Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
Form 10-Q
 
 
 
 
 
ý
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2017
or
 
¨
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
Commission File Number 0-7087
 
 
 
 
ASTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
 

New York
(State or other jurisdiction of
incorporation or organization)
16-0959303
(IRS Employer
Identification Number)
 
 
130 Commerce Way, East Aurora, New York
(Address of principal executive offices)
14052
(Zip code)
(716) 805-1599
(Registrant’s telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(g) of the Act:
$.01 par value Common Stock, $.01 par value Class B Stock
(Title of Class)
  
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    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 (Section 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  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. 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
ý
Accelerated filer
¨
Emerging growth company
¨
 
 
 
 
 
 
Non-accelerated filer
¨  
Smaller Reporting Company
¨
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act. ¨
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
As of September 30, 2017, 28,002,226 shares of common stock were outstanding consisting of 21,075,592 shares of common stock ($.01 par value) and 6,926,634 shares of Class B common stock ($.01 par value).
 


Table of Contents

TABLE OF CONTENTS
 
 
 
 
 
PAGE
PART I
 
 
 
 
 
 
 
 
 
 
Item 1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2
 
 
 
 
 
 
 
 
 
Item 3
 
 
 
 
 
 
 
 
 
Item 4
 
 
 
 
 
 
 
PART II
 
 
 
 
 
 
 
 
 
 
Item 1
 
 
 
 
 
 
 
 
 
Item 1a
 
 
 
 
 
 
 
 
 
Item 2
 
 
 
 
 
 
 
 
 
Item 3
 
 
 
 
 
 
 
 
 
Item 4
 
 
 
 
 
 
 
 
 
Item 5
 
 
 
 
 
 
 
 
 
Item 6
 
 
 
 
 
 
 

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Part I – Financial Information
Item 1. Financial Statements
\ASTRONICS CORPORATION
Consolidated Condensed Balance Sheets
September 30, 2017 with Comparative Figures for December 31, 2016
(In thousands)
 
 
September 30,
2017
 
December 31,
2016
 
(Unaudited)
 
 
Current Assets:
 
 
 
Cash and Cash Equivalents
$
15,377

 
$
17,901

Accounts Receivable, Net of Allowance for Doubtful Accounts
114,985

 
109,415

Inventories
139,265

 
116,597

Prepaid Expenses and Other Current Assets
16,044

 
11,160

Total Current Assets
285,671

 
255,073

Property, Plant and Equipment, Net of Accumulated Depreciation
124,281

 
122,812

Other Assets
16,503

 
13,149

Intangible Assets, Net of Accumulated Amortization
95,055

 
98,103

Goodwill
119,118

 
115,207

Total Assets
$
640,628

 
$
604,344

Current Liabilities:
 
 
 
Current Maturities of Long-term Debt
$
2,695

 
$
2,636

Accounts Payable
35,876

 
25,070

Accrued Expenses and Other Current Liabilities
32,533

 
35,686

Customer Advance Payments and Deferred Revenue
21,988

 
23,168

Total Current Liabilities
93,092

 
86,560

Long-term Debt
174,652

 
145,484

Other Liabilities
35,554

 
34,851

Total Liabilities
303,298

 
266,895

Shareholders’ Equity:
 
 
 
Common Stock
297

 
297

Accumulated Other Comprehensive Loss
(11,115
)
 
(15,494
)
Other Shareholders’ Equity
348,148

 
352,646

Total Shareholders’ Equity
337,330

 
337,449

Total Liabilities and Shareholders’ Equity
$
640,628

 
$
604,344

See notes to consolidated condensed financial statements.

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ASTRONICS CORPORATION
Consolidated Condensed Statements of Operations
Three and Nine Months Ended September 30, 2017 With Comparative Figures for 2016
(Unaudited)
(In thousands, except per share data)
 
 
Nine Months Ended
 
Three Months Ended
 
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
2016
Sales
$
453,146

 
$
479,055

 
$
149,636

 
$
155,099

Cost of Products Sold
348,186

 
356,074

 
117,143

 
116,436

Gross Profit
104,960

 
122,981

 
32,493

 
38,663

Selling, General and Administrative Expenses
66,504

 
65,246

 
22,410

 
21,138

Income from Operations
38,456

 
57,735

 
10,083

 
17,525

Interest Expense, Net of Interest Income
3,750

 
3,246

 
1,437

 
1,103

Income Before Income Taxes
34,706

 
54,489

 
8,646

 
16,422

Provision for Income Taxes
9,374

 
15,950

 
2,586

 
4,348

Net Income
$
25,332

 
$
38,539

 
$
6,060

 
$
12,074

Earnings Per Share:
 
 
 
 
 
 
 
Basic
$
0.88

 
$
1.32

 
$
0.21

 
$
0.42

Diluted
$
0.85

 
$
1.28

 
$
0.21

 
$
0.41

See notes to consolidated condensed financial statements.

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ASTRONICS CORPORATION
Consolidated Condensed Statements of Comprehensive Income
Three and Nine Months Ended September 30, 2017 With Comparative Figures for 2016
(Unaudited)
(In thousands)
 
 
Nine Months Ended
 
Three Months Ended
 
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
2016
Net Income
$
25,332

 
$
38,539

 
$
6,060

 
$
12,074

Other Comprehensive Income:
 
 
 
 
 
 
 
Foreign Currency Translation Adjustments
3,987

 
1,354

 
1,496

 
49

Retirement Liability Adjustment – Net of Tax
392

 
392

 
130

 
130

Other Comprehensive Income
4,379

 
1,746

 
1,626

 
179

Comprehensive Income
$
29,711

 
$
40,285

 
$
7,686

 
$
12,253

See notes to consolidated condensed financial statements.

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ASTRONICS CORPORATION
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 30, 2017
With Comparative Figures for 2016
(Unaudited)
(In thousands)
 
 
Nine Months Ended
 
September 30,
2017
 
October 1,
2016
Cash Flows From Operating Activities:
 
 
 
Net Income
$
25,332

 
$
38,539

Adjustments to Reconcile Net Income to Cash Provided By Operating Activities:
 
 
 
Depreciation and Amortization
19,269

 
19,457

Provisions for Non-Cash Losses on Inventory and Receivables
943

 
1,554

Stock Compensation Expense
2,203

 
1,876

Deferred Tax Benefit
(920
)
 
(3,527
)
Other
(657
)
 
401

Cash Flows from Changes in Operating Assets and Liabilities:
 
 
 
Accounts Receivable
(1,515
)
 
(23,707
)
Inventories
(18,480
)
 
(5,113
)
Accounts Payable
8,267

 
211

Accrued Expenses
(5,483
)
 
(786
)
Other Current Assets and Liabilities
(4,556
)
 
(460
)
Customer Advanced Payments and Deferred Revenue
(2,336
)
 
(11,281
)
Income Taxes
(883
)
 
6,860

Supplemental Retirement and Other Liabilities
1,129

 
1,126

Cash Provided By Operating Activities
22,313

 
25,150

Cash Flows From Investing Activities:
 
 
 
Acquisition of Business, Net of Cash Acquired
(10,199
)
 

Capital Expenditures
(9,715
)
 
(9,869
)
Other Investing Activities
(2,070
)
 
(1,585
)
Cash Used For Investing Activities
(21,984
)
 
(11,454
)
Cash Flows From Financing Activities:
 
 
 
Proceeds from Long-term Debt
42,000

 
20,000

Payments for Long-term Debt
(13,031
)
 
(25,909
)
Purchase of Outstanding Shares for Treasury
(32,382
)
 
(17,446
)
Debt Acquisition Costs

 
(164
)
Proceeds from Exercise of Stock Options
349

 
3,902

Income Tax Benefit from Exercise of Stock Options

 
529

Cash Used For Financing Activities
(3,064
)
 
(19,088
)
Effect of Exchange Rates on Cash
211

 
109

Decrease in Cash and Cash Equivalents
(2,524
)
 
(5,283
)
Cash and Cash Equivalents at Beginning of Period
17,901

 
18,561

Cash and Cash Equivalents at End of Period
$
15,377

 
$
13,278

See notes to consolidated condensed financial statements.

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ASTRONICS CORPORATION
Notes to Consolidated Condensed Financial Statements
September 30, 2017
(Unaudited)
1) Basis of Presentation
The accompanying unaudited statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included.
All 2016 share quantities and per share data reported have been restated to reflect the impact of the three-for-twenty Class B stock distribution to shareholders of record on October 11, 2016.
Operating Results
The results of operations for any interim period are not necessarily indicative of results for the full year. Operating results for the nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.
The balance sheet at December 31, 2016 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.
For further information, refer to the financial statements and footnotes thereto included in Astronics Corporation’s 2016 annual report on Form 10-K.
Description of the Business
Astronics Corporation (“Astronics” or the “Company”) is a leading supplier of products to the global aerospace, defense, electronics and semiconductor industries. Our products and services include advanced, high-performance electrical power generation, distribution and motion systems, lighting & safety systems, avionics products, aircraft structures, systems certification, automated test systems and other products.
We have operations in the United States (“U.S.”), Canada and France. We design and build our products through our wholly owned subsidiaries Armstrong Aerospace, Inc. (“Armstrong”); Astronics Advanced Electronic Systems Corp. (“AES”); Astronics AeroSat Corporation (“AeroSat”); Ballard Technology, Inc. (“Ballard”); Astronics DME LLC (“DME”); Luminescent Systems, Inc. (“LSI”); Luminescent Systems Canada, Inc. (“LSI Canada”); Max-Viz, Inc. (“Max-Viz”); Peco, Inc. (“Peco”); PGA Electronic s.a. (“PGA”) and Astronics Test Systems, Inc. (“ATS”). On April 3, 2017, Astronics Custom Control Concepts Inc. ("CCC") acquired all of the assets and certain liabilities of Custom Control Concepts LLC.
Cost of Products Sold, Engineering and Development and Selling, General and Administrative Expenses
Cost of products sold includes the costs to manufacture products such as direct materials and labor and manufacturing overhead as well as all engineering and development costs. The Company is 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 the Company’s existing technologies. These costs are expensed when incurred and included in cost of products sold. Research and development, design and related engineering amounted to $23.7 million and $21.6 million for the three months ended and $69.5 million and $66.2 million for the nine months ended September 30, 2017 and October 1, 2016, respectively. Selling, general and administrative expenses include costs primarily related to our sales and marketing departments and administrative departments. Interest expense is shown net of interest income. Interest income was insignificant for the three and nine months ended September 30, 2017 and October 1, 2016.
Foreign Currency Translation

The aggregate transaction gain or loss included in operations was insignificant for the three and nine months ended September 30, 2017 and October 1, 2016.

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Accounting Pronouncements Adopted in 2017

On January 1, 2017, the Company adopted Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting. Prospectively, beginning January 1, 2017, excess tax benefits/deficiencies are reflected as income tax benefit/expense in the statement of income, resulting in a $0.3 million tax benefit for the nine months ended September 30, 2017. The extent of excess tax benefits/deficiencies is subject to variation in the Company’s stock price and timing/extent of employee stock option exercises. Under previous accounting guidance, when a share-based payment award such as a stock option was granted to an employee, the fair value of the award was generally recognized over the vesting period. However, the related deduction from taxes payable was based on the award’s intrinsic value at the time of exercise, which could be either greater (creating an excess tax benefit) or less (creating a tax deficiency) than the compensation cost recognized in the financial statements. Excess tax benefits were recognized in additional paid-in capital (“APIC”) within equity, while deficiencies were first recorded to APIC to the extent previously recognized excess tax benefits existed, after which time deficiencies were recorded to income tax expense. The Company’s adoption of this ASU also resulted in associated excess tax benefits being classified as an operating activity in the same manner as other cash flows related to income taxes in the statement of cash flows prospectively beginning January 1, 2017. Based on the adoption methodology applied, the statement of cash flows classification of prior periods has not changed.  As permitted by the ASU, the Company has elected to account for forfeitures as they occur.  None of the other provisions in this amended guidance had a significant impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. Under the new standard, goodwill impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. This ASU is effective prospectively to annual and interim impairment tests beginning after December 15, 2019, with early adoption permitted. The adoption of ASU 2017-04 on January 1, 2017 had no impact on the financial statements as of or for the three or nine months ended September 30, 2017, as there was no impairment analysis performed during the period.

2) Inventories
Inventories are as follows:
 
(In thousands)
September 30,
2017
 
December 31,
2016
Finished Goods
$
36,850

 
$
28,792

Work in Progress
32,997

 
20,790

Raw Material
69,418

 
67,015

 
$
139,265

 
$
116,597

3) Property, Plant and Equipment
The following table summarizes Property, Plant and Equipment as follows:
(In thousands)
September 30,
2017
 
December 31,
2016
Land
$
11,223

 
$
11,112

Buildings and Improvements
81,361

 
79,191

Machinery and Equipment
102,386

 
93,683

Construction in Progress
9,334

 
8,182

 
204,304

 
192,168

Less Accumulated Depreciation
80,023

 
69,356

 
$
124,281

 
$
122,812


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4) Intangible Assets
The following table summarizes acquired intangible assets as follows: 
 
 
September 30, 2017
 
December 31, 2016
(In thousands)
Weighted
Average Life
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Patents
4 Years
 
$
2,146

 
$
1,590

 
$
2,146

 
$
1,450

Non-compete Agreement
3 Years
 
2,500

 
1,354

 
2,500

 
979

Trade Names
7 Years
 
10,480

 
3,866

 
10,189

 
3,153

Completed and Unpatented Technology
5 Years
 
26,094

 
11,147

 
24,118

 
9,221

Backlog
Less than 1 Year
 
11,524

 
11,424

 
11,224

 
11,224

Customer Relationships
11 Years
 
99,831

 
28,139

 
97,046

 
23,093

Total Intangible Assets
5 Years
 
$
152,575

 
$
57,520

 
$
147,223

 
$
49,120

All acquired intangible assets other than goodwill and one trade name are being amortized. Amortization expense for acquired intangibles is summarized as follows: 
 
Nine Months Ended
 
Three Months Ended
(In thousands)
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
2016
Amortization Expense
$
8,269

 
$
8,202

 
$
2,929

 
$
2,595

Amortization expense for acquired intangible assets expected for 2017 and for each of the next five years is summarized as follows:
 
(In thousands)
 
2017
$
11,089

2018
10,593

2019
10,214

2020
9,658

2021
9,612

2022
9,216

5) Goodwill
The following table summarizes the changes in the carrying amount of goodwill for the nine months ended September 30, 2017:
 
(In thousands)
December 31,
2016
 
Acquisition
 
Foreign
Currency
Translation
 
September 30,
2017
Aerospace
$
115,207

 
$
3,067

 
$
844

 
$
119,118

Test Systems

 

 

 

 
$
115,207

 
$
3,067

 
$
844

 
$
119,118

6) Long-term Debt and Notes Payable
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.
The Company's Credit Agreement consists of a $350 million revolving credit line with the option to increase the line by up to $150 million. he Credit Agreement expires on January 13, 2021. At September 30, 2017, there was $167.0 million outstanding

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on the revolving credit facility and there remains $181.9 million available, net of outstanding letters of credit. The credit facility allocates up to $20 million of the $350 million revolving credit line for the issuance of letters of credit, including certain existing letters of credit. At September 30, 2017, outstanding letters of credit totaled $1.1 million.
The maximum permitted leverage ratio of funded debt to Adjusted EBITDA (as defined in the Agreement) is 3.5 to 1, increasing to 4.0 to 1 for up to two fiscal quarters following the closing of an acquisition permitted under the Agreement. The Company’s leverage ratio was 2.12 to 1 at September 30, 2017. 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 137.5 basis points and 225 basis points based upon the Company’s leverage ratio. The Company will also pay a commitment fee to the lenders in an amount equal to between 17.5 basis points and 35 basis points on the undrawn portion of the credit facility, based upon the Company’s leverage ratio. The Company must also maintain a minimum interest coverage ratio (Adjusted EBITDA to interest expense) of 3.0 to 1 for the term of the Agreement. The Company’s interest coverage ratio was 20.2 to 1 at September 30, 2017.
In the event of voluntary or involuntary bankruptcy of the Company or any subsidiary, all unpaid principal and other amounts owing under the 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.
7) Product Warranties
In the ordinary course of business, the Company warrants its products against defects in design, materials and workmanship typically over periods ranging from 12 to 60 months. The Company determines warranty reserves needed by product line based on experience and current facts and circumstances. Activity in the warranty accrual is summarized as follows: 
 
Nine Months Ended
 
Three Months Ended
(In thousands)
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
2016
Balance at Beginning of Period
$
4,675

 
$
5,741

 
$
4,637

 
$
5,361

Acquisitions
359

 

 

 

Warranties Issued
1,315

 
1,806

 
483

 
600

Warranties Settled
(1,832
)
 
(1,906
)
 
(608
)
 
(616
)
Reassessed Warranty Exposure
101

 
(313
)
 
106

 
(17
)
Balance at End of Period
$
4,618

 
$
5,328

 
$
4,618

 
$
5,328

8) Income Taxes
The effective tax rates were approximately 27.0% and 29.3% for the nine months ended and 29.9% and 26.5% for the three months ended September 30, 2017 and October 1, 2016, respectively. The 2017 tax rates were favorably impacted relative to the statutory rate by excess tax benefits associated with the exercise of stock options, decreases in foreign tax rates, and from the federal research and development tax credit.

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9) Shareholders’ Equity
The changes in shareholders’ equity for the nine months ended September 30, 2017 are summarized as follows: 
 
 
 
Number of Shares
(Dollars and Shares in thousands)
Amount
 
Common
Stock
 
Convertible
Class B Stock
Shares Authorized
 
 
40,000

 
15,000

Share Par Value
 
 
$
0.01

 
$
0.01

COMMON STOCK
 
 
 
 
 
Beginning of Period
$
297

 
21,955

 
7,665

Conversion of Class B Shares to Common Shares

 
777

 
(777
)
Exercise of Stock Options

 
18

 
39

End of Period
$
297

 
22,750

 
6,927

ADDITIONAL PAID IN CAPITAL
 
 
 
 
 
Beginning of Period
$
64,752

 
 
 
 
Stock Compensation Expense
2,203

 
 
 
 
Exercise of Stock Options
349

 
 
 
 
End of Period
$
67,304

 
 
 
 
ACCUMULATED OTHER COMPREHENSIVE LOSS
 
 
 
 
 
Beginning of Period
$
(15,494
)
 
 
 
 
Foreign Currency Translation Adjustment
3,987

 
 
 
 
Retirement Liability Adjustment – Net of Tax
392

 
 
 
 
End of Period
$
(11,115
)
 
 
 
 
RETAINED EARNINGS
 
 
 
 
 
Beginning of Period
$
305,512

 
 
 
 
Net Income
25,332

 
 
 
 
End of Period
$
330,844

 
 
 
 
TREASURY STOCK
 
 
 
 
 
Beginning of Period
$
(17,618
)
 
(523
)
 
 
Purchase
(32,382
)
 
(1,152
)
 
 
End of Period
$
(50,000
)
 
(1,675
)
 
 
TOTAL SHAREHOLDERS’ EQUITY
 
 
 
 
 
Beginning of Period
$
337,449

 
 
 
 
 
 
 
 
 
 
End of Period
$
337,330

 
21,075

 
6,927


On February 24, 2016, the Company’s Board of Directors authorized the repurchase of up to $50 million of common stock (the “Buyback Program”). The Buyback Program 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 has repurchased approximately 1,675,000 shares and has completed the program, which authorized repurchases up to $50.0 million.


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10) Earnings Per Share
Basic and diluted weighted-average shares outstanding are as follows: 
 
Nine Months Ended
 
Three Months Ended
(In thousands)
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
2016
Weighted Average Shares - Basic
28,779

 
29,199

 
28,322

 
28,925

Net Effect of Dilutive Stock Options
978

 
937

 
678

 
883

Weighted Average Shares - Diluted
29,757

 
30,136

 
29,000

 
29,808

The 2016 information above has been adjusted to reflect the impact of the three-for-twenty Class B stock distribution to shareholders of record on October 11, 2016.
Stock options with exercise prices greater than the average market price of the underlying common shares are excluded from the computation of diluted earnings per share because they are out-of-the-money and the effect of their inclusion would be anti-dilutive. The number of common shares covered by out-of-the-money stock options at September 30, 2017 was approximately 356,000 shares.
11) Accumulated Other Comprehensive Loss and Other Comprehensive Income
The components of accumulated other comprehensive loss are as follows: 
(In thousands)
September 30,
2017
 
December 31,
2016
Foreign Currency Translation Adjustments
$
(4,610
)
 
$
(8,597
)
Retirement Liability Adjustment – Before Tax
(10,008
)
 
(10,611
)
Tax Benefit
3,503

 
3,714

Retirement Liability Adjustment – After Tax
(6,505
)
 
(6,897
)
Accumulated Other Comprehensive Loss
$
(11,115
)
 
$
(15,494
)
The components of other comprehensive income are as follows: 
 
Nine Months Ended
 
Three Months Ended
(In thousands)
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
2016
Foreign Currency Translation Adjustments
$
3,987

 
$
1,354

 
$
1,496

 
$
49

Retirement Liability Adjustments:
 
 
 
 
 
 
 
Reclassifications to General and Administrative Expense:
 
 
 
 
 
 
 
Amortization of Prior Service Cost
303

 
329

 
101

 
110

Amortization of Net Actuarial Losses
300

 
273

 
100

 
90

Tax Benefit
(211
)
 
(210
)
 
(71
)
 
(70
)
Retirement Liability Adjustment
392

 
392

 
130

 
130

Other Comprehensive Income
$
4,379

 
$
1,746

 
$
1,626

 
$
179


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12) Supplemental Retirement Plan and Related Post Retirement Benefits
The Company has two non-qualified supplemental retirement defined benefit plans (“SERP” and “SERP II”) for certain executive officers. The following table sets forth information regarding the net periodic pension cost for the plans. 
 
Nine Months Ended
 
Three Months Ended
(In thousands)
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
2016
Service Cost
$
138

 
$
130

 
$
46

 
$
43

Interest Cost
672

 
675

 
224

 
225

Amortization of Prior Service Cost
291

 
310

 
97

 
103

Amortization of Net Actuarial Losses
279

 
257

 
93

 
86

Net Periodic Cost
$
1,380

 
$
1,372

 
$
460

 
$
457

Participants in the SERP are entitled to paid medical, dental and long-term care insurance benefits upon retirement under the plan. The following table sets forth information regarding the net periodic cost recognized for those benefits: 
 
Nine Months Ended
 
Three Months Ended
(In thousands)
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
2016
Service Cost
$
6

 
$
4

 
$
2

 
$
1

Interest Cost
30

 
30

 
10

 
10

Amortization of Prior Service Cost
12

 
19

 
4

 
7

Amortization of Net Actuarial Losses
21

 
16

 
7

 
4

Net Periodic Cost
$
69

 
$
69

 
$
23

 
$
22

13) Sales to Major Customers
The Company has a significant concentration of business with two major customers, each in excess of 10% of consolidated sales. The loss of either of these customers would significantly, negatively impact our sales and earnings.
Sales to these two customers represented 20% and 17% of consolidated sales for the nine months ended and 20% and 17% for the three months ended September 30, 2017. Sales to these customers were in the Aerospace segment. Accounts receivable from these customers at September 30, 2017 was approximately $29.9 million. Sales to these two customers represented 21% and 15% of consolidated sales for the nine months ended and 21% and 15% for the three months ended October 1, 2016.
14) Legal Proceedings

The Company is subject to various legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, we do not expect these matters will have a material adverse effect on our business, financial position, results of operations, or cash flows. However, the results of these matters cannot be predicted with certainty. Should the Company fail to prevail in any legal matter or should several legal matters be resolved against the Company in the same reporting period, then the financial results of that particular reporting period could be materially adversely affected.

On December 29, 2010, Lufthansa Technik AG (“Lufthansa”) filed a Statement of Claim in the Regional State Court of Mannheim, Germany. Lufthansa’s claim asserts that our subsidiary, AES sold, marketed and brought into use in Germany a power supply system that infringes upon a German patent held by Lufthansa. The relief sought by Lufthansa includes requiring AES to stop selling and marketing the allegedly infringing power supply system, a recall of allegedly infringing products sold to commercial customers since November 26, 2003 and compensation for damages. The claim does not specify an estimate of damages and a damages claim would be pursued by Lufthansa in separate court proceedings.

On February 6, 2015, the Regional State Court of Mannheim, Germany rendered its decision that the patent was infringed. The judgment does not require AES to recall products that are already installed in aircraft or have been sold to other end users.  On July 15, 2015, Lufthansa advised AES of their intention to enforce the accounting provisions of the decision, which required AES to provide certain financial information regarding sales of the infringing product to enable Lufthansa to make an estimate

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of requested damages. Additionally, if Lufthansa provides the required bank guarantee specified in the decision, the Company may be required to offer a recall of products that are in the distribution channels in Germany. No such bank guarantee has been issued to date. As of September 30, 2017, there are no products in the distribution channels in Germany.

The Company appealed to the Higher Regional Court of Karlsruhe.  On November 15, 2016, the Court issued its ruling and upheld the lower court’s decision.  The Company has submitted a petition to grant AES leave for appeal to the Federal Supreme Court. The Company believes it has valid defenses to refute the decision.  Should the Federal Supreme Court decide to hear the case, the appeal process is estimated to extend up to two years. We estimate AES’s potential exposure related to this matter to be approximately $1 million to $3 million. As loss exposure is not probable at this time, the Company has not recorded any liability with respect to this litigation as of September 30, 2017.

On November 26, 2014, Lufthansa filed a complaint in the United States District for the Western District of Washington. Lufthansa’s complaint in this action alleges that AES manufactures, uses, sells and offers for sale a power supply system that infringes upon a U.S. patent held by Lufthansa. The patent at issue in the U.S. action is based on technology similar to that involved in the German action. On April 25, 2016, the Court issued its ruling on claim construction, holding that the sole independent claim in the patent is indefinite, rendering all claims in the patent indefinite. Based on this ruling, AES filed a motion for summary judgment on the grounds that the Court’s ruling that the patent is indefinite renders the patent invalid and unenforceable. On July 20, 2016, the U.S. District Court granted the motion for summary judgment and issued an order dismissing all claims against AES with prejudice.

Lufthansa appealed the District Court's decision to the United States Court of Appeals for the Federal Circuit. On October 19, 2017, the Federal Circuit affirmed the district court’s decision, holding that the sole independent claim of the patent is indefinite, rending all claims on the patent indefinite. Lufthansa has until November 20, 2017, to ask for rehearing or rehearing en banc. If it does not file such a petition, it has until January 18, 2018, to file a petition for writ of certiorari with the U.S. Supreme Court. As loss exposure is neither probable nor estimable at this time, the Company has not recorded any liability with respect to this litigation as of September 30, 2017.
15) Segment Information
Below are the sales and operating profit by segment for the nine months ended September 30, 2017 and October 1, 2016 and a reconciliation of segment operating profit to income before income taxes. Operating profit is net sales less cost of products sold and other operating expenses excluding interest and corporate expenses. Cost of products sold and other operating expenses are directly identifiable to the respective segment. 
 
Nine Months Ended
 
Three Months Ended
(Dollars in thousands)
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
2016
Sales
 
 
 
 
 
 
 
Aerospace
$
395,037

 
$
406,356

 
$
128,663

 
$
125,179

Less Intersegment Sales

 
(367
)
 

 

Total Aerospace Sales
395,037

 
405,989

 
128,663

 
125,179

Total Test Systems Sales
58,109

 
73,066

 
20,973

 
29,920

Total Consolidated Sales
$
453,146

 
$
479,055

 
$
149,636

 
$
155,099

Operating Profit and Margins
 
 
 
 
 
 
 
Aerospace
$
46,753

 
$
61,099

 
$
13,015

 
$
17,557

 
11.8
%
 
15.0
%
 
10.1
%
 
14.0
%
Test Systems
2,843

 
6,524

 
1,093

 
3,240

 
4.9
%
 
8.9
%
 
5.2
%
 
10.8
%
Total Operating Profit
49,596

 
67,623

 
14,108

 
20,797

 
10.9
%
 
14.1
%
 
9.4
%
 
13.4
%
Deductions from Operating Profit
 
 
 
 
 
 
 
Interest Expense, Net of Interest Income
3,750

 
3,246

 
1,437

 
1,103

Corporate Expenses and Other
11,140

 
9,888

 
4,025

 
3,272

Income Before Income Taxes
$
34,706

 
$
54,489

 
$
8,646

 
$
16,422


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Total Assets: 
(In thousands)
September 30,
2017
 
December 31,
2016
Aerospace
$
523,563

 
$
500,892

Test Systems
85,848

 
76,575

Corporate
31,217

 
26,877

Total Assets
$
640,628

 
$
604,344

16) Fair Value
A fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Fair value is based upon an exit price model. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and involves consideration of factors specific to the asset or liability.
The Company follows a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.

On a Recurring Basis:
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The financial liabilities carried at fair value measured on a recurring basis consisted of contingent consideration related to a prior acquisition, valued at zero at December 31, 2016, determined using Level 3 inputs. This arrangement has expired and as of September 30, 2017 there are no financial liabilities carried at fair value measured on a recurring basis. There were no financial assets carried at fair value measured on a recurring basis at December 31, 2016 or September 30, 2017.

On a Non-recurring Basis:
The Company estimates the fair value of reporting units, utilizing unobservable Level 3 inputs. Level 3 inputs require significant management judgment due to the absence of quoted market prices or observable inputs for assets of a similar nature. The Company utilizes a discounted cash flow analysis to estimate the fair value of reporting units utilizing unobservable inputs. The fair value measurement of the reporting unit under the step-one and step-two analysis of the quantitative goodwill impairment test are classified as Level 3 inputs.

Intangible assets that are amortized are evaluated for recoverability whenever adverse effects or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability test consists of comparing the undiscounted projected cash flows with the carrying amount. Should the carrying amount exceed undiscounted projected cash flows, an impairment loss would be recognized to the extent the carrying amount exceeds fair value. For the Company’s indefinite-lived intangible asset, the impairment test consists of comparing the fair value, determined using the relief from royalty method, with its carrying amount. An impairment loss would be recognized for the carrying amount in excess of its fair value.

At September 30, 2017, the fair value of goodwill and intangible assets classified using Level 3 inputs are comprised of the CCC goodwill and intangible assets acquired on April 3, 2017, which are currently valued based on management’s best estimates. When the accounting for the acquisition is finalized, these intangible assets will be valued using discounted cash flow methodology.

Due to their short-term nature, the carrying value of cash and equivalents, accounts receivable, accounts payable, and notes payable approximate fair value. The carrying value of the Company’s variable rate long-term debt instruments also approximates fair value due to the variable rate feature of these instruments. As of September 30, 2017, the Company concluded that no indicators of impairment relating to intangible assets or goodwill existed and an interim test was not performed.

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17) Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-9, Revenue from Contracts with Customers. This new standard is effective for reporting periods beginning after December 15, 2017, pursuant to the issuance of ASU 2015-14, Revenue from Contracts with Customers: Deferral of Effective Date issued in August 2015. The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. The Company will adopt the new standard on January 1, 2018, using the modified retrospective transition method.

The adoption of this amendment may require us to accelerate the recognition of revenue as compared to current standards, for certain customers, in cases where we produce products unique to those customers; and for which we would have an enforceable right of payment for production completed to date. The Company has identified its revenue streams, reviewed the initial impacts of adopting the new standard on those revenue streams, and appointed a project management leader. The Company continues to evaluate the quantitative and qualitative impacts of the standard.

In February 2016, the FASB issued ASU No. 2016 - 02, Leases. The new standard is effective for reporting periods beginning after December 15, 2018. Early adoption is permitted. The standard will require lessees to report most leases as assets and liabilities on the balance sheet, while lessor accounting will remain substantially unchanged. The standard requires a modified retrospective transition approach for existing leases, whereby the new rules will be applied to the earliest year presented.  The adoption of the standard is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice in how certain cash receipts and payments are presented and classified in the statement of cash flows. The standard provides guidance in a number of situations including, among others, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. The ASU also provides guidance for classifying cash receipts and payments that have aspects of more than one class of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The standard requires application using a retrospective transition method. This ASU is not expected to have a material impact on the Company’s consolidated results of operations and financial condition.

In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which narrows the existing definition of a business and provides a framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business. The ASU requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities (collectively, the set) is not a business. To be considered a business, the set would need to include an input and a substantive process that together significantly contribute to the ability to create outputs. The standard also narrows the definition of outputs. The definition of a business affects areas of accounting such as acquisitions, disposals and goodwill. Under the new guidance, fewer acquired sets are expected to be considered businesses. This ASU is effective for fiscal years beginning after December 15, 2017 on a prospective basis with early adoption permitted. The Company would apply this guidance to applicable transactions after the adoption date.

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires employers to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses. The other components of net benefit cost, including amortization of prior service cost/credit and net actuarial gains/losses, and settlement and curtailment effects, are to be included in non-operating expenses. The ASU also stipulates that only the service cost component of net benefit cost is eligible for capitalization. The effective date for adoption of this guidance begins on January 1, 2018, with early adoption permitted. The Company is currently evaluating the effect that this standard will have on the consolidated financial statements.

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18) Acquisitions
Custom Control Concepts LLC
On April 3, 2017, Astronics Custom Control Concepts Inc., a wholly owned subsidiary of the Company acquired substantially all the assets and certain liabilities of Custom Control Concepts LLC (“CCC”), located in Kent, Washington. CCC is a provider of cabin management and in-flight entertainment systems for a range of aircraft. The total consideration for the transaction was approximately $10.2 million, net of $0.5 million in cash acquired. All of the goodwill and purchased intangible assets are expected to be deductible for tax purposes over 15 years. The purchase price allocation for this acquisition has not been finalized. CCC is included in our Aerospace segment.

Telefonix, Incorporated
Subsequent to the end of the third quarter, on October 26, 2017, the Company, through a wholly owned acquisition subsidiary, entered into an agreement to purchase substantially all of the assets of Telefonix, Incorporated and a related company, Product Development Technologies, LLC. Under the terms of the Agreement, the total consideration for the transaction will be approximately $104.0 million in cash.



17

Table of Contents

Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(The following should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Form 10-K for the year ended December 31, 2016.)
OVERVIEW
Astronics Corporation (“Astronics” or the “Company”) is a leading supplier of products to the global aerospace, defense, electronics and semiconductor industries. Our products and services include advanced, high-performance electrical power generation, distribution and motion systems, lighting & safety systems, avionics products, aircraft structures, systems certification and automated test systems.
Our Aerospace segment designs and manufactures products for the global aerospace industry. Product lines include lighting & safety systems, electrical power generation, distribution and motion 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 and branches of the U.S. Department of Defense as well as the Federal Aviation Administration and airport operators. Our Test Systems segment designs, develops, manufactures and maintains automated test systems that support the semiconductor, 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 OEM's and prime government contractors for both electronics and military products.
Our strategy is to increase our value by developing technologies and capabilities either internally or through acquisition, and using those capabilities to provide innovative solutions to the aerospace and defense, semiconductor and other markets where our technology can be beneficial.
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 Systems business is dependent on developing and procuring new and follow-on business in commercial electronics and semiconductor markets 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.
ACQUISITIONS
Custom Control Concepts LLC
On April 3, 2017, Astronics Custom Control Concepts Inc., a wholly owned subsidiary of the Company acquired substantially all the assets and certain liabilities of Custom Control Concepts LLC (“CCC”), located in Kent, Washington. CCC is a provider of cabin management and in-flight entertainment (IFE) systems for a range of aircraft. The total consideration for the transaction was approximately $10.2 million, net of $0.5 million in cash acquired. CCC is included in our Aerospace segment.

Telefonix, Incorporated
Subsequent to the end of the third quarter, on October 26, 2017, the Company, through a wholly owned acquisition subsidiary, entered into an agreement to purchase substantially all of the assets of Telefonix, Incorporated and a related company, Product Development Technologies, LLC. Under the terms of the Agreement, the total consideration for the transaction will be approximately $104.0 million in cash.

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Table of Contents

CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK 
 
Nine Months Ended
 
Three Months Ended
(Dollars in thousands)
September 30,
2017
 
October 1,
2016
 
September 30,
2017
 
October 1,
2016
Sales
$
453,146

 
$
479,055

 
$
149,636

 
$
155,099

Gross Profit (sales less cost of products sold)
$
104,960

 
$
122,981

 
$
32,493

 
$
38,663

Gross Margin
23.2
%
 
25.7
%
 
21.7
%
 
24.9
%
Selling, General and Administrative Expenses
$
66,504

 
$
65,246

 
$
22,410

 
$
21,138

SG&A Expenses as a Percentage of Sales
14.7
%
 
13.6
%
 
15.0
%
 
13.6
%
Interest Expense, Net of Interest Income
$
3,750

 
$
3,246

 
$
1,437

 
$
1,103

Effective Tax Rate
27.0
%
 
29.3
%
 
29.9
%
 
26.5
%
Net Income
$
25,332

 
$
38,539

 
$
6,060

 
$
12,074

A discussion by segment can be found at “Segment Results of Operations and Outlook” in this MD&A.
CONSOLIDATED THIRD QUARTER RESULTS
Consolidated sales were down $5.5 million from the same period last year. Aerospace segment sales of $128.7 million were up $3.5 million and Test Systems segment sales of $21.0 million were down $9.0 million.
Consolidated cost of products sold in the third quarter of 2017 increased $0.7 million to $117.1 million compared with $116.4 million in the third quarter of 2016.  The increase was the result of the additional cost of products sold by Custom Control Concepts ("CCC") offset by lower organic sales volumes. Organic Engineering and Development ("E&D") costs were $22.2 million in the quarter, compared with $21.6 million in last year’s third quarter. As a percent of sales, organic E&D costs were 14.8% and 13.9% in the third quarters of 2017 and 2016, respectively. CCC incurred E&D costs of $1.5 million in the third quarter.
Selling, general and administrative (“SG&A”) expenses were $22.4 million, or 15.0% of sales, in the third quarter of 2017 compared with $21.1 million, or 13.6% of sales, in the same period last year.
The effective tax rate for the quarter was 29.9%, compared with 26.5% in the third quarter of 2016. The 2017 third quarter tax rate was unfavorably impacted by additional state income tax expense when compared with the third quarter of 2016.
Net income was $6.1 million, or $0.21 per diluted share compared with $12.1 million or $0.41 per diluted share in the prior year.
CONSOLIDATED YEAR-TO-DATE RESULTS
Consolidated sales for the first nine months of 2017 decreased by $25.9 million, or 5.4%, to $453.1 million. Aerospace segment sales were down $11.0 million, or 2.7%, year-over-year to $395.0 million, while Test Systems segment sales were down $15.0 million, or 20.5%, to $58.1 million.
Consolidated cost of products sold in nine months ended 2017 decreased $7.9 million to $348.2 million compared with $356.1 million in the same period of 2016. The decrease was a result of lower organic sales volumes offset by CCC's additional costs of products sold. Organic E&D costs were 14.7% of sales, or $66.8 million, compared with $66.2 million, or 13.8% of sales, in the prior year’s first nine months. SG&A expenses were $66.5 million, or 14.7% of sales, in the first nine months of 2017 compared with $65.2 million, or 13.6% of sales, in the same period last year.
The effective tax rate for the first nine months of 2017 was 27.0%, compared with 29.3% in the first nine months of 2016. The tax rate in the first nine months of 2017 was favorably impacted by excess tax benefits as a result of a new U.S. GAAP accounting standard impacting the tax accounting treatment of employee share-based compensation, decreases in foreign tax rates, and the federal research and development tax credit.
Net income for the first half of 2017 totaled $25.3 million, or $0.85 per diluted share.

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During the third quarter, the Company repurchased approximately 702,000 shares at an aggregate cost of $18.9 million under its share repurchase program. Since the inception of the program in February 2016, the Company has repurchased approximately 1,675,000 shares and has completed the program, which authorized repurchases up to $50.0 million.
CONSOLIDATED OUTLOOK
Fourth quarter sales are forecasted to be in the range of $169 million to $183 million, with $139 million to $150 million expected from the Aerospace segment and $30 million to $33 million from the Test segment.
Consolidated annual sales in 2017 are forecasted to be in the range of $622 million to $636 million. Approximately $534 million to $545 million of revenue is expected from the Aerospace segment and $88 million to $91 million from the Test Systems segment. The Company issued its initial revenue outlook for 2018 of $675 million to $750 million. The Aerospace segment is expected to have 2018 revenue of $570 million to $630 million. The Test segment is expected to generate $105 million to $120 million in revenue in 2018. These estimates are without effect of the new revenue recognition rules that will be effective January 1, 2018.
Consolidated backlog at September 30, 2017 was $302.3 million, of which approximately $148.5 million is expected to ship in 2017.
The effective tax rate for 2017 is expected to be in the range of 28% to 30%.
Capital equipment spending in 2017 is expected to be in the range of $17 million to $19 million.
E&D costs are expected to be in the range of $96 million to $97 million including the engineering costs from CCC.
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 and other corporate expenses. Cost of products sold and other operating expenses are directly identifiable to the respective segment. Operating profit is reconciled to earnings before income taxes in Note 15 of the Notes to Consolidated Condensed Financial Statements included in this report.

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AEROSPACE SEGMENT
 
Nine Months Ended
 
Three Months Ended
(In thousands)
September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
Sales
 
 
 
 
 
 
 
Aerospace
$
395,037

 
$
406,356

 
$
128,663

 
$
125,179

Less Intersegment Sales

 
(367
)
 

 

Total Aerospace Sales
$
395,037

 
$
405,989

 
$
128,663

 
$
125,179

Operating Profit
$
46,753

 
$
61,099

 
$
13,015

 
$
17,557

Operating Margin
11.8
%
 
15.0
%
 
10.1
%
 
14.0
%
 
 
 
 
 
 
 
 
Aerospace Sales by Market
 
 
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
Commercial Transport
$
306,898

 
$
331,174

 
$
98,821

 
$
101,355

Military
46,297

 
39,932

 
15,365

 
13,679

Business Jet
28,844

 
20,365

 
10,592

 
6,133

Other
12,998

 
14,518

 
3,885

 
4,012

 
$
395,037

 
$
405,989

 
$
128,663

 
$
125,179

Aerospace Sales by Product Line
 
 
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
Electrical Power & Motion
$
199,014

 
$
219,215

 
$
63,972

 
$
68,259

Lighting & Safety
122,317

 
121,520

 
37,001

 
38,975

Avionics
31,424

 
22,684

 
11,348

 
5,866

Systems Certification
9,405

 
12,577

 
4,454

 
2,580

Structures
19,879

 
15,475

 
8,003

 
5,487

Other
12,998

 
14,518

 
3,885

 
4,012

 
$
395,037

 
$
405,989

 
$
128,663

 
$
125,179

(In thousands)
September 30, 2017
 
December 31, 2016
Total Assets
$
523,563

 
$
500,892

Backlog
$
233,162

 
$
219,146

AEROSPACE THIRD QUARTER RESULTS
Aerospace segment sales increased by $3.5 million, or 2.8%, when compared with the prior year’s third quarter to $128.7 million. CCC contributed $3.5 million in sales in the 2017 third quarter.
Electrical Power & Motion sales decreased $4.3 million, or 6.3%, due to lower sales of in-seat and cabin power products due to a combination of lower volume and pricing. Lighting & Safety sales decreased by $2.0 million primarily due to lower passenger service unit sales. Avionics sales were up $5.5 million as a result of $2.0 million increase in antennae and other avionics sales combined with the CCC acquisition. Structures sales increased by $2.5 million and Systems Certification sales increased by $1.9 million on higher project activity.
Aerospace operating profit for the third quarter of 2017 was $13.0 million, or 10.1% of sales, compared with $17.6 million, or 14.0% of sales, in the same period last year. Aerospace operating profit was negatively impacted by market pricing pressures primarily relating to cabin power products, a $1.8 million operating loss from the CCC acquisition and slightly higher E&D costs. Organic Aerospace E&D costs were $19.6 million compared with $18.9 million in the same period last year. CCC incurred E&D costs of $1.5 million during the quarter.
Aerospace orders in the third quarter of 2017 were $146.2 million, for a book-to-bill ratio of 1.14:1 for the quarter. Backlog was $233.2 million at the end of the third quarter of 2017.


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AEROSPACE YEAR-TO-DATE RESULTS
Aerospace segment sales decreased by $11.0 million, or 2.7%, to $395.0 million, when compared with the prior year’s first nine months.
Electrical Power & Motion sales decreased $20.2 million, or 9.2%, for similar reasons as discussed in the quarter and Systems Certifications sales decreased $3.2 million from lower project activity earlier in the year. These declines were partially offset by increased Avionics sales, up $8.7 million of which $7.0 million was from the CCC acquisition and $1.7 million from other avionics products. Structures sales increased by $4.4 million.
Aerospace operating profit for the first nine months of 2017 was $46.8 million, or 11.8% of sales, compared with $61.1 million, or 15.0% of sales, in the same period last year. Aerospace operating profit was negatively impacted by lower sales volumes and market pricing pressures, coupled with the operating loss from the acquired CCC business. E&D costs for Aerospace were $62.5 million (inclusive of $2.7 million related to the acquired CCC business) and $58.3 million in the first nine months of 2017 and 2016, respectively. Aerospace SG&A expense was $46.9 million in the first nine months of 2017 as compared with $45.5 million in the same period in 2016.
AEROSPACE OUTLOOK
We expect 2017 sales for our Aerospace segment to be in the range of $534 million to $545 million. The Aerospace segment’s backlog at the end of the third quarter of 2017 was $233.2 million with approximately $124.8 million expected to be shipped over the remaining part of 2017 and $212.1 million is expected to ship over the next 12 months.
TEST SYSTEMS SEGMENT 
 
Nine Months Ended
 
Three Months Ended
(In thousands)
September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
Sales
$
58,109

 
$
73,066

 
$
20,973

 
$
29,920

Operating profit (loss)
$
2,843

 
$
6,524

 
$
1,093

 
$
3,240

Operating Margin
4.9
%
 
8.9
%
 
5.2
%
 
10.8
%
 
 
 
 
 
 
 
 
Test Systems Sales by Market
 
 
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
Semiconductor
$
18,343

 
$
33,863

 
$
6,632

 
$
16,878

Aerospace & Defense
39,766

 
39,203

 
14,341

 
13,042

 
$
58,109

 
$
73,066

 
$
20,973

 
$
29,920

(In thousands)
September 30, 2017
 
December 31, 2016
Total Assets
$
85,848

 
$
76,575

Backlog
$
69,119

 
$
38,887


TEST SYSTEMS THIRD QUARTER RESULTS
Sales in the third quarter of 2017 decreased approximately $9.0 million to $21.0 million compared with the same period in 2016, a decrease of 29.9%. The $10.2 million decline in sales to the Semiconductor market were somewhat offset by a $1.3 million increase in sales to the Aerospace & Defense market when compared with the prior-year period.
Operating profit was $1.1 million, or 5.2% of sales, compared with $3.2 million, or 10.8% of sales, in last year’s third quarter. E&D costs were $2.6 million, down slightly from $2.7 million in the third quarter of 2016. Test Systems SG&A expense decreased to $2.6 million in the third quarter of 2017 compared with $3.4 million in the same period last year.
Orders for the Test Systems segment in the quarter were $40.2 million, for a book-to-bill ratio of 1.91:1 for the quarter. Backlog was $69.1 million at the end of the third quarter of 2017.

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TEST SYSTEMS YEAR-TO-DATE RESULTS
Sales in the first nine months of 2017 decreased 20.5% to $58.1 million compared with sales of $73.1 million for the same period in 2016, due to lower sales to the Semiconductor market. Sales to the Semiconductor market decreased $15.5 million compared with the same period in 2016.
Operating profit was $2.8 million, or 4.9% of sales, compared with $6.5 million, or 8.9% of sales, in the first nine months of 2016. E&D costs were $7.0 million in the first nine months of 2017 compared with $7.9 million in the same period in the prior year. SG&A costs declined to $8.4 million in the first nine months of 2017 compared with $9.8 million in the same period in 2016.
TEST SYSTEMS OUTLOOK
We expect sales for the Test Systems segment for 2017 to be in the range of $88 million to $91 million. The Test Systems segment’s backlog at the end of the third quarter of 2017 was $69.1 million with approximately $23.7 million expected to be shipped over the remaining part of 2017 and approximately $58.1 million scheduled to ship over the next 12 months.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities:
Cash provided by operating activities totaled $22.3 million for the first nine months of 2017, as compared with $25.2 million during the same period in 2016. Cash flow from operating activities decreased compared with the same period of 2016 primarily due to the impact of lower net income and lower increases in net operating assets for the first nine months of 2017 when compared with the first nine months of 2016.
Investing Activities:
Cash used for investing activities included $10.2 million for the acquisition of CCC, as well as capital expenditures, which were $9.7 million for the first nine months of 2017 compared with $9.9 million used in the same period of 2016. The Company expects capital spending in 2017 to be in the range of $17 million to $19 million.
Financing Activities:
The primary financing activities in 2017 relate to net borrowings on our senior credit facility to fund the acquisition of CCC and purchases of treasury stock as part of the buyback program.
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.
The Company's Credit Agreement consists of a $350 million revolving credit line with the option to increase the line by up to $150 million. The Credit Agreement expires January 13, 2021. On January 13, 2016, At September 30, 2017 there was $167.0 million outstanding on the revolving credit facility and there remains $181.9 million available, net of outstanding letters of credit. The credit facility allocates up to $20 million of the $350 million revolving credit line for the issuance of letters of credit, including certain existing letters of credit. At September 30, 2017, outstanding letters of credit totaled $1.1 million.
The maximum permitted leverage ratio of funded debt to Adjusted EBITDA (as defined in the Agreement) is 3.5 to 1, increasing to 4.0 to 1 for up to two fiscal quarters following the closing of an acquisition permitted under the Agreement. The Company’s leverage ratio was 2.12 to 1 at September 30, 2017. 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 137.5 basis points and 225 basis points based upon the Company’s leverage ratio. The Company will also pay a commitment fee to the lenders in an amount equal to between 17.5 basis points and 35 basis points on the undrawn portion of the credit facility, based upon the Company’s leverage ratio. The Company must also maintain a minimum interest coverage ratio (Adjusted EBITDA to interest expense) of 3.0 to 1 for the term of the Agreement. The Company’s interest coverage ratio was 20.2 to 1 at September 30, 2017.

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In the event of voluntary or involuntary bankruptcy of the Company or any subsidiary, all unpaid principal and other amounts owing under the 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.
BACKLOG
The Company’s backlog at September 30, 2017 was $302.3 million compared with $258.0 million at December 31, 2016 and $275.2 million at October 1, 2016.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table represents contractual obligations as of September 30, 2017:
 
 
Payments Due by Period
(In thousands)
Total
 
2017
 
2018-2019
 
2019-2020
 
After 2020
Long-term Debt
$
177,345

 
$
682

 
$
4,595

 
$
171,172

 
$
896

Purchase Obligations
118,478

 
67,634

 
50,427

 
417

 

Interest on Long-term Debt
16,212

 
1,267

 
9,868

 
5,065

 
12

Supplemental Retirement Plan and Post Retirement Obligations
22,243

 
104

 
826

 
811

 
20,502

Operating Leases
6,083

 
864

 
4,829

 
371


19

Other Long-term Liabilities
203

 
17

 
95

 
29

 
62

Total Contractual Obligations
$
340,564

 
$
70,568

 
$
70,640

 
$
177,865

 
$
21,491

Notes to Contractual Obligations Table
Purchase Obligations — Purchase obligations are comprised of the Company’s commitments for goods and services in the normal course of business.
Long-Term Debt — See Part 1 Financial Information, Item 1 Financial Statements, Note 6, Long-Term Debt and Notes Payable included in this report.
Operating Leases — Operating lease obligations are primarily related to the Company's facility leases.
On October 26, 2017, we entered into an agreement to purchase substantially all of the assets of Telefonix, Incorporated and a related company, Product Development Technologies, LLC, for approximately $104 million in cash. The table above excludes any obligations or commitments related to this pending acquisition.
MARKET RISK
The Company believes that there have been no material changes in the current year regarding the market risk information for its exposure to interest rate fluctuations. Although the majority of our sales, expenses and cash flows are transacted in U.S. dollars, we have exposure to changes in foreign currency exchange rates related to the Euro and the Canadian dollar. The Company believes that the impact of changes in foreign currency exchange rates in 2017 have not been significant.
CRITICAL ACCOUNTING POLICIES
Refer to the Company’s annual report on Form 10-K for the year ended December 31, 2016 for a complete discussion of the Company’s critical accounting policies.

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RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-9, Revenue from Contracts with Customers. This new standard is effective for reporting periods beginning after December 15, 2017, pursuant to the issuance of ASU 2015-14, Revenue from Contracts with Customers: Deferral of Effective Date issued in August 2015. The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. The Company will adopt the new standard on January 1, 2018, using the modified retrospective transition method.

The adoption of this amendment may require us to accelerate the recognition of revenue as compared to current standards, for certain customers, in cases where we produce products unique to those customers; and for which we would have an enforceable right of payment for production completed to date. The Company has identified its revenue streams, reviewed the initial impacts of adopting the new standard on those revenue streams, and appointed a project management leader. The Company continues to evaluate the quantitative and qualitative impacts of the standard.

In February 2016, the FASB issued ASU No. 2016 - 02, Leases. The new standard is effective for reporting periods beginning after December 15, 2018. Early adoption is permitted. The standard will require lessees to report most leases as assets and liabilities on the balance sheet, while lessor accounting will remain substantially unchanged. The standard requires a modified retrospective transition approach for existing leases, whereby the new rules will be applied to the earliest year presented.  The adoption of the standard is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice in how certain cash receipts and payments are presented and classified in the statement of cash flows. The standard provides guidance in a number of situations including, among others, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. The ASU also provides guidance for classifying cash receipts and payments that have aspects of more than one class of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The standard requires application using a retrospective transition method. This ASU is not expected to have a material impact on the Company’s consolidated results of operations and financial condition.

In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which narrows the existing definition of a business and provides a framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business. The ASU requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities (collectively, the set) is not a business. To be considered a business, the set would need to include an input and a substantive process that together significantly contribute to the ability to create outputs. The standard also narrows the definition of outputs. The definition of a business affects areas of accounting such as acquisitions, disposals and goodwill. Under the new guidance, fewer acquired sets are expected to be considered businesses. This ASU is effective for


fiscal years beginning after December 15, 2017 on a prospective basis with early adoption permitted. The Company would apply this guidance to applicable transactions after the adoption date.

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires employers to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses. The other components of net benefit cost, including amortization of prior service cost/credit and net actuarial gains/losses, and settlement and curtailment effects, are to be included in non-operating expenses. The ASU also stipulates that only the service cost component of net benefit cost is eligible for capitalization. The effective date for adoption of this guidance begins on January 1, 2018, with early adoption permitted. The Company is currently evaluating the effect that this standard will have on the consolidated financial statements.


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FORWARD-LOOKING STATEMENTS
Information included 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Market Risk in Item 2, above.

Item 4. Controls and Procedures
 
a)
Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures that are designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) by others within our organization to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2017. Based on this evaluation, as a result of the material weakness in our internal control over financial reporting described below, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2017.

Notwithstanding the material weakness discussed below, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

During the quarter ended July 1, 2017, management discovered a material weakness in the design of information technology change controls over a report writing application. Additionally, management identified deficiencies in certain review controls over the financial statement consolidation process, which when aggregated along with the information technology change controls matter described above, aggregated to a material weakness over the financial statement close process as of December 31, 2016. Management does not expect adjustments to any previously issued financial statements as a result of these deficiencies.

The Company is implementing changes to the design and application of new controls and is making significant changes to the design of existing controls over information technology as well as controls related to the financial statement consolidation process. The Company has made progress towards remediation of the material weakness as of the date of this filing and expects to complete remediation by December 31, 2017. We will continue the process of enhancing our controls as well as continue to test their effectiveness over the remainder of 2017.

b)
Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2017 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II - OTHER INFORMATION
Item 1. Legal Proceedings

The Company is subject to various legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, we do not expect these matters will have a material adverse effect on our business, financial position, results of operations, or cash flows. However, the results of these matters cannot be predicted with certainty. Should the Company fail to prevail in any legal matter or should several legal matters be resolved against the Company in the same reporting period, then the financial results of that particular reporting period could be materially adversely affected.

On December 29, 2010, Lufthansa Technik AG (“Lufthansa”) filed a Statement of Claim in the Regional State Court of Mannheim, Germany. Lufthansa’s claim asserts that our subsidiary, AES sold, marketed and brought into use in Germany a power supply system that infringes upon a German patent held by Lufthansa. The relief sought by Lufthansa includes requiring AES to stop selling and marketing the allegedly infringing power supply system, a recall of allegedly infringing products sold to commercial customers since November 26, 2003 and compensation for damages. The claim does not specify an estimate of damages and a damages claim would be pursued by Lufthansa in separate court proceedings.

On February 6, 2015, the Regional State Court of Mannheim, Germany rendered its decision that the patent was infringed. The judgment does not require AES to recall products that are already installed in aircraft or have been sold to other end users.  On July 15, 2015, Lufthansa advised AES of their intention to enforce the accounting provisions of the decision, which required AES to provide certain financial information regarding sales of the infringing product to enable Lufthansa to make an estimate of requested damages. Additionally, if Lufthansa provides the required bank guarantee specified in the decision, the Company may be required to offer a recall of products that are in the distribution channels in Germany. No such bank guarantee has been issued to date. As of September 30, 2017, there are no products in the distribution channels in Germany.

The Company appealed to the Higher Regional Court of Karlsruhe.  On November 15, 2016, the Court issued its ruling and upheld the lower court’s decision.  The Company has submitted a petition to grant AES leave for appeal to the Federal Supreme Court. The Company believes it has valid defenses to refute the decision.  Should the Federal Supreme Court decide to hear the case, the appeal process is estimated to extend up to two years. We estimate AES’s potential exposure related to this matter to be approximately $1 million to $3 million. As loss exposure is not probable at this time, the Company has not recorded any liability with respect to this litigation as of September 30, 2017.

On November 26, 2014, Lufthansa filed a complaint in the United States District for the Western District of Washington. Lufthansa’s complaint in this action alleges that AES manufactures, uses, sells and offers for sale a power supply system that infringes upon a U.S. patent held by Lufthansa. The patent at issue in the U.S. action is based on technology similar to that involved in the German action. On April 25, 2016, the Court issued its ruling on claim construction, holding that the sole independent claim in the patent is indefinite, rendering all claims in the patent indefinite. Based on this ruling, AES filed a motion for summary judgment on the grounds that the Court’s ruling that the patent is indefinite renders the patent invalid and unenforceable. On July 20, 2016, the U.S. District Court granted the motion for summary judgment and issued an order dismissing all claims against AES with prejudice.

Lufthansa appealed the District Court's decision to the United States Court of Appeals for the Federal Circuit. On October 19, 2017, the Federal Circuit affirmed the district court’s decision, holding that the sole independent claim of the patent is indefinite, rending all claims on the patent indefinite. Lufthansa has until November 20, 2017, to ask for rehearing or rehearing en banc. If it does not file such a petition, it has until January 18, 2018, to file a petition for writ of certiorari with the U.S. Supreme Court. As loss exposure is neither probable nor estimable at this time, the Company has not recorded any liability with respect to this litigation as of September 30, 2017.
Other than this proceeding, we are not party to any significant pending legal proceedings that management believes will result in material adverse effect on our financial condition or results of operations.
Item 1a. Risk Factors
In addition to other information set forth in this report, you should carefully consider the factors discussed in Part 1, Item 1A. “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2016, which could materially affect our business, financial condition or results of operations. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations.

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Table of Contents

Item 2. Unregistered sales of equity securities and use of proceeds
(c) The following table summarizes our purchases of our common stock for the quarter ended September 30, 2017.

Period
(a) Total Number of Shares Purchased
(b) Average Price Paid Per Share
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
(d) Maximum Dollar Value of Shares that may yet be Purchased Under the Program (1)
July 2, 2017 -
July 29, 2017
90,135
$30.29
90,135
$16,128,000
July 30, 2017 -
August 26, 2017
588,402
$26.38
588,402
$606,000
August 27, 2017 -
September 30, 2017 (2)
23,229
$26.09
23,229
$—

(1) On February 24, 2016, the Company’s Board of Directors authorized the repurchase of up to $50 million of common stock.

(2) The Company has repurchased approximately 1,675,000 shares and has completed the program.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
 
Section 302 Certification - Chief Executive Officer
 
 
 
 
Section 302 Certification - Chief Financial Officer
 
 
 
 
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
Exhibit 101.1*
 
Instance Document
 
 
 
Exhibit 101.2*
 
Schema Document
 
 
 
Exhibit 101.3*
 
Calculation Linkbase Document
 
 
 
Exhibit 101.4*
 
Labels Linkbase Document
 
 
 
Exhibit 101.5*
 
Presentation Linkbase Document
 
 
 
Exhibit 101.6*
 
Definition Linkbase Document
*
Submitted electronically herewith.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
ASTRONICS CORPORATION
 
 
 
(Registrant)
Date:
November 9, 2017
 
By:
/s/ David C. Burney
 
 
 
 
David C. Burney
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

29