ASTRONICS CORP — Interim / Quarterly Report 2004

May 14, 2004

10-Q 1 form10q.htm 10-Q Form 10-Q

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 April 3, 2004 |
| | 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)
130 Commerce Way East Aurora, New York (Address of principal executive
offices)	14052 (Zip code)

(716) 805-1599

(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 April 3, 2004 7,761,512 shares of common stock were outstanding consisting of 5,848,609 shares of common stock ($.01 par value) and 1,912,903 shares of Class B common stock ($.01 par value).

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements

ASTRONICS CORPORATION Consolidated Balance Sheet April 3, 2004 With Comparative Figures for December 31, 2003

	(Dollars in Thousands) — April 3, 2004	December 31, 2003
	(Unaudited)
Current Assets:
Cash	$ 11,420	$ 11,808
Accounts
Receivable	5,618	4,383
Inventories	6,106	5,707
Prepaid Expenses	1,257	1,378
Total Current Assets	24,401	23,276
Property, Plant
and Equipment, at cost	24,418	24,335
Less Accumulated
Depreciation and Amortization	9,466	9,216
Net Property, Plant and
Equipment	14,952	15,119
Deferred Income
Taxes	1,120	1,165
Goodwill	2,430	2,444
Other Assets	3,456	3,470
Total Assets	$ 46,359	$ 45,474
Current
Liabilities:
Current Maturities
of Long-term Debt	$ 895	$ 896
Net Current
Liabilities of Discontinued Operations	236	155
Accounts Payable	2,648	1,617
Accrued Payroll
and Employee Benefits	975	1,278
Other Accrued
Expenses	505	563
Total current liabilities	5,259	4,509
Long-term Debt	12,434	12,482
Supplemental
Retirement Plan	4,802	4,718
Net Long-term
Liabilities of Discontinued Operations	287	397
Other liabilities	417	428
Common
Shareholders' Equity:
Common Stock, $.01
par value
Authorized 20,000,000 shares,
issued
6,527,047 in 2004, 6,483,128
in 2003	65	65
Class B Common
Stock, $.01 par value
Authorized 5,000,000 shares,
issued
2,018,715 in 2004, 2,042,926
in 2003	20	20
Additional Paid-in
Capital	3,303	3,269
Accumulated Other
Comprehensive Income	325	365
Retained Earnings	23,166	22,940
	26,879	26,659
Less Treasury
Stock: 784,250 shares in 2004
and 2003	3,719	3,719
Total Shareholders' Equity	23,160	22,940
	$ 46,359	$ 45,474
See notes to financial statements.

ASTRONICS CORPORATION

Consolidated Statement of Income and Retained Earnings Three Months Ended April 3, 2004 With Comparative Figures for 2003

	(Dollars in Thousands)
	(Unaudited)
	2004	2003
Net Sales	$ 8,969	$ 8,686
Costs and Expenses:
Cost of products
sold	7,281	6,698
Selling, general and administrative expenses	1,267	1,475
Interest expenses,
net of interest income of $38 in 2004 and $20 in 2003	57	73
Total costs and
expenses	8,605	8,246
Income from
Continuing
Operations Before
Income Taxes	364	440
Provision for Income
Taxes	138	163
Income from
Continuing Operations	226	277
Income from Discontinued Operations	-	281
Net Income	226	558
Retained Earnings:
Beginning of Period	22,940	42,831
Spin off of MOD-PAC
CORP.	-	(21,003	)
End of period	$ 23,166	$ 22,386
Earnings per share:
Basic Earnings per
share:
Continuing
operations	$ .03	$ .03
Discontinued
operations	-	.04
Net Income	$ .03	$ .07
Diluted Earnings per
share:
Continuing
operations	$ .03	$ .03
Discontinued
operations	-	.04
Net Income	$ .03	$ .07

ASTRONICS CORPORATION

Consolidated Statement of Cash Flows Three Months Ended April 3, 2004 With Comparative Figures for 2003

	(Dollars in Thousands)
	(Unaudited)
	2004		2003
Cash Flows from
Operating Activities:
Income From
Continuing Operations	$ 226	$	277
Adjustments to
reconcile net income to net cash
provided by
operating activities:
Depreciation and
Amortization	323		323
Other	118		(70	)
Cash flows from
changes in operating assets and liabilities, excluding effects of
acquisitions:
Accounts Receivable	(1,245	)	(758	)
Inventories	(411	)	134
Prepaid Expenses	40		(171	)
Accounts Payable	1,036		839
Income Taxes	105		268
Accrued Expenses	(359	)	(526	)
Net Cash (used in)
provided by Operating Activities	(167	)	316
Cash Flows from
Investing Activities:
Change in Other
Assets	(55	)	(33	)
Capital Expenditures	(90	)	(48	)
Net Cash used in
Investing Activities	(145	)	(81	)
Cash Flows from
Financing Activities:
Principal Payments
on Long-term Debt and Capital Lease
Obligations	(36	)	(17	)
Due from MOD-PAC
CORP.	-		3,706
Proceeds from
Issuance of Stock	4		24
Purchase of Treasury
Stock	-		(1,088	)
Net Cash (used in)
provided by Financing Activities	(32)		2,625
Effect of Exchange
Rate Change on Cash	(15)		7
Cash (used in)
provided by Continuing Operations	(359	)	2,867
Cash (used in)
provided by Discontinued Operations	(29	)	(61	)
Net increase
(decrease) in Cash and Cash Equivalents	(388	)	2,806
Cash and Cash
Equivalents at Beginning of Period	11,808		7,722
Cash and Cash
Equivalents at End of Period	$ 11,420	$	10,528
Cash payments for:
Interest	$ 107	$	93
Income taxes	-		212
See notes to financial statements.

ASTRONICS CORPORATION Notes to Financial Statements

April 3, 2004

| 1) |
| --- |
| The balance sheet at December 31, 2003 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") 2003 annual report to shareholders. |
| 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. |
| Stock Based Compensation - 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 pro forma information for the first three months of 2004 and 2003
is presented in the table below: |

			2003
(in
thousands except per share data)
Income from
Continuing Operations as reported	$ 226	$	277
Adjustments to record
compensation expense for stock option awards under the fair value method of
accounting	(85	)	(112	)
Pro Forma Income
from Continuing Operations	$ 141	$	165
Net Income as
reported	$ 226	$	558

| Adjustments to record
compensation expense for stock option awards under the fair value method of
accounting — Pro Forma Net Income | $ 141 | $ 426 |
| --- | --- | --- |
| Pro Forma Basic Earnings Per Share: | | |
| Continuing Operations | $ 0.02 | $ 0.02 |
| Net Income | $ 0.02 | $ 0.05 |
| Pro Forma Diluted Earnings Per
Share: | | |
| Continuing Operations | $ 0.02 | $ 0.02 |
| Net Income | $ 0.02 | $ 0.05 |

2)
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)	April 3, 2004 (Unaudited)	December 31, 2003
Finished Goods	$ 469	$ 501
Work in Progress	1,235	1,166
Raw Material	4,402	4,040
	$ 6,106	$ 5,707

4) Comprehensive Income Comprehensive income consists of net income, foreign currency translation adjustments and mark to market adjustments for derivatives. Total comprehensive income (loss) was $ 186 and $(247) for the first quarter of 2004 and 2003 respectively.

5)
The
following table sets forth the computation of earnings per share:
	Three Months ended
(in thousands, except for per share data)	April 3, 2004	March 29, 2003
Income from continuing
operations	$ 226	$ 277
Income from discontinued
operations	-	281
Net Income	$ 226	$ 558
Basic earnings per Share
weighted average shares	7,750	7,832
Net effect of dilutive stock
options	65	91
Diluted earnings per share
weighted average shares	7,815	7,923
Basic earnings per share:
Continuing operations	$ .03	$ .03
Discontinued operation	-	.04
Net Income	$ .03	$ .07
Diluted earnings per share:
Continuing operations	$ .03	$ .03
Discontinued operation	-	.04
Net Income	$ .03	$ .07

6)
The Company has a non- qualified supplemental retirement defined benefit
plan for certain executives. The following table sets forth information
regarding the net periodic pension cost for the plan.
	Three Months ended
(in thousands)	April 3, 2004	March 29, 2003
Service cost	$ 6	$ 7
Interest cost	78	88
Amortization of prior service
cost	27	22
Amortization of net actuarial
losses	-	13
Net periodic cost	$ 111	$ 130
Participants in
the non-qualified supplemental retirement plan are entitled to paid medical,
dental and long-term care insurance benefits upon retirement under the plan. The following table sets forth information regarding the net periodic
pension cost recognized for those benefits.
	Three Months ended
(in thousands)	April 3, 2004	March 29, 2003
Service cost	$ 1	$ 1
Interest cost	5	5
Amortization of prior service
cost	4	4
Amortization of net actuarial
losses	-	2
Net periodic cost	$ 10	$ 12

ASTRONICS CORPORATION

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

(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, 2003.)

| The following table sets forth
income statement data as a percent of net sales: | | |
| --- | --- | --- |
| | Percent of Net Sales | |
| | Three Months Ended | |
| | April 3 | March 29 |
| | 2004 | 2003 |
| Net Sales | 100.0 % | 100.0 % |
| Cost of products
sold | 81.2 | 77.1 |
| Selling, general and | | |
| administrative and
interest expense | 14.8 | 17.8 |
| | 96.0 % | 94.9 % |
| Operating Income | 4.0 % | 5.1 % |

| NET SALES | Net sales for the first quarter
of 2004 increased 3% to $9.0 million compared with $8.7 million for the same
period last year. Sales were strong for all markets. Sales to the Business
Jet market were $2.5 million, up $.4 million, or 19%, compared with the same
period in 2003. Sales to the Commercial Transport market were up $.2
million, or 14% to $1.9 million compared with the year ago period. Sales to
the military market were $4.2 million, down from $4.6 million in the same
period of 2003. Last year's first quarter included $.5 million in revenue
from the U.S. Government's F-16 NVIS retrofit program, which was completed
in 2003. Sales to other markets totaled $.4 million for the first quarter of
2004 and $.3 million for the first quarter of 2003. |
| --- | --- |
| EXPENSES AND MARGINS | Cost of products sold as a
percentage of net sales increased 4.1 percentage points to 81.2% for the
first quarter of 2004 compared to 77.1% for the same period last year. The
increase is primarily the result of increased engineering and development
costs related to new programs that are in the design and development stages.
These costs are related primarily to an increase in engineering personnel as
well as increased costs for goods and services supplied by vendors such as
qualification testing and out sourced testing and design work as compared to
last year's first quarter. As compared to last years first quarter the
company's spending for these efforts increased by approximately $500
thousand. Excluding the effect of the increased spending on engineering and
developmental costs gross margins would have been relatively consistent with
last year. Selling, general and administrative and interest cost as a
percent of sales was 14.8% for the first quarter of 2004 compared with 17.8%
for the same period of 2003. The decrease is primarily attributable to a
reduction in personnel related costs as compared with the same period last
year and to a lesser extent an overall reduction in general spending
activity for the period. |
| INCOME FROM CONTINUING
OPERATION BEFORE TAXES | Income from continuing operations before taxes for the
first quarter of 2004 was $364 thousand or 4.0% of sales compared with $440
thousand or 5.1% of sales for the same period of 2003. This decrease both in
dollars and as a percentage of sales is attributable to the increased
engineering and development costs offset partially by the decrease in
selling, general and administrative expenses that were previously discussed. |
| TAXES | Our effective income tax rate for the first quarter of
2004 was 37.9 % compared to 37.0 % for the same period last year. This
effective rate is greater than the effective rate for the year ended
December 31, 2003 due to the recognition in the fourth quarter of 2003 of
research and development tax credits related to prior years. |
| EARNINGS PER SHARE FROM CONTINUING OPERATIONS | Diluted Earnings per share from continuing operations was
$ .03 for the first quarter of both 2004 and 2003. Changes in the number of
shares outstanding did not impact the calculation significantly. |
| INCOME FROM DISCONTINUED OPERATIONS | Income from discontinued operations during the first
quarter of 2004 was $ 0 as compared with $281 thousand for the same period
in 2003. The first quarter of 2003 included activities of the discontinued
Electroluminescent Lamp Group and activities through March 14, 2003 for it's
former subsidiary, MOD-PAC CORP.. MOD-PAC CORP. was spun off effective March
14, 2003. The Electroluminescent Lamp Group wound down it's operations
during 2003 and no future impact on Income is expected. |
| NET INCOME AND EARNINGS PER SHARE | Net income totaled $ 226 thousand for the first quarter
of 2004 compared to $ 558 thousand for the first quarter of 2003. The
decreases in Net Income and Earnings Per Share are primarily a result in the
reduction of income from discontinued operations as discussed under that
heading. Changes in the number of shares outstanding did not impact the
earnings Per Share calculation significantly. |
| LIQUIDITY | Cash used by operating activities was $167 thousand
during the first quarter of 2004, as a result of net income plus
depreciation and amortization and changes in working capital components. All
of the use of cash in operations was a result of the increase in investment
in working capital components, which total $834 thousand. This investment in
working capital was primarily a result of the timing of shipments and
inventory purchases which was weighted heavily towards the last half of the
quarter. In addition to the timing of shipments and purchases of inventory
just discussed, during our first quarter we fund our annual company
contribution to our profit sharing/401k plan for the previous year which is
a use of cash that affects only the first quarter each year. The Company's capital expenditures for the quarter was
$90 thousand. Capital expenditures for the balance of 2004 are expected to
be consistent with prior years, in the range of $500 thousand to $1 million
and are expected to be financed from cash on hand and cash flows from
operations. |
| | The Company has
an $8,000,000 line of credit facility available. As of April 3, 2004 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 has a cash balance of slightly over $11 million at April 3,
2004 available. The Company believes that cash balances at April 3, 2004 and, cash flow
from operations will be adequate to meet the Company's operational and
capital expenditure requirements for 2004. |
| BACKLOG | The Company's backlog at April 3, 2004 was $23.0 million
compared with $18.8 million at the end of the first quarter of 2003. |
| CONTRACTUAL OBLIGATIONS AND
COMMITMENTS | The Company's contractual obligations and commercial
commitments have not changed materially from disclosures in the Company's
Form 10-K for the year ended December 31, 2003 |
| MARKET RISK | Refer to the Company's Annual
Report on Form 10-K for the year ended December 31, 2003 for a complete
discussion of the Company's market risk. There have been no material changes
in the current year regarding this market risk information. |
| CRITICAL ACCOUNTING POLICIES | Refer to the Company's annual
report on Form 10-K for the year ended December 31, 2003 for a complete
discussion of the Company's critical accounting policies. There have been no
material changes in the current year regarding these critical accounting
policies. |
| 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 Quarterly Report contains "forward-looking
statements". Such statements involve known and unknown risks, uncertainties
and other factors that could cause our actual results to differ materially
from the results expressed or implied by such statements, including general
economic and business conditions affecting our customers and suppliers,
competitors' responses to our products and services, particularly with
respect to pricing, the overall market acceptance of such products and
services, and successful completion of our capital expansion program. We use
words like "will," "may," "should," "plan," "believe," "expect,"
"anticipate," "intend," "future" and other similar expressions to identify
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which speak only as of their respective dates.
These forward-looking statements are based on our current expectations and
are subject to number of risks and uncertainties. Our actual operating
results could differ materially from those predicted in these
forward-looking statements, and any other events anticipated in the
forward-looking statements may not actually occur. |

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

See Market Risk in Item 2, above.

ITEM 4. Controls and Procedures

The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures as of April 3, 2004. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of April 3, 2004. There were no material changes in the Company's internal control over financial reporting during the first quarter of 2004.

PART II - OTHER INFORMATION

Item 1.
None.

Item 2. Changes in Securities and Use of Proceeds .

| Period | (a) Total number of shares
Purchased | (b) Average Price Paid per
Share | (c) total number of shares
Purchased as part of Publicly Announced Plans or Programs | (d) Maximum Number of Shares
that May Yet Be Purchased Under the Plans or Programs |
| --- | --- | --- | --- | --- |
| January 1 - January 30, 2004 | - | - | - | 432,956 |
| January 31 - February 28, 2004 | - | - | - | 432,956 |
| February 29 - April 3, 2004 | - | - | - | 432,956 |
| Total | - | - | - | 432,956 |

| 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 April 29, 2004, the nominees to the Board of Directors
were re-elected based on the following results: | | |
| | Nominees | Votes For | Votes Withholding Authority |
| | Robert T. Brady | 20,792,217 | 1,018,736 |
| | John B. Drenning | 20,609,513 | 1,201,440 |
| | Peter J. Gundermann | 20,729,226 | 1,081,727 |
| | Kevin T. Keane | 20,596,463 | 1,214,490 |
| | Robert J. McKenna | 20,785,071 | 1,025,882 |
| | The selection of
Ernst & Young LLP as the Registrant's auditors was approved by the following
vote: 20,667,892 in favor; 777,039 against; and 366,022 abstentions. The proposal to rescind the Company's SERP was defeated by
the following vote: 4,976,927 in favor; 16,345,241 against; and
488,785 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 | | |
| | (a) Exhibits | | |
| | Exhibit 31.1
Section 302 Certification - Chief Executive Officer | | |
| | Exhibit 31.2
Section 302 Certification - Chief Financial Officer | | |
| | Exhibit 32.
Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 | | |
| | Reports of Form 8-K | | |
| | The Company filed an 8-K on January 30, 2004, regarding its press
release of its 2003 annual earnings. The Company filed an 8-K on
February 9, 2004, regarding Mr. Kevin T. Keane's (the Company's Chairman
of the Board) adoption of a written plan pursuant to 10b5-1 of the
Securities Exchange Act of 1934. The Company filed an 8-K on April 29,
2004 , regarding its press release of its 2004 first quarter earnings. The
Company filed an 8-K/A on May 5, 2004 , regarding its press release of its
2004 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 14, 2004	By: /s/ David C. Burney
	David C. Burney Vice President-Finance and Treasurer (Principal Financial Officer)