Astronics Corporation - 10-Q quarterly report FY

1)

Basis of Presentation

The accompanying unaudited statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. The results of operations for any interim period are not necessarily indicative of results for the full year. Operating results for the nine-month period ended October 2, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004.

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.

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 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.

4)

Comprehensive Income

Comprehensive income (loss) consists of net income (loss), foreign currency translation adjustments and mark to market adjustments for derivatives. Total comprehensive income (loss) was $(165) and $(247) for the third quarter of 2004 and 2003 respectively and $99 and $1,104 for 2004 and 2003 year to date.

5)

Nine-Months Ended

Three-Months Ended

$

18

$

21

6

$

7

234

263

78

88

82

81

27

27

Nine-Months Ended

Three-Months Ended

$

3

$

3

1

$

1

13

15

3

5

13

13

5

5

$

$

Percent of Net Sales

Percent of Net Sales

100.0

100.0

100.0

100.0

%

84.4

80.2

88.4

85.5

99.9

98.4

105.3

105.7

%

0.1

%

1.6

%

(5.3)

%

(5.7)

%

Selling, general and administrative and interest cost as a percent of sales was 16.9% for the third quarter of 2004 compared with 20.2% 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. During the third quarter of 2004 the Company recorded a charge of $0.15 million to bad debt expense relating to the write down of a note held by the company. The note was entered into in 2001 when the Company sold a former production facility and relocated to its current operation in East Aurora New York. The face value of the note is $0.6 million and is being carried at $0.3 million as of October 2, 2004. The issuer of the note has missed the last three quarterly interest payments and is not in compliance with covenants in the agreement. The Company is actively pursuing collection of the note. Offsetting this charge was the reversal of approximately $0.1 million of accrued variable compensation that had been recorded during the first and second quarters of 2004. Year to date Selling, general and administrative and interest costs as a percent of sales decreased to 15.5% in 2004 compared with 18.2% in 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 and an increase in Sales.

The Company incurred a loss from continuing operations before taxes for the third quarter of 2004 of $0.44 million or 5.3% of sales compared with a loss of $0.44 million or 5.7% of sales or the same period of 2003. While Sales increased $0.84 million this was offset by the increased engineering and development costs offset partially by the decrease in selling, general and administrative expenses that were previously discussed. On a year-to-date basis income from continuing operations before taxes declined from $0.40 million in 2003 to $0.02 million in 2004. This decrease is also a result of the increased engineering and development costs offset partially by the decrease in selling, general and administrative expenses.

TAXES

Our effective income tax rate or benefit recorded as a result of the loss during the third quarter of 2004 was 19.1 % compared to 35.8 % for the same period last year. The increase of the effective rate, or reduced benefit, during this period is a result of the portion of our tax that is based on capital rather than on income representing a greater portion of our income tax expense for the period as well as profits taxed at the state level not being offset by losses incurred in other operations. On a year to date basis our effective rate for 2004 is greater than our pre tax income for the reasons discussed previously. Our effective tax rate for the first nine- months of 2003 was 39.4%.

Diluted Earnings (loss) per share from continuing operations was $( .05) for the third quarter of 2004 and $(.04) for the third quarter of 2003. Year to date diluted earnings (loss) per share from continuing operations were $(.01) and $.03 for 2004 and 2003 respectively. Changes in the number of shares outstanding did not impact the calculation significantly.

Income from discontinued operations during the third quarter of 2004 was $ 0 as compared with a loss of $0.02 million for the same period in 2003. The third quarter of 2003 included activities of the discontinued Electroluminescent Lamp Group. Year to date income from discontinued operations was $0 and $0.31 million for 2004 and 2003 respectively. 2003 discontinued operations included activities through March 14, 2003 for it's former subsidiary, MOD-PAC CORP.. MOD-PAC CORP. was spun off effective March 14, 2003. Also included in this period was the activities for the Electroluminescent Lamp Group that wound down it's operations during 2003. No future impact on income is expected from these discontinued operations.

LIQUIDITY

Cash provided by operating activities was $1.1 million during the first nine-months of 2004, as a result of a net loss being offset by depreciation and amortization and changes in working capital components.

The Company's capital expenditures for the first half of 2004 totaled $.68 million. Capital expenditures for the balance of 2004 are expected to be, in the range of $200 thousand to $300 thousand and are expected to be financed from cash on hand and cash flows from operations.

The Company has a cash balance of slightly over $11 million at October 2, 2004.

The Company believes that cash balances and cash flow from operations will be adequate to meet the Company's operational and capital expenditure requirements for 2004.

The Company's backlog at October 2, 2004 was $25.6 million compared with $17.0 million at the end of the third quarter of 2003 and $18.7 million at December 31, 2003.

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

On October 13, 2004, the Financial Accounting Standards Board reached a conclusion on Statement 123R, Share-Based Payment. The Statement requires all public companies to measure compensation cost for all share-based payments (including employee stock options) at fair value. The Statement would eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25, Accounting for Stock Issued to Employees. The Statement becomes effective for interim or annual periods beginning after June 15, 2005. The Company will be required to apply Statement 123R beginning July 1, 2005. Retroactive application of the requirements of SFAS No. 123 to the beginning of the fiscal year that includes the effective date is permitted but not required. At the present time, the Company has not yet determined which method it will use nor has it determined the financial statement impact.

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. 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.

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