(The following should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's Form 10-K for the year ended December 31, 2019.)
OVERVIEW
Astronics Corporation ("Astronics" or the "Company") is a leading supplier of
advanced technologies and products to the global aerospace and defense
industries. Our products and services include advanced, high-performance
electrical power generation and distribution systems, seat motion solutions,
lighting and safety systems, avionics products, aircraft structures, systems
certification, and automated test systems.
Our Aerospace segment designs and manufactures products for the global aerospace
industry. Product lines include lighting and safety systems, electrical power
generation, distribution and motions systems, aircraft structures, avionics
products, systems certification, and other products. Our Aerospace customers are
the airframe manufacturers ("OEM") that build aircraft for the commercial,
military and general aviation markets, suppliers to those OEM's, aircraft
operators such as airlines, suppliers to the aircraft operators, and branches of
the U.S. Department of Defense. Our Test Systems segment designs, develops,
manufactures and maintains automated test systems that support the aerospace and
defense, communications and mass transit test systems as well as training and
simulation devices for both commercial and military applications. In the Test
Systems segment, Astronics' products are sold to a global customer base
including OEM's and prime government contractors for both electronics and
military products.
Our strategy is to increase our value by developing technologies and
capabilities, either internally or through acquisition, and using those
capabilities to provide innovative solutions to our targeted markets where our
technology can be beneficial.
Important factors affecting our growth and profitability are the ongoing impacts
of the COVID-19 pandemic and the timing and extent of recovery (as discussed
more fully below), the rate at which new aircraft are produced, government
funding of military programs, our ability to have our products designed into new
aircraft and the rates at which aircraft owners, including commercial airlines,
refurbish or install upgrades to their aircraft. New aircraft build rates and
aircraft owners spending on upgrades and refurbishments is cyclical and
dependent on the strength of the global economy. Once designed into a new
aircraft, the spare parts business is frequently retained by the Company. Future
growth and profitability of the test business is dependent on developing and
procuring new and follow-on business. The nature of our Test Systems business is
such that it pursues large multi-year projects. There can be significant periods
of time between orders in this business which may result in large fluctuations
of sales and profit levels and backlog from period to period.
Acquisitions and Divestitures
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 was $19.7 million.
On July 1, 2019, the Company acquired all of the issued and outstanding capital
stock of Freedom Communication Technologies, Inc. ("Freedom"). Freedom, located
in Kilgore, Texas, is a leader in wireless communication testing, primarily for
the civil land mobile radio market. Freedom is included in our Test Systems
segment. The total consideration for the transaction was $21.8 million, net of
$0.6 million in cash acquired.
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
Airfield Lighting product line, part of the Aerospace segment, was not core to
the business and represented less than 1% of revenue. The Company recorded a
pre-tax loss on the sale of approximately $1.3 million.
On October 4, 2019, the Company acquired the stock of the primary operating
subsidiaries as well as certain other assets from mass transit and defense
market test solution provider, Diagnosys Test Systems Limited, for $7.0 million
in cash, plus earn-outs estimated at a fair value of $2.5 million. Diagnosys
Inc. and its affiliates ("Diagnosys") is included in our Test Systems segment.
Diagnosys is a developer and manufacturer of comprehensive automated test
equipment providing test, support, and repair of high value electronics,
electro-mechanical, pneumatic and printed circuit boards focused on the global
mass transit and defense markets. The terms of the acquisition allow for a
potential earn-out of up to an additional $13.0 million over the three years
post acquisition based on achievement of new order levels of over $72.0 million
during that period. The acquired business has operations in Westford,
Massachusetts as well as Ferndown, England, and an engineering center of
excellence in Bangalore, India.
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