ASTRONICS CORP — Interim / Quarterly Report 2003

May 12, 2003

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

| [X] | Quarterly report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| --- | --- |
| | For the quarterly
period ended March 29, 2003 |
| | or |
| [ ] | Transition report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| | For the transition
period from_ to_ |

Commission File Number

0-7087

ASTRONICS CORPORATION

(Exact name of registrant as specified in its charter)

New York (State or other jurisdiction of incorporation or organization)	16-0959303 (IRS Employer Identification Number)
1801 Elmwood Avenue, Buffalo, New York (Address of principal executive
offices)	14207 (Zip code)

(716) 447-9013 (Registrant's telephone number, including area code)

NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(g) of the Act:

$.01 par value Common Stock, $.01 par value Class B Stock (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

Yes [ X ] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes [ ] No [ X ]

As of March 29, 2003, 7,739,987 shares of common stock were outstanding consisting of 5,722,579 shares of common stock ($.01 par value) and 2,017,408 shares of Class B common stock ($.01 par value).

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

ASTRONICS CORPORATION Consolidated Balance Sheet March 29, 2003 With Comparative Figures for December 31, 2002

	Dollars in Thousands — March 29, 2003	December 31,
	(Unaudited)	2002
Current Assets:
Cash	$ 10,528	$	7,722
Accounts Receivable	5,584		4,745
Inventories	6,075		6,139
Prepaid Expenses	439		434
Due from MOD-PAC CORP	1,045		4,751
Total current assets	23,671		23,791
Property, Plant and Equipment, at
cost	23,885		23,774
Less Accumulated Depreciation and
Amortization	8,389		8,111
Net Property, Plant and Equipment	15,496		15,663
Deferred Income Taxes	1,317		1,255
Goodwill	2,242		2,135
Other Assets	3,530		3,763
Net Long-term Assets of
Discontinued operations	-		20,742
	$ 46,256	$	67,349
Current Liabilities:
Current Maturities of Long-term
Debt	$ 881	$	873
Net Current Liabilities of
Discontinued Operations	242		1,034
Accounts Payable	2,803		1,939
Accrued Expenses	1,525		2,195
Total Current Liabilities	5,451		6,041
Long-term Debt	13,179		13,110
Supplemental Retirement Plan	5,013		4,823
Net Long-term liabilities of
Discontinued Operations	461		-
Other Liabilities	427		436
Common Shareholders' Equity:
Common Stock, $.01 par value
Authorized 20,000,000 shares,
issued
6,396,905 in 2003, 5,975,409 in
2002	64		64
Class B stock, $.01 par value
Authorized 5,000,000 shares,
issued
2,123,220 in 2003, 2,524,432 in
2002	21		21
Additional Paid-in Capital	3,258		3,790
Accumulated Other Comprehensive
Income (loss)	(301	)	(545	)
Retained Earnings	22,386		42,831
	25,428		46,161
Less Treasury Shares, at cost
780,138 in 2003
and 703,295 in 2002	3,703		3,222
Total Shareholders' Equity	21,725		42,939
	$ 46,256	$	67,349
See notes to financial statements.

ASTRONICS CORPORATION

Consolidated Statement of Income Three months Ended March 29, 2003 With Comparative Figures for 2002

	(Dollars in Thousands)
	(Unaudited)
	2003		2002
Net Sales	$ 8,686		$ 11,468
Costs and Expenses:
Cost of products sold	6,698		8,032
Selling, general and	1,475		1,492
administrative expenses
Interest expenses, net of
interest income of $20 in
2003 and $47 in 2002	73		72
Total costs and expenses	8,246		9,596
Income from continuing operations
before taxes	440		1,872
Provision for income taxes	163		685
Income from continuing operations	277		1,187
Income from discontinued operations	281		169
Net income	$ 558		$ 1,356
Retained Earnings:
January 1	$ 42,831		$ 38,278
Spin off of MOD-PAC CORP.	(21,003	)	-
March 29	$ 22,386		$ 39,634
Earnings per share:
Basic Earnings per share:
Continuing operations	$ 0.03		$ 0.15
Discontinued operations	0.04		0.02
Net Income	$ 0.07		$ 0.17
Diluted Earnings per share:
Continuing operations	$ 0.03		$ 0.14
Discontinued operations	0.04		0.02
Net Income	$ 0.07		$ 0.16

See notes to financial statements.

ASTRONICS CORPORATION

Consolidated Statement of Cash Flows Three Months Ended March 29, 2003 With Comparative Figures for 2002

	(Dollars in Thousands)
	(Unaudited)
	2003		2002
Cash Flows from Operating Activities:
Income from continuing operations	$ 277	$	1,187
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization	323		339
Other	(70	)	26
Cash flows from changes in operating assets and liabilities, excluding
effects of acquisitions:
Accounts receivable	(758	)	(586	)
Inventories	134		(160	)
Prepaid expenses	(171	)	(9	)
Accounts payable	839		879
Income taxes	268		748
Accrued expenses	(526	)	(399	)
Net cash provided by Operating Activities	316		2,025
Cash Flows from Investing Activities:
Change in other assets	(33	)	(272	)
Capital expenditures	(48	)	(93	)
Net Cash (used in) Investing Activities	(81	)	(365	)
Cash Flows from Financing Activities
Principal payments on long-term debt and capital lease
Obligations	(17	)	(100	)
Due from MOD-PAC CORP	3,706		-
Unexpended industrial revenue bond proceeds	-		87
Proceeds from issuance of stock	24		5
Purchase of treasury stock	(1,088	)	(47	)
Net Cash provided by (used in) Financing Activities	2,625		(55	)
Effect of exchange rate change on cash	7		(7	)
Cash provided by continuing operations	2,867		1,598
Cash (used in) discontinued operations	(61	)	(163	)
Net increase in Cash and Cash Equivalents	2,806		1,435
Cash and Cash Equivalents at Beginning of Year	7,722		9,176
Cash and Cash Equivalents at March 29	$ 10,528	$	10,611
Cash payments for:
Interest	$ 93	$	123
Income taxes	212		80
See notes to financial statements.

ASTRONICS CORPORATION Notes to Financial Statements

March 29, 2003

| 1) |
| --- |
| The balance sheet at December 31, 2002 has been derived
from the audited financial statements at that date, but does not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. |
| For further information, refer
to the financial statements and footnotes thereto included in Astronics
Corporation's (the "Company")
2002 annual report. |

| The Company accounts for its
stock-based awards using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25 and its related interpretations.
The measurement prescribed by APB Opinion No. 25 does not recognize
compensation expense if the exercise price of the stock option equals the
market price of the underlying stock on the date of grant.
Accordingly, no compensation expense related to stock options has been
recorded in the financial statements. |
| --- |
| For purposes of pro forma
disclosures, the estimated fair value of the Company's stock options at the
date of grant is amortized to expense over the options' vesting period.
The Company's proforma information for the 2003 and 2002 first quarters are
presented in the table below: |

			2003
(in thousands)
Net income as reported	$ 588	$	1,356
Adjustments to record compensation
expense for stock option awards under the
fair value method of accounting.	(132	)	(87	)
Pro forma net income	$ 426	$	1,269
Pro forma earnings
per share	$ 0.05	$	0.16
Pro forma diluted earnings per share	$ 0.05	$	0.15

| 2) | Discontinued Operations On September 26, 2002, the Company announced the spin-off
of its wholly owned subsidiary MOD-PAC CORP., which operated the Printing
and Packaging business segment. That spin-off was completed on March 14,
2003. As such the net assets and equity of MOD-PAC CORP. were removed from
the balance sheet of the Company on March 14, 2003 resulting in a
reduction of the Company's retained earnings and related net assets of $21.0 million. In December of 2002
the Company announced the discontinuance of the
Electroluminescent Lamp Business Group, whose business has involved sales of
microencapsulated electroluminescent lamps to customers in the consumer
electronics industry. The operations of the printing and packaging business
segment through the spin-off date of March 14, 2003 and the results of
operations of the Electroluminescent Lamp Business Group have been reported
as discontinued operations in the financial statements of the Company. The financial statements for 2002 have been restated to reflect
the printing and packaging business segment and the electroluminescent
business group as discontinued operations. |
| --- | --- |
| 3) | Inventories are stated at the lower of cost or market,
cost being determined in accordance with the first-in, first-out method.
Inventories are as follows: |

(in thousands)	March 29, 2003	December 31, 2002
	(Unaudited)
Finished Goods	$ 726	$ 640
Work in Progress	1,108	1,011
Raw Material	4,241	4,488
	$ 6,075	$ 6,139

ASTRONICS CORPORATION

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

	Percent of Net Sales
	Three Months Ended March 29
	2003	2002
Net Sales	100.0 %	100.0 %
Cost of products sold	77.1	70.0
Selling, general and
administrative expenses	17.0	13.0
	94.1 %	83.0 %
Operating Income	5.9 %	17.0 %

| NET SALES | Net sales declined $2.8 million from $11.5 million in the
first quarter of 2002 to $8.7 million in the first quarter of 2003. This
decline is directly linked to the scheduled ramp down and conclusion of the
F-16 NVIS retro fit program with the U.S. Airforce. F-16 NVIS kit sales
decreased from $3.6 million during the first quarter of 2002 to $ 523
thousand during the first quarter of 2003. Sales of our other products
showed a mixed performance with a net increase of $270 thousand as compared
to 2002 first quarter sales. |
| --- | --- |
| EXPENSES AND MARGINS | Cost of products sold as a percentage of net sales
increased seven percentage points from 70.0% during the first quarter of
2002 to 77.1% during the first quarter of 2003. This increase as a percent
of net sales is the result of the decreased sales as compared to the same
period in 2002 not being off set by a proportionate reduction in fixed
production costs. Overall manufacturing overhead was reduced by 11% as
compared to the first quarter of 2002 primarily a result of work force
reductions. |
| | Selling, general and administrative costs increased as a
percent of sales by 4.0% from 13.0% during the first quarter of 2002 to
17.0% in 2003. This was also a result of the decrease in sales not being
offset by a proportionate decrease of selling, general and administrative
expenses as a result of the fixed nature of these expenses. |
| INCOME FROM CONTINUING
OPERATIONS BEFORE TAXES | The decline in sales discussed above means we have less
contribution towards our overhead costs so income before taxes is down 76%
for the quarter from $1.9 million in 2002 to $440 thousand in 2003 . |
| TAXES | Our effective income tax rate for the first quarter of
2003 was 37.0% compared with 36.6% for the first quarter of 2002. |
| EARNINGS PER SHARE FROM CONTINUING OPERATIONS | Diluted Earnings per share from continuing operations
were $.03 for the first quarter of 2003, down $.10 from $.13 in 2002. This
was mainly attributable to the decrease in net earnings. Changes in the
number of shares outstanding did not impact the calculation significantly. |
| INCOME FROM DISCONTINUED OPERATIONS | Income from discontinued operations was up $112 thousand
for the quarter-to-quarter comparison. Income from discontinued operations
attributable to MOD-PAC totaled $477 thousand for the first quarter of 2002
and $366 thousand through the spin off date of March 14, 2003. Income from
discontinued operations attributable to the Electroluminescent Lamp group
were losses of $308 thousand and $85 thousand for the first quarters of 2002
and 2003 respectively. Most of the activity associated with the "EL" lamp
group is expected to wind down through July of 2003. The net effect on cash
flow and earnings is not expected to be significant during this period. |
| NET INCOME AND EARNINGS PER SHARE | Net income was down $798 thousand in the first three
months of 2003 to $558 thousand from $1.356 million in 2002. This is
attributable to the decline in income from continuing operations. |
| LIQUIDITY | Cash at March 29, 2003 was $10.5 million compared with
$7.7 million at December 31, 2002. Cash provided by operating activities during the first
quarter of 2003 was $316 thousand, the result of net income, plus
depreciation and amortization less net increases in working capital
components. Cash provided by operating activities may fluctuate as a result
of a number of factors including net income, shipment linearity, receivable
collections and the timing of tax and other payments. Sales for the quarter
as well as raw material purchases were weighted towards the last half of the
quarter thus increasing our payables and receivables for the quarter. Also
during the first quarter payments were made for various expenses accrued
during the previous year such as profit sharing /401k plan contributions and
bonuses. |
| | The company received a one time cash dividend from
MOD-PAC of $7 million, as a result of the spin off of MOD-PAC. The dividend
was intended to offset a portion of the long-term debt and the supplemental
retirement obligations that were incurred by the former combined company and
retained by the Company. |
| | The Company's capital expenditures of $0.05 million for
the first quarter of 2003 were similar to 2002's level of $0.1 million.
Capital expenditure commitments for the balance of 2003 for continuing
operations are not significant. . |
| | The Company has an $8,000,000 line of credit facility
available. At March 29, 2003 the Company had not borrowed against the line
of credit. The line is subject to annual review and is payable on demand.
The line of credit, among other requirements, imposes certain financial
performance covenants with which the Company maintains compliance. The
Company believes that cash balances at March 29, 2003, cash flow from
operations and availability on the line of credit are adequate to meet the
Company's operational and capital expenditure requirements for 2003. |
| BACKLOG | The Company's backlog at March 29, 2003 was $18.8
million. |
| COMMITMENTS | The Company has commitments for items that it purchases
in the normal on-going affairs of the business. The Company is not aware of
any obligations in excess of normal market conditions, nor of any long-term
commitments that would have a material adverse affect on its financial
condition. |
| MARKET RISK | The Company's foreign operations do not result in
significant currency risks because nearly all of the Company's consolidated
net sales are denominated in U.S. dollars and net assets held in, or
measured in, currencies other than the U.S. dollar are not material. |
| | Risks due to fluctuation in interest rates are a function
of the Company's floating rate debt obligations, which total approximately
$13,900,000 at March 29, 2003. To offset this exposure, the Company entered
into an interest rate swap on its New York Industrial Revenue Bond through
2005 that effectively fixes the interest rate at 4.09% on this $5,950,000
obligation. As a result, a change of 1% in interest rates would impact
annual net income by less than $100,000. |
| NEW ACCOUNTING PRONOUNCEMENTS | There are no recently issued accounting standards that
will have a material impact on our financial position or results of
operations. |
| FORWARD LOOKING STATEMENTS | This report contains certain
forward looking statements within the meaning of the Private Securities
Litigation Report Act of 1995 that involves uncertainties and risks.
These statements are identified by the use of the words "believes,"
"expects," "intends," "anticipates" and words of similar import.
Readers are cautioned not to place undue reliance on these forward looking
statements as various uncertainties and risks could cause actual results to
differ materially from those anticipated in these statements. These
uncertainties and risks include the success of the Company with effectively
executing its plans; the timeliness of product deliveries by vendors
and other vendor performance issues; changes in demand for our
products from the U.S. government and other customers; the acceptance by the
market of new products developed; our success in cross selling products to
different customers and markets, changes in government contracts, as well as
other general economic conditions and other factors. |

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

See Market Risk in Item 2, above.

ITEM 4. Disclosure Controls

Within 90 days prior to the filing of the report, an evaluation was performed under the supervision and with the participation of the Company's management including the chief executive officer and chief financial officer of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation the Company's management including the chief executive officer and chief financial officer concluded that the Company's disclosure controls and procedures were effective as of March 29, 2003. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to March 29, 2003.

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings .
	None.
Item 2.	Changes in Securities and Use
of Proceeds .
	None.
Item 3.	Defaults Upon Senior
Securities .
	None.
Item 4.	Submission of Matters to a
Vote of Securities Holders .
	At the annual meeting of shareholders held on April 24,
2003, the nominees to the Board of Directors were re-elected based on the
following results:
	Nominees	Votes For	Votes Withholding Authority
	Robert T. Brady	21,649,739	1,050,169
	John B. Drenning	21,649,739	1,050,169
	Peter J. Gundermann	21,649,739	1,050,218
	Kevin T. Keane	21,646,852	1,053,056
	Robert J. McKenna	21,649,739	1,050,169
	The selection of Ernst & Young LLP as the Registrant's
auditors was approved by the following vote: 21,765,625 in favor; 264,576
against; and 669,707 abstentions.
	Under Applicable New York law and the Company's charter
documents, abstentions and non-votes have no effect.
Item 5.	Other Information .
	None.
Item 6.	Exhibits and Reports on Form 8-K
	Exhibit 11. Computation of Per Share Earnings
	Exhibit 99. Certification pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	The company filed form 8-K on Tuesday April 23, 2003 regarding its press
release of its 2003 first quarter earnings.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ASTRONICS CORPORATION
	(Registrant)
Date: May 12, 2003	By: /s/ David C. Burney
	David C. Burney Vice President-Finance and Treasurer (Principal Financial Officer)

CERTIFICATION

I, Peter J. Gundermann, President and Chief Executive Officer, certify that:

| 1. | I have reviewed this
quarterly report on Form 10-Q of Astronics Corporation; | |
| --- | --- | --- |
| 2. | Based on my
knowledge, this quarterly report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
quarterly report; | |
| 3. | Based on my
knowledge, the financial statements, and other financial information
included in this quarterly report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report; | |
| 4. | The registrant's
other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have: | |
| | a. | designed such disclosure
controls and procedures to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this
quarterly report is being prepared; |
| | b. | evaluated the effectiveness of
the registrant's disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the "Evaluation
Date"); and |
| | c. | presented in this quarterly
report our conclusions about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The
registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions): | |
| | a. | all significant deficiencies in
the design or operation of internal controls which could adversely affect
the registrant's ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any material
weaknesses in internal controls; and |
| | b. | any fraud, whether or not
material, that involves management or other employees who have a significant
role in the registrant's internal controls; and |
| 6. | The registrant's
other certifying officers and I have indicated in this quarterly report
whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses. | |

Date: May 12, 2003

/s/ Peter J. Gundermann

Peter J. Gundermann

President and Chief Executive Officer

CERTIFICATION

I, David C. Burney, Chief Financial Officer, certify that:

| 1. | I have reviewed this
quarterly report on Form 10-Q of Astronics Corporation; | |
| --- | --- | --- |
| 2. | Based on my
knowledge, this quarterly report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
quarterly report; | |
| 3. | Based on my
knowledge, the financial statements, and other financial information
included in this quarterly report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report; | |
| 4. | The registrant's
other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have: | |
| | a. | designed such
disclosure controls and procedures to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period
in which this quarterly report is being prepared; |
| | b. | evaluated the
effectiveness of the registrant's disclosure controls and procedures as of a
date within 90 days prior to the filing date of this quarterly report (the
"Evaluation Date"); and |
| | c. | presented in this
quarterly report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The
registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions): | |
| | a. | all significant
deficiencies in the design or operation of internal controls which could
adversely affect the registrant's ability to record, process, summarize and
report financial data and have identified for the registrant's auditors any
material weaknesses in internal controls; and |
| | b. | any fraud, whether
or not material, that involves management or other employees who have a
significant role in the registrant's internal controls; and |
| 6. | The registrant's
other certifying officers and I have indicated in this quarterly report
whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses. | |

Date: May 12, 2003

/s/ David C. Burney

David C. Burney

Chief Financial Officer