UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended OctoberJuly 1, 20222023
or
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☐ | 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)
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New York (State or other jurisdiction of incorporation or organization) | 16-0959303 (IRS Employer Identification Number) |
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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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: | | | | | | | | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, $.01 par value per share | ATRO | NASDAQ Stock Market |
Securities registered pursuant to Section 12(g) of the Act: None
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
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 ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, an “accelerated filer”, a “non-accelerated filer” and, a “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): | | | | | | | | | | | | | | | | | |
Large accelerated filer | ☐ | Accelerated filer | ☒ | Emerging growth company | ☐ |
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Non-accelerated filer | ☐ | Smaller Reporting Company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
As of November 7, 2022, 32,171,112July 31, 2023, 32,536,299 shares of common stock were outstanding consisting of 25,847,46626,514,253 shares of common stock ($.01 par value) and 6,323,6466,022,046 shares of Class B common stock ($.01 par value).
TABLE OF CONTENTS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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PART I | | | | | | | | | |
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PART II | | | | | | | | | |
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| | Item 1 | | | | | | | | | |
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| | Item 1a | | | | | | | | | |
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| | Item 2 | | | | | | | | | |
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| | Item 3 | | | | | | | | | |
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Part I – Financial Information
Item 1. Financial Statements
ASTRONICS CORPORATION
Consolidated Condensed Balance Sheets
OctoberJuly 1, 20222023 with Comparative Figures for December 31, 20212022
(Unaudited)
(In thousands)
| | | October 1, 2022 | | December 31, 2021 | | July 1, 2023 | | December 31, 2022 |
| Current Assets: | Current Assets: | | Current Assets: | |
Cash and Cash Equivalents | Cash and Cash Equivalents | $ | 2,568 | | | $ | 29,757 | | Cash and Cash Equivalents | $ | 3,472 | | | $ | 13,778 | |
Restricted Cash | | Restricted Cash | 822 | | | — | |
Accounts Receivable, Net of Allowance for Estimated Credit Losses | Accounts Receivable, Net of Allowance for Estimated Credit Losses | 133,835 | | | 107,439 | | Accounts Receivable, Net of Allowance for Estimated Credit Losses | 170,806 | | | 147,790 | |
Inventories | Inventories | 190,198 | | | 157,576 | | Inventories | 207,446 | | | 187,983 | |
Prepaid Expenses and Other Current Assets | Prepaid Expenses and Other Current Assets | 20,736 | | | 45,089 | | Prepaid Expenses and Other Current Assets | 15,650 | | | 15,743 | |
| Total Current Assets | Total Current Assets | 347,337 | | | 339,861 | | Total Current Assets | 398,196 | | | 365,294 | |
Property, Plant and Equipment, Net of Accumulated Depreciation | Property, Plant and Equipment, Net of Accumulated Depreciation | 90,640 | | | 95,236 | | Property, Plant and Equipment, Net of Accumulated Depreciation | 87,800 | | | 90,658 | |
Operating Right-of-Use Assets | Operating Right-of-Use Assets | 14,463 | | | 16,169 | | Operating Right-of-Use Assets | 29,404 | | | 13,028 | |
Other Assets | Other Assets | 5,490 | | | 5,270 | | Other Assets | 7,870 | | | 8,605 | |
Intangible Assets, Net of Accumulated Amortization | Intangible Assets, Net of Accumulated Amortization | 82,814 | | | 94,320 | | Intangible Assets, Net of Accumulated Amortization | 72,108 | | | 79,277 | |
Goodwill | Goodwill | 58,143 | | | 58,282 | | Goodwill | 58,210 | | | 58,169 | |
Total Assets | Total Assets | $ | 598,887 | | | $ | 609,138 | | Total Assets | $ | 653,588 | | | $ | 615,031 | |
Current Liabilities: | Current Liabilities: | | | | Current Liabilities: | | | |
| Current Maturities of Long-term Debt | | Current Maturities of Long-term Debt | $ | 8,960 | | | $ | 4,500 | |
Accounts Payable | Accounts Payable | $ | 53,216 | | | $ | 34,860 | | Accounts Payable | 79,837 | | | 64,193 | |
Current Operating Lease Liabilities | Current Operating Lease Liabilities | 4,971 | | | 6,778 | | Current Operating Lease Liabilities | 4,606 | | | 4,441 | |
Accrued Expenses and Other Current Liabilities | Accrued Expenses and Other Current Liabilities | 46,253 | | | 49,619 | | Accrued Expenses and Other Current Liabilities | 53,477 | | | 45,911 | |
Customer Advance Payments and Deferred Revenue | Customer Advance Payments and Deferred Revenue | 29,048 | | | 27,356 | | Customer Advance Payments and Deferred Revenue | 27,288 | | | 32,567 | |
| Total Current Liabilities | Total Current Liabilities | 133,488 | | | 118,613 | | Total Current Liabilities | 174,168 | | | 151,612 | |
Long-term Debt | Long-term Debt | 159,000 | | | 163,000 | | Long-term Debt | 168,733 | | | 159,500 | |
Long-term Operating Lease Liabilities | Long-term Operating Lease Liabilities | 10,966 | | | 12,018 | | Long-term Operating Lease Liabilities | 26,082 | | | 9,942 | |
Other Liabilities | Other Liabilities | 58,345 | | | 58,903 | | Other Liabilities | 54,204 | | | 54,057 | |
Total Liabilities | Total Liabilities | 361,799 | | | 352,534 | | Total Liabilities | 423,187 | | | 375,111 | |
Shareholders’ Equity: | Shareholders’ Equity: | | | | Shareholders’ Equity: | | | |
Common Stock | Common Stock | 354 | | | 353 | | Common Stock | 355 | | | 354 | |
Accumulated Other Comprehensive Loss | Accumulated Other Comprehensive Loss | (16,690) | | | (14,495) | | Accumulated Other Comprehensive Loss | (8,443) | | | (9,526) | |
Other Shareholders’ Equity | Other Shareholders’ Equity | 253,424 | | | 270,746 | | Other Shareholders’ Equity | 238,489 | | | 249,092 | |
Total Shareholders’ Equity | Total Shareholders’ Equity | 237,088 | | | 256,604 | | Total Shareholders’ Equity | 230,401 | | | 239,920 | |
Total Liabilities and Shareholders’ Equity | Total Liabilities and Shareholders’ Equity | $ | 598,887 | | | $ | 609,138 | | Total Liabilities and Shareholders’ Equity | $ | 653,588 | | | $ | 615,031 | |
See notes to consolidated condensed financial statements.
ASTRONICS CORPORATION
Consolidated Condensed Statements of Operations
Three and NineSix Months Ended OctoberJuly 1, 20222023 With Comparative Figures for 20212022
(Unaudited)
(In thousands, except per share data)
| | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended |
| | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Sales | Sales | $ | 376,741 | | | $ | 328,856 | | | $ | 131,438 | | | $ | 111,841 | | Sales | $ | 330,992 | | | $ | 245,303 | | | $ | 174,454 | | | $ | 129,127 | |
Cost of Products Sold | Cost of Products Sold | 326,711 | | | 281,957 | | | 117,050 | | | 94,610 | | Cost of Products Sold | 270,787 | | | 209,661 | | | 141,759 | | | 113,418 | |
Gross Profit | Gross Profit | 50,030 | | | 46,899 | | | 14,388 | | | 17,231 | | Gross Profit | 60,205 | | | 35,642 | | | 32,695 | | | 15,709 | |
| Selling, General and Administrative Expenses | Selling, General and Administrative Expenses | 76,907 | | | 66,829 | | | 28,702 | | | 21,729 | | Selling, General and Administrative Expenses | 60,179 | | | 48,205 | | | 30,299 | | | 24,105 | |
| Loss from Operations | (26,877) | | | (19,930) | | | (14,314) | | | (4,498) | | |
Income (Loss) from Operations | | Income (Loss) from Operations | 26 | | | (12,563) | | | 2,396 | | | (8,396) | |
Net Gain on Sale of Business | Net Gain on Sale of Business | (11,284) | | | — | | | — | | | — | | Net Gain on Sale of Business | (3,427) | | | (11,284) | | | — | | | — | |
Other Expense, Net of Other Income | 1,180 | | | 1,627 | | | 427 | | | 546 | | |
Other (Income), Net of Other Expense | | Other (Income), Net of Other Expense | (910) | | | 753 | | | 378 | | | 291 | |
Interest Expense, Net of Interest Income | Interest Expense, Net of Interest Income | 5,812 | | | 5,252 | | | 2,519 | | | 1,795 | | Interest Expense, Net of Interest Income | 11,390 | | | 3,293 | | | 5,920 | | | 1,662 | |
Loss Before Income Taxes | Loss Before Income Taxes | (22,585) | | | (26,809) | | | (17,260) | | | (6,839) | | Loss Before Income Taxes | (7,027) | | | (5,325) | | | (3,902) | | | (10,349) | |
Provision for (Benefit from) Income Taxes | 6,383 | | | 373 | | | (2,403) | | | 335 | | |
Provision for Income Taxes | | Provision for Income Taxes | 9,387 | | | 8,786 | | | 8,097 | | | 661 | |
Net Loss | Net Loss | $ | (28,968) | | | $ | (27,182) | | | $ | (14,857) | | | $ | (7,174) | | Net Loss | $ | (16,414) | | | $ | (14,111) | | | $ | (11,999) | | | $ | (11,010) | |
Loss Per Share: | Loss Per Share: | | | | | | | | Loss Per Share: | | | | | | | |
Basic | Basic | $ | (0.90) | | | $ | (0.88) | | | $ | (0.46) | | | $ | (0.23) | | Basic | $ | (0.50) | | | $ | (0.44) | | | $ | (0.37) | | | $ | (0.34) | |
Diluted | Diluted | $ | (0.90) | | | $ | (0.88) | | | $ | (0.46) | | | $ | (0.23) | | Diluted | $ | (0.50) | | | $ | (0.44) | | | $ | (0.37) | | | $ | (0.34) | |
See notes to consolidated condensed financial statements.
ASTRONICS CORPORATION
Consolidated Condensed Statements of Comprehensive Loss
Three and NineSix Months Ended OctoberJuly 1, 20222023 With Comparative Figures for 20212022
(Unaudited)
(In thousands)
| | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended |
| | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Net Loss | Net Loss | $ | (28,968) | | | $ | (27,182) | | | $ | (14,857) | | | $ | (7,174) | | Net Loss | $ | (16,414) | | | $ | (14,111) | | | $ | (11,999) | | | $ | (11,010) | |
Other Comprehensive (Loss) Income: | | | | | | | | |
Other Comprehensive Income (Loss): | | Other Comprehensive Income (Loss): | | | | | | | |
Foreign Currency Translation Adjustments | Foreign Currency Translation Adjustments | (3,241) | | | (1,165) | | | (1,674) | | | (1,143) | | Foreign Currency Translation Adjustments | 711 | | | (1,567) | | | 487 | | | (1,386) | |
Retirement Liability Adjustment – Net of Tax | Retirement Liability Adjustment – Net of Tax | 1,046 | | | 1,302 | | | 348 | | | 434 | | Retirement Liability Adjustment – Net of Tax | 372 | | | 698 | | | 187 | | | 347 | |
Total Other Comprehensive (Loss) Income | (2,195) | | | 137 | | | (1,326) | | | (709) | | |
Total Other Comprehensive Income (Loss) | | Total Other Comprehensive Income (Loss) | 1,083 | | | (869) | | | 674 | | | (1,039) | |
Comprehensive Loss | Comprehensive Loss | $ | (31,163) | | | $ | (27,045) | | | $ | (16,183) | | | $ | (7,883) | | Comprehensive Loss | $ | (15,331) | | | $ | (14,980) | | | $ | (11,325) | | | $ | (12,049) | |
See notes to consolidated condensed financial statements.
ASTRONICS CORPORATION
Consolidated Condensed Statements of Cash Flows
NineSix Months Ended OctoberJuly 1, 20222023 With Comparative Figures for 20212022 |
|
| Nine Months Ended |
| Six Months Ended |
(Unaudited, In thousands) | (Unaudited, In thousands) | October 1, 2022 | | October 2, 2021 | (Unaudited, In thousands) | July 1, 2023 | | July 2, 2022 |
Cash Flows from Operating Activities: | Cash Flows from Operating Activities: | | | | Cash Flows from Operating Activities: | | | |
Net Loss | Net Loss | $ | (28,968) | | | $ | (27,182) | | Net Loss | $ | (16,414) | | | $ | (14,111) | |
Adjustments to Reconcile Net Loss to Cash Flows from Operating Activities: | Adjustments to Reconcile Net Loss to Cash Flows from Operating Activities: | | Adjustments to Reconcile Net Loss to Cash Flows from Operating Activities: | |
Depreciation and Amortization | Depreciation and Amortization | 20,905 | | | 21,950 | | Depreciation and Amortization | 13,373 | | | 14,088 | |
Amortization of Deferred Financing Fees | | Amortization of Deferred Financing Fees | 1,363 | | | — | |
Provisions for Non-Cash Losses on Inventory and Receivables | Provisions for Non-Cash Losses on Inventory and Receivables | 1,033 | | | 2,750 | | Provisions for Non-Cash Losses on Inventory and Receivables | 1,705 | | | 677 | |
Equity-based Compensation Expense | Equity-based Compensation Expense | 5,178 | | | 5,147 | | Equity-based Compensation Expense | 3,992 | | | 3,721 | |
Non-Cash Accrued 401K Contribution | 3,300 | | | — | | |
Deferred Tax Benefit | — | | | (145) | | |
Non-Cash Severance Expense | — | | | 182 | | |
| Operating Lease Non-Cash Expense | Operating Lease Non-Cash Expense | 4,568 | | | 3,783 | | Operating Lease Non-Cash Expense | 2,563 | | | 2,928 | |
| Non-cash Litigation Provision | 2,000 | | | — | | |
Non-Cash Accrued 401K Contribution | | Non-Cash Accrued 401K Contribution | 2,536 | | | 2,197 | |
Net Gain on Sale of Business, Before Taxes | Net Gain on Sale of Business, Before Taxes | (11,284) | | | — | | Net Gain on Sale of Business, Before Taxes | (3,427) | | | (11,284) | |
| Contingent Consideration Liability Fair Value Adjustment | — | | | (2,200) | | |
| Non-Cash Deferred Liability Recovery | | Non-Cash Deferred Liability Recovery | (5,824) | | | — | |
| Other | Other | 2,997 | | | 3,010 | | Other | (1,275) | | | 1,320 | |
Cash Flows from Changes in Operating Assets and Liabilities: | | |
Changes in Operating Assets and Liabilities Providing (Using) Cash: | | Changes in Operating Assets and Liabilities Providing (Using) Cash: | |
Accounts Receivable | Accounts Receivable | (28,196) | | | (15,027) | | Accounts Receivable | (22,619) | | | (11,449) | |
Inventories | Inventories | (35,444) | | | (3,255) | | Inventories | (22,638) | | | (19,293) | |
Accounts Payable | Accounts Payable | 17,595 | | | (1,883) | | Accounts Payable | 14,081 | | | 11,660 | |
Accrued Expenses | Accrued Expenses | 638 | | | 1,733 | | Accrued Expenses | 5,460 | | | (458) | |
Other Current Assets and Liabilities | Other Current Assets and Liabilities | (4,015) | | | (666) | | Other Current Assets and Liabilities | 472 | | | (3,030) | |
Customer Advance Payments and Deferred Revenue | Customer Advance Payments and Deferred Revenue | 1,990 | | | (2,215) | | Customer Advance Payments and Deferred Revenue | 959 | | | (389) | |
Income Taxes | Income Taxes | 14,583 | | | 217 | | Income Taxes | 7,422 | | | 16,909 | |
Operating Lease Liabilities | Operating Lease Liabilities | (5,715) | | | (4,395) | | Operating Lease Liabilities | (2,674) | | | (3,601) | |
Supplemental Retirement Plan and Other Liabilities | Supplemental Retirement Plan and Other Liabilities | (306) | | | (304) | | Supplemental Retirement Plan and Other Liabilities | (206) | | | (215) | |
Cash Flows from Operating Activities | (39,141) | | | (18,500) | | |
Net Cash Used by Operating Activities | | Net Cash Used by Operating Activities | (21,151) | | | (10,330) | |
Cash Flows from Investing Activities: | Cash Flows from Investing Activities: | | | | Cash Flows from Investing Activities: | | | |
| Proceeds from Sale of Business and Assets | Proceeds from Sale of Business and Assets | 21,981 | | | 30 | | Proceeds from Sale of Business and Assets | 3,427 | | | 21,977 | |
Capital Expenditures | Capital Expenditures | (4,283) | | | (4,639) | | Capital Expenditures | (3,806) | | | (2,493) | |
| Cash Flows from Investing Activities | 17,698 | | | (4,609) | | |
| Net Cash (Used) Provided by Investing Activities | | Net Cash (Used) Provided by Investing Activities | (379) | | | 19,484 | |
Cash Flows from Financing Activities: | Cash Flows from Financing Activities: | | | | Cash Flows from Financing Activities: | | | |
Proceeds from Long-term Debt | Proceeds from Long-term Debt | 109,625 | | | 20,000 | | Proceeds from Long-term Debt | 131,732 | | | 52,625 | |
Principal Payments on Long-term Debt | Principal Payments on Long-term Debt | (113,625) | | | (10,000) | | Principal Payments on Long-term Debt | (112,774) | | | (79,625) | |
| Stock Award Activity | Stock Award Activity | 104 | | | 3,187 | | Stock Award Activity | (601) | | | 104 | |
Finance Lease Principal Payments | | Finance Lease Principal Payments | (24) | | | (55) | |
| Finance Lease Principal Payments | (85) | | | (878) | | |
| Debt Acquisition Costs | Debt Acquisition Costs | (968) | | | — | | Debt Acquisition Costs | (6,388) | | | (771) | |
Cash Flows from Financing Activities | (4,949) | | | 12,309 | | |
Net Cash Provided (Used) by Financing Activities | | Net Cash Provided (Used) by Financing Activities | 11,945 | | | (27,722) | |
Effect of Exchange Rates on Cash | Effect of Exchange Rates on Cash | (797) | | | (521) | | Effect of Exchange Rates on Cash | 101 | | | (505) | |
Decrease in Cash and Cash Equivalents | (27,189) | | | (11,321) | | |
Cash and Cash Equivalents at Beginning of Period | 29,757 | | | 40,412 | | |
Cash and Cash Equivalents at End of Period | $ | 2,568 | | | $ | 29,091 | | |
Supplemental Disclosure of Cash Flow Information | | | | |
Non-Cash Investing Activities: | | |
Capital Expenditures in Accounts Payable | $ | 1,392 | | | $ | — | | |
Decrease in Cash and Cash Equivalents and Restricted Cash | | Decrease in Cash and Cash Equivalents and Restricted Cash | (9,484) | | | (19,073) | |
Cash and Cash Equivalents and Restricted Cash at Beginning of Period | | Cash and Cash Equivalents and Restricted Cash at Beginning of Period | 13,778 | | | 29,757 | |
Cash and Cash Equivalents and Restricted Cash at End of Period | | Cash and Cash Equivalents and Restricted Cash at End of Period | $ | 4,294 | | | $ | 10,684 | |
|
See notes to consolidated condensed financial statements.
ASTRONICS CORPORATION
Consolidated Condensed Statements of Shareholders'Shareholders’ Equity
Three and NineSix Months Ended OctoberJuly 1, 20222023 With Comparative Figures for 20212022
(Unaudited)
(In thousands)
| | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended |
| | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Common Stock | Common Stock | | | | | | | | Common Stock | | | | | | | |
Beginning of Period | Beginning of Period | $ | 289 | | | $ | 278 | | | $ | 290 | | | $ | 283 | | Beginning of Period | $ | 291 | | | $ | 289 | | | $ | 293 | | | $ | 290 | |
| Net Issuance of Common Stock for Restricted Stock Units (“RSU’s”) | Net Issuance of Common Stock for Restricted Stock Units (“RSU’s”) | 1 | | | 6 | | | — | | | 6 | | Net Issuance of Common Stock for Restricted Stock Units (“RSU’s”) | 1 | | | 1 | | | — | | | — | |
| Class B Stock Converted to Common Stock | Class B Stock Converted to Common Stock | 1 | | | 5 | | | 1 | | | — | | Class B Stock Converted to Common Stock | 3 | | | — | | | 2 | | | — | |
End of Period | End of Period | 291 | | | 289 | | | 291 | | | 289 | | End of Period | 295 | | | 290 | | | 295 | | | 290 | |
Convertible Class B Stock | Convertible Class B Stock | | | | | | | | Convertible Class B Stock | | | | | | | |
Beginning of Period | Beginning of Period | 64 | | | 69 | | | 64 | | | 64 | | Beginning of Period | 63 | | | 64 | | | 62 | | | 64 | |
| Class B Stock Converted to Common Stock | Class B Stock Converted to Common Stock | (1) | | | (5) | | | (1) | | | — | | Class B Stock Converted to Common Stock | (3) | | | — | | | (2) | | | — | |
End of Period | End of Period | 63 | | | 64 | | | 63 | | | 64 | | End of Period | 60 | | | 64 | | | 60 | | | 64 | |
Additional Paid in Capital | Additional Paid in Capital | | | | | | | | Additional Paid in Capital | | | | | | | |
Beginning of Period | Beginning of Period | 92,037 | | | 82,187 | | | 95,861 | | | 85,829 | | Beginning of Period | 98,630 | | | 92,037 | | | 100,426 | | | 94,245 | |
| Net Exercise of Stock Options and Equity-based Compensation Expense | Net Exercise of Stock Options and Equity-based Compensation Expense | 5,579 | | | 8,328 | | | 1,457 | | | 4,686 | | Net Exercise of Stock Options and Equity-based Compensation Expense | 3,993 | | | 4,122 | | | 1,594 | | | 1,621 | |
Tax Withholding Related to Issuance of RSU’s | Tax Withholding Related to Issuance of RSU’s | (298) | | | — | | | — | | | — | | Tax Withholding Related to Issuance of RSU’s | (603) | | | (298) | | | — | | | (5) | |
End of Period | End of Period | 97,318 | | | 90,515 | | | 97,318 | | | 90,515 | | End of Period | 102,020 | | | 95,861 | | | 102,020 | | | 95,861 | |
Accumulated Comprehensive Loss | Accumulated Comprehensive Loss | | | | | | | | Accumulated Comprehensive Loss | | | | | | | |
Beginning of Period | Beginning of Period | (14,495) | | | (16,450) | | | (15,364) | | | (15,604) | | Beginning of Period | (9,526) | | | (14,495) | | | (9,117) | | | (14,325) | |
| Foreign Currency Translation Adjustments | Foreign Currency Translation Adjustments | (3,241) | | | (1,165) | | | (1,674) | | | (1,143) | | Foreign Currency Translation Adjustments | 711 | | | (1,567) | | | 487 | | | (1,386) | |
| Retirement Liability Adjustment – Net of Taxes | Retirement Liability Adjustment – Net of Taxes | 1,046 | | | 1,302 | | | 348 | | | 434 | | Retirement Liability Adjustment – Net of Taxes | 372 | | | 698 | | | 187 | | | 347 | |
End of Period | End of Period | (16,690) | | | (16,313) | | | (16,690) | | | (16,313) | | End of Period | (8,443) | | | (15,364) | | | (8,443) | | | (15,364) | |
Retained Earnings | Retained Earnings | | | | | | | | Retained Earnings | | | | | | | |
Beginning of Period | Beginning of Period | 287,225 | | | 312,803 | | | 266,338 | | | 292,795 | | Beginning of Period | 240,360 | | | 287,225 | | | 234,463 | | | 279,047 | |
| Net Loss | Net Loss | (28,968) | | | (27,182) | | | (14,857) | | | (7,174) | | Net Loss | (16,414) | | | (14,111) | | | (11,999) | | | (11,010) | |
Reissuance of Treasury Shares for 401K Contribution | Reissuance of Treasury Shares for 401K Contribution | (9,158) | | | — | | | (2,382) | | | — | | Reissuance of Treasury Shares for 401K Contribution | (2,248) | | | (6,776) | | | (766) | | | (1,699) | |
| End of Period | End of Period | 249,099 | | | 285,621 | | | 249,099 | | | 285,621 | | End of Period | 221,698 | | | 266,338 | | | 221,698 | | | 266,338 | |
Treasury Stock | Treasury Stock | | | | | | | | Treasury Stock | | | | | | | |
Beginning of Period | Beginning of Period | (108,516) | | | (108,516) | | | (96,513) | | | (108,516) | | Beginning of Period | (89,898) | | | (108,516) | | | (87,203) | | | (99,239) | |
| Shares Issued to Fund 401K Obligation | Shares Issued to Fund 401K Obligation | 15,523 | | | — | | | 3,520 | | | — | | Shares Issued to Fund 401K Obligation | 4,669 | | | 12,003 | | | 1,974 | | | 2,726 | |
| End of Period | End of Period | (92,993) | | | (108,516) | | | (92,993) | | | (108,516) | | End of Period | (85,229) | | | (96,513) | | | (85,229) | | | (96,513) | |
Total Shareholders’ Equity | Total Shareholders’ Equity | $ | 237,088 | | | $ | 251,660 | | | $ | 237,088 | | | $ | 251,660 | | Total Shareholders’ Equity | $ | 230,401 | | | $ | 250,676 | | | $ | 230,401 | | | $ | 250,676 | |
See notes to consolidated condensed financial statements.
ASTRONICS CORPORATION
Consolidated Condensed Statements of Shareholders'Shareholders’ Equity, Continued
Three and NineSix Months Ended OctoberJuly 1, 20222023 With Comparative Figures for 20212022
(Unaudited)
(In thousands)
| | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended |
(Shares) | (Shares) | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | (Shares) | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Common Stock | Common Stock | | | | | | | | Common Stock | | | | | | | |
Beginning of Period | Beginning of Period | 28,911 | | | 27,825 | | | 29,047 | | | 28,315 | | Beginning of Period | 29,122 | | | 28,911 | | | 29,273 | | | 29,009 | |
| Net Issuance from Exercise of Stock Options | Net Issuance from Exercise of Stock Options | 20 | | | 554 | | | — | | | 534 | | Net Issuance from Exercise of Stock Options | 1 | | | 20 | | | — | | | — | |
Net Issuance of Common Stock for RSU’s | Net Issuance of Common Stock for RSU’s | 105 | | | — | | | 57 | | | — | | Net Issuance of Common Stock for RSU’s | 90 | | | 48 | | | 7 | | | 6 | |
Class B Stock Converted to Common Stock | Class B Stock Converted to Common Stock | 74 | | | 512 | | | 6 | | | 42 | | Class B Stock Converted to Common Stock | 265 | | | 68 | | | 198 | | | 32 | |
End of Period | End of Period | 29,110 | | | 28,891 | | | 29,110 | | | 28,891 | | End of Period | 29,478 | | | 29,047 | | | 29,478 | | | 29,047 | |
Convertible Class B Stock | Convertible Class B Stock | | | | | | | | Convertible Class B Stock | | | | | | | |
Beginning of Period | Beginning of Period | 6,375 | | | 6,877 | | | 6,331 | | | 6,420 | | Beginning of Period | 6,314 | | | 6,375 | | | 6,247 | | | 6,363 | |
Net Issuance from Exercise of Stock Options | Net Issuance from Exercise of Stock Options | 24 | | | 13 | | | — | | | — | | Net Issuance from Exercise of Stock Options | — | | | 24 | | | — | | | — | |
| Class B Stock Converted to Common Stock | Class B Stock Converted to Common Stock | (74) | | | (512) | | | (6) | | | (42) | | Class B Stock Converted to Common Stock | (265) | | | (68) | | | (198) | | | (32) | |
End of Period | End of Period | 6,325 | | | 6,378 | | | 6,325 | | | 6,378 | | End of Period | 6,049 | | | 6,331 | | | 6,049 | | | 6,331 | |
Treasury Stock | Treasury Stock | | | | | | | | Treasury Stock | | | | | | | |
Beginning of Period | Beginning of Period | 3,808 | | | 3,808 | | | 3,387 | | | 3,808 | | Beginning of Period | 3,155 | | | 3,808 | | | 3,060 | | | 3,483 | |
| Shares Issued to Fund 401K Obligation | Shares Issued to Fund 401K Obligation | (545) | | | — | | | (124) | | | — | | Shares Issued to Fund 401K Obligation | (164) | | | (421) | | | (69) | | | (96) | |
| End of Period | End of Period | 3,263 | | | 3,808 | | | 3,263 | | | 3,808 | | End of Period | 2,991 | | | 3,387 | | | 2,991 | | | 3,387 | |
See notes to consolidated condensed financial statements.
ASTRONICS CORPORATION
Notes to Consolidated Condensed Financial Statements
OctoberJuly 1, 20222023
(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.
Operating Results
The results of operations for any interim period are not necessarily indicative of results for the full year. In addition, the COVID-19 pandemic and supply chain disruptions have increased the volatility we experience in our financial results in recent periods and this could continue in future interim and annual periods. Operating results for the ninesix months ended OctoberJuly 1, 20222023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023.
The balance sheet at December 31, 20212022 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 (“GAAP”) for complete financial statements.
For further information, refer to the financial statements and footnotes thereto included in Astronics Corporation’s 20212022 annual report on Form 10-K.
Description of the Business
Astronics Corporation (“Astronics” or the “Company”) is a leading provider of advanced technologies to the global aerospace, defense and electronics industries. Our products and services include advanced, high-performance electrical power generation, distribution and motion systems, lighting and safety systems, avionics products, systems and certification, aircraft structures and automated test systems.
We have principal operations in the United States (“U.S.”), Canada, France and England, as well as engineering offices in the Ukraine and India.
On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment. The transaction included two elements of contingent earnouts. In December 2021, the Company agreed to a payment of $10.7 million for the calendar 2020 earnout, which was recorded in the fourth quarter of 2021 and was received by the Company in early January 2022. In March 2022, the Company agreed with the earnout calculation for the calendar 2021 earnout in the amount of $11.3 million. The Company recorded the gain and received the payment in the first quarter of 2022. In March 2023, the Company agreed with the final earnout calculation for the calendar 2022 earnout in the amount of $3.4 million. The Company recorded the gain and received the payment in the first quarter of 2023.
In April 2023, the Test Systems segment implemented restructuring initiatives to align the workforce and management structure with near-term revenue expectations and operational needs. The Company incurred $0.6 million in severance charges during the second quarter of 2023 recorded as selling, general and administrative expenses, of which $0.3 million remain unpaid as of July 1, 2023.
Impact of the COVID-19 Pandemic
On March 11, 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic. The spread of the COVID-19 pandemic disrupted businesses on a global scale, led to significant volatility in financial markets and affected the aviation and industrial industries. Substantially all of our operations and production activities have, to-date, remained operational. However, theThe impacts of the pandemic have placedcontinue to place labor and supply chain pressures on our business and we have been impacted by customer demand variability. Although we saw stable and growing backlog during the first three quarters of 2022 and into 2023 in our aerospace business, COVID-19 relatedsupply chain-related disruptions are ongoing and continue to adversely challenge our commercial transport market.markets. While we remain bullish about the aerospace business, we believe the recovery to pre-pandemic activity, particularly in the widebody market, will take longer than originally anticipated at the outset of the pandemic. As economic activity continues to recover, we will continue to monitor the situation, assessing further possible implications on our operations, supply chain, liquidity, cash flow and customer orders.
The Company qualified for government subsidies from the Canadian and French governments as a result of the COVID-19 pandemic’s impact on our foreign operations. The Canadian and French subsidies are income-based grants intended to reimburse the Company for certain employee wages. The grants are recognized as income over the periods in which the Company recognizes as expenses the costs the grants are intended to defray. The amount recognized during the three and nine months ended October 1, 2022 was immaterial.
In September 2021 the Company was awarded a grant of up to $14.7 million from the U.S. Department of Transportation (“USDOT”) under the Aviation Manufacturing Jobs Protection Program (“AMJP”). The Company received $7.4 million under the grant in 2021, $5.2 million in the first quarter
first quarter of 2022. The grant benefit was recognized ratably over the six-month performance period as a reduction to cost of products sold in proportion to the compensation expense that the award iswas intended to defray. During the ninesix months ended October 1,July 2, 2022, the Company recognized $6.0 million of the award.
Restricted Cash
Under the provisions of the ABL Revolving Credit Facility (as defined and discussed below in Note 7), the Company has a lockbox arrangement with the banking institution for its accounts within the United States whereby daily lockbox receipts are contractually utilized to pay down outstanding balances on the ABL Revolving Credit Facility debt. Lockbox balances that have not yet been applied to the ABL Revolving Credit Facility are classified as restricted cash in the accompanying Consolidated Condensed Balance Sheets. The following table presentsprovides a reconciliation of cash and restricted cash included in Consolidated Condensed Balance Sheets to the COVID-19 related government assistance, including AMJP, recorded duringamounts included in the three and nine months ended October 1, 2022 and October 2, 2021:Consolidated Condensed Statements of Cash Flows.
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | Three Months Ended |
(In thousands) | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 |
Reduction in Cost of Products Sold | $ | 6,008 | | | $ | 3,185 | | | $ | — | | | $ | 1,706 | |
Reduction in Selling, General and Administrative Expenses | — | | | 190 | | | — | | | 43 | |
Total | $ | 6,008 | | | $ | 3,375 | | | $ | — | | | $ | 1,749 | |
| | | | | | | | | | | | | | |
(In thousands) | | July 1, 2023 | | July 2, 2022 |
Cash and Cash Equivalents | | $ | 3,472 | | | $ | 10,684 | |
Restricted cash | | 822 | | | — | |
Total Cash and Restricted Cash Shown in Statements of Cash Flows | | $ | 4,294 | | | $ | 10,684 | |
Trade Accounts Receivable and Contract Assets
The allowance for estimated credit losses is based on the Company’s assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as the age of the receivable balances, historical experience, credit quality, current economic conditions, and reasonable and supportable forecasts of future economic conditions that may affect a customer’s ability to pay. The allowance for estimated credit losses balance was $3.4$1.7 million and $3.2$2.6 million at OctoberJuly 1, 20222023 and December 31, 2021,2022, respectively. The Company’s bad debt expense was $0.3 million and $0.4 million during the three and nine months ended October 1, 2022 and insignificant during the three and ninesix months ended OctoberJuly 1, 2023 and July 2, 2021.2022. Total write-offs charged against the allowance were insignificant$0.7 million and $0.8 million in both the three and ninesix months ended OctoberJuly 1, 20222023 and Octoberinsignificant in the three and six months ended July 2, 2021.2022. Total recoveries were insignificant in both the three and ninesix months ended OctoberJuly 1, 20222023 and OctoberJuly 2, 2021.2022.
The Company's exposure to credit losses may increase if its customers are adversely affected by global economic recessions, disruption associated with the current COVID-19 pandemic or the Russian/Ukrainian conflict, industry conditions, or other customer-specific factors. Although the Company has historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables and contract assets as airlines and other aerospace companies’ cash flows are impacted by the COVID-19 pandemic.pandemic and associated supply chain disruptions.
Research and Development Expenses
Research and development costs are expensed as incurred and include salaries, benefits, consulting, material costs and depreciation. Research and development expenses amounted to $12.0$12.7 million and $11.3$12.6 million for the three months ended and $36.8$25.4 million and $31.9$24.8 million for the ninesix months ended OctoberJuly 1, 20222023 and OctoberJuly 2, 2021,2022, respectively. These costs are included in cost of products sold.
Valuation of Goodwill Impairmentand Long-Lived Assets
The Company tests goodwill at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
As of October 1, 2022, the Company concluded that no indicators of impairment relating to intangible assets or goodwill existed and an interim test was not performed in the three or nine months then ended.
Valuation of Long-Lived Assets
Long-lived assets are evaluated for recoverability whenever adverse effects or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability test consists of comparing the undiscounted projected cash flows with the carrying amount. Should the carrying amount exceed undiscounted projected cash flows, an impairment loss would be recognized to the extent the carrying amount exceeds fair value.
As of OctoberJuly 1, 20222023 and for the three and nine month periods then ended,July 2, 2022, the Company concluded that no indicators of impairment relating to long-livedintangible assets existed.
or goodwill existed and an interim test was not performed in the six month periods then ended. Foreign Currency Translation
The aggregate foreign currency transaction gain or loss included in operations was insignificant for the three and ninesix months ended OctoberJuly 1, 20222023 and OctoberJuly 2, 2021.2022.
Newly Adopted Accounting Pronouncement
Recent Accounting Pronouncement Adopted | | | | | | | | |
Standard | Description | Financial Statement Effect or Other Significant Matters |
ASU No. 2021-08 Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
| This amendment requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Topic 606, Revenue from Contracts with Customers, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date. The standard will not impact acquired contract assets or liabilities from business combinations occurring prior to the adoption date.
| This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The impact of adoption on the Company's consolidated financial statements will be prospective only and depend on the magnitude of future business acquisitions.
Date of adoption: Q1 2022
|
We consider the applicability and impact of all ASUs. Recent ASUs not listed above were assessed and determined to be either not applicable, or had or are expected to have minimal impact on our financial statements and related disclosures.
2) Revenue
On OctoberJuly 1, 2022,2023, we had $547.1$611.1 million of remaining performance obligations, which we refer to as total backlog. We expect to recognize approximately $426.5$502.0 million of our remaining performance obligations as revenue over the next twelve months and the balance thereafter.
We recognized $7.3$10.6 million and $6.5$8.9 million during the three months ended and $13.3$19.5 million and $15.1$11.2 million during the ninesix months ended OctoberJuly 1, 20222023 and OctoberJuly 2, 2021,2022, respectively, in revenues that were included in the contract liability balance at the beginning of the period.
The Company's contract assets and contract liabilities consist primarily of costs and profits in excess of billings and billings in excess of cost and profits, respectively. The following table presents the beginning and ending balances of contract assets and contract liabilities during the ninesix months ended OctoberJuly 1, 2022:2023:
| | | | | | | | | | | | | | |
(In thousands) | | Contract Assets | | Contract Liabilities |
Beginning Balance, January 1, 2022 | | $ | 25,941 | | | $ | 28,495 | |
Ending Balance, October 1, 2022 | | $ | 31,263 | | | $ | 29,838 | |
| | | | | | | | | | | | | | |
(In thousands) | | Contract Assets | | Contract Liabilities |
Beginning Balance, January 1, 2023 | | $ | 27,349 | | | $ | 33,209 | |
Ending Balance, July 1, 2023 | | $ | 34,573 | | | $ | 28,260 | |
The Company recognizes an asset for certain, material costs to fulfill a contract if it is determined that the costs relate directly to a contract or an anticipated contract that can be specifically identified, generate or enhance resources that will be used in satisfying performance obligations in the future, and are expected to be recovered. Such costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods to which the asset relates. Start-up costs are expensed as incurred. Capitalized fulfillment costs are included in Work in Progress within Inventories in the accompanying Consolidated Condensed Balance Sheets. Should future orders not materialize or it is determined the costs are no longer probable of recovery, the capitalized costs are written off. As of OctoberJuly 1, 2023 and December 31, 2022, the Company has capitalized $1.6$3.4 million and $2.5 million of costs. As of December 31, 2021, the Company did not have material capitalized fulfillment costs.costs, respectively.
The following table presents our revenue disaggregated by Market Segments as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended | | Three Months Ended |
(In thousands) | | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Aerospace Segment | | | | | | | | |
Commercial Transport | | $ | 206,292 | | | $ | 133,332 | | | $ | 112,079 | | | $ | 69,243 | |
Military Aircraft | | 27,648 | | | 28,873 | | | 13,584 | | | 13,897 | |
General Aviation | | 44,463 | | | 33,997 | | | 25,015 | | | 18,130 | |
Other | | 15,576 | | | 14,482 | | | 7,704 | | | 8,020 | |
Aerospace Total | | 293,979 | | | 210,684 | | | 158,382 | | | 109,290 | |
| | | | | | | | |
Test Systems Segment | | | | | | | | |
| | | | | | | | |
Government & Defense | | 37,013 | | | 34,619 | | | 16,072 | | | 19,837 | |
Test Systems Total | | 37,013 | | | 34,619 | | | 16,072 | | | 19,837 | |
| | | | | | | | |
Total | | $ | 330,992 | | | $ | 245,303 | | | $ | 174,454 | | | $ | 129,127 | |
The following table presents our revenue disaggregated by Market Segments as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | | Three Months Ended |
(In thousands) | | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 |
Aerospace Segment | | | | | | | | |
Commercial Transport | | $ | 211,721 | | | $ | 143,550 | | | $ | 78,389 | | | $ | 57,549 | |
Military | | 41,336 | | | 54,847 | | | 12,463 | | | 17,064 | |
General Aviation | | 48,748 | | | 41,131 | | | 14,751 | | | 12,109 | |
Other | | 21,056 | | | 26,874 | | | 6,574 | | | 9,044 | |
Aerospace Total | | 322,861 | | | 266,402 | | | 112,177 | | | 95,766 | |
| | | | | | | | |
Test Systems Segment | | | | | | | | |
| | | | | | | | |
Aerospace & Defense | | 53,880 | | | 62,454 | | | 19,261 | | | 16,075 | |
Test Systems Total | | 53,880 | | | 62,454 | | | 19,261 | | | 16,075 | |
| | | | | | | | |
Total | | $ | 376,741 | | | $ | 328,856 | | | $ | 131,438 | | | $ | 111,841 | |
The following table presents our revenue disaggregated by Product Lines as follows: | | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended |
(In thousands) | (In thousands) | | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | (In thousands) | | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Aerospace Segment | Aerospace Segment | | | | | | | | | Aerospace Segment | | | | | | | | |
Electrical Power & Motion | Electrical Power & Motion | | $ | 132,757 | | | $ | 102,742 | | | $ | 46,155 | | | $ | 38,650 | | Electrical Power & Motion | | $ | 121,400 | | | $ | 86,602 | | | $ | 67,946 | | | $ | 42,135 | |
Lighting & Safety | Lighting & Safety | | 90,339 | | | 76,929 | | | 29,740 | | | 25,461 | | Lighting & Safety | | 78,471 | | | 60,599 | | | 41,918 | | | 31,388 | |
Avionics | Avionics | | 67,453 | | | 47,355 | | | 24,172 | | | 14,491 | | Avionics | | 60,664 | | | 43,281 | | | 30,923 | | | 24,406 | |
Systems Certification | Systems Certification | | 6,656 | | | 7,937 | | | 3,985 | | | 6,099 | | Systems Certification | | 13,297 | | | 2,671 | | | 7,620 | | | 1,669 | |
Structures | Structures | | 4,600 | | | 4,565 | | | 1,551 | | | 2,021 | | Structures | | 4,571 | | | 3,049 | | | 2,271 | | | 1,672 | |
Other | Other | | 21,056 | | | 26,874 | | | 6,574 | | | 9,044 | | Other | | 15,576 | | | 14,482 | | | 7,704 | | | 8,020 | |
Aerospace Total | Aerospace Total | | 322,861 | | | 266,402 | | | 112,177 | | | 95,766 | | Aerospace Total | | 293,979 | | | 210,684 | | | 158,382 | | | 109,290 | |
| Test Systems | Test Systems | | 53,880 | | | 62,454 | | | 19,261 | | | 16,075 | | Test Systems | | 37,013 | | | 34,619 | | | 16,072 | | | 19,837 | |
| Total | Total | | $ | 376,741 | | | $ | 328,856 | | | $ | 131,438 | | | $ | 111,841 | | Total | | $ | 330,992 | | | $ | 245,303 | | | $ | 174,454 | | | $ | 129,127 | |
3) Inventories
Inventories consisted of the following: | (In thousands) | (In thousands) | October 1, 2022 | | December 31, 2021 | (In thousands) | July 1, 2023 | | December 31, 2022 |
Finished Goods | Finished Goods | $ | 32,484 | | | $ | 28,579 | | Finished Goods | $ | 33,731 | | | $ | 30,703 | |
Work in Progress | Work in Progress | 33,867 | | | 22,954 | | Work in Progress | 32,185 | | | 29,895 | |
Raw Material | Raw Material | 123,847 | | | 106,043 | | Raw Material | 141,530 | | | 127,385 | |
| | $ | 190,198 | | | $ | 157,576 | | | $ | 207,446 | | | $ | 187,983 | |
The Company has evaluated the carrying value of existing inventories and believe they are properly reflected at their lower of carrying value or net realizable value. Future changes in demand or other market developments could result in future inventory charges. The Company is actively managing inventories and aligning them to meet known current and future demand.
4) Property, Plant and Equipment
Property, Plant and Equipment consisted of the following: | (In thousands) | (In thousands) | October 1, 2022 | | December 31, 2021 | (In thousands) | July 1, 2023 | | December 31, 2022 |
Land | Land | $ | 8,501 | | | $ | 8,632 | | Land | $ | 8,595 | | | $ | 8,578 | |
Buildings and Improvements | Buildings and Improvements | 69,986 | | | 70,566 | | Buildings and Improvements | 71,073 | | | 73,744 | |
Machinery and Equipment | Machinery and Equipment | 122,337 | | | 121,960 | | Machinery and Equipment | 125,942 | | | 123,071 | |
Construction in Progress | Construction in Progress | 8,384 | | | 5,680 | | Construction in Progress | 5,041 | | | 6,415 | |
| | 209,208 | | | 206,838 | | | 210,651 | | | 211,808 | |
Less Accumulated Depreciation | Less Accumulated Depreciation | 118,568 | | | 111,602 | | Less Accumulated Depreciation | 122,851 | | | 121,150 | |
| | $ | 90,640 | | | $ | 95,236 | | | $ | 87,800 | | | $ | 90,658 | |
5) Intangible Assets
The following table summarizes acquired intangible assets as follows: | | | | October 1, 2022 | | December 31, 2021 | | | July 1, 2023 | | December 31, 2022 |
(In thousands) | (In thousands) | Weighted Average Life | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization | (In thousands) | Weighted Average Life | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Patents | Patents | 11 years | | $ | 2,146 | | | $ | 2,044 | | | $ | 2,146 | | | $ | 1,979 | | Patents | 11 years | | $ | 2,146 | | | $ | 2,110 | | | $ | 2,146 | | | $ | 2,066 | |
Non-compete Agreement | Non-compete Agreement | 4 years | | 11,082 | | | 10,972 | | | 11,082 | | | 10,592 | | Non-compete Agreement | 4 years | | 11,082 | | | 11,062 | | | 11,082 | | | 11,052 | |
Trade Names | Trade Names | 10 years | | 11,339 | | | 9,151 | | | 11,447 | | | 8,518 | | Trade Names | 10 years | | 11,417 | | | 9,749 | | | 11,402 | | | 9,350 | |
Completed and Unpatented Technology | Completed and Unpatented Technology | 9 years | | 47,747 | | | 33,784 | | | 47,932 | | | 30,441 | | Completed and Unpatented Technology | 9 years | | 47,880 | | | 37,063 | | | 47,855 | | | 34,877 | |
Customer Relationships | Customer Relationships | 15 years | | 141,939 | | | 75,488 | | | 142,276 | | | 69,033 | | Customer Relationships | 15 years | | 142,180 | | | 82,613 | | | 142,133 | | | 77,996 | |
Total Intangible Assets | Total Intangible Assets | 12 years | | $ | 214,253 | | | $ | 131,439 | | | $ | 214,883 | | | $ | 120,563 | | Total Intangible Assets | 12 years | | $ | 214,705 | | | $ | 142,597 | | | $ | 214,618 | | | $ | 135,341 | |
All acquired intangible assets other than goodwill and one trade name are being amortized. Amortization expense for acquired intangibles is summarized as follows: | | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended |
(In thousands) | (In thousands) | | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | (In thousands) | | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Amortization Expense | Amortization Expense | | $ | 11,254 | | | $ | 11,565 | | | $ | 3,728 | | | $ | 3,853 | | Amortization Expense | | $ | 7,196 | | | $ | 7,526 | | | $ | 3,599 | | | $ | 3,761 | |
Amortization expense for acquired intangible assets expected for 20222023 and for each of the next five years is summarized as follows: | | | | | |
(In thousands) | |
2022 | $ | 14,922 | |
2023 | $ | 13,878 | |
2024 | $ | 12,856 | |
2025 | $ | 10,935 | |
2026 | $ | 9,533 | |
2027 | $ | 7,825 | |
| | | | | |
(In thousands) | |
2023 | $ | 13,888 | |
2024 | $ | 12,856 | |
2025 | $ | 10,935 | |
2026 | $ | 9,533 | |
2027 | $ | 7,825 | |
2028 | $ | 7,037 | |
6) Goodwill
The following table summarizes the changes in the carrying amount of goodwill for the ninesix months ended OctoberJuly 1, 2022:2023: | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | December 31, 2021 | | | | | | Foreign Currency Translation | | October 1, 2022 |
Aerospace | $ | 36,648 | | | | | | | $ | (140) | | | $ | 36,508 | |
Test Systems | 21,634 | | | | | | | 1 | | | 21,635 | |
| $ | 58,282 | | | | | | | $ | (139) | | | $ | 58,143 | |
The Company tests goodwill at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
As of October 1, 2022 and October 2, 2021, the Company concluded that no indicators of impairment relating to intangible assets or goodwill existed and an interim test was not performed in the three or nine months then ended. | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | December 31, 2022 | | | | | | Foreign Currency Translation | | July 1, 2023 |
Aerospace | $ | 36,534 | | | | | | | $ | 41 | | | $ | 36,575 | |
Test Systems | 21,635 | | | | | | | — | | | 21,635 | |
| $ | 58,169 | | | | | | | $ | 41 | | | $ | 58,210 | |
7) Long-term Debt and Notes Payable
The Company's long-term debt consistsat December 31, 2022 consisted of borrowings under its Fifth Amended and Restated Credit Agreement (the “Agreement”). On March 1, 2022, the Company executed an amendment to the Agreement, which reduced the revolving credit line from $375 million to $225 million and extended theThe maturity date of the loans under the facility from February 16, 2023 to MayAgreement was November 30, 2023. At December 31, 2022, there was $164.0 million outstanding on the Agreement and there remained $6.0 million available.
The definition of Adjusted EBITDA was modified to exclude income from earnout paymentsCompany amended the Agreement on January 19, 2023 by entering into the Sixth Amended and asset sales. On August 9, 2022,Restated Credit Agreement (the “ABL Revolving Credit Facility”). The ABL Revolving Credit Facility set the maximum aggregate amount that the Company executed a further amendment to the Agreement, which reducedcan borrow under the revolving credit line from $225at $115 million, with borrowings subject to $190 million until September 12, 2022 with further reductions to $180 million effective September 12, 2022a borrowing base determined primarily by certain domestic inventory and $170 million effective October 11, 2022.accounts receivable. The amendment extended the maturity date of the loansborrowings under the facility from May 30, 2023 to August 31, 2023. On October 21, 2022,ABL Revolving Credit Facility is January 19, 2026. Under the terms of the ABL Revolving Credit Facility, the Company executed an additional amendment to the Agreement, under which the lenders waived enforcement of their rights against the Company arising from the Company’s failure to comply with the maximum net leverage ratio and minimum liquidity covenants, each as of September 30, 2022. The amendment increased the revolving credit line to $180 million as of October 21, 2022, with a reduction to $170 million effective November 21, 2022. Under the provisions of this amendment, the inclusion of any “going concern” language in the Company’s financial statements would constitute an event of default.
A further amendment to the Agreement was executed on November 14, 2022 (the “Amended Facility”), which extended the maturity date of the loans under the facility from August 31, 2023 to November 30, 2023. Under the Amended Facility, the revolving credit line is set at $180 million, with a reduction to $170 million effective December 21, 2022. The amendment requires the Company to maintain minimum liquidity, defined as unrestricted cash plus the unused revolving credit commitments, of $10 million as of November 30, 2022 and December 31, 2022, and $15 million at the end of any month thereafter. The Amended Facility requires the Company to comply with a minimum Adjusted EBITDA covenant on a trailing twelve month basis, set at $15 million as of December 31, 2022 and March 31, 2023, and $25 million in each quarter thereafter. The amendment eliminated the net leverage ratio covenant for the remaining term of the agreement.
At October 1, 2022, there was $159.0 million outstanding on the revolving credit facility and there remained $19.9 million available subject to the minimum liquidity covenant discussed above, net of outstanding letters of credit. The credit facility allocates up to $20 million of the $180 million revolving credit line for the issuance of letters of credit, including certain existing letters of credit. At October 1, 2022, outstanding letters of credit totaled $1.1 million. Interest is payable on the unpaid principal amount of the facility at a rate equal to the Secured Overnight Financing Rate (“SOFR”, which shall be at least 1.00%), plus 5.50%. Effective January 17, 2023,pays interest is payable on the unpaid principal amount of the facility at a rate equal to SOFR (which shallis required to be at least 1.00%), plus 8.50%2.25% to 2.75%. The Company also payswill pay a quarterly commitment fee tounder the lendersABL Revolving Credit Facility in an amount equal to 0.40%0.25% or 0.375% based on the undrawn portionCompany’s average excess availability.
On June 28, 2023, the Company amended the ABL Revolving Credit Facility, temporarily increasing the maximum aggregate amount that the Company can borrow under the revolving credit line by $5 million from $115 million to $120 million until October 31, 2023, at which time the limit returns to $115 million. Under the provisions of the Amended Facility. Each amendment executedABL Revolving Credit Facility, the Company has a cash dominion arrangement with the lead banking institution whereby eligible daily cash receipts are contractually utilized to pay down outstanding borrowings. Eligible cash receipts that have not yet been applied to outstanding debt balance are classified as restricted cash in 2022the accompanying consolidated balance sheets. The Company is also required paymentto maintain minimum liquidity of a consent fee$20 million through the date of 5 to 10 basis pointsdelivery of the commitmentcompliance certificate for each consenting lender.the quarter ended March 31, 2024, and $10 million thereafter. At July 1, 2023, there was $93.7 million outstanding on the ABL Revolving Credit Facility and there remained $26.3 million available.
The AmendedCompany also entered into a $90 million asset-based credit agreement (the “Term Loan Facility”) on January 19, 2023. The Term Loan Facility restricts dividend paymentsis secured primarily by fixed assets, real estate and share repurchases through theintellectual property. The maturity date of the Amended Facility.Term Loan Facility is the earlier of the stated maturity date of the ABL Revolving Credit Facility or January 19, 2027, provided the ABL Revolving Credit Facility is extended beyond that date. The Company’s obligationsCompany pays interest under the AmendedTerm Loan Facility are jointly and severally guaranteed by each domestic subsidiaryat a rate equal to SOFR (which is required to be at least 2.50%) plus 8.75%. The Company will pay a commitment fee under the Term Loan Facility of 5% of the total aggregate commitment, or $4.5 million, $1.8 million which was paid on the closing date, $1.8 million which was paid on June 20, 2023 and $0.9 million of which will be paid in the second quarter of 2024.
Amortization of the principal under the Term Loan Facility began in April with a monthly amortization rate of 0.292% of the outstanding term loan principal balance for the period April 1, 2023 through June 1, 2023, increasing to 0.542% per month for the period July 1, 2023 through September 1, 2023 then increasing to 0.833% thereafter. Total scheduled principal payments of approximately $9.0 million are payable over the next twelve months and as such, have been classified as current in the accompanying Consolidated Condensed Balance Sheet as of July 1, 2023. The weighted-average interest rate on current maturities of long-debt is 13.1%. The remaining balance of $80.3 million at July 1, 2023 is recorded as long-term in the accompanying Consolidated Condensed Balance Sheet.
Pursuant to the ABL Revolving Credit Facility and the Term Loan Facility, the Company other than non-material subsidiaries.is required to comply with a minimum trailing four quarter EBITDA of $23.3 million in the second quarter, $39.2 million in the third quarter, $51.7 million in the fourth quarter, $57.6 million in the first quarter of 2024, $65.2 million in the second quarter of 2024 and $70 million thereafter. In addition, mandatory prepayment of a portion of excess cash flow, as defined by the Term Loan Facility, is payable towards the principal amount outstanding on an annual basis. Any voluntary prepayments made are subject to a prepayment fee, as defined by the Term Loan Facility. Beginning with the first quarter of 2024, the Company is subject to a minimum fixed charge coverage ratio of 1.10 to 1.00. Further, the Company is subject to restrictions on additional indebtedness, share repurchases and dividend payments, and a limitation on capital expenditures. The Company is in compliance with all covenant requirements as of July 1, 2023.
The obligationsCompany incurred $9.0 million in incremental debt issuance costs related to the new facilities, allocated between the ABL Revolving Credit Facility and the Term Loan Facility. All costs are secured byamortized to interest expense over the term of the respective agreement. Unamortized deferred debt issuance costs associated with the ABL Revolving Credit Facility ($2.4 million as of July 1, 2023) are recorded within other assets and those associated with the Term Loan Facility ($5.3 million as of July 1, 2023) are recorded as a first priority lienreduction of the carrying value of the debt on substantially allthe Consolidated Condensed Balance Sheet.
Certain of the Company’s subsidiaries are borrowers or guarantors under the ABL Revolving Credit Facility and the guarantors’ assets. Term Loan Facility.
In the event of voluntary or involuntary bankruptcy of the Company or any subsidiary, all unpaid principal and other amounts owing under the Amended Facilitycredit facilities automatically become due and payable. Other events of default, such as failure to make payments as they become due and breach of financial and other covenants, change of control, judgments over a certain amount, and cross default under other material debt agreements, and a going concern qualification for any reason other than loan maturity date give the agent the option to declare all such amounts immediately due and payable.
We are currently in the process of evaluating terms and conditions for a new long-term financing arrangement, which includes an asset-based lending agreement and separate term loan agreement, and expect to complete the process in the coming weeks. The extent to which we will be able to effect such refinancing, replacement or maturity extension on terms that are favorable to us or at all is dependent on a number of uncertain factors, including then-prevailing credit and other market conditions, economic conditions, particularly in the aerospace and defense markets, disruptions or volatility caused by factors such as COVID-19, regional conflicts, inflation, and supply chain disruptions. In addition, rising interest rates could limit our ability to refinance our existing credit facility when it matures or cause us to pay higher interest rates upon refinancing. As the Company’s long-term debt approaches maturity, if the Company is unable to refinance, replace or extend the maturity on its credit facility, the Company’s liquidity, results of operations, and financial condition could be materially adversely impacted. If
we are unable to obtain a new long-term financing facility before we file our 2022 Form 10-K to replace our existing debt facility, borrowings outstanding under our existing credit facility will come due within 12 months of that filing date and could result in substantial doubt about our ability to continue as a going concern in the event that we are not reasonably assured to have sufficient cash balances to repay the remaining obligations at maturity.
The Company expects its sales growth and improvementreductions in inventory managementworking capital will provide sufficient cash flows to fund operations. However, the Company may also evaluate various actions and alternatives to enhance its profitability and cash generation from operating activities, which could include manufacturing efficiency initiatives, cost-reduction measures, working with vendors and suppliers to reduce lead times and expedite shipment of critical components, and working with customers or other institutions to expedite receivable collections.
Our ability to maintain sufficient liquidity and comply with financial debt covenants is highly dependent upon achieving expected operating results. Failure to achieve expected operating results could have a material adverse effect on our liquidity, our ability to obtain financing or access our existing financing, and our operations in the future and could allow our debt holders to demand payment of all outstanding amounts.
8) Product Warranties
In the ordinary course of business, the Company warrants its products against defects in design, materials and workmanship typically over periods ranging from twelve to sixty months. The Company determines warranty reserves needed by product line based on experience and current facts and circumstances.
Activity in the warranty accrual is summarized as follows: | | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended |
(In thousands) | (In thousands) | | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | (In thousands) | | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Balance at Beginning of Period | Balance at Beginning of Period | | $ | 8,183 | | | $ | 7,018 | | | $ | 7,759 | | | $ | 6,835 | | Balance at Beginning of Period | | $ | 8,009 | | | $ | 8,183 | | | $ | 7,401 | | | $ | 8,049 | |
| Warranties Issued | Warranties Issued | | 2,541 | | | 3,506 | | | 858 | | | 1,485 | | Warranties Issued | | 1,908 | | | 1,683 | | | 1,128 | | | 898 | |
Warranties Settled | Warranties Settled | | (2,769) | | | (2,427) | | | (859) | | | (764) | | Warranties Settled | | (2,151) | | | (1,910) | | | (814) | | | (1,154) | |
Reassessed Warranty Exposure | Reassessed Warranty Exposure | | (221) | | | (808) | | | (24) | | | (267) | | Reassessed Warranty Exposure | | (61) | | | (197) | | | (10) | | | (34) | |
Balance at End of Period | Balance at End of Period | | $ | 7,734 | | | $ | 7,289 | | | $ | 7,734 | | | $ | 7,289 | | Balance at End of Period | | $ | 7,705 | | | $ | 7,759 | | | $ | 7,705 | | | $ | 7,759 | |
9) Leases
During the three months ended July 1, 2023, the Company entered into an operating lease and recorded a right-of-use asset and corresponding liabilities of $12.7 million. The lease will require annual payments between $1.6 million and $1.9 million into 2033. Associated lease costs are $1.7 million per year. Other leasing activity during the quarter was insignificant.
10) Income Taxes
The effective tax rates were approximately 13.9%(207.5)% and (4.9)(6.4)% for the three months ended and (28.3)(133.6)% and (1.4)(165.0)% for the ninesix months ended OctoberJuly 1, 20222023 and OctoberJuly 2, 2021,2022, respectively. Beginning with the 2022 tax year, certain research and development costs are required to be capitalized and amortized over sixty months for income tax purposes. The tax rate in the 20222023 period was impacted by a valuation allowance applied against the deferred tax asset associated with the research and development costs that are expected to be capitalized and was partially offset by the removal of valuation allowances related to net operating losses tax credit carryovers, and certain timing differences that are expected to reverse during 2022.2023. In addition, the tax rate in the 20222023 period was also impacted by state income taxes and the federal research and development credit expected for 2022.2023.
The Company records a valuation allowance against the deferred tax assets if and to the extent it is more likely than not that the Company will not recover the deferred tax assets. In evaluating the need for a valuation allowance, the Company weighs all relevant positive and negative evidence, and considers among other factors, historical financial performance, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, and tax planning strategies. Losses in recent periods and cumulative pre-tax losses in the three year period ending with the current year, combined with the significant uncertainty brought about by the COVID-19 pandemic, is collectively considered significant negative evidence under ASC 740 when assessing whether an entity can use projected income as a basis for concluding that deferred tax assets are realizable on a more-likely than not basis. For purposes of assessing the recoverability of deferred tax assets, the Company determined that it could not include future projected earnings in the analysis due to recent history of losses and therefore had insufficient objective positive evidence that the Company will generate sufficient future taxable income to overcome the negative evidence of cumulative losses. Accordingly, during the years ended December 31, 20212022 and 2020,2021, the Company determined that a portion of its deferred tax assets arewere not expected to be realizable in the future and the Company continues to maintain the valuation allowance against its deferred tax assets as of OctoberJuly 1, 2022.2023.
10)11) Earnings Per Share
Basic and diluted weighted-average shares outstanding are as follows: | | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended |
(In thousands) | (In thousands) | | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | (In thousands) | | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Weighted Average Shares - Basic | Weighted Average Shares - Basic | | 32,085 | | | 30,927 | | | 32,241 | | | 30,954 | | Weighted Average Shares - Basic | | 32,560 | | | 32,007 | | | 32,614 | | | 32,082 | |
Net Effect of Dilutive Stock Options | Net Effect of Dilutive Stock Options | | — | | | — | | | — | | | — | | Net Effect of Dilutive Stock Options | | — | | | — | | | — | | | — | |
Weighted Average Shares - Diluted | Weighted Average Shares - Diluted | | 32,085 | | | 30,927 | | | 32,241 | | | 30,954 | | Weighted Average Shares - Diluted | | 32,560 | | | 32,007 | | | 32,614 | | | 32,082 | |
Stock options with exercise prices greater than the average market price of the underlying common shares are excluded from the computation of diluted earnings per share because they are out-of-the-money and the effect of their inclusion would be anti-dilutive. The number of common shares covered by out-of-the-money stock options was approximately 1,106,000594,000 shares as of OctoberJuly 1, 20222023 and 647,0001,338,000 shares as of OctoberJuly 2, 2021.2022. Further, due to our net loss in the three and ninesix month periods ended OctoberJuly 1, 20222023 and OctoberJuly 2, 2021,2022, the assumed exercise of stock compensation had an antidilutive effect and therefore was excluded from the computation of diluted loss per share.
Currently, the Company expects to fund the 401K contribution for the quarter ended OctoberJuly 1, 20222023 with treasury stock in lieu of cash. The earnings per share calculation for the quarter ended OctoberJuly 1, 20222023 is inclusive of the approximately 0.1 million in shares outstanding for the equivalent shares needed to fulfill the obligation using the closing share price as of OctoberJuly 1, 2022.2023. Actual shares issued may differ based on the sale price on the settlement date.
11)12) Shareholders' Equity
Share Buyback and Reissuance
The Company’s Board of Directors from time to time authorizes the repurchase of common stock, which allows the Company to purchase shares of its common stock in accordance with applicable securities laws on the open market or through privately negotiated transactions. Common shares repurchased by the Company are recorded at cost as treasury shares and result in a reduction of equity. Under its current credit agreement, and as described further in Note 7,agreements, the Company is currently restricted from further stock repurchases.
When treasury shares are reissued, the Company determines the cost using an average cost method. The difference between the average cost of the treasury shares and reissuance price is included in Additional paid-in capital or Retained earnings. During the nine monthssix month periods ended OctoberJuly 1, 2023 and July 2, 2022, the Company reissued 545,000164,000 and 421,000 treasury shares, respectively, associated with the funding of employer 401K contributions and recorded the difference between the average cost and the reissuance price, $9.2$2.2 million and $6.8 million, respectively, as a reduction to Retained earnings.
Comprehensive LossIncome (Loss) and Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows: | (In thousands) | (In thousands) | October 1, 2022 | | December 31, 2021 | (In thousands) | July 1, 2023 | | December 31, 2022 |
Foreign Currency Translation Adjustments | Foreign Currency Translation Adjustments | $ | (8,648) | | | $ | (5,407) | | Foreign Currency Translation Adjustments | $ | (6,624) | | | $ | (7,335) | |
Retirement Liability Adjustment – Before Tax | Retirement Liability Adjustment – Before Tax | (10,324) | | | (11,370) | | Retirement Liability Adjustment – Before Tax | (4,101) | | | (4,473) | |
Tax Benefit of Retirement Liability Adjustment | Tax Benefit of Retirement Liability Adjustment | 2,282 | | | 2,282 | | Tax Benefit of Retirement Liability Adjustment | 2,282 | | | 2,282 | |
Retirement Liability Adjustment – After Tax | Retirement Liability Adjustment – After Tax | (8,042) | | | (9,088) | | Retirement Liability Adjustment – After Tax | (1,819) | | | (2,191) | |
Accumulated Other Comprehensive Loss | Accumulated Other Comprehensive Loss | $ | (16,690) | | | $ | (14,495) | | Accumulated Other Comprehensive Loss | $ | (8,443) | | | $ | (9,526) | |
The components of other comprehensive income (loss) income are as follows: | | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended |
(In thousands) | (In thousands) | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | (In thousands) | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Foreign Currency Translation Adjustments | Foreign Currency Translation Adjustments | $ | (3,241) | | | $ | (1,165) | | | $ | (1,674) | | | $ | (1,143) | | Foreign Currency Translation Adjustments | $ | 711 | | | $ | (1,567) | | | $ | 487 | | | $ | (1,386) | |
Retirement Liability Adjustments: | Retirement Liability Adjustments: | | | | | | | | Retirement Liability Adjustments: | | | | | | | |
Reclassifications to General and Administrative Expense: | | |
Reclassifications to Selling, General and Administrative Expense: | | Reclassifications to Selling, General and Administrative Expense: | |
Amortization of Prior Service Cost | Amortization of Prior Service Cost | 302 | | | 302 | | | 101 | | | 101 | | Amortization of Prior Service Cost | 193 | | | 201 | | | 98 | | | 100 | |
Amortization of Net Actuarial Losses | Amortization of Net Actuarial Losses | 744 | | | 1,000 | | | 247 | | | 333 | | Amortization of Net Actuarial Losses | 179 | | | 497 | | | 89 | | | 247 | |
| Retirement Liability Adjustment | Retirement Liability Adjustment | 1,046 | | | 1,302 | | | 348 | | | 434 | | Retirement Liability Adjustment | 372 | | | 698 | | | 187 | | | 347 | |
Other Comprehensive (Loss) Income | $ | (2,195) | | | $ | 137 | | | $ | (1,326) | | | $ | (709) | | |
Other Comprehensive Income (Loss) | | Other Comprehensive Income (Loss) | $ | 1,083 | | | $ | (869) | | | $ | 674 | | | $ | (1,039) | |
12)13) Supplemental Retirement Plan and Related Post Retirement Benefits
The Company has two non-qualified supplemental retirement defined benefit plans (“SERP” and “SERP II”) for certain current and retired executive officers. The following table sets forth information regarding the net periodic pension cost for the plans. | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | Three Months Ended |
(In thousands) | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 |
Service Cost | $ | 103 | | | $ | 146 | | | $ | 34 | | | $ | 49 | |
Interest Cost | 626 | | | 573 | | | 209 | | | 192 | |
Amortization of Prior Service Cost | 290 | | | 290 | | | 97 | | | 97 | |
Amortization of Net Actuarial Losses | 712 | | | 970 | | | 238 | | | 324 | |
Net Periodic Cost | $ | 1,731 | | | $ | 1,979 | | | $ | 578 | | | $ | 662 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended | | Three Months Ended |
(In thousands) | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Service Cost | $ | 53 | | | $ | 69 | | | $ | 27 | | | $ | 35 | |
Interest Cost | 652 | | | 417 | | | 327 | | | 208 | |
Amortization of Prior Service Cost | 193 | | | 193 | | | 98 | | | 96 | |
Amortization of Net Actuarial Losses | 179 | | | 474 | | | 89 | | | 235 | |
Net Periodic Cost | $ | 1,077 | | | $ | 1,153 | | | $ | 541 | | | $ | 574 | |
Participants in the SERP are entitled to paid medical, dental and long-term care insurance benefits upon retirement under the plan. The Company also has a defined benefit plan related to its subsidiary in France. The net periodic cost for both plans for the three and ninesix months ended OctoberJuly 1, 20222023 and OctoberJuly 2, 20212022 is immaterial.
The service cost component of net periodic benefit costs above is recorded in Selling, General and Administrative Expenses within the Consolidated Condensed Statements of Operations, while the remaining components are recorded in Other Expense,Income, Net of Other Income.Expense.
13)14) Sales to Major Customers
The loss of major customers or a significant reduction in business with a major customer would significantly, negatively impact our sales and earnings. In the three and ninesix months ended OctoberJuly 1, 20222023 and OctoberJuly 2, 2021,2022, the Company had no customersone customer in excess of 10% of consolidated sales. Sales to The Boeing Company (“Boeing”) accounted for 11.5% and 10.9% of sales in the three and six months ended July 1, 2023 and 10.6% and 11.9% in the three and six months ended July 2, 2022, respectively. Accounts receivable from Boeing at July 1, 2023 were approximately $21.8 million.
14)15) Legal Proceedings
Lufthansa
One of the Company’s subsidiaries is involved in numerous patent infringement actions brought by Lufthansa Technik AG (“Lufthansa”) in Germany, UKthe United Kingdom (“UK”) and France. The Company is vigorously defending all such litigation and proceedings. Additional information about these legal proceedings can be found in Note 19 “Legal Proceedings” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.2022. On July 12, 2023, the Higher Regional Court of Karlsruhe in Germany (the “German Court”) reduced the Company’s liability for direct damages. Additionally, accrued interest on direct damages had previously been assessed at 5%. As part of the July 12, 2023 ruling, the German Court reduced that interest rate to 4%. Accordingly, the Company can reclaim overpaid damages and interest from Lufthansa in the amount of approximately $1.2 million. We will record this gain in the third quarter of 2023 as an offset to Selling, General and Administrative Expenses.
The reserve for the German indirect claim and interest was approximately $17.8 million at December 31, 2022 and $16.8 million at July 1, 2023. Accrued interest on the indirect damages reserve was estimated using the same interest rate as the
direct damages. Given the reduction in the direct damages interest rate as discussed above, we recorded a reduction to the indirect damages reserve of $1.3 million in the quarter ended July 1, 2023, which was recorded as an offset to Selling, General and Administrative Expenses. The Company currently believes it is unlikely that the damages in the indirect proceedings and related interest will be paid within the next twelve months. Therefore, the liability related to these matters is classified within Other Liabilities (non-current) in the Consolidated Condensed Balance Sheets at July 1, 2023 and December 31, 2022.
In the matter before the UK High Court of Justice, as previously disclosed, under English law, Lufthansa has the option of pursuingpleaded its case for monetary compensation, which will be determined at a claimseparate trial, which is now set to take place in the UK matterOctober 2024. Lufthansa has elected to pursue a claim in relation to the defendants’ profits from their infringing activities or pursuing a claim in relation to Lufthansa’s own lost profits. In September 2022, Lufthansa elected to claim damages based on defendants’ profits. The reserve for the German indirect claim and UKactivities. We have estimated damages and accrued interest wasfor AES and its indemnified customers of approximately $24.6$7.3 million and $7.0 million at July 1, 2023 and December 31, 20212022, respectively. This variance is due to currency fluctuation and $24.1 million atinterest accrued. Interest will accrue until final payment to Lufthansa. This amount is subject to change as additional data is received and evaluated, and as additional information regarding the nature of its claim is put forward by Lufthansa in advance of the damages trial. The damages trial is scheduled to be heard starting in October 1, 2022, which included an additional $0.1 million and $0.5 million2024, with payment likely due in interest accrued during the three and nine months ended October 1, 2022.late 2024 or early 2025. The Company currently believes it is unlikely that the appeals process will be completed or the damages and related interest will be paid within the next twelve months. Therefore, the liability related to these matters is classified within Other Liabilities (non-current) in the Consolidated Condensed Balance Sheets at OctoberJuly 1, 20222023 and December 31, 2021. 2022.
As previously disclosed, in 2020, Lufthansa filed a patent infringement action on December 29, 2017 before the Paris Court of First Instance. The Court held the French patent invalid for all asserted claims. There can consequently be no finding of infringement on first instance. Lufthansa has appealed this judgment. The appeal hearing took place on December 8, 2022, and on February 24, 2023, the Paris Court of Appeal upheld the first instance judgment in favor of AES. On March 20, 2023, Lufthansa lodged an appeal before the French Supreme Court. The merits of this French Supreme Court challenge remain to be filed and assessed. As loss exposure is not probable and estimable at this time, the Company has not recorded any liability with respect to the French matter as of July 1, 2023 or December 31, 2022.
There were no other significant developments in any of these matters during the three and ninesix months ended OctoberJuly 1, 2022.2023.
At December 31, 2021, we had recorded aA liability of $1.0 million for reimbursement of Lufthansa’s legal expenses associated with the UK matter. During the nine months ended Octobermatter was approximately $0.7 million at December 31, 2022 and $0.8 million at July 1, 2022, $0.3 million was paid. The remaining liability of $0.7 million2023 which is expected to be paid within the next twelve months and, as such, is classified in Accrued Expenses and Other Current Liabilities in the accompanying Consolidated Condensed Balance Sheet as of OctoberJuly 1, 2022.2023.
Other
On March 23, 2020, Teradyne, Inc. filed a complaint against the Company and its subsidiary, Astronics Test Systems (“ATS”) (together, “the Defendants”) in the United States District Court for the Central District of California alleging patent infringement of its digital instruments providing over-voltage detection and protection and copyright infringement of test equipment software, specifically emulating software using Teradyne’s declarations, and certain other related claims. The Defendants moved to dismiss certain claims from the case. On November 6, 2020, the Court dismissed the Company from the case, and also dismissed a number of claims, though the patent and copyright infringement claims remain.remained. The case proceeded to discovery. In addition, on December 21, 2020, ATS filed a petition for inter partes review (“IPR”) with the US Patent Trial and Appeal Board (“PTAB”), seeking to invalidate the subject patent, and on July 21, 2021, the PTAB instituted IPR. ATS requested and, on August 26, 2021, the District Court granted, a stay of litigation during the IPR proceeding. Oral arguments on the IPR were held on April 21, 2022. The PTAB issued its decision on July 20, 2022, in which it invalidated all of Teradyne’s patent claims. Teradyne will not appeal the decision. The stay of litigation was lifted with respect to the remaining claims in August 2022 and discovery2022. Discovery has resumed.been completed. On June 5, 2023, the parties attended a court-ordered mediation, but did not reach a settlement. After the mediation, Teradyne dropped its remaining state law claims, leaving only its copyright claim. The parties are currently engaged in summary judgment briefing with a hearing on the motions scheduled for September 14, 2023. If the case is not disposed of on summary judgment, a trial will be held. Trial is currently scheduled for December 5, 2023. No amounts have been accrued for this matter in the OctoberJuly 1, 20222023 or December 31, 20212022 financial statements, as loss exposure was neither probable nor estimable at such times.
In 2019, a former customer filed a lawsuit alleging damages associated with defective product. Mediation of the matter was held in November 2022. The Company agreed to make a payment of $2.0 million to settle the matter, and such amount has been reflected in the Selling, General and Administrative line in the three and nine month periods ended October 1, 2022. The Company expects to be indemnified by other parties for approximately $1.5 million and will record the gain as an offset to Selling, General and Administrative expense when received, likely in the fourth quarter of 2022.
Other than these proceedings, we are not party to any significant pending legal proceedings that management believes will result in a material adverse effect on our financial condition or results of operations.
15)16) Segment Information
Below are the sales and operating lossprofit (loss) by segment for the three and ninesix months ended OctoberJuly 1, 20222023 and OctoberJuly 2, 20212022 and a reconciliation of segment operating lossprofit (loss) to loss before income taxes. Operating lossprofit (loss) is net sales less cost of products sold and other operating expenses excluding interest and corporate expenses. Cost of products sold and other operating expenses are directly identifiable to the respective segment.
| | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended |
(In thousands) | (In thousands) | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | (In thousands) | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Sales: | Sales: | | | | | | | | Sales: | | | | | | | |
Aerospace | Aerospace | $ | 322,871 | | | $ | 266,425 | | | $ | 112,177 | | | $ | 95,775 | | Aerospace | $ | 294,101 | | | $ | 210,694 | | | $ | 158,386 | | | $ | 109,300 | |
Less Inter-segment Sales | Less Inter-segment Sales | (10) | | | (23) | | | — | | | (9) | | Less Inter-segment Sales | (122) | | | (10) | | | (4) | | | (10) | |
Total Aerospace Sales | Total Aerospace Sales | 322,861 | | | 266,402 | | | 112,177 | | | 95,766 | | Total Aerospace Sales | 293,979 | | | 210,684 | | | 158,382 | | | 109,290 | |
Test Systems | Test Systems | 53,899 | | | 62,811 | | | 19,261 | | | 16,128 | | Test Systems | 37,013 | | | 34,638 | | | 16,072 | | | 19,840 | |
Less Inter-segment Sales | Less Inter-segment Sales | (19) | | | (357) | | | — | | | (53) | | Less Inter-segment Sales | — | | | (19) | | | — | | | (3) | |
Total Test Systems Sales | Total Test Systems Sales | 53,880 | | | 62,454 | | | 19,261 | | | 16,075 | | Total Test Systems Sales | 37,013 | | | 34,619 | | | 16,072 | | | 19,837 | |
Total Consolidated Sales | Total Consolidated Sales | $ | 376,741 | | | $ | 328,856 | | | $ | 131,438 | | | $ | 111,841 | | Total Consolidated Sales | $ | 330,992 | | | $ | 245,303 | | | $ | 174,454 | | | $ | 129,127 | |
Segment Measure of Operating Loss and Margins | | | | | | | | |
Segment Measure of Operating Profit (Loss) and Margins | | Segment Measure of Operating Profit (Loss) and Margins | | | | | | | |
Aerospace | Aerospace | $ | (7,085) | | | $ | (6,352) | | | $ | (6,859) | | | $ | 1,917 | | Aerospace | $ | 17,806 | | | $ | (226) | | | $ | 13,719 | | | $ | (3,276) | |
| | (2.2) | % | | (2.4) | % | | (6.1) | % | | 2.0 | % | | 6.1 | % | | (0.1) | % | | 8.7 | % | | (3.0) | % |
Test Systems | Test Systems | (4,125) | | | (1,958) | | | (2,312) | | | (2,201) | | Test Systems | (6,740) | | | (1,813) | | | (6,143) | | | (26) | |
| | (7.7) | % | | (3.1) | % | | (12.0) | % | | (13.7) | % | | (18.2) | % | | (5.2) | % | | (38.2) | % | | (0.1) | % |
Total Segment Measure of Operating Loss | (11,210) | | | (8,310) | | | (9,171) | | | (284) | | |
Total Segment Measure of Operating Profit (Loss) | | Total Segment Measure of Operating Profit (Loss) | 11,066 | | | (2,039) | | | 7,576 | | | (3,302) | |
| | (3.0) | % | | (2.5) | % | | (7.0) | % | | (0.3) | % | | 3.3 | % | | (0.8) | % | | 4.3 | % | | (2.6) | % |
Deductions from Segment Measure of Operating Loss | | |
Deductions from Segment Measure of Operating Profit (Loss): | | Deductions from Segment Measure of Operating Profit (Loss): | |
Net Gain on Sale of Business | Net Gain on Sale of Business | (11,284) | | | — | | | — | | | — | | Net Gain on Sale of Business | (3,427) | | | (11,284) | | | — | | | — | |
Interest Expense, Net of Interest Income | Interest Expense, Net of Interest Income | 5,812 | | | 5,252 | | | 2,519 | | | 1,795 | | Interest Expense, Net of Interest Income | 11,390 | | | 3,293 | | | 5,920 | | | 1,662 | |
Corporate Expenses and Other | Corporate Expenses and Other | 16,847 | | | 13,247 | | | 5,570 | | | 4,760 | | Corporate Expenses and Other | 10,130 | | | 11,277 | | | 5,558 | | | 5,385 | |
Loss Before Income Taxes | Loss Before Income Taxes | $ | (22,585) | | | $ | (26,809) | | | $ | (17,260) | | | $ | (6,839) | | Loss Before Income Taxes | $ | (7,027) | | | $ | (5,325) | | | $ | (3,902) | | | $ | (10,349) | |
During the three and ninesix months ended OctoberJuly 1, 2022,2023, $5.8 million was recognized in sales related to the Company settledreversal of a deferred revenue liability assumed with an acquisition and associated with a customer accommodation disputeprogram within our Test Systems Segment which is no longer expected to occur, which also benefits operating loss for $2.1the period. Absent that benefit, Test Systems’ operating loss was $12.6 million. Corporate expenses and other for the six months ended July 1, 2023 includes income of $1.8 million and a litigation for $2.0 million, both recorded within Selling, General and Administrative expense and impacting Aerospace segment profitability.
Total Assets: | | | | | | | | | | | | | | |
(In thousands) | | October 1, 2022 | | December 31, 2021 |
Aerospace | | $ | 478,385 | | | $ | 458,334 | |
Test Systems | | 108,473 | | | 105,335 | |
Corporate | | 12,029 | | | 45,469 | |
Total Assets | | $ | 598,887 | | | $ | 609,138 | |
16) Fair Value
A fair value measurement assumes thatassociated with the transaction to sell an asset or transferreversal of a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Fair value is based upon an exit price model. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and involves consideration of factors specific to the asset or liability.
The Company follows a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.
On a Recurring Basis:
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
On October 4, 2019, the Company acquired the stock of the primary operating subsidiaries as well as certain other assets from mass transit and defense market test solution provider, Diagnosys Test Systems Limited for $7.0 million in cash, plus an earn-out estimated at a fair value of $2.5 million at the time of acquisition. The terms of the Diagnosys acquisition allow for a potential earn-out of uprelated to an additional $13.0 million overequity investment, as we will no longer be required to make the three years post-acquisition based on achievementassociated payment. This amount is included in Other Income, Net of new order levels of over $72.0 million during that period. The fair value assigned to the earnout was determined using the real options method, which requires Level 3 inputs such as new order forecasts, discount rate, volatility factors, and other market variables to assess the probability of Diagnosys achieving certain order levels over the period. Based on actual and forecasted new orders, the fair value was zero as of October 1, 2022 and December 31, 2021. The fair value was reduced to zero during the second quarter of 2021, with the contingent consideration liability fair value adjustment of $2.2 million recorded within the Selling, General and Administrative lineOther Expense in the Consolidated Condensed Statement of OperationsOperations. In the six months ended July 2, 2022, $6.0 million of the AMJP grant was recognized as an offset to the cost of products sold in the nine months ended October 2, 2021.Aerospace segment.
Total Assets: | | | | | | | | | | | | | | |
(In thousands) | | July 1, 2023 | | December 31, 2022 |
Aerospace | | $ | 520,564 | | | $ | 481,416 | |
Test Systems | | 119,440 | | | 111,513 | |
Corporate | | 13,584 | | | 22,102 | |
Total Assets | | $ | 653,588 | | | $ | 615,031 | |
17) Fair Value
There were no other financial assets or liabilities carried at fair value measured on a recurring basis at OctoberJuly 1, 20222023 or December 31, 2021.2022.
On a Non-recurring Basis:
There were no non-recurring fair value measurements performed in the ninesix months ended OctoberJuly 1, 20222023 and OctoberJuly 2, 2021.2022.
Due to their short-term nature, the carrying value of cash and equivalents, accounts receivable accounts payable, and notesaccounts payable approximate fair value. The carrying value of the Company’s variable rate long-term debt instruments also approximates fair value due to the variable rate feature of these instruments.
17) Restructuring Charges
The COVID-19 pandemic has significantly impacted the global economy, and particularly the aerospace industry, resulting in reduced expectations of the Company’s anticipated future operating results. As a result, the Company executed restructuring activities in the form of workforce reduction, primarily in the second quarter of 2020, to align capacity with expected demand. Additional restructuring activities occurred during 2021 to align the workforce to expected activities and to consolidate certain facilities.
Restructuring-related severance charges and other charges were insignificant in the three and nine months ended October 1, 2022. There were $0.5 million and $0.7 million in restructuring-related non-severance charges recorded in the three and nine months ended October 2, 2021.
The following table reconciles the beginning and ending liability for restructuring charges: | | | | | | | | |
(In thousands) | | 2022 |
Balance as of January 1 | | $ | 2,400 | |
Restructuring Charges | | 199 | |
Cash Paid | | (2,554) | |
Balance as of October 1 | | $ | 45 | |
The liability is recorded within Accrued Expenses and Other Current Liabilities and is comprised of employee termination benefits expected to be paid within the next 12 months. The cash paid in the nine months ended October 1, 2022 primarily consists of severance payments of $0.4 million and payments under non-cancelable purchase commitments for inventory which was not expected to be purchased prior to the expiration date of such agreements as a result of the restructuring plan of $2.1 million.
18) Subsequent Events
On October 21, 2022 and November 14, 2022, the Company executed amendments to its Fifth Amended and Restated Credit Agreement. For more information, see Note 7, Debt.
| | | | | |
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, 2021.2022.)
OVERVIEW
Astronics Corporation, (“Astronics” or the “Company”)through its subsidiaries, is a leading supplier of advanced technologies and products to the global aerospace and defense industries. Our products and services include advanced, high-performance electrical power generation and distribution systems, seat motion solutions, lighting and safety systems, avionics products, aircraft structures, systems certification, and automated test systems.
Our Aerospace segment designs and manufactures products for the global aerospace industry. Product lines include lighting and safety systems, electrical power generation, distribution and seat motionsmotion systems, aircraft structures, avionics products, systems certification, and other products. Our primary Aerospace customers are the airframe manufacturers (“OEM”) that build aircraft for the commercial transport, military and general aviation markets, suppliers to those OEM’s,OEMs, aircraft operators such as airlines, suppliers to the aircraft operators, and branches of the U.S. Department of Defense (“USDOD”). Our Test Systems segment designs, develops, manufactures and maintains automated test systems that support the aerospace and defense communications and mass transit industries as well as training and simulation devices for both commercial and military applications. In the Test Systems segment, Astronics’ products are sold to a global customer base including OEM'sOEMs and prime government contractors for both electronics and military products.
Our strategy is to increase our value by developing technologies and capabilities, either internally or through acquisition, and using those capabilities to provide innovative solutions to our targeted markets where our technology can be beneficial.
Important factors affecting our growth and profitability are the ongoing impacts of the COVID-19 pandemic and the timing and extent of recovery (as discussed more fully below), supply chain and labor market pressures, the rate at which new aircraft are produced, government funding and timing of awards of military programs, our ability to have our products designed into new aircraft and the rates at which aircraft owners, including commercial airlines, refurbish or install upgrades to their aircraft. New aircraft build rates and aircraft owners spending on upgrades and refurbishments is cyclical and dependent on the strength of the global economy. Once one of our products is designed into a new aircraft, the spare parts business is also frequently retained by the Company. Future growth and profitability of the Test Systems business is dependent on developing and procuring new and follow-on business. The nature of our Test Systems business is such that it pursues large, often multi-year, projects. There can be significant periods of time between orders in this business which may result in large fluctuations of sales and profit levels and backlog from period to period. Test Systems segment customers include the USDOD, prime contractors to the USDOD, mass transit operators and prime contractors to mass transit operators.
Each of the markets that we serve presents opportunities that we expect will provide growth for the Company over the long-term. We continue to look for opportunities in all of our markets to capitalize on our core competencies to expand our existing business and to grow through strategic acquisitions.
Challenges which continue to face us include the ongoing COVID-19 pandemic and its continued impact on the aerospace industry, supply chain pressures including material availability and cost increases, labor availability and cost, inflationary pressures, and improving shareholder value through increasing profitability. Increasing profitability is dependent on many things, primarily sales growth, both acquired and organic, and the Company’s ability to pass cost increases along to customers and control operating expenses and to identify means of creating improved productivity. Sales are driven by increased build rates for existing aircraft, market acceptance and economic success of new aircraft and our products, continued government funding of defense programs, the Company’s ability to obtain production contracts for parts we currently supply or have been selected to design and develop for new aircraft platforms and continually identifying and winning new business for our Test Systems segment.
Reduced aircraft build rates driven by a weak economy, aircraft groundings, tight credit markets, reduced air passenger travel and an increasing supply of used aircraft on the market would likely result in reduced demand for our products, which will result in lower profits. Reduction of defense spending may result in fewer opportunities for us to compete, which could result in lower profits in the future. Many of our newer development programs are based on new and unproven technology and at the same time we are challenged to develop the technology on a schedule that is consistent with specific programs. Delays in delivery schedules and incremental costs resulting from supply chain pressures can also result in lower profits. We will continue to address these challenges by working to improve operating efficiencies and focusing on executing on the growth opportunities currently in front of us.
Our ABL Revolving Credit Facility and Term Loan Facility each subject us to various financial and other affirmative and negative covenants with which we must comply on an ongoing or periodic basis. These include financial covenants pertaining to minimum trailing four quarter EBITDA requirements, minimum liquidity requirements and minimum fixed charge coverage ratio requirements, and excess cash flow repayment provisions. An unexpected decline in our revenues or operating income, including occurring as a result of events beyond our control, could cause us to violate our financial covenants. During 2023, given the ongoing challenges faced in our business as described herein, including as a result of the COVID-19 pandemic and its continued impact on the aerospace industry and supply chain disruptions, our ability to satisfy the already tight financial covenants in our ABL Revolving Credit Facility and Term Loan Facility is expected to be challenging and is an item that our management team will be closely monitoring throughout the year. While the Company expects to remain in compliance with the required financial covenants for the duration of the agreements, any unexpected negative impacts to our business, including as a result of additional supply chain pressures, the timing of customer orders and our ability to meet customer delivery schedules, or labor availability and cost pressures, could result in lower revenues and reduced financial profits, and, as a result thereof, our inability to satisfy the financial covenants in our ABL Revolving Credit Facility and Term Loan Facility during 2023.
In September 2021 the Company also entered into an agreement withwas awarded a grant of up to $14.7 million from the U.S. Department of Transportation (“USDOT”) under the Aviation Manufacturing Jobs Protection Program (“AMJP”) for a grant of up to $14.7 million.. The Company received $7.4 million under the grant in 2021, $5.2 million in the first quarter of 2022 and $2.1 million in the third quarter of 2022. The grant benefit was recognized ratably over the six-month performance period as a reduction to cost of products sold in proportion to the compensation expense that the award iswas intended to defray. TheDuring the six months ended July 2, 2022, the Company recognized the remaining $6.0 million of the award duringaward.
We are also monitoring the nine months ended October 1, 2022.ongoing conflict between Russia and Ukraine and the related export controls and financial and economic sanctions imposed on certain industry sectors, including the aviation sector, and parties in Russia by the U.S., the U.K., the European Union and others. Although the conflict has not resulted in a direct material adverse impact on our business to date, the implications of the Russia and Ukraine conflict in the short-term and long-term are difficult to predict at this time. Factors such as increased energy costs, the availability of certain raw materials for aircraft manufacturers, embargoes on flights from Russian airlines, sanctions on Russian companies, and the stability of Ukrainian customers could impact the global economy and aviation sector.
On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment. The total proceeds of the divestituretransaction included two elements of contingent purchase consideration (“earnout”). In the fourth quarter of 2021, the Company agreed to an earnout payment of $10.7 million for the calendar 2020 earnout, which was recorded in 2021 as a separate line item below operating loss and was received by the Company in early January 2022.earnouts. In March 2022, the Company agreed with the earnout calculation for the calendar 2021 earnout in the amount of $11.3 million. The Company recorded the gain and received the payment in the first quarter of 2022. In March 2023, the Company agreed with the final earnout calculation for the calendar 2022 earnout in the amount of $3.4 million. The Company recorded the gain and received the payment in the first quarter of 2023.
CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK | | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended |
($ in thousands) | ($ in thousands) | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | ($ in thousands) | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Sales | Sales | $ | 376,741 | | | $ | 328,856 | | | $ | 131,438 | | | $ | 111,841 | | Sales | $ | 330,992 | | | $ | 245,303 | | | $ | 174,454 | | | $ | 129,127 | |
Gross Profit (sales less cost of products sold) | Gross Profit (sales less cost of products sold) | $ | 50,030 | | | $ | 46,899 | | | $ | 14,388 | | | $ | 17,231 | | Gross Profit (sales less cost of products sold) | $ | 60,205 | | | $ | 35,642 | | | $ | 32,695 | | | $ | 15,709 | |
Gross Margin | Gross Margin | 13.3 | % | | 14.3 | % | | 10.9 | % | | 15.4 | % | Gross Margin | 18.2 | % | | 14.5 | % | | 18.7 | % | | 12.2 | % |
| Selling, General and Administrative Expenses | Selling, General and Administrative Expenses | $ | 76,907 | | | $ | 66,829 | | | $ | 28,702 | | | $ | 21,729 | | Selling, General and Administrative Expenses | $ | 60,179 | | | $ | 48,205 | | | $ | 30,299 | | | $ | 24,105 | |
SG&A Expenses as a Percentage of Sales | SG&A Expenses as a Percentage of Sales | 20.4 | % | | 20.3 | % | | 21.8 | % | | 19.4 | % | SG&A Expenses as a Percentage of Sales | 18.2 | % | | 19.7 | % | | 17.4 | % | | 18.7 | % |
| Net Gain on Sale of Business | Net Gain on Sale of Business | $ | (11,284) | | | $ | — | | | $ | — | | | $ | — | | Net Gain on Sale of Business | $ | (3,427) | | | $ | (11,284) | | | $ | — | | | $ | — | |
Interest Expense, Net of Interest Income | $ | 5,812 | | | $ | 5,252 | | | $ | 2,519 | | | $ | 1,795 | | |
Interest Expense, Net | | Interest Expense, Net | $ | 11,390 | | | $ | 3,293 | | | $ | 5,920 | | | $ | 1,662 | |
Effective Tax Rate | Effective Tax Rate | (28.3) | % | | (1.4) | % | | 13.9 | % | | (4.9) | % | Effective Tax Rate | (133.6) | % | | (165.0) | % | | (207.5) | % | | (6.4) | % |
Net Loss | Net Loss | $ | (28,968) | | | $ | (27,182) | | | $ | (14,857) | | | $ | (7,174) | | Net Loss | $ | (16,414) | | | $ | (14,111) | | | $ | (11,999) | | | $ | (11,010) | |
A discussion by segment can be found at “Segment Results of Operations and Outlook”Operations” in this MD&A.
CONSOLIDATED THIRDSECOND QUARTER RESULTS
Consolidated sales were up $19.6$45.3 million, or 35.1%, from the thirdsecond quarter of 2021.2022, and up 11.4% sequentially. Aerospace sales were up $16.4increased $49.1 million over the comparator quarter, or 17.1%44.9%, anddriven by higher sales to the commercial transport market. Test Systems sales increased $3.2 million.decreased $3.8 million on lower defense revenue.
Consolidated cost of products sold in the thirdsecond quarter of 20222023 was $117.1$141.8 million, compared with $94.6$113.4 million in the prior-year period. The increase was primarily due to higher volume combined withand higher material and labor inflation, addressing supply chain constraints to meet customer requirements and the lag in price increases implemented where possible to offset higher costs and product mix. The prior-year period benefited by a $1.1 million offset to cost of products sold from the AMJP Program grant.costs.
Selling, general and administrative (“SG&A”) expenses were $28.7$30.3 million in the thirdsecond quarter of 20222023 compared with $21.7$24.1 million in the prior-year period. The current period was impacted by increased wages and benefits and litigation-related legal expenses of $4.9 million partially offset by a reduction in legal reserves of $1.3 million.
Interest expense was $5.9 million in the current period, compared with $1.7 million in the prior-year period, primarily due to increased wages and benefits. Third quarter 2022 reflects $4.6driven by higher interest rates on the Company’s new credit facilities. Interest expense includes approximately $0.7 million related to the settlement of a litigation claim, a customer accommodation dispute, and a lease termination settlement. The Company expects to be indemnified by other parties with respect to the litigation matter for approximately $1.5non-cash amortization of capitalized financing-related fees.
Income tax expense was $8.1 million and will record the gain as an offset to SG&A when received, likely in the fourth quarter of 2022.
Tax benefit in the quarter was $2.4 millioncurrent period, primarily due to changes ina valuation allowance applied against the year-to-datedeferred tax asset associated with research and forecasted loss before income taxes.development costs that are required to be capitalized for tax purposes.
Consolidated net loss was $14.9$12.0 million, or $(0.46)$0.37 per diluted share, compared with net loss of $7.2$11.0 million, or $(0.23)$0.34 per diluted share, in the prior year.
Bookings were $184.2$207.1 million forin the quarter resulting in a book-to-bill ratio of 1.40:1.19:1. Backlog at the endThe quarter closed with a record backlog of the quarter was $547.1$611.1 million. Approximately $426.5 million, or 78%, of backlog is expected to be recognized as revenue over the next twelve months and the balance thereafter.
CONSOLIDATED YEAR-TO-DATE RESULTS
Consolidated sales were up $47.9 million. Aerospace sales were up $56.5$85.7 million, or 34.9%, from the first nine monthshalf of 2021.2022. Aerospace sales increased $83.3 million, or 39.5%, driven by higher sales to the commercial transport market. Test Systems sales decreased $8.6 million.increased $2.4 million, due primarily to the reversal of a $5.8 million deferred revenue liability assumed with an acquisition and associated with a customer program which is no longer expected to occur, partially offset by lower defense revenue.
Consolidated cost of products sold in 2022the first half of 2023 was $326.7$270.8 million, compared with $282.0$209.7 million in the prior-year period. The increase was primarily due to higher volume as the global aerospace industry continues its recovery from the COVID-19 pandemic.and higher material and labor costs. The current yearprior-year period benefited fromthe AMJP Program grant which provided a $6.0 million recognized as an offset to cost of products sold related to the AMJP award, compared to a benefit from the grant of $1.1 million in the prior year. Research and development expenses increased $4.9 million due to higher innovation spend.sold.
SG&A expenses were $76.9$60.2 million in 2022the first half of 2023 compared with $66.8$48.2 million in the prior-year period primarily due to increased wages and benefits. The current-yearbenefits and an increase of $7.3 million in litigation-related legal expenses partially offset by a reduction of legal reserves of $1.3 million.
In the current year period, reflects $4.6the Company recognized a final earnout of $3.4 million for the 2019 sale of its semiconductor test business, compared with $11.3 million recognized in the prior-year period. Other income in the first half of 2023 included $1.8 million associated with the reversal of a liability related to the settlement of a litigation claim, a customer accommodation dispute, and a lease termination settlement. The Company expects to be indemnified by other parties for approximately $1.5an equity investment.
Interest expense was $11.4 million related to the litigation claim and will record the gain as an offset to SG&A when received, likely in the fourth quarter of 2022. Thecurrent period, compared with $3.3 million in the prior-year period, also benefited from a $2.2primarily driven by higher interest rates on the Company’s new credit facilities. Interest expense includes approximately $1.4 million of non-cash reductionamortization of the fair value of a contingent consideration liability.capitalized financing-related fees.
The effectiveIncome tax rate for 2022expense was (28.3)%, compared with (1.4)%$9.4 million in the prior year period. Incurrent period, primarily due to a valuation allowance applied against the past,deferred tax asset associated with research and development costs were deducted as incurred. However, beginning with the 2022 tax year, these coststhat are required to be capitalized for tax purposes and amortized over 5 years. The 2022 tax rate was impacted by a valuation allowance applied against the associated deferred tax asset created by the new treatment, due to the Company’s cumulative losses over the last three years. This was partially offset by the removal of valuation allowances related to net operating losses, tax credit carryovers, and certain timing differences that are expected to reverse during 2022 as well as a Federal research and development credit expected for 2022.purposes.
Consolidated net loss was $29.0$16.4 million, or $(0.90)$0.50 per diluted share, compared with net loss of $27.2$14.1 million, or $(0.88)$0.44 per diluted share, in the prior year.
COVID-19 Impacts on Our Business
On March 11, 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic. The spread of the COVID-19 pandemic disrupted businesses on a global scale, led to significant volatility in financial markets and affected the aviation and industrial industries. Substantially all of our operations and production activities have, to-date, remained operational. However, theThe impacts of the pandemic have placed labor and supply chain pressures on our business and we have been impacted by customer demand variability. Although we saw stable and growing backlog during the first nine months ofthroughout 2022 and into 2023 in our aerospace business, COVID-19 related disruptions are ongoing and continue to adversely challenge our commercial transport market. While we remain bullish about the aerospace business, we believe the recovery to pre-pandemic activity, particularly in the widebody market, will take longer than originally anticipated at the outset of the pandemic. As economic activity continues to recover, we will continue to monitor the situation, assessing further possible implications on our operations, supply chain, liquidity, cash flow and customer orders.
Increasing sales is critical to satisfying our customers’ demand, and improving financial results. Revenue has been starting to ramp and we believe it will accelerate as we move forward. As previously reported, we are expecting sales
Our initial look at 2023 suggests sales of $640 million to $680 million. This expectation is supported by cumulative bookings of $686 million over the last four quarters and our record backlog of $547 million. Our supply chain has been a challenge during the last year, but we now see clear signs of improvement and anticipate continued recovery over the course of 2023.
Consolidated backlog at October 1, 2022 was $547.1 million. Approximately 78% of the backlog is expected to be recognized as revenue in over the next twelve months and the balance thereafter.Contents
Planned capital expenditures for 2022 are expected to be approximately $9 million to $10 million.
While core aerospace markets have strengthened as vaccination rates rise and passenger traffic accelerated, the ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic, virus variants, vaccination rates and efficacy and the related length of impact on the global economy, supply chain and specifically on the markets we are active in, which are uncertain and cannot be predicted at this time.
SEGMENT RESULTS OF OPERATIONS AND OUTLOOK
Operating loss,profit (loss), as presented below, is sales less cost of products sold and other operating expenses, excluding interest expense, other corporate expenses and other non-operating sales and expenses. Cost of products sold and other operating expenses are directly identifiable to the respective segment. Operating lossprofit (loss) is reconciled to loss before income taxes in Note 1516 of the Notes to Consolidated Condensed Financial Statements included in this report.
AEROSPACE SEGMENT | | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended |
(In thousands) | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | |
($ in thousands) | | ($ in thousands) | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Sales | Sales | $ | 322,871 | | | $ | 266,425 | | | $ | 112,177 | | | $ | 95,775 | | Sales | $ | 294,101 | | | $ | 210,694 | | | $ | 158,386 | | | $ | 109,300 | |
Less Inter-segment Sales | Less Inter-segment Sales | (10) | | | (23) | | | — | | | (9) | | Less Inter-segment Sales | (122) | | | (10) | | | (4) | | | (10) | |
Total Aerospace Sales | Total Aerospace Sales | $ | 322,861 | | | $ | 266,402 | | | $ | 112,177 | | | $ | 95,766 | | Total Aerospace Sales | $ | 293,979 | | | $ | 210,684 | | | $ | 158,382 | | | $ | 109,290 | |
Operating (Loss) Profit | $ | (7,085) | | | $ | (6,352) | | | $ | (6,859) | | | $ | 1,917 | | |
Operating Profit (Loss) | | Operating Profit (Loss) | $ | 17,806 | | | $ | (226) | | | $ | 13,719 | | | $ | (3,276) | |
Operating Margin | Operating Margin | (2.2) | % | | (2.4) | % | | (6.1) | % | | 2.0 | % | Operating Margin | 6.1 | % | | (0.1) | % | | 8.7 | % | | (3.0) | % |
| Aerospace Sales by Market | Aerospace Sales by Market | | Aerospace Sales by Market | |
(In thousands) | (In thousands) | | (In thousands) | |
Commercial Transport | Commercial Transport | $ | 211,721 | | | $ | 143,550 | | | $ | 78,389 | | | $ | 57,549 | | Commercial Transport | $ | 206,292 | | | $ | 133,332 | | | $ | 112,079 | | | $ | 69,243 | |
Military | 41,336 | | | 54,847 | | | 12,463 | | | 17,064 | | |
Military Aircraft | | Military Aircraft | 27,648 | | | 28,873 | | | 13,584 | | | 13,897 | |
General Aviation | General Aviation | 48,748 | | | 41,131 | | | 14,751 | | | 12,109 | | General Aviation | 44,463 | | | 33,997 | | | 25,015 | | | 18,130 | |
Other | Other | 21,056 | | | 26,874 | | | 6,574 | | | 9,044 | | Other | 15,576 | | | 14,482 | | | 7,704 | | | 8,020 | |
| | $ | 322,861 | | | $ | 266,402 | | | $ | 112,177 | | | $ | 95,766 | | | $ | 293,979 | | | $ | 210,684 | | | $ | 158,382 | | | $ | 109,290 | |
Aerospace Sales by Product Line | Aerospace Sales by Product Line | | | | | | | | Aerospace Sales by Product Line | | | | | | | |
(In thousands) | (In thousands) | | (In thousands) | |
Electrical Power & Motion | Electrical Power & Motion | $ | 132,757 | | | $ | 102,742 | | | $ | 46,155 | | | $ | 38,650 | | Electrical Power & Motion | $ | 121,400 | | | $ | 86,602 | | | $ | 67,946 | | | $ | 42,135 | |
Lighting & Safety | Lighting & Safety | 90,339 | | | 76,929 | | | 29,740 | | | 25,461 | | Lighting & Safety | 78,471 | | | 60,599 | | | 41,918 | | | 31,388 | |
Avionics | Avionics | 67,453 | | | 47,355 | | | 24,172 | | | 14,491 | | Avionics | 60,664 | | | 43,281 | | | 30,923 | | | 24,406 | |
Systems Certification | Systems Certification | 6,656 | | | 7,937 | | | 3,985 | | | 6,099 | | Systems Certification | 13,297 | | | 2,671 | | | 7,620 | | | 1,669 | |
Structures | Structures | 4,600 | | | 4,565 | | | 1,551 | | | 2,021 | | Structures | 4,571 | | | 3,049 | | | 2,271 | | | 1,672 | |
Other | Other | 21,056 | | | 26,874 | | | 6,574 | | | 9,044 | | Other | 15,576 | | | 14,482 | | | 7,704 | | | 8,020 | |
| | $ | 322,861 | | | $ | 266,402 | | | $ | 112,177 | | | $ | 95,766 | | | $ | 293,979 | | | $ | 210,684 | | | $ | 158,382 | | | $ | 109,290 | |
| (In thousands) | (In thousands) | October 1, 2022 | | December 31, 2021 | (In thousands) | July 1, 2023 | | December 31, 2022 |
Total Assets | Total Assets | $ | 478,385 | | | $ | 458,334 | | Total Assets | $ | 520,564 | | | $ | 481,416 | |
Backlog | Backlog | $ | 464,307 | | | $ | 334,659 | | Backlog | $ | 522,577 | | | $ | 477,660 | |
AEROSPACE THIRDSECOND QUARTER RESULTS
Aerospace segment sales increased $16.4$49.1 million, or 17.1%44.9%, to $112.2 million. Commercial aerospace sales increased 36.2%, or $20.8$158.4 million, and drove the improvement.up 16.8% sequentially. The increase was driven by a 61.9% increase, or $42.8 million, in commercial transport sales. Sales to this market were $78.4$112.1 million, or 64.3% of consolidated sales in the quarter, compared with $57.5$69.2 million, or 53.6% of consolidated sales in the thirdsecond quarter of 2021.2022. Improving domesticglobal airline travel that is driving higher fleet utilization and increased narrowbody production rates drove demand for Astronics’ products.resulted in increased demand.
General Aviation sales increased $2.6$6.9 million, or 21.8%38.0%, to $14.8 million due in part to higher demand in the business jet market for antenna systems and enhanced vision system products. The Company expects the strong end user demand in the business jet industry to drive higher OEM production rates in the near future, resulting in further increases in demand for its products.
Military Aircraft sales decreased $4.6 million, or 27.0%, to $12.5$25.0 million. The prior-year period benefited from incremental non-recurring engineering revenue associated with development programs and higher sales of avionics products.
Other revenue decreased $2.5 million to $6.6 million driven by decreased contract manufacturing programs.
Aerospace segment operating loss was $6.9profit improved to $13.7 million, or 8.7% of sales, compared with operating profitloss of $1.9$3.3 million forin the same period last year. HigherThe improved operating losses wereprofit was driven by inflationary impacts on input costs and inefficiencies associated with production execution due to supply chain constraints that restricted shipmenthigher volume as well as the settlement of a litigation claim and a customer accommodation dispute that resulted in $4.1 million of expense during the quarter. We expect to be indemnified by other parties for approximately $1.5 million related to the litigation claim and will record that gain when such proceeds are received, likelyprimarily in the fourth quarter. Operating profitcommercial transport market.
Aerospace bookings in the prior-year period benefited fromsecond quarter were $188.8 million, for a book-to-bill ratio of 1.19:1. Backlog for the $1.1Aerospace segment was a record $522.6 million AMJP benefit.at quarter end.
AEROSPACE YEAR-TO-DATE RESULTS
Aerospace segment sales increased $56.5$83.3 million, or 21.2%39.5%, to $322.9$294.0 million driven by a 54.7%, or $73.0 million increase in commercial transport sales. Sales to this market were $206.3 million, or 62.3% of consolidated sales in the first half of 2023, compared with $133.3 million, or 54.3% of consolidated sales in the same period of 2022. Improving global airline travel driving higher fleet utilization and increased production rates resulted in increased demand.
General Aviation sales increased $10.5 million, or 30.8%, to $44.5 million. Sales continued to be positively affected by reasons discussed above.
Aerospace segment operating loss was $7.1profit improved to $17.8 million compared with operating loss of $6.4$0.2 million forin the same period last year. Aerospace segment experienced increasedyear, which included an AMJP grant offset to cost of sales andof $6.0 million. Absent the $6.0impact of the AMJP grant on the first half of last year, aerospace operating profit improved $24.0 million AMJP benefiton a sales increase of $83.3 million. The improvement in operating profit was driven by higher volume primarily in the 2022 period compared to an AMJP benefitcommercial transport market, partially offset by the effects of $1.1 million in the prior year, however, the operating loss was impacted by continued increases to input costs caused by inflationary impactsmaterial and supply chain constraints. Additionally, the 2022 period included $4.1 million related to the settlement of a litigation claim and a customer accommodation dispute and a $2.5 million increase of expense associated with the reinstated 401K contribution. As previously noted, we expect to be indemnified by other parties for approximately $1.5 million related to the litigation claim and will record that gain when such proceeds are received, likely in the fourth quarter.
AEROSPACE OUTLOOK
Aerospace bookings in the third quarter of 2022 were $165.7 million, for a book-to-bill ratio of 1.48:1. The Aerospace segment’s backlog at the end of the third quarter of 2022 was $464.3 million with approximately $375.2 million expected to be recognized as revenue over the next twelve months.labor inflation.
TEST SYSTEMS SEGMENT | | | Nine Months Ended | | Three Months Ended | | Six Months Ended | | Three Months Ended |
(In thousands) | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | |
($ in thousands) | | ($ in thousands) | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Sales | Sales | $ | 53,899 | | | $ | 62,811 | | | $ | 19,261 | | | $ | 16,128 | | Sales | $ | 37,013 | | | $ | 34,638 | | | $ | 16,072 | | | $ | 19,840 | |
Less Inter-segment Sales | Less Inter-segment Sales | (19) | | | (357) | | | — | | | (53) | | Less Inter-segment Sales | — | | | (19) | | | — | | | (3) | |
Total Test Systems Sales | Total Test Systems Sales | $ | 53,880 | | | $ | 62,454 | | | $ | 19,261 | | | $ | 16,075 | | Total Test Systems Sales | $ | 37,013 | | | $ | 34,619 | | | $ | 16,072 | | | $ | 19,837 | |
Operating Loss | Operating Loss | $ | (4,125) | | | $ | (1,958) | | | $ | (2,312) | | | $ | (2,201) | | Operating Loss | $ | (6,740) | | | $ | (1,813) | | | $ | (6,143) | | | $ | (26) | |
Operating Margin | Operating Margin | (7.7) | % | | (3.1) | % | | (12.0) | % | | (13.7) | % | Operating Margin | (18.2) | % | | (5.2) | % | | (38.2) | % | | (0.1) | % |
|
All Test Systems sales are to the AerospaceGovernment and Defense Market.
| (In thousands) | (In thousands) | October 1, 2022 | | December 31, 2021 | (In thousands) | July 1, 2023 | | December 31, 2022 |
Total Assets | Total Assets | $ | 108,473 | | | $ | 105,335 | | Total Assets | $ | 119,440 | | | $ | 111,513 | |
Backlog | Backlog | $ | 82,807 | | | $ | 81,033 | | Backlog | $ | 88,499 | | | $ | 93,696 | |
TEST SYSTEMS THIRDSECOND QUARTER RESULTS
Test Systems segment sales were $19.3$16.1 million, up $3.2down $3.8 million compared with the prior-year period driven by higherprimarily as a result of lower defense revenue.
Test Systems’ operating loss was $2.3 million compared with operating loss of $2.2 million in the third quarter of 2021. Continued lower volume has driven operating losses in the third quarters of 2022 and 2021. The current year included a lease termination settlement of $0.5 million.
TEST SYSTEMS YEAR-TO-DATE RESULTS
Test Systems segment sales were $53.9 million, down $8.6operating loss was $6.1 million compared with nearly break-even in the prior-year period driven by lower revenue on defense and mass transit programs.
second quarter of 2022. Test Systems operating loss for the current period was $4.1 million compared with operating lossnegatively affected by mix, under absorption of $2.0fixed costs due to volume and $2.2 million in increased litigation-related legal expenses.
In April 2023 the prior-year period. An increased operating loss in 2022 was driven by lower volume. The current year included a lease termination settlementTest Systems segment implemented restructuring initiatives to align the workforce and management structure with near-term revenue expectations and operational needs. These initiatives are expected to provide savings of $0.5 million.
TEST SYSTEMS OUTLOOK$4 million to $5 million annually, beginning with the third quarter.
Bookings for the Test Systems segment in the quarter were $18.4$18.3 million and included the initial $9.6 million production order for a book-to-billthe Handheld Radio Test Sets Program for the U.S. Marine Corps. Book-to-bill ratio of 0.96:was 1.14:1 for the quarter. The Test Systems segment’s backlog at the end of the thirdsecond quarter of 20222023 was $82.8$88.5 million.
TEST SYSTEMS YEAR-TO-DATE RESULTS
Test Systems segment sales were $37.0 million, up $2.4 million compared with approximately $51.3the prior-year period primarily as a result of a reversal of a $5.8 million expecteddeferred revenue liability recorded with a previous acquisition. Absent that item, Test Systems sales decreased $3.4 million.
Test Systems segment operating loss was $6.7 million compared with operating loss of $1.8 million in the first half of 2022. Absent the non-operating sales adjustment resulting from the reversal of the deferred revenue liability, Test Systems operating loss for the current period was $12.6 million and was negatively affected by mix, under absorption of fixed costs due to be recognized as revenue over the next twelve months.volume and $4.8 million in increased litigation-related legal expenses.
Our Test business achieved a big win during the quarter when we were down-selected by the U.S. Army as the winner of a major radio test competition. A directed procurement is underway to finalize the terms of a contract, a process that is expected to be completed soon. Preliminarily, the Company expects the program could generate sales of $150 million to $200 million in the coming years.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities:
Cash used for operating activities totaled $39.1$21.2 million for the first ninesix months of 2022,2023, as compared with $18.5$10.3 million cash used for operating activities during the same period in 2021.2022. Cash flow from operating activities decreased compared with the same period of 20212022 primarily related to increases in net operating assets, primarily accounts receivable due to higher sales and increases in inventory more than offsetting cash received from income tax refunds and the AMJP program. Accounts receivable has increased with a higher volume of sales while inventory balances have increased to fulfill customer demand in upcoming quarters coupled with increased lead times on certain key components required inventory to be purchased further in advance. In contrast, operating cash flows in the first six months of 2022 benefited from the receipt of income tax refunds and AMJP grant proceeds.
Investing Activities:
Cash provided byused for investing activities was $17.7$0.4 million for the first ninesix months of 20222023 compared with $4.6$19.5 million in cash used forprovided by investing activities in the same period of 2021.2022. Investing cash flows in 2022 were positively impacted by the receipt of $10.7 million and $11.3 million related to the calendar 2020 and 2021 earnouts, respectively, from the sale of the semiconductor business.business compared to $3.4 million received in the current year related to the calendar 2022 earnout. The Company expects capital spending in 20222023 to be in the range of $9$7 million and $10$12 million.
Financing Activities:
Cash provided by financing activities totaled $11.9 million for the first six months of 2023, as compared with cash used for financing activities totaled $4.9of $27.7 million for the first nine months of 2022, as compared with $12.3 million cash provided by financing activities during the same period in 2021. Cash used for financing activities increased compared with the same period of 2021 due to2022. The Company had net paymentsproceeds on our senior credit facilityfacilities of $4.0$19.0 million in the first ninesix months of 2022, coupled2023 compared with $1.0net repayments of $27.0 million in the same period in 2022. During the current year period, the Company also paid $6.4 million in debt issuance costs associated with amending our credit facility.the January 2023 refinancing. Additional debt issuance costs of $1.1 million will be paid in the future, largely comprised of the remaining Term Loan commitment fee, which is discussed further below.
The Company's long-term debt consistsat December 31, 2022 consisted of borrowings under its Fifth Amended and Restated Credit Agreement (the “Agreement”). On March 1, 2022, the Company executed an amendment to the Agreement, which reduced the revolving credit line from $375 million to $225 million and extended theThe maturity date of the loans under the facility from February 16, 2023 to MayAgreement was November 30, 2023. At December 31, 2022, there was $164.0 million outstanding on the Agreement and there remained $6.0 million available.
The definition of Adjusted EBITDA was modified to exclude income from earnout paymentsCompany amended the Agreement on January 19, 2023 by entering into the Sixth Amended and asset sales. On August 9, 2022,Restated Credit Agreement (the “ABL Revolving Credit Facility”). The ABL Revolving Credit Facility set the maximum aggregate amount that the Company executed a further amendment to the Agreement, which reducedcan borrow under the revolving credit line from $225at $115 million, with borrowings subject to $190 million until September 12, 2022 with further reductions to $180 million effective September 12, 2022a borrowing base determined primarily by certain domestic inventory and $170 million effective October 11, 2022.accounts receivable. The amendment extended the maturity date of the loansborrowings under the facility from May 30, 2023 to August 31, 2023. On October 21, 2022,ABL Revolving Credit Facility is January 19, 2026. Under the terms of the ABL Revolving Credit Facility, the Company executed an additional amendment to the Agreement, under which the lenders waived enforcement of their rights against the Company arising from the Company’s failure to comply with the maximum net leverage ratio and minimum liquidity covenants, each as of September 30, 2022. The amendment increased the revolving credit line to $180 million as of October 21, 2022, with a reduction to $170 million effective November 21, 2022. Under the provisions of this amendment, the inclusion of any “going concern” language in the Company’s financial statements would constitute an event of default.
A further amendment to the Agreement was executed on November 14, 2022 (the “Amended Facility”), which extended the maturity date of the loans under the facility from August 31, 2023 to November 30, 2023. Under the Amended Facility, the revolving credit line is set at $180 million, with a reduction to $170 million effective December 21, 2022. The amendment requires the Company to maintain minimum liquidity, defined as unrestricted cash plus the unused revolving credit commitments, of $10 million as of November 30, 2022 and December 31, 2022, and $15 million at the end of any month thereafter. The Amended Facility requires the Company to comply with a minimum Adjusted EBITDA covenant on a trailing twelve month basis, set at $15 million as of December 31, 2022 and March 31, 2023, and $25 million in each quarter thereafter. The amendment eliminated the net leverage ratio covenant for the remaining term of the agreement.
At October 1, 2022, there was $159.0 million outstanding on the revolving credit facility and there remained $19.9 million available subject to the minimum liquidity covenant discussed above, net of outstanding letters of credit. The credit facility allocates up to $20 million of the $180 million revolving credit line for the issuance of letters of credit, including certain existing letters of credit. At October 1, 2022, outstanding letters of credit totaled $1.1 million. Interest is payable on the unpaid principal amount of the facility at a rate equal to the Secured Overnight Financing Rate (“SOFR”, which shall be at least 1.00%), plus 5.50%. Effective January 17, 2023,pays interest is payable on the unpaid principal amount of the facility at a rate equal to SOFR (which shallis required to be at least 1.00%), plus 8.50%2.25% to 2.75%. The Company will pay a quarterly commitment fee under the ABL Revolving Credit Facility in an amount equal to 0.25% or 0.375% based on the Company’s average excess availability.
On June 28, 2023, the Company amended the ABL Revolving Credit Facility, temporarily increasing the maximum aggregate amount that the Company can borrow under the revolving credit line by $5 million from $115 million to $120 million until October 31, 2023, at which time the limit returns to $115 million. Under the provisions of the ABL Revolving Credit Facility, the Company has a cash dominion arrangement with the lead banking institution whereby eligible daily cash receipts are contractually utilized to pay down outstanding borrowings. Eligible cash receipts that have not yet been applied to outstanding debt balance are classified as restricted cash in the accompanying consolidated balance sheets. The Company is also required to maintain minimum liquidity of $20 million through the date of delivery of the compliance certificate for the quarter ended March 31, 2024, and $10 million thereafter. At July 1, 2023, there was $93.7 million outstanding on the ABL Revolving Credit Facility and there remained $26.3 million available.
The Company also entered into a $90 million asset-based credit agreement (the “Term Loan Facility”) on January 19, 2023. The Term Loan Facility is secured primarily by fixed assets, real estate and intellectual property. The maturity date of the Term Loan Facility is the earlier of the stated maturity date of the ABL Revolving Credit Facility or January 19, 2027, provided the ABL Revolving Credit Facility is extended beyond that date. The Company pays interest under the Term Loan Facility at a rate equal to SOFR (which is required to be at least 2.50%) plus 8.75%. The Company will pay a commitment fee tounder the lendersTerm Loan Facility of 5% of the total aggregate commitment, or $4.5 million, $1.8 million which was paid on the closing date, $1.8 million which was paid on June 20, 2023. The remaining $0.9 million is due within the next twelve months and is classified in an amountthe accompanying Consolidated Condensed Balance Sheet within current maturities of long-term debt.
equalAmortization of the principal under the Term Loan Facility began in April with a monthly amortization rate of 0.292% of the outstanding term loan principal balance for the period April 1, 2023 through June 1, 2023, increasing to 0.40%0.542% per month for the period July 1, 2023 through September 1, 2023 then increasing to 0.833% thereafter. Total scheduled principal payments of approximately $9.0 million are payable over the next twelve months and as such, have been classified as current in the accompanying Consolidated Condensed Balance Sheet as of July 1, 2023. The weighted-average interest rate on current maturities of long-debt is 13.1%. The remaining balance of $80.3 million at July 1, 2023 is recorded as long-term in the undrawnaccompanying Consolidated Condensed Balance Sheet.
Pursuant to the ABL Revolving Credit Facility and the Term Loan Facility, the Company is required to comply with a minimum trailing four quarter EBITDA of $23.3 million in the second quarter, $39.2 million in the third quarter, $51.7 million in the fourth quarter, $57.6 million in the first quarter of 2024, $65.2 million in the second quarter of 2024 and $70 million thereafter. In addition, mandatory prepayment of a portion of excess cash flow, as defined by the AmendedTerm Loan Facility, is payable towards the principal amount outstanding on an annual basis. Any voluntary prepayments made are subject to a prepayment fee, as defined by the Term Loan Facility. Each amendment executed in 2022 required paymentBeginning with the first quarter of 2024, the Company is subject to a consent feeminimum fixed charge coverage ratio of 51.10 to 10 basis points of1.00. Further, the commitment for each consenting lender.
The Amended Facility restrictsCompany is subject to restrictions on additional indebtedness, share repurchases and dividend payments, and share repurchases througha limitation on capital expenditures. The Company is in compliance with all covenant requirements as of July 1, 2023.
The Company incurred $9.0 million in incremental debt issuance costs related to the maturity datenew facilities, allocated between the ABL Revolving Credit Facility and the Term Loan Facility. All costs are amortized to interest expense over the term of the Amended Facility. The Company’s obligations underrespective agreement. Unamortized deferred debt issuance costs associated with the AmendedABL Revolving Credit Facility ($2.4 million as of July 1, 2023) are jointlyrecorded within other assets and severally guaranteed by each domestic subsidiarythose associated with the Term Loan Facility ($5.3 million as of July 1, 2023) are recorded as a reduction of the Company other than non-material subsidiaries.carrying value of the debt on the Consolidated Condensed Balance Sheet.
The obligations are secured by a first priority lien on substantially allCertain of the Company’s subsidiaries are borrowers or guarantors under the ABL Revolving Credit Facility and the guarantors’ assets. Term Loan Facility.
In the event of voluntary or involuntary bankruptcy of the Company or any subsidiary, all unpaid principal and other amounts owing under the Amended Facilitycredit facilities automatically become due and payable. Other events of default, such as failure to make payments as they become due and breach of financial and other covenants, change of control, judgments over a certain amount, and cross default under other material debt agreements, and a going concern qualification for any reason other than loan maturity date give the agent the option to declare all such amounts immediately due and payable.
We are currently inCash on hand at the processend of evaluating terms and conditions for a new long-term financing arrangement, which includes an asset-based lending agreement and separate term loan agreement, and expect to complete the process inquarter was $4.3 million. Net debt was $178.7 million, compared with $150.2 million at the coming weeks. The extent to which we will be able to effect such refinancing, replacement or maturity extension on terms that are favorable to us or at all is dependent on a numberend of uncertain factors, including then-prevailing credit and other market conditions, economic conditions, particularly in the aerospace and defense markets, disruptions or volatility caused by factors such as COVID-19, regional conflicts, inflation, and supply chain disruptions. In addition, rising interest rates could limit our ability to refinance our existing credit facility when it matures or cause us to pay higher interest rates upon refinancing. As the Company’s long-term debt approaches maturity, if the Company is unable to refinance, replace or extend the maturity on its credit facility, the Company’s liquidity, results of operations, and financial condition could be materially adversely impacted. If we are unable to obtain a new long-term financing facility before we file our 2022 Form 10-K to replace our existing debt facility, borrowings outstanding under our existing credit facility will come due within 12 months of that filing date and could result in substantial doubt about our ability to continue as a going concern in the event that we are not reasonably assured to have sufficient cash balances to repay the remaining obligations at maturity.2022.
The Company expects its sales growth and improvementreductions in inventory managementworking capital will provide sufficient cash flows to fund operations. However, the Company may also evaluate various actions and alternatives to enhance its profitability and cash generation from operating activities, which could include manufacturing efficiency initiatives, cost-reduction measures, working with vendors and suppliers to reduce lead times and expedite shipment of critical components, and working with customers or other institutions to expedite receivable collections.
Our ability to maintain sufficient liquidity and comply with financial debt covenants is highly dependent upon achieving expected operating results. Failure to achieve expected operating results could have a material adverse effect on our liquidity, our ability to obtain financing or access our existing financing, and our operations in the future.future and could allow our debt holders to demand payment of all outstanding amounts.
On June 5, 2023, the Company filed a shelf registration statement with the SEC, which allows us to issue shares of common stock, preferred stock, warrants, subscription rights, purchase contracts and debt securities in one or more offerings up to an aggregate offering price of $150 million and on terms to be determined at the time of the offering. During the three months ended July 1, 2023, we did not issue any securities pursuant to this registration statement, and $150 million remained available for future sales. Astronics currently expects that the net proceeds of any such future offerings of securities pursuant to the shelf registration statement would be used for general corporate purposes, including, without limitation, organic strategic initiatives and reducing debt as well as general working capital needs.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any material off balance sheet arrangements that have or are reasonably likely to have a material future effect on our results of operations or financial condition.
BACKLOG
The Company’s backlog at OctoberJuly 1, 20222023 was $547.1$611.1 million compared with $415.7$571.4 million at December 31, 20212022 and $354.4$494.4 million at OctoberJuly 2, 2021.2022.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
Except as noted below, ourOur contractual obligations and commitments have not changed materially from the disclosures in our 20212022 Annual Report on Form 10-K.
Purchase obligations are comprised
MARKET RISK
Risk due to fluctuation in interest rates is a function of the Company’s commitments for goods and services in the normal course of business and amount tofloating rate debt obligations, which total approximately $151.6 million payable in the coming year at October 1, 2022 and $134.0$183.0 million at December 31, 2022.
As a resultJuly 1, 2023. A change of amendments to our credit facility since December 31, 2021, future1% in interest payments are expected to be $15.7 million through the expirationrates of the credit facility.
Absent any legislative changes, the Company expects to pay approximately $5 million to $6 million in income tax payments related to the 2022 tax year. These expected tax payments are the result of the requirement to capitalize and amortize certain research and development expenses for U.S. tax purposes beginning in 2022.
MARKET RISK
Interest on our revolving credit facility is payable on the unpaid principal amount of the facility at aall variable rate equal to the SOFR (which shall be at least 1.00%), plus 5.50%. Effective January 17, 2023, interest is payable on the unpaid principal amount of the facility at a rate equal to SOFR (which shall be at least 1.00%), plus 8.50%. As SOFR is a relatively new reference rate with a limited history, there may or may not be more volatility than with other reference rates such as LIBOR, which may result in increased borrowing costs for the Company. A hypothetical increase in the SOFR of 100 basis pointsdebt would impact annual incomenet loss by approximately $1.6$1.8 million, before income taxes.
Although the majority of our sales, expenses and cash flows are transacted in U.S. dollars, we have exposure to changes in foreign currency exchange rates related primarily to the Euro and the Canadian dollar. The Company believes that the impact of changes in foreign currency exchange rates in 20222023 have not been significant.
The future impacts of the Russia and Ukraine conflict and the COVID-19 pandemic and their residual effects, including economic uncertainty, inflationary environment and disruption within the global supply chain, labor markets and aerospace industry, on our business remain uncertain. As we cannot anticipate the ultimate duration or scope of the Russia-Ukraine war and the COVID-19 pandemic, the ultimate financial impact to our results cannot be reasonably estimated, but could be material.
CRITICAL ACCOUNTING POLICIES
Refer to Note 2 of the Notes to Consolidated Condensed Financial Statements included in this report for the Company’s critical accounting policies with respect to revenue recognition. For a complete discussion of the Company’s other critical accounting policies, refer to the Company’s annual report on Form 10-K for the year ended December 31, 2021.2022.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Note 1 of the Notes to Consolidated Condensed Financial Statements included in this report.
FORWARD-LOOKING STATEMENTS
Information included in this report that does not consist of historical facts, including statements accompanied by or containing words such as “may,” “will,” “should,” “believes,” “expects,” “expected,” “intends,” “plans,” “projects,” “approximate,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume” and “assume,” are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to several factors, risks and uncertainties, the impact or occurrence of which could cause actual results to differ materially from the expected results described in the forward-looking statements. Certain of these factors, risks and uncertainties are discussed in the sections of this report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” New factors, risks and uncertainties may emerge from time to time that may affect the forward-looking statements made herein. Given these factors, risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictive of future results. We disclaim any obligation to update the forward-looking statements made in this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Market RiskThe disclosure under the heading “Market Risk” in Item 2, above.2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” above is incorporated by reference into this Item 3.
Item 4. Controls and Procedures
a.Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer (its principal executive officer) and Chief Financial Officer (its principal financial officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures as of OctoberJuly 1, 2022.2023. 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 OctoberJuly 1, 2022.2023.
b.Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Currently, we are involved in legal proceedings relating to an allegation of patent infringement and, based on rulings to date we have concluded that losses related to these proceedings are probable. For a discussion of contingencies related to legal proceedings, see Note 1415 of the Notes to Consolidated Condensed Financial Statements.
Item 1a. Risk Factors
In addition to other information set forth in this report, you should carefully consider the factors discussed in Part 1,I, Item 1A. “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, which could materially affect our business, financial condition or results of operations. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations. There have been no material changes to the Risk Factors except as set forth below:
We are subject to extensive regulation and audit by the Defense Contract Audit Agency. The accuracy and appropriateness of certain costs and expenses used to substantiate our direct and indirect costs for the U.S. Government contracts are subject to extensive regulation and audit by the Defense Contract Audit Agency, an arm of the USDOD. Such audits and reviews could result in adjustments to our contract costs and profitability. However, we cannot ensure the outcome of any future audits and adjustments may be required to reduce net sales or profits upon completion and final negotiation of audits. If any audit or review were to uncover inaccurate costs or improper activities, we could be subject to penalties and sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from conducting future business with the U.S. Government. Any such outcome could have a material adverse effect on our financial results.
Item 2. Unregistered salesSales of equity securitiesEquity Securities and useUse of proceedsProceeds
The following table summarizes our purchases of our common stock for the three months ended OctoberJuly 1, 2022.2023:
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Period | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar ValueValue) of Shares that may yet be Purchased Under the Program (1) |
April 1, 2023 - April 29, 2023 | — | | | $ | — | | | — | | | $ | 41,483,815 | |
April 30, 2023 - May 27, 2023 | — | | | $ | — | | | — | | | $ | 41,483,815 | |
May 28, 2023 - July 3, 2022 - October 1, 20222023 | — | | | $ | — | | | — | | | $ | 41,483,815 | |
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(1) Previously, the Board of Directors authorized share repurchase programs that authorized repurchases up to certain monetary limits in accordance with applicable securities laws on the open market or through privately negotiated transactions. Under those programs, we purchased approximately 3,498,000 shares for $100 million.
On September 17, 2019, the Company’s Board of Directors authorized an additional share repurchase program. This program authorizes repurchases of up to $50 million of common stock. Cumulative repurchases under this planmillion. Approximately 310,000 shares were approximately 310,000 sharesrepurchased at a cost of $8.5 million before the 10b5-1 plan associated with the share repurchase program was terminated on February 3, 2020. There have been no repurchases since that date.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.Securities Trading Plans of Directors and Officers
During the three months ended July 1, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits | | | | | | | | |
| | Certificate of Amendment No. 3of the Certificate of Incorporation of Astronics Corporation, dated May 23, 2023 (incorporated by reference to the Fifth Amended and Restated Credit Agreement, filed as Exhibit 10.1Company's Current Report on Form 8-K filed on August 10, 2022 (File No. 000-07087).dated May 24, 2023) |
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| | First Amendment No. 4 to the FifthSixth Amended and Restated Credit Agreement fileddated as Exhibit 10.1of June 28, 2023, by and among Astronics Corporation, the other borrowers and guarantors signatory thereto, HSBC Bank USA, National Association, as Agent and Co-Collateral Agent, Wells Fargo Bank, N.A., as Co-Collateral Agent, and the lenders signatory thereto (incorporated by reference to the Company's Current Report on Form 8-K filed on October 24, 2022 (File No. 000-07087). |
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| | Amendment No. 5 to the Fifth Amended and Restated Credit Agreement, filed as Exhibit 10.1 on Form 8-K filed on November 15, 2022 (File No. 000-07087).dated June 28, 2023) |
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| | Section 302 Certification - Chief Executive Officer |
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| | Section 302 Certification - Chief Financial Officer |
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| | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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Exhibit 101.1* | | Instance Document |
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Exhibit 101.2* | | Schema Document |
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Exhibit 101.3* | | Calculation Linkbase Document |
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Exhibit 101.4* | | Labels Linkbase Document |
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Exhibit 101.5* | | Presentation Linkbase Document |
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Exhibit 101.6* | | Definition Linkbase Document |
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* | Submitted electronically herewith. |
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.
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| | | ASTRONICS CORPORATION |
| | | (Registrant) |
Date: | November 15, 2022August 7, 2023 | | By: | /s/ David C. Burney |
| | | | David C. Burney Executive Vice President and Chief Financial Officer (Principal Financial Officer) |