Astronics Corporation - 10-Q quarterly report FY

1)

Basis of Presentation

The accompanying unaudited statements have been prepared in accordance with 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 six-month period ended June 28, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003.

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 to shareholders.

          Continuing Operations

          Continuing 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)

June 28, 2003
(Unaudited)

December 31, 2002

$ 586

$ 640

1,108

1,011

4,236

4,488

$5,930

$ 6,139

4)

Comprehensive Income

Comprehensive income consists of net income, foreign currency translation adjustments and mark to market adjustments for derivatives. Total comprehensive income was $549 and $1,228 for the second quarter of 2003 and 2002 respectively and $1,285 and $2,555 for 2003 and 2002 year to date.

Percent of Net Sales

Percent of Net Sales

Six Months Ended June 28

Three Months Ended June 28

2003

2002

2003

2002

100.0

100.0

100.0

100.0

%

77.9

70.2

78.6

70.3

16.8

12.6

16.5

12.2

94.7

82.8

95.1

82.5

%

5.3

17.2

4.9

17.5

%

Cost of products sold as a percentage of net sales increased 8.3 percentage points to 78.6% for the second quarter of 2003 compared to 70.3% for the second quarter of 2002. The increase as a percent of 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. On a year to date basis cost of products sold totaled 77.9% for the first six months of 2003, an increase of 6.8 percentage points form 70.2% for the same period of 2002. The reason for the increase for the first six months of 2003 compared to the same period of 2002 is the same as previously discussed for the second quarter comparisons.

Selling, general and administrative costs as a percent of sales was16.5% for the second quarter of 2003 compared with 12.2% for the same period of 2002. The increase is attributable to the decrease of net sales from the second quarter of 2002 to the second quarter of 2003. Year to date Selling, general and administrative costs as a percent of sales increased to 16.8% in 2003 compared with 12.6% in 2002. This increase as a percent of sales was also related to the decrease of sales for 2003 compared with 2002 for the same period.

The decline in sales means we have less contribution towards our fixed costs so income from continuing operations before taxes is down for the second quarter from $2.0 million in 2002 to $394 thousand in 2003. On a year-to-date basis income from continuing operations before taxes declined from $3.9 million in 2002 to $832 thousand in 2003. This decrease is also a result of the decrease in revenues for the period as compared with 2002.

TAXES

Our effective income tax rate for the second quarter of 2003 was 38%, a decrease of one percentage point from 39% compared with the second quarter of 2002. Year to date our effective tax rate was 38% for both 2003 and 2002.

Income from continuing operations was $243 thousand for the second quarter of 2003 compared with $1.2 million for the same period of 2002. This decrease is the effect of a decrease of net sales as compared with 2002. Year to date income from continuing operations was $520 thousand compared to $2.4 million for 2002. Again this decrease is the result of decreased sales compared with the prior year.

Diluted Earnings per share from continuing operations were $.03 for the second quarter of 2003 compared with $.15 for the second quarter of 2002. The year-to-date comparison was $.07 for 2003 and $.29 for 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 during the second quarter of 2003 was $48 thousand compared with $89 thousand for the same period in 2002. Year to date income from discontinued operations totaled $327 thousand in 2003 and $258 thousand in 2002. Income from discontinued operations attributable to Astronics former subsidiary MOD-PAC CORP totaled $0 for the second quarter of 2003 and $303 thousand for the second quarter of 2002. Year to date income from discontinued operations attributable to MOD-PAC CORP was $366 thousand and $780 thousand for 2003 and 2002 respectively. Income from discontinued operations attributable to the discontinued Electroluminescent Lamp group was $48 thousand for the second quarter of 2003 and a loss of $214 thousand for the second quarter of 2002 and losses of $39 thousand and $522 thousand year to date for 2003 and 2002 respectively.

Net income totaled $291 thousand for the second quarter of 2003 compared to $1.3 million for the second quarter of 2002 and $847 thousand compared with $2.7 million year to date for 2003 and 2002 respectively. The decrease both for the quarterly comparison and the year to date comparison is primarily from the decrease in income from continuing operations that resulted from the decline in net sales for 2003 compared to the same periods in 2002.

LIQUIDITY

Cash provided by operating activities was $144 thousand during the first two quarters of 2003, as a result of net income plus depreciation and amortization and changes in working capital components.

The Company's backlog at June 28, 2003 was $18.4 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 $12,800,000 at June 28, 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 $6,300,000 obligation. As a result, a change of 1% in interest rates would impact annual net income by less than $100,000.

There are no recently issued accounting standards that will have a material impact on our financial position or results of operations

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 June 28, 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 June 28, 2003.

None.

Item 6.

Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit 11. Computation of Per Share Earnings

1.

2.

3.

4.

a.

b.

c.

5.

Date: August 12, 2003

/s/ Peter J. Gundermann

Peter J. Gundermann

President and Chief Executive Officer