SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10 - K
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[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1999
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Commission file number: 0-7087
ASTRONICS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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New York
(State or other jurisdiction of incorporation or organization)
16-0959303
(I.R.S. Employer Identification No.)
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1801 Elmwood Avenue
Buffalo, New York 14207
(Address of principal executive office)
Registrant's telephone number including area code (716) 447-9013
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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 10-K or any amendment to this
Form 10-K. (X)
<PAGE>
As of March 3, 2000, 5,023,037 shares of Common Stock and 661,181 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 $51,868,489.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Company's 1999 Annual Report to Shareholders are
incorporated into Parts II and III of this Report. Portions of the Company's
Proxy Statement for the 2000 Annual Meeting of Shareholders dated March 13, 2000
are incorporated by reference into Part III of this Report.
2
<PAGE>
PART I
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Item 1. BUSINESS
Profile
Astronics Corporation ("Astronics" or "Company"), a New York corporation
formed in 1968, is a diversified manufacturing company engaged principally in
the design, manufacture and marketing of products and processes in two business
segments: "Aerospace and Electronics" and "Specialty Packaging." The Aerospace
and Electronics segment 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
Astronics' Aerospace and Electronics segment has led the industry with
integrated lighting systems for over 20 years. The Company supplies integrated
cockpit lighting systems, external and interior cabin lighting and escape path
lighting for over 300 airlines around the world. As a premier supplier to both
military and commercial aircraft, the Company is involved with exciting cutting
edge programs that include lighting systems for Lockheed's F-22 fighter and
Embraer's newest family of commuter jets. Astronics' Aerospace and Electronics
segment has also penetrated the fast growing portable electronics market with
electroluminescent lighting designed for LCD's, remote controls, instrumentation
and communication devices.
Deliveries on Astronics' $50 million multi-year contract for cockpit
lighting upgrades of F-16 fighter jets began during 1999. These upgrades, for
which Astronics' Aerospace and Electronics segment is the prime contractor,
provide the correct instrument lighting for night vision operations. The
technology and manufacturing processes that have been developed for this project
over the last 18 months have advanced our capabilities for future growth in
other applications and markets. Approximately 34 percent of the segment's sales
are defense-related and 31 percent of sales are international.
3
<PAGE>
In accordance with Astronics' philosophy of investing in anticipation of
the market, the Aerospace and Electronics segment has doubled its manufacturing
capacity with new facilities in Lebanon, New Hampshire and East Aurora, New
York. These investments were significant, amounting to one-half of the segment's
revenue for 1999.
Specialty Packaging
Astronics' Specialty Packaging segment is a world-class provider of
paperboard folding cartons and other specialty paper products that are used for
a wide range of applications by a diverse customer base. By providing
technically superior products at a competitive price on a just in time basis,
the Company has achieved a leadership position in the markets served. In many
cases the Company is either the sole or preferred supplier to such leading
companies as Hershey Foods and Staples Office Superstores.
For over 25 years, the Specialty Packaging segment has experienced year
over year double digit growth in sales revenue. This growth rate is greater than
twice the industry average. In 1999 sales were up 9 percent and operating
earnings were at 19 percent of sales.
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.
4
<PAGE>
Raw Materials
On February 14, 2000, a jury found Osram Sylvania, Inc. guilty of patent
infringement in the manufacturing of encapsulated phosphors used by the
Aerospace and Electronics segment in its MaxEL lamp product line. As a result of
the court decision, the Company needed to substitute another phosphor for this
product line. The Company has tested alternative formulations that meet its
needs. Therefore, the Company has not experienced a production disruption. The
cost of the alternative phosphor is similar to the previous encapsulated
phosphor.
Other 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, the Company
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 electroluminescence,
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 application of the Company's technologies. The
extent of the Company's engagement in pure research, however, is not material.
Employees
The Company employed approximately 521 employees as of December 31, 1999,
including 299 in the Aerospace and Electronics segment, 216 in the Specialty
Packaging segment and 6 at the corporate level, compared to 531 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 as of that date. The
Company considers its relations with its employees to be good.
5
<PAGE>
Working Capital
Inventories and receivables are the major components of the Company's
working capital, reflective of the production cycle 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 Company's industry segments for each of
the last three years as of December 31, 1999 appear on page 17 of the Company's
Annual Report to Shareholders for the fiscal year ended December 31, 1999,
submitted herewith as an exhibit and incorporated by reference.
Order Backlog
The backlog of orders as of December 31, 1999 was approximately $40,198,000
($39,038,000 related to the Aerospace and Electronics segment and $1,160,000
related to the Specialty Packaging segment), $31,875,000 is expected to be
filled in the current fiscal year. This compares to $29,887,000 ($28,779,000
related to the Aerospace and Electronics segment and $1,108,000 related to the
Specialty Packaging segment) as of December 31, 1998.
Item 2. PROPERTIES
Corporate Headquarters
The Company's corporate office occupies approximately 2,000 square feet at
1801 Elmwood Avenue, Buffalo, NY 14207, in a building which is shared with the
Specialty Packaging segment.
6
<PAGE>
Aerospace and Electronics
The Company owns manufacturing and office facilities of approximately
115,000 square feet in the Buffalo, New York area and 80,000 square feet in
Lebanon, New Hampshire.
Specialty Packaging
The Company owns buildings totaling approximately 437,000 square feet in
the Buffalo, New York area for its manufacturing and office facilities.
Currently, about 25 percent of the building space is under lease to others.
The Company believes that its properties are suitable and adequate for the
purpose for which they are employed. Additions and expansions are made as
needed. In general, the capacity of the Company's properties are in excess of
its current requirements.
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 in a consulting agreement between Winfield and Miner.
The Court determined that neither side had a sufficient case to enable awards.
The case was appealed by the Plaintiffs to 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 again appealed to the
Court of Appeals. On October 5, 1999, the Court of Appeals affirmed, without
opinion, the dismissal of all claims in the case, thus concluding the
litigation.
7
<PAGE>
Except for the matter described above, there are no material pending legal
proceedings, other than 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.
Executive Officers of the Company
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:
Position with the Company
Name Age and Prior Employment History
- ---- --- ----------------------------
Kevin T. Keane 67 Chairman of the Board, President,
Chief Executive Officer and Director.
John M. Yessa 60 Vice President of Finance, Treasurer,
Chief Financial Officer and Director.
8
<PAGE>
PART II
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Item 5. MARKET FOR THE COMPANY'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 19 of the Company's Annual Report to Shareholders for the fiscal
year ended December 31, 1999, submitted herewith as an exhibit and incorporated
by reference.
Item 6. SELECTED FINANCIAL DATA
Selected Financial Data appears on page 19 of the Company's Annual Report
to Shareholders for the fiscal year ended December 31, 1999, 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 20, 21, 22 and 23
of the Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1999, submitted herewith as an exhibit and incorporated by
reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk disclosures appears on page 23 of the Company's Annual Report
to Shareholders for the fiscal year ended December 31, 1999, submitted herewith
as an exhibit and incorporated by reference.
9
<PAGE>
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.
10
<PAGE>
PART III
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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 13, 2000 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 13, 2000 and on the back inside
cover of the Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1999, 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 13, 2000 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 13,
2000, and is hereby incorporated by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of March 13, 2000, the Company knows of no relationships required to be
disclosed pursuant to Item 404 of Regulation S-K.
11
<PAGE>
PART IV
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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
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
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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).
12
<PAGE>
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.
10.13 Non-Qualified Supplemental Retirement Plan;
filed herewith.
13 1999 Annual Report to Shareholders; filed herewith.
(Except for those portions which are expressly
incorporated by reference in this 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 on Form 10-K.)
21 Subsidiaries of the Registrant; filed herewith.
23 Consent of Independent Auditors; filed herewith.
27 Financial Data Schedule; filed herewith.
(b) Reports on Form 8-K
None
13
<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 20, 1999, appearing on pages 6 to 18 of the accompanying 1999
Annual Report to Shareholders are incorporated by reference in this Annual
Report on Form 10-K.
Financial schedules for the years 1999, 1998 and 1997:
Page
----
Valuation and Qualifying Accounts F-2
F-1
14
<PAGE>
SCHEDULE II
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ASTRONICS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
<TABLE>
<CAPTION>
(in thousands)
Balance at the Charged to
Beginning of Costs and Write-offs/ Balance at
Year Description Period Expense Recoveries End of Period
- ---- ----------- ------- ------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1999 Allowance for Doubtful Accounts $238 $ (55) $ (5) $178
1998 Allowance for Doubtful Accounts $227 $ 74 $ (63) $238
1997 Allowance for Doubtful Accounts $404 $ 111 $ (288) $227
</TABLE>
F-2
15
<PAGE>
SIGNATURES
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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 24, 2000.
Astronics Corporation
By /s/ Kevin T. Keane By /s/ John M. Yessa
------------------------------- -------------------------------------
Kevin T. Keane, President John M. Yessa, Vice President-Finance
and Chief Executive Officer 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 Director March 24, 2000
-----------------------
Robert T. Brady
/s/ John B. Drenning Director March 24, 2000
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John B. Drenning
/s/ Kevin T. Keane Director March 24, 2000
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Kevin T. Keane
/s/ Robert J. McKenna Director March 24, 2000
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Robert J. McKenna
/s/ John M. Yessa Director March 24, 2000
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John M. Yessa
16
<PAGE>
ASTRONICS CORPORATION
INDEX TO EXHIBITS
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Exhibit No. Description
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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.
10.13 Non-Qualified Supplemental Retirement Plan;
filed herewith.
17
<PAGE>
13 1999 Annual Report to Shareholders; filed herewith.
(Except for those portions which are expressly
incorporated by reference in 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 on Form 10-K.)
21 Subsidiaries of the Registrant; filed herewith.
23 Consent of Independent Auditors; filed herewith.
27 Financial Data Schedule; filed herewith.
18
ASTRONICS CORPORATION SUPPLEMENTAL RETIREMENT PLAN
(ADOPTED: DECEMBER 17, 1999)
ARTICLE I
Purpose, Definitions, Administration, Amendment
-----------------------------------------------
This Astronics Corporation Supplemental Retirement Plan is an unfunded
plan, not intended to qualify under the Internal Revenue Code, maintained for
the purpose of providing additional retirement benefits for a select group of
management or highly compensated employees of Astronics Corporation, and
participation in the Astronics Corporation Supplemental Retirement Plan is
limited consistent with that purpose. Benefits under the Astronics Corporation
Supplemental Retirement Plan are intended to supplement benefits provided under
the ATRO Companies Profit-Sharing Plan/401(k) Plan and benefits received from
Social Security.
The following words and phrases as used herein have the following meanings:
"Cause" means any act that is materially inimical to the best interests of
the Company and that constitutes, on the part of Participant, intentional or
grievous wrong, including but not limited to, common law fraud, a felony, or
other gross malfeasance of duty.
"Change of Control", for purposes of determining whether there has been an
Involuntary Termination of Employment Related to a Change of Control, means the
transfer in one or more transactions, extending over a period of not more than
24 months of Common Stock of the Company possessing 25% or more of the total
voting power of all shares of Common Stock. A transfer shall be deemed to occur
if shares of Common Stock are either transferred or made the subject of options,
warrants, or similar rights granting a third party the opportunity to acquire
ownership or voting control of such Common Stock.
<PAGE>
"Common Stock" means the Class A and Class B $.01 par value shares of the
capital stock of the Company, as well as all other securities with voting rights
or convertible into securities with voting rights.
"Code" means the Internal Revenue Code of 1986, as amended and as it may be
amended.
"Company" means Astronics Corporation, as well as any successors or assigns
of Astronics Corporation, whether by transfer, merger, consolidation,
acquisition of all or substantially all of the business assets, change in
identity, or otherwise by operation of law.
"Compensation Committee" means the Executive Compensation Committee of the
Board of Directors of the Company, as it is constituted from time to time.
"Eligible Officer" means: (i) an employee of the Company who participates
in the ATRO Companies Profit-Sharing Plan/401(k) Plan and who is an officer of
the Company; and (ii) an employee of a subsidiary of the Company who
participates in the ATRO Companies Profit-Sharing Plan/401(k) Plan, who is an
officer or executive of an affiliate or subsidiary of the Company and who the
Board of Directors of the Company expressly designates an Eligible Officer.
"Involuntary Termination of Employment" means a severance of the
Participant's employment relationship, other than for death, Disability (as
defined in Article II), retirement, or Cause, (i) by or at the instigation of
Company or (ii) by or at the instigation of Participant where Participant's pay
has been diminished or reduced to a greater extent than any diminution or
reduction of Company's officers generally.
2
<PAGE>
"Involuntary Termination of Employment Related to a Change of Control"
means a termination of the Participant's employment relationship (i) by the
Company within two years after a Change of Control, or (ii) by Participant
within two years of the Change of Control in those circumstances where the
duties, responsibilities, status, base pay or perquisites of office and
employment have been diminished or downgraded, or substantially increased (other
than base pay and perquisites) without Participant's actual or implied consent;
provided, however, that a general decrease in base pay which is approved by a
majority of the affected Participants will be considered as having been
consented to for purposes of this Plan.
"ATRO Companies Profit-Sharing Plan/401(k) Plan" means the tax-qualified
retirement plan of the Company, as amended and restated effective as of April 1,
1997, as amended and as it may be amended, or any successor tax-qualified
retirement plan maintained by the Company, as in effect as of the date that a
benefit is calculated under the Plan.
"Participant" means an Eligible Officer who is a Participant in the Plan
pursuant to Article II. The word "Participant" includes a person who has ceased
to actively participate in the Plan but who has not received payment of all of
his Plan benefits.
"Pay" means the base salary paid to the Eligible Officer for a calendar
year plus any cash bonus or cash incentive payments earned for or attributable
to that year, whether or not such bonus or incentive payments are paid during
that year.
"Plan" means the Astronics Corporation Supplemental Retirement Plan, as set
forth herein and as it may be amended.
3
<PAGE>
"Spouse" means a surviving spouse who is a beneficiary entitled to receive
some or all of the benefits, directly or indirectly, payable under the ATRO
Companies Profit-Sharing Plan/401(k) Plan upon the death of a Participant.
"Supplemental Benefit" means the annual income, if any, payable to a
Participant or Beneficiary pursuant to Article III of the Plan.
The Plan shall be operated under the direction of the Compensation
Committee, which shall have all authority and powers necessary to administer the
Plan and construe the Plan terms, make factual determinations, resolve any
ambiguities or inconsistencies, determine eligibility for participation or
benefits, and decide all questions arising in the Plan administration,
interpretation or application. The Compensation Committee's actions or decisions
in all matters (other than matters regarding a Participant upon or after the
Participant's Involuntary Termination of Employment Related to a Change of
Control) shall be final and binding upon all Participants, Spouses or other
persons having or claiming an interest in this Plan.
While the Company expects to continue the Plan indefinitely, it reserves
the right to amend the Plan at any time and from time to time or to discontinue
the Plan at any time, by action of its Board of Directors. No amendment or
discontinuance of the Plan shall impair or adversely affect any benefits accrued
under the Plan as of the date of such action, except with the consent of the
Participant or Spouse entitled to receive such benefits. In the event of an
amendment of the Plan affecting benefits, or discontinuance of the Plan, the
interest of each Participant shall be determined as if each Participant retired
as of the date of such amendment or discontinuance.
4
<PAGE>
ARTICLE II
Eligibility
-----------
Each Eligible Officer shall be a Participant eligible for Supplemental
Benefits pursuant to Article III of the Plan, provided the Eligible Officer has
at least ten years of continuous service with the Company and (except as
provided in Article VIII) retires from the service of the Company (i) at age 65
or later or (ii) at age 60 or later with a combined total of age and years of
service with the Company at least equal to 90; provided, however, that
Supplemental Benefits shall be payable to an Eligible Officer who has a
"Disability" (as defined in the ATRO Companies Profit-Sharing Plan/401(k) Plan),
without regard to such Participant's eligibility for early or normal retirement
benefits under this Plan. Supplemental Benefits shall be payable to an
individual who qualifies as a Spouse at the time of the Participant's death.
Eligibility for the benefits of this Plan is limited to Eligible
Officers of the Company and those officers or executives of any affiliate or
subsidiary expressly so designated by the Board of Directors of the Company.
ARTICLE III
Benefits
--------
For an Eligible Officer with twenty-five or more years of service with the
Company, the Supplemental Benefit payable to the Eligible Officer under this
Plan, payable in equal monthly installments for the life of the Participant,
shall equal the excess, if any, of "(a)" over "(b)" + "(c)" where "(a)" is
sixty-five percent of the average of the highest consecutive three-year Pay paid
to such Eligible Officer prior to retirement, "(b)" is an amount equal to the
accumulated Company contributions (other than employee pre-tax and after-tax
contributions and matching contributions) allocated to an account or accounts
5
<PAGE>
for the Eligible Officer under the ATRO Companies Profit-Sharing Plan/401(k)
Plan from time to time, adjusted for earnings each year at the one-year Treasury
Bill rate compounded annually and assuming that each year's contributions were
deposited on the following March 1st, calculated at the Participant's
retirement, converted into an immediate annuity payment in the form of a joint
and 100% survivor annuity payable to the Participant and his Spouse based on a
discount factor equal to the prime rate as published in the Wall Street Journal
on the date of retirement and the 1983 Group Annuity Mortality Tables weighted
equally for males and females, and "(c)" is the primary Social Security benefit
of such Eligible Officer at age 65. For an Eligible Officer with 10-24 years of
service, "(a)" will be determined according to the following schedule:
Years of Service (a) Total Combined Benefit Target
---------------- ---------------------------------
24 64%
23 63%
22 62%
21 61%
20 60%
19 59%
18 58%
17 57%
16 56%
15 55%
14 54%
13 53%
12 52%
11 51%
10 50%
Early payment of Supplemental Benefits under this Plan shall be made to an
Eligible Officer who elects earlier retirement under this Plan; provided,
however, that no early payment shall be made unless the Eligible Officer retires
from the service of the Company at age 60 or later with a combined total of age
and years of service with the Company at least equal to 90; provided, further,
6
<PAGE>
that the Supplemental Benefits payable under this Plan shall be reduced by 0.5%
for each full month by which the date of the commencement of benefits precedes
the Participant's attainment of age 65. Notwithstanding the foregoing,
Supplemental Benefits shall be payable to an Eligible Officer who has a
"Disability", without regard to such Participant's eligibility for early or
normal retirement benefits under this Plan, and without reduction for early
payment.
In the event of commencement of Supplemental Benefits prior to attainment
of age 62, the Supplemental Benefit payable under this Plan shall include a
Social Security "bridge" payment equal to the amount of the Social Security
benefit at age 62, until such time as the Eligible Officer attains age 62.
In the event of commencement of Supplemental Benefits between age 62 and
age 65, the Social Security benefit amount to be used in determining the
Supplemental Benefit payable under this Plan shall be the Social Security
benefit amount payable on the actual date of retirement.
An individual who qualifies as a Spouse shall receive a payment of
Supplemental Benefits, payable in equal monthly installments for the life of the
Spouse, in an amount equal to 100% of the monthly amount determined under the
above benefit formula for the Participant; provided, however, that if the
Eligible Officer had not commenced payments under this Plan and had not attained
age 65 when he died, the Supplemental Benefits shall be determined as if the
Eligible Officer attained age 65 on the day before his death. In the event that
the Eligible Officer had not commenced payments under this Plan at the time of
death, early payment of Supplemental Benefits under this Plan may be elected by
a Spouse who wants to receive survivor benefits before the date the Participant
would have attained age 65; provided, however, that the Supplemental Benefits
payable under this Plan to the Spouse shall be reduced by 0.5% for each full
month by which the date of commencement precedes the date the Participant would
have attained age 65.
7
<PAGE>
While receiving Supplemental Benefits under this Plan, Participant and his
Spouse shall be entitled to Company paid medical and dental insurance, under
medical and dental insurance plans made available to employed officers of the
Company from time to time or under an equivalent insurance arrangement.
ARTICLE IV
Time and Form of Benefit Payment
--------------------------------
Any benefit under this Plan shall be paid to the Participant or his Spouse
in equal monthly installments for the life of the Participant or his Spouse, at
such time as elected by the Participant or Spouse, except as otherwise provided
in Article III.
ARTICLE V
Funding
-------
This Plan shall be maintained as an unfunded Plan which is not intended to
meet the qualification requirements of Section 401 of the Code. All rights of
any Participant under this Plan shall at all times be entirely unfunded and no
provision shall at any time be made with respect to segregating any assets of
the Company for payment of any amounts due hereunder. No Participant shall have
any interest in or any rights against any specific assets of the Company, and a
Participant shall have only the rights of a general unsecured creditor of the
Company. It is intended that the Plan is an unfunded nonqualified deferred
compensation arrangement for income tax purposes. No benefits under this Plan
shall be payable from the trust fund maintained under or in accordance with the
provisions of the ATRO Companies Profit-Sharing Plan/401(k) Plan.
8
<PAGE>
ARTICLE VI
Effective Date
--------------
The Effective Date of this Plan shall be December 17, 1999.
ARTICLE VII
Agreement Not to Compete
------------------------
Payment of benefits under this Plan is contingent upon the Participant's
agreement not to directly or indirectly engage in or compete with the business
of the Company, either as owner, partner or employee for a period of the later
to occur of the expiration of three years after retirement or the attainment of
65 years of age. In the event a Participant shall compete with the business of
the Company, payment of benefits under this Plan shall be suspended so long as
such Participant engages in activity deemed to be in competition with the
business of the Company. Notwithstanding the foregoing, this Article VII shall
not apply to a Participant after the Participant's Involuntary Termination of
Employment Related to a Change of Control.
ARTICLE VIII
Benefits Upon Certain Terminations or Change of Control
-------------------------------------------------------
The provisions of this Article VIII shall apply only where there has been
an Involuntary Termination of Employment or an Involuntary Termination of
Employment Related to a Change of Control.
Upon an Involuntary Termination of Employment, a Participant who would be
eligible to receive benefits under this Plan if he was then age 65 or more,
shall be vested in his benefits under this Plan upon the Involuntary Termination
of Employment and, upon attainment of age 65, shall receive the benefits
determined as follows: the benefit payable at age 65 shall be determined under
9
<PAGE>
Article III using the average of the highest consecutive 3-year Pay paid prior
to the Involuntary Termination of Employment, instead of the average for the Pay
paid prior to retirement, subject to further adjustment by reducing the combined
benefit target of Article III (based upon the Participant's years of service) by
a factor equal to (i) the benefit target multiplied by (ii) one percent
multiplied by (iii) the number of years of the Participant's age under 65 at the
time of the Involuntary Termination of Employment. For example, a Participant
age 45 at the time of the Involuntary Termination of Employment, with 15 years
of service to the Company, upon attaining age 65, would have a combined benefit
target of 44 percent (55 percent [for 15 years of service] @ (55 percent x 1
percent x 20 [the difference between 65 years and 45 years old]) = 44 percent)
instead of the combined benefit target of 55 percent that would be payable if
the Participant were then 65 years of age with 15 years service.
Upon an Involuntary Termination of Employment Related to a Change of
Control, a Participant who would be eligible to receive benefits under this Plan
if he was then age 65 or more, shall be vested in his benefits under this Plan
upon such Involuntary Termination of Employment Related to a Change of Control
and, upon attainment of age 65, shall receive such benefits determined as
follows: the benefit payable at age 65 shall be determined under Article III
using the greater of the average of the highest consecutive 3-year Pay paid
prior to such Change of Control or such average for the Pay paid prior to
termination of employment.
ARTICLE IX
Miscellaneous
-------------
Social Security and ATRO Companies Profit-Sharing Plan/401(k) Plan: Any
increases in Social Security benefits payable to a Participant after retirement
under this Plan and any increases in the Participant's amounts under the ATRO
Companies Profit-Sharing Plan/401(k) Plan after retirement under this Plan shall
not be considered in determining any benefits payable under this Plan.
10
<PAGE>
Nonassignability: No interest of any Participant under this Plan, or any
right to receive any payment hereunder, shall be subject in any manner to sale,
transfer, assignment, pledge, attachment, garnishment, or other alienation or
encumbrance of any kind, nor may such interest or right to receive a payment be
taken, voluntarily or involuntarily, for the satisfaction of the obligations or
debts of, or other claims against such Participant, including, but not limited
to, claims for alimony, support, separate maintenance, and claims in bankruptcy
proceedings.
Nonguarantee of Employment: This Plan shall not be construed as giving any
Participant the right to be retained in the employment of the Company.
Death Benefits: Except as provided in Article III hereof (with respect to
the payment of benefits under this Plan to an individual who qualifies as a
Spouse at the time of the Participant's death), there shall be no death benefit
payable under this Plan.
Deferred Retirement: In the event that a Participant elects a deferred
retirement date after age 65, the amount of benefit payable under this Plan
shall be the Participant's benefit calculated at the deferred retirement date
(rather than age 65) under the benefit formulas in Article III, and the amount
of such benefit shall not be further adjusted for the period from age 65 to the
deferred retirement date to take into account the delayed commencement date.
11
EXHIBIT 13
----------
ANNUAL REPORT TO SHAREHOLDERS
A History of Leadership and Growth through World Class manufacturing
Astronics Corporation Annual Report 1999
Astronics Corporation At A Glance
Astronics Corporation is a diversified manufacturing company with a history
of sound and consistent growth in sales and earnings. Each of the two segments
of the company have leadership positions in the markets they serve. These
positions of leadership, gained by supplying technically superior products to
selected markets, are essential to both the past and future growth of each
business segment.
Astronics diversification in substantially different businesses, Aerospace/
Electronics and Specialty Packaging, is a strategic hedge against a downturn in
any single industry. In both business segments the focus is on strong
relationships with Astronics' Customers. In many cases, Astronics is the sole or
primary supplier. From this vantage point Astronics has made substantial
investments in technology and capacity ahead of the market requirements further
enhancing its leadership position.
The reinvestment of internally generated funds in capability for known
markets has provided Astronics with a sound base from which to plan future
growth. The past performance of this diversified manufacturer has earned the
Company a coveted position in the Forbes Index of the Best 200 Small Companies.
Performance Highlights
Record Sales for 1999 - Astronics Corporation reported record sales of
$50,637,000 while achieving the 22nd consecutive quarterly increase for the
trailing 12 months.
Record Earnings for 1999 - The Company earned a record $ .81 per diluted
share in 1999 while achieving the 23rd consecutive quarterly increase for the
trailing 12 months.
Shareholders' Equity - The Company earned 21.1 percent on beginning
shareholders' equity, exceeding 20 percent for the 4th consecutive year.
Forbes names Astronics - Astronics Corporation was again pleased to be
named in the November 1, 1999 issue of Forbes magazine as one of the "200 Best
Small Companies".
<PAGE>
Financial Highlights
(dollars in thousands except for per share data)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Net Sales ................... $ 50,637 $ 46,073 $ 40,972 $ 38,371 $ 28,536
Net Income .................. 4,795 4,304 3,551 2,657 1,760
Diluted Earnings Per Share .. .81 .73 .61 .46 .33
Shareholders' Equity ........ 27,837 2,730 18,198 14,842 11,726
Book Value Per Share ........ 4.90 4.08 3.30 2.71 2.24
Stock Market Price - High ... 12.63 13.30 11.36 5.46 2.82
Stock Market Price - Low .... 6.69 6.93 4.43 2.55 1.45
Return on Equity ............ 21.1% 23.7% 23.9% 22.7% 17.0%
(on January 1 Equity)
Return on Sales ............. 9.5% 9.3% 8.7% 6.9% 6.2%
Message to our Shareholders
Our diversified business continues to expand with strength and potential.
Further records were set in 1999.
The records include shipments that were up 10 percent and earnings that
were up 11 percent. In addition return on equity was 21 percent, return on sales
9.5 percent, earnings per share $.81 and cash flow from operating activities of
$1.70 per share.
These achievements occurred during a year in which we concentrated on
production expansion and technology advancements, both for process management
and for new products. Capital investments in 1999 amounted to $14.6 million, a
record 29 percent of sales. Much of the investment focused on the engineering
development of new customer programs in specialty packaging and on the launching
of the F-16 lighting systems contract in aerospace and electronics.
The year was remarkable in that these significant financial commitments and
expense loads were absorbed while realizing another year of financial
performance records. At year-end, because of our high cash flow, our
indebtedness to capitalization was a stable 36 percent as compared to 35 percent
in 1998.
Our backlog at the end of December exceeded $40 million. This, combined
with other business opportunities we are pursuing, leads us to believe that
shipments in year 2000 should increase significantly to approximately $70
million along with strong earnings to accompany this sales growth. Clearly, we
expect another solid year ahead.
Our success results from the efforts of our dedicated employees who
tirelessly pursue excellence. Their pride and determination make our
opportunities possible and our success obvious.
Kevin T. Keane
President and Chief Executive Officer,
Astronics Corporation
January 21, 2000
<PAGE>
Aerospace and Electronics
Peter J. Gundermann
President
Aerospace and Electronics
Product Lines
Electroluminescent Lamps
Cockpit Lighting Systems
Cabin Emergency Lighting
Formation Lighting Systems
Keyboards and Keypads
Astronics' Aerospace and Electronics segment has led the industry with
integrated lighting systems for over twenty years. The company supplies
integrated cockpit lighting systems, external and interior cabin lighting and
escape path lighting for over three hundred airlines around the world. As a
premier supplier to both military and commercial aircraft, the Company is
involved with exciting cutting edge programs that include lighting systems for
Lockheed's F-22 fighter and Embraer's newest family of commuter jets. Astronics'
Aerospace and Electronics segment has also penetrated the fast growing portable
electronics market with electroluminescent lighting designed for LCD's, remote
controls, instrumentation and numerous communication devices.
In accordance with Astronics' philosophy of investing in anticipation of
the market, the Aerospace and Electronics segment has doubled it's manufacturing
capacity with new facilities in Lebanon, New Hampshire and East Aurora, New
York. These investments were significant amounting to one half of the segment's
revenue for the year.
Deliveries on Astronics $50 million dollar multi-year contract for cockpit
lighting upgrades of F-16 fighter jets began during the year. These upgrades,
for which Astronics' Aerospace and Electronics segment is the prime contractor,
provide the correct instrument lighting for night vision operations. The
technology and manufacturing processes that have been developed for this project
over the last eighteen months have advanced our capabilities for future growth
in other applications and markets.
The electroluminescent product line continues to grow, particularly in the
portable electronics market. With a significant contract from a large watch
manufacturer, the Company has begun to penetrate the market for backlighting
timepieces as well as LCDdisplays and keypads on cellular phones and personal
digital assistants. This is a world wide market that will further enhance our
market diversification. Sales of MaxEL lamps were up 300 percent in 1999 and the
Company expects them to double in the year 2000.
The Aerospace and Electronics segment of Astronics has grown in both sales
and earnings in recent years. Continuous investments in both technology and
facilities position the Company well for future growth.
Astronics' Aerospace and Electronics EL lamps can be found in watches,
LCD's, remote controls, cell phones and various communication and
instrumentation equipment.
Astronics' integrated lighting systems for the Aerospace industry can be
found in aircraft cockpits, exteriors, cabins and emergency exit paths.
<PAGE>
A History of Leadership, Integrated Lighting Systems for over 20 Years
1995 Acquired Lebanon, New Hampshire electroluminescent operations
1996 Began implementation of ISO 9001 quality standards throughout entire
Aerospace and Electronics organization
1997 Unique, Innovative MaxEL product introduced with break through technology
of micro encapsulation
1998 Awarded $50 million contract from US Air Force to upgrade F-16 cockpit
lighting systems
1999 New facility constructed for New Hampshire operations. New facility
constructed for New York operations.
3
<PAGE>
Specialty Packaging
Daniel G. Keane
President
Specialty Packaging
Product Lines
Personalized Retail Packaging
Medical/Consumer Care Products
Food/Confectioner Packaging
Personalized Party and Gift Items
Business/Office Products
Astronics Specialty Packaging is a world class provider of paperboard
folding cartons and other specialty paper products that are used for a wide
range of applications by a diverse customer base. By providing technically
superior products at a competitive price on a just in time basis, the Company
has achieved a leadership position in the markets served. In many cases the
Company is either the sole or preferred supplier to such leading companies as
Hershey Foods and Staples Office Superstores.
For over twenty five years, the Specialty Packaging segment of Astronics
has experienced double digit growth in sales revenue. This growth rate is
greater than twice the industry average. The trend continued in 1999 with sales
up 9 percent and operating earnings at 19 percent of sales.
Many customers are moving from a "made-to-stock" to a retail oriented "made
to order" business model. The state of the art Computer to Plate (CTP)
capability that was installed over the last two years puts the Company in a
unique position to meet these requirements. This complete CTP digital workflow
ensures accuracy and quick turn around.
The Company advanced its capability in the area of specialty coatings. The
carton perfecting Heidleberg Press, which was the first of it's kind in the
Western Hemisphere, is fully operational with the ability to apply a number of
coatings to paperboard in one production pass. This coupled with our knowledge
of inks and specialty coatings continues to open up a number of exciting growth
opportunities in the high-value added segments of the packaging market.
Astronics' Specialty Packaging segment will continue to focus on the
strategies and markets that have been so successful in the past. Our customer
partnership programs will be continued and expanded. The Company also plans to
expand it's participation in the rapidly growing e-commerce business to business
market. As one of the premier suppliers to the $7 billion packaging industry,
the Specialty Packaging segment of Astronics has exciting growth prospects.
Astronics' Specialty Packaging segment has penetrated the office and school
market with an innovative program for short run, custom pocket folders.
4
<PAGE>
A History of Growth, Consistently Growing at over Twice the Industry
Average
1995 Installed a five-color Heidelberg Printing Press with specialty coating
capabilities Selected as the preferred supplier to Hershey Foods Special
Markets Group
1996 Doubled the size of Specialty Packaging facility in Blasdell, New York
1997 Certified to ISO 9001 quality standards Entered the Office Products
industry with Staples Office store retail chain
1998 Began program to convert over to CTP (computer to plate) digital workflow
for printing plates and cutting dies Installed the first Heidelberg
Speedmaster Carton Perfector in North America
1999 Expanded Office Products market as a supplier to Norcom Corporation
Awarded a 3 year contract by the Kendall Health Care division of TYCO
International as the exclusive folding carton supplier to five of their
North Eastern United States operations
5
<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 Statement of Income
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Sales ...................................... $50,637 $46,073 $40,972
Cost and Expenses
Cost of products sold ........................ 36,086 31,214 27,543
Selling, general and administrative expenses . 7,362 7,765 7,463
Interest expense, net of interest income of
$142, $2 and $14 .......................... 257 376 437
43,705 39,355 35,443
Income Before Taxes ............................ 6,932 6,718 5,529
Provision for income taxes ..................... 2,137 2,414 1,978
Net Income ..................................... $ 4,795 $ 4,304 $ 3,551
Earnings per Share
Basic ........................................ $ .86 $ .78 $ .65
Diluted ...................................... $ .81 $ .73 $ .61
</TABLE>
See notes to financial statements.
6
<PAGE>
Consolidated Balance Sheet
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
<S> <C> <C>
Current Assets
Cash and cash equivalents ................................ $ 1,153 $ 523
Accounts receivable, net of allowance for doubtful
accounts of $178 in 1999 and $238 in 1998 .............. 6,852 5,435
Inventories .............................................. 8,721 4,935
Prepaid expenses ......................................... 455 1,229
Total Current Assets ................................... 17,181 12,122
Property, Plant and Equipment, at cost
Land ..................................................... 1,466 1,115
Buildings and improvements ............................... 16,259 10,077
Machinery and equipment .................................. 34,144 30,613
Construction in progress ................................. 4,087 2,285
55,956 44,090
Less accumulated depreciation and amortization ........... 19,787 19,096
Net Property, Plant and Equipment ........................ 36,169 24,994
Unexpended Industrial Revenue Bond Proceeds ................ 3,508 4,657
Other Assets ............................................... 2,994 1,934
$59,852 $43,707
Current Liabilities
Current maturities of long-term liabilities ............... $ 762 $ 446
Accounts payable .......................................... 8,560 2,939
Accrued expenses .......................................... 2,250 2,085
Income taxes .............................................. 166 347
Total Current Liabilities ............................... 11,738 5,817
Long-term Debt .............................................. 8,878 11,319
Long-term Obligations under Capital Leases .................. 7,069 789
Supplemental Retirement Plan ................................ 2,482 1,625
Other Liabilities ........................................... 598 357
Deferred Income Taxes ....................................... 1,250 1,070
Shareholders' Equity
Common Stock, $.01 par value
Authorized 10,000,000 shares, issued
5,327,112 in 1999; 5,225,001 in 1998 ................... 53 52
Class B Stock, $.01 par value
Authorized 5,000,000 shares, issued
667,326 in 1999; 693,660 in 1998 ....................... 7 7
Additional Paid-in Capital ................................ 2,912 2,681
Retained Earnings ......................................... 25,727 20,932
28,699 23,672
Less Treasury Stock: 319,405 shares in 1999; 349,187 shares
in 1998, at cost .......................................... 862 942
Total Shareholders' Equity ............................. 27,837 22,730
$59,852 $43,707
</TABLE>
See notes to financial statements.
7
<PAGE>
Consolidated Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income ........................................................... $ 4,795 $ 4,304 $ 3,551
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ...................................... 3,688 3,114 2,831
Provision for doubtful accounts .................................... (60) 11 (177)
Provision for deferred taxes ....................................... 180 248 27
Cash flows from changes in operating assets and liabilities,
net of the effect of acquired or sold business:
Accounts receivable ................................................ (1,357) (1,003) (578)
Inventories ........................................................ (3,786) (174) 101
Prepaid expenses ................................................... 774 (814) 163
Accounts payable ................................................... 5,621 375 101
Accrued expenses ................................................... 165 143 185
Income taxes ....................................................... (181) (13) (577)
Supplemental retirement plan and other ............................. 241 125 180
Net Cash provided by Operating Activities .............................. 10,080 6,316 6,057
Cash Flows from Investing Activities
Proceeds from sale of assets ....................................... 68 - -
Change in other assets ............................................. (527) (474) (46)
Capital expenditures ............................................... (14,607) (9,686) (3,060)
Net Cash used by Investing Activities .................................. (15,066) (10,160) (3,106)
Cash Flows from Financing Activities
New long-term debt ................................................. 7,000 9,250 -
Principal payments on long-term debt and capital lease obligations.. (2,845) (1,194) (3,146)
Unexpended industrial revenue bond proceeds ........................ 1,149 (4,657) -
Proceeds from issuance of stock .................................... 312 234 337
Fractional shares paid on stock distribution ....................... - (6) -
Purchase of stock for treasury ..................................... - - (532)
Net Cash provided (used) by Financing Activities ....................... 5,616 3,627 (3,341)
Net increase (decrease) in cash and cash equivalents ................... 630 (217) (390)
Cash and Cash Equivalents at Beginning of Year ......................... 523 740 1,130
Cash and Cash Equivalents at End of Year ............................... $ 1,153 $ 523 $ 740
Disclosure of Cash Payments for:
Interest ............................................................ $ 373 $ 413 $ 474
Income taxes ........................................................ $ 2,134 $ 2,181 $ 2,278
</TABLE>
See notes to financial statements.
8
<PAGE>
Consolidated Statement of Shareholders' Equity
(dollars and shares in thousands)
<TABLE>
<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, 1996 ............... 4,519 $ 45 749 $ 7 298 $ 596 $ 2,297 $13,089
Net 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 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) -
Blance at
December 31, 1998 ............... 5,225 52 694 7 349 942 2,681 20,932
Net Income for 1999 4,795
Treasury Stock Sold (30) (80) 153
Exercise of Stock Options ....... 76 1 78
Class B Stock converted to
Common Stock .................... 26 - (26) -
Balance at
December 31, 1999 ............... 5,327 $ 53 668 $ 7 319 $ 862 $ 2,912 $25,727
</TABLE>
See notes to financial statements.
9
<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)
1999 1998
---- ----
Finished Goods ........ $ 1,936 $ 1,357
Work in Progress ...... 1,476 1,064
Raw Material .......... 5,309 2,514
$ 8,721 $ 4,935
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.
10
<PAGE>
Goodwill
Goodwill is included in other assets, represents the excess of purchase
price over the fair value of net tangible assets acquired, net of accumulated
amortization, and amounted to $999,000 and $1,049,000 at December 31, 1999 and
1998, respectively. Accumulated amortization amounted to $432,000 and $382,000
at December 31, 1999 and 1998, 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)
1999 1998 1997
---- ---- ----
Net Income ............................ $4,795 $4,304 $3,551
Basic earnings per share
weighted average shares,
restated for share distributions .... 5,606 5,542 5,496
Net effect of dilutive stock options .. 337 385 370
Diluted earnings per share
weighted average shares ........... 5,943 5,927 5,866
Basic earnings per share ............. $ 0.86 $ 0.78 $ 0.65
Diluted earnings per share ........... $ 0.81 $ 0.73 $ 0.61
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 in the financial statements and
accompanying notes. Actual results could differ from those estimates.
11
<PAGE>
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 that an entity recognize 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 2001 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 $12,000,000, which provides
for interest at bank prime or LIBOR plus 60 basis points. The line is available
through June 30, 2004 and may be converted into a four year term loan. At
December 31, 1999 and 1998, $1,400,000 and $3,800,000, respectively, was
outstanding.
Note 4
Long-term Debt
Long-term debt consists of the following:
(in thousands)
1999 1998
---- ----
Mortgage payable in installments
through 2003 with interest at 11.00% ............ $ 28 $ 34
Revolver loan with interest
at LIBOR plus 100 basis points .................. 1,400 3,800
Urban Development Action Grant
financing payable in monthly
installments through 2006, with
interest at 3% .................................. 242 276
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, 1999 was 5.65% .............................. 7,250 7,250
8,920 11,360
Less current maturities ........................... 42 41
$ 8,878 $ 11,319
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 revolver loan,
among other requirements, imposes certain covenants with which the Company
maintains compliance.
Estimated principal maturities of long-term debt over the next five years
are as follows: $42,000; $444,000; $446,000; $446,000; and $1,800,000.
Interest costs of $312,000 and $46,000 were capitalized in 1999 and 1998,
respectively.
12
<PAGE>
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. The 1999 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. These bear interest at either seven to ten
percent, 70 percent of the bank's prime rate, or are reset every seven days. 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, 1999:
(in thousands)
Capital
Period Lease
------ -------
2000 $ 1,074
2001 807
2002 758
2003 722
2004 640
2005-2019 7,015
Net minimum lease payments 11,016
Amounts representing interest 3,227
Present value of net
minimum lease payments $ 7,789
Amounts related to the capital leases included in the Balance Sheet are
summarized as follows:
(in thousands)
1999 1998
----- ----
Property, Plant and Equipment:
Land ......................... $ 477 $ 125
Buildings and improvements ... 6,679 2,592
Machinery and equipment ...... 2,838 2,578
9,994 5,295
Less accumulated
depreciation ................. 4,519 4,416
$ 5,475 $ 879
Debt:
Current ...................... $ 720 $ 405
Long-term .................... 7,069 789
$ 7,789 $ 1,194
The Company subleases a portion of these facilities from which they
anticipate future total minimum rentals of $1,834,000.
13
<PAGE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the beginning of the year ....... 538,690 $2.81 481,026 $2.60 577,233 $2.07
Options granted ................................ 110,436 $8.57 67,869 $8.23 47,714 $7.69
Stock distribution - - 47,135 $(.25) - -
Options exercised ..............................(106,232) $3.01 (49,942) $4.69 (128,563) $2.63
Options expired ................................ (8,587) $7.82 (7,398) $8.29 (15,358) $3.38
Outstanding at the end of the year ............. 534,307 $3.88 538,690 $2.81 481,026 $2.60
Exercisable at December 31 ..................... 398,696 $2.63 435,221 $2.10 403,156 $2.02
</TABLE>
Exercise prices for options outstanding as of December 31, 1999 range from
$.95 to $10.25. The weighted average remaining contractual life of these options
is 4.6 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 1999; risk-free interest rate of 7.0%; 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 4.5 years. The
weighted average grant date fair value of options granted during the year was
$3.91.
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, 1999 is as follows: net
income $4,568,000; basic earnings per share $.81; and diluted earnings per share
$.77. The pro forma effect on earnings for the year 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 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 79,750 shares and 253,625 shares under
the 1982 and 1992 Plans, respectively. At December 31, 1999 options available
for future issuance under the 1992 Plan are 79,875 shares.
The Company established the 1984, 1993 and 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 28,500 shares under the 1984, 1993 and 1997 Plans, respectively. At
December 31, 1999 options available for future issuance under the 1997 Plan are
81,500 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 the 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, 1999
employees had outstanding options to purchase 37,236 shares at $7.23 per share
on September 30, 2000.
14
<PAGE>
Note 7
Income Taxes
The provision for income taxes consists of the following:
(in thousands)
1999 1998 1997
---- ---- ----
Currently payable
Federal ................................ $1,807 $2,009 $1,635
State .................................. 150 157 146
Deferred (from prior) to future years .... 180 248 197
$2,137 $2,414 $1,978
The effective tax rates of 30.8% in 1999, 35.9% in 1998 and 35.8% in 1997,
which differ from the statutory federal income tax, are a result of the
following:
1999 1998 1997
---- ---- ----
Statutory federal income
tax rate ............................. 34.0% 34.0% 34.0%
Tax exempt items, net .................. .3% .3% .4%
State income tax, net of
federal income tax benefit ............ 1.4% 1.5% 1.8%
Reduction in valuation allowance ....... (3.2%) - -
Other .................................. (1.7%) .1% (.4%)
30.8% 35.9% 35.8%
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, 1999 and
1998 are as follows:
(in thousands)
1999 1998
---- ----
Long-term deferred tax liabilities:
Tax depreciation over book depreciation ..... $ 2,773 $ 2,239
Net long-term deferred tax liability ...... 2,773 2,239
Long-term deferred assets:
State investment tax credit carryforwards ... 1,089 985
Deferred compensation ....................... 835 826
Other-net ................................... 198 177
Total long-term deferred tax assets ....... 2,122 1,988
Valuation allowance for deferred tax
assets related to investment tax credit
carryforward .............................. (599) (819)
Net long-term deferred tax asset ............ 1,523 1,169
Net long-term deferred tax liability ...... $ 1,250 $ 1,070
At December 31, 1999, the Company had state investment tax credit
carryforwards of $1,654,000 expiring through 2014.
Note 8
Deferred Profit Sharing/401(k) Plan
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 sixteen 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 $803,000, $779,000 and $745,000 in 1999,
1998 and 1997, respectively.
15
<PAGE>
Note 9
Supplemental Retirement Plan
In December 1999, the Company adopted a non-qualified supplemental
retirement defined benefit plan (the "Plan") for certain executives. The Plan
provides for benefits based upon average annual compensation and years of
service, less offsets for Social Security and Profit Sharing benefits. It is the
Company's intent to fund the benefits as they become payable. The Plan replaces
a retirement benefit arrangement established in a prior year; accordingly, the
accrued liability under that arrangement was reclassified to the Plan during
1999.
The following table sets forth the benefit obligation, which is unfunded,
and amounts recognized in the balance sheet as of December 31, 1999:
Benefit obligation at end of year ............ $ 3,395
Unrecognized prior service cost .............. 1,770
Net amount recognized ........................ $ 1,625
Amounts recognized in the balance sheet:
Accrued benefit liability .................... $ 2,482
Less intangible asset ........................ 857
Net amount recognized ........................ $ 1,625
In determining the present value of benefit obligations, a discount rate of
8% was used and the assumed rate of increase in compensation levels was 5%. The
benefit obligation represents the actuarial present value of benefits attributed
to employee service rendered assuming future compensation levels are used to
measure the obligation. FASB Statement No. 87, "Employers' Accounting for
Pensions," requires the Company to recognize a minimum pension liability equal
to the actuarial present value of the accumulated benefit obligations. The
accumulated benefit obligation is $2,482 at December 31, 1999. An intangible
asset is required and has been recorded since the excess of the accumulated
benefit obligation over the pension cost recognized relates to prior service
costs.
Note 10
Accrued Expenses
Accrued expenses consist of the following: (in thousands)
1999 1998
---- ----
Accrued payroll and employee benefits ...... $ 896 $ 950
Accrued profit sharing ..................... 803 779
Other accrued liabilities .................. 551 356
$2,250 $ 2,085
Note 11
Selected Quarterly Financial Information
(unaudited) (in thousands, except for per share data)
<TABLE>
<CAPTION>
Quarter ended
-------------
Dec. 31, Oct. 2, July 3, April 3, Dec. 31, Oct. 3, July 4, April 4,
1999 1999 1999 1999 1998 1998 1998 1998
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales .................. $ 15,162 $ 12,017 $ 11,133 $ 12,325 $ 13,031 $ 11,689 $ 10,296 $ 11,057
Gross Profit ............... $ 4,173 $ 3,480 $ 3,299 $ 3,599 $ 4,808 $ 3,651 $ 3,035 $ 3,365
Income before tax .......... $ 2,485 $ 1,677 $ 1,379 $ 1,391 $ 2,683 $ 1,580 $ 1,271 $ 1,184
Net income ................. $ 1,833 $ 1,133 $ 896 $ 933 $ 1,689 $ 1,049 $ 821 $ 745
Basic earnings per share ... $ .33 $ .20 $ .16 $ .17 $ .31 $ .19 $ .14 $ .14
Diluted earnings per share . $ .31 $ .19 $ .15 $ .16 $ .29 $ .18 $ .13 $ .13
</TABLE>
16
<PAGE>
Note 12
Operations in Different Industries
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,
invitations 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.
<TABLE>
<CAPTION>
(in thousands)
Aerospace and Specialty
Electronics Packaging Corporate Consolidated
------------- --------- --------- ------------
<S> <C> <C> <C> <C>
Sales to external customers:
1999 $ 26,312 $ 24,325 $ - $ 50,637
1998 23,884 22,189 - 46,073
1997 20,167 20,805 - 40,972
Interest expense, net:
1999 $ (51) $ 78 $ 230 $ 257
1998 4 105 267 376
1997 3 129 305 437
Income before taxes:
1999 $ 2,982 $ 3,544 $ 406 $ 6,932
1998 3,694 2,840 184 6,718
1997 2,676 2,931 (78) 5,529
Identifiable assets:
1999 $ 30,831 $ 26,445 $ 2,576 $ 59,852
1998 18,484 24,262 961 43,707
1997 9,110 20,011 1,120 30,241
Capital expenditures:
1999 $ 9,650 $ 4,957 $ - $ 14,607
1998 3,796 5,872 18 9,686
1997 412 2,644 4 3,060
Depreciation and amortization:
1999 $ 883 $ 2,754 $ 51 $ 3,688
1998 715 2,360 39 3,114
1997 767 2,029 35 2,831
Sales by geographic locations:
1999 North America $ 19,529 $ 24,236 $ - $ 43,765
Europe 3,009 5 - 3,014
South America 996 2 - 998
Other 2,778 82 - 2,860
26,312 24,325 - 50,637
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
</TABLE>
17
<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, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Ernst & Young LLP
Buffalo, New York
January 20, 2000
Management's Statement of Responsibility
The management of Astronics Corporation is responsible for the contents of
the consolidated financial statements, which are prepared in conformity with
generally accepted accounting principles. The consolidated financial statements
necessarily include amounts based on judgements and estimates. Financial
information elsewhere in the Annual Report is consistent with that in the
consolidated financial statements.
The Company maintains an accounting system which includes controls designed
to provide reasonable assurance as to the integrity and reliability of the
financial records and the protection of assets. The role of Ernst & Young LLP,
the independent auditors, is to provide an objective examination of the
consolidated financial statements and the underlying transactions in accordance
with generally accepted auditing standards.
The Audit Committee of the Board of Directors, composed solely of directors
who are not members of management, meets periodically with management and the
independent auditors to ensure that their respective responsibilities are
properly discharged.
Kevin T. Keane John M. Yessa
President and Chief Executive Officer Vice President-Finance, Treasurer
and Chief Financial Officer
18
<PAGE>
Five Year Comparison of Selected Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
For the year:
Sales .............................................. $50,637 $46,073 $40,972 $38,371 $28,536
Net income ......................................... 4,795 4,304 3,551 2,657 1,760
Per share:
Basic earnings per share ......................... .86 .78 .65 .50 .33
Diluted earnings per share ....................... .81 .73 .61 .46 .33
Shares used in computation of basic
earnings per share ............................. 5,606 5,542 5,496 5,319 5,268
Shares used in computation of diluted
earnings per share ............................. 5,943 5,927 5,866 5,723 5,268
At end of year:
Total assets ..................................... $59,852 $43,707 $30,241 $29,865 $30,815
Net investment in property, plant and equipment .. 36,169 24,994 18,160 17,642 16,276
Working capital .................................. 5,443 6,305 4,299 2,855 6,101
Long-term debt ................................... 8,878 11,319 2,110 3,798 9,713
Long-term obligations under capital leases ....... 7,069 789 1,194 1,600 2,010
Shareholders' equity ............................. 27,837 22,730 18,198 14,842 11,726
</TABLE>
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 4, 2000 was 964.
1999 1998
---- ----
First $8.56 - $11.44 $6.93 - $8.86
Second 8.00 - 10.50 7.56 - 13.30
Third 6.69 - 12.63 7.84 - 12.50
Fourth 7.50 - 11.25 8.06 - 11.88
19
<PAGE>
Management's 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.
<TABLE>
<CAPTION>
1999 1998 1997 Period to Period
(dollars in thousands) $ % $ % $ % 1998-99 1997-98
---- ----- ------- ---- ------- ---- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales
Aerospace and Electronics .. $26,312 52.0 $23,884 51.8 $20,167 49.2 10.2% 18.4%
Specialty Packaging ........ 24,325 48.0 22,189 48.2 20,805 50.8 9.6% 6.7%
50,637 100.0 46,073 100.0 40,972 100.0 9.9% 12.5%
Cost of goods sold ........... 36,086 71.3 31,214 67.7 27,543 67.2 15.6% 13.3%
Selling, general and
administrative expenses ...... 7,362 14.5 7,765 16.9 7,463 18.2 (5.2)% 4.0%
Operating Income ........ 7,189 14.2 7,094 15.4 5,966 14.6 1.3% 18.9%
Other deductions:
Interest expense, net ... 257 .5 376 .8 437 1.1 (31.7)% (14.0)%
Income before taxes ..... 6,932 13.7 6,718 14.6 5,529 13.5 3.2% 21.5%
Provision for income taxes ... 2,137 4.2 2,414 5.2 1,978 4.8 (11.5%) 22.0%
Net income .............. $ 4,795 9.5 $ 4,304 9.4 $ 3,551 8.7 11.4% 21.2%
</TABLE>
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 October 31, 1999, the Aerospace and Electronics segment completed their
move into and the commissioning of their new manufacturing facility in Lebanon,
New Hampshire. This new 80,000 square foot building allows the Company to
consolidate its New Hampshire operations, previously in four leased locations,
into a single facility, and expands production capacity.
On October 27, 1999, the Company closed an Industrial Revenue Tax-Exempt
Bond with the Industrial Development Agency of the County of Erie, State of New
York for $7,000,000. The interest rate floats with tax-exempt funds and is reset
every seven days. These funds are being used to finance the new East Aurora, New
York manufacturing facility and production equipment for expanded customer
needs.
Late in the Third Quarter of 1999, the Company started shipments on the
NVIS F-16 (night vision lighting modification kits) program. Shipments totaled
$3,000,000 in 1999. The Company expects these shipments to increase to
approximately $16,000,000 annually and the program, as currently designed, to go
into 2002. The Company has $27,000,000 in backlog and it expects the United
States Air Force to exercise additional production options in the future.
On July 1, 1999, the Company established a $12,000,000 five-year revolving
line of credit at the bank's prime rate or LIBOR plus 60 basis points. The
revolver can be converted to a four-year term loan at the end of five years. The
Company also renegotiated its letter of credit agreements to lower the cost of
the bank guarantee on the Industrial Revenue Bond programs.
On May 12, 1999, the Company's Aerospace and Electronics segment acquired
14.9 acres of land in East Aurora, New York, and started construction of a
70,000 square foot manufacturing facility on this new property. The Company
anticipates completion of the construction and installation of equipment and
systems during the First Half of 2000.
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 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 started in
the Third Quarter of 1999 with the program running into 2002.
On December 30, 1998, the Company completed 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 were used to finance the new manufacturing
facility and additional production equipment in the Lebanon, New Hampshire
operation.
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.
20
<PAGE>
Sales
Astronics Corporation established a new sales record for the year.
Astronics has set a new record for sales for the last 22 quarters based on the
trailing twelve months results. Sales increased 9.9 percent in 1999 to
$50,637,000, compared to 12.5 percent in 1998 to $46,073,000, and compared to
6.8 percent in 1997 to $40,972,000. Sales for the year were closely divided
between Aerospace and Electronics (52 percent) and Specialty Packaging (48
percent).
Sales in the Aerospace and Electronics segment increased 10.2 percent in
1999 to $26,312,000, compared to 18.4 percent in 1998 to $23,884,000, and
compared 2.3 percent in 1997 to $20,167,000. In 1999, the Company realized
$3,000,000 of business from the F-16 NVIS program. In addition, sales of its
lamps increased 22 percent. Other product lines grew between five and ten
percent except for emergency egress lighting system, formation lighting systems
for military aircraft and inverters which experienced sales decreases. The
Company's revenue for non-recurring engineering charges decreased $500,000 in
1999. 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.
Sales in the Specialty Packaging segment increased 9.6 percent in 1999 to a
total of $24,325,000, compared to 6.7 percent growth in 1998 to $22,189,000, and
compared to growth of 11.5 percent in 1997 to $20,805,000. This growth has been
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. In 1999, the Company entered the office products area and recorded
sales of approximately $500,000. The Company continues to develop opportunities
to partner with customers to jointly meet the customer's needs.
The Company is marketing it products globally. In 1999, 18 percent of its
sales were to international customers compared to 21 percent in 1998. The North
American markets, mainly Canada and Mexico, accounted for 27 percent of
international sales in each year. International sales accounted for 31 percent,
36 percent, and 27 percent of the Aerospace and Electronics sales in 1999, 1998,
and 1997, respectively. The Specialty Packaging segment has five percent, six
percent, and six percent of its sales in 1999, 1998, and 1997, respectively, in
international markets. Sales to foreign customers are made in U.S. dollars.
Sales made to Asian countries increased to 18 percent of international sales in
1999, compared to four percent in 1998. This growth reflects the sales of lamps.
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 half from standard catalog pricing and half from competitive
bid based on customer specifications. The Company has no sales concentrated in
any one customer.
Expenses
The gross profit margin was 28.7 percent in 1999, compared to 32.3 percent
in 1998, and 32.8 percent in 1997. The product mix change resulting from the
growth in Aerospace and Electronics sales has had an effect on the ratios. The
direct costs on the F-16 NVIS program are higher than that experienced in other
product lines. Cost of goods sold increased 15.6 percent in 1999, compared to
13.3 percent in 1998, both of which are higher than the sales increase of 9.9
percent in 1999, and 12.5 percent in 1998. Within the cost of goods sold area
there have been various shifts of costs. For example, material usage as a
percent of sales was 23.2 percent in 1999, 21.1 percent in 1998, and 19.7
percent in 1997. This reflects the higher material content of the F-16 program.
Employee costs (wages and benefits), as a percent of sales, was 28.1 percent in
1999, 27.5 percent in 1998, and 28.0 percent in 1997. Part of the increase in
employee cost reflects the technical nature of new manufacturing processes as
well as the increasing sales in Aerospace and Electronics. Depreciation, as a
percent of sales, increased to 6.1 percent of sales in 1999, after remaining at
5.5 percent of sales the past two years. Supply costs in 1999 increased to 8.3
percent of sales, compared to 7.5 percent in 1998 as the Company moved into a
new facility, developed new products and developed new manufacturing processes.
Facility costs have been in the six percent of sales area during the 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 $7,189,000 in 1999 was 14.2 percent of
sales, compared to $7,094,000, or 15.4 percent of sales in 1998, and compared to
$5,966,000, or 14.6 percent of sales in 1997. The lower profit margin in 1999 is
the result of higher cost of products sold. The costs associated with the
selling, general and administrative area of the business tend to be more fixed
and period costs, not directly related to manufacturing volume. Employee costs
were 8.9 percent of sales in 1999, compared to 10.1 percent of sales in 1998,
and 10.2 percent in 1997. The Company instituted a new Supplemental Retirement
Benefit Plan in the year and canceled the older plan. The reserve from the
former plan was used to offset costs for the new plan, and not taken into
income. The cost of professional services was approximately one percent of sales
in 1999 and 1998, compared to two percent in 1997, when the Company utilized
outside computer consulting services. All other cost areas are within a
percentage point of the prior year.
Interest
Interest costs, net of interest income, was $257,000 (.5 percent of sales)
in 1999, compared to $376,000 (.8 percent of sales) in 1998, and $437,000 (1.1
percent of sales) in 1997. The Company earned $127,000 in interest on unexpended
Industrial Revenue Bonds proceeds during 1999. The Company reduced its total
long-term indebtedness by $2,845,000 in 1999, compared to $1,194,000 in 1998,
and compared to $3,146,000 in 1997. On October 27, 1999, the Company borrowed
$7,000,000 under a Tax-Exempt Industrial Revenue Bond with the County of Erie,
State of New York. On December 30, 1998, 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 bonds, during the
construction period, is capitalized as part of the cost of the new facility. In
1999 the Company capitalized $312,000 of interest expense.
21
<PAGE>
Income Before Taxes
Income before taxes was $6,932,000, or 13.7 percent of sales in 1999,
compared to $6,718,000, or 14.6 percent of sales in 1998, and compared to
$5,529,000, or 13.5 percent of sales in 1997. The decrease in the percentage of
sales is the reflection of higher costs of goods sold.
Taxes
The provision for taxes for 1999 was $2,137,000, or 4.2 percent of sales,
compared to $2,414,000, or 5.2 percent of sales in 1998, and compared to
$1,978,000, or 4.8 percent of sales in 1997. The effective tax rate for 1999 is
30.8 percent, compared to 35.9 percent in 1998, and compared to 35.8 percent in
1997. The Company reduced its valuation allowance for deferred tax assets
related to state investment tax credit carryforwards as a result of higher
taxable income which allow greater utilization of the credits. The valuation
reserve was $599,000, $819,000, and $563,000 at December 31, 1999, 1998, and
1997, respectively. The Company's Deferred Income Tax Liability, resulting from
timing differences in recognition of expenses, was $1,250,000, $1,070,000, and
$822,000 at December 31, 1999, 1998, and 1997, respectively. The Company's
Federal Income Tax returns have been audited through 1995.
Net Income
The Company earned 9.5 percent on the sales dollar in 1999, a new record,
compared to 9.4 percent in 1998, and compared to 8.7 percent in 1997. Astronics
has set a new record for earnings for the last 23 quarters based on the trailing
twelve months results. The net income was $4,795,000, or $.81 per diluted share
in 1999, compared to $4,304,000, or $.73 per diluted share in 1998, and compared
to $3,551,000, or $.61 per diluted share in 1997.
Liquidity
Working capital decreased in 1999 to $5,443,000, compared to an increase in
1998 to $6,305,000, as compared to $4,299,000 in 1997. The Company reduced its
utilization of the revolving line of credit by $2,400,000 during 1999. The
Company is in compliance with all loan covenants.
As the Company prepared for F-16 shipments, it was necessary to acquire
substantial amounts of inventory. At December 31, 1999 this amounted to
$2,800,000. As an offset, several suppliers agreed to be paid when the Company
receives payment from the U.S. Government. This amounted to $3,000,000 at
December 31, 1999. In a separate transaction, the Company purchased two die
cutters in the Second Quarter of 1999, for which final payment of $2,600,000 is
due in the First Quarter of 2000.
The Company believes that the cash generated from operations combined with
borrowing capacity under its Revolving Line of Credit are adequate to fund the
needs for working capital and capital expenditures as forcasted for year 2000
operations.
Credit Line
The Company maintains an unsecured revolving line of credit for $12,000,000
with interest at either the bank's prime rate or LIBOR plus 60 basis points. At
June 30, 2004 the Company can convert the outstanding balance to a four-year
term loan. The outstanding balance was $1,400,000, $3,800,000, and $1,800,000 at
December 31, 1999, 1998, and 1997, respectively.
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, acquisitions, the reduction of debt, and the possible
purchase of outstanding 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, 1999, the Company's backlog was $40,198,000, compared to
$29,887,000 at December 31, 1998, and compared to $10,807,000 at December 31,
1997. The backlog for the Aerospace and Electronic segment was $39,038,000,
$28,779,000, and $9,686,000 at December 31, 1999, 1998 and 1997, respectively.
The Specialty Packaging segment had backlogs of $1,160,000, $1,108,000, and
$1,121,000 at December 31, 1999, 1998 and 1997, respectively. The current
portion of the combined backlog is $31,875,000.
22
<PAGE>
Commitments
At December 31, 1999, the Company had outstanding capital expenditure
commitments of approximately $3,300,000, compared to $7,100,000 at December 31,
1998, and compared to $4,100,000 at the end of 1997. The major outstanding
commitment is for the new facility and production equipment for the East Aurora,
New York, Aerospace and Electronics operation. This facility project should be
completed in 2000 and the manufacturing equipment will be acquired during 2000
and 2001. 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 is subject to market interest rate risk from exposure to
changes in interest rates based upon its financing, investing. and cash
management activities. The Company utilizes a mix of debt maturities along with
both fixed-rate and variable-rate debt to manage its exposure to changes in
interest rates (see Notes 4 and 5 to the consolidated financial statements). The
Company does not expect changes in interest rates to have a material adverse
effect on its income or its cash flows in 2000. However, there can be no
assurances that interest rates will not significantly change in 2000. A change
of one percent in the interest rate would cause a change in interest expense for
the year 2000 of approximately $112,000, net of taxes.
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. Price changes in paperboard purchases would have a nominal
effect on margins as each new order is quoted to reflect the current cost of the
raw material, The Company purchases no other raw material or product component
that, by itself, would have a material effect on the success of the Company as a
result of pricing changes.
On February 14, 2000, a jury trial found Osram Sylvania, Inc. guilty of
patent infringement in the manufacturing of encapsulated phosphors used by the
Aerospace and Electronics segment in its MaxEL lamp product line. As a result of
the court decision, the Company needs to substitute another phosphor for this
product line. The Company has tested alternative formulations that it believes
meets its needs. Therefore, the Company does not anticipate a production
disruption.
Year 2000
The Company did not experience any disruptions, internally or externally,
from Year 2000 issues. The total expenditures for Year 2000 issues, mainly
software system upgrades, were less than $150,000.
Forward Looking Statements
This Annual Report to Shareholders contains certain forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements are identified by the use of the words "believes,"
"expects," "intends," "anticipates" and words of similar import. Readers are
cautioned not to place undue reliance on these forward looking statements as
various uncertainties and risks could cause actual results to differ materially
from those anticipated in these statements. These uncertainties and risks
include (i) the timeliness of product deliveries by vendors and other vendor
performance issues, (ii) a slowdown in anticipated orders from the U.S.
government and other customers, and (iii) an inability to control the increased
growth in expenses that will accompany the Company's anticipated sales growth,
among others.
23
<PAGE>
Board of Directors
- ------------------
Robert T. Brady
Director, Astronics Corporation
Chairman of the Board, President and Chief Executive Officer, Moog, Inc.
John B. Drenning
Secretary, Director, Astronics Corporation
Partner in the law firm Hodgson Russ Andrews Woods & Goodyear LLP
Kevin T. Keane
Chairman of the Board, 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
Donna L. Eckman
Vice President, Krepe-Kraft
Leo T. Eckman
President, Krepe-Kraft
Peter J. Gundermann
President, Luminescent Systems, Inc.
Frank J. Johns, III
Vice President, Luminescent Systems, Inc.
Daniel G. Keane
President, MOD-PAC CORP
Kevin T. Keane
Chairman of the Board, President and Chief Executive Officer,
Astronics Corporation
James S. Kramer
Vice President,Luminescent Systems, Inc.
Richard Miller
Vice President, Luminescent Systems, Inc.
Diane M. Sims
Vice President-Marketing, Krepe-Kraft
John M. Yessa
Vice President-Finance and Treasurer, Chief Financial Officer, Astronics
Corporation
24
<PAGE>
Transfer Agent and Registrar
American Stock Transfer and Trust Company
New York, New York
Attorneys
Hodgson Russ Andrews Woods & Goodyear LLP
Buffalo, New York
Independent Accountants
Ernst & Young LLP
Buffalo, New York
Annual Meeting
April 20, 2000 - 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 your previous and current addresses.
<PAGE>
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 2000 quarterly results are:
First Quarter - April 20, 2000
Second Quarter - July 25, 2000
Third Quarter - October 24, 2000
Fourth Quarter - January 25, 2001
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]
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
East Aurora, New York
Luminescent Systems Europe
B.V.B.A., Brussels, Belgium
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
EXHIBIT 23
Consent and Report of Independent Auditors
Board of Directors
Astronics Corporation
We consent to the incorporation by reference in this Annual Report on Form 10-K
of Astronics Corporation of our report dated January 20, 2000, included in the
1999 Annual Report to Shareholders of Astronics Corporation.
Our audits also included the financial statement schedule of Astronics
Corporation listed in Item 14(a) of this Annual Report on Form 10-K. 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 the Registration Statement
on Form S-8 (No. 33-42981) and the Registration Statement on Form S-8 (No.
333-87463) pertaining to the Employee Stock Purchase Plan of Astronics
Corporation of our reports dated January 20, 2000, 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 on Form 10-K.
We also consent to the incorporation by reference in the Registration Statement
on 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 20, 2000, 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 on Form 10-K.
ERNST & YOUNG LLP
Buffalo, New York
March 24, 2000
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