Astronics Corporation

Analyst: Victor Sula, Ph.D. Initial Report July 7th, 2009

ATRO daily

7/06/09

11.5 11.0 10.5 10.0 9.5 9.0 8.5 8.0 7.5 © BigCharts.com

2 1.5 1 0.5 0

May

Jun

Millions

volume

Jul

MARKET DATA

Share Statistics (01-Jul-09) Symbol Current price Low/ High 52 weeks Average Volume Market Cap Dil. Shares Outstanding

2007

2008

% Chg

Q1 2008

Q1 2009

% Chg

ATRO

Revenues, $ Mn.

158.2

173.7

9.8%

41.1

50.0

21.7%

$10.07

Gross margin

25.9%

17.6%

-8.3%

20.7%

17.0%

-3.7%

14.5%

7.1%

-7.4%

10.0%

4.2%

-5.8%

Net margin

9.7%

4.8%

-4.9%

6.6%

2.8%

-3.8%

EPS, $

1.44

0.79

-45.1%

0.26

0.13

-50%

$6.3–26.21 Operating margin 60,569 $108.5 Mn 10.78 Mn

Recommendation Despite the difficult environment, Astronics Corp. (ATRO) achieved record sales in the Q1 2009, mainly due to the acquisition of DME Corporation (DME).

Some of the Company’s biggest customers cut production plans during the quarter, resulting in lower demand for its offering. ATRO responded to lower sales volumes by cutting costs and aligning its operations to conform to lower demand.

Highlights ATRO is positioned as a leading global provider of lighting subsystems, as well as electrical power generation for airline passengers and in-flight entertainment systems. ATRO’s systems are being used in such nextgeneration aircrafts as the Airbus A380 superjumbo jet, the military’s V-22 Osprey and F-35 Joint Strike Fighter, and business-class light jets such as the Cessna Mustang. The Company has also a long relationship with South America’s Embraer-Empresa Brasileir de Aero (NYSE: ERJ), a leading provider of the regional jets that many airlines now favor in order to serve smaller and mid-size markets.

Astronics Corporation (Nasdaq: ATRO)

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Analyst: Victor Sula, Ph.D. Initial Report July 7th, 2009

Astronics Corp. (ATRO), through its subsidiaries, designs and manufactures lighting components and subsystems, as well as electrical power generation, and in-flight control and power distribution systems for the aircraft market.

As a result of the Company’s acquisition of DME Corporation in January 2009, ATRO now has two reportable segments, Aerospace and Test Systems.

The Aerospace segment designs and manufactures products for the global aerospace industry. Product lines include Aircraft Lighting, Cabin Electronics, Airframe Power and Airfield Lighting. The markets for the Company’s Aerospace products include the Commercial Transport, Business Jet, Military, Federal Aviation Administration and airports around the world.

The Test Systems segment designs, develops, manufactures and maintains communications and weapons test systems, as well as training and simulation devices for military applications. The current markets for the Company’s Test Systems products include the U.S. military, foreign militaries as well as manufacturers of military communication systems.

ATRO operates four principal facilities located in New York State, New Hampshire, Washington State and Quebec, Canada.

Astronics Corp. was founded in 1968 and is based in East Aurora, New York.

In January 2009, for $50 million, ATRO acquired 100% of DME Corporation (DME), a privately held company founded in 1976 with revenue of approximately $86 million in 2008. DME is a leading provider of military test, training and simulation equipment as well as commercial aviation safety equipment and airfield lighting systems. Its customers include the U.S. Marine Corps, Homeland Security Administration, major defense contractors such as Lockheed Martin, BAE Systems and Boeing, the Federal Aviation Administration, private and government airfields, major aircraft manufacturers and commercial airlines. The acquisition of DME strengthens ATRO’s positions in the military and defense markets and adds aviation safety niche.

Over the last four years the Company reported strong demand and revenue growth. Revenue for 2008 increased 9.8% to $173.7 million compared to 2007 revenue of $158.2 million. For 2008, net income was $10.0 million, or $0.94 per diluted share, 35.3% below net income of $15.4 million, or $1.44 per diluted share, in 2007. Some of ATRO’s most significant customers reduced their production plans during the first quarter of 2009, resulting in decreased demand for the Company’s products, and a 46%-decline in profits.

However, two months of financial results from the operations of DME resulted in record sales of $50.0 million in a quarter for the Company. ATRO expects sales for the full year to be in the range of $210 million to $225 million.

The Company’s backlog as of April 2009 was $111.7 million, or 15.0% above the backlog of $97.1 million at the end of the first quarter of 2008, up from a backlog of $89.0 million at December 31, 2008. Aerospace backlog was $85.4 million in the 2009 first quarter, as compared with $97.1 million in the same period last year. Approximately 75% of ATRO’s backlog is expected to be shipped in 2009.

ATRO became a publicly traded company in 1984. Through its early years, ATRO was mostly a sub-$10 stock. After establishing an all-time high of $53.88 in December 2007, shares traded lower, bottoming out below $7 in January 2009. However, since this near term low, prices have strengthened, moving higher to the $11 level. Currently, shares are traded at $10.4 which is close to the last 52 weeks low.

Financial Analysis In 2008, the Company reported sales of $173.7 million, or 9.8% growth compared to $158.2 million in 2007. The sales increase was driven by increased volume sold to meet higher demand Astronics Corporation (Nasdaq: ATRO)

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Analyst: Victor Sula, Ph.D. Initial Report July 7th, 2009

STOCK PERFORMANCE (%) Price Change

GROWTH (%)

Revenues EPS

RETURN ON EQUITY (%) TTM 5 Yr. Avg.

3 Mo.

1 Yr.

3 Yr. (Ann)

27.1

-31.2

-11.7

Last Qtr.

12 Mo.

3 Yr CAGR

21.7 -48.0

9.8 -45.1

32.7 41.3

AFAM

Ind Avg

S&P 500

12.3 18.3

22.5 18.6

20.3 20.0

P/S comparison

for ATRO’s products. During 2008, the Company’s sales were divided 60% to the commercial transport market, 20% to the military market, 19% to the business jet market, and the balance of 1% to other markets. Gross profit for 2008 was $39.5 million, 3.4% below gross profit of $40.9 million in 2007. As a percent of sales, gross margin was 22.7% in 2008 compared with 25.8% in 2007. The decrease was due primarily to increased engineering, development and infrastructure expenses offset, which were somewhat by leverage from the increase in revenue.

ATRO reported sales of $50.0 million in Q1 2009, a 21.7% increase compared with revenue of $41.1 million in Q1 2008. Gross profit in the first quarter of 2009 was $8.5 million, or 17.1% of sales, compared with $8.5 million, or 20.7% of sales, in the first quarter of 2008. The lower gross margins reflect the lost of profitability as a result of lower sales volume for the organic business as well as for the acquired DME business.

Cash flow provided by operating activities was $11.5 million in 2008 compared with $8.6 million provided by operating activities in 2007. During the first three months of 2009, cash provided by operating activities totaled $2.9 million. Cash and cash equivalents were $1.2 million at April 04, 2009. In conjunction with the acquisition of DME, the Company entered into a revised $85 million credit agreement, which provides for a $40 million fiveyear term loan and a revolving credit line of $45 million, of which approximately $30 million is currently available for working capital requirements.

Industry analysis

Source:Reuters.com

According to its latest Global Market Forecast, Airbus Industrie (France) foresees a demand for 24,300 new commercial passenger and freighter aircraft valued at $2.8 trillion (USD) between now and 2026. This will create an average annual delivery of some 1,215 aircraft. Meantime, U.S.-based rival The Boeing Co. foresees 29,000 new-airplane deliveries over the same period, with those planes making up 80% of the 36,400 airplanes that will be in service in 2026. Airbus also foresees a demand for 1,700 very large aircraft (VLA), those that seat more than 400 passengers. Of these, nearly 1,300 will be passenger aircraft, with another 400 or so required for superjumbo freighters. By the year 2026, almost two-thirds of all VLAs will serve today’s 32 “mega-city” hubs.

The United States is the largest market by aircraft number, with a need for more than 6,600 aircraft by 2025. Developing countries from Eastern Europe, Latin America and the Middle East are expected to boost the demand. While China and India will remain

Astronics Corporation (Nasdaq: ATRO)

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Analyst: Victor Sula, Ph.D. Initial Report July 7th, 2009

FY07

FY08

INCOME STATEMENT Net Sales ($mil) Gross profit ($mil) EBITDA ($mil) EBIT ($mil) Net Income ($mil)

158.2 40.9 23.0 23.0 15.4

173.7 30.5 12.3 12.3 8.4

BALANCE SHEET Cash & Equiv. ($mil) Total Assets ($mil) Total Debt ($mil) Equity ($mil)

2.8 104.1 22.9 49.2

3.0 104.7 14.5 58.3

PROFITABILITY Gross Margin Operating Margin Asset Turnover Return on Assets Return on Equity

25.9% 14.5% 1.70 14.8% 31.3

17.6% 7.1% 1.67 8.0% 14.4

DEBT Current Ratio Debt/Capital Interest Expense ($mil) Interest Coverage

2.85 31.8% 1.4 16.4

2.00 19.9% 0.7 17.6

SHARE DATA Dil. Shar. Outst.(mil) EPS Book value / share Institutional Own % Avg Daily Volume

10.71 1.44 4.6 n/a 42,624

10.65 0.79 5.5 26% 52,032

Source: SEC filings; analyst estimates.

INCOME STATEMENT Net Sales ($mil) Gross profit ($mil) EBITDA ($mil) EBIT ($mil) Net Income ($mil) BALANCE SHEET Cash & Equiv. ($mil) Total Assets ($mil) Total Debt ($mil) Equity ($mil)

Q1 08

Q1 09

41.1 8.5 4.1 4.1 2.7

50.0 8.5 2.1 2.1 1.4

1.2 105.3 21.9 52.3

1.2 160.3 58.7 63.4

Source: SEC filings

Astronics Corporation (Nasdaq: ATRO)

the greatest forces, Airbus forecasts that some 30 other emerging economies, including Argentina, Brazil, South Africa and Vietnam — with a combined population of almost 3 billion people — will become increasingly prominent by 2026.

In the longer term, the outlook for new military aircraft sales is even brighter, as 21st Century needs trigger booming sales in long-range transports, tankers, and both combat and multi-role helicopters. Over the decades, combat survivability has evolved into a high- priority design requirement for U.S. military aircraft.

Aircraft demand is primarily driven by two factors. The first is economic growth and the second is airline profitability. When the market demand is healthy, the availability of capital to fund this growth usually follows. Despite the current economic turmoil and reduced GDP, the world economic outlook remains positive and the aircraft industry is expected to recover in the next years.

Analyst opinion ATRO is a leader in innovative, high performance lighting, power generation, and control and distribution systems for the global aerospace industry. The Company has built its reputation on high quality designs, exceptional responsiveness, strong brand recognition and excellent manufacturing practices. Its strategy is to expand the value and content it provides to various aircraft platforms through product development and acquisition. ATRO was ranked first on the Fortune Small Business Magazine 2008 list of America’s 100 fastest-growing small public companies.

In June 2009, ATRO has been added to the Russell 3000® Index, which measures the stock performance of the largest 3,000 U.S. companies, based on total market capitalization.

The global financial crises has decreased the demand for airplanes and consequently affected negatively the Company’s growth track.

However, despite the expected lower organic revenue in 2009 as compared to 2008, ATRO still sees many opportunities for longterm growth, and expects to continue to invest in developmental programs to expand its offering. The addition of DME Corporation diversifies the products and technologies ATRO currently offers and improves its market balance by increasing military and defense content.

The ATRO’s P/E ratio (12.5), Price to Sales ratio (0.6), Price to Free Cash Flow ratio (10.7), Sales Growth rate (39.2%), 5yr Return on Assets (8.3%), 5yr Return on Investment (11.8%) and 5yr Return on Equity (18.3%) position the Company favorably compared with industry, sector and S&P 500 averages.

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Analyst: Victor Sula, Ph.D. Initial Report July 7th, 2009

Consensus Estimates ATRO

FY 2009 31-Dec-09

FY 2010 31-Dec-10

EPS, $ Revenue, $Mil

0.90 220.5

1.15 231.3

consensus estimates are provided by Thomson Financial

Rev. consensus estimates, $Mil. Ticker Symbol LMIA DCO BEAV ISSC HRLY CW TDG

2009

2010

%Chg

261 448.6 1,937 38.2 160.5 1,899 757.6

257 478.6 1,962 40.5 172 2,014 772.4

-1.5% 6.7% 1.3% 6.0% 7.2% 6.1% 2.0% 6.0%

220.5

231.3

5.0%

Source: Thomson Reuters.

EPS. consensus estimates, $ Ticker Symbol LMIA DCO BEAV ISSC HRLY CW TDG

EPS, $

2009 1.37 2.2 1.38 0.27 0.52 2.5 3.2

2010

%Chg

1.27 2.38 1.55 0.24 0.78 2.69 3.28

-7.3% 8.2% 12.3% -11.1% 50.0% 7.6% 2.5%

LMI Aerospace Inc. Ducommun Inc. BE Aerospace Inc. Innovative Solutions & Support Inc. Herley Industries Inc. Curtiss-Wright Corp.

TransDigm Group Inc.

Ticker Symbol

Price per Share, $

P/E Mrkt. Cap. $ Mn 2009 2010

LMIA DCO BEAV ISSC

10.49 18.92 14.21 4.30

121.9 191.1 1,440 68.8

7.66 8.60 10.30 15.93

8.26 7.95 9.17 17.92

HRLY CW TDG

11.25 30.10 37.5

152.0 1,360 1,810

21.63 12.04 11.72

14.42 11.19 11.43

11.17

10.18

11.51

9.01

Median ATRO

10.36

111.7

Source: Thomson Reuters; Yahoo! Finance.

ATRO’s strategy of leveraging its position as a technical leader in its niche markets in order to grow demand for its offering has successfully resulted in strong revenue growth over the last four years. ATRO has positioned itself as the leading provider of power for airline passengers and IFE systems around the world, driven by demand for its power systems that bring in-seat power to passengers, which allows them to operate their personal electronic devices and lap-top computers as well as providing power for in-flight entertainment systems. The Company’s power systems have been installed on more than 200,000 commercial airline seats around the world. Also contributing to the Company’s success is the expansion of the content value of its airframe power systems and aircraft lighting product lines for business jets and military aircraft. In addition, the positive outlook for the aircraft market over the next two decades makes us confident concerning the growth potential of ATRO.

7.6%

Median ATRO

Company Name May-29-2009

Astronics Corp.

Revenue, $ Mn

Median ATRO

Comparative analyses

0.9

1.15

27.8%

Source: Thomson Reuters.

Astronics Corporation (Nasdaq: ATRO)

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Analyst: Victor Sula, Ph.D. Initial Report July 7th, 2009

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All decisions are made solely by the analyst and independent of outside parties or influence.

I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regarding the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the companies featured in this report.

Victor Sula, Ph.D. - Senior Analyst Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.

Astronics Corporation (Nasdaq: ATRO)

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