twelve months (or for such
shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirement for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10K or any amendment to this Form 10K. (X)
EXHIBIT INDEX APPEARS ON PAGE 16
Page 1 of 17
<PAGE>
As of March 12, 1999, 4,880,792 shares of Common Stock and
689,780 shares of Class B Stock were outstanding, and the
aggregate market value of the shares of Common Stock and Class B
Stock (assuming conversion of all of the outstanding Class B
Stock into Common Stock) of Astronics Corporation held by non-
affiliates was approximately $56,402,041.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Registrant's 1998 Annual Report to
Shareholders are incorporated into Parts II and III of this
Report. Portions of the Registrant's Proxy Statement for the
1999 Annual Meeting of Shareholders dated March 24, 1999 are
incorporated by reference into Part III of this Report.
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<PAGE>
PART I
Item 1. BUSINESS
Profile
Astronics Corporation ("Astronics", "Company", or
"Registrant"), a New York corporation formed in 1968, is a
diversified company engaged principally in the design,
manufacture and marketing of products and processes in two
business segments: "Aerospace and Electronics" and "Specialty
Packaging." Aerospace and Electronics is involved in the design,
manufacture, and marketing of advanced technology products.
Major applications include specialized lighting systems and
ruggedized electro-mechanical assemblies. The Specialty
Packaging segment is predominantly a direct marketing provider of
proprietary designs of paperboard folding boxes and paper
products.
Aerospace and Electronics
The Company's Aerospace and Electronics segment is involved
in the design, manufacture, and sale of technically sophisticated
systems and components for a variety of applications. Most of
these applications are based on specialty lighting requirements.
Approximately 28 percent of the segment's sales are defense-
related and 36 percent of sales are international.
The Aerospace and Electronics segment operates manufacturing
facilities in East Aurora, NY, and Lebanon, NH. The Company
maintains a sales/engineering office in Belgium to support
international relationships.
Electroluminescent Lamps: One of the Company's core
technologies is designing and manufacturing electroluminescent
(EL) lamps. EL is a phenomenon whereby phosphors, when
sandwiched between two electrodes and exposed to alternating
current, emit light. The resultant lamps are efficient, durable,
thin, and flexible compared to other lighting technologies, and
have become a preferred light source for many lighting
applications in products as varied as automobiles, home light
fixtures, and consumer electronics.
The Company also manufactures power conversion devices,
commonly called "inverters," to power EL lamps. EL lamps are
best driven by alternating current, but typically only direct
current is available in the end use application. Our inverters
convert DC power to AC, thereby providing power sufficient to
drive EL lamps.
The Company has been involved in EL lighting for over 25
years, and has established itself as a leader in the industry.
Moreover, its EL lighting expertise has been vital in helping it
to establish certain of its other product lines. Still, the
Company recognizes that no light source is ideal for all
applications, and has therefore developed expertise in a number
of other technologies as dictated by its business requirements,
specifically, incandescent, light-emitting diodes, and cold
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<PAGE>
cathode fluorescence. These technologies are used selectively in
the Company's various product lines, depending on what is most
appropriate for each specific application.
Escape Path Lighting: The Company manufactures emergency
escape lighting systems for use in aircraft, buildings, and
trains. These systems are designed to help people find exits in
case of crashes, fire, power outages, earthquakes, and other
disasters. Customers are typically vehicle fleet operators,
manufacturers, or third party contractors. Often, the use of
these systems is dictated by governing laws and regulations.
The systems typically include a series of light elements, a
case or mounting system to hold the light elements, and a network
of logic controlled back-up battery systems to power the light
elements. The systems are typically modular in nature, but
require a significant amount of custom documentation to satisfy
regulatory requirements for each installation.
Aircraft Cockpit Lighting: The Company is a major supplier
and integrator of cockpit lighting systems for aircraft. The
Company designs and manufactures integrally illuminated display
panels and related assemblies, integrally illuminated keyboards,
floodlights, ambient light sensors, and dimmable power supplies.
Customers include aircraft manufacturers and avionics electronics
manufacturers. There is a trend in the industry whereby aircraft
manufacturers are seeking system suppliers rather than component
manufacturers, and the company is uniquely positioned to respond
to this trend.
Military Aircraft Formation Lights: The Company is the
world's dominant supplier of EL formation lights for military
aircraft. These lights are essentially EL lamps encapsulated in
a protective shell material, which are then mounted to the
outside skin of military aircraft. These lights provide visual
cues to pilots who are flying in close formation to one another
during night missions. Customers include military aircraft
manufacturers and the government defense procuring activities who
are responsible for maintaining military aircraft in their
fleets. The Company's formation lights can be found on most
modern western military aircraft.
Ruggedized Keyboards: The Company manufactures a wide range
of input/output keyboards for ruggedized computer systems. These
computer systems are often used in military applications, though
not exclusively. In today's world of shrinking defense budgets,
investments continue in battlefield command, control, and
communication systems.
The Company's keyboards range from relatively simple
mechanical devices to complex systems employing various display
technologies, encoding topologies, and communication protocols.
Customers are typically large, well-known defense electronics
companies.
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<PAGE>
Specialty Packaging
Astronics' Specialty Packaging group designs, manufactures
and markets standard and custom folding cartons, and presentation
products. By possessing design, manufacturing and marketing
capabilities in-house, the Company provides optimum efficiency
and quality while retaining a wide range of flexibility. This
group delivers products to over 10,000 customers throughout North
America, as well as internationally, within its chosen markets,
as a sole or preferred supplier for most of its customer base.
The Company also engages in high quality specialty
imprinting of wedding and party invitations, monogrammed napkins,
and related party accessories. These products are directly
marketed through catalogs which are located at stationery
stores, printers, gift shops and specialty boutiques throughout
the United States.
Competitive Conditions
Astronics experiences considerable competition in its
segments, principally in the areas of product performance and
price, from various competitors, many of which are substantially
larger and have greater resources. Success in the Aerospace and
Electronics segment depends upon product innovation, customer
support, responsiveness, and cost management. Astronics
continues to invest in developing the tools critical to competing
in today's worldwide markets. Success in Specialty Packaging is
dependent upon competitive pricing, innovative and responsive
customer support and short lead time delivery performance.
Astronics has invested and will continue to invest in state-of-
the-art process and systems technology.
Raw Materials
Materials, supplies and components are available and
purchased from a wide variety of sources, the loss of any one of
which would not materially affect the Company's operations.
Patents
The Company has a number of patents and has filed numerous
applications for others. While the aggregate protection of these
patents is of value, Registrant does not consider that the
successful conduct of any material part of its business is
dependent upon the protection afforded by these patents. The
Company's patents and patent applications relate to EL,
instrument panels, keyboard technology and various components
used in their manufacture. The Company regards its expertise and
techniques as proprietary and relies upon trade secret laws and
contractual arrangements to protect its rights.
Research Activities
The Company is engaged in a variety of research and
development activities directed to the improvement and
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<PAGE>
application of the Company's technologies. The extent of the
Company's engagement in pure research, however, is not material.
Employees
The Registrant employed approximately 531 employees as of
December 31, 1998, including 298 in the Aerospace and Electronics
segment, 226 in the Specialty Packaging segment and 7 at the
Corporate level, compared to 443 as of December 31, 1997,
including 255 in the Aerospace and Electronics segment, 181 in
the Specialty Packaging segment and 7 at the Corporate level as
of that date. The Company considers its relations with its
employees to be good.
Working Capital
Inventories and receivables are the major components of the
Company's working capital, reflective of the production cycle on
most of the Company's products and anticipated production
required for the seasonal aspects of the Company's packaging
products and customers payments within their normal payment
terms.
Financial Information about Industry Segments
Sales, income before taxes and identifiable assets, along
with other information, attributable to each of the Registrant's
industry segments for each of the last three years as of December
31, 1998 appear on page 21 of the Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1998,
submitted herewith as an exhibit and incorporated by reference.
Order Backlog
The backlog of orders as of December 31, 1998 was
approximately $29,887,000 ($28,779,000 related to the Aerospace
and Electronics segment and $1,108,000 related to the Specialty
Packaging segment), $25,608,000 is expected to be filled in the
current fiscal year. This compares to $10,807,000 ($9,686,000
related to the Aerospace and Electronics segment and $1,121,000
related to the Specialty Packaging segment) as of December 31,
1997.
Item 2. PROPERTIES
Corporate Headquarters
The Company's corporate office is located at 1801 Elmwood
Avenue, Buffalo, NY 14207, the sight of the largest portion of
the Specialty Packaging segment.
Aerospace and Electronics
Registrant owns manufacturing and office facilities of
approximately 45,000 square feet in the Buffalo, New York area,
and leases approximately 42,000 square feet in Lebanon, New
Hampshire. During the third quarter of 1998, the Aerospace and
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<PAGE>
Electronics segment started construction on a new 80,000 square
foot building in Lebanon, New Hampshire. This will allow the
Company to consolidate its New Hampshire operations, currently in
four leased locations, into a single facility. The facility is
scheduled for occupancy during the third quarter of 1999.
Specialty Packaging
Registrant owns buildings totaling approximately 437,000
square feet in the Buffalo, New York area for its manufacturing
and office facilities. Currently, about 40 percent of the
building space is under lease to others.
The Company believes that the physical properties of the
Registrant are suitable and adequate for the purpose for which
they are employed. Additions and expansions are made as needed.
In general, the productive capacity of the Registrant's physical
properties are in excess of current production requirements and
greater utilization is available.
Item 3. LEGAL PROCEEDINGS
Rodgard Corporation, formerly a wholly-owned subsidiary of
Astronics, and one of its former officers, Mason C. Winfield
("Plaintiffs"), instituted an action against Miner Enterprises,
Inc. and David G. Anderson ("Defendants") on April 10, 1984, in
the United States District Court of the Western District of New
York, seeking damages for breaches of confidentiality agreements
and seeking to be declared a co-inventor of a David G. Anderson
patent. Defendants counterclaimed for unspecified damages
alleging that the Plaintiffs breached a confidentiality provision
pursuant to a consulting agreement between Winfield and Miner.
The judge rendered a decision that neither side has a sufficient
case to enable awards. The case was appealed by Plaintiffs in
the Federal Court of Appeals.
On March 13, 1997 the Court of Appeals remanded the case to
the District Court to permit Plaintiffs to initiate discovery
related to Defendants' foreign patents. After discovery, the
District Court granted the Defendants' motion to dismiss the
claims which had been remanded. The Company has again appealed
to the Court of Appeals, and it is expected that the matter will
be the subject of argument sometime during 1999. The Company is
not able to estimate damages, if any.
Except for the matter described above, there are no material
pending legal proceedings, other than ordinary routine litigation
incidental to the business, to which the Registrant or any of its
subsidiaries is a party or of which any of their property is the
subject.
Item 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
Not applicable.
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<PAGE>
Executive Officers of the Registrant
The following table sets forth the names and ages of all
executive officers of the Company and certain information
relative to their positions with the Company and prior employment
history during at least the past five years:
Name Age Position with the Company
and Prior Employment History
____________________________
Kevin T. Keane 66 President, Chief Executive Officer
and Director.
John M. Yessa 59 Vice President of Finance,
Treasurer, Chief Financial Officer
and Director.
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<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Information with respect to the market price of and
dividends on the Company's Common Stock and related shareholder
matters appears on the inside cover and page 23 of the Company's
Annual Report to Shareholders for the fiscal year ended December
31, 1998, submitted herewith as an exhibit and incorporated by
reference.
Item 6. SELECTED FINANCIAL DATA
Selected Financial Data appears on page 23 of Registrant's
Annual Report to Shareholders for the fiscal year ended December
31, 1998, submitted herewith as an exhibit and incorporated by
reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition,
changes in financial condition and results of operations appears
on pages 24, 25, 26 and 27 of Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1998,
submitted herewith as an exhibit and incorporated by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Market risk disclosures appears on page 27 of Registrant's
Annual Report to Shareholders for the fiscal year ended December
31, 1998, submitted herewith as an exhibit and incorporated by
reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of Astronics Corporation which are
incorporated by reference in this Annual Report on Form 10-K are
described in the accompanying Index to Financial Statements at
Item 14 of this Report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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<PAGE>
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
The information regarding directors is contained under the
captions "Election of Directors" and "Record Date and Voting
Securities" in the Company's definitive Proxy Statement dated
March 24, 1999 and is incorporated herein by reference.
Certain information regarding executive officers is
contained under the captions "Executive Compensation" and "Record
Date and Voting Securities" in the Company's definitive Proxy
Statement dated March 24, 1999 and on the back inside cover of
the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1998, submitted herewith as an exhibit, which
are both incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
The information contained under the caption "Executive
Compensation" in the Company's definitive Proxy Statement dated
March 24, 1999 is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The information required is contained under the caption
"Record Date and Voting Securities" in the Company's definitive
Proxy Statement dated March 24, 1999, and is hereby incorporated
by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of March 12, 1999, the Company knows of no relationships
required to be disclosed pursuant to Item 404 of Regulation S-K.
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<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) The documents filed as a part of this report are as
follows:
1. Financial Statements
2. Financial Statement Schedules
See Index to Financial Statements and
Financial Statement Schedules on page 15 of this
report.
All other consolidated financial schedules are
omitted because they are inapplicable, not
required, or the information is included elsewhere
in the consolidated financial statements or the
notes thereto.
3. Exhibits
Exhibit No. Description
3(a) Restated Certificate of Incorporation, as
amended; incorporated by reference to exhibit
3(a) of the Registrant's December 31, 1988
Annual Report on Form 10-K.
(b) By-Laws, as amended; incorporated by
reference to exhibit 3(b) of the Registrant's
December 31, 1996 Annual Report on Form 10-K.
10.1 Restated Thrift and Profit Sharing Retirement
Plan; incorporated by reference to exhibit
10.1 of the Registrant's December 31, 1994
Annual Report on Form 10-KSB.
10.3 Incentive Stock Option Plan; incorporated by
reference to the Registrant's definitive
proxy statement dated March 26, 1982.
10.4 Director Stock Option Plan; incorporated by
reference to the Registrant's definitive
proxy statement dated March 16, 1984.
10.5 Employment Contract of Kevin T. Keane;
incorporated by reference to Exhibit 10.5 of
the Registrant's registration statement on
Form S-2 (No. 33-8040).
10.7 Employment Contract of John M. Yessa;
incorporated by reference to Exhibit 10.7 of
the Registrant's registration statement on
Form S-2 (No. 33-8040).
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10.10 1992 Incentive Stock Option Plan;
incorporated by reference to the Registrant's
definitive proxy statement dated March 30,
1992.
10.11 1993 Director Stock Option Plan; incorporated
by reference to the Registrant's definitive
proxy statement dated March 19, 1993.
10.12 1997 Director Stock Option Plan; incorporated
by reference to the Registrant's definitive
proxy statement dated March 14, 1997.
13 1998 Annual Report to Shareholders filed
herewith. (Except for those portions which
are expressly incorporated by reference to
the Annual Report on Form 10-K, this exhibit
is furnished for the information of the
Securities and Exchange Commission and is not
deemed to be filed as part of this Annual
Report for Form 10K.)
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
(b) Reports on Form 8-K
None
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<PAGE>
ASTRONICS CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The financial statements, together with the report thereon of
Ernst & Young LLP dated January 21, 1999, appearing on pages 10
to 22 of the accompanying 1998 Annual Report to Shareholders are
incorporated by reference in this Annual Report on Form 10-K.
Financial schedules for the years 1998, 1997 and 1996:
Page
Valuation and Qualifying Accounts F-2
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<PAGE>
<TABLE>
SCHEDULE II
ASTRONICS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<CAPTION>
Balance at the Charged to Balance
Beginning of Costs and Write-offs/ at End of
Year Description Period Expense Recoveries Period
_______ ___________ ______________ __________ ___________ _________
<S> <C> <C> <C> <C> <C>
1998 Allowance for Doubtful Accounts $227 $ 74 $ (63) $238
1997 Allowance for Doubtful Accounts $404 $111 $(288) $227
1996 Allowance for Doubtful Accounts $359 $176 $(131) $404
</TABLE>
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 30, 1999.
Astronics Corporation
By /s/ Kevin T. Keane By /s/ John M. Yessa
______________________________ _____________________________
Kevin T. Keane, President John M. Yessa, Vice
and Chief Executive Officer President-Finance and
Treasurer, Principal
Financial and Accounting
Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/ Robert T. Brady March 30, 1999
_________________________ Director _______________
Robert T. Brady
/s/ John B. Drenning March 30, 1999
_________________________ Director _______________
John B. Drenning
/s/ Kevin T. Keane March 30, 1999
_________________________ Director _______________
Kevin T. Keane
/s/ Robert J. McKenna March 30, 1999
_________________________ Director _______________
Robert J. McKenna
/s/ John M. Yessa March 30, 1999
_________________________ Director _______________
John M. Yessa
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<PAGE>
ASTRONICS CORPORATION
INDEX TO EXHIBITS
Exhibit No. Description Sequential
Page Number
3(a) Restated Certificate of Incorporation, as
amended; incorporated by reference to
exhibit 3(a) of the Registrant's December 31,
1988 Annual Report on Form 10-K.
(b) By-Laws, as amended; incorporated by reference
to the Registrant's December 31, 1996 Annual
Report on Form 10-K.
10.1 Restated Thrift and Profit Sharing Retirement
Plan; incorporated by reference to the
Registrant's December 31, 1994 Annual Report
on Form 10-KSB.
10.3 Incentive Stock Option Plan; incorporated by
reference to the Registrant's definitive
proxy statement dated March 26, 1982.
10.4 Director Stock Option Plan; incorporated by
reference to the Registrant's definitive proxy
statement dated March 16, 1984.
10.5 Employment Contract of Kevin T. Keane;
incorporated by reference to Exhibit 10.5
of the Registrant's registration statement
on Form S-2 (No. 33-8040).
10.7 Employment Contract of John M. Yessa;
incorporated by reference to Exhibit 10.7
of the Registrant's registration statement
on Form S-2 (No. 33-8040).
10.10 1992 Incentive Stock Option Plan; incorporated
by reference to the Registrant's definitive
proxy statement dated March 30, 1992.
10.11 1993 Director Stock Option Plan; incorporated
by reference to the Registrant's definitive
proxy statement dated March 19, 1993.
10.12 1997 Director Stock Option Plan; incorporated
by reference to the Registrant's definitive
proxy statement dated March 14, 1997.
13 1998 Annual Report to Shareholders filed herewith.
(Except for those portions which are expressly
incorporated by reference to the Annual Report
on Form 10-K, this exhibit is furnished for
the information of the Securities and Exchange
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Commission and is not deemed to be filed as
part of this Annual Report on Form 10-K.)
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
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<PAGE>
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
TARGET ON THE BOTTOM LINE
Astronics Corporation Annual Report 1998
Astronics Corporation is dedicated to sound growth and
focused on expanding markets where inherent strengths provide a
strong competitive advantage. The Company has maintained a high
level of stability and efficiency in a period of change and
uncertainty by adhering to business strategies which are based on
long-term commitment and dedication to our customers. For years,
the Company has been thriving with growth on a compound basis
that has been more than twice the pace of our industries in sales
and earnings.
Astronics' two major segments, Specialty Packaging and
Aerospace and Electronics, operate with the autonomy that is
necessary to maintain leadership positions in today's rapidly
moving business environment. The common denominator between our
business segments is the determination to grasp market realities,
focus on the most critical factors that create profitability and
growth, and aggressively invest in initiatives that promise to
solidify our positions in respective market niches.
The Specialty Packaging segment pursues the markets of short
run specialty packaging and high value added consumer products
while the Aerospace and Electronics group serves the avionics
industry with specialized lighting and power supply systems as
well as commercial lighting applications.
The companies of Astronics are active in creating change and
supporting business opportunities in their industries which are
experiencing significant restructuring. The many mergers and
acquisitions of recent years have resulted in markets comprised
of fewer and more demanding players. In 1998, Astronics did
business in more than 50 countries globally with 21 percent of
revenue derived from foreign sales.
Astronics plans to adhere to its proven ability to
aggressively implement advanced equipment and processes for
specialized markets requiring cost effective solutions and rapid
response. Astronics has always relied on a keen ability to
capitalize on its strengths in order to effectively position the
organization. The Company focuses on three major keys to growth
including niche markets, high-end technology and expansion
oriented investments. It is this commitment to these three areas
that creates and supports the bottom line success of the Company.
<PAGE>
Financial Highlights:
(in thousands except for per share data)
1998 1997 1996 1995 1994
Net Sales $ 46,073 $ 40,972 $ 38,371 $ 28,536 $ 24,944
Net Income 4,304 3,551 2,657 1,760 1,306
Diluted Earnings Per
Share .73 .61 .46 .33 .24
Shareholders' Equity 22,730 18,198 14,842 11,726 10,334
Book Value Per Share 4.08 3.30 2.71 2.24 1.93
Stock Market Price -
High 13.30 11.36 5.46 2.82 2.27
Stock Market Price - Low 6.93 4.43 2.55 1.45 1.37
Return on Equity 23.7% 23.9% 22.7% 17.0% 13.9%
(on January 1 Equity)
Return on Sales 9.3% 8.7% 6.9% 6.2% 5.2%
Graph insert depicting earnings per share
1994 1995 1996 1997 1998
.24 .33 .46 .61 .73
Aerospace and Electronics Cockpit Lighting sales in 1998
increased by over 18%. Fully integrated systems are provided for
both military and commercial aircraft as shown in this Cessna
cockpit.
Domestic and global airlines such as United Airlines and original
equipment manufacturers of regional airline aircraft such as
Embraer of Brazil, have adopted Astronics' new seat mounted
Escape Path Lighting systems.
Specialty Packaging's Computer to Plate System has dramatically
shortened the tooling and manufacturing process. Providing
maximum efficiency, the digital imaging technology is a primary
factor that contributes to its market leadership.
<PAGE>
MESSAGE TO OUR SHAREHOLDERS
1998 was a year of more record results and important
expansion in our business base. Shipments moved to double-digit
growth rates at a rising pace. Along with this, our backlog
increased 175 percent to $30 million which signifies higher
activity rates in the foreseeable future.
Shipments reached $46 million, a gain of 12 percent, while
earnings realized a growth of 21 percent to $4.3 million or $.73
per share. Return on equity continued to exceed 20 percent, as it
has for the last three years. In 1998, return on equity was 23
percent. For the last 4 years, shipments resulting from internal
growth and acquisition have had a compound growth rate of 17
percent per year while earnings have grown at an annual compound
rate of 35 percent.
These measures of success reflect the fundamental expansion
of our business initiatives. A number of new products were
introduced during the year, and new markets were penetrated.
Capital expenditures were at the highest levels ever, reaching 21
percent of sales, over $9.7 million dollars. Our capital
commitments to growth focus heavily on the continued acquisition
of state-of-the-art technologies and capacity expansion in order
to maintain and advance our leading edge capabilities that help
secure our domination of selected niche markets.
As in the past, our plans involve both internal development
and growth through acquisition. As such, we confidently expect
to maintain higher than industry average rates of performance in
sales and earnings. It is important to reaffirm this strategic
commitment which has served so well in the long-term development
of our organization.
1999 should be another banner year. We begin the year with
the highest backlog ever and with substantial new levels of
business opportunity before us that we expect to capture during
the year. Our competence and reputation have never been
stronger; a major credit to a great group of dedicated employees
who know how to make the difference. We look forward to the
challenges of the future with great energy and excitement.
Kevin T. Keane
President and Chief Executive Officer, Astronics Corporation
January 21, 1999
Graph insert depicting Astronics Sales in Millions
1994 1995 1996 1997 1998
24.9 28.5 38.4 41.0 46.1
We are pleased to report that Astronics' Aerospace and
Electronics segment had a healthy 1998. Revenues reached a new
high of $23.9 million, an increase of 18 percent over 1997. This
<PAGE>
increase in volume resulted in an operating income that is 19
percent of sales.
Our growth in 1998 was only one highlight of the year.
Others include ISO 9001 certification for our Lebanon, NH,
operation, and the construction of a new facility there which we
expect to occupy in mid 1999.
The most important development in the last year was our
award from the U.S. Air Force for lighting kits to modify their
fleet of F-16 fighter jets for night vision compatibility. As of
this writing, we have been awarded releases totaling $29 million
with volume deliveries scheduled to begin in the second half of
1999. This program is expected to reach $50 million in revenues
over the next few years, with deliveries stretching into 2002.
This award, combined with other victories in the market, has
tripled our backlog during the year.
Our strategies of niche domination and carefully selected
product development have resulted in strong growth and financial
results, and increasing opportunities in the immediate future. It
is an exciting time for our Company.
Peter J. Gundermann
President, Luminescent Systems, Inc.
Graph insert depicting Aerospace & Electronics Sales in Millions
1994 1995 1996 1997 1998
9.1 11.5 19.7 20.2 23.9
1998 was a year of solid growth and development for
Astronics' Specialty Packaging segment. Revenues rose 7 percent
over 1997 and operating earnings remained a strong 18 percent of
sales. A major 1998 highlight was the implementation of several
innovative production technologies that helped us achieve
breakthrough performance in our plant operations. We installed
the latest laser and water jet technologies in conjunction with
computerized plate and die making equipment which are reducing
tooling production cycle times by over 80 percent. In this age
of rapid change and innovation, we are especially quick to
capitalize on developments in technology, both for our customers
and in our own operations.
Future sales and earnings growth is expected to come from
new production capabilities, purchasing consolidation
initiatives, broadened product offerings and innovative new
alliances with both our suppliers and customers. We will continue
to pursue and develop niche market opportunities that allow us to
leverage our production efficiencies and accelerate our momentum.
Daniel G. Keane
President, MOD-PAC CORP
<PAGE>
Graph insert depicting Specialty Packaging Sales in Millions
1994 1995 1996 1997 1998
15.8 17.0 18.7 20.8 22.2
TARGET ON NICHE MARKETS
By targeting selected market segments, Astronics sells services
that rely on strength and ability to excel as an industry leader.
Having extensive knowledge of customers' markets stimulates
in-house development of new products which can be successfully
introduced with competitive advantage. Customers come to rely on
us for our expertise and problem solving ability.
The Hershey Foods Corporation relies on our Specialty Packaging
to provide a packaging program which meets both diverse and
unique requirements.
Targeting niche markets provides the Specialty Packaging
segment with unique opportunities where high profit potential is
generated by superiority in product design and manufacturing
efficiency.
By servicing these markets, the Specialty Packaging segment
of Astronics is able to emphasize value-added services as well as
products. Many of our customers rely heavily on short cycle
times, specialized printing, stringent quality and accelerated
response. A growing number of major companies also utilize our
services for enhancing the overall value of their products.
By supplying comprehensive support to key market sectors,
Astronics' Specialty Packaging segment is frequently relied on as
a sole source or preferred provider. This advantageous
relationship has allowed us to swiftly introduce new products and
expand our share of the market.
By successfully operating in specialized markets in nearly
50 countries, Astronics' Aerospace and Electronics segment is a
respected global industry leader. In 1998 we were awarded a
landmark contract to supply lighting for the United States Air
Force F-16 program. This will result in substantial future
revenue as well as the opportunity to explore new areas in night
vision modifications.
Our electroluminescent lighting product line has been chosen
by Timex Corporation for a significant portion of lighted watch
applications. As the dominant player in the electroluminescent
lighting and power supply fields, we have the advantage of the
market seeking us as a source for expertise in design and product
development as well as growing production requirements.
Aerospace and Electronics' Formation Lights enable military
aircraft, such as this Huey helicopter, to perform night-time
tactical maneuvers. Our Formation Lighting systems dominate this
market segment world-wide.
<PAGE>
Electroluminescent Lighting products are used globally in LCD's,
time pieces, wireless communication, commercial and consumer
electronics, aviation and automotive applications.
Specialty Packaging offers sophisticated finishing capabilities
including gold emulsion, aqueous, UV and blister coatings with
exceptional quality and efficiency due to the advanced printing
technology.
TARGET ON TECHNOLOGY
In today's dynamic business environment, we believe that
technology is a solid investment and a necessity in the market
segments we serve.
Complete digital prepress tooling is performed in-house, totally
off line, drastically reducing set-up time and providing laser
accurate plate registration that yield higher run speeds.
Superior technology and process flows are viewed as
fundamental to rapid sales growth and profitability. For years,
Specialty Packaging has undertaken investments in new equipment
and processes which have enabled it to stand out and aggressively
pursue its objectives.
By providing a high quality and short cycle time supply of
products, we contribute to customer successes and experience the
technical leverage attributed to deep market penetration. While
the reasons for product innovations may seem clear, the need
for advanced manufacturing processes may not be so obvious. It is
our philosophy that technically optimized manufacturing will
ensure the highest quality, lowest production costs and shortest
delivery times and therefore increase our dominance in market
share and profitability.
In our position of market leadership, we have the ability to
envision future market requirements and commit to leading
technology which is critical to success. Astronics' strong
partnerships with its major customers provide preemptive design
and manufacturing opportunities.
A primary factor that has contributed to Aerospace and
Electronics' strong position in its market is its high standards
of technical competence. The state-of-the-art lighting and
systems solutions for OEM and retrofit applications are a
hallmark of our performance capabilities. Our manufacturing
processes are efficient and cost-effective over a broad range of
production levels. Investments are continually made to support
and advance our capabilities to meet the most stringent
requirements and deadlines.
By being active within the industry since 1972, we have
developed considerable experience and information that enable us
to generate the necessary research and development in-house. This
has led to patents for processes and components and fortified our
<PAGE>
existing market advantage. Aerospace and Electronics' close
relationship and commitment to its customers has been a great aid
in comprehensively understanding the industry and developing new
products. Experience has shown, that to remain a dominant player,
we must constantly seek information and knowledge from all
corners of the industry and apply it in both new and better ways.
Graph insert depicting Astronics Shareholders' Equity in Millions
1994 1995 1996 1997 1998
10.3 11.7 14.8 18.2 22.7
Graph insert depicting Astronics Capital Expenditures in Millions
1994 1995 1996 1997 1998
1.6 6.1 4.0 3.1 9.7
By utilizing thermal laser technology with the Computer-to-Plate
process, efficiency is maximized while waste is minimized. Once
on line, cartons are produced and punched simultaneously with
sophisticated tooling, eliminating typical secondary stripping
operations.
Laser etched lettering and graphics enable our panels to be of
the highest quality and durability.
New technologies in Aerospace and Electronics include
sophisticated equipment for luminosity measurement and production
process management.
TARGET ON EXPANSION
Astronics management has established long-term growth objectives
based on the reinvestment of earnings into capital expenditures.
A key to the effectiveness of this strategy is the enhancement of
all operating facilities in anticipation of the increased needs
of the market place. In this manner, we are able to synchronize
the development of our business process with the growth of our
industries.
The Lebanon, New Hampshire operation is currently undergoing
construction of a new state-of-the-art Aerospace and Electronics
production facility in support of its expanding growth and
development.
Within our Specialty Packaging segment, expansion is both
the source and result of being in a leadership position. Our long
standing policy has been to make capital investments with
previous earnings that will result in long-term profitability. We
do not wait for facilities to reach maximum capacity as a call
for action. By purchasing equipment in anticipation of market
needs, we experience a buffer period that allows advanced R&D and
testing. This allows us additional time to develop better
products that can be efficiently manufactured for small and large
volume requirements. When an opportunity surfaces in the market,
we are in an excellent position to capitalize on it.
<PAGE>
High growth markets continuously challenge the operating
capacities of manufacturers such as Astronics' Aerospace and
Electronics segment. The Lebanon, New Hampshire expansion
involves an 81,000 square foot facility at a cost of $6 million.
A new $4 million facility for the East Aurora, New York operation
will begin construction this spring. By effectively coordinating
internal growth, we are able to optimize our resources and meet
the needs of our customers.
Graph insert depicting Astronics Return on Equity
1994 1995 1996 1997 1998
13.9% 17.0% 22.7% 23.9% 23.7%
Graph insert depicting Astronics Net Income as a Percent of Sales
1994 1995 1996 1997 1998
5.2 6.2 6.9 8.7 9.3
From digital imaging to cluster flow management, each step of
Specialty Packaging is supported by production and quality
assurance teams.
The use of equipment, such as our state-of-the-art
Spectrophotometer, provides automated process control of color
variance, ensuring manufacturing consistency in paperboard
printing.
Aerospace and Electronics' production of the F-16 program will
further demonstrate the product and process expertise for other
military and commercial applications.
<PAGE>
ASTRONICS CORPORATION FINANCIAL REVIEW
The following financial statements for Astronics Corporation have
been prepared by management and audited by Ernst and Young LLP,
independent auditors.
Consolidated Statements of Income
(in thousands, except per share data)
Year ended December 31,
1998 1997 1996
___________________________________________________________________________
Net Sales $46,073 $40,972 $38,371
Cost and Expenses
Cost of products sold 31,214 27,543 27,333
Selling, general and administrative
expenses 7,765 7,463 7,959
Interest expense, net of interest
income of $2, $14 and $23 376 437 813
Gain on sale of assets - - (1,757)
___________________________________________________________________________
39,355 35,443 34,348
Income Before Taxes 6,718 5,529 4,023
Provision for income taxes 2,414 1,978 1,366
___________________________________________________________________________
Net Income $ 4,304 $ 3,551 $ 2,657
===========================================================================
Earnings per Share
Basic $ .78 $ .65 $ .50
===========================================================================
Diluted $ .73 $ .61 $ .46
===========================================================================
See notes to financial statements.
<PAGE>
Consolidated Balance Sheets
(in thousands, except per share data)
December 31,
1998 1997
___________________________________________________________________________
Current Assets
Cash and cash equivalents $ 523 $ 740
Accounts receivable, net of allowance for doubtful
accounts of $238 in 1998 and $227 in 1997 5,435 4,443
Inventories 4,935 4,761
Prepaid expenses 1,229 415
__________________________________________________________________________
Total Current Assets 12,122 10,359
Property, Plant and Equipment, at cost
Land 1,115 326
Buildings and improvements 10,077 9,807
Machinery and equipment 30,613 24,640
Construction in progress 2,285 -
___________________________________________________________________________
44,090 34,773
Less accumulated depreciation and amortization 19,096 16,613
___________________________________________________________________________
Net Property, Plant and Equipment 24,994 18,160
Unexpended Industrial Revenue Bond Proceeds 4,657 -
Other Assets 1,934 1,722
___________________________________________________________________________
$43,707 $30,241
===========================================================================
Current Liabilities
Current maturities of long-term liabilities $ 446 $ 1,194
Accounts payable 2,939 2,564
Accrued expenses 2,085 1,942
Income taxes 347 360
___________________________________________________________________________
Total Current Liabilities 5,817 6,060
Long-Term Debt 11,319 2,110
Long-Term Obligations Under Capital Leases 789 1,194
Deferred Income Taxes 1,070 822
Deferred Compensation 1,982 1,857
Shareholders' Equity
Common Stock, $.01 par value
Authorized 10,000,000 shares, issued
5,225,001 in 1998; 4,642,910 in 1997 52 46
Class B Stock, $.01 par value
Authorized 5,000,000 shares, issued
693,660 in 1998; 715,797 in 1997 7 7
Additional Paid-in Capital 2,681 2,520
Retained Earnings 20,932 16,640
___________________________________________________________________________
23,672 19,213
<PAGE>
December 31,
1998 1997
___________________________________________________________________________
Less Treasury Stock: 349,187 shares in 1998;
341,946 shares in 1997, at cost 942 1,015
___________________________________________________________________________
Total Shareholders' Equity 22,730 18,198
___________________________________________________________________________
$43,707 $30,241
===========================================================================
See notes to financial statements.
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
(in thousands)
<CAPTION>
Year ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 4,304 $ 3,551 $ 2,657
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,114 2,831 2,631
Provision for doubtful accounts 11 (177) 45
Gain on sale of assets - - (1,757)
Provision for deferred taxes 248 277 (330)
Cash flows from changes in operating assets
and liabilities, net of the effect of
acquired or sold business:
Accounts receivable (1,003) (578) 1,141
Inventories (174) 101 1,354
Prepaid expenses (814) 163 68
Accounts payable 375 101 (61)
Accrued expenses 143 185 308
Income taxes (13) (577) 685
Deferred compensation 125 180 1,339
_______________________________________________________________________________
Net Cash provided by Operating Activities 6,316 6,057 8,080
_______________________________________________________________________________
Cash Flows from Investing Activities
Proceeds from sale of assets - - 219
Change in other assets (474) (46) (281)
Capital expenditures (9,686) (3,060) (4,025)
Proceeds from sale of division - - 2,250
_______________________________________________________________________________
Net Cash used by Investing Activities (10,160) (3,106) (1,837)
_______________________________________________________________________________
Cash Flows from Financing Activities
New long-term debt 9,250 - -
Principal payments on long-term debt
and capital lease obligations (1,194) (3,146) (6,345)
Unexpended industrial revenue bond
proceeds (4,657) - -
Proceeds from issuance of stock 234 337 464
<PAGE>
Fractional shares paid on stock distribution (6) - (4)
Purchase of stock for treasury - (532) -
_______________________________________________________________________________
Net Cash provided (used) by Financing Activities 3,627 (3,341) (5,885)
_______________________________________________________________________________
Net (decrease) increase in cash and cash
equivalents (217) (390) 358
Cash and Cash Equivalents at Beginning of Year 740 1,130 772
_______________________________________________________________________________
Cash and Cash Equivalents at End of Year $ 523 $ 740 $ 1,130
===============================================================================
Disclosure of Cash Payments for:
Interest $ 413 $ 474 $ 869
Income taxes $ 2,181 $ 2,278 $ 1,017
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Shareholders' Equity
(dollars and shares in thousands)
<CAPTION>
Common Stock Class B Stock Treasury Stock
____________ _____________ ______________
Shares Par Shares Par Paid-In Retained
Issued Value Issued Value Shares Cost Capital Earnings
________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 3,302 $ 33 815 $ 8 302 $ 808 $ 2,046 $10,447
Net Income and Comprehensive
Income for 1996 2,657
Stock Distribution 1,040 10 75 (15)
Treasury Stock Sold (79) (212) (41)
Exercise of Stock Options 98 1 13 - 292
Class B Stock converted to
Common Stock 79 1 (79) (1)
______________________________________________________________________________________________________________
Balance at December 31, 1996 4,519 45 749 7 298 596 2,297 13,089
Net Income and Comprehensive
Income for 1997 3,551
Treasury Stock Sold (38) (113) 53
Treasury Stock Purchased 82 532
Exercise of Stock Options 91 1 170
Class B Stock converted to
Common Stock 33 - (33) -
______________________________________________________________________________________________________________
Balance at December 31, 1997 4,643 46 716 7 342 1,015 2,520 16,640
Net Income and Comprehensive
Income for 1998 4,304
Stock Distribution 537 6 34 (12)
Treasury Stock Sold (27) (73) 130
Exercise of Stock Options 23 31
Class B Stock converted to
Common Stock 22 - (22) -
______________________________________________________________________________________________________________
Balance at December 31, 1998 5,225 $ 52 694 $ 7 349 $ 942 $ 2,681 $20,932
==============================================================================================================
See notes to financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Note 1
Summary of Significant Accounting Principles and Practices
Principles of Consolidation
The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All
intercompany transactions and balances have been eliminated.
Revenue Recognition
Revenue is recognized on the accrual basis, i.e., at the
time of shipment of goods. There are no significant contracts
allowing for right of return. The Company performs periodic
credit evaluations of its customers' financial condition and
generally does not require collateral.
Inventories
Inventories are stated at the lower of cost or market, cost
being determined in accordance with the first-in, first-out
method. Inventories at December 31 are as follows:
(in thousands)
1998 1997
____________________
Finished Goods $1,357 $1,740
Work in Progress 1,064 879
Raw Material 2,514 2,142
____________________
$4,935 $4,761
__________________________________________________
Property, Plant and Equipment
Depreciation of property, plant and equipment is computed on
the straight-line method for financial reporting purposes and on
accelerated methods for income tax purposes. Estimated useful
lives of the assets are as follows: buildings, 10-40 years; and
machinery and equipment, 4-10 years. Leasehold improvements are
amortized over the terms of the lease or the lives of the assets,
whichever is shorter.
The cost of properties sold or otherwise disposed of and the
accumulated depreciation thereon are eliminated from the
accounts, and the resulting gain or loss, as well as maintenance
and repair expenses, are reflected in income. Renewals and
betterments are capitalized.
Goodwill
Included in other assets, the excess of purchase price over
the fair value of net tangible assets acquired, net of
<PAGE>
accumulated amortization, amounted to $1,049,000 and $1,099,000
at December 31, 1998 and 1997, respectively. Accumulated
amortization amounted to $382,000 and $332,000 at December 31,
1998 and 1997, respectively. These assets are amortized over
15-40 years on a straight-line basis, starting in the year of
acquisition.
Income Taxes
The Company files a consolidated federal income tax return.
Deferred taxes are computed under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
Earnings Per Share
Earnings per share computations are based upon the following
table:
(in thousands, except per share data)
1998 1997 1996
_______________________________
Net Income $4,304 $3,551 $2,657
Basic earnings per share
weighted average shares,
restated for share
distributions 5,542 5,496 5,319
Net effect of dilutive stock
options 385 370 404
________________________________
Diluted earnings per share
weighted average shares 5,927 5,866 5,723
================================
Basic earnings per share $ 0.78 $ 0.65 $ 0.50
================================
Diluted earnings per share $ 0.73 $ 0.61 $ 0.46
______________________________________________________________
Cash Equivalents
The Company considers all highly-liquid investments in debt
securities with original maturities of three months or less as
cash equivalents.
Class B Stock
Class B Stock is identical to Common Stock, except Class B
Stock has ten votes per share, is automatically converted to
Common Stock when sold or traded, and cannot receive dividends
unless an equal or greater amount is declared on Common Stock.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
<PAGE>
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Note 2
Effect of New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board
(FASB) issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires than an
entity recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those
instruments at fair value. The intended use of the derivative
and its designation as either (1) a hedge of the exposure to
changes in the fair value of a recognized assets or liability or
a firm commitment (a fair value hedge), (2) a hedge of the
exposure to variable cash flows of a forecasted transaction (a
cash flow hedge), or (3) a hedge of the foreign currency exposure
of a net investment in a foreign operation (a foreign currency
hedge), will determine when the gains or losses on the
derivatives are to be reported in earnings and when they are to
be reported as a component of other comprehensive income.
This new standard must be adopted for year 2000 financial
reporting. Management has determined that it does not have
current transactions that would require reporting under
"Accounting for Derivative Instruments and Hedging Activities."
Note 3
Notes Payable
The Company has an unsecured line of credit of $10,000,000,
which provides for interest at bank prime or LIBOR plus 100 basis
points. The line is available for two and a half years and may
be converted into a four year term loan at not more than
$9,000,000. At December 31, 1998 and 1997, $3,800,000 and
$1,800,000, respectively, was outstanding.
Note 4
Long-Term Debt
Long-term debt consists of the following:
(in thousands)
1998 1997
______________________
Mortgage payable in installments
through 2003 with interest at 11.00% $ 34 $ 39
Term loan payable in installments
through 1998 with interest at 6.96% - 750
<PAGE>
Revolver loan with interest at
LIBOR plus 100 basis points 3,800 1,800
Urban Development Action Grant
financing payable in monthly
installments through 2006, with
interest at 3% 276 310
Industrial Revenue Tax-Exempt Bonds
issued through the Business Finance
Authority of the state of New Hampshire
payable $400,000 annually starting in
2001 through 2018 with interest reset
every seven days. The rate at December
31, 1998 was 4.20% 7,250 -
______________________
11,360 2,899
Less current maturities 41 789
______________________
$11,319 $2,110
______________________________________________________________
The Industrial Revenue Bonds are held by institutional
investors and are guaranteed by a bank letter of credit, which is
collateralized by certain property, plant and equipment assets.
The mortgage payable and the grant are secured by certain
property, plant and equipment. The Company's loans, among other
requirements, impose certain covenants with which the Company
maintains compliance.
Estimated principal maturities of long-term debt over the
next five years are as follows: $40,000; $42,000; $4,244,000;
$446,000, and $446,000.
Note 5
Long-Term Obligations Under Capital Leases
The County of Erie, State of New York, has issued industrial
Revenue Development Bonds in connection with the acquisition of
certain land, production facilities and equipment. These bear
interest at seven to ten percent, or 70 percent of the bank's
prime rate. The Company also leases certain other equipment under
capital leases from six to ten percent interest.
The following is a schedule by years of future minimum lease
payments under the capital leases, together with the present
value of the net minimum lease payments as of December 31, 1998:
(in thousands)
Capital
Period Lease
____________________________
1999 $ 492
2000 429
2001 177
<PAGE>
2002 143
2003 122
2004 55
_______
Net minimum lease payments 1,418
Amounts representing interest 224
_______
Present value of net
minimum lease payments $ 1,194
__________________________________________________________
Amounts related to the capital leases included in the Balance
Sheet are summarized as follows:
(in thousands)
1998 1997
Property, Plant and Equipment:
Land $ 125 $ 125
Buildings and improvements 2,592 2,592
Machinery and equipment 2,578 2,578
_______________________
5,295 5,295
Less accumulated
depreciation 4,416 4,025
_______________________
$ 879 $ 1,270
__________________________________________________________
Debt:
Current 405 405
Long-term 789 1,194
_______________________
$ 1,194 $ 1,599
__________________________________________________________
The Company subleases a portion of these facilities from
which they anticipate future total minimum rentals of $1,931,000.
<PAGE>
<TABLE>
Note 6
Stock Option and Purchase Plans
A summary of the Company's stock option and purchase plans activity, and related information
for the years ended December 31 follows:
<CAPTION>
1998 1997 1996
________________________________________________________________________
Weighted Weighted Weighted
Average Average Average
Exercised Exercised Exercised
Options Price Options Price Options Price
________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the
beginning of the year 481,026 $ 2.60 577,233 $ 2.07 540,849 $ 2.33
Options granted 67,869 $ 8.23 47,714 $ 7.69 95,714 $ 4.71
Stock distribution 47,135 $ (.25) - - 129,247 $ (.47)
Options exercised (49,942) $ 4.69 (128,563) $ 2.63 (175,582) $ 1.55
Options expired (7,398) $ 8.29 (15,358) $ 3.38 (12,995) $ 2.61
_______ ________ ________
Outstanding at the end of
the year 538,690 $ 2.81 481,026 $ 2.60 577,233 $ 2.07
_______ ________ ________
Exercisable at
December 31 435,221 $ 2.10 403,156 $ 2.02 413,487 $ 1.66
======= ======== ========
</TABLE>
<PAGE>
Exercise prices for options outstanding as of December 31,
1998 range from $ .95 to $8.88. The weighted average remaining
contractual life of these options is 4.1 years.
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No. 123
"Accounting for Stock-Based Compensation". The Company uses the
measurement prescribed by APB Opinion No. 25 which does not
recognize compensation expense if the exercise price of the stock
option equals the market price of the underlying stock on the
date of grant. SFAS No. 123 requires companies that choose to
continue using APB Opinion No. 25, and thus not adopting the new
fair value accounting rules, to disclose pro forma net income and
earnings per share under the new method.
The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1998: risk-free
interest rate of 6.0%; dividend yield of 0%; volatility factor of
the expected market price of the Company's common stock of .42;
and a weighted average expected life of the option of 3.0 years.
The weighted average grant date fair value of options granted
during the year was $3.11.
The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options'
vesting period. The Company's pro forma information for the year
ended December 31, 1998 is as follows: net income $4,163,000;
basic earnings per share $ .75; and diluted earnings per share $
.71. The pro forma effect on earnings for the year ended December
31, 1997 is as follows: net income $3,431,000; basic earnings per
share $ .69; and diluted earnings per share $ .65. The effect for
the year ended December 31, 1996 was immaterial.
The Company established the 1982 and 1992 Incentive Stock
Option Plans for the purpose of attracting and retaining
executive officers and key employees, and to align management's
interest with those of the shareholders. Generally, the options
must be exercised within ten years from the grant date and, under
the 1992 Plan, the options vest ratably over a five year period.
The exercise price for the options is equal to the fair market
value at the date of grant. The Company had options outstanding
for 148,500 shares and 200,125 shares under the 1982 and 1992
Plans, respectively. At December 31, 1998 options available for
future issuance under the 1992 Plan are 141,075 shares.
<PAGE>
The Company established the 1984, 1993 and the 1997
Directors Stock Option Plan for the purpose of attracting and
retaining the services of experienced and knowledgeable outside
directors, and to align their interest with those of the
shareholders. The options must be exercised within ten years from
the grant date. The exercise price for the option is equal to the
fair market value at the date of grant. The Company had options
outstanding for 86,796 shares, 48,400 shares, and 16,500 shares
under the 1984, 1993 and 1997 Plans, respectively. At December
31, 1998 options available for future issuance under the 1997
Plan are 93,500 shares.
The Company established the Employee Stock Purchase Plan to
encourage employees to invest in the Company. Each option is for
one year, but may be canceled by the employee at any time during
that year. The exercised price of the option is 85 percent of the
market price on the date of grant. The employee pays for the
option through a weekly payroll deduction. At December 31, 1998
employees had outstanding options to purchase 38,369 shares at
$7.82 per share on September 30, 1999.
Note 7
Income Taxes
The provision for income taxes consists of the following:
(in thousands)
1998 1997 1996
__________________________
Currently payable
Federal $2,009 $1,635 $1,614
State 157 146 82
Deferred (from prior) to
future years 248 197 (330)
__________________________
$2,414 $1,978 $1,366
________________________________________________________
The effective tax rates of 35.9% in 1998, 35.8% in 1997 and
34.0% in 1996, which differ from the statutory federal income
tax, are a result of the following:
1998 1997 1996
________________________
Statutory federal income
tax rate 34.0% 34.0% 34.0%
Tax exempt items, net .3% .4% .6%
State income tax, net of
federal income tax benefit 1.5% 1.8% 1.8%
Other .1% (.4%) (2.4%)
_________________________
35.9% 35.8% 34.0%
_______________________________________________________
<PAGE>
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's
deferred tax liabilities and assets as of December 31, 1998 and
1997 are as follows:
(in thousands)
1998 1997
______________
Long-term deferred tax liabilities:
Tax depreciation over book depreciation $ 2,239 $ 1,906
_________________
Net long-term deferred tax liability 2,239 1,906
Long-term deferred assets:
State net operating loss carryforwards 18 38
State investment tax credit carryforwards 985 641
Deferred compensation 826 775
Other-net 159 193
_________________
Total long-term deferred tax assets 1,988 1,647
Valuation allowance for deferred tax
assets related to state net operating
losses and investment tax credit
carryforward (819) (563)
_________________
Net long-term deferred tax asset 1,169 1,084
_________________
Net long-term deferred tax liability $ 1,070 $ 822
______________________________________________________________
At December 31, 1998, the Company had state net operating
loss carryforwards of $511,000 for income tax purposes expiring
through 2010 and state investment tax credit carryforwards of
$1,493,000 expiring through 2013. The state carryforwards are
subject to separate tax return limitations.
Note 8
Deferred Profit Sharing/401(k) Plan and Deferred Compensation
The Company has a trusteed Deferred Profit Sharing/401(k)
Plan for the benefit of its eligible full-time employees. The
Profit Sharing/401(k) Plan provides for annual contributions
based on percentages of pre-tax income. In addition, employees
may contribute up to fourteen percent of their salary to the
401(k) features. The plan may be amended or terminated at any
time. Total charges to income for the plan were $779,000,
$745,000, and $548,000, in 1998, 1997, and 1996, respectively. In
1996, the Company formalized a deferred compensation arrangement
for senior officers, payable over a ten-year period after
retirement.
<PAGE>
Note 9
Accrued Expenses
Accrued expenses consist of the following:
(in thousands)
1998 1997
Accrued payroll and employee benefits $ 950 $ 842
Accrued profit sharing 779 745
Other accrued liabilities 356 355
__________________
$2,085 $1,942
__________________________________________________________
<PAGE>
<TABLE>
Note 10
Selected Quarterly Financial Information
(unaudited) (in thousands, except for per share data)
<CAPTION>
Quarter ended
Dec. 31, Oct. 3, July 4, April 4 Dec. 31, Sept. 27, June 28, Mar. 29,
1998 1998 1998 1998 1997 1997 1997 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 13,031 $ 11,689 $ 10,296 $ 11,057 $ 11,445 $ 10,214 $ 9,688 $ 9,625
Gross Profit $ 4,808 $ 3,651 $ 3,035 $ 3,365 $ 4,067 $ 3,289 $ 3,091 $ 2,982
Income before tax $ 2,683 $ 1,580 $ 1,271 $ 1,184 $ 2,059 $ 1,457 $ 1,013 $ 1,000
Net income $ 1,689 $ 1,049 $ 821 $ 745 $ 1,385 $ 937 $ 646 $ 583
Basic earnings per share $ .31 $ .19 $ .14 $ .14 $ .26 $ .16 $ .12 $ .11
Diluted earnings per
share $ .29 $ .18 $ .13 $ .13 $ .24 $ .16 $ .11 $ .10
_____________________________________________________________________________________________________________
</TABLE>
<PAGE>
Note 11
Operations in Different Industries
The Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information", in 1998 which
changes the way the Company reports information about its
operating segments. The information for 1997 and 1996 has been
restated from the prior year's presentation in order to conform
to the 1998 presentation.
The Company operates in two areas: Aerospace and
Electronics, and Specialty Packaging. Operations in Aerospace and
Electronics involve the design, manufacturing and marketing of
state-of-the-art and advanced technological components
incorporated into functional systems including instrument panels,
photo reproductions and keyboard technologies. Customers are
typically well known companies in the automotive, aerospace,
defense, and electronics industries worldwide. Operations in
Specialty Packaging involve the design, manufacturing and
marketing of folding paperboard packaging for customers' delivery
of their products and high quality custom imprinting of napkins,
invitation and other paper products. The Company is a dominant
provider of custom folding boxes in chosen markets.
Corporate assets consist mainly of cash, cash equivalents
and furniture and equipment.
<PAGE>
<TABLE>
<CAPTION>
(in thousands)
Aerospace & Specialty
Electronics Packaging Corporate Consolidated
_______________________________________________________________________________________
<S> <C> <C> <C> <C>
Sales to external customers:
1998 $ 23,884 $ 22,189 $ - $ 46,073
1997 20,167 20,805 - 40,972
1996 19,718 18,653 - 38,371
_______________________________________________________________________________
Interest expense, net:
1998 $ 4 $ 105 $ 267 $ 376
1997 3 129 305 437
1996 5 151 657 813
_______________________________________________________________________________
Income before taxes:
1998 $ 3,694 $ 2,840 $ 184 $ 6,718
1997 2,676 2,931 (78) 5,529
1996 3,175 2,260 (1,412) 4,023
_______________________________________________________________________________
Identifiable assets:
1998 $ 18,484 $ 24,262 $ 961 $ 43,707
1997 9,110 20,011 1,120 30,241
1996 8,611 19,761 1,493 29,865
_______________________________________________________________________________
Capital expenditures:
1998 $ 3,796 $ 5,872 $ 18 $ 9,686
1997 412 2,644 4 3,060
1996 254 3,761 10 4,025
_______________________________________________________________________________
Depreciation and amortization:
1998 $ 715 $ 2,360 $ 39 $ 3,114
1997 767 2,029 35 2,831
1996 799 1,753 79 2,631
_______________________________________________________________________________
<PAGE>
Sales by geographic locations:
1998 North America $ 16,899 $ 22,138 $ - $ 39,037
Europe 3,609 3 - 3,612
South America 1,807 - - 1,807
Other 1,569 48 - 1,617
_________________________________________________
23,884 22,189 - 46,073
1997 North America $ 15,606 $ 20,781 $ - $ 36,387
Europe 3,200 4 - 3,204
South America 124 1 - 125
Other 1,237 19 - 1,256
_________________________________________________
$ 20,167 $ 20,805 $ - $ 40,972
1996 Data is not available
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of Astronics
Corporation
We have audited the accompanying consolidated balance sheets
of Astronics Corporation as of December 31, 1998 and 1997, and
the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Astronics Corporation at December 31, 1998
and 1997, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted
accounting principles.
/S/ ERNST & YOUNG LLP
Buffalo, New York
January 21, 1999
<PAGE>
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
The financial statements and accompanying information were
prepared by and are the responsibility of Astronics' management.
The statements were prepared in conformity with generally
accepted accounting principles and, as such, include amounts that
are based on management's best estimates and judgments.
The Company's internal control systems are designed to
provide reliable financial information for the preparation of
financial statements, to safeguard assets against loss or
unauthorized use and to ensure that transactions are executed
consistent with Company policies and procedures. Management
believes that existing internal accounting control systems are
achieving their objectives and that they provide reasonable
assurance concerning the accuracy of the financial statements.
Oversight of management's financial reporting and internal
accounting control responsibilities is exercised by the Board of
Directors, through an Audit Committee which consists solely of
outside directors. The Committee meets periodically with
management and the independent accountants to ensure that each is
meeting its responsibilities and to discuss matters concerning
auditing, internal accounting control and financial reporting.
/S/ KEVIN T. KEANE /S/ JOHN M. YESSA
Kevin T. Keane John M. Yessa
President and Chief Executive Officer Vice President-Finance,
Treasurer and Chief
Financial Officer
<PAGE>
<TABLE>
Five-year Comparison of Selected Financial Data
(in thousands, except per share data)
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
For the year:
Sales $46,073 $40,972 $38,371 $28,536 $24,944
Net income 4,304 3,551 2,657 1,760 1,306
Per share:
Basic earnings per share .78 .65 .50 .33 .24
Diluted earnings per share .73 .61 .46 .33 .24
Shares used in computation of
basic earnings per share 5,542 5,496 5,319 5,268 5,463
Shares used in computation of
diluted earnings per share 5,927 5,866 5,723 5,268 5,463
At end of year:
Total assets $43,707 $30,241 $29,865 $30,815 $23,787
Net investment in property,
plant and equipment 24,994 18,160 17,642 16,276 11,177
Working capital 6,305 4,299 2,855 6,101 6,035
Long-term debt 11,319 2,110 3,798 9,713 4,771
Long-term obligations under
capital leases 789 1,194 1,600 2,010 2,228
Shareholders' equity 22,730 18,198 14,842 11,726 10,334
_______________________________________________________________________________________
</TABLE>
<PAGE>
Stock Prices
The adjacent table sets forth the range of prices for the
Company's Common Stock, traded on the Nasdaq National Market
System, for each quarterly period during the last two years. The
approximate number of shareholders of record as of February 22,
1999 was 1,007.
1998 1997
First $6.93 - $8.86 $4.43 - $6.59
Second 7.56 - 13.30 5.57 - 6.14
Third 7.84 - 12.50 5.80 - 9.09
Fourth 8.06 - 11.88 7.27 - 11.36
_________________________________________________
<PAGE>
<TABLE>
Managements Discussion and Analysis
The following table sets forth an income statement with percentage of net sales and the percentage increase (decrease)
of such items as compared to the prior period.
<CAPTION>
1998 1997 1996 period to period
_________________________________________________________________________
(in thousands) $ % $ % $ % 1997-98 1996-97
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales
Aerospace and Electronics $23,884 51.8 $20,167 49.2 $19,718 51.4 18.4% 2.3%
Specialty Packaging 22,189 48.2 20,805 50.8 18,653 48.6 6.7% 11.5%
________________________________________________________________________________________
46,073 100.0 40,972 100.0 38,371 100.0 12.5% 6.8%
Cost of goods sold 31,214 67.7 27,543 67.2 27,333 71.2 13.3% .8%
Selling, general and
administrative expenses 7,765 16.9 7,463 18.2 7,959 20.8 4.0% (6.2)%
Gain on sale of assets - - - - (1,757) (4.6) - -
________________________________________________________________________________________
Operating Income 7,094 15.4 5,966 14.6 4,836 12.6 18.9% 23.4%
Other deductions:
Interest expense, net 376 .8 437 1.1 813 2.1 (14.0)% (46.2)%
________________________________________________________________________________________
Income before taxes 6,718 14.6 5,529 13.5 4,023 10.5 21.5% 37.4%
Provision for income taxes 2,414 5.2 1,978 4.8 1,366 3.6 22.0% 44.8%
________________________________________________________________________________________
Net income $ 4,304 9.4 $ 3,551 8.7 $ 2,657 6.9 21.2% 33.6%
=========================================================================================================
</TABLE>
<PAGE>
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 (USAF) had selected its Luminescent Systems Inc.
subsidiary to design, develop and manufacture night vision
lighting modification kits for the NVIS F-16 program. The initial
award was for 377 units. On February 10, 1999, the Company
announced that the USAF had exercised an option for an additional
305 units. Two options remain for future use by the USAF. The
potential value of the contract is $50,000,000, with current
awards totaling $29,000,000. Delivery is expected to begin in the
Third Quarter of 1999 with the program running into 2002.
On December 30, 1998, effective December 1, 1998, the
Company renewed its Revolving Line of Credit for $10,000,000 at
the bank's prime rate or LIBOR plus 100 basis points. The Company
may convert up to $9,000,000 into a four-year term loan. This
credit facility expires June 1, 2001.
On December 30, 1998, the Company closed an Industrial
Revenue tax-exempt bond with the Business Finance Authority of
the State of New Hampshire for $7,250,000. The interest rate
floats with tax exempt funds and is reset every seven days. These
funds are being used to finance the new Lebanon, New Hampshire
facility and manufacturing equipment for expanded production
needs.
During the Third Quarter of 1998, the Aerospace and
Electronics segment started construction on a new 80,000 square
foot building in Lebanon, New Hampshire. This will allow the
Company to consolidate its New Hampshire operations, currently in
four leased locations, into a single facility. The facility is
scheduled for occupancy during the Third Quarter of 1999.
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.
On October 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.
<PAGE>
Sales
Astronics Corporation set a new sales record for the year,
with sales increasing 12.5 percent. Astronics has set a new
record for sales for the last 18 quarters based on the trailing
twelve months results. Sales increased 12.5 percent in 1998 over
1997, 6.8 percent in 1997 over 1996 and 11.1 percent in 1996 over
1995, based on ongoing sales. Sales for the year were
$46,073,000, closely divided between Aerospace and Electronics
(51.8 percent) and Specialty Packaging (48.2 percent).
Sales in the Aerospace and Electronics segment increased
18.4 percent in 1998 to $23,884,000, compared to the growth in
1997 of 2.3 percent over 1996. When sales growth is calculated on
an ongoing business basis, sales increased 10.7 percent in 1997
and 103.3 percent in 1996. In late 1995 the Company acquired
Loctite Luminescent Systems. The Company in 1998 experienced
solid sales growth in its emergency egress lighting systems,
formation lighting systems for military aircraft and cockpit
lighting systems areas. The Company has been awarded key
development contracts for lighting systems in planes being
developed for the commercial, private and military aircraft
markets. Also, the Company has received its first order for a new
lamp that enters it into the consumer products market.
Sales in the Specialty Packaging segment increased 6.7
percent in 1998 to $22,189,000. This followed an increase of 11.5
percent in 1997 and 9.7 percent in 1996. This growth has been
experienced mainly in the specifically designed boxes for
customers in the confectionery, pharmaceutical and consumer
product markets. This product line utilizes the Company's
engineering, design and manufacturing capabilities for specific
product solutions enabling customers to enhance their
distribution to the marketplace. The Company is continuing to
develop opportunities to partner with customers to jointly meet
the customer's needs.
The Company is increasing its global business outreach. In
1998, international sales were approximately 21 percent of sales,
compared to 17 percent in 1997. The North American markets of
Canada and Mexico accounted for five percent of sales in each
year. International sales accounted for 36 percent of the
Aerospace and Electronics sales in 1998, compared to 27 percent
in 1997. The Specialty Packaging segment had seven percent of
sales in 1998 in global markets, compared to six percent in 1997.
Sales to foreign customers are made in U.S. dollars. Sales made
to Asian countries were nominal in each year. Sales in the
Aerospace and Electronics segment are mainly by competitive bid
based on customer specifications. None of the government
contracts are subject to renegotiation of profits clauses. Sales
in the Specialty Packaging segment are approximately 50 percent
from standard catalog pricing and 50 percent from competitive bid
based on customer specifications. The Company has no sales
concentrated in any one customer.
<PAGE>
Expenses
The gross profit margin was 32.3 percent in 1998, 32.8
percent in 1997 and 28.8 percent in 1996. The product mix change
resulting from the growth in Aerospace and Electronic sales has
had an effect on the ratios. Cost of goods sold increased 13.3
percent in 1998 compared to a sales increase of 12.5 percent.
Within the cost of goods sold area there have been various shifts
of costs. For example, material usage was 21.1 percent in 1998,
19.7 percent in 1997, and 25.2 percent in 1996. Employee costs
(wages and benefits) was 27.5 percent in 1998, 28.0 percent in
1997, and 26.4 percent in 1996. Part of the increase in employee
cost experienced in 1997 reflects the technical nature of the
increasing sales in Aerospace and Electronics, which requires
more support. Depreciation, as a percent of sales, has remained
at 5.5 percent of sales over this three-year period. Facility
costs have been in the low six percent of sales area during that
three-year period. All other categories of expenses were
approximately the same percentage of the sales dollar in each of
the three years.
The Company's operating profit of $7,094,000, was 15.4
percent of sales in 1998, compared to $5,966,000, or 14.6 percent
of sales in 1997, and $3,079,000 (restated to eliminate gain on
sale of a business) or 8.0 percent of sales in 1996. The lower
operating profit margin in 1996 is the result of the finalization
of a deferred compensation arrangement for senior management.
When this one-time expense is removed for comparison purposes,
operating income is 11.2 percent in 1996. The selling, general
and administrative expenses tend to be more fixed and period
costs, not directly related to manufacturing volume. Employee
costs were 10.1 percent of sales in 1998, 10.2 percent in 1997,
and 10.3 percent in 1996 (restated). The cost of professional
services decreased approximately one percent of sales in 1998 as
a result of less outside computer consulting services. All other
cost areas are within a percentage point of the prior year.
In October 1996, the Company sold its Rodgard Division for
cash of $2,250,000. The Company retained the facility used by
this Division, and is leasing it to the new owners of the
business. The net gain on this transaction was $1,757,000. The
Company also recorded, as expense in the same period, an
additional contribution to the employees' Profit Sharing Plan,
the write-down of potentially obsolete inventory in the Aerospace
and Electronics segment, an additional reserve for accounts
receivables over 120 days, and the formalization of the deferred
compensation arrangement. The net effect of this gain and the
recording of additional expenses is approximately $100,000 of
income after taxes, or $.02 per share.
Interest
Interest costs, net of interest income, was $376,000 (.8
percent of sales) in 1998, $437,000 (1.1 percent of sales) in
1997, and $813,000 (2.1 percent of sales) in 1996. The Company
reduced its total long-term indebtedness by $1,194,000 in 1998,
$3,146,000 in 1997, and $6,345,000 in 1996. On December 30, 1998,
<PAGE>
the Company borrowed $7,250,000 under a tax-exempt Industrial
Revenue Bond with the State of New Hampshire. During the 1998
year, the Company borrowed an additional $2,000,000, net, on its
Revolving Line of Credit. Interest on the industrial revenue bond
during the construction period will be capitalized as part of the
cost of the new facility.
Income Before Taxes
Income before taxes increased 21.5 percent in 1998 to
$6,718,000, compared to an increase of 37.4 percent in 1997 to
$5,529,000 and an increase in 1996 of 36.9 percent to $4,023,000.
Taxes
The provision for taxes for 1998 is $2,414,000, an effective
tax rate of 35.9 percent, compared to the 1997 provision of
$1,978,000, an effective tax rate of 35.8 percent, and the 1996
provision of $1,366,000, an effective tax rate of 34.0 percent in
1996. The increase in the percentage of sales for the tax
provision, 5.2 percent in 1998, 4.8 percent in 1997, and 3.6
percent in 1996, reflects the increases in margins the Company
has achieved in its businesses. The Company utilizes state tax
credits available under the different tax codes. The Company's
Federal Income Tax returns have been audited through 1995.
Net Income
The Company earned 9.4 percent on the sales dollar in 1998,
compared to 8.7 percent on the sales dollar in 1997, and compared
to 6.9 percent in 1996. The net income was $4,304,000, or $.73
per diluted share in 1998, $3,551,000, or $.61 per diluted share
in 1997, and $2,657,000, or $.46 per diluted share in 1996. On a
trailing twelve-month basis, the Company has increased earnings
in each of the last 19 quarters.
Liquidity
Working capital increased in 1998 to $6,305,000, and in 1997
to $4,299,000 from $2,855,000 in 1996. The Company remains
current on all loan commitments and covenants.
The Company believes that the cash generated from operations
combined with the Revolving Line of Credit are adequate to fund
the needs for working capital and capital expenditures for the
1999 Corporate Plan.
Credit Line
The Company maintains an unsecured revolving line of credit
for $10,000,000 with interest at either the bank's prime rate or
LIBOR plus 100 basis points. At the end of two and a half years
(June 1, 2001) the Company can convert up to $9,000,000 of the
outstanding balance to a four-year term loan. At December 31,
1998 the outstanding loan balance was $3,800,000, and at December
31, 1997, the outstanding loan balance was $1,800,000.
<PAGE>
Dividends
On October 30, 1998, the Company paid a ten percent share
distribution to shareholders of record as of October 16, 1998.
The Company believes that its current investment programs
(investments in increased capacity, technologies, processes and
equipment, the reduction of debt, and the possible purchase of
Treasury Stock) are important uses of cash, and are in the best
long-term interest of its shareholders. Therefore, there are no
plans to institute a cash dividend program.
Backlog
At December 31, 1998, the Company's backlog was $29,887,000,
compared to $10,807,000 at December 31, 1997 and $10,106,000 at
the end of 1996. The backlog for Aerospace and Electronic segment
was $28,779,000, $9,686,000, and $8,784,000 at December 31, 1998,
1997 and 1996, respectively. The Specialty Packaging segment had
backlogs of $1,108,000, $1,121,000 and $1,322,000 at December 31,
1998, 1997 and 1996, respectively. The current portion of the
combined backlog is $25,608,000. The Company's commitment to
on-time delivery of products and short cycle times have enabled
the Company to reduce its inventories and improve the delivery of
products to its customers.
Commitments
At December 31, 1998, the Company had outstanding capital
expenditure commitments of approximately $7,100,000, compared to
$4,100,000 at the end of 1997 and $2,000,000 at the end of 1996.
The major outstanding commitment is for the new facility and
production equipment for the Lebanon, New Hampshire operation.
This project should be completed in 1999. The Company also has
normal outstanding purchase orders for raw materials and supplies
necessary to carry on the business. The Company is not aware of
any commitments in excess of today's market values nor in excess
of quantities that will be used in normal operations. The Company
is not aware of any contingent liabilities not provided for in
its financial statements.
Market Risk
The Company has various long-term indebtedness outstanding
at December 31, 1998. The interest impact of a one percent
increase in rates would be as follows:
Impact on Earnings (in
Instrument Interest Rate thousands)
__________ _____________ ______________________
Mortgage payable Fixed interest $ -
Revolver line of
credit LIBOR plus 100 points 38
UDAG Fixed interest -
1998 LSI - IRB Tax-exempt financing 73
Capital leases Rates fixed or floor/ceiling 7
_____
$ 118
Less tax benefit 43
_____
Net income reduction $ 75
<PAGE>
The Company purchases paperboard for its Specialty Packaging
segment. This amounts to approximately 20 percent of sales. The
Company's backlog is normally less than 30 days of sales. The
Company has inventory on hand for approximately one month's
usage. Any price changes in paperboard purchases would have less
than a two month effect on the business's in margins as each new
order is quoted to reflect the cost of the raw material. The
Company doesn't purchase any other raw material or product
component that, by itself, would have a material effect on the
success of the Company because of pricing increases.
Year 2000
The Company employs several different computer systems for
financial, engineering and manufacturing purposes. The Company
purchases these systems, both hardware and software. Therefore,
it does not have programmers writing code internally. During
1998 and 1997, the Company installed upgrades to some of its
systems that are Year 2000 compliant and switch software for
other functions that are Year 2000 compliant. All operating
systems are now Year 2000 compliant, except for the Human
Resources system. This system will be replaced in the Second or
Third Quarter of 1999. The Company has tested various systems and
will continue to test applications it runs, as well as those it
interfaces with including customers, vendors, and other outside
sources. The Company believes it is ready for Year 2000 except
for the above-mentioned program. The total invested for software
upgrades to date is approximately $150,000 and the Company's
budget for additional upgrades and new software in 1999 is
approximately $25,000.
The Company has interfaced with the suppliers of production,
engineering and administrative equipment that have embedded chips
in their products. The Company is seeking full assurances that
these are either Year 2000 Compliant, have no date sensitivity,
or that necessary upgrades will be available by June 30, 1999.
The risk that the Company faces is in their suppliers of
utilities, mainly electric, natural gas, and telecommunication.
These vendors have stated that they have or will test their
systems before the end of the Second Quarter. They have stated
that they do not anticipate any problems. Another area of risk is
that several key pieces of manufacturing equipment are made in
Europe, where companies reportedly are slowly addressing the year
2000 issues. The Company plans to have assurance from these
suppliers that they have adequate parts in U.S.A. warehouses with
Year 2000 Compliant delivery systems. If assurances are not
adequate, the Company will increase its inventory of vital spare
parts. The Company has no other specific contingency plans.
Board of Directors
Robert T. Brady Director, Astronics Corporation
Chairman of the Board, President
and Chief Executive Officer, Moog Inc.
<PAGE>
John B. Drenning Secretary, Director, Astronics
Corporation, Partner in the law firm
Phillips, Lytle, Hitchcock, Blaine &
Huber
Kevin T. Keane President and Chief Executive Officer,
Director, Astronics Corporation
Robert J. McKenna Director, Astronics Corporation
Chairman of the Board, President and
Chief Executive Officer, Acme Electric
Corporation
John M. Yessa Vice-President-Finance and Treasurer,
Chief Financial Officer, Director,
Astronics Corporation
Officers
Charles H. Biddlecom Vice President-Marketing, Mod-Pac Corp
Donald E. Derrick Vice President, Luminescent Systems,
Inc.
Donna L. Eckman Vice President, Krepe-Kraft
Leo T. Eckman President, Krepe-Kraft
Peter J. Gundermann President, Luminescent Systems, Inc.
Daniel G. Keane President, Mod-Pac Corp
Kevin T. Keane President and Chief Executive Officer,
Astronics Corporation
James S. Kramer Vice-President, Luminescent Systems,
Inc.
John M. Yessa Vice-President-Finance and Treasurer,
Chief Financial Officer, Astronics
Corporation
The Companies of Astronics
Specialty Packaging
Krepe-Kraft, Blasdell, New York
MOD-PAC CORP, Buffalo, New York
Aerospace and Electronics
Luminescent Systems Inc., Lebanon, New Hampshire
Luminescent Systems Inc., East Aurora, New York
Luminescent Systems Europe B.V. B. A., Brussels, Belgium
<PAGE>
Transfer Agent and Registrar
American Stock Transfer and Trust Company
New York, New York
Attorneys
Phillips, Lytle, Hitchcock, Blaine & Huber LLP
Buffalo, New York
Independent Accountants
Ernst & Young LLP
Buffalo, New York
Annual Meeting
April 29, 1999 - 10:00 A.M.
Orchard Park Country Club
S-4777 South Buffalo Street
Orchard Park, New York
Form 10-K Annual Report
The Company's Form 10-K Annual Report to the Securities and
Exchange Commission provides certain additional information. A
copy of this report may be obtained upon request to Shareholder
Relations, Astronics Corporation, 1801 Elmwood Avenue, Buffalo,
NY 14207
Shareholder Administration
Please direct inquiries relating to shareholder accounting
records and stock transfers to:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Please report change of address promptly to ensure timely receipt
of Company communications. Please mail a signed and dated letter
or postcard stating the name in which the stock is registered,
and the previous and current addresses, to the above address.
Press Releases
In an effort to provide efficient and cost-effective
communications to our shareholders, we are mailing copies of all
Press Releases directly to our shareholders of record on the day
of the release. These Press Releases will carry appropriate
financial data, when applicable. The Press Release dates for the
1999 quarterly results are:
<PAGE>
First Quarter - April 27, 1999
Second Quarter - July 27, 1999
Third Quarter - October 26, 1999
Fourth Quarter - January 27, 2000
Stock Exchange Listing
The Company's stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market under the symbol ATRO.
Correspondence
Astronics Corporation
1801 Elmwood Avenue
Buffalo, New York 14207
Web Site: www.astronics.com
E-mail: [email protected]
<PAGE>
EXHIBIT 21
ASTRONICS CORPORATION
SUBSIDIARIES OF THE REGISTRANT
Ownership State of
Subsidiary Percentage Incorporation
Luminescent Systems, Inc. 100% New York
MOD-PAC CORP 100% New York
<PAGE>
EXHIBIT 23
Consent and Report of Independent Auditors
Board of Directors
Astronics Corporation
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Astronics Corporation of our report dated
January 21, 1999, included in the 1998 Annual Report to
Shareholders of Astronics Corporation.
Our audits also included the financial statement schedule of
Astronics Corporation listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion,
the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We also consent to the incorporation by reference in Registration
Statement (Form S-8 No. 33-42981) pertaining to the Employee
Stock Purchase Plan of Astronics Corporation of our reports dated
January 21, 1999, with respect to the consolidated financial
statements incorporated herein by reference, and our report
included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of
Astronics Corporation.
We also consent to the incorporation by reference in Registration
Statement (Form S-8 No. 33-65141) filed with the Securities and
Exchange Commission for the registration of 732,132 shares of
Astronics Corporation common stock of our reports dated January
21, 1999, with respect to the consolidated financial statements
incorporated herein by reference, and our report included in the
preceding paragraph with respect to the financial statement
schedule included in this Annual Report (Form 10-K) of Astronics
Corporation.
ERNST & YOUNG LLP
Buffalo, New York
March 25, 1999
<PAGE>
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