UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

þ		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended July 1, 2006 or

o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

ASTRONICS CORPORATION

(Exact name of registrant as specified in its charter)

New York		16-0959303
(State or other jurisdiction of		(IRS Employer Identification Number)
incorporation or organization)
130 Commerce Way East Aurora, New York		14052
(Address of principal executive offices)		(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:

(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     þ     No     o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o     Accelerated filer o     Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes     o     No     þ

As of July 1, 2006 7,942,344 shares of common stock were outstanding consisting of 6,499,364 shares of common stock ($.01 par value) and 1,442,981 shares of Class B common stock ($.01 par value).

 

 

EXPLANATORY NOTE

We have restated the Company’s unaudited consolidated financial statements for the three and six months ended July 1, 2006 in this Amendment No. 1 on Form 10-Q/A (“Form 10-Q/A”) to our Quarterly Report on Form 10-Q for the Quarter Ended July 1, 2006 (the “Form 10-Q”) initially filed with the Securities and Exchange Commission (the “Commission”) on August 11, 2006 (the “Original Filing”). This, which reflects second quarter 2006 restated financial statements and related footnote disclosures to correct an error which overstated sales reported on the income statement for the three months ended July 1, 2006 by $0.2 million and understated sales reported on the income statement for the six months ended July 1, 2006 by $0.1 million. There was no restatement necessary for the three and six months ended July 2, 2005.

As required by Rule 12b-15 promulgated under the Securities and Exchange Act of 1934, Astronic’s principal executive officer and principal financial officer are providing Rule 13a-14(a) certifications dated March 14, 2007 in connection with this Form 10-K/A (but otherwise identical to their prior certifications) and are also furnishing, but not filing, written statements pursuant to section 906 of the Sarbanes-Oxley Act of 2002 dated March 14, 2007 (but otherwise identical to their prior statements); and Astronics is re-filing the Consent of Independent Registered Public Accounting Firm dated March 14, 2007 (identical to the previously filed consent).

The amendment on Form 10-K/A (“Form 10-K/A”) to the Company’s Annual Report on Form 10-K for the period ended December 31, 2005, initially filed with the Securities and Exchange Commission on March 27, 2006 (the “Original Filing”), reflects 2005 restated financial statements and related footnote disclosures to correct an error which overstated sales reported on the income statement at December 31, 2005 by $1.0 million and net income by $0.4 million.

On March 5, 2007, the Company concluded that its financial statements for the year ended December 31, 2005 and each of the quarters ended April, 1, 2006, July 1, 2006 and September 30, 2006 should be restated to correct an error whereby the Company incorrectly reported revenue from a bill and hold arrangement with one customer.

This correction resulted in the following:

(In thousands)		Six Months Ended								Three months ended
		July 1,				July 1,				July 1,				July 2,				December
		2006				2005				2006				2005				31, 2005
a) An increase (reduction) in Sales		$	130			$	—			$	(207	)		$	—				N/A
b) An increase (reduction) in Cost of Products Sold associated with the reduction in Sales			45				—				(129	)			—				N/A
c) An increase (reduction) in Income Before Taxes from Continuing Operations			85				—				(78	)			—				N/A
d) An increase (reduction) Income Tax Expense associated with the change in Income Before Taxes from Continuing Operations			29				—				(26	)			—				N/A
e) An increase (reduction) in Net Income			56				—				(52	)			—				N/A
f) No change in Basic Earnings Per Share			—				—				—				—				N/A
g) An increase (reduction) in Diluted Earnings Per Share			0.01				—				(0.01	)			—				N/A
h) An increase in Deferred Revenue due to the related change in Sales			868				—				868				—			$	998
i) An increase in Finished Goods Inventory due to the related change in Cost of Products Sold			323				—				323				—				368

(In thousands)		Six Months Ended								Three months ended
		July 1,				July 1,				July 1,				July 2,				December
		2006				2005				2006				2005				31, 2005
j) An increase in Current Deferred tax Assets associated with the reduction in Income Before Taxes from Continuing Operations			185				—				185				—				214
k) A reduction in Retained Earnings associated with the correction			(360	)			—				(360	)			—				(416	)

All referenced amounts in this report as of July 1, 2006 and December 31, 2005 and for the three and six months ended July 1, 2006, reflect balances and amounts on a restated basis. All of our future Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q and Form 10Q/A will reflect the restated information included in this Form 10-Q/A, as applicable. There were no restatements for the three and six months ended July 2, 2005.

This Form 10-Q/A is filed as part of the restatement (the “Restatement”) of our previously issued financial statements for the year ended December 31, 2005 as well as the Company’s selected financial data for 2005 as set forth in Item 6 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. Accordingly, we are also filing with the Commission substantially contemporaneously herewith (i) an amendment on Form 10-K/A to our Annual Report on Form 10-K for the year ended December 31, 2005, (ii) an amendment on Form 10-Q/A to our Quarterly Report on Form 10-Q for the quarter ended April 1, 2006 and (iii) an amendment on Form 10-Q/A to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.

These additional amended filings with the Commission correct the same types of errors noted above. We do not intend to file any other amended Annual Reports on Form 10-K affected by this Restatement.

This Amendment No. 1 amends only the following portions of the 10-Q; the remainder of the form 10-Q is unchanged and is not reproduced in the Amendment No. 1. The Amendment No. 1 does not reflect the events occurring after the original filing date of the Form 10-Q. Also, the Original Filing has been amended to contain currently dated certifications from the Company’s Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act (See Exhibits 31.1, 31.2 and 32).

This Amendment No. 1 contains changes to the following disclosures:

Part I, Item 1 — Financial Statements
Part I, Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part I, Item 4 — Controls and Procedures
Part II, Item 6 — Exhibits and reports on Form 8-K

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 4. Controls and Procedures

PART II — OTHER INFORMATION

Item 6 Exhibits and Reports on Form 8-K

SIGNATURES

EX-31.1 302 Certification for CEO

EX-31.2 302 Certification for CFO

EX-32 906 Certification for CEO and CFO

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

ASTRONICS CORPORATION
Consolidated Balance Sheet
July 1, 2006
With Comparative Figures for December 31, 2005
(dollars in thousands)

		July 1,				December 31,
		2006				2005
		Restated				Restated
		(Unaudited)
Current Assets:
Cash and Cash Equivalents		$	425			$	4,473
Accounts Receivable, net of allowance for doubtful accounts of $311 in 2006 and $365 in 2005			17,784				12,635
Inventories			23,546				19,381
Prepaid Expenses			1,022				626
Deferred Taxes			1,058				989
Total Current Assets			43,835				38,104
Property, Plant and Equipment, at cost			33,322				31,665
Less Accumulated Depreciation and Amortization			12,237				11,204
Net Property, Plant and Equipment			21,085				20,461
Intangible Assets, net of accumulated amortization of $483 in 2006 and $329 in 2005			3,246				3,400
Goodwill			2,761				2,686
Other Assets			1,750				1,788
Total Assets		$	72,677			$	66,439

See notes to financial statements.

ASTRONICS CORPORATION
Consolidated Balance Sheet
July 1, 2006
With Comparative Figures for December 31, 2005
(dollars in thousands)

		July 1,				December 31,
		2006				2005
		Restated				Restated
		(Unaudited)
Current Liabilities:
Current Maturities of Long-term Debt		$	919			$	914
Note Payable			6,000				7,000
Accounts Payable			10,167				5,421
Accrued Payroll and Employee Benefits			3,653				3,861
Income Taxes Payable			219				171
Customer Advanced Payments and Deferred Revenue			4,969				5,402
Contract Loss Reserve			—				830
Other Accrued Expenses			1,256				1,156
Total Current Liabilities			27,183				24,755
Long-term Debt			9,868				10,304
Supplemental Retirement Plan and Other Benefits			4,579				4,494
Other Liabilities			1,337				1,317
Deferred Income Taxes			210				151
Shareholders’ Equity:
Common Stock, $.01 par value Authorized 20,000,000 shares, issued 7,177,801 in 2006, 7,082,100 in 2005			72				71
Class B Stock, $.01 par value Authorized 5,000,000 shares, issued 1,548,793 in 2006, 1,603,323 in 2005			15				16
Additional Paid-in Capital			4,533				3,808
Accumulated Other Comprehensive Income			875				799
Retained Earnings			27,724				24,443
			33,219				29,137
Less Treasury Stock: 784,250 shares in 2006 and 2005			3,719				3,719
Total Shareholders’ Equity			29,500				25,418
Total Liabilities and Shareholders’ Equity		$	72,677			$	66,439

See notes to financial statements.

ASTRONICS CORPORATION
Consolidated Statement of Income and Retained Earnings
Six Months Ended July 1, 2006
With Comparative Figures for 2005
(Unaudited)
(dollars in thousands except per share data)

		Six Months Ended								Three Months Ended
		July 1,				July 2,				July 1,				July 2,
		2006				2005				2006				2005
		Restated								Restated
Sales		$	54,095			$	34,495			$	28,832			$	18,839
Costs and Expenses:
Cost of products sold			41,917				27,707				22,066				15,344
Selling, general and administrative expenses			6,462				4,793				3,443				2,582
Interest expense, net of interest income			418				317				219				191
Other (income) expense			(34	)			(4	)			(22	)			—
Total costs and expenses			48,763				32,813				25,706				18,117
Income Before Income Taxes			5,332				1,682				3,126				722
Provision for Income Taxes			2,051				876				1,163				525
Net Income		$	3,281			$	806			$	1,963			$	197
Retained Earnings:
Beginning of period			24,443				22,206
End of period		$	27,724			$	23,012
Earnings per share:
Basic		$	0.41			$	0.10			$	0.25			$	0.02
Diluted		$	0.40			$	0.10			$	0.24			$	0.02

See notes to financial statements

ASTRONICS CORPORATION
Consolidated Statement of Cash Flows
Six Months Ended July 1, 2006
With Comparative Figures for 2005
(Unaudited)

(dollars in thousands)		July 1,				July 2,
		2006				2005
		Restated
Cash Flows from Operating Activities:
Net income		$	3,281			$	806
Adjustments to reconcile net income to cash (used in) provided by operating activities:
Depreciation and Amortization			1,259				1,322
Deferred Taxes			(13	)			527
Other			(46	)			(89	)
Provision for Doubtful Accounts			(21	)			—
Stock Compensation Expense			329				—
Cash flows from changes in operating assets and liabilities, excluding effects of acquisition:
Accounts Receivable			(5,062	)			(3,126	)
Inventories			(4,094	)			(2,775	)
Prepaid Expenses			(409	)			39
Accounts Payable			4,718				2,684
Accrued Expenses			(81	)			640
Customer Advanced Payments and Deferred Revenue			(433	)			—
Contract Loss Reserves			(830	)			—
Income Taxes			49				114
Supplemental Retirement and Other Liabilities			84				—
Cash (used in) provided by Operating Activities			(1,269	)			142
Cash Flows from Investing Activities:
Business Acquisition			—				(13,366	)
Proceeds from sale of short-term investments			—				1,000
Capital Expenditures			(1,607	)			(1,333	)
Other			—				(142	)
Cash used in Investing Activities			(1,607	)			(13,841	)
Cash Flows from Financing Activities:
Principal Payments on Long-term Debt and Capital Lease Obligations			(483	)			(467	)
Proceeds from Note Payable			—				7,000
Payment on Note Payable			(1,000	)			—
Proceeds from exercise of stock options			324				162
Income tax benefit from exercise of stock options			72				—
Cash (used in) provided by Financing Activities			(1,087	)			6,695
Effect of Exchange Rates on Cash			(85	)			44
Cash used in Continuing Operations			(4,048	)			(6,960	)
Cash used in Discontinued Operations operating activities			—				(423	)
Net decrease in Cash and Cash Equivalents			(4,048	)			(7,383	)
Cash at Beginning of Period			4,473				8,476
Cash at End of Period		$	425			$	1,093

See notes to financial statements

ASTRONICS CORPORATION
Notes to Consolidated Financial Statements
July 1, 2006
(Unaudited)

1) Basis of Presentation

The accompanying unaudited statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. 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 July 1, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

The balance sheet at December 31, 2005 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. 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”) 2005 annual report on Form 10-K/A for the year ended December 31, 2005.

2) Stock Based Compensation

The Company has stock option plans that authorize the issuance of options for shares of Common Stock to directors, officers and key employees. Stock option grants are designed to reward long-term contributions to the Company and provide incentives for recipients to remain with the Company. The exercise price, determined by a committee of the Board of Directors, may not be less than the fair market value of the Common Stock on the grant date. Options become exercisable over periods not exceeding ten years. The Company’s practice has been to issue new shares upon the exercise of the options.

During the first quarter of 2006, the Company adopted SFAS 123(R), “Share-Based Payment,” applying the modified prospective method. This Statement requires all equity-based payments to employees, including grants of employee stock options, to be recognized in the statement of earnings based on the grant date fair value of the award. Under the modified prospective method, the Company is required to record equity-based compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards outstanding as of the date of adoption. The Company uses a straight-line method of attributing the value of stock-based compensation expense, subject to minimum levels of expense, based on vesting. Stock compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Vesting requirements vary for directors, officers and key employees. In general, options granted to outside directors vest six months from the date of grant and options granted to officers and key employees straight line vest over a five-year period from the date of grant.

The fair value of stock options granted was estimated on the date of grant using the Black-Scholes option-pricing model. The weighted average fair value of the options was $6.05 for options granted during the six months ended July 1, 2006 and was $3.32 for options granted during the six months ended July 2, 2005. The following table provides the range of assumptions used to value stock options granted during the six months ended July 1, 2006 and July 2, 2005.

		Six Months Ended
		July 1, 2006				July 2, 2005
Expected volatility			0.34				0.33
Risk-free rate			4.70	%			5.34	%
Expected dividends			0.00	%			0.00	%
Expected term (in years)		7 Years				7 – 10 Years

To determine expected volatility, the Company uses historical volatility based on weekly closing prices of its Common Stock and considers currently available information to determine if future volatility is expected to differ over the expected terms of the options granted. The risk-free rate is based on the United States Treasury yield curve at the time of grant for the appropriate term of the options granted. Expected dividends are based on the Company’s history and expectation of dividend payouts. The expected term of stock options is based on vesting schedules, expected exercise patterns and contractual terms.

The table below reflects net earnings and net earnings per share for the three and six months ended July 1, 2006 compared with the pro forma information for the three and six months ended July 2, 2005 as follows:

		Six Months Ended								Three Months Ended
		July 1,				July 2,				July 1,				July 2,
		2006				2005				2006				2005
(in thousands, except per share data)		Restated								Restated
Net earnings, as reported for the prior period (1)		$	N/A			$	806			$	N/A			$	197
Stock compensation expense			329				208				187				116
Tax benefit			(51	)			(75	)			(35	)			(42	)
Stock compensation expense, net of tax (2)			278				133				152				74
Net earnings, including the effect of stock compensation expense (3)		$	3,281			$	673			$	1,963			$	123
Net earnings per share:
Basic, as reported for the prior period (1)		$	N/A			$	.10			$	N/A			$	.02
Basic, including the effect of stock compensation expense (3)		$	.41			$	.09			$	.25			$	.02
Diluted, as reported for the prior period (1)		$	N/A			$	.10			$	N/A			$	.02
Diluted, including the effect of stock compensation expense (3)		$	.40			$	.08			$	.24			$	.02

A summary of the Company’s stock option activity and related information for the six months ended July 1, 2006 is as follows:

						2006
						Weighted Average
		Number of				Exercise Price				Aggregate
(in thousands, except per option data)		Options				per option				Intrinsic Value
Outstanding at December 31, 2005			801,583			$	6.49			$	5,522
Options Granted			25,000				13.41				(1	)
Options Exercised			(44,846	)			8.13				(236	)
Outstanding at July 1, 2006			781,737				6.62				5,285
Exercisable at July 1, 2006			472,688			$	6.12			$	3,432

The aggregate intrinsic value in the preceding table represents the total pretax option holder’s intrinsic value, based on the Company’s closing stock price of Common Stock of $13.38 as of July 1, 2006, which would have been received by the option holders had all option holders exercised their options as of that date.

The fair value of options vested since December 31, 2005 is $0.2 million. At July 1, 2006, total compensation costs related to non vested awards not yet recognized amounts to $0.9 million and will be recognized over a weighted average period of 2.1 years.

The following is a summary of weighted average exercise prices and contractual lives for outstanding and exercisable stock options as of July 1, 2006:

		Outstanding												Exercisable
						Weighted				Weighted								Weighted
						Average				Average								Average				Weighted
						Remaining Life				Exercise								Remaining Life				Average
Exercise Price Range		Shares				in Years				Price				Shares				in Years				Exercise Price
$2.59-$4.60			59,195				1.1			$	3.90				59,195				1.1			$	3.90
$5.09- $7.65			550,639				7.0			$	5.62				348,995				6.4			$	5.63
$9.83 - $13.49			171,903				7.4			$	10.73				64,498				4.0			$	10.83
			781,737				6.6			$	6.62				472,688				5.4			$	6.12

3) Acquisition

On February 3, 2005, the Company acquired substantially all of the assets of the General Dynamics - Airborne Electronic Systems (AES) business unit from a subsidiary of General Dynamics. Astronics AES produces a wide range of products related to electrical power generation, in-flight control, and distribution on military, commercial, and business aircraft. On the acquisition date, the Company paid $13.0 million in cash and incurred approximately $0.4 million in acquisition costs. The Company borrowed $7.0 million on its credit facility and used $6.4 million of cash on hand to finance the purchase and acquisition costs. Results of operations include the results of Astronics AES since February 3, 2005, the date of the acquisition.

The following table summarizes the gross carrying amount and accumulated amortization for major categories of acquired intangible assets:

						Gross								Gross
		Weighted				Carrying				Accumulated				Carrying				Accumulated
		Average				Amount				Amortization				Amount				Amortization
(in thousands)		Life				July 1, 2006				July 1, 2006				Dec. 31, 2005				Dec 31, 2005
Patents		12 Years				$	1,271			$	140			$	1,271			$	91
Trade Names			N/A				553				—				553				—
Completed and unpatented technology		10 Years					487				69				487				45
Government contracts		6 Years					347				82				347				53
Backlog		4 Years					314				192				314				140
Total Intangible assets						$	2,972			$	483			$	2,972			$	329

Amortization expense for each of the next five years is expected to amount to $0.3 million for the year ended December 31, 2006 and $0.2 million for each of the years ended December 31, 2007, 2008, 2009 and 2010.

The following summary, prepared on a pro forma basis, combines the consolidated results of operations of the Company with those of the acquired business as if the acquisition took place on January 1, 2005. The pro forma consolidated results include the impact of adjustments, including depreciation, amortization of intangibles, increased interest expense on acquisition debt and related income tax effects.

Unaudited		Six Months Ended								Three Months Ended
		July 2, 2005				July 2, 2005				July 2, 2005				July 2, 2005
(in thousands, except for per share data)		As Reported				Pro Forma				As Reported				Pro Forma
Sales		$	34,495			$	36,194			$	18,840			$	18,840
Net income			806				598				197				197
Basic earnings per share			0.10				0.08				0.02				0.02
Diluted earnings per share			0.10				0.08				0.02				0.02

The pro forma results are not necessarily indicative of what would have actually occurred if the acquisition had taken place on January 1, 2005. In addition, they are not intended to be a projection of future results.

4) Discontinued Operations

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 liabilities of discontinued operations at July 2, 2005 consisted of lease payments for equipment that was used in this business, the remaining payments under these leases were made during 2005. As of December 31, 2005 there were no remaining assets or liabilities of discontinued operations.

5) Inventories

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:

		July 1,				December 31,
		2006				2005
(in thousands)		Restated				Restated
Finished Goods		$	3,124			$	3,026
Work in Progress			10,576				7,805
Raw Material			9,846				8,550
		$	23,546			$	19,381

6) Comprehensive Income and Accumulated Other Comprehensive Income

The components of comprehensive income are as follows:

		Six Months Ended								Three Months Ended
		July 1,				July 2,				July 1,				July 2,
		2006				2005				2006				2005
(in thousands)		Restated								Restated
Net income		$	3,281			$	806			$	1,963			$	197
Other comprehensive income:
Foreign currency translation adjustments			71				(79	)			88				(10	)
Gain on derivatives, net of tax			5				37				22				15
Comprehensive income		$	3,357			$	764			$	2,073			$	202

The components of accumulated other comprehensive income are as follows:

		July 1,				December 31,
(in thousands)		2006				2005
Cumulative foreign currency adjustments		$	870			$	799
Accumulated gain on derivatives, net of tax			5				0
Accumulated other comprehensive income		$	875			$	799

7) Earnings Per Share

The following table sets forth the computation of earnings per share:

		Six Months Ended								Three Months Ended
		July 1,				July 2,				July 1,				July 2,
		2006				2005				2006				2005
(in thousands, except per share data)		Restated								Restated
Net Income		$	3,281			$	806			$	1,963			$	197
Basic earnings per share weighted average shares			7,925				7,835				7,937				7,857
Net effect of dilutive stock options			258				127				286				166
Diluted earnings per share weighted average shares			8,183				7,962				8,223				8,023
Basic earnings per share		$	0.41			$	0.10			$	0.25			$	0.02
Diluted earnings per share		$	0.40			$	0.10			$	0.24			$	0.02

8) Supplemental Retirement Plan and Related Post Retirement Benefits

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.

		Six Months Ended								Three Months Ended
		July 1,				July 2,				July 1,				July 2,
(in thousands)		2006				2005				2006				2005
Service cost		$	18			$	12			$	9			$	6
Interest cost			154				154				77				77
Amortization of prior service cost			54				54				27				27
Amortization of net actuarial losses			2				—				1				—
Net periodic cost		$	228			$	220			$	114			$	110

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 cost recognized for those benefits:

		Six Months Ended								Three Months Ended
		July 1,				July 2,				July 1,				July 2,
(in thousands)		2006				2005				2006				2005
Service cost		$	4			$	2			$	2			$	1
Interest cost			22				20				11				10
Amortization of prior service cost			16				16				8				8
Amortization of net actuarial losses			6				2				3				1
Net periodic cost		$	48			$	40			$	24			$	20

9) New Accounting Pronouncements

In June 2006, the FASB issued Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation for SFAS No. 109.” FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with for SFAS No. 109, “Accounting for Income Taxes.” The pronouncement prescribes a recognition threshold and measurement attributable to financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. We are in the process of determining the effect, if any; the adoption of FIN 48 will have on our financial statements.

10) Income Taxes

On April 12, 2005, New York State enacted tax legislation resulting in a change to the New York State apportionment methodology. Beginning in 2006, a single sales factor apportionment method will be phased in, with a single sales factor solely used in 2008. It is expected that this enacted legislation will result in a lower apportionment of the Company’s taxable income to New York State, resulting in lower New York state income taxes. Accordingly, the Company’s ability to use or realize New York State tax credits has been reduced. In 2005, the Company has assessed the impact of the new tax legislation and recorded a valuation allowance reducing the Company’s $490 thousand deferred tax asset relating to New York State tax credits to $40 thousand. As a result of this valuation allowance the Company recorded a non-cash charge to income tax expense of $300 thousand or $0.04 per diluted share during the second quarter of 2005. The charge to income tax expense is net of the affect of federal income taxes. The effective tax rate in 2006 returned to a more normal rate of 38.5%

11) Restatement of Previously Issued Financial Statements

The Company has restated its previously issued financial statements for the year ended December 31, 2005, the three months ended April 1, 2006 and the three and six months ended July 1, 2006 to correct an error regarding the timing of revenue recognition for a bill-and-hold transaction. This error reduces revenue previously reported on the income statement for the year ended December 31, 2005 by $1.0 million and net income by $0.4 million. This error understated sales reported on the income statement for the six months ended July 1, 2006 by $0.1 million and understated net income by $0.1 million. This error overstated sales reported on the income statement for the three months ended July 1, 2006 by $0.2 million and overstated net income by $0.1 million. There were no changes necessary to the quarterly financial statements and information for the comparative period ended July 2, 2005.

This correction resulted in the following:

				(In thousands)		Six Months Ended								Three months ended
						July 1,				July 1,				July 1,				July 2,				December
						2006				2005				2006				2005				31, 2005
	a	)		An increase (reduction) in Sales		$	130			$	—			$	(207	)		$	—				N/A
	b	)		An increase (reduction) in Cost of Products Sold associated with the reduction in Sales			45				—				(129	)			—				N/A
	c	)		An increase (reduction) in Income Before Taxes from Continuing Operations			85				—				(78	)			—				N/A
	d	)		An increase (reduction) Income Tax Expense associated with the change in Income Before Taxes from Continuing Operations			29				—				(26	)			—				N/A
	e	)		An increase (reduction) in Net Income			56				—				(52	)			—				N/A
	f	)		No change in Basic Earnings Per Share			—				—				—				—				N/A
	g	)		An increase (reduction) in Diluted Earnings Per Share			0.01				—				(0.01	)			—				N/A
	h	)		An increase in Deferred Revenue due to the related change in Sales			868				—				868				—			$	998
	i	)		An increase in Finished Goods Inventory due to the related change in Cost of Products Sold			323				—				323				—				368
	j	)		An increase in Current Deferred tax Assets associated with the reduction in Income Before Taxes from Continuing Operations			185				—				185				—				214
	k	)		A reduction in Retained Earnings associated with the correction			(360	)			—				(360	)			—				(416	)

CONSOLIDATED BALANCE SHEET

		July 1, 2006
		As								As
(in thousands, except per share data)		Reported				Adjustments				Restated
Current Assets:
Cash and Cash Equivalents		$	425			$				$	425
Accounts Receivable, net of allowance for doubtful accounts of $311 in 2006			17,784								17,784
Inventories			23,223				323				23,546
Prepaid Expenses			1,022								1,022
Deferred Taxes			873				185				1,058
Total Current Assets			43,327				508				43,835
Property, Plant and Equipment, at cost			33,322								33,322
Less Accumulated Depreciation and Amortization			12,237								12,237
Net Property, Plant and Equipment			21,085				—				21,085
Intangible Assets, net of accumulated amortization of $483 in 2006			3,246								3,246
Goodwill			2,761								2,761
Other Assets			1,750								1,750
Total Assets		$	72,169			$	508			$	72,677

CONSOLIDATED BALANCE SHEET (continued)

		July 1, 2006
		As								As
(in thousands, except per share data)		Reported				Adjustments				Restated
Current Liabilities:
Current Maturities of Long-term Debt		$	919			$				$	919
Note Payable			6,000								6,000
Accounts Payable			10,167								10,167
Accrued Payroll and Employee Benefits			3,653								3,653
Income Taxes Payable			219								219
Customer Advanced Payments and Deferred Revenue			4,101				868				4,969
Contract Loss Reserve			—								—
Other Accrued Expenses			1,256								1,256
Total Current Liabilities			26,315				868				27,183
Long-term Debt			9,868								9,868
Supplemental Retirement Plan and Other Benefits			4,579								4,579
Other Liabilities			1,337								1,337
Deferred Income Taxes			210								210
Shareholders’ Equity:
Common Stock, $.01 par value Authorized 20,000,000 shares, issued 7,177,801 in 2006			72								72
Class B Stock, $.01 par value Authorized 5,000,000 shares, issued 1,548,793 in 2006			15								15
Additional Paid-in Capital			4,533								4,533
Accumulated Other Comprehensive Income			875								875
Retained Earnings			28,084				(360	)			27,724
			33,579				(360	)			33,219
Less Treasury Stock: 784,250 shares in 2006			3,719								3,719
Total Shareholders’ Equity			29,860				(360	)			29,500
Total Liabilities and Shareholders’ Equity		$	72,169			$	508			$	72,677

CONSOLIDATED BALANCE SHEET

		December 31, 2005
		As								As
(in thousands, except per share data)		Reported				Adjustments				Restated
Current Assets:
Cash and Cash Equivalents		$	4,473			$				$	4,473
Accounts Receivable, net of allowance for doubtful accounts of $365 in 2005			12,635								12,635
Inventories			19,013				368				19,381
Prepaid Expenses			626								626
Deferred Taxes			775				214				989
Total Current Assets			37,522				582				38,104
Property, Plant and Equipment, at cost			31,665								31,665
Less Accumulated Depreciation and Amortization			11,204								11,204
Net Property, Plant and Equipment			20,461				—				20,461
Intangible Assets, net of accumulated amortization of $329 in 2005			3,400								3,400
Goodwill			2,686								2,686
Other Assets			1,788								1,788
Total Assets		$	65,857			$	582			$	66,439

CONSOLIDATED BALANCE SHEET (continued)

		December 31, 2005
		As								As
(in thousands, except per share data)		Reported				Adjustments				Restated
Current Liabilities:
Current Maturities of Long-term Debt		$	914			$				$	914
Note Payable			7,000								7,000
Accounts Payable			5,421								5,421
Accrued Payroll and Employee Benefits			3,861								3,861
Income Taxes Payable			171								171
Customer Advanced Payments and Deferred Revenue			4,404				998				5,402
Contract Loss Reserve			830								830
Other Accrued Expenses			1,156								1,156
Total Current Liabilities			23,757				998				24,755
Long-term Debt			10,304								10,304
Supplemental Retirement Plan and Other Benefits			4,494								4,494
Other Liabilities			1,317								1,317
Deferred Income Taxes			151								151
Shareholders’ Equity:
Common Stock, $.01 par value Authorized 20,000,000 shares, issued 7,082,100 in 2005			71								71
Class B Stock, $.01 par value Authorized 5,000,000 shares, issued 1,603,323 in 2005			16								16
Additional Paid-in Capital			3,808								3,808
Accumulated Other Comprehensive Income			799								799
Retained Earnings			24,859				(416	)			24,443
			29,553				(416	)			29,137
Less Treasury Stock: 784,250 shares in 2005			3,719								3,719
Total Shareholders’ Equity			25,834				(416	)			25,418
Total Liabilities and Shareholders’ Equity		$	65,857			$	582			$	66,439

CONSOLIDATED STATEMENT OF OPERATIONS

		Six Months Ended July 1, 2006												Three Months Ended July 1, 2006
		As								As				As								As
(in thousands, except per share data)		Reported				Adjustments				Restated				Reported				Adjustments				Restated
Sales		$	53,965			$	130			$	54,095			$	29,039			$	(207	)		$	28,832
Costs and Expenses:
Cost of products sold			41,872				45				41,917				22,195				(129	)			22,066
Selling, general and administrative expenses			6,462								6,462				3,443								3,443
Interest expense, net of interest income of $4 in 2006			418								418				219								219
Other (income) expense			(34	)							(34	)			(22	)							(22	)
Total costs and expenses			48,718				45				48,763				25,835				(129	)			25,706
Income Before Income Taxes			5,247				85				5,332				3,204				(78	)			3,126
Provision for Income Taxes			2,022				29				2,051				1,189				(26	)			1,163
Net Income			3,225				56				3,281			$	2,015			$	(52	)		$	1,963
Retained Earnings:
Beginning of period			24,859				(416	)			24,443
End of period		$	28,084			$	(360	)		$	27,724
Earnings per share:
Basic		$	.41			$	0.00			$	0.41			$	.25			$	0.00			$	0.25
Diluted			.39				0.01				0.40				.25				(0.01	)			0.24

CONSOLIDATED STATEMENT OF CASH FLOWS

		July 1, 2006
		As								As
(in thousands)		Reported				Adjustments				Restated
Cash Flows from Operating Activities:
Net income		$	3,225			$	56			$	3,281
Adjustments to reconcile net income to cash (used in) provided by operating activities:
Depreciation and Amortization			1,259								1,259
Deferred Tax Provision			(42	)			29				(13	)
Other			(46	)							(46	)
Provision for Doubtful Accounts			(21	)							(21	)
Stock Compensation Expense			329								329
Cash flows from changes in operating assets and liabilities, excluding effects of acquisition:
Accounts Receivable			(5,062	)							(5,062	)
Inventories			(4,139	)			45				(4,094	)
Prepaid Expenses			(409	)							(409	)
Accounts Payable			4,718								4,718
Accrued Expenses			(81	)							(81	)
Customer Advanced Payments and Deferred Revenue			(303	)			(130	)			(433	)
Contract Loss Reserves			(830	)							(830	)
Income Taxes			49								49
Supplemental Retirement and Other Liabilities			84								84
Cash used in Operating Activities			(1,269	)			—				(1,269	)
Cash Flows from Investing Activities:
Business Acquisition			—								—
Proceeds from sale of short-term investments			—								—
Capital Expenditures			(1,607	)							(1,607	)
Other			—								—
Cash used in Investing Activities			(1,607	)			—				(1,607	)
Cash Flows from Financing Activities:
Principal Payments on Long-term Debt and Capital Lease Obligations			(483	)							(483	)
Proceeds from Note Payable			—								—
Payment on Note Payable			(1,000	)							(1,000	)
Proceeds from Issuance of Stock			324								324
Income tax benefit from exercise of stock options			72								72
Cash used in Financing Activities			(1,087	)			—				(1,087	)
Effect of Exchange Rates on Cash			(85	)			—				(85	)
Cash used in Continuing Operations			(4,048	)			—				(4,048	)
Cash used in Discontinued Operations — operating activities			—				—				—
Net decrease in Cash and Cash Equivalents			(4,048	)			—				(4,048	)
Cash at Beginning of Period			4,473				—				4,473
Cash at End of Period		$	425			$	—			$	425