SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal quarter ended June 28, 1997 [ ] 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 16-0959303 ___________________________________________________________________________ (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1801 Elmwood Avenue, Buffalo, New York 14207 ___________________________________________________________________________ (Address of Principal Executive Office) (Zip Code) 716-447-9013 ___________________________________________________________________________ (Registrant's Telephone Number, Including Area Code) 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 (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] As of June 28, 1997, 4,229,938 shares of $.01 par value common stock and 745,837 shares of $.01 par value Class B common stock were outstanding. PART I - FINANCIAL INFORMATION Item 1. Financial Statements -------------------- ASTRONICS CORPORATION Consolidated Balance Sheet June 28, 1997 With Comparative Figures for December 31, 1996 ASSETS ------ (Dollars in Thousands) June 28, 1997 December 31, (Unaudited) 1996 -------------- ------------ Current Assets: Cash $ 199 $ 1,130 Accounts receivable 4,111 3,688 Inventories: Finished goods 2,073 1,826 Work in process 735 744 Raw material 2,126 2,292 Prepaid expenses 127 578 --------- --------- Total current assets 9,371 10,258 Property, Plant and Equipment 33,597 31,714 Less accumulated depreciation and amortization 15,283 14,072 --------- --------- Net property, plant and equipment 18,314 17,642 Other Assets 1,874 1,965 --------- --------- $ 29,559 $ 29,865 ========= ========= See notes to financial statements. ASTRONICS CORPORATION Consolidated Balance Sheet June 28, 1997 With Comparative Figures for December 31, 1996 LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ (Dollars in Thousands) June 28, 1997 December 31, (Unaudited) 1996 -------------- ------------ Current Liabilities: Current maturities of long-term debt $ 2,095 $ 2,246 Accounts payable 2,720 2,463 Accrued expenses 1,411 1,757 Income taxes (14) 937 --------- --------- Total current liabilities 6,212 7,403 Long-Term Debt 3,779 3,798 Long-Term Obligations under Capital Leases 1,397 1,600 Deferred Income Taxes 732 545 Supplemental Retirement Obligations 1,751 1,677 Shareholders' Equity: Common stock, $.01 par value Authorized 10,000,000 shares, issued 4,603,120 in 1997, 4,519,219 in 1996 46 45 Class B common stock, $.01 par value Authorized 5,000,000 shares, issued 745,837 in 1997, 749,161 in 1996 7 7 Additional paid-in capital 2,445 2,297 Retained earnings 14,318 13,089 ------- ------- 16,816 15,438 Less shares in Treasury, at cost (1,128) (596) ------- ------- Total shareholders' equity 15,688 14,842 ------- ------- $ 29,559 $ 29,865 ======== ======== See notes to financial statements. ASTRONICS CORPORATION Consolidated Statement of Income and Retained Earnings Period Ended June 28, 1997 With Comparative Figures for 1996 (Dollars in Thousands) (Unaudited) ----------- SIX MONTHS THREE MONTHS ----------- ------------ 1997 1996 1997 1996 ---- ---- ---- ---- Net Sales $19,313 $19,252 $9,688 $9,683 Costs and Expenses: Cost of products sold 13,240 13,883 6,597 7,035 Selling, general and administrative expenses 3,825 3,826 1,952 1,874 Interest expenses, net of interest earned of $13 in 1997 and $8 in 1996 235 454 126 223 ------- ------ ------ ------ Total costs and expenses 17,300 18,163 8,675 9,132 ------- ------ ------ ------ Income before provision for taxes on income 2,013 1,089 1,013 551 Provision for taxes on income 784 346 367 174 ------- ------ ------ ------ Net Income 1,229 743 646 377 Retained Earnings: January 1 13,089 10,447 ------- ------- June 28 $14,318 $11,190 ======= ======= Income per Common Share $ .23 $ .14 $ .12 $ .07 ======= ====== ====== ======= See notes to financial statements. ASTRONICS CORPORATION Consolidated Statement of Cash Flows Three Months Ended June 28, 1997 With Comparative Figures for 1996 (Dollars in Thousands) (Unaudited) 1997 1996 ---- ---- Cash Flows from Operating Activities: Net income $ 1,229 $ 743 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,342 1,247 Provision for doubtful accounts (43) 153 Provision for deferred taxes 187 47 Cash flows from changes in operating assets and liabilities: Accounts receivable (380) 206 Inventories (72) 323 Prepaid expenses 451 725 Accounts payable 257 237 Accrued expenses (346) (112) Income taxes payable (951) (123) Supplemental retirement obligations 74 0 ------- ------- Net Cash provided (used) by Operating Activities: $ 1,748 $ 3,446 ------- ------- Cash Flows from Investing Activities: Proceeds from sale of assets 0 219 Change in other assets (41) (57) Capital expenditures (1,882) (2,417) ------- ------- Net Cash provided (used) by Investing Activities $(1,923) $(2,255) ------- ------- Cash Flows from Financing Activities: New long-term debt 950 0 Principal payments on long-term debt and capital lease obligations (1,323) (1,418) Proceeds from issuance of stock 149 68 Purchase of Treasury Stock (532) 0 ------- ------- Net Cash provided (used) by Financing Activities $ (756) $(1,350) ------- ------- Net increase (decrease) in Cash and Cash Equivalents (931) (159) Cash and Cash Equivalents at Beginning of Year 1,130 772 ------- ------- Cash and Cash Equivalents at June 28 $ 199 $ 613 ======= ======= Disclosure of cash payments for: Interest $ 254 $ 473 Income taxes 1,548 416 See notes to financial statements. ASTRONICS CORPORATION Notes to Financial Statements June 28, 1997 1) The interim financial statements are unaudited, but, in the opinion of management, reflect all adjustments necessary for a fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's annual report for the year ended December 31, 1996. ASTRONICS CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following table sets forth as a percent of net sales certain items reflected in the financial data and the percentage increase (decrease) of such items as compared to the prior period. Percent of Net Sales Period-to-Period Six months ended June 28, Increase (Decrease) --------------------------- ------------------- 1997 1996 1996-1997 ---- ---- --------- Net Sales: Electronic Systems 50.6% 57.6% (11.8)% Specialty Packaging 49.4 42.4 16.7 % ------ ------ 100.0% 100.0% .3 % Cost of products sold 68.6 72.1 (4.6)% Selling, general and administrative expenses 19.8 19.9 -- Interest expenses, net 1.2 2.3 (48.2)% ------ ------ 89.6% 94.3% (4.8)% Income before provision for income taxes 10.4% 5.7% 84.8% Provision for taxes 4.0 1.8 126.6% ------ ------ Net Income 6.4% 3.9% 65.4% ====== ====== INTRODUCTION Astronics Corporation operates in two business segments: Electronic Systems and Specialty Packaging. On October 30, 1996, effective September 30, 1996, Astronics Corporation sold its Rodgard Division, a manufacturer of thick walled elastomeric products. Sales for the nine months of 1996 totaled $1,494,000, and sales for the 1995 year were $2,568,000. On November 29, 1995, The Company acquired the business and assets of Loctite Luminescent Systems, Inc., in Lebanon, NH. This business complements the electroluminescent business already performed by the Company's Electronic Systems segment. The newly acquired business and the existing enterprise were combined in a single business unit under the name of Luminescent Systems, Inc. The Company operates plants in New Hampshire and New York. During the First Quarter a new accounting pronouncement was issued for the calculation of earnings per share. This is FASB Statement No. 128, Earnings per Share. The affect of this statement will be shown in the year end financials. While the Company has not finalized its application, it believes this will have a favorable impact on basic earnings per share between five and ten percent. On July 1, 1997, the Company renegotiated the interest rate terms of its Revolving Line of Credit. Under the new terms, interest is LIBOR plus 100 basis points or the bank's prime rate. SALES A new record for sales was set as sales increased slightly in the First Half of 1997 to $19,313,000 from $19,252,000 for the same period of 1996. In 1996, sales increased 43.1 percent from 1995 sales of $13,450,000. Sales from continuing operations [eliminating the Rodgard Division sales for 1996] for the First Half of 1997 compared to 1996 shows growth of 5.9 percent. Sales within the Electronic Systems segment, based on continuing operations, were nominally the same. The Company continues to work on the development contracts that it received in 1996, with anticipation that some will be completed in 1997, resulting in additional billings and the beginning of follow-on production. In 1996, sales increased 87.3 percent, substantially the result of the November, 1995 acquisition. Sales in the Specialty Packaging segment increased 16.7 percent in 1997 compared to 1996. This compares to an increase of 8.4 percent in 1996. The Company continues to expand its market share through focus on customer service with on time deliveries, high quality and short turnaround times. Price increases have been nominal, but the pressure to reduce pricing has moderated. BACKLOG The backlog for the Company at the end of the First Half of 1997 was $11,048,000, an increase of $942,000 since December 31, 1996. This compares to $10,817,000 at the end of the First Half of 1996. The backlog is composed of $9,027,000 in the Electronic Systems segment and $2,021,000 in the Specialty Packaging segment. EXPENSES Cost of products sold decreased as a percentage of sales to 68.6 percent in 1997, compared to 72.1 percent of sales in 1996, and compared to 70.0 percent in 1995. The decreased costs came from improved productivity which has resulted in reduced material usage costs and from the substantial completion of process change costs relating to tooling and supply costs. Material costs decreased to 19.7 percent in 1997, compared to 24.9 percent in 1996, and 25.7 percent in 1995. Employee costs increased in 1997 to 28.8 percent compared to 27.1 percent in 1996 as a percent of sales. This compared to 23.3 percent in 1995. The increase over the 1995 expense level is in additional personnel supporting the technical aspects of the business, mainly in the Electronic Systems Segment. The Company has completed a significant portion of its retooling for new equipment in the Specialty Packaging area. It has also finished the majority of the transition changes with the facility and operations of the business acquired in 1995. The remaining general categories increased less than one percentage point of sales. This resulted in an increase in gross profit of 13.1 percent to $6,073,000. In 1996, gross profit increased 33.1 percent to $5,369,000. Selling, general and administrative expenses continued to decrease as a percentage of sales: 19.8 percent in 1997, 19.9 percent in 1996, and 22.5 percent in 1995. The majority of these costs are for employee services (54.4 percent), marketing expenses (14.0 percent), and operating supplies (12.8 percent). The Company has a policy that it reserves all trade receivables over 120 days (150 days in 1996), or earlier if there are substantial questions. During the First Half of 1997, the company expensed $66,000, compared to an expense of $184,000 in 1996, and $305,000 in 1995. Operating income increased to $2,248,000 in 1997, or 11.6 percent of sales, compared to $1,543,000, or 8.0 percent in 1996, and compared to $1,007,000, or 7.5 percent in 1995. INTEREST Interest costs, net, decreased in the First Half of 1997 to $235,000, or 1.2 percent of sales, compared to $454,000, or 2.3 percent of sales in 1996, and compared to $214,000 in 1995, or 1.6 percent of sales. The 1997 decrease reflects the strong cash flow experienced in 1996 which enabled the accelerated reduction of the revolving line of credit. The 1996 increase reflected the financing of the November 1995 acquisition. While the Company increased its borrowing for the acquisition in 1995, and for working capital in late 1995 and early 1996 and in 1997, it has steadily reduced prior debt as scheduled. The revolving line of credit is priced at LIBOR plus 125 basis points through June 30, 1996. Gross interest expense was $248,000 in 1997, $462,000 in 1996, and $287,000 in 1995. SUMMARY When the above is combined, the Company earned, before provision for taxes, $2,013,000, or 10.4 percent in 1997, $1,089,000, or 5.7 percent in 1996, and $793,000, or 5.9 percent in 1995 on sales. TAXES The Company's tax provision takes into account the federal and state taxes for which it is liable. The Company has nearly depleted its tax credits available for the Electronic Systems business in New York State. This will result in higher taxes in future quarters. The 1997 tax provision is $784,000, compared to $346,000 in 1996, and $345,000 in 1995. The 1996 provision reflected favorable changes in the New York State tax law for the First Half of 1996 and for the 1995 year. The tax provision, as a percentage of sales, is 4.0 percent in 1997, 1.8 percent in 1996, and 2.6 in 1995. The Company records its tax expense under the FASB 109 guidelines. NET INCOME Net income for the First Half of 1997 was a new record for that period: $1,229,000, or $.23 per share in 1997, which compared to $743,000, or $.14 per share in 1996, and $448,000, or $.09 per share in 1995. LIQUIDITY The Company's working capital increased in the First Half of 1997 by $304,000 compared to a decrease in 1996 of $1,544,000 and a decrease of $1,832,000 in the First Half of 1995. The Company's investment in new equipment, processes and facilities was $1,882,000 in the First Half of 1997, compared to $2,417,000 in 1996, and to $2,003,000 in 1995. The Company reduced its indebtedness by $1,323,000 in the First Half of 1997, compared to $1,418,000 in 1996, and to $1,112,000 in 1995. During the Second Quarter, the Company repurchased its shares owned by ATRO Companies Profit Sharing/401(k) Plan for $532,000. Also, the Company borrowed an additional $950,000 in the First Half of 1997 towards working capital needs. The Company has an $11,000,000 revolving line of credit available for additional working capital needs, of which it had utilized $3,450,000 at the end of the First Half of 1997, compared to $6,500,000 at the same time in 1996. The Company feels that its beginning cash balance, the cash flow from internal operations and the available balance of the revolving line of credit are adequate to meet the Company's operational and investment plans for 1997. COMMITMENTS The Company has outstanding commitments for capital investments of approximately $4,000,000 at the end of the First Half of 1997. This includes an investment in packaging equipment of approximately $3,400,000, which is scheduled for installation in the First Quarter of 1998. The Company has commitments for items that it purchases in the normal on-going affairs of the business. The Company is not aware of any obligations in excess of normal market conditions, nor of any long-term commitments that would affect its financial condition. PART II - OTHER INFORMATION Item 1. Legal Proceedings. ----------------- None. Item 2. Changes in Securities. --------------------- None. Item 3. Defaults Upon Senior Securities. ------------------------------- None. Item 4. Submission of Matters to a Vote of Securities Holders. ----------------------------------------------------- None. Item 5. Other Information. ----------------- None. Item 6. Exhibits and Reports on Form 8-K. -------------------------------- Exhibit 11. Computation of Per Share Earnings. 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. DATED: August 12, 1997 ASTRONICS CORPORATION --------------------------------- /S/ John M. Yessa -------------------------------- John M. Yessa Vice President-Finance and Treasurer EXHIBIT 11 ---------- COMPUTATION OF PER SHARE EARNINGS (in thousands, except for per share data) Quarter Ended June 28 1997 1996 1995 ---- ---- ---- Primary Average shares outstanding 5,002 4,796 4,826 Net effect of dilutive stock options based on the treasury stock method using average market price 343 370 -- ----- ----- ----- Total 5,345 5,166 4,826 ===== ===== ===== Net income $1,229 $ 743 $ 448 ===== ===== ===== Per share amount $ .23 $ .14 $ .09 ===== ===== ===== Fully Diluted Average shares outstanding 5,002 4,796 4,826 Net effect of dilutive stock options based on the treasury stock method using quarter-end market price 347 406 -- ----- ----- ----- Total 5,349 5,202 4,826 ===== ===== ===== Net income $1,229 $ 743 $ 448 ===== ===== ===== Per share amount $ .23 $ .14 $ .09 ===== ===== ===== FINANCIAL DATA SCHEDULE [ARTICLE] 5 [MULTIPLIER] 1,000 [FISCAL-YEAR-END] DEC - 31 - 1997 [PERIOD-END] June 28, 1997 [PERIOD-TYPE] 6 - MOS [CASH] 199 [SECURITIES] 0 [RECEIVABLES] 4,370 [ALLOWANCES] 259 [INVENTORY] 4,934 [CURRENT-ASSETS] 9,371 [PP&E] 33,597 [DEPRECIATION] 15,283 [TOTAL-ASSETS] 29,559 [CURRENT-LIABILITIES] 6,212 [BONDS] 0 [COMMON] 53 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [OTHER-SE] 15,635 [TOTAL-LIABILITY-AND-EQUITY] 29,559 [SALES] 19,313 [TOTAL-REVENUES] 19,313 [CGS] 13,240 [TOTAL-COSTS] 17,300 [OTHER-EXPENSES] 0 [LOSS-PROVISION] 0 [INTEREST-EXPENSE] 248 [INCOME-PRETAX] 2,013 [INCOME-TAX] 784 [INCOME-CONTINUING] 0 [DISCONTINUED] 0 [EXTRAORDINARY] 0 [CHANGES] 0 [NET-INCOME] 1,229