Astronics Corporation — 2011 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2011; comparisons are principally with 2010. The filing was signed March 7, 2012. Astronics supplies aerospace and defense products through its Aerospace and Test Systems segments.
Financial performance and position
| Metric | 2011 | 2010 |
|---|---|---|
| Sales | $228.2 million | $195.8 million |
| Gross profit / gross margin | $60.5 million / 26.5% | $47.6 million / 24.3% |
| Operating income | $30.8 million | $24.4 million |
| Net income / diluted EPS | $21.6 million / $1.67 | $14.9 million / $1.20 |
| Operating cash flow | $27.9 million | $16.5 million |
| Cash and cash equivalents at year-end | $10.9 million | $22.7 million |
| Total debt at year-end | $33.3 million | $38.6 million |
| Working capital at year-end | $58.8 million | $65.9 million |
Sales grew 16.6% and net income 44.4%. Net margin improved to 9.5% from 7.6%. Operating cash flow less capital expenditures was approximately $13.6 million in 2011, compared with $12.9 million in 2010; this measure excludes acquisitions. Investing activities used $38.1 million, including the Ballard acquisition and property purchases. Cash declined by $11.8 million during the year.
Current assets were $92.3 million and current liabilities $33.5 million. No balance was drawn on the $35 million revolving facility at year-end; reported available capacity was $22.9 million after outstanding letters of credit. The company reported compliance with its debt covenants. Shareholders’ equity was $102.9 million. No cash dividend was paid, and management said it had no plans to initiate one.
Segment results and changes versus 2010
- Aerospace: Sales rose 19.1% to $213.9 million; operating profit increased to $40.4 million from $30.1 million, and operating margin improved to 18.9% from 16.8%. Commercial transport sales grew to $143.3 million, led by cabin electronics and in-seat power. Aerospace backlog was $97.9 million versus $91.6 million.
- Test Systems: Sales declined to $14.3 million from $16.2 million. The operating loss widened to $4.8 million from $1.8 million, including $2.5 million of impairment charges. Management cited lower military spending, fewer large program opportunities, weak new orders, and cancellation of a large multi-year program. Backlog was $8.4 million versus $8.2 million.
- Consolidated gross margin improved, primarily from higher Aerospace volume and associated operating leverage. SG&A rose to $27.2 million from $23.2 million, with management citing higher legal costs, bad-debt expense related to American Airlines’ bankruptcy, and compensation costs.
Outlook, risks, and unusual items
- Management forecast 2012 consolidated sales of $235 million to $250 million, including Aerospace sales of $225 million to $238 million and Test Systems sales of $10 million to $12 million. It expected 2012 capital spending of $13 million to $16 million and engineering and development costs of $36 million to $40 million.
- Year-end backlog was $106.3 million, compared with $99.8 million a year earlier. The filing gives differing 2012 shipment estimates: approximately $92.6 million consolidated in one section, versus approximately $84.1 million Aerospace plus $8.1 million Test Systems elsewhere.
- Ballard Technology was acquired on November 30, 2011 for approximately $23.9 million cash, plus contingent consideration with an estimated fair value of $0.7 million and a maximum potential amount of $5.5 million. Ballard contributed $0.4 million in reported 2011 sales after acquisition. The purchase added avionics databus products to Aerospace.
- A $2.5 million fourth-quarter impairment comprised a $2.4 million Test Systems goodwill write-down and a $0.1 million intangible-asset write-down. Management attributed the impairment to weaker projected cash flows and a large program cancellation. Test Systems goodwill was reduced to zero.
- Customer concentration is material: Panasonic Avionics represented 35.7% of consolidated sales in 2011; U.S. Government sales represented 9.0%. The filing warns that reduced sales to either customer could materially affect results. Almost all sales were under fixed-price contracts, exposing the company to cost overruns; Test Systems contract revenue also depends on estimates of costs to complete.
- Other key risks include cyclical aircraft demand, airline and business-jet market conditions, aircraft build rates, military appropriations and contract termination, supplier performance, new-program acceptance, and debt covenants. Approximately 49% of debt was at fixed rates; the filing reports about $28.2 million of floating-rate debt and interest-rate swaps covering portions of exposure.
- Legal matters include a disputed $1.4 million claim for alleged preferential payments related to Eclipse Aviation and a German patent-infringement case. Astronics said it could not reasonably estimate potential liability in the patent case; an adverse outcome could materially affect financial results and condition. Management did not expect other ordinary-course legal matters to have a material adverse effect.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Ballard was included in the consolidated statements but excluded from management’s and the auditor’s internal-control assessment for 2011.
Important facts for investors to verify
- Reconcile the filing’s differing 2012 backlog shipment estimates and confirm the basis for the sales and capital-spending outlook.
- Track Panasonic Avionics concentration, receivable exposure, and any further effects from airline customer distress.
- Assess whether Test Systems can recover from the program cancellation, operating losses, reduced forecasts, and impairment.
- Review debt maturities, floating-rate exposure, covenant headroom, and remaining revolver availability as spending and acquisition needs evolve.
- Monitor the German patent litigation, the Eclipse preferential-payment claim, and the integration and performance of Ballard.