Astronics Corporation — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; comparisons are with the three months ended April 2, 2011. Astronics supplies aerospace products and military test, training and simulation systems through its Aerospace and Test Systems segments. Results include Ballard Technology, acquired in November 2011.
Financial performance and position
| Metric | Q1 2012 | Prior comparable quarter |
|---|---|---|
| Sales | $65.1 million | $55.1 million |
| Gross profit / margin | $18.1 million / 27.8% | $14.5 million / 26.3% |
| Income from operations | $9.3 million | $8.2 million |
| Net income | $6.1 million | $5.2 million |
| Diluted EPS | $0.46 | $0.41 |
| Operating cash flow | $4.8 million provided | $3.5 million used |
| Capital expenditures | $1.7 million | $0.8 million |
Sales increased 18.2%, led by Aerospace; net income rose about 17%. Gross margin improved with higher Aerospace volume, while SG&A increased to $8.9 million, or 13.6% of sales, from $6.3 million, or 11.5%. The company attributed the increase partly to Ballard ($1.2 million of Q1 SG&A), compensation and legal expenses. Interest expense declined to $0.3 million from $0.5 million, mainly due to lower rates and debt levels. The effective tax rate was 32.3%, versus 31.7%.
Segments: Aerospace sales rose to $62.0 million from $50.2 million; operating profit was $11.9 million, with a 19.2% margin versus 18.6%. Test Systems sales fell to $3.1 million from $4.9 million and recorded a $1.1 million operating loss, versus $17,000 profit, as lower volume left fixed costs insufficiently covered. Commercial transport sales drove Aerospace growth; military sales declined.
Liquidity and debt: Cash was $8.2 million at March 31, down from $10.9 million at year-end. Current assets were $95.8 million and current liabilities $36.0 million. Total debt was approximately $27.2 million, down from $33.3 million at year-end; this includes $5.3 million current maturities and $21.9 million long-term debt. The $5.0 million subordinated note was repaid in January. No revolving-credit borrowings were outstanding; $23.3 million remained available, and the company reported compliance with covenants. Operating cash flow funded investing and debt repayments; cash declined $2.7 million.
Material changes, outlook and risks
- Backlog was $102.0 million at quarter-end, compared with $106.3 million at December 31, 2011 and $99.1 million a year earlier.
- Management raised 2012 Aerospace sales guidance to $240–$253 million; $79.0 million of the segment’s $94.5 million backlog was expected to ship during the rest of 2012. Test Systems guidance remained $10–$12 million; $5.7 million of its $7.5 million backlog was expected to ship during the rest of the year.
- Expected 2012 capital spending was approximately $17–$20 million, including completion and occupancy of the Kirkland property. Management said operating cash flow and the revolving facility should be sufficient for capital needs.
- A new unfunded supplemental executive retirement plan adopted March 6 created a $5.8 million projected-benefit liability; estimated 2012 pension cost was approximately $0.8 million. A related retirement-liability adjustment contributed to a $3.6 million other comprehensive loss, leaving comprehensive income of $2.5 million despite $6.1 million net income.
- Customer concentration is significant: Panasonic represented 41.6% of Q1 revenue and the U.S. Government 7.8%. A reduction in business from these customers could adversely affect results.
- Risks include aircraft production and refurbishment rates, government funding and contracts, customer demand, vendor performance, product acceptance, acquisition integration and general economic conditions. The company disclosed a disputed $1.4 million alleged preferential-payment claim and a German patent-infringement case for which potential loss could not be reasonably estimated; an adverse outcome in the latter could materially affect results and financial condition. Management did not expect ordinary-course legal matters overall to have a material adverse effect.
Important facts for investors to verify
- Whether Aerospace growth and raised guidance are supported by order trends and conversion of backlog into shipments.
- Whether Test Systems can restore profitability and meet its sales outlook despite the Q1 operating loss.
- How the $5.8 million new retirement-plan obligation and future pension costs affect liabilities, earnings and comprehensive income.
- Customer concentration, particularly Panasonic’s 41.6% share of quarterly revenue, and the status and potential exposure of the disclosed litigation.
- Execution of the $17–$20 million capital-spending plan while maintaining liquidity and meeting debt obligations and credit-facility covenants.