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ATRO > SEC Filings for ATRO > Form 8-K/A on 30-Sep-2013All Recent SEC Filings

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Form 8-K/A for ASTRONICS CORP


30-Sep-2013

Financial Statements and Exhibits


Item 9.01 Financial Statements and Exhibits

(a) Financial Statements of Businesses Acquired.

Due to Peco Inc. ("Peco") owning 100% of Peco Fasteners Company ("Peco Fasteners"), generally accepted accounting principles generally accepted in the United States require the consolidation of Peco Fasteners. The accompanying consolidated financial statements include the accounts of Peco and Peco Fasteners. All material intercompany balances and transactions have been eliminated in consolidation. The Company acquired the stock of Peco on July 18, 2013. The net assets of Peco Fasteners were not acquired.

1. The audited Consolidated Financial Statements of Peco Inc. and Subsidiary which is comprised of the consolidated balance sheets as of December 31, 2012 and 2011, the related consolidated statements of income, changes in stockholders' equity and cash flows for the years ended December 31, 2012, 2011, and 2010 and accompanying notes are included below in this Current Report.

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Consolidated Financial Statements

Years Ended December 31, 2012, 2011 and 2010

With Independent Auditors' Report


Table of Contents

PECO, INC. AND SUBSIDIARY

YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

CONTENTS

Page
INDEPENDENT AUDITORS' REPORT 1-2

CONSOLIDATED FINANCIAL STATEMENTS:

Balance Sheets 3-4

Statements of Income 5

Statements of Changes in Stockholders' Equity 6

Statements of Cash Flows 7-8

Notes to Financial Statements 9-19


Table of Contents

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INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders

of Peco, Inc. and Subsidiary

Portland, Oregon

We have audited the accompanying consolidated financial statements of Peco, Inc. and Subsidiary which comprise the consolidated balance sheet as of December 31, 2012 and 2011, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the years ended December 31, 2012, 2011 and 2010, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Peco, Inc. and Subsidiary as of December 31, 2012 and 2011, and the results of their operations and their cash flows for the years ended December 31, 2012, 2011 and 2010, in accordance with accounting principles generally accepted in the United States of America.

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Portland, Oregon

February 27, 2013

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                           PECO, INC. AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 2012 AND 2011



                                                                2012             2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents                                   $  4,552,467     $  3,098,923
Trade accounts receivable, less allowance for doubtful
accounts of $115,287 in 2012 and $255,567 in 2011              6,318,853        5,717,105
Other receivables                                              1,070,017          489,926
Inventories                                                   12,004,710        9,405,547
Prepaid expenses                                                 477,899          412,936
Assets from discontinued operations                            2,763,307        4,668,033

Total current assets                                          27,187,253       23,792,470
PROPERTY AND EQUIPMENT, NET                                    3,231,586        3,629,308
OTHER NON-CURRENT ASSETS:
Long-term receivables                                          1,628,750          915,999
Cash value of life insurance, net of loans of $44,073 in
2011                                                                  -           102,030
Deposits and advances                                            653,059          338,289
Other assets                                                     543,778          543,778

                                                               2,825,587        1,900,096

                                                            $ 33,244,426     $ 29,321,874

See notes to consolidated financial statements.

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                           PECO, INC. AND SUBSIDIARY

                    CONSOLIDATED BALANCE SHEETS (continued)

                           DECEMBER 31, 2012 AND 2011



                                                              2012              2011
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable                                          $  3,267,449      $  2,668,414
Accrued expenses                                             3,256,993         2,522,431
Customer deposits                                                   -            401,486
Liabilities from discontinued operations                       242,007           279,457

Total current liabilities                                    6,766,449         5,871,788
LONG -TERM LIABILITIES                                       1,628,751           916,000
DEFERRED RENT                                                   34,912                -
LONG-TERM DEBT                                                      -            552,151
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 1,000,000 shares
authorized; 561,380 shares issued and outstanding              561,380           561,380
Additional paid-in capital                                   1,360,616         1,360,616
Note due from stockholder                                           -            (84,999 )
Retained earnings                                           22,892,318        20,144,938

Total stockholders' equity                                  24,814,314        21,981,935

                                                          $ 33,244,426      $ 29,321,874

See notes to consolidated financial statements.

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                           PECO, INC. AND SUBSIDIARY

                       CONSOLIDATED STATEMENTS OF INCOME

                  YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010



                                                     2012              2011              2010
SALES                                            $ 77,787,579      $ 66,901,357      $ 64,806,068
COST OF SALES                                      53,411,049      $ 49,454,062      $ 48,205,203

GROSS PROFIT                                       24,376,530        17,447,295        16,600,865
OPERATING EXPENSES:
Sales and engineering                               3,860,997         4,366,932         5,942,894
General and administrative                          3,531,484         3,174,238         2,858,837

                                                    7,392,481         7,541,170         8,801,731

EARNINGS FROM OPERATIONS                           16,984,049         9,906,125         7,799,134
OTHER INCOME:
Miscellaneous, net                                    406,044            83,904           135,827
Gain (Loss) on sale of equipment                       54,341           (20,768 )           1,602
Environmental remediation benefit (expense)          (457,556 )       1,676,038           (61,840 )
Interest income                                           583             4,405             9,644
Interest expense                                      (11,827 )         (38,122 )         (11,796 )

                                                       (8,415 )       1,705,457            73,437

INCOME FROM CONTINUING OPERATIONS                  16,975,634        11,611,582         7,872,571
DISCONTINUED OPERATIONS
Loss from discontinued operations, including
impairment totaling $1,381,694 in 2012             (5,583,002 )      (3,416,687 )      (2,726,503 )

NET INCOME                                         11,392,632      $  8,194,895      $  5,146,068

See notes to consolidated financial statements.

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                           PECO, INC. AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                  YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010



                                                                       Additional           Note
                                              Common Stock               Paid-in          Due From           Retained
                                         Shares          Amount          Capital         Stockholder         Earnings             Total
BALANCE AT JANUARY 1, 2010                809,570      $  809,570      $ 1,402,071      $    (506,662 )    $  30,160,431      $  31,865,410
Net income                                     -               -                -                  -           5,146,068          5,146,068
Payment on note due from stockholder           -               -                -             159,241                 -             159,241
Distributions to stockholders                  -               -                -                  -          (3,130,435 )       (3,130,435 )
Repurchase of common stock               (248,190 )      (248,190 )        (41,455 )               -         (16,043,740 )      (16,333,385 )

BALANCE AT DECEMBER 31, 2010              561,380      $  561,380      $ 1,360,616      $    (347,421 )    $  16,132,324      $  17,706,899
Net income                                     -               -                -                  -           8,194,895          8,194,895
Payment on note due from stockholder           -               -                -             262,422                 -             262,422
Distributions to stockholders                  -               -                -                  -          (4,182,281 )       (4,182,281 )

BALANCE AT DECEMBER 31, 2011              561,380         561,380        1,360,616            (84,999 )       20,144,938         21,981,935
Net income                                     -               -                -                  -          11,392,632         11,392,632
Payment on note due from stockholder           -               -                -              84,999                 -              84,999
Distributions to stockholders                  -               -                -                  -          (8,645,252 )       (8,645,252 )

BALANCE AT DECEMBER 31, 2012              561,380      $  561,380      $ 1,360,616      $          -       $  22,892,318      $  24,814,314

See notes to consolidated financial statements.

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                           PECO, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010



                                                     2012              2011              2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                       $ 11,392,632      $  8,194,895      $  5,146,068
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation                                        1,890,470         1,822,124         1,458,320
Provision for bad debts                                 9,720           161,856            11,484
(Gain) loss on sale of equipment                      (54,341 )          20,768            (1,602 )
Provision for inventory obsolescence                   66,382           387,983            55,193
Loss on impairment of assets held for sale          1,381,694                -                 -
(Increase) decrease in:
Trade accounts receivable                            (672,393 )        (164,445 )        (201,527 )
Other receivables                                  (1,292,842 )       6,276,250        (1,341,646 )
Inventories                                        (2,971,424 )      (2,510,524 )      (1,009,312 )
Prepaid expenses                                      (56,158 )        (113,781 )         (96,888 )
Cash value of life insurance                               -               (792 )          (3,538 )
Deposits and advances                                (314,770 )              -                 -
Increase (decrease) in:
Accounts payable                                      582,307          (915,088 )         912,984
Accrued expenses                                      416,379        (2,025,262 )       1,705,017
Customer deposits                                    (401,486 )         371,141          (290,293 )
Deferred rent                                          34,912                -                 -
Long-term liabilities                                 712,751        (4,712,000 )       1,578,000

Net cash provided by operating activities          10,723,833         6,793,125         7,922,260
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on surrender of life insurance               102,030                -                 -
Payments of deposits on property and equipment             -            (23,132 )        (485,515 )
Proceeds from sale of property and equipment           86,675             1,434             8,739
Purchases of property and equipment                  (346,590 )      (1,144,188 )      (2,262,547 )

Net cash used in investing activities                (157,885 )      (1,165,886 )      (2,739,323 )

See notes to consolidated financial statements.

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                           PECO, INC. AND SUBSIDIARY

               CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

                  YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010



                                                 2012               2011               2010
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt                           -             552,151                  -
Repayment of long-term debt                      (552,151 )               -                   -
Repayment of line of credit                            -          (2,500,000 )         2,500,000
Repurchase of common stock                             -                  -          (16,333,385 )
Payment on note due from stockholder               84,999            262,422             159,241
Distributions to stockholders                  (8,645,252 )       (4,182,281 )        (3,130,435 )

Net cash used in financing activities          (9,112,404 )       (5,867,708 )       (16,804,579 )

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS                                     1,453,544           (240,469 )       (11,621,642 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR                                            3,098,923          3,339,392          14,961,034

CASH AND CASH EQUIVALENTS AT END OF YEAR     $  4,552,467       $  3,098,923       $   3,339,392

SUPPLEMENTARY DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest                                     $     19,280       $     45,162       $      11,246
Noncash investing activities:
Property and equipment received from
TriMet                                       $    307,674       $         -        $     549,995
Reclassification of deposits to property
and equipment                                $         -        $    170,358       $   2,225,946

See notes to consolidated financial statements.

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PECO, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012, 2011 AND 2010

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations-The Company is engaged in designing and manufacturing custom products including aluminum and zinc die castings, plastic injection moldings, screw machine parts and related assemblies, industrial sensor networks and aerospace fasteners. Customers of the Company are located primarily in the United States and consist of businesses in aerospace industries, heating, ventilation and air conditioning, technology and construction. The Company also has sales to the US Postal Service.

Effective October 30, 2008 Peco, Inc. formed a wholly owned subsidiary, Peco Fasteners Company (Peco Fasteners). The Company received 100 shares of Peco Fasteners stock in exchange for equipment the Company acquired on behalf of Peco Fasteners. Peco Fasteners is an aerospace fasteners company and is engaged in product development and manufacturing of aerospace fasteners. Customers of the company are located in the United States and consist of businesses in aerospace industries. Subsequent to year end Peco, Inc. discontinued the operations of Peco Fasteners as disclosed in Note 17.

The Company's shop employees in Portland, Oregon, comprising approximately 64% of the Company's work force, are subject to a collective bargaining agreement which was ratified subsequent to year end and expires October 31, 2016.

Principles of Consolidation-The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Peco Fasteners. All material intercompany balances and transactions have been eliminated.

Cash and Cash Equivalents-The Company considers all short-term investments with a maturity of three months or less to be cash equivalents.

Concentrations of Credit Risk-The Company grants credit to customers in various industries including industrial concerns, technology, heating, ventilation and air conditioning, aerospace, and government agencies. The Company performs ongoing credit evaluations of its customers' financial condition and, generally, will require deposits from its customers for tooling.

The Company maintains its cash balances at a financial institution located in Oregon. At times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances. All of the Company's non-interest bearing cash balances were fully insured at December 31, 2012 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for eligible accounts. Beginning 2013, insurance coverage will revert to $250,000 per depositor at each financial institution, and the Company's non-interest bearing cash balances may exceed federally insured limits. The Company's non-interest bearing cash balance was $4,552,467, $3,098,923 and $3,339,042 at December 31, 2012, 2011 and 2010, respectively.

The Company's largest customer comprised 71% of sales in 2012 and 2011 and 68% of sales in 2010. One customer receivable balances represented 56%, 61% and 55% of the gross trade accounts receivables at December 31, 2012, 2011 and 2010, respectively

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Trade Accounts Receivable and Credit Policies-Trade accounts receivable are stated at the amounts billed to customers and are customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. The Company does not charge interest on its overdue trade receivables.

The carrying amount of receivables is reduced by a valuation allowance that reflects management's best estimate of the amounts that will not be collected. Management individually reviews all delinquent trade receivable balances. The valuation allowance includes any accounts receivable balances that are determined to be uncollectible, along with a calculated reserve. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The balance of accounts receivable outstanding more than 90 days is $104,798 and $223,389 at December 31, 2012 and 2011, respectively.

Inventories-Inventories are valued at the lower of weighted average cost or market. The Company maintains a provision for inventory obsolescence at a level which management believes is sufficient to cover potential write-downs in inventory for salability or technological obsolescence.

Property and Equipment-Property and equipment are stated at cost less accumulated depreciation. The costs of property and equipment are depreciated using the straight-line method over the estimated useful lives of assets as follows:

                     Machinery and equipment     3 - 10 years
                     Jigs, tools and dies         2 - 8 years
                     Furniture and equipment     3 - 10 years
                     Automobiles                  3 - 5 years
                     Leasehold improvements      7 - 10 years
                     Rental property                 15 years

Maintenance and repairs are expensed as incurred; significant replacements and improvements are capitalized. The cost and related accumulated depreciation of assets retired or otherwise disposed of are retired from the appropriate asset and accumulated depreciation accounts. Any gain or loss resulting from these transactions is reflected in operations.

Management reviews long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable based on the undiscounted future cash flows of the asset. If the carrying amount of an asset may not be recoverable, a write-down to fair value is recorded. Fair values are determined based on the discounted cash flows, quoted market values, or external appraisals, as applicable. Long-lived assets are reviewed for impairment at the individual asset or the asset group level for which the lowest level of independent cash flows can be identified. Any loss resulting from impairment of long-lived assets would be reflected in operations. The Company recognized impairment on long-lived assets of Peco Fasteners as of December 31, 2012 as disclosed in Note 17.

Income Taxes-The Company, with the consent of its stockholders, has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company does not pay corporate income taxes on its taxable income. Instead, the stockholders are liable for individual income taxes on the Company's taxable income.

With few exceptions, the Company is no longer subject to federal, state or local income tax examinations for the years ended before 2009. To the extent that the Corporation was assessed interest or penalties associated with income tax positions, such expense would be recognized as interest expense.

Revenue Recognition-The Company recognizes revenues upon shipment at which time title transfers to the buyer. Advance payments for custom tooling products that are made to customer's specifications are deferred until the Company ships or begins using the tool to manufacture product for the customer. Sales returns have historically been insignificant.

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Amounts billed to customers for shipping and handling is credited against cost of sales for financial reporting purposes. Costs for the related shipping and handling expenses have been included in costs of sales.

Advertising-The Company expenses advertising costs as they are incurred. Advertising expenses amounted to $16,676, $21,926 and $75,142 in 2012, 2011 and 2010, respectively.

Research and Development - Research and development costs are expensed as . . .

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