Company Quick10K Filing
Quick10K
Astronics
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$27.78 33 $923
10-Q 2019-06-29 Quarter: 2019-06-29
10-Q 2019-03-30 Quarter: 2019-03-30
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-29 Quarter: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-10-01 Quarter: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-10-03 Quarter: 2015-10-03
10-Q 2015-07-04 Quarter: 2015-07-04
10-Q 2015-04-04 Quarter: 2015-04-04
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-27 Quarter: 2014-09-27
10-Q 2014-06-28 Quarter: 2014-06-28
10-Q 2014-03-29 Quarter: 2014-03-29
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-10-04 Other Events
8-K 2019-09-19 Officers, Exhibits
8-K 2019-08-05 Earnings, Exhibits
8-K 2019-07-01 Enter Agreement
8-K 2019-06-10 Officers, Exhibits
8-K 2019-05-30 Shareholder Vote
8-K 2019-05-08 Earnings, Exhibits
8-K 2019-02-21 Earnings, Exhibits
8-K 2019-02-13 Enter Agreement, M&A, Exhibits
8-K 2018-12-14 Officers, Exhibits
8-K 2018-11-13 Enter Agreement, Earnings
8-K 2018-11-05 Earnings, Exhibits
8-K 2018-09-21 Amend Bylaw, Other Events, Exhibits
8-K 2018-08-03 Earnings, Exhibits
8-K 2018-06-13 Other Events
8-K 2018-05-31 Shareholder Vote
8-K 2018-05-09 Earnings, Exhibits
8-K 2018-02-26 Earnings, Exhibits
8-K 2018-02-16 Enter Agreement, Off-BS Arrangement
LMT Lockheed Martin 107,362
GRAM Grana & Montero 1,816
GVA Granite Construction 1,282
ROAD Construction Partners 772
DCO Ducommun 484
WLDN Willdan Group 407
VSEC VSE 354
HIL Hill International 165
ORN Orion Group Holdings 120
ENG ENGlobal 32
ATRO 2019-06-29
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 atro20190629-10qxexh311.htm
EX-31.2 atro20190629-10qxexh312.htm
EX-32 atro20190629-10qxexh32.htm

Astronics Earnings 2019-06-29

ATRO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 29, 2019
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $.01 par value per shareATRONASDAQ Stock Market
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)
  



Table of Contents
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
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 July 31, 2019, 32,675,358 shares of common stock were outstanding consisting of 24,766,477 shares of common stock ($.01 par value) and 7,908,881 shares of Class B common stock ($.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
June 29, 2019 with Comparative Figures for December 31, 2018
(Unaudited)
(In thousands)
 
June 29, 2019December 31, 2018
Current Assets:
Cash and Cash Equivalents
$17,106 $16,622 
Accounts Receivable, Net of Allowance for Doubtful Accounts
177,102 182,308 
Inventories
142,853 138,685 
Prepaid Expenses and Other Current Assets
17,587 17,198 
Assets Held for Sale 19,358 
Total Current Assets
354,648 374,171 
Property, Plant and Equipment, Net of Accumulated Depreciation117,389 120,862 
Other Assets45,189 21,272 
Intangible Assets, Net of Accumulated Amortization125,039 133,383 
Goodwill124,998 124,952 
Total Assets
$767,263 $774,640 
Current Liabilities:
Current Maturities of Long-term Debt
$170 $1,870 
Accounts Payable
42,964 50,664 
Accrued Expenses and Other Current Liabilities
51,054 47,772 
Customer Advance Payments and Deferred Revenue
25,402 26,880 
Liabilities Held for Sale 906 
Total Current Liabilities
119,590 128,092 
Long-term Debt122,113 232,112 
Other Liabilities50,594 27,811 
Total Liabilities292,297 388,015 
Shareholders’ Equity:
Common Stock
344 343 
Accumulated Other Comprehensive Loss
(12,421)(13,329)
Other Shareholders’ Equity
487,043 399,611 
Total Shareholders’ Equity
474,966 386,625 
Total Liabilities and Shareholders’ Equity$767,263 $774,640 
See notes to consolidated condensed financial statements.
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ASTRONICS CORPORATION
Consolidated Condensed Statements of Operations
Three and Six Months Ended June 29, 2019 With Comparative Figures for 2018
(Unaudited)
(In thousands, except per share data)
 
Six Months EndedThree Months Ended
June 29, 2019June 30, 2018June 29, 2019June 30, 2018
Sales$397,272 $387,665 $189,098 $208,606 
Cost of Products Sold304,832 300,961 148,735 159,034 
Gross Profit92,440 86,704 40,363 49,572 
Selling, General and Administrative Expenses58,986 59,943 29,790 29,443 
Income from Operations33,454 26,761 10,573 20,129 
Gain on Sale of Business80,133    
Other Expense, Net of Other Income733 838 518 463 
Interest Expense, Net of Interest Income3,029 4,815 1,225 2,484 
Income Before Income Taxes109,825 21,108 8,830 17,182 
Provision for Income Taxes24,953 3,789 2,104 3,157 
Net Income$84,872 $17,319 $6,726 $14,025 
Earnings Per Share:
Basic
$2.60 $0.54 $0.21 $0.43 
Diluted
$2.56 $0.52 $0.20 $0.42 
See notes to consolidated condensed financial statements.
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ASTRONICS CORPORATION
Consolidated Condensed Statements of Comprehensive Income
Three and Six Months Ended June 29, 2019 With Comparative Figures for 2018
(Unaudited)
(In thousands)
 
Six Months EndedThree Months Ended
June 29, 2019June 30, 2018June 29, 2019June 30, 2018
Net Income$84,872 $17,319 $6,726 $14,025 
Other Comprehensive Income (Loss):
Foreign Currency Translation Adjustments
614 (1,572)884 (1,805)
Retirement Liability Adjustment – Net of Tax
294 430 144 215 
Total Other Comprehensive Income (Loss)908 (1,142)1,028 (1,590)
Comprehensive Income$85,780 $16,177 $7,754 $12,435 
See notes to consolidated condensed financial statements.
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ASTRONICS CORPORATION
Consolidated Condensed Statements of Cash Flows
Six Months Ended June 29, 2019 With Comparative Figures for 2018
(Unaudited)
(In thousands)
 
Six Months Ended
June 29, 2019June 30, 2018
Cash Flows From Operating Activities:
Net Income$84,872 $17,319 
Adjustments to Reconcile Net Income to Cash Provided By Operating Activities:
Depreciation and Amortization15,980 18,584 
Provisions for Non-Cash Losses on Inventory and Receivables4,429 1,819 
Equity-based Compensation Expense2,145 1,637 
Deferred Tax Benefit(3,371)(516)
Gain on Sale of Business, Before Taxes(80,133) 
Other263 (431)
Cash Flows from Changes in Operating Assets and Liabilities:
Accounts Receivable5,266 (33,347)
Inventories(11,276)(19,761)
Accounts Payable(7,685)7,981 
Accrued Expenses(9,141)53 
Other Current Assets and Liabilities(975)(404)
Customer Advanced Payments and Deferred Revenue(1,234)14,469 
Income Taxes9,181 (189)
Supplemental Retirement and Other Liabilities735 896 
Cash Provided By Operating Activities9,056 8,110 
Cash Flows From Investing Activities:
Proceeds on Sale of Business103,793  
Capital Expenditures(6,917)(8,495)
Cash Provided By (Used For) Investing Activities96,876 (8,495)
Cash Flows From Financing Activities:
Proceeds from Long-term Debt27,000 30,015 
Payments for Long-term Debt(132,053)(36,416)
Debt Acquisition Costs (516)
Proceeds from Exercise of Stock Options416 281 
Other Financing Activities(834) 
Cash Used For Financing Activities(105,471)(6,636)
Effect of Exchange Rates on Cash23 (285)
Increase (Decrease) in Cash and Cash Equivalents484 (7,306)
Cash and Cash Equivalents at Beginning of Period16,622 17,914 
Cash and Cash Equivalents at End of Period$17,106 $10,608 
See notes to consolidated condensed financial statements.
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ASTRONICS CORPORATION
Consolidated Condensed Statements of Shareholders' Equity
Three and Six Months Ended June 29, 2019 With Comparative Figures for 2018
(Unaudited)
(In thousands)

Six Months EndedThree Months Ended
June 29, 2019June 30, 2018June 29, 2019June 30, 2018
Common Stock
Beginning of Period$260 $229 $262 $231 
Exercise of Stock Options and Equity-based Compensation Expense – Net of Taxes1 — 1 — 
Class B Stock Converted to Common Stock3 3 1 1 
End of Period$264 $232 $264 $232 
Convertible Class B Stock
Beginning of Period$83 $111 $81 $109 
Exercise of Stock Options and Equity-based Compensation Expense – Net of Taxes— 1 — 1 
Class B Stock Converted to Common Stock(3)(3)(1)(1)
End of Period$80 $109 $80 $109 
Additional Paid in Capital
Beginning of Period$73,044 $67,748 $74,396 $68,839 
Exercise of Stock Options and Equity-based Compensation Expense - Net of Taxes2,560 1,917 1,208 826 
End of Period$75,604 $69,665 $75,604 $69,665 
Accumulated Comprehensive Loss
Beginning of Period$(13,329)$(13,352)$(13,449)$(14,277)
Adoption of ASU 2018-02— (1,373)— — 
Foreign Currency Translation Adjustments614 (1,572)884 (1,805)
Retirement Liability Adjustment –
Net of Taxes
294 430 144 215 
End of Period$(12,421)$(15,867)$(12,421)$(15,867)
Retained Earnings
Beginning of Period$376,567 $325,191 $454,713 $333,126 
Adoption of ASU 2018-02— 1,373 — — 
Adoption of ASU 2014-09— 3,268 — — 
Net income84,872 17,319 6,726 14,025 
End of Period$461,439 $347,151 $461,439 $347,151 
Treasury Stock
Beginning of Period$(50,000)$(50,000)$(50,000)$(50,000)
Purchase of Shares— — — — 
Retirement of Treasury Shares— — — — 
End of Period$(50,000)$(50,000)$(50,000)$(50,000)
Total Shareholders’ Equity$474,966 $351,290 $474,966 $351,290 
See notes to consolidated condensed financial statements.






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ASTRONICS CORPORATION
Consolidated Condensed Statements of Shareholders' Equity, Continued
Three and Six Months Ended June 29, 2019 With Comparative Figures for 2018
(Unaudited)
(In thousands)

Six Months EndedThree Months Ended
June 29, 2019June 30, 2018June 29, 2019June 30, 2018
Common Stock
Beginning of Period25,978 22,861 26,178 23,106 
Exercise of Stock Options34 26 13 7 
Class B Stock Converted to Common Stock331 332 152 106 
End of Period26,343 23,219 26,343 23,219 
Convertible Class B Stock
Beginning of Period8,290 11,083 8,146 10,891 
Exercise of Stock Options48 38 13 4 
Class B Stock Converted to Common Stock(331)(332)(152)(106)
End of Period8,007 10,789 8,007 10,789 
Treasury Stock
Beginning of Period(1,675)(1,675)(1,675)(1,675)
Purchase of Shares— — — — 
Retirement of Treasury Shares— — — — 
End of Period(1,675)(1,675)(1,675)(1,675)
See notes to consolidated condensed financial statements.

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ASTRONICS CORPORATION
Notes to Consolidated Condensed Financial Statements
June 29, 2019
(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.
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 12, 2018.
Operating Results
The results of operations for any interim period are not necessarily indicative of results for the full year. Operating results for the six months ended June 29, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
The balance sheet at December 31, 2018 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 (“GAAP”) for complete financial statements.
For further information, refer to the financial statements and footnotes thereto included in Astronics Corporation’s 2018 annual report on Form 10-K.
Description of the Business
Astronics Corporation (“Astronics” or the “Company”) is a leading provider of advanced technologies to the global aerospace, defense and electronics industries. Our products and services include advanced, high-performance electrical power generation, distribution and motion systems, lighting and safety systems, avionics products, systems and certification, aircraft structures and automated test systems.
We have operations in the United States (“U.S.”), Canada and France. We design and build our products through our wholly owned subsidiaries Astronics Advanced Electronic Systems Corp. (“AES”); Astronics AeroSat Corporation (“AeroSat”); Armstrong Aerospace, Inc. (“Armstrong”); Astronics Test Systems, Inc. (“ATS”); Ballard Technology, Inc. (“Ballard”); Astronics Connectivity Systems and Certification Corp. (“CSC”); Astronics Custom Control Concepts Inc. (“CCC”); Astronics DME LLC (“DME”); Luminescent Systems, Inc. (“LSI”); Luminescent Systems Canada, Inc. (“LSI Canada”); Max-Viz, Inc. (“Max-Viz”); Peco, Inc. (“Peco”); and PGA Electronic s.a. (“PGA”). On July 1, 2019, the Company acquired all of the issued and outstanding capital stock of Freedom Communication Technologies, Inc. (“FCT”).
On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment. The total proceeds of the divestiture amounted to $103.8 million. The Company recorded a pre-tax gain on the sale of $80.1 million in the first quarter of 2019. The income tax expense relating to the gain is expected to be $21.3 million.
On July 1, 2019, the Company acquired all of the issued and outstanding capital stock of FCT. FCT, located in Kilgore, Texas, is a leader in wireless communication testing, primarily for the civil land mobile radio market. Freedom will be included in our Test Systems segment. The total consideration for the transaction was $22.0 million in cash. The purchase price allocation for this acquisition is not determinable as the fair value valuation of assets and liabilities is not complete. The Company expects to complete a preliminary allocation during the third quarter of 2019. Purchased intangible assets and goodwill are not deductible for tax purposes.
On July 12, 2019, the Company sold intellectual property and certain assets associated with its Airfield Lighting product line for $1.0 million in cash. The transaction did not meet the criteria for the assets to be classified as held for sale at June 29, 2019. The Airfield Lighting product line, part of the Aerospace segment, represented less than 1% of the our 2018 revenue. The Company expects to record a loss on sale of approximately $1.3 million in the 2019 third quarter.
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Cost of Products Sold, Engineering and Development, Interest, 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 $27.7 million and $28.9 million for the three months ended and $54.4 million and $57.8 million for the six months ended June 29, 2019 and June 30, 2018, 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 six months ended June 29, 2019 and June 30, 2018.
Foreign Currency Translation
The aggregate transaction gain or loss included in operations was insignificant for the three and six months ended June 29, 2019 and June 30, 2018.
Newly Adopted and Recent Accounting Pronouncements
During the first quarter of 2018, the Company early-adopted ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows for a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The Company applied the guidance as of the beginning of the period of adoption and reclassified approximately $1.4 million from accumulated other comprehensive loss to retained earnings due to the change in federal corporate tax rate.
In February 2016, the FASB issued ASU No. 2016-02, Leases. ASU 2016-02 required entities to adopt the new standard using a modified retrospective method and initially apply the related guidance at the beginning of the earliest period presented in the financial statements. During July 2018, the FASB issued ASU 2018-11, which allows for an additional and optional transition method under which an entity would record a cumulative-effect adjustment at the beginning of the period of adoption (“cumulative-effect method”).
We have adopted this guidance as of January 1, 2019 using the cumulative-effect method. The standard requires lessees to recognize a lease liability and a right-of-use (“ROU”) asset on the balance sheet for operating leases. Accounting for finance leases is substantially unchanged. Prior year financial statements were not recast under the new method. We elected the package of transition provisions available for expired or existing contracts, which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs.
The implementation of this standard did not have a material effect on our financial statements. As of January 1, 2019, ROU assets of approximately $18.4 million and lease liabilities of approximately $18.5 million were recognized on our balance sheet for our leased office and manufacturing facilities and equipment leases. There was a reclassification to ROU assets of approximately $3.5 million from net property plant and equipment for assets under existing finance leases at the transition date. The standards did not impact the Company's consolidated statements of operations or retained earnings. Refer to Note 9 for additional information.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This standard requires that an entity measure impairment of certain financial instruments, including trade receivables, based on expected losses rather than incurred losses. In November 2018, the FASB issued ASU 2018-19 which clarifies the guidance in ASU 2016-13. The provisions of this ASU are effective for years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of this ASU. We do not expect this ASU to have a significant impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement. The new standard removes the disclosure requirements for the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. The provisions of this ASU are effective for years beginning after December 15, 2019, with early adoption permitted. We do not expect this ASU to have a significant impact on our consolidated financial statements, as it only includes changes to disclosure requirements.
In August 2018, the FASB issued ASU 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans. The new standard includes updates to the disclosure requirements for defined benefit plans including several additions, deletions and modifications to the disclosure requirements. The provisions of this ASU are effective for years beginning after December 15, 2020, with early adoption permitted. We are currently evaluating the impact of this ASU.
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2) Revenue
ASU 2014-09 was adopted on January 1, 2018 using the modified retrospective method, which required the recognition of the cumulative effect of the transition as an adjustment to retained earnings. We recognized a transition adjustment of $3.3 million, net of tax effects, which increased our January 1, 2018 retained earnings.
Revenue is recognized when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration the Company expects to be entitled in exchange for transferring those products or services. Sales shown on the Company's Condensed Consolidated Statements of Operations are from contracts with customers.
Payment terms and conditions vary by contract, although terms generally include a requirement of payment within a range from 30 to 60 days after the performance obligation has been satisfied; or in certain cases, up-front deposits. In circumstances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that the Company's contracts generally do not include a significant financing component. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from sales.
The Company recognizes an asset for the incremental, material costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year and the costs are expected to be recovered. These incremental costs include, but are not limited to, sales commissions incurred to obtain a contract with a customer. As of June 29, 2019, the Company does not have material incremental costs on any open contracts with an original expected duration of greater than one year, and therefore such costs are expensed as incurred.
The Company recognizes an asset for certain, material costs to fulfill a contract if it is determined that the costs relate directly to a contract or anticipated contracts that can be specifically identified, generate or enhance resources that will be used in satisfying performance obligations in the future, and are expected to be recovered. Such costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods to which the asset relates. Start-up costs are expensed as incurred. Capitalized fulfillment costs are included in Inventories in the accompanying Consolidated Condensed Balance Sheets. Should future orders not materialize or it is determined the costs are no longer probable of recovery, the capitalized costs are written off. As of June 29, 2019, the Company does not have material capitalized fulfillment costs.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts which are, therefore, not distinct. Promised goods or services that are immaterial in the context of the contract are not separately assessed as performance obligations.
Some of our contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the product lifecycle (development, production, maintenance and support). For contracts with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus margin approach, under which expected costs are forecast to satisfy a performance obligation and then an appropriate margin is added for that distinct good or service. Shipping and handling activities that occur after the customer has obtained control of the good are considered fulfillment activities, not performance obligations.
Some of our contracts offer price discounts or free units after a specified volume has been purchased. The Company evaluates these options to determine whether they provide a material right to the customer, representing a separate performance obligation. If the option provides a material right to the customer, revenue is allocated to these rights and recognized when those future goods or services are transferred, or when the option expires.
Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for goods or services that are distinct, and, therefore, are accounted for as new contracts. The aggregate effect of all modifications have been reflected when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price.
The majority of the Company’s revenue from contracts with customers is recognized at a point in time, when the customer obtains control of the promised product, which is generally upon delivery and acceptance by the customer. These contracts may provide credits or incentives, which may be accounted for as variable consideration. Variable consideration is estimated at the most likely amount to predict the consideration to which the Company will be entitled, and only to the extent it is probable that a subsequent change in estimate will not result in a significant revenue reversal when estimating the amount of revenue to recognize. Variable consideration is treated as a change to the sales transaction price and based on an assessment of all
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information (i.e., historical, current and forecasted) that is reasonably available to the Company, and estimated at contract inception and updated at the end of each reporting period as additional information becomes available. Most of our contracts do not contain rights to return product; where this right does exist, it is evaluated as possible variable consideration.
For contracts that are subject to the requirement to accrue anticipated losses, the company recognizes the entire anticipated loss in the period that the loss becomes probable.
For contracts with customers in which the Company satisfies a promise to the customer to provide a product that has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company satisfies the performance obligation and recognizes revenue over time, using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material and overhead.
The Company also recognizes revenue from service contracts (including service-type warranties) over time. The Company recognizes revenue over time during the term of the agreement as the customer is simultaneously receiving and consuming the benefits provided throughout the Company’s performance. Therefore, due to control transferring over time, the Company typically recognizes revenue on a straight-line basis throughout the contract period.
On June 29, 2019, we had $379.7 million of remaining performance obligations, which we refer to as total backlog. We expect to recognize approximately $263.9 million of our remaining performance obligations as revenue in 2019. The Company has not recognized any material amount of revenue from performance obligations that were satisfied or partially satisfied in previous periods.
Costs in excess of billings includes unbilled amounts resulting from revenues under contracts with customers that are satisfied over time and when the cost-to-cost measurement method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. Amounts may not exceed their net realizable value. Costs in excess of billings are classified as current assets, within Accounts Receivable, Net of Allowance for Doubtful Accounts on our Consolidated Condensed Balance Sheet.
Billings in excess of cost includes billings in excess of revenue recognized as well as deferred revenue, which includes advanced payments, up-front payments, and progress billing payments. Billings in excess of cost are classified as current liabilities, reported in our Consolidated Condensed Balance Sheet within Customer Advance Payments and Deferred Revenue. To determine the revenue recognized in the period from the beginning balance of billings in excess of cost, the contract liability as of the beginning of the period is recognized as revenue on a contract-by-contract basis when the Company satisfies the performance obligation related to the individual contract. Once the beginning contract liability balance for an individual contract has been fully recognized as revenue, any additional payments received in the period are recognized as revenue once the related costs have been incurred.
We recognized $7.8 million and $8.4 million during the three months ended June 29, 2019 and June 30, 2018, respectively, and $13.2 million and $11.6 million for the six months ended June 29, 2019 and June 30, 2018, respectively, in revenues that were included in the contract liability balance at the beginning of the period.
The Company's contract assets and contract liabilities consist primarily of costs in excess of billings and billings in excess of cost, respectively. The following table presents the beginning and ending balances of contract assets and contract liabilities during the six months ended June 29, 2019:
(In thousands)Contract AssetsContract Liabilities
Beginning Balance, January 1, 2019$33,030 $27,347 
Ending Balance, June 29, 2019$36,223 $26,050 
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The following table presents our revenue disaggregated by Market Segments as follows:
Six Months EndedThree Months Ended
(In thousands)June 29, 2019June 30, 2018June 29, 2019June 30, 2018
Aerospace Segment
Commercial Transport
$271,509 $265,847 $129,731 $132,797 
Military
40,498 30,285 19,545 16,270 
Business Jet
37,123 21,002 17,286 10,338 
Other
13,658 13,670 7,725 6,799 
Aerospace Total362,788 330,804 174,287 166,204 
Test Systems Segment
Semiconductor
5,596 38,465 2,242 31,405 
Aerospace & Defense
28,888 18,396 12,569 10,997 
Test Systems Total34,484 56,861 14,811 42,402 
Total$397,272 $387,665 $189,098 $208,606 
The following table presents our revenue disaggregated by Product Lines as follows:
Six Months EndedThree Months Ended
(In thousands)June 29, 2019June 30, 2018June 29, 2019June 30, 2018
Aerospace Segment
Electrical Power & Motion
$176,579 $140,321 $84,042 $67,643 
Lighting & Safety
95,375 85,763 46,770 44,121 
Avionics
59,543 69,295 25,682 36,272 
Systems Certification
5,666 9,655 4,048 4,872 
Structures
11,967 12,100 6,020 6,497 
Other
13,658 13,670 7,725 6,799 
Aerospace Total362,788 330,804 174,287 166,204 
Test Systems34,484 56,861 14,811 42,402 
Total$397,272 $387,665 $189,098 $208,606 

3) Inventories
Inventories are as follows:
(In thousands)
June 29, 2019December 31, 2018
Finished Goods
$30,847 $33,100 
Work in Progress
26,641 27,409 
Raw Material
85,365 78,176 
$142,853 $138,685 
Additionally, net Inventories of $14,385 are classified in Assets Held for Sale at December 31, 2018. Refer to Note 18.
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4) Property, Plant and Equipment
Property, Plant and Equipment are as follows:
(In thousands)
June 29, 2019December 31, 2018
Land
$11,185 $11,191 
Buildings and Improvements
76,670 83,812 
Machinery and Equipment
111,937 106,327 
Construction in Progress
6,072 6,404 
205,864 207,734 
Less Accumulated Depreciation
88,475 86,872 
$117,389 $120,862 
Additionally, net Property, Plant and Equipment of $3,521 are classified in Assets Held for Sale at December 31, 2018. Refer to Note 18.
5) Intangible Assets
The following table summarizes acquired intangible assets as follows: 
June 29, 2019December 31, 2018
(In thousands)
Weighted
Average Life
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Patents11 years$2,146 $1,760 $2,146 $1,716 
Non-compete Agreement4 years10,900 6,177 10,900 4,680 
Trade Names10 years11,449 5,716 11,454 5,182 
Completed and Unpatented Technology10 years36,396 16,761 36,406 14,964 
Customer Relationships15 years136,878 42,316 136,894 37,875 
Total Intangible Assets13 years$197,769 $72,730 $197,800 $64,417 
Additionally, net Intangible Assets of $651 are classified in Assets Held for Sale at December 31, 2018. Refer to Note 18.
All acquired intangible assets other than goodwill and one trade name are being amortized. Amortization expense for acquired intangibles is summarized as follows: 
Six Months EndedThree Months Ended
(In thousands)
June 29, 2019June 30, 2018June 29, 2019June 30, 2018
Amortization Expense
$8,352 $10,868 $4,128 $4,867 
Amortization expense for acquired intangible assets expected for 2019 and for each of the next five years is summarized as follows:
(In thousands)
2019$16,628 
202015,903 
202113,993 
202213,569 
202312,402 
202410,931 

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Table of Contents
6) Goodwill
The following table summarizes the changes in the carrying amount of goodwill for the six months ended June 29, 2019:
(In thousands)December 31, 2018Acquisition/Adjustments
Foreign
Currency
Translation
June 29, 2019
Aerospace$124,952 $ $46 $124,998 
Test Systems    
$124,952 $ $46 $124,998 

7) Long-term Debt and Notes Payable
The Company's Fourth Amended and Restated Credit Agreement (the “Original Facility”) provided for a $350 million revolving credit line with the option to increase the line by up to $150 million. The maturity date of the Original Facility was January 13, 2021. On February 16, 2018, the Company modified and extended the Original Facility by entering into the Fifth Amended and Restated Credit Agreement (the “Agreement”), which provides for a $500 million revolving credit line with the option to increase the line by up to $150 million. A new lender was added to the facility as well. The outstanding balance of the Original Facility was rolled into the Agreement on the date of closing. The maturity date of the loans under the Agreement is February 16, 2023. At June 29, 2019, there was $122.0 million outstanding on the revolving credit facility and there remains $376.9 million available, net of outstanding letters of credit. The credit facility allocates up to $20 million of the $500 million revolving credit line for the issuance of letters of credit, including certain existing letters of credit. At June 29, 2019, outstanding letters of credit totaled $1.1 million.
The maximum permitted leverage ratio of funded debt to Adjusted EBITDA (as defined in the Agreement) is 3.75 to 1, increasing to 4.50 to 1 for up to four fiscal quarters following the closing of an acquisition permitted under the Agreement, subject to limitations. The Company is in compliance with its financial covenant at June 29, 2019. The Company will pay interest on the unpaid principal amount of the facility at a rate equal to one-, three- or six-month LIBOR plus between 1.00% and 1.50% based upon the Company’s leverage ratio. The Company will also pay a commitment fee to the Lenders in an amount equal to between 0.10% and 0.20% on the undrawn portion of the credit facility, based upon the Company’s leverage ratio.
The Company’s obligations under the Credit Agreement as amended are jointly and severally guaranteed by each domestic subsidiary of the Company other than a non-material subsidiary. The obligations are secured by a first priority lien on substantially all of the Company’s and the guarantors’ assets.
In the event of voluntary or involuntary bankruptcy of the Company or any subsidiary, all unpaid principal and other amounts owing under the Credit Agreement automatically become due and payable. Other events of default, such as failure to make payments as they become due and breach of financial and other covenants, change of control, judgments over a certain amount, and cross default under other agreements give the Agent the option to declare all such amounts immediately due and payable.
8) 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