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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________
Form 10-K
___________________________________________________________
| | | | | |
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
or | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from__________ to __________ | |
For the Fiscal Year Ended December 31, 2019
Commission File Number 0-7087
___________________________________________________________
Astronics Corporation
(Exact Name of Registrant as Specified in its Charter)
___________________________________________________________
| | | | | | | | |
New York | | 16-0959303 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
130 Commerce Way, East Aurora, NY 14052
(Address of principal executive office)
Registrant’s telephone number, including area code (716) 805-1599
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, $.01 par value per share | ATRO | NASDAQ Stock Market |
___________________________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ 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 the 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. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, an “accelerated filer”, a “non-accelerated filer” and a “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | | | | | | | |
Large accelerated filer | ☒ | Accelerated filer | ☐ |
| | | |
Non-accelerated filer | ☐ | Smaller Reporting Company | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of February 24, 2020, 30,720,701 shares were outstanding, consisting of 23,205,729 shares of Common Stock $.01 par value and 7,514,972 shares of Class B Stock $.01 par value. The aggregate market value, as of the last business day of the Company’s most recently completed second fiscal quarter, of the shares of Common Stock and Class B Stock of Astronics Corporation held by non-affiliates was approximately $1,107,000,000 (assuming conversion of all of the outstanding Class B Stock into Common Stock and assuming the affiliates of the Registrant to be its directors, executive officers and persons known to the Registrant to beneficially own more than 10% of the outstanding capital stock of the Corporation).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s Proxy Statement for the 2020 Annual Meeting of Shareholders to be held May 21, 2020 are incorporated by reference into Part III of this Report.
Table of Contents
ASTRONICS CORPORATION
Index to Annual Report
on Form 10-K
Year Ended December 31, 2019
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Item 1. | | |
Item 1A. | | |
Item 1B. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
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Item 5. | | |
Item 6. | | |
Item 7. | | |
Item 7A. | | |
Item 8. | | |
Item 9. | | |
Item 9A. | | |
Item 9B. | | |
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Item 10. | | |
Item 11. | | |
Item 12. | | |
Item 13. | | |
Item 14. | | |
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Item 15. | | |
Item 16. | | |
FORWARD LOOKING STATEMENTS
Information included or incorporated by reference in this report that does not consist of historical facts, including statements accompanied by or containing words such as “may,” “will,” “should,” “believes,” “expects,” “expected,” “intends,” “plans,” “projects,” “approximate,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume” and “assume,” are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to several factors, risks and uncertainties, the impact or occurrence of which could cause actual results to differ materially from the expected results described in the forward-looking statements. Certain of these factors, risks and uncertainties are discussed in the sections of this report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” New factors, risks and uncertainties may emerge from time to time that may affect the forward-looking statements made herein. Given these factors, risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictive of future results. We disclaim any obligation to update the forward-looking statements made in this report.
PART I
ITEM 1. BUSINESS
Astronics Corporation (“Astronics” or the “Company”) is a leading supplier of advanced technologies and products to the global aerospace and defense industries. Our products and services include advanced, high-performance electrical power generation and distribution systems, seat motion solutions, lighting and safety systems, avionics products, aircraft structures, systems certification and automated test systems.
We have principal operations in the United States (“U.S.”), Canada, France and the United Kingdom (“UK”), as well as engineering offices in the Ukraine and India. We design and build our products through our wholly owned subsidiaries Astronics Advanced Electronic Systems Corp. (“AES”); Astronics AeroSat Corporation (“AeroSat”); Armstrong Aerospace, Inc. (“Armstrong”); Astronics Test Systems, Inc. (“ATS”); Ballard Technology, Inc. (“Ballard”); Astronics Custom Control Concepts Inc. (“CCC”); Astronics Connectivity Systems and Certification Corp. and subsidiaries (“CSC”); Diagnosys Inc. and its affiliates (“Diagnosys”); Astronics DME LLC (“DME”); Freedom Communication Technologies, Inc. (“Freedom”); Luminescent Systems, Inc. (“LSI”); Luminescent Systems Canada, Inc. (“LSI Canada”); Max-Viz, Inc. (“Max-Viz”); Peco, Inc. (“Peco”); and PGA Electronic s.a. (“PGA”).
Acquisitions
On July 1, 2019, the Company acquired all of the issued and outstanding capital stock of Freedom Communication Technologies, Inc. Freedom, located in Kilgore, Texas, is a leader in wireless communication testing, primarily for the civil land mobile radio market. Freedom is included in our Test Systems segment. The total consideration for the transaction was $21.8 million, net of $0.6 million in cash acquired.
On October 4, 2019, the Company acquired the stock of the primary operating subsidiaries as well as certain other assets from mass transit and defense market test solution provider, Diagnosys Test Systems Limited, for $7.0 million in cash, plus contingent purchase consideration (“earn-out”) estimated at a fair value of $2.5 million. Diagnosys is included in our Test Systems segment. Diagnosys is a developer and manufacturer of comprehensive automated test equipment providing test, support, and repair of high value electronics, electro-mechanical, pneumatic and printed circuit boards focused on the global mass transit and defense markets. The terms of the acquisition allow for a potential earn-out of up to an additional $13.0 million over the next three years based on achievement of new order levels of over $72.0 million during that period. The acquired business has operations in Westford, Massachusetts as well as Ferndown, England, and an engineering center of excellence in Bangalore, India.
Divestitures
On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment. The business was not core to the future of the Test Systems segment. The total proceeds received for the sale amounted to $103.8 million. The Company recorded a pre-tax gain on the sale of $80.1 million in the first quarter of 2019. The Company recorded income tax expense relating to the gain of $19.7 million.
The transaction also includes two elements of contingent earnouts. The “First Earnout” is calculated based on a multiple of all future sales of existing and certain future derivative products to existing and future customers in each annual period from 2019 through 2022. The First Earnout may not exceed $35.0 million in total. The “Second Earnout” is calculated based on a multiple of future sales related to an existing product and program with an existing customer exceeding an annual threshold for each annual period from 2019 through 2022. The Second Earnout is not capped. For the Second Earnout, if the applicable sales in an annual period do not exceed the annual threshold, no amounts will be paid relative to such annual period; the sales in such annual period do not carry over to the next annual period. Due to the degree of uncertainty associated with estimating the future sales levels of the divested business and its underlying programs, and the lack of reliable predictive market information, the Company will recognize such earnout proceeds, if received, as additional gain on sale when such proceeds are realized or realizable. No amounts were due under the First Earnout.
On July 12, 2019, the Company sold intellectual property and certain assets associated with its Airfield Lighting product line for $1.0 million in cash. The Airfield Lighting product line, part of the Aerospace segment, was not core to the business and represented less than 1% of revenue. The Company recorded a pre-tax loss on the sale of approximately $1.3 million.
Products and Customers
Our Aerospace segment designs and manufactures products for the global aerospace and defense industry. Product lines include lighting and safety systems, electrical power generation, distribution and motions systems, aircraft structures, avionics products, systems certification, and other products. Our Aerospace customers are the airframe manufacturers (“OEM”) that build aircraft
for the commercial, military and general aviation markets, suppliers to those OEM’s, aircraft operators such as airlines, suppliers to the aircraft operators, and branches of the U.S. Department of Defense. During 2019, this segment’s sales were divided 76% to the commercial transport market, 11% to the military aircraft market, 10% to the business jet market and 3% to other markets. Most of this segment’s sales are a result of contracts or purchase orders received from customers, placed on a day-to-day basis or for single year procurements rather than long-term multi-year contract commitments. On occasion, the Company does receive contractual commitments or blanket purchase orders from our customers covering multiple-year deliveries of hardware to our customers.
Our Test Systems segment designs, develops, manufactures and maintains automated test systems that support the aerospace, communications and weapons test systems as well as training and simulation devices for both commercial and military applications. In the Test Systems segment, Astronics’ products are sold to a global customer base including OEMs and prime government contractors for both electronics and military products.
Sales by segment, geographic region, major customer and foreign operations are provided in Note 20 of Item 8, Financial Statements and Supplementary Data in this report.
We have a significant concentration of business with two major customers; The Boeing Company (“Boeing”) and Panasonic Avionics Corporation (“Panasonic”). Sales to Boeing accounted for 13.6% of sales in 2019, 14.3% of sales in 2018, and 16.8% of sales in 2017. Sales to Panasonic accounted for 13.0% of sales in 2019, 14.4% of sales in 2018, and 19.1% of sales in 2017.
Strategy
Our strategy is to increase our value by developing technologies and capabilities either internally or through acquisition, and use those capabilities to provide innovative solutions to the aerospace and defense and other markets where our technology can be beneficial.
Practices as to Maintaining Working Capital
Liquidity is discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the Liquidity and Capital Resources section of this report.
Competitive Conditions
We experience considerable competition in the market sectors we serve, principally with respect to product performance and price, from various competitors, many of which are substantially larger and have greater resources. Success in the markets we serve depends upon product innovation, customer support, responsiveness and cost management. We continue to invest in developing the technologies and engineering support critical to competing in our markets.
Government Contracts
All U.S. government contracts, including subcontracts where the U.S. government is the ultimate customer, may be subject to termination at the election of the government. Our revenue stream relies on military spending. Approximately 13% of our consolidated sales were made to the military aircraft and military test systems markets combined.
Raw Materials
Materials, supplies and components are purchased from numerous sources. We believe that the loss of any one source, although potentially disruptive in the short-term, would not materially affect our operations in the long-term.
Seasonality
Our business is typically not seasonal.
Backlog
At December 31, 2019, our consolidated backlog was $359.6 million. At December 31, 2018, our backlog was $415.5 million. Excluding backlog related to the divested semiconductor business, our backlog was $403.3 million at December 31, 2018. Backlog in the Aerospace segment was $275.8 million at December 31, 2019, of which $249.6 million is expected to be recognized as revenue in 2020. Backlog in the Test Systems segment was $83.8 million at December 31, 2019. The Test Systems segment expects to recognize as revenue $51.4 million of backlog in 2020.
Patents
We have a number of patents. While the aggregate protection of these patents is of value, our only material business that is dependent upon the protection afforded by these patents is our cabin power distribution products. Our patents and patent applications relate to electroluminescence, instrument panels, cord reels and handsets, and a broad patent covering the cabin power distribution technology. We regard our expertise and techniques as proprietary and rely upon trade secret laws and contractual arrangements to protect our rights. We have trademark protection in our major markets.
Research, Development and Engineering Activities
We are engaged in a variety of engineering and design activities as well as basic research and development activities directed to the substantial improvement or new application of our existing technologies. These costs are expensed when incurred and included in cost of sales. Research, development and engineering costs amounted to approximately $108.9 million in 2019, $114.3 million in 2018 and $95.0 million in 2017.
Employees
We employed approximately 2,800 employees at December 31, 2019. We consider our relations with our employees to be good. We have approximately 165 hourly production employees at Peco who are subject to collective bargaining agreements.
Available information
We file our financial information and other materials as electronically required with the Securities and Exchange Commission (“SEC”). These materials can be accessed electronically via the Internet at www.sec.gov. Such materials and other information about the Company are also available through our website at www.astronics.com.
ITEM 1A. RISK FACTORS
The loss of Boeing or Panasonic as major customers or a significant reduction in business with either of those customers would reduce our sales and earnings. In 2019, we had a concentration of sales to Boeing and Panasonic representing approximately 13.6% and 13.0% of our sales, respectively. The loss of either of these customers or a significant reduction in business with them would significantly reduce our sales and earnings.
In October 2018 and March of 2019, two commercial aircraft accidents led to the grounding by the Federal Aviation Administration and other regulators of the Boeing 737 MAX aircraft, on which we have significant content. The grounding of the Boeing 737 MAX, which started in March of 2019, has caused the production rate of that aircraft to be lower than expected in fiscal year 2019. The ongoing 737 MAX grounding affects our business both because of the production pause, impacting our line-fit content, and because it leaves many of our airline customers short of capacity, which makes them reluctant to take other aircraft out of service to install the types of retrofit products they buy from us. Although we expect, based on information that Boeing has made publicly available, that deliveries of the 737 MAX program will resume and that the demand for the aircraft in the long-term has not changed, a prolonged or permanent grounding of the Boeing 737 MAX could substantially decrease our Aerospace segment sales in the near or long-term, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows. Even if deliveries of the 737 MAX program resume, demand for the aircraft could be lower than was expected prior to the initial grounding of the aircraft.
A write-off of all or part of our goodwill or other intangible assets could adversely affect our operating results and net worth. At December 31, 2019, goodwill and net intangible assets were approximately 18.5% and 16.3% of our total assets, respectively. In 2019, we recorded goodwill and intangible asset impairment charges of $1.6 million and $6.2 million related to our AeroSat antenna business, respectively. Our goodwill and other intangible assets may increase in the future since our strategy includes growing through acquisitions. We may have to write-off all or part of our goodwill or purchased intangible assets if their value becomes impaired. Although this write-off would not result in an outlay of cash, it could reduce our earnings and net worth significantly.
The markets we serve are cyclical and sensitive to domestic and foreign economic conditions and events, which may cause our operating results to fluctuate. Demand for our products is, to a large extent, dependent on the demand and success of our customers' products where we are a supplier to an OEM. In our Aerospace segment, demand by the business jet markets for our products is dependent upon several factors, including capital investment, product innovations, economic growth and wealth creation and technology upgrades. In addition, the commercial airline industry is highly cyclical and sensitive to such things as fuel price increases, labor disputes, global economic conditions, availability of capital to fund new aircraft purchases and upgrades of existing aircraft and passenger demand. A change in any of these factors could result in a reduction in the amount of air travel and the ability of airlines to invest in new aircraft or to upgrade existing aircraft. These factors would reduce orders for new aircraft and would likely reduce airlines’ spending for cabin upgrades for which we supply products, thus
reducing our sales and profits. A reduction in air travel may also result in our commercial airline customers being unable to pay our invoices on a timely basis or not at all.
We are a supplier on various new aircraft programs just entering or expected to begin production in the future. As with any new program, there is risk as to whether the aircraft or program will be successful and accepted by the market. As is customary for our business, we purchase inventory and invest in specific capital equipment to support our production requirements generally based on delivery schedules provided by our customer. If a program or aircraft is not successful, we may have to write-off all or a part of the inventory, accounts receivable and capital equipment related to the program. A write-off of these assets could result in a significant reduction of earnings and cause covenant violations relating to our debt agreements. This could result in our being unable to borrow additional funds under our bank credit facility or being obliged to refinance or renegotiate the terms of our bank indebtedness.
In our Test Systems segment, the market for our products is concentrated with a limited number of significant customers accounting for a substantial portion of the purchases of test equipment. In any one reporting period, a single customer or several customers may contribute an even larger percentage of our consolidated sales. In addition, our ability to increase sales will depend, in part, on our ability to obtain orders from current or new significant customers. The opportunities to obtain orders from these customers may be limited, which may impair our ability to grow sales. We expect that sales of our Test Systems products will continue to be concentrated with a limited number of significant customers for the foreseeable future. Additionally, demand for some of our test products is dependent upon government funding levels for our products, our ability to compete successfully for those contracts and our ability to develop products to satisfy the demands of our customers.
Our products are sold in highly competitive markets. Some of our competitors are larger, more diversified corporations and have greater financial, marketing, production and research and development resources. As a result, they may be better able to withstand the effects of periodic economic downturns. Our operations and financial performance will be negatively impacted if our competitors:
•develop products that are superior to our products;
•develop products that are more competitively priced than our products;
•develop methods of more efficiently and effectively providing products and services; or
•adapt more quickly than we do to new technologies or evolving customer requirements.
We believe that the principal points of competition in our markets are product quality, price, design and engineering capabilities, product development, conformity to customer specifications, quality of support after the sale, timeliness of delivery and effectiveness of the distribution organization. Maintaining and improving our competitive position will require continued investment in manufacturing, engineering, quality standards, marketing, customer service and support and our distribution networks. If we do not maintain sufficient resources to make these investments, or are not successful in maintaining our competitive position, our operations and financial performance will suffer.
Our future success depends to a significant degree upon the continued contributions of our management team and technical personnel. The loss of members of our management team could have a material and adverse effect on our business. In addition, competition for qualified technical personnel in our industry is intense, and we believe that our future growth and success will depend on our ability to attract, train and retain such personnel.
We may incur losses and liabilities as a result of our acquisition strategy. Growth by acquisition involves risks that could adversely affect our financial condition and operating results, including:
•diversion of management time and attention from our core business;
•the potential exposure to unanticipated liabilities;
•the potential that expected benefits or synergies are not realized and that operating costs increase;
•the risks associated with incurring additional acquisition indebtedness, including that additional indebtedness could limit our cash flow availability for operations and our flexibility;
•difficulties in integrating the operations and personnel of acquired companies; and
•the potential loss of key employees, suppliers or customers of acquired businesses.
In addition, any acquisition, once successfully integrated, could negatively impact our financial performance if it does not perform as planned, does not increase earnings, or does not prove otherwise to be beneficial to us.
We currently are involved or may become involved in the future, in legal proceedings that, if adversely adjudicated or settled, could materially impact our financial condition. As an aerospace company, we may become a party to litigation in the ordinary course of our business, including, among others, matters alleging product liability, warranty claims, breach of commercial or government contract or other legal actions. In general, litigation claims can be expensive and time consuming to bring or defend against and could result in settlements or damages that could significantly impact results of operations and financial condition.
Currently, our subsidiary, AES is a defendant in actions filed in various jurisdictions by Lufthansa Technik AG relating to an allegation of patent infringement and based on rulings to date we have concluded that losses related to these proceedings are probable. Refer to Note 19 of our Consolidated Financial Statements in Item 8 for discussion on the legal proceedings. If these actions are decided adversely against the Company, the associated damages could result in a material adverse effect on our results of operations or financial condition.
Other than these proceedings, we are not party to any significant pending legal proceedings that management believes will result in a material adverse effect on our results of operations or financial condition.
The amount of debt we have outstanding, as well as any debt we may incur in the future, could have an adverse effect on our operational and financial flexibility. As of December 31, 2019, we had approximately $188.2 million of debt outstanding of which $188.0 million is long-term debt. Changes to our level of debt subsequent to December 31, 2019 could have significant consequences to our business, including the following:
•Depending on interest rates and debt maturities, a substantial portion of our cash flow from operations could be dedicated to paying principal and interest on our debt, thereby reducing funds available for our acquisition strategy, capital expenditures or other purposes;
•A significant amount of additional debt could make us more vulnerable to changes in economic conditions or increases in prevailing interest rates;
•Our ability to obtain additional financing for acquisitions, capital expenditures or for other purposes could be impaired;
•The increase in the amount of debt we have outstanding increases the risk of non-compliance with some of the covenants in our debt agreements which require us to maintain specified financial ratios; and
•We may be more leveraged than some of our competitors, which may result in a competitive disadvantage.
We are subject to debt covenant restrictions. Our credit facility contains certain financial and other restrictive covenants. A significant decline in our operating income could cause us to violate our covenants. A covenant violation would require a waiver by the lenders or an alternative financing arrangement be achieved. This could result in our being unable to borrow under our bank credit facility or being obliged to refinance and renegotiate the terms of our bank indebtedness. Historically both choices have been available to us, however, it is difficult to predict the availability of these options in the future.
We are subject to financing and interest rate exposure risks that could adversely affect our business, liquidity and operating results. Changes in the availability, terms and cost of capital, and increases in interest rates could cause our cost of doing business to increase and place us at a competitive disadvantage. At December 31, 2019, substantially all of our debt was subject to variable interest rates.
The potential phase out of LIBOR may negatively impact our debt agreements and financial position, results of operations and liquidity. On July 27, 2017, the UK’s Financial Conduct Authority announced that it intends to phase out LIBOR by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established or whether different benchmark rates used to price indebtedness will develop. If LIBOR ceases to exist, we may need to renegotiate our debt agreements that extend beyond 2021 that utilize LIBOR as a factor in determining the interest rate, which may negatively impact the terms of such indebtedness. In addition, the overall financial markets may be disrupted as a result of the phase out or replacement of LIBOR. Disruption in the financial markets could have an adverse effect on our financial position, results of operations, and liquidity.
Our future operating results could be impacted by estimates used to calculate impairment losses on long-lived assets. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make significant and subjective estimates and assumptions that may affect the reported amounts of long-lived assets in the
financial statements. These estimates are integral in the determination of whether a potential non-cash impairment loss exists as well as the calculation of that loss. Actual future results could differ from those estimates. As discussed in Note 23 to the Consolidated Financial Statements, we recorded long-lived asset impairment losses of $9.5 million (excluding goodwill impairment, which has been previously discussed) in connection with the AeroSat restructuring.
Future terror attacks, war, or other civil disturbances could negatively impact our business. Continued terror attacks, war or other disturbances could lead to economic instability and decreases in demand for our products, which could negatively impact our business, financial condition and results of operations. Terrorist attacks world-wide have caused instability from time to time in global financial markets and the aviation industry. The long-term effects of terrorist attacks on us are unknown. These attacks and the U.S. government’s continued efforts against terrorist organizations may lead to additional armed hostilities or to further acts of terrorism and civil disturbance in the U.S. or elsewhere, which may further contribute to economic instability.
General business conditions are vulnerable to the effects of epidemics, such as the COVID-19 coronavirus, which could materially disrupt our business. We are vulnerable to the global economic effects of epidemics and other public health crises, such as the novel strain of COVID-19 virus reported to have surfaced in Wuhan, China in 2019. Due to the recent outbreak of the COVID-19 virus, there has been a substantial curtailment of global travel and business activities which could have an impact on airline spending and demand, and could negatively impact our sales if conditions worsen or extend for a prolonged period of time. China has also limited the shipment of products in and out of its borders, which could negatively impact our ability to receive products from our China-based suppliers and our ability to ship products to customers in that region. Supply chain disruptions could negatively impact our sales. If not resolved quickly, the impact of the epidemic could have a material adverse effect on our business.
Our business and operations could be adversely impacted in the event of a failure of our information technology infrastructure or adversely impacted by a successful cyber-attack. We are dependent on various information technologies throughout our company to administer, store and support multiple business activities. We routinely experience various cybersecurity threats, threats to our information technology infrastructure, unauthorized attempts to gain access to our company sensitive information, and denial-of-service attacks as do our customers, suppliers and subcontractors. We conduct regular periodic training of our employees as to the protection of sensitive information which includes security awareness training intended to prevent the success of “phishing” attacks.
The threats we face vary from attacks common to most industries to more advanced and persistent, highly organized adversaries, including nation states, which target us and other defense contractors because we protect sensitive information. If we are unable to protect sensitive information, our customers or governmental authorities could question the adequacy of our threat mitigation and detection processes and procedures, and depending on the severity of the incident, our customers’ data, our employees’ data, our intellectual property, and other third-party data (such as subcontractors, suppliers and vendors) could be compromised. As a consequence of their persistence, sophistication and volume, we may not be successful in defending against all such attacks. Due to the evolving nature of these security threats, the impact of any future incident cannot be predicted.
Although we work cooperatively with our customers, suppliers, and subcontractors to seek to minimize the impact of cyber threats, other security threats or business disruptions, we must rely on the safeguards put in place by these entities, which may affect the security of our information. These entities have varying levels of cybersecurity expertise and safeguards and their relationships with U.S. government contractors, such as Astronics, may increase the likelihood that they are targeted by the same cyber threats we face.
Our inability to adequately enforce and protect our intellectual property or defend against assertions of infringement could prevent or restrict our ability to compete. We rely on patents, trademarks and proprietary knowledge and technology, both internally developed and acquired, in order to maintain a competitive advantage. Our inability to defend against the unauthorized use of these rights and assets could have an adverse effect on our results of operations and financial condition. Litigation may be necessary to protect our intellectual property rights or defend against claims of infringement. This litigation could result in significant costs and divert our management’s focus away from operations. Refer to the risk factor related to pending patent infringement litigation above and Note 19 to the Consolidated Financial Statements for further discussion.
If we are unable to adapt to technological change, demand for our products may be reduced. The technologies related to our products have undergone, and in the future may undergo, significant changes. To succeed in the future, we will need to continue to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost effective basis. Our competitors may develop technologies and products that are more effective than those we develop or that render our technology and products obsolete or uncompetitive. Furthermore, our products could become unmarketable if
new industry standards emerge. We may have to modify our products significantly in the future to remain competitive, and new products we introduce may not be accepted by our customers.
Our new product development efforts may not be successful, which would result in a reduction in our sales and earnings. We may experience difficulties that could delay or prevent the successful development of new products or product enhancements, and new products or product enhancements may not be accepted by our customers. In addition, the development expenses we incur may exceed our cost estimates, and new products we develop may not generate sales sufficient to offset our costs. If any of these events occur, our sales and profits could be adversely affected.
We depend on government contracts and subcontracts with defense prime contractors and subcontractors that may not be fully funded, may be terminated, or may be awarded to our competitors. The failure to be awarded these contracts, the failure to receive funding or the termination of one or more of these contracts could reduce our sales. Sales to the U.S. government and its prime contractors and subcontractors represent a significant portion of our business. The funding of these programs is generally subject to annual congressional appropriations, and congressional priorities are subject to change. In addition, government expenditures for defense programs may decline or these defense programs may be terminated. A decline in governmental expenditures or the termination of existing contracts may result in a reduction in the volume of contracts awarded to us. We have resources applied to specific government contracts and if any of those contracts were terminated, we may incur substantial costs redeploying those resources.
If our subcontractors or suppliers fail to perform their contractual obligations, our prime contract performance and our ability to obtain future business could be materially and adversely impacted. Many of our contracts involve subcontracts with other companies upon which we rely to perform a portion of the services we must provide to our customers. There is a risk that we may have disputes with our subcontractors, including disputes regarding the quality and timeliness of work performed by the subcontractor or customer concerns about the subcontractor. Failure by our subcontractors to satisfactorily provide, on a timely basis, the agreed-upon supplies or perform the agreed-upon services may materially and adversely impact our ability to perform our obligations with our customer and could result in the assessment of late delivery penalties. Subcontractor performance deficiencies could result in a customer terminating our contract for default. A default termination could expose us to liability and substantially impair our ability to compete for future contracts and orders. In addition, a delay in our ability to obtain components and equipment parts from our suppliers may affect our ability to meet our customers’ needs and may have an adverse effect upon our profitability.
Our results of operations are affected by our fixed-price contracts, which could subject us to losses in the event that we have cost overruns. For the year ended December 31, 2019, fixed-price contracts represented almost all of the Company’s sales. On fixed-price contracts, we agree to perform the scope of work specified in the contract for a predetermined price. Depending on the fixed price negotiated, these contacts may provide us with an opportunity to achieve higher profits based on the relationship between our costs and the contract’s fixed price. However, we bear the risk that increased or unexpected costs may reduce our profit.
Some of our contracts contain late delivery penalties. Failure to deliver in a timely manner due to supplier problems, development schedule slides, manufacturing difficulties, or similar schedule-related events could have a material adverse effect on our business.
The failure of our products may damage our reputation, necessitate a product recall or result in claims against us that exceed our insurance coverage, thereby requiring us to pay significant damages. Defects in the design and manufacture of our products may necessitate a product recall. We include complex system design and components in our products that could contain errors or defects, particularly when we incorporate new technology into our products. If any of our products are defective, we could be required to redesign or recall those products or pay substantial damages or warranty claims. Such an event could result in significant expenses, disrupt sales and affect our reputation and that of our products. We are also exposed to product liability claims. We carry aircraft and non-aircraft product liability insurance consistent with industry norms. However, this insurance coverage may not be sufficient to fully cover the payment of any potential claim. A product recall or a product liability claim not covered by insurance could have a material adverse effect on our business, financial condition and results of operations.
Changes in discount rates and other estimates could affect our future earnings and equity. Our goodwill asset impairment evaluations are determined using valuations that involve several assumptions, including discount rates, cash flow estimates, growth rates and terminal values. Certain of these assumptions, particularly the discount rate, are based on market conditions and are outside of our control. Changes in these assumptions could affect our future earnings and equity.
Additionally, pension obligations and the related costs are determined using actual results and actuarial valuations that involve several assumptions. The most critical assumption is the discount rate. Other assumptions include mortality, salary increases
and retirement age. The discount rate assumptions are based on current market conditions and are outside of our control. Changes in these assumptions could affect our future earnings and equity.
Contracting in the defense industry is subject to significant regulation, including rules related to bidding, billing and accounting kickbacks and false claims, and any non-compliance could subject us to fines and penalties or possible debarment. Like all government contractors, we are subject to risks associated with this contracting. These risks include the potential for substantial civil and criminal fines and penalties. These fines and penalties could be imposed for failing to follow procurement integrity and bidding rules, employing improper billing practices or otherwise failing to follow cost accounting standards, receiving or paying kickbacks or filing false claims. We have been, and expect to continue to be, subjected to audits and investigations by government agencies. The failure to comply with the terms of our government contracts could harm our business reputation. It could also result in suspension or debarment from future government contracts.
If we fail to meet expectations of securities analysts or investors due to fluctuations in our sales or operating results, our stock price could decline significantly. Our sales and earnings may fluctuate from quarter to quarter due to a number of factors, including delays or cancellations of programs. It is likely that in some future quarters our operating results may fall below the expectations of securities analysts or investors. In this event, the trading price of our stock could decline significantly.
Our operations in foreign countries expose us to political and currency risks and adverse changes in local legal and regulatory environments. In 2019, approximately 11% of our sales were made by our subsidiaries in foreign countries, predominately in our subsidiaries in France and Canada. Net assets held by these two subsidiaries total $64.3 million at December 31, 2019. Approximately 25% of our consolidated sales in 2019 were made to customers outside of the United States. Our financial results may be adversely affected by fluctuations in foreign currencies and by the translation of the financial statements of our foreign subsidiaries from local currencies into U.S. dollars. We expect international operations and export sales to continue to contribute to our earnings for the foreseeable future. Both the sales from international operations and export sales are subject in varying degrees to risks inherent in doing business outside of the U.S. Such risks include the possibility of unfavorable circumstances arising from host country laws or regulations, changes in tariff and trade barriers and import or export licensing requirements, and political or economic reprioritization, insurrection, civil disturbance or war.
Government regulations could limit our ability to sell our products outside the U.S. and could otherwise adversely affect our business. Certain of our sales are subject to compliance with U.S. export regulations. Our failure to obtain, or fully adhere to the limitations contained in, the requisite licenses, meet registration standards or comply with other government export regulations would hinder our ability to generate sales of our products outside the U.S. Compliance with these government regulations may also subject us to additional fees and operating costs. The absence of comparable restrictions on competitors in other countries may adversely affect our competitive position. In order to sell our products in European Union countries, we must satisfy certain technical requirements. If we are unable to comply with those requirements with respect to a significant quantity of our products, our sales in Europe would be restricted. Doing business internationally also subjects us to numerous U.S. and foreign laws and regulations, including regulations relating to import-export control, technology transfer restrictions, foreign corrupt practices and anti-boycott provisions. Our failure, or failure by an authorized agent or representative that is attributable to us, to comply with these laws and regulations could result in administrative, civil or criminal liabilities and could, in the extreme case, result in monetary penalties, suspension or debarment from government contracts or suspension of our export privileges, which would have a material adverse effect on us.
Our stock price is volatile. For the year ended December 31, 2019, our stock price ranged from a low of $26.08 to a high of $44.20. The price of our common stock has been and likely will continue to be subject to wide fluctuations in response to a number of events and factors, such as:
•quarterly variations in operating results;
•variances of our quarterly results of operations from securities analyst estimates;
•changes in financial estimates;
•announcements of technological innovations and new products;
•news reports relating to trends in our markets; and
•the cancellation of major contracts or programs with our customers.
In addition, the stock market in general, and the market prices for companies in the aerospace and defense industry in particular, have experienced significant price and volume fluctuations that often have been unrelated to the operating performance of the companies affected by these fluctuations. These broad market fluctuations may adversely affect the market price of our common stock, regardless of our operating performance.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
On December 31, 2019, we own or lease 1.4 million square feet of space, distributed by segment as follows:
| | | | | | | | | | | | | | | | | |
| Owned | | Leased | | Total |
Aerospace | 749,000 | | | 445,000 | | | 1,194,000 | |
Test Systems | — | | | 158,000 | | | 158,000 | |
Total Square Feet | 749,000 | | | 603,000 | | | 1,352,000 | |
We have principal operations in the U.S., Canada, France and the UK, as well as engineering offices in the Ukraine and India.
Upon the expiration of our current leases, we believe that we will be able to either secure renewal terms or enter into leases for or purchases of alternative locations at market terms. We believe that our properties have been adequately maintained and are generally in good condition.
ITEM 3. LEGAL PROCEEDINGS
Currently, we are involved in legal proceedings relating to an allegation of patent infringement and based on rulings to date we have concluded that losses related to these proceedings are probable. For a discussion of contingencies related to legal proceedings, see Note 19 to our Consolidated Financial Statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The table below 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 24, 2020, was 726 for Common Stock and 2,003 for Class B Stock.
| | | | | | | | | | | |
2019 | High | | Low |
First | $ | 36.01 | | | $ | 28.55 | |
Second | $ | 44.20 | | | $ | 31.69 | |
Third | $ | 41.86 | | | $ | 26.08 | |
Fourth | $ | 31.50 | | | $ | 27.95 | |
| | | | | | | | | | | |
2018 | High | | Low |
First | $ | 41.18 | | | $ | 30.94 | |
Second | $ | 34.23 | | | $ | 29.40 | |
Third | $ | 40.10 | | | $ | 31.60 | |
Fourth | $ | 37.80 | | | $ | 28.46 | |
The Company has not paid any cash dividends in the three-year period ended December 31, 2019. The Company has no plans to pay cash dividends as it plans to retain all cash from operations as a source of capital to finance working capital and growth in the business.
On February 24, 2016, the Company’s Board of Directors authorized the repurchase of up to $50 million of common stock, which allowed the Company to purchase shares of its common stock in accordance with applicable securities laws on the open market or through privately negotiated transactions. The Company repurchased approximately 1,675,000 shares and has completed that program in 2017. On December 12, 2017, the Company’s Board of Directors authorized an additional repurchase of up to $50 million. No shares were repurchased in 2018. The Company repurchased approximately 1,823,000 shares and completed that program in the third quarter of 2019. On September 17, 2019, the Company’s Board of Directors authorized an additional repurchase of up to $50 million. An additional 28,000 shares were repurchased under the new program as of December 31, 2019 at a cost of $0.8 million. Subsequent to December 31, 2019, approximately 282,000 additional shares were repurchased at a cost of $7.7 million.
The following graph and table shows the performance of the Company’s common stock compared with the S&P 500 Index — Total Return and the NASDAQ US and Foreign Companies for a $100 investment made December 31, 2014:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 |
Astronics Corp. | Return % | — | | | (15.99) | | | (1.75) | | | 22.55 | | | (13.30) | | | (8.21) | |
| Cum $ | 100.00 | | | 84.01 | | | 82.53 | | | 101.14 | | | 87.69 | | | 80.49 | |
S&P 500 Index - Total Returns | Return % | — | | | 1.38 | | | 11.96 | | | 21.83 | | | (4.38) | | | 31.49 | |
| Cum $ | 100.00 | | | 101.38 | | | 113.51 | | | 138.29 | | | 132.23 | | | 173.86 | |
NASDAQ Stock Market (US and Foreign Companies) | Return % | — | | | 6.99 | | | 8.80 | | | 29.37 | | | (2.95) | | | 35.78 | |
| Cum $ | 100.00 | | | 106.99 | | | 116.42 | | | 150.60 | | | 146.15 | | | 198.45 | |
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Performance Highlights
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2019 (6) | | 2018 | | 2017 (3) | | 2016 | | 2015 |
(Amounts in thousands, except for employees and per share data) | | | | | | | | | |
RESULTS OF OPERATIONS: | | | | | | | | | |
Sales | $ | 772,702 | | | $ | 803,256 | | | $ | 624,464 | | | $ | 633,123 | | | $ | 692,279 | |
Impairment Loss included in Net Income (4) | $ | 11,083 | | | $ | — | | | $ | 16,237 | | | $ | — | | | $ | — | |
Net Gain on Sales of Businesses (5) | $ | 78,801 | | | | $ | — | | | | $ | — | | | | $ | — | | | | $ | — | |
Net Income | $ | 52,017 | | | $ | 46,803 | | | $ | 19,679 | | | $ | 48,424 | | | $ | 66,974 | |
Net Margin | 6.7 | % | | 5.8 | % | | 3.2 | % | | 7.6 | % | | 9.7 | % |
Diluted Earnings Per Share (1) | $ | 1.60 | | | $ | 1.41 | | | $ | 0.58 | | | $ | 1.40 | | | $ | 1.93 | |
Weighted Average Shares Outstanding – Diluted (1) | 32,459 | | | 33,136 | | | 33,718 | | | 34,537 | | | 34,706 | |
Return on Average Equity | 13.4 | % | | 13.1 | % | | 5.9 | % | | 15.2 | % | | 25.3 | % |
YEAR-END FINANCIAL POSITION: | | | | | | | | | |
Working Capital (2) | $ | 222,441 | | | $ | 246,079 | | | $ | 212,438 | | | $ | 168,513 | | | $ | 145,735 | |
Total Assets | $ | 782,716 | | | $ | 774,640 | | | $ | 735,956 | | | $ | 604,344 | | | $ | 609,243 | |
Indebtedness | $ | 188,224 | | | $ | 233,982 | | | $ | 271,767 | | | $ | 148,120 | | | $ | 169,789 | |
Shareholders’ Equity | $ | 388,857 | | | $ | 386,625 | | | $ | 329,927 | | | $ | 337,449 | | | $ | 300,225 | |
Book Value Per Share (1) | $ | 12.54 | | | $ | 11.86 | | | $ | 10.22 | | | $ | 10.13 | | | $ | 8.93 | |
OTHER YEAR-END DATA: | | | | | | | | | |
Depreciation and Amortization | $ | 33,049 | | | $ | 35,032 | | | $ | 27,063 | | | $ | 25,790 | | | $ | 25,309 | |
Capital Expenditures | $ | 12,083 | | | $ | 16,317 | | | $ | 13,478 | | | $ | 13,037 | | | $ | 18,641 | |
Shares Outstanding (1) | 30,999 | | | 32,593 | | | 32,269 | | | 33,328 | | | 33,635 | |
Number of Employees | 2,828 | | | 2,690 | | | 2,516 | | | 2,304 | | | 2,304 | |
1.Diluted Earnings Per Share, Weighted Average Shares Outstanding - Diluted, Book Value Per Share and Shares Outstanding have been adjusted for the impact of the October 12, 2018 fifteen percent Class B stock distribution, October 11, 2016 fifteen percent Class B stock distribution and the October 8, 2015 fifteen percent Class B stock distribution.
2.Working capital is calculated as the difference between Current Assets and Current Liabilities.
3.Information includes the results of CCC, acquired on April 3, 2017, and CSC, acquired on December 1, 2017, each from the acquisition date forward.
4.The Company recorded impairment charges in conjunction with restructuring, impairment and other activities during the fourth quarter of 2019, as described in Note 23 in our consolidated financial statements. The Company recorded a goodwill impairment charge during the fourth quarter of 2017.
5.The Company recorded a gain of $80.1 million upon the sale of the semiconductor business on February 13, 2019, offset by a $1.3 million loss on the sale of the airfield lighting product line on July 12, 2019.
6.Information includes the results of Freedom, acquired on July 1, 2019, and Diagnosys, acquired on October 4, 2019, each from the acquisition date forward. Information reflects the sale of the semiconductor business, divested on February 13, 2019. Information included in 2019 is impacted by restructuring, impairment and other charges; as described in Note 23 in our consolidated financial statements.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Astronics, through its subsidiaries, is a leading supplier of advanced, high-performance electrical power generation, distribution and seat motion solutions, lighting and safety systems, avionics products, systems certification, aircraft structures and automated test systems.
Our strategy is to increase our value by developing technologies and capabilities either internally or through acquisition, and use those capabilities to provide innovative solutions to the aerospace & defense and other markets where our technology can be beneficial.
We have two reportable segments, Aerospace and Test Systems. Our Aerospace segment has principal operating facilities in the United States, Canada and France. Our Test Systems segment has principal operating facilities in the United States and the United Kingdom. We have engineering offices in the Ukraine and India.
Our Aerospace segment serves three primary markets. They are the military, commercial transport and business jet markets. Our Test Systems segment serves the aerospace & defense and mass transit markets.
Important factors affecting our growth and profitability are the rate at which new aircraft are produced, government funding of military programs, our ability to have our products designed into new aircraft and the rates at which aircraft owners, including commercial airlines, refurbish or install upgrades to their aircraft. New aircraft build rates and aircraft owners spending on upgrades and refurbishments is cyclical and dependent on the strength of the global economy. Once designed into a new aircraft, the spare parts business is frequently retained by the Company. Future growth and profitability of the test business is dependent on developing and procuring new and follow-on business in the mass-transit market as well as with the military. The nature of our Test Systems business is such that it pursues large multi-year projects. There can be significant periods of time between orders in this business which may result in large fluctuations of sales and profit levels and backlog from period to period.
Each of the markets that we serve presents opportunities that we expect will provide growth for the Company over the long-term. We continue to look for opportunities in all of our markets to capitalize on our core competencies to expand our existing business and to grow through strategic acquisitions.
Challenges which continue to face us include improving shareholder value through increasing profitability. Increasing profitability is dependent on many things, primarily sales growth, both acquired and organic, and the Company’s ability to control operating expenses and to identify means of creating improved productivity. Sales are driven by increased build rates for existing aircraft, market acceptance and economic success of new aircraft and our products, continued government funding of defense programs, the Company’s ability to obtain production contracts for parts we currently supply or have been selected to design and develop for new aircraft platforms and continually identifying and winning new business for our Test Systems segment.
Reduced aircraft build rates driven by a weak economy, tight credit markets, reduced air passenger travel and an increasing supply of used aircraft on the market would likely result in reduced demand for our products, which will result in lower profits. Reduction of defense spending may result in fewer opportunities for us to compete, which could result in lower profits in the future. Many of our newer development programs are based on new and unproven technology and at the same time we are challenged to develop the technology on a schedule that is consistent with specific programs. We will continue to address these challenges by working to improve operating efficiencies and focusing on executing on the growth opportunities currently in front of us.
ACQUISITIONS
On July 1, 2019, the Company acquired all of the issued and outstanding capital stock of Freedom Communication Technologies, Inc. Freedom, located in Kilgore, Texas, is a leader in wireless communication testing, primarily for the civil land mobile radio market. Freedom is included in our Test Systems segment. The total consideration for the transaction was $21.8 million, net of $0.6 million in cash acquired.
On October 4, 2019, the Company acquired the stock of the primary operating subsidiaries as well as certain other assets from mass transit and defense market test solution provider, Diagnosys Test Systems Limited, for $7.0 million in cash, plus an earn-out estimated at a fair value of $2.5 million. Diagnosys is included in our Test Systems segment. Diagnosys is a developer and manufacturer of comprehensive automated test equipment providing test, support, and repair of high value electronics, electro-mechanical, pneumatic and printed circuit boards focused on the global mass transit and defense markets. The terms of the
acquisition allow for a potential earn-out of up to an additional $13.0 million over the next three years based on achievement of new order levels of over $72.0 million during that period. The acquired business has operations in Westford, Massachusetts as well as Ferndown, England, and an engineering center of excellence in Bangalore, India. Refer to Note 21 for additional information.
DIVESTITURES
On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment. The business was not core to the future of the Test Systems segment. The total proceeds received for the sale amounted to $103.8 million. The Company recorded a pre-tax gain on the sale of $80.1 million in the first quarter of 2019. The Company recorded income tax expense relating to the gain of $19.7 million.
The transaction also includes two elements of contingent earnouts. The “First Earnout” is calculated based on a multiple of all future sales of existing and certain future derivative products to existing and future customers in each annual period from 2019 through 2022. The First Earnout may not exceed $35.0 million in total. The “Second Earnout” is calculated based on a multiple of future sales related to an existing product and program with an existing customer exceeding an annual threshold for each annual period from 2019 through 2022. The Second Earnout is not capped. For the Second Earnout, if the applicable sales in an annual period do not exceed the annual threshold, no amounts will be paid relative to such annual period; the sales in such annual period do not carry over to the next annual period. Due to the degree of uncertainty associated with estimating the future sales levels of the divested business and its underlying programs, and the lack of reliable predictive market information, the Company will recognize such earnout proceeds, if received, as additional gain on sale when such proceeds are realized or realizable. No amounts were due under the First Earnout.
On July 12, 2019, the Company sold intellectual property and certain assets associated with its Airfield Lighting product line for $1.0 million in cash. The Airfield Lighting product line, part of the Aerospace segment, was not core to the business and represented less than 1% of revenue. The Company recorded a pre-tax loss on the sale of approximately $1.3 million.
RESTRUCTURING
In the fourth quarter of 2019, in an effort to reduce the significant operating losses at our AeroSat business, we initiated a restructuring plan to reduce costs and minimize losses of our AeroSat antenna business. The plan narrows the initiatives for the AeroSat business to focus primarily on near-term opportunities pertaining to business jet connectivity. The plan has a downsized manufacturing operation remaining in New Hampshire, with significantly reduced personnel and operating expenses.
The Company's total impairments and restructuring charges recorded in the fourth quarter of 2019 amounted to $28.8 million all of which is included in the Aerospace segment. Refer to Note 23 for additional discussion.
MARKETS
Commercial Transport Market
Sales to the commercial transport market include sales of electrical power generation, distribution, seat motion, lighting & safety products, avionics products, systems certification and structures products. Sales to this market totaled approximately $523.9 million or 67.8% of our consolidated sales in 2019.
Maintaining and growing sales to the commercial transport market will depend on airlines’ capital spending budgets for cabin upgrades as well as the purchase of new aircraft by global airlines. This spending by the airlines is impacted by their profits, cash flow and available financing as well as competitive pressures between the airlines to improve the travel experience for their passengers. We expect that new aircraft will be equipped with more passenger and aircraft connectivity and in-seat power than previous generation aircraft which drives demand for our avionics and power products. This market has historically experienced strong growth from airlines installing in-seat passenger power systems on their existing and newly delivered aircraft. Although we expect, based on information that Boeing has made publicly available, that deliveries of the 737 MAX program will resume and the demand for the aircraft in the long-term has not changed, a prolonged grounding of the 737 MAX could substantially decrease sales to this market in the near or long term which could have a material adverse effect on our business, financial condition, results of operations and cash flows. The 737 MAX situation affects us not only because it has been our largest production program, but also because the grounding has reduced capacity in the world’s airline fleets, challenging our aftermarket business. Our ability to maintain and grow sales to this market depends on our ability to maintain our technological advantages over our competitors and maintain our relationships with major in-flight entertainment suppliers and global airlines.
Military Aerospace Market
Sales to the military aerospace market include sales of lighting & safety products, avionics products, electrical power & motion products and structures products. Sales to this market totaled approximately 9.9% of our consolidated sales and amounted to $76.5 million in 2019.
The military market is dependent on governmental funding which can change from year to year. Risks are that overall spending may be reduced in the future, specific programs may be eliminated or that we fail to win new business through the competitive bid process. Astronics does not have significant reliance on any one program such that cancellation of a particular program will cause material financial loss. We believe that we will continue to have opportunities similar to past years regarding this market.
Business Jet Market
Sales to the business jet market include sales of lighting & safety products, avionics products, and electrical power & motion products. Sales to this market totaled approximately 8.7% of our consolidated sales in 2019 and amounted to $67.5 million.
Sales to the business jet market are driven by our ship set content on new aircraft and build rates of new aircraft. Business jet OEM build rates are impacted by global wealth creation and corporate profitability. We continue to see opportunities on new aircraft currently in the design phase to employ our lighting & safety, electrical power and avionics technologies in this market. There is risk involved in the development of any new aircraft including the risk that the aircraft will not ultimately be produced or that it will be produced in lower quantities than originally expected and thus impacting our return on our engineering and development efforts.
Tests Systems Products
Our Test Systems segment accounted for approximately 10.4% of our consolidated sales in 2019 and amounted to $80.1 million. Sales to the aerospace & defense market were approximately $70.4 million in 2019. Sales to the semiconductor market were approximately $9.7 million. The Company completed a divestiture of its semiconductor test business on February 13, 2019.
CRITICAL ACCOUNTING POLICIES
Our financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. The preparation of the Company’s financial statements requires management to make estimates, assumptions and judgments that affect the amounts reported. These estimates, assumptions and judgments are affected by management’s application of accounting policies, which are discussed in the Notes to Consolidated Financial Statements, Note 1 of Item 8, Financial Statements and Supplementary Data of this report. The critical accounting policies have been reviewed with the Audit Committee of our Board of Directors.
Revenue Recognition
Revenue is recognized when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration the Company expects to be entitled in exchange for transferring those products or services. Sales shown on the Company's Consolidated Statements of Operations are from contracts with customers.
Payment terms and conditions vary by contract, although terms generally include a requirement of payment within a range from 30 to 90 days after the performance obligation has been satisfied; or in certain cases, up-front deposits. In circumstances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that the Company's contracts generally do not include a significant financing component. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from sales.
The Company recognizes an asset for the incremental, material costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year and the costs are expected to be recovered. These incremental costs include, but are not limited to, sales commissions incurred to obtain a contract with a customer. As of December 31, 2019, the Company does not have material incremental costs on any open contracts with an original expected duration of greater than one year.
The Company recognizes an asset for certain, material costs to fulfill a contract if it is determined that the costs relate directly to a contract or an anticipated contract that can be specifically identified, generate or enhance resources that will be used in satisfying performance obligations in the future, and are expected to be recovered. Such costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods to which the asset relates. Start-up costs are expensed as incurred. Capitalized fulfillment costs are included in Inventories in the accompanying Consolidated Condensed Balance
Sheets. Should future orders not materialize or it is determined the costs are no longer probable of recovery, the capitalized costs are written off. As of December 31, 2019, the Company does not have material capitalized fulfillment costs. Capitalized fulfillment costs were $9.6 million as of December 31, 2018. These costs were associated with a contract that is included in the divestiture of the semiconductor business and as such, the balance is included in Assets Held for Sale in the accompanying consolidated balance sheet at December 31, 2018. Amortization of fulfillment costs recognized within Cost of Products Sold was approximately $1.0 million for the year ended December 31, 2018.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts which are, therefore, not distinct. Thus, the contract's transaction price is the revenue recognized when or as that performance obligation is satisfied. Promised goods or services that are immaterial in the context of the contract are not separately assessed as performance obligations.
Some of our contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the product lifecycle (development, production, maintenance and support). For contracts with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus margin approach, under which expected costs are forecast to satisfy a performance obligation and then an appropriate margin is added for that distinct good or service. Shipping and handling activities that occur after the customer has obtained control of the good are considered fulfillment activities, not performance obligations.
Some of our contracts offer price discounts or free units after a specified volume has been purchased. The Company evaluates these options to determine whether they provide a material right to the customer, representing a separate performance obligation. If the option provides a material right to the customer, revenue is allocated to these rights and recognized when those future goods or services are transferred, or when the option expires.
Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for goods or services that are distinct, and, therefore, are accounted for as new contracts. The effect of modifications has been reflected when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price.
The majority of the Company’s revenue from contracts with customers is recognized at a point in time, when the customer obtains control of the promised product, which is generally upon delivery and acceptance by the customer. These contracts may provide credits or incentives, which may be accounted for as variable consideration. Variable consideration is estimated at the most likely amount to predict the consideration to which the Company will be entitled, and only to the extent it is probable that a subsequent change in estimate will not result in a significant revenue reversal when estimating the amount of revenue to recognize. Variable consideration is treated as a change to the sales transaction price and based on an assessment of all information (i.e., historical, current and forecasted) that is reasonably available to the Company, and estimated at contract inception and updated at the end of each reporting period as additional information becomes available. Most of our contracts do not contain rights to return product; where this right does exist, it is evaluated as possible variable consideration.
For contracts that are subject to the requirement to accrue anticipated losses, the company recognizes the entire anticipated loss in the period that the loss becomes probable.
For contracts with customers in which the Company promises to provide a product to the customer that has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company satisfies the performance obligation and recognizes revenue over time, using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material and overhead.
The Company also recognizes revenue from service contracts (including service-type warranties) over time. The Company recognizes revenue over time during the term of the agreement as the customer is simultaneously receiving and consuming the benefits provided throughout the Company’s performance. The Company typically recognizes revenue on a straight-line basis throughout the contract period.
Reviews for Impairment of Long-Lived Assets
Goodwill Impairment Testing
Our goodwill is the result of the excess of purchase price over net assets acquired from acquisitions. As of December 31, 2019, we had approximately $145.0 million of goodwill. As of December 31, 2018, we had approximately $125.0 million of goodwill.
We identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components. The Test Systems operating segment is its own reporting unit while the other reporting units are one level below our Aerospace operating segment.
Companies may perform a qualitative assessment as the initial step in the annual goodwill impairment testing process for all or selected reporting units under certain circumstances. Companies are also allowed to bypass the qualitative analysis and perform a quantitative analysis if desired. Economic uncertainties and the length of time from the calculation of a baseline fair value are factors that we would consider in determining whether to perform a quantitative test.
Quantitative testing first requires a comparison of the fair value of each reporting unit to the carrying value. We use the discounted cash flow method to estimate the fair value of each of our reporting units. The discounted cash flow method incorporates various assumptions, the most significant being projected sales growth rates, operating profit margins and cash flows, the terminal growth rate and the discount rate. Management projects sales growth rates, operating margins and cash flows based on each reporting unit’s current business, expected developments and operational strategies. If the carrying value of the reporting unit exceeds its fair value, goodwill is considered impaired and any loss must be measured. Goodwill impairment is measured as the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying value of goodwill.
In 2019, we performed quantitative assessments for the reporting units which had goodwill as of the first day of the fourth quarter. Based on our quantitative assessment, the Company recorded a full goodwill impairment charge of approximately $1.6 million in the December 31, 2019 consolidated statement of operations associated with the AeroSat reporting unit. The impairment loss was incurred in the Aerospace segment and is reported within the Impairment Loss line of the Consolidated Statements of Operations.
CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK
| | | | | | | | | | | | | | | | | |
(In thousands, except percentages) | 2019 (2) | | 2018 | | 2017 (1) |
Sales | $ | 772,702 | | | $ | 803,256 | | | $ | 624,464 | |
Gross Margin | 20.2 | % | | 22.5 | % | | 22.0 | % |
SG&A Expenses as a Percentage of Sales | 18.6 | % | | 14.6 | % | | 14.2 | % |
Impairment Loss | $ | 11,083 | | | $ | — | | | $ | 16,237 | |
Net Gain on Sale of Businesses | $ | 78,801 | | | $ | — | | | $ | — | |
Interest Expense | $ | 6,141 | | | $ | 9,710 | | | $ | 5,369 | |
Effective Tax Rate | 23.8 | % | | 10.5 | % | | 21.3 | % |
Net Income | $ | 52,017 | | | $ | 46,803 | | | $ | 19,679 | |
(1) Our results of operations for 2017 include the operations of CCC, beginning April 3, 2017, and the operations of CSC, beginning December 1, 2017.
(2) Our results of operations for 2019 include the operations of Freedom, beginning July 1, 2019, and the operations of Diagnosys, beginning October 4, 2019. 2019 results also reflect the divestiture of the semiconductor business on February 13, 2019.
A discussion by segment can be found at “Segment Results of Operations and Outlook” in this MD&A.
CONSOLIDATED OVERVIEW OF OPERATIONS
2019 Compared With 2018
Consolidated sales for the full year of 2019 decreased $30.6 million to $772.7 million, primarily because of the divested semiconductor business which had sales of $9.7 million in 2019 and $84.3 million in 2018.
Consolidated cost of products sold decreased $6.0 million to $616.6 million in 2019 from $622.6 million in the prior year. The decline was due to lower sales, primarily due to the divestiture of the semiconductor business, partially offset with incremental tariff expense of $5.9 million and $15.4 million of charges associated with the restructuring and impairment charges of our AeroSat antenna business which required classification within cost of products sold.
Selling, general and administrative (“SG&A”) expenses were $143.4 million, or 18.6% or sales, compared with $117.0 million, or 14.6% of sales, for the prior year period. The $26.3 million increase was due to increased legal reserves for the long-term patent dispute of $19.6 million and impairment and restructuring charges related to the antenna business classified within SG&A expense of $2.4 million.
The Company recorded a gain of $80.1 million upon the sale of the semiconductor business on February 13, 2019, offset by a $1.3 million loss on the sale of the airfield lighting product line on July 12, 2019.
Other expense, net in 2019 includes a $5.0 million impairment of an equity investment.
2018 Compared With 2017
Consolidated sales were $803.3 million, up 28.6%, or $178.8 million, from the same period last year. Organic sales increased $94.0 million, or 15.0%. Acquired sales for 2018 were $84.8 million related to CSC and CCC and all related to the Aerospace segment. Aerospace segment sales of $675.6 million were up 26.4%, or $141.0 million, and Test Systems segment sales were up 42.0% to $127.6 million.
Consolidated cost of products sold increased $135.2 million to $622.6 million in 2018 from $487.4 million in the prior year. The increase was due primarily to the cost associated with the higher organic sales volume, coupled with the cost of products sold related to CSC and CCC.
SG&A expenses were $117.0 million, or 14.6% or sales, compared with $88.8 million, or 14.2% of sales, for the prior year period. The $28.3 million increase was due primarily to the incremental SG&A costs of CSC and CCC, which added $20.9 million. This included $7.4 million of incremental intangible asset amortization expense in 2018. Corporate overhead expenses increased $2.6 million due primarily to increased staffing and infrastructure development.
Interest expense increased in 2018 compared to 2017 due primarily to increased average debt levels.
Income Taxes
Our effective tax rates for 2019, 2018 and 2017 were 23.8%, 10.5% and 21.3%, respectively. Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amount of income we earn in those jurisdictions, which we expect to be fairly consistent in the near term. It is also affected by discrete items that may occur in any given year, but are not consistent from year to year. In addition to state income taxes, the following items had the most significant impact on the difference between our statutory U.S. federal income tax rate (21% in 2019 and 2018 and 35% in 2017) and our effective tax rate:
2019:
1.Recognition of approximately $3.1 million of 2019 U.S. R&D tax credits.
2018:
1.Recognition of approximately $3.2 million of 2018 U.S. R&D tax credits.
2.Benefit of approximately $3.5 million from revised state filing position.
2017:
1.Recognition of approximately $2.9 million of 2017 U.S. R&D tax credits.
2.Permanent differences, primarily the impact of the Domestic Production Activities Deduction.
3.Provisional amounts related to the Federal tax expense on deemed repatriation of foreign earnings ($1.3 million), partially offset by revaluation of the deferred tax balances ($0.9 million) as a result of a reduction in the Federal tax rate from tax law changes enacted in 2017.
2020 Outlook
The continued grounding of the 737 MAX and the associated production pause has caused us to withdraw revenue guidance temporarily. The MAX situation affects us not only because it is one of our largest production programs, but also because the grounding has reduced capacity for the world’s airlines, challenging our aftermarket business. We look forward to the MAX’s return to service, and issuing sales guidance as soon as practical.
We expect first quarter sales in 2020 to be in the range of $155 million to $165 million, with Aerospace generating about 90% of the total. We expect the first quarter will be the lightest quarter of 2020, with results strengthening throughout the year. In 2019, we saw strong results at the beginning of the year which weakened towards the end. We expect 2020 will be just the opposite, with a weaker start and a stronger finish.
We have not currently estimated the impact which could result if the COVID-19 coronavirus becomes more significant globally. It is unknown whether and how global airline demand and spending, as well as global supply chains, may be affected if such an epidemic persists for an extended period of time.
At December 31, 2019, our consolidated backlog was $359.6 million. At December 31, 2018, our backlog was $415.5 million. Excluding backlog related to the divested semiconductor business, our backlog was $403.3 million at December 31, 2018. Backlog in the Aerospace segment was $275.8 million at December 31, 2019, of which $249.6 million is expected to be recognized as revenue in 2020. Backlog in the Test Systems segment was $83.8 million at December 31, 2019. The Test Systems segment expects to recognize as revenue $51.4 million of backlog in 2020.
The effective tax rate for 2020 is expected to be approximately 18% to 22%.
Capital equipment spending in 2020 is expected to be in the range of $22 million to $25 million.
Depreciation and Amortization in 2020 is expected to in the range of $33 million and $35 million.
SEGMENT RESULTS OF OPERATIONS AND OUTLOOK
Operating profit, as presented below, is sales less cost of products sold and other operating expenses excluding interest expense, corporate expenses and other non-operating sales and expenses. Cost of products sold and operating expenses are directly attributable to the respective segment. Operating profit is reconciled to earnings before income taxes in Note 20 of Item 8, Financial Statements and Supplementary Data, of this report.
AEROSPACE SEGMENT
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(In thousands, except percentages) | 2019 | | 2018 | | 2017 |
Sales | $ | 692,609 | | | $ | 675,625 | | | $ | 534,603 | |
Operating Profit | $ | 16,657 | | | $ | 69,761 | | | $ | 38,888 | |
Operating Margin | 2.4 | % | | 10.3 | % | | 7.3 | % |
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| 2019 | | 2018 | | |
Total Assets | $ | 629,371 | | | $ | 647,870 | | | |
Backlog | $ | 275,754 | | | $ | 326,047 | | | |
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Sales by Market | 2019 | | 2018 | | 2017 |
Commercial Transport | $ | 523,921 | | | $ | 536,269 | | | $ | 414,523 | |
Military | 76,542 | | | 68,138 | | | 61,270 | |
Business Jet | 67,541 | | | 43,090 | | | 41,298 | |
Other | 24,605 | | | 28,128 | | | 17,512 | |
Total | $ | 692,609 | | | $ | 675,625 | | | $ | 534,603 | |
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Sales by Product Line | 2019 | | 2018 | | 2017 |
Electrical Power & Motion | $ | 338,237 | | | $ | 303,180 | | | $ | 264,286 | |
Lighting & Safety | 185,462 | | | 174,383 | | | 158,663 | |
Avionics | 106,787 | | | 131,849 | | | 53,960 | |
Systems Certification | 14,401 | | | 13,951 | | | 14,333 | |
Structures | 23,117 | | | 24,134 | | | 25,849 | |
Other | 24,605 | | | 28,128 | | | 17,512 | |
Total | $ | 692,609 | | | $ | 675,625 | | | $ | 534,603 | |
2019 Compared With 2018
Aerospace segment sales increased by $17.0 million, or 2.5%, to $692.6 million, when compared with the prior-year period.
Electrical Power & Motion sales increased $35.1 million, or 11.6%, due primarily to increased sales of in-seat power and motion products. Lighting & Safety sales increased $11.1 million due to higher sales of products to the military market. Avionics sales decreased by $25.1 million for similar reasons in the quarter. Sales of Other products were down $3.5 million.
Aerospace operating profit for 2019 was $16.7 million, or 2.4% of sales, compared with $69.8 million, or 10.3% of sales, in the same period of 2018. Aerospace operating profit was impacted by the legal reserve for the patent dispute of $19.6 million for the full year incremental tariff expense of $5.9 million and antenna business impairment and restructuring charges of $28.8 million.
2018 Compared With 2017
Aerospace segment sales increased by $141.0 million, or 26.4%, to $675.6 million, when compared with the prior-year period of $534.6 million. Organic sales increased $56.2 million, or 10.5%, to $590.8 million, while acquired sales from CSC and CCC were $84.8 million.
Avionics sales increased by $77.9 million, driven primarily by the acquisitions, which contributed incremental sales of $72.5 million. Electrical Power & Motion sales increased $38.9 million, or 14.7%, due to higher sales of in-seat power and seat motion products. Lighting & Safety sales increased $15.7 million due to a general increase in volume. Sales of Other products were up $10.6 million, due to the CSC business. The increases were slightly offset by a decrease in Structures sales of $1.7 million.
Aerospace operating profit for 2018 was $69.8 million, or 10.3% of sales, compared with $38.9 million, or 7.3% of sales, in the same period of 2017. Aerospace operating profit benefited from higher organic sales and profits of CSC, offset partially by increased operating losses of CCC, AeroSat and Armstrong which improved by $3.8 million to $34.7 million compared with the prior year, excluding Armstrong’s 2017 goodwill impairment charge. For the year, intangible asset amortization expense was $9.2 million related to CSC and CCC. Operating profit in the prior year was negatively impacted by the $16.2 million impairment at Armstrong.
2020 Outlook for Aerospace – The Aerospace segment’s backlog at December 31, 2019 was $275.8 million, compared to $326.0 million at December 31, 2018. Approximately $249.6 million of the backlog at December 31, 2019 is expected to be shipped over the next 12 months.
TEST SYSTEMS SEGMENT
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(In thousands, except percentages) | 2019 | | 2018 | | 2017 |
Sales | $ | 80,093 | | | $ | 127,631 | | | $ | 89,861 | |
Operating Profit | $ | 4,494 | | | $ | 10,718 | | | $ | 7,359 | |
Operating Margin | 5.6 | % | | 8.4 | % | | 8.2 | % |
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| 2019 | | 2018 | | |
Total Assets | $ | 110,994 | | | $ | 97,056 | | | |
Backlog (1) | $ | 83,837 | | | $ | 89,470 | | | |
(1) Test Systems backlog as of December 31, 2018, includes $12.2 million related to the divested semiconductor business.
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Sales by Market | 2019 | | 2018 | | 2017 |
Semiconductor | $ | 9,692 | | | $ | 84,254 | | | $ | 31,999 | |
Aerospace & Defense | 70,401 | | | 43,377 | | | 57,862 | |
Total | $ | 80,093 | | | $ | 127,631 | | | $ | 89,861 | |
2019 Compared With 2018
Test Segment sales decreased from $127.6 million to $80.1 million for 2019, primarily due to the divestiture of the semiconductor test business, which contributed sales of $84.3 million in 2018 and $9.7 million in 2019.
Operating profit was $4.5 million, or 5.6% of sales, compared with $10.7 million, or 8.4% of sales, in 2018.
2018 Compared With 2017
Sales in 2018 increased 42.0% to $127.6 million compared with sales of $89.9 million for 2017. The growth was driven by a $52.3 million increase in sales to the Semiconductor market, offset by a decrease in Aerospace & Defense sales of $14.5 million.
Operating profit was $10.7 million, or 8.4% of sales, compared with $7.4 million, or 8.2% of sales, in 2017. This was primarily due to increased sales volume partially offset by approximately $2.0 million in increased engineering costs and elevated initial costs associated with new products.
2020 Outlook for Test Systems – Backlog in the Test Systems segment was $83.8 million at December 31, 2019, compared to Test Systems backlog, exclusive of the divested semiconductor business, of $77.3 million at December 31, 2018. The Test Systems segment expects to recognize as revenue $51.4 million of backlog in 2020.
We do not have material off-balance sheet arrangements that have or are reasonably likely to have a material future effect on our results of operations or financial condition.
CONTRACTUAL OBLIGATIONS
The following table represents contractual obligations as of December 31, 2019:
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| Payments Due by Period | | | | | | | | |
(In thousands) | Total | | 2020 | | 2021-2022 | | 2023-2024 | | After 2024 |
Long-term Debt | $ | 188,224 | | | $ | 224 | | | $ | — | | | $ | 188,000 | | | $ | — | |
Interest on Long-term Debt | 17,078 | | | 5,481 | | | 10,964 | | | 633 | | | — | |
Purchase Obligations | 129,282 | | | 121,034 | | | 8,248 | | | — | | | — | |
Supplemental Retirement Plan and Post Retirement Obligations | 27,651 | | | 404 | | | 753 | | | 973 | | | 25,521 | |
Lease Obligations | 33,197 | | | 7,026 | | | 13,445 | | | 6,749 | | | 5,977 | |
Other Long-term Liabilities | 8,467 | | | 6,541 | | | 748 | | | 746 | | | 432 | |
Total Contractual Obligations | $ | 403,899 | | | $ | 140,710 | | | $ | 34,158 | | | $ | 197,101 | | | $ | 31,930 | |
Notes to Contractual Obligations Table
Long-term Debt — See Item 8, Financial Statements and Supplementary Data, Note 8, Long-Term Debt and Note Payable in this report. The timing of the payments above consider the amendment to the revolving credit facility as discussed in Note 8.
Interest on Long-term Debt — Future interest payments have been calculated using the applicable interest rate of each debt facility based on actual borrowings as of December 31, 2019. Actual future borrowings and rates may differ from these estimates.
Purchase Obligations — Purchase obligations are comprised of the Company’s commitments for goods and services in the normal course of business.
Lease Obligations — Financing and Operating lease obligations are primarily related to the Company's facility leases and interest.
Other Long-term Liabilities — Balance in 2021-2022 includes $4.5 million litigation accrual related to damages awarded to Lufthansa in the patent dispute related to direct sales. See Note 19 of the Consolidated Financial Statements for additional information. Table excludes the $16.1 million accrual recorded as management's best estimate of damages related to indirect sales claim, as this will not become a contractual obligation until the appeals process is complete and amount of damages has been finalized.
LIQUIDITY AND CAPITAL RESOURCES
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(In thousands) | 2019 | | 2018 | | 2017 |
Net cash flows from: | | | | | |
Operating Activities | $ | 42,689 | | | $ | 54,881 | | | $ | 37,783 | |
Investing Activities | $ | 64,630 | | | $ | (19,667) | | | $ | (129,561) | |
Financing Activities | $ | (92,182) | | | $ | (36,134) | | | $ | 91,425 | |
Our cash flow from operations and available borrowing capacity provide us with the financial resources needed to run our operations and reinvest in our business.
Operating Activities
Cash provided by operating activities was $42.7 million in 2019 compared with $54.9 million in 2018. The decrease of $12.2 million in 2019 was primarily due to the net non-cash effect on net income of the net gain from the sale of businesses, the legal reserve and the antenna business impairment and restructuring charges, partially offset by a change in net operating assets.
Cash provided by operating activities was $54.9 million in 2018 compared with $37.8 million in 2017. The increase of $17.1 million in 2018 was primarily a result of increased net income in 2018 when compared with 2017, offset with a change in net operating assets.
Cash provided by operating activities was $37.8 million in 2017 compared with $48.9 million in 2016. The decrease of $11.1 million in 2017 was primarily a result of decreased net income and net operating assets in 2017 when compared with 2016.
Our cash flows from operations are primarily dependent on our net income adjusted for non-cash expenses and the timing of collections of receivables, level of inventory and payments to suppliers and employees. Sales and operating results of our Aerospace segment are influenced by the build rates of new aircraft, which are subject to general economic conditions, airline passenger travel and spending for government and military programs. Our Test Systems segment sales depends in part on capital expenditures of the aerospace & defense industry which, in turn, depend on current and future demand for those products. A reduction in demand for our customers’ products would adversely affect our operating results and cash flows. We maintain a revolving credit facility to fund our short and long-term capital requirements including acquisitions and share repurchase efforts.
Investing Activities
Cash provided by investing activities in 2019 was $64.6 million, primarily the result of the $103.8 million in proceeds from the divestiture of the semiconductor business offset by purchases of property, plant and equipment (“PP&E”) of $12.1 million. Cash provided by investing activities in 2019 was also offset by net cash used for the purchases of Freedom and Diagnosys for $21.8 million and $7.0 million, respectively.
Cash used for investing activities in 2018 was $19.7 million, primarily related to purchases of PP&E of $16.3 million.
Cash used for investing activities in 2017 was $129.6 million, primarily related to the acquisitions of CCC and CSC of $114.0 million and purchases of PP&E of $13.5 million.
Our expectation for 2020 is that we will invest between $22 million and $25 million for PP&E. Future requirements for PP&E depend on numerous factors, including expansion of existing product lines and introduction of new products. Management believes that our cash flow from operations and current borrowing arrangements will provide for these capital expenditures. We expect to continue to evaluate acquisition opportunities in the future.
Financing Activities
Our ability to maintain sufficient liquidity is highly dependent upon achieving expected operating results. Failure to achieve expected operating results could have a material adverse effect on our liquidity, our ability to obtain financing, and our operations in the future.
The Company's Fifth Amended and Restated Credit Agreement (the “Agreement”) provides for a $500 million revolving credit line with the option to increase the line by up to $150 million. The maturity date of the loans under the Agreement is February 16, 2023. At December 31, 2019, there was $188.0 million outstanding on the revolving credit facility and there remains $310.9 million available, net of outstanding letters of credit. The credit facility allocates up to $20 million of the $500 million revolving credit line for the issuance of letters of credit, including certain existing letters of credit. At December 31, 2019, outstanding letters of credit totaled $1.1 million.
The maximum permitted leverage ratio of funded debt to Adjusted EBITDA (as defined in the Agreement) was 3.75 to 1, increasing to 4.50 to 1 for up to four fiscal quarters following the closing of an acquisition permitted under the Agreement, subject to limitations. The Company is in compliance with its financial covenant at December 31, 2019. The Company will pay interest on the unpaid principal amount of the facility at a rate equal to one-, three- or six-month LIBOR plus between 1.00% and 1.50% based upon the Company’s leverage ratio. The Company will also pay a commitment fee to the Lenders in an amount equal to between 0.10% and 0.20% on the undrawn portion of the credit facility, based upon the Company’s leverage ratio.
The Company’s obligations under the Credit Agreement as amended are jointly and severally guaranteed by each domestic subsidiary of the Company other than a non-material subsidiary. The obligations are secured by a first priority lien on substantially all of the Company’s and the guarantors’ assets.
In the event of voluntary or involuntary bankruptcy of the Company or any subsidiary, all unpaid principal and other amounts owing under the Credit Agreement automatically become due and payable. Other events of default, such as failure to make payments as they become due and breach of financial and other covenants, change of control, judgments over a certain amount, and cross default under other agreements give the Agent the option to declare all such amounts immediately due and payable.
The primary financing activities in 2019 related to the repurchase of approximately 1,851,000 shares at an aggregate cost of $50.8 million under our share purchase program, coupled with net payments on our senior credit facility of $39.0 million. The primary financing activities in 2018 related to net repayments on our senior facility of $35.0 million.
The Company’s cash needs for working capital, debt service, capital equipment, and acquisition opportunities during 2020 is expected to be met by cash flows from operations and cash balances and, if necessary, utilization of the revolving credit facility.
DIVIDENDS
Management believes that it should retain the capital generated from operating activities for investment in advancing technologies, acquisitions and debt retirement. Accordingly, there are no plans to institute a cash dividend program.
BACKLOG
At December 31, 2019, our consolidated backlog was $359.6 million. At December 31, 2018, our backlog was $415.5 million. Excluding backlog related to the divested semiconductor business, our backlog was $403.3 million at December 31, 2018. Backlog in the Aerospace segment was $275.8 million at December 31, 2019, of which $249.6 million is expected to be recognized as revenue in 2020. Backlog in the Test Systems segment was $83.8 million at December 31, 2019, of which $51.4 million is expected to be recognized as revenue of in 2020.
RELATED-PARTY TRANSACTIONS
Information regarding certain relationships and related transactions is incorporated herein by reference to the information included in the Company’s 2020 Proxy Statement which will be filed with the Commission within 120 days after the end of the Company’s 2019 fiscal year.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 of the Consolidated Financial Statements at Item 8 of this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has limited exposure to fluctuation in foreign currency exchange rates to U.S. dollar, primarily in Canadian dollars and Euros currency. The impact of transactions denominated in any other foreign currency is insignificant. Approximately 89% of the Company’s consolidated sales are transacted in U.S. dollars. Net assets held in or measured in Canadian dollars amounted to $23.6 million at December 31, 2019. Net assets held in or measured in Euros amounted to $40.8 million at December 31, 2019.
Risk due to fluctuation in foreign exchange rates to net income was insignificant in 2019; however it could be significant in the future. Risk due to fluctuation in interest rates is a function of the Company’s floating rate debt obligations, which total approximately $188.0 million at December 31, 2019. A change of 1% in interest rates of all variable rate debt would impact annual net income by approximately $1.9 million, before income taxes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Astronics Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Astronics Corporation (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2)(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 2, 2020 expressed an unqualified opinion thereon.
Adoption of New Accounting Standards
As discussed in Note 2 to the consolidated financial statements, the Company changed its method for recognizing revenue as a result of the adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the amendments in ASUs 2015-14, 2016-08, 2016-10 and 2016-12, effective January 1, 2018. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases as a result of the adoption of ASU No. 2016-02, Leases (Topic 842), as amended, effective January 1, 2019.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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| | Valuation of Goodwill |
Description of the Matter | | As of December 31, 2019, the Company’s goodwill balance was $145 million. As discussed in Notes 1 and 7 of the consolidated financial statements, the Company tests goodwill for impairment at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For each reporting unit, the Company performed a quantitative test using the discounted cash flow method to estimate fair value. The discounted cash flow method incorporates various assumptions, the most significant being projected revenue growth rates and the weighted-average cost of capital. If the carrying value of the reporting unit exceeds its fair value, goodwill impairment is measured as the amount by which the reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill.
Auditing management’s assumptions was especially subjective due to the estimation required in determining the fair value of the Company’s reporting units. The fair value estimates for these reporting units were sensitive to the significant assumptions of the revenue growth rate and the weighted-average cost of capital, which are affected by expectations about future market or economic conditions, particularly those in the aerospace industry.
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How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment test process, including the determination of the underlying significant assumptions described above, and the completeness and accuracy of the impairment analysis.
To test the estimated fair value of the Company’s reporting units, we performed audit procedures with the assistance of our valuation professionals that included, among others, assessing the methodology used, testing the significant assumptions discussed above and testing the underlying data used in the impairment analysis. We compared the significant assumptions used by management to current industry and economic trends, historical trends of the Company, and other relevant factors. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions. We also involved our valuation professionals to assist in our evaluation of the weighted average cost of capital used in the fair value estimates. In addition, we tested the reconciliation of the fair value of the Company’s reporting units to the market capitalization of the Company as of the annual impairment testing date.
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| | Revenue Recognition |
Description of the Matter | | For the year ended December 31, 2019, the Company’s revenues totaled $772.7 million. As discussed in Note 2 to the consolidated financial statements, some of the Company’s contracts with customers contain multiple performance obligations. The majority of the Company’s revenue from contracts with customers is recognized at a point in time when the customer obtains control of the product, which is generally upon delivery and acceptance by the customer. For contracts with customers in which the Company satisfies its promise to the customer to provide a product that has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company satisfies the performance obligation and recognizes revenue over time, using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying the Company’s performance obligations.
Auditing management’s evaluation of contracts with customers was especially challenging due to the effort required to analyze the terms and conditions of the Company’s various customer contracts given that such terms and conditions are nonstandard. This included the identification and determination of the performance obligations and the timing of revenue recognition. |
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How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s revenue recognition process. For example, we tested controls over management’s review of the terms and conditions of contracts with customers which included an analysis of the distinct performance obligations and a review of the conclusion as to whether revenue from such performance obligations should be recognized over time or at a point in time. We also tested management’s centralized monitoring control over completeness of the contract reviews and appropriateness of the accounting conclusions.
We performed procedures to test the identification and determination of the performance obligations and the timing of revenue recognition which included reading a sample of executed contracts and purchase orders to understand the contract, performing an independent assessment of the identification of distinct performance obligations and the appropriate timing of revenue recognition, and comparing our assessment to that of management. We tested the completeness and accuracy of the Company’s contract summary documentation, specifically related to the identification and determination of distinct performance obligations and the timing of revenue recognition. |
/s/ Ernst & Young LLP
We have served as the Company's auditor since 1992.
Buffalo, New York
March 2, 2020
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019 based upon the framework in Internal Control – Integrated Framework originally issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting is effective as of December 31, 2019.
We completed acquisitions in 2019, which were excluded from our management’s report on internal control over financial reporting as of December 31, 2019. We acquired Freedom Communication Technologies, Inc. on July 1, 2019 and the primary operating subsidiaries from Diagnosys Test Systems Limited, on October 4, 2019. These acquisitions were included in our 2019 consolidated financial statements and constituted $55.8 million and $33.6 million of total and net assets, respectively, as of December 31, 2019 and $12.9 million and ($2.1) million of sales and net income, respectively, for the year then ended.
Ernst & Young LLP, independent registered public accounting firm, has audited our consolidated financial statements included in this Annual Report on Form 10-K and, as part of their audit, has issued their report, included herein, on the effectiveness of our internal control over financial reporting.
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By: | | /s/ Peter J. Gundermann | | March 2, 2020 | |
| | Peter J. Gundermann | | | |
| | President & Chief Executive Officer | | | |
| | (Principal Executive Officer) | | | |
| | | | | |
| | /s/ David C. Burney | | March 2, 2020 | |
| | David C. Burney | | | |
| | Executive Vice President and Chief Financial Officer | | | |
| | (Principal Financial Officer) | | | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of Astronics Corporation
Opinion on Internal Control Over Financial Reporting
We have audited Astronics Corporation’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Astronics Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Freedom Communication Technologies, Inc. (“FCT”) and the primary operating subsidiaries of Diagnosys Test Systems Limited (“Diagnosys”), which are included in the 2019 consolidated financial statements of the Company and constituted approximately 7% and 10% of total and net assets, respectively, as of December 31, 2019 and approximately 2% and (4)% of sales and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of FCT and Diagnosys.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2019 consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) and our report dated March 2, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Buffalo, New York
March 2, 2020
ASTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | |
(In thousands, except per share data) | 2019 | | 2018 | | 2017 |
Sales | $ | 772,702 | | | $ | 803,256 | | | $ | 624,464 | |
Cost of Products Sold | 616,560 | | | 622,560 | | | 487,351 | |
Gross Profit | 156,142 | | | 180,696 | | | 137,113 | |
Selling, General and Administrative Expenses | 143,358 | | | 117,033 | | | 88,775 | |
Impairment Loss | 11,083 | | | — | | | 16,237 | |
Income from Operations | 1,701 | | | 63,663 | | | 32,101 | |
Net Gain on Sale of Businesses | 78,801 | | | — | | | — | |
Other Expense, Net of Other Income | 6,058 | | | 1,671 | | | 1,741 | |
Interest Expense, Net of Interest Income | 6,141 | | | 9,710 | | | 5,369 | |
Income Before Income Taxes | 68,303 | | | 52,282 | | | 24,991 | |
Provision for Income Taxes | 16,286 | | | 5,479 | | | 5,312 | |
Net Income | $ | 52,017 | | | $ | 46,803 | | | $ | 19,679 | |
Basic Earnings Per Share | $ | 1.62 | | | $ | 1.45 | | | $ | 0.60 | |
Diluted Earnings Per Share | $ | 1.60 | | | $ | 1.41 | | | $ | 0.58 | |
See notes to consolidated financial statements.
ASTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | | | |
(In thousands) | 2019 | | 2018 | | 2017 |
Net Income | $ | 52,017 | | | $ | 46,803 | | | $ | 19,679 | |
Other Comprehensive Income (Loss): | | | | | |
Foreign Currency Translation Adjustments | 114 | | | (2,691) | | | 4,132 | |
Retirement Liability Adjustment – Net of Tax | (2,413) | | | 4,087 | | | (1,990) | |
Other Comprehensive Income (Loss) | (2,299) | | | 1,396 | | | 2,142 | |
Comprehensive Income | $ | 49,718 | | | $ | 48,199 | | | $ | 21,821 | |
See notes to consolidated financial statements.
ASTRONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, | | |
(In thousands, except share and per share data) | 2019 | | 2018 |
ASSETS | | | |
Current Assets: | | | |
Cash and Cash Equivalents | $ | 31,906 | | | $ | 16,622 | |
Accounts Receivable, Net of Allowance for Doubtful Accounts | 147,998 | | | 182,308 | |
Inventories | 145,787 | | | 138,685 | |
Prepaid Expenses and Other Current Assets | 15,853 | | | 17,198 | |
Assets Held for Sale | 1,537 | | | 19,358 | |
Total Current Assets | 343,081 | | | 374,171 | |
Property, Plant and Equipment, Net of Accumulated Depreciation | 112,499 | | | 120,862 | |
Operating Right-of-Use Assets | 23,602 | | | — | |
Other Assets | 31,271 | | | 21,272 | |
Intangible Assets, Net of Accumulated Amortization | 127,293 | | | 133,383 | |
Goodwill | 144,970 | | | 124,952 | |
Total Assets | $ | 782,716 | | | $ | 774,640 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current Liabilities: | | | |
Current Maturities of Long-term Debt | $ | 224 | | | $ | 1,870 | |
Accounts Payable | 35,842 | | | 50,664 | |
Accrued Payroll and Employee Benefits | 22,485 | | | 31,732 | |
Accrued Income Taxes | 1,080 | | | 312 | |
Current Operating Lease Liabilities | 4,517 | | | — | |
Other Accrued Expenses | 25,132 | | | 15,728 | |
Customer Advanced Payments and Deferred Revenue | 31,360 | | | 26,880 | |
Liabilities Held for Sale | — | | | 906 | |
Total Current Liabilities | 120,640 | | | 128,092 | |
Long-term Debt | 188,000 | | | 232,112 | |
Supplemental Retirement Plan and Other Liabilities for Pension Benefits | |