19) Acquisitions

Astronics Test Systems

On January 20, 2014, we entered into an agreement to purchase substantially all of the assets and liabilities of the Test and Services Division of EADS North America, Inc. for approximately $69.4 million in cash, including a net working capital adjustment of approximately $16.4 million. On February 28, 2014, the assets were acquired by our wholly owned subsidiary Astronics Test Systems, Inc. (“ATS”). Located in Irvine, California, ATS is a leading provider of highly engineered automatic test systems, subsystems and instruments for the semi-conductor, consumer electronics, commercial aerospace and defense industries. ATS provides fully customized testing systems and support services for these markets. It also designs and manufactures test equipment under the test instrument brands known as Racal and Talon. The acquisition will strengthen our service offerings and expertise in the test market. This subsidiary is reported as part of our Test Systems segment. The purchase price allocation for this acquisition is not finalized as the fair value determination of assets and liabilities is not complete.

A preliminary allocation of purchase price based on appraised fair values was as follows (In thousands):

 

Accounts Receivable		$	10,593
Inventory			59,013
Other Current Assets			677
Fixed Assets			19,425
Purchased Intangible Assets			7,103
Current Portion of Long Term Debt			(1,124	)
Accounts Payable			(10,777	)
Accrued Expenses and Other Current Liabilities			(3,489	)
Long Term Debt			(11,976	)
Total Purchase Price		$	69,445

Intangible assets reflected above were determined to meet the criterion for recognition apart from tangible assets acquired and liabilities assumed. Purchased intangible assets are deductible for tax purposes.

PGA Electronic s.a.

On December 5, 2013 we acquired 100% of the stock of PGA, a designer and manufacturer of seat motion and lighting systems primarily for business and first class aircraft seats and is Europe’s leading provider of in-flight entertainment/communication systems as well as cabin management systems for private VVIP aircraft. The addition of PGA further diversifies the products and technologies that Astronics offers. The purchase price was approximately $31.3 million for which approximately $9.1 million, net of cash acquired, was paid in cash and the balance paid with 264,168 shares of Astronics stock valued at $51.00 per share. PGA is included in our Aerospace reporting segment.

The allocation of the purchase price paid for PGA is based on fair values of the acquired assets and liabilities assumed of PGA as of December 5, 2013.

The allocation of purchase price based on appraised fair values was as follows (In thousands):

 

Cash		$	8,699
Accounts Receivable			9,015
Inventory			12,542
Other Current Assets			1,429
Fixed Assets			10,741
Purchased Intangible Assets			5,592
Goodwill			7,440
Other Assets			74
Current Portion of Long Term Debt			(1,672	)
Accounts Payable			(6,179	)
Accrued Expenses and Other Current Liabilities			(3,387	)
Customer Deposits			(4,601	)
Long Term Debt			(5,115	)
Other Long term Liabilities			(3,315	)
Total Purchase Price		$	31,263

 

The amounts allocated to the purchased intangible assets consist of the following:

 

(In thousands)		Weighted Average Life		Acquisition Fair Value
Trademark		15 Years		$	955
Technology		5-10 Years			1,637
Customer Relationships		16-19 Years			3,000
				$	5,592

Goodwill and other intangible assets reflected above were determined to meet the criterion for recognition apart from tangible assets acquired and liabilities assumed. The goodwill is primarily attributable to expected synergies and the assembled workforce.

Astronics AeroSat Corporation

On October 1, 2013, we acquired certain assets and liabilities from AeroSat Corporation and related entities, a supplier of aircraft antenna systems for $12.5 million in cash, plus the potential additional purchase consideration of up to $53 million based upon the achievement of certain revenue targets in 2014 and 2015. The addition of AeroSat further diversifies the products and technologies that Astronics offers. The additional contingent purchase consideration is recorded at its estimated fair value of approximately $5.0 million at the date of acquisition based upon the Company’s assessment of the probability of AeroSat achieving the revenue growth targets. Substantially all of the goodwill and purchased intangible assets are expected to be deductible for tax purposes over 15 years. AeroSat is included in our Aerospace reporting segment.

The allocation of the purchase price paid for AeroSat is based on fair values of the acquired assets and liabilities assumed of AeroSat as of October 1, 2013.

The allocation of purchase price based on appraised fair values was as follows (In thousands):

 

Accounts Receivable		$	1,712
Inventory			4,009
Prepaid Deposits			687
Fixed Assets			448
Purchased Intangible Assets			13,800
Goodwill			1,610
Other Assets			65
Accounts Payable			(286	)
Accrued Expenses			(543	)
Customer Deposits			(4,048	)
Total Purchase Price		$	17,454

The amounts allocated to the purchased intangible assets consist of the following:

 

(In thousands)		Weighted Average Life		Acquisition Fair Value
Trademark		10 Years		$	800
Technology		10 Years			5,300
Customer Relationships		12 Years			7,700
				$	13,800

Goodwill and other intangible assets reflected above were determined to meet the criterion for recognition apart from tangible assets acquired and liabilities assumed. The goodwill is primarily attributable to expected synergies and the assembled workforce. Purchased intangible assets and goodwill are deductible for tax purposes.

Peco, Inc.

On July 18, 2013, we acquired 100% of the stock of Peco which designs and manufactures highly engineered commercial aerospace interior components and systems for the aerospace industry. The company specializes in Passenger Service Units (PSUs) which incorporate air handling, emergency oxygen, electrical power management and cabin lighting systems. It also manufactures a wide range of fuel access doors that meet stringent strength, fuel sealing and anti-corrosion requirements. The addition of Peco diversifies the products and technologies that Astronics offers. We purchased the outstanding stock of Peco for $136.0 million in cash. Peco is included in our Aerospace reporting segment.

 

The following summary, prepared on a pro forma basis, combines the consolidated results of operations of the Company with those of Peco as if the acquisition took place on January 1, 2012. The pro forma consolidated results include the impact of certain adjustments, including increased interest expense on acquisition debt, amortization of purchased intangible assets and income taxes.

 

		Nine Months Ended								Three Months Ended
(in thousands, except earnings per share)		Sept. 27, 2014 as Reported				Sept. 28, 2013 Pro Forma				Sept. 27, 2014 as Reported				Sept. 28, 2013 Pro Forma
Sales		$	494,956			$	280,714			$	179,442			$	93,517
Net Income			37,731				23,034				17,080				7,230
Basic earnings per share			1.74				1.10				0.79				0.35
Diluted earnings per share			1.67				1.05				0.75				0.33

The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been in effect for the three months and nine months ended September 28, 2013. In addition, they are not intended to be a projection of future results.