Company Quick10K Filing
Quick10K
Astronics
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$39.68 33 $1,300
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 2019-05-08 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
OUT Outfront Media 3,540
HFWA Heritage Financial 1,130
KOPN Kopin 104
NH Nanthealth 78
MDRR Medalist Diversified REIT 11
QTXB Quantrx Biomedical 0
IAIC Information Analysis 0
TEHG Technovative Group 0
SGMD Sugarmade 0
CNAB United Cannabis 0
ATRO 2019-03-30
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 atro20190330-10qxexh311.htm
EX-31.2 atro20190330-10qxexh312.htm
EX-32 atro20190330-10qxexh32.htm

Astronics Earnings 2019-03-30

ATRO 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
ATROLarge Accelerated 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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 March 30, 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)
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
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 March 30, 2019, 32,649,097 shares of common stock were outstanding consisting of 24,503,388 shares of common stock ($.01 par value) and 8,145,709 shares of Class B common stock ($.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

2

Table of Contents
Part I – Financial Information
Item 1. Financial Statements
ASTRONICS CORPORATION
Consolidated Condensed Balance Sheets
March 30, 2019 with Comparative Figures for December 31, 2018
(Unaudited)
(In thousands)
 
March 30, 2019December 31, 2018
Current Assets:
Cash and Cash Equivalents
$15,966 $16,622 
Accounts Receivable, Net of Allowance for Doubtful Accounts
188,564 182,308 
Inventories
139,090 138,685 
Prepaid Expenses and Other Current Assets
17,796 17,198 
Assets Held for Sale 19,358 
Total Current Assets
361,416 374,171 
Property, Plant and Equipment, Net of Accumulated Depreciation117,307 120,862 
Other Assets47,811 21,272 
Intangible Assets, Net of Accumulated Amortization129,133 133,383 
Goodwill124,854 124,952 
Total Assets
$780,521 $774,640 
Current Liabilities:
Current Maturities of Long-term Debt
$112 $1,870 
Accounts Payable
48,492 50,664 
Accrued Expenses and Other Current Liabilities
68,430 47,772 
Customer Advance Payments and Deferred Revenue
30,937 26,880 
Liabilities Held for Sale 906 
Total Current Liabilities
147,971 128,092 
Long-term Debt115,194 232,112 
Other Liabilities51,353 27,811 
Total Liabilities314,518 388,015 
Shareholders’ Equity:
Common Stock
343 343 
Accumulated Other Comprehensive Loss
(13,449)(13,329)
Other Shareholders’ Equity
479,109 399,611 
Total Shareholders’ Equity
466,003 386,625 
Total Liabilities and Shareholders’ Equity$780,521 $774,640 
See notes to consolidated condensed financial statements.
3

Table of Contents
ASTRONICS CORPORATION
Consolidated Condensed Statements of Operations
Three Months Ended March 30, 2019 With Comparative Figures for 2018
(Unaudited)
(In thousands, except per share data)
 
Three Months Ended
March 30, 2019March 31, 2018
Sales$208,174 $179,059 
Cost of Products Sold156,097 141,927 
Gross Profit52,077 37,132 
Selling, General and Administrative Expenses29,196 30,500 
Income from Operations22,881 6,632 
Gain on Sale of Business80,133  
Other Expense, Net of Other Income215 375 
Interest Expense, Net of Interest Income1,804 2,331 
Income Before Income Taxes100,995 3,926 
Provision for Income Taxes22,849 632 
Net Income$78,146 $3,294 
Earnings Per Share:
Basic
$2.40 $0.10 
Diluted
$2.35 $0.10 
See notes to consolidated condensed financial statements.
4

Table of Contents
ASTRONICS CORPORATION
Consolidated Condensed Statements of Comprehensive Income
Three Months Ended March 30, 2019 With Comparative Figures for 2018
(Unaudited)
(In thousands)
 
Three Months Ended
March 30, 2019March 31, 2018
Net Income$78,146 $3,294 
Other Comprehensive (Loss) Income:
Foreign Currency Translation Adjustments
(270)233 
Retirement Liability Adjustment – Net of Tax
150 215 
Total Other Comprehensive (Loss) Income(120)448 
Comprehensive Income$78,026 $3,742 
See notes to consolidated condensed financial statements.
5

Table of Contents
ASTRONICS CORPORATION
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 30, 2019 With Comparative Figures for 2018
(Unaudited)
(In thousands)
 
Three Months Ended
March 30, 2019March 31, 2018
Cash Flows From Operating Activities:
Net Income$78,146 $3,294 
Adjustments to Reconcile Net Income to Cash Provided By Operating Activities:
Depreciation and Amortization8,076 9,841 
Provisions for Non-Cash Losses on Inventory and Receivables2,498 564 
Equity-based Compensation Expense1,193 931 
Deferred Tax Benefit(3,398)(1,128)
Gain on Sale of Business, Before Taxes(80,133) 
Other252 (467)
Cash Flows from Changes in Operating Assets and Liabilities:
Accounts Receivable(6,414)(20,868)
Inventories(5,943)(18,204)
Accounts Payable(2,032)19,418 
Accrued Expenses(9,283)(3,194)
Other Current Assets and Liabilities(2,860)(3,474)
Customer Advanced Payments and Deferred Revenue4,055 10,482 
Income Taxes26,824 1,303 
Supplemental Retirement and Other Liabilities373 448 
Cash Provided By (Used For) Operating Activities11,354 (1,054)
Cash Flows From Investing Activities:
Proceeds on Sale of Business103,793  
Capital Expenditures(3,474)(4,346)
Cash Provided By (Used For) Investing Activities100,319 (4,346)
Cash Flows From Financing Activities:
Proceeds from Long-term Debt10,000 15,000 
Payments for Long-term Debt(122,026)(10,705)
Debt Acquisition Costs (516)
Proceeds from Exercise of Stock Options159 160 
Other Financing Activities(395) 
Cash (Used For) Provided By Financing Activities(112,262)3,939 
Effect of Exchange Rates on Cash(67)(66)
Decrease in Cash and Cash Equivalents(656)(1,527)
Cash and Cash Equivalents at Beginning of Period16,622 17,914 
Cash and Cash Equivalents at End of Period$15,966 $16,387 
See notes to consolidated condensed financial statements.






6

Table of Contents
ASTRONICS CORPORATION
Consolidated Condensed Statements of Shareholders' Equity
Three Months Ended March 30, 2019 With Comparative Figures for 2018
(Unaudited)
(In thousands)

Three Months Ended
March 30, 2019March 31, 2018
Common Stock
Beginning of Period$260 $229 
Class B Stock Converted to Common Stock2 2 
End of Period$262 $231 
Convertible Class B Stock
Beginning of Period$83 $111 
Class B Stock Converted to Common Stock(2)(2)
End of Period$81 $109 
Additional Paid in Capital
Beginning of Period$73,044 $67,748 
Exercise of Stock Options and Equity-based Compensation Expense - Net of Taxes1,352 1,091 
End of Period$74,396 $68,839 
Accumulated Comprehensive Loss
Beginning of Period$(13,329)$(13,352)
Adoption of ASU 2018-02— (1,373)
Foreign Currency Translation Adjustments(270)233 
Retirement Liability Adjustment – Net of Taxes150 215 
End of Period$(13,449)$(14,277)
Retained Earnings
Beginning of Period$376,567 $325,191 
Adoption of ASU 2018-02— 1,373 
Adoption of ASU 2014-09— 3,268 
Net income78,146 3,294 
End of Period$454,713 $333,126 
Treasury Stock
Beginning of Period$(50,000)$(50,000)
Purchase of Shares  
Retirement of Treasury Shares  
End of Period$(50,000)$(50,000)
Total Shareholders’ Equity$466,003 $338,028 
See notes to consolidated condensed financial statements.








ASTRONICS CORPORATION
Consolidated Condensed Statements of Shareholders' Equity, Continued
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Three Months Ended March 30, 2019 With Comparative Figures for 2018
(Unaudited)
(In thousands)

Three Months Ended
March 30, 2019March 31, 2018
Common Stock
Beginning of Period25,978 22,861 
Exercise of Stock Options21 19 
Class B Stock Converted to Common Stock179 226 
End of Period26,178 23,106 
Convertible Class B Stock
Beginning of Period8,290 11,083 
Exercise of Stock Options35 34 
Retirement of Treasury Shares  
Class B Stock Converted to Common Stock(179)(226)
End of Period8,146 10,891 
Treasury Stock
Beginning of Period(1,675)(1,675)
Purchase of Shares  
Retirement of Treasury Shares  
End of Period(1,675)(1,675)
See notes to consolidated condensed financial statements.
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ASTRONICS CORPORATION
Notes to Consolidated Condensed Financial Statements
March 30, 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.
All 2018 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 three months ended March 30, 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 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.
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 $26.7 million and $28.9 million for the three months ended March 30, 2019 and March 31, 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 months ended March 30, 2019 and March 31, 2018.
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Foreign Currency Translation
The aggregate transaction gain or loss included in operations was insignificant for the three months ended March 30, 2019 and March 31, 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.
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.
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
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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 March 30, 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 March 30, 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 vast majority of the Company’s revenue from contracts with customers is recognized at a point in time, when the customer obtains control of the promised product, which is generally upon delivery and acceptance by the customer. These contracts may provide credits or incentives, which may be accounted for as variable consideration. Variable consideration is estimated at the most likely amount to predict the consideration to which the Company will be entitled, and only to the extent it is probable that a subsequent change in estimate will not result in a significant revenue reversal when estimating the amount of revenue to recognize. Variable consideration is treated as a change to the sales transaction price and based on an assessment of all information (i.e., historical, current and forecasted) that is reasonably available to the Company, and estimated at contract inception and updated at the end of each reporting period as additional information becomes available. Most of our contracts do not contain rights to return product; where this right does exist, it is evaluated as possible variable consideration.
For contracts that are subject to the requirement to accrue anticipated losses, the company recognizes the entire anticipated loss in the period that the loss becomes probable.
For contracts with customers in which the Company 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
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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 March 30, 2019, we had $400.2 million of remaining performance obligations, which we refer to as total backlog. We expect to recognize approximately $335.5 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 $8.2 million and $3.2 million during the three months ended March 30, 2019 and March 31, 2018, respectively, in revenues that were included in the contract liability balance at the beginning of the year. 
The Company's contract assets and contract liabilities consist 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 three months ended March 30, 2019:
(In thousands)
Contract Assets
Contract Liabilities
Beginning Balance, January 1, 2019$33,030 $27,347 
Ending Balance, March 30, 2019$38,680 $31,329 
The following table presents our revenue disaggregated by Market Segments as follows:
Three Months Ended
(In thousands)March 30, 2019March 31, 2018
Aerospace Segment
Commercial Transport
$141,778 $133,050 
Military
20,953 14,015 
Business Jet
19,837 10,664 
Other
5,933 6,871 
Aerospace Total
188,501 164,600 
Test Systems Segment
Semiconductor
3,354 7,060 
Aerospace & Defense
16,319 7,399 
Test Systems Total
19,673 14,459 
Total
$208,174 $179,059 
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The following table presents our revenue disaggregated by Product Lines as follows:
Three Months Ended
(In thousands)March 30, 2019March 31, 2018
Aerospace Segment
Electrical Power & Motion
$92,537 $72,678 
Lighting & Safety
48,605 41,642 
Avionics
33,861 33,023 
Systems Certification
1,618 4,783 
Structures
5,947 5,603 
Other
5,933 6,871 
Aerospace Total
188,501 164,600 
Test Systems
19,673 14,459 
Total
$208,174 $179,059 

3) Inventories
Inventories are as follows:
(In thousands)
March 30, 2019December 31, 2018
Finished Goods
$32,322 $33,100 
Work in Progress
26,783 27,409 
Raw Material
79,985 78,176 
$139,090 $138,685 
Additionally, net Inventories of $14,385 are classified in Assets Held for Sale at December 31, 2018. Refer to Note 18.
4) Property, Plant and Equipment
Property, Plant and Equipment are as follows:
(In thousands)
March 30, 2019December 31, 2018
Land
$11,172 $11,191 
Buildings and Improvements
75,710 83,812 
Machinery and Equipment
107,101 106,327 
Construction in Progress
8,563 6,404 
202,546 207,734 
Less Accumulated Depreciation
85,239 86,872 
$117,307 $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.
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5) Intangible Assets
The following table summarizes acquired intangible assets as follows: 
March 30, 2019December 31, 2018
(In thousands)
Weighted
Average Life
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Patents11 years$2,146 $1,738 $2,146 $1,716 
Non-compete Agreement4 years10,900 5,429 10,900 4,680 
Trade Names10 years11,438 5,449 11,454 5,182 
Completed and Unpatented Technology10 years36,378 15,897 36,406 14,964 
Customer Relationships15 years136,845 40,061 136,894 37,875 
Total Intangible Assets13 years$197,707 $68,574 $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: 
Three Months Ended
(In thousands)
March 30, 2019March 31, 2018
Amortization Expense
$4,224 $6,001 
Amortization expense for acquired intangible assets expected for 2019 and for each of the next five years is summarized as follows:
(In thousands)
2019$16,616 
202015,903 
202113,993 
202213,569 
202312,402 
202410,931 

6) Goodwill
The following table summarizes the changes in the carrying amount of goodwill for the three months ended March 30, 2019:
(In thousands)December 31, 2018
Foreign
Currency
Translation
March 30, 2019
Aerospace$124,952 $(98)$124,854 
Test Systems   
$124,952 $(98)$124,854 

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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 March 30, 2019, there was $115.0 million outstanding on the revolving credit facility and there remains $383.9 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 March 30, 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 March 30, 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 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: 
Three Months Ended
(In thousands)March 30, 2019March 31, 2018
Balance at Beginning of Period$5,027 $5,136 
Warranties Divested in Sale of Business(123) 
Warranties Issued529 567 
Warranties Settled(588)(640)
Reassessed Warranty Exposure(16)52 
Balance at End of Period$4,829 $5,115 

9) Leases
The Company has operating and finance leases for leased office and manufacturing facilities and equipment leases. At inception of arrangements with vendors, the Company determines whether the contract is or contains a lease based on each party’s rights and obligations under the arrangement. At inception, any new additional operating lease liabilities and corresponding ROU assets are based on the present value of the remaining minimum rental payments. If the lease arrangement also contains non-lease components, the Company elected the practical expedient not to separate any combined lease and non-lease components for all lease contracts. For our real estate leases, the remaining fixed minimum rental payments used in the calculation of the new lease liability, include fixed payments and variable payments (if the variable payments are based on an index), over the remaining lease term. While we do have real estate leases with options to purchase the facility at a market value at the date of exercise, these are not included in the calculation of the lease liability, as these options are not expected to be exercised as of the January 1, 2019 transition date. 
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The present value of the Company’s lease liability was calculated using a weighted-average incremental borrowing rate of 3.7%. In determining the incremental borrowing rate, we have considered borrowing data for secured debt obtained from our lending institution as of the transition date. As of March 30, 2019, the Company recognized an operating right-of-use asset and lease liability of approximately $22.9 million and $23.1 million, respectively. The Company's operating lease liability increased approximately $5.5 million as a result of acquiring right-of-use-assets from new leases entered into during the three months ended March 30, 2019. As of March 30, 2019, the Company recognized a financing right-of-use asset and lease liability of approximately $3.2 million and $6.1 million, respectively. The right-of-use asset is included within Other assets in the Consolidated Condensed Balance Sheets, while the lease liability is included within Other current liabilities and Other liabilities, as appropriate.
As permitted by ASC 842, leases with expected durations of less than 12 months from inception (i.e. short-term leases) were excluded from the Company’s calculation of its lease liability and right-of-use asset. Furthermore, as permitted by ASC 842, the Company elected to apply the package of practical expedients, which allows companies not to reassess: (a) whether its expired or existing contracts are or contain leases, (b) the lease classification for any expired or existing leases, and (c) initial direct costs for any existing leases.
The following is a summary of the Company's total lease costs:
Three months ended
(In thousands)March 30, 2019
Finance Lease Cost:
Amortization of Right-of-use Assets$255 
Interest on Lease Liabilities86
Total Finance Lease Cost341 
Operating Lease Cost1,205
Variable Lease Cost370
Short-term Lease Cost (excluding month-to-month)47
Less Sublease and Rental Income(212)
Total Operating Lease Cost$1,410 
Total Net Lease Cost$1,751 
The following is a summary of cash paid for amounts included in the measurement of lease liabilities:
Three months ended
(In thousands)March 30, 2019
Operating Cash Flows Used for Finance Leases$341 
Operating Cash Flows Used for Operating Leases
$1,005 
Financing Cash Flows Used for Finance Leases
$395 
The weighted-average remaining term for the Company's operating and financing leases are approximately 8 years and 3 years, respectively.
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The following is a summary of the Company's maturity of lease liabilities:
(In thousands)Operating LeasesFinancing Leases
2019$3,467 $1,563 
20203,951 2,128 
20213,632 2,180 
20223,233 743 
20232,618  
Thereafter10,037  
Total Lease Payments$26,938 $6,614 
Less: Interest3,822 532 
Total Lease Liability$23,116 $6,082 

10) Income Taxes
The effective tax rates were approximately 22.6% and 16.1% for the three months ended March 30, 2019 and March 31, 2018, respectively. The 2019 tax rate was unfavorably impacted by state income taxes, which was partially offset by the federal research and development tax credit.
11) Earnings Per Share
Basic and diluted weighted-average shares outstanding are as follows: 
Three Months Ended
(In thousands)
March 30, 2019March 31, 2018
Weighted Average Shares - Basic
32,619 32,282 
Net Effect of Dilutive Stock Options
595 732 
Weighted Average Shares - Diluted
33,214 33,014 
The above prior-year information has been adjusted to reflect the impact of the three-for-twenty Class B stock distribution to shareholders of record on October 12, 2018.
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 was approximately 154,000 shares as of March 30, 2019 and insignificant as of March 31, 2018.
12) Shareholders' Equity
Share Buyback Program
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 that program. On December 12, 2017, the Company’s Board of Directors authorized an additional repurchase of up to $50 million. No amounts have been repurchased under the new program as of March 30, 2019.
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Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive loss are as follows: 
(In thousands)March 30, 2019December 31, 2018
Foreign Currency Translation Adjustments$(7,426)$(7,156)
Retirement Liability Adjustment – Before Tax(7,628)(7,814)
Tax Benefit of Retirement Liability Adjustment1,605 1,641 
Retirement Liability Adjustment – After Tax(6,023)(6,173)
Accumulated Other Comprehensive Loss$(13,449)$(13,329)
The components of other comprehensive (loss) income are as follows: 
Three Months Ended
(In thousands)
March 30, 2019March 31, 2018
Foreign Currency Translation Adjustments
$(270)$233 
Retirement Liability Adjustments:
Reclassifications to General and Administrative Expense:
Amortization of Prior Service Cost
101 101 
Amortization of Net Actuarial Losses
85 172 
Tax Benefit
(36)(58)
Retirement Liability Adjustment
150 215 
Other Comprehensive (Loss) Income
$(120)$448 

13) 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. 
Three Months Ended
(In thousands)
March 30, 2019March 31, 2018
Service Cost
$45 $50 
Interest Cost
229 225 
Amortization of Prior Service Cost
97 97 
Amortization of Net Actuarial Losses
75 157 
Net Periodic Cost
$446 $529 
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: 
Three Months Ended
(In thousands)March 30, 2019March 31, 2018
Service Cost$3 $4 
Interest Cost12 11 
Amortization of Prior Service Cost4 4 
Amortization of Net Actuarial Losses10 15 
Net Periodic Cost$29 $34 

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14) 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 14% and 13% of consolidated sales for the three months ended March 30, 2019. Sales to these customers were in the Aerospace and Test Systems segments. Accounts receivable from these customers at March 30, 2019 was approximately $43.4 million. Sales to these two customers represented 16% and 20% of consolidated sales for the three months ended March 31, 2018.
15) 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. Lufthansa sought an order requiring AES to stop selling and marketing the allegedly infringing power supply system, a recall of allegedly infringing products sold to commercial customers in Germany since November 26, 2003, and compensation for damages related to direct sales of the allegedly infringing power supply system in Germany (referred to as “direct sales”). The claim does not specify an estimate of damages and a related damages claim is being pursued by Lufthansa in separate court proceedings in an action filed in July 2017, as further discussed below.
In February 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 direct sales of the infringing product in Germany to enable Lufthansa to make an estimate of requested damages.
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 submitted a petition to grant AES leave for appeal to the German Federal Supreme Court. On April 18, 2018, the German Federal Supreme Court granted Astronics’ petition in part, namely with respect to the part concerning the amount of damages. On January 8, 2019, Federal Supreme Court held the hearing on the appeal. By judgment of March 26, 2019 the Federal Supreme Court dismissed AES's appeal. With this decision, the above-mentioned proceedings are complete.
In July 2017, Lufthansa filed an action in the Regional State Court of Mannheim for payment of damages caused by the alleged patent infringement of AES, related to direct sales of the allegedly infringing product in Germany (associated with the original December 2010 action discussed above). In this action, which was served on AES on April 11, 2018, Lufthansa claims payment of approximately $6.2 million plus interest. According to AES's assessment, this claim is significantly higher than justified. We estimate AES’s potential exposure to be approximately $1 million to $3 million, and recorded a reserve in 2018 of $1 million associated with this matter. An oral hearing has been scheduled for September 13, 2019. A first instance decision is in this matter is expected in late 2019 or early 2020.
On December 29, 2017, Lufthansa filed another infringement action against AES in the Regional State Court of Mannheim claiming that sales by AES to its international customers have infringed Lufthansa's patent if AES's customers later shipped the products to Germany (referred to as "indirect sales"). This action, therefore, addresses sales other than those covered by the action filed on December 29, 2010, discussed above. In this action, served on April 11, 2018, Lufthansa seeks an injunction, an order obliging AES to provide information and accounting and a finding that AES owes damages for the attacked indirect sales. AES will vigorously defend against the action. No amount of claimed damages has been specified by Lufthansa and such amount is not quantifiable at this time. An oral hearing in this matter has been scheduled for September 13, 2019. A first instance decision is in this matter is expected in late 2019 or early 2020. 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 March 30, 2019.
In December 2017, Lufthansa filed patent infringement cases in the United Kingdom and in France against AES. The Lufthansa patent expired in May 2018. In those cases, Lufthansa accuses AES of having manufactured, used, sold and offered for sale a
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power supply system, and offered and supplied parts for a power supply system, that infringed upon a Lufthansa patent in those respective countries. As loss exposure is neither probable nor estimable at this time, the Company has not recorded any liability with respect to these matters as of March 30, 2019.
On November 26, 2014, Lufthansa filed a complaint in the United States District for the Western District of Washington. Lufthansa’s complaint in that 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 did not file a petition for en banc rehearing or petition the U.S. Supreme Court for a writ of certiorari. Therefore, there is no longer a risk of exposure from that lawsuit.
16) Segment Information
Below are the sales and operating profit by segment for the three months ended March 30, 2019 and March 31, 2018 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. 
Three Months Ended
(In thousands)March 30, 2019March 31, 2018
Sales
Aerospace$188,501 $164,600 
Test Systems19,724 14,459 
Less Intersegment Sales(51) 
Total Test Systems Sales19,673 14,459 
Total Consolidated Sales$208,174 $179,059 
Operating Profit and Margins
Aerospace
$25,768 $13,115 
13.7 %8.0 %
Test Systems
2,185 (1,929)
11.1 %(13.3)%
Total Operating Profit27,953 11,186 
13.4 %6.2 %
Additions/Deductions from Operating Profit
Gain on Sale of Business80,133  
Interest Expense, Net of Interest Income
1,804 2,331 
Corporate Expenses and Other