UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

For the quarterly period ended ~~October~~July 1, ~~2022~~2023


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

For the transition period from to

Commission File Number 0-7087

ASTRONICS CORPORATION

(Exact name of registrant as specified in its charter)


New York (State or other jurisdiction of incorporation or organization)			16-0959303 (IRS Employer Identification Number)

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

(716) 805-1599

(Registrant’s telephone number, including area code)

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 ¨

~~Table of Contents~~

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 ¨

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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

☐

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, 32,171,112~~July 31, 2023, 32,536,299 shares of common stock were outstanding consisting of ~~25,847,466~~26,514,253 shares of common stock ($.01 par value) and ~~6,323,646~~6,022,046 shares of Class B common stock ($.01 par value).

Table of Contents

TABLE OF CONTENTS

PAGE

PART I

FINANCIAL INFORMATION

Item 1

Financial Statements:

•

Consolidated Condensed Balance Sheets as of ~~October~~July 1,~~, 2022~~ 2023 and December 31, ~~2021~~2022

•

Consolidated Condensed Statements of Operations for the Three and Six ~~Nine~~Months Ended ~~October~~July 1,~~, 2022~~ 2023 and ~~October~~July 2,~~, 2021~~ 2022

•

Consolidated Condensed Statements of Comprehensive Loss for the Three and Six ~~Nine~~Months Ended ~~Octobe~~July r 1,~~, 2022~~ 2023 and ~~October~~ July 2,~~, 2021~~ 2022

•

Consolidated Condensed Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~October~~July 1,~~, 2022~~ 2023 and ~~Octobe~~rJuly 2,~~, 2021~~ 2022

•

Consolidated Condensed Statements of ~~Shareholders'~~Shareholders’ Equity for the Three and Six ~~Nine~~Months Ended ~~October~~July 1,~~, 2022~~ 2023 and ~~October~~July 2,~~, 2021~~ 2022

•

Notes to Consolidated Condensed Financial Statements

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2221

Item 3

Quantitative and Qualitative Disclosures about Market Risk

2928

Item 4

Controls and Procedures

PART II

OTHER INFORMATION

Item 1

Legal Proceedings

Item 1a

Risk Factors

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3

Defaults Upon Senior Securities

Item 4

Mine Safety Disclosures

Item 5

Item 6

Part I – Financial Information

Item 1. Financial Statements

ASTRONICS CORPORATION

Consolidated Condensed Balance Sheets

~~October~~July 1, ~~2022~~2023 with Comparative Figures for December 31, ~~2021~~2022

(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.

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ASTRONICS CORPORATION

Consolidated Condensed Statements of Operations

Three and ~~Nine~~Six Months Ended ~~October~~July 1, ~~2022~~2023 With Comparative Figures for ~~2021~~2022

(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.

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ASTRONICS CORPORATION

Consolidated Condensed Statements of Comprehensive Loss

Three and ~~Nine~~Six Months Ended ~~October~~July 1, ~~2022~~2023 With Comparative Figures for ~~2021~~2022

(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.

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ASTRONICS CORPORATION

Consolidated Condensed Statements of Cash Flows

~~Nine~~Six Months Ended ~~October~~July 1, ~~2022~~2023 With Comparative Figures for ~~2021~~2022


		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.

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ASTRONICS CORPORATION

Consolidated Condensed Statements of ~~Shareholders'~~Shareholders’ Equity

Three and ~~Nine~~Six Months Ended ~~October~~July 1, ~~2022~~2023 With Comparative Figures for ~~2021~~2022

(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.

Table of Contents

ASTRONICS CORPORATION

Consolidated Condensed Statements of ~~Shareholders'~~Shareholders’ Equity, Continued

Three and ~~Nine~~Six Months Ended ~~October~~July 1, ~~2022~~2023 With Comparative Figures for ~~2021~~2022

(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.

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ASTRONICS CORPORATION

Notes to Consolidated Condensed Financial Statements

~~October~~July 1, ~~2022~~2023

(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 ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 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, ~~2021~~2022 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 ~~2021~~2022 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, the~~The impacts of the pandemic ~~have placed~~continue 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 related~~supply 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.

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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~~

Table of ~~2022 and $2.1 million in the third~~Contents

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 ~~nine~~six 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 ~~presents~~provides a reconciliation of cash and restricted cash included in Consolidated Condensed Balance Sheets to the ~~COVID-19 related government assistance, including AMJP, recorded during~~amounts 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 ~~October~~July 1, ~~2022~~2023 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 ~~nine~~six months ended ~~October~~July 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 ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 and ~~October~~insignificant in the three and six months ended July 2, ~~2021.~~2022. Total recoveries were insignificant in ~~both~~ the three and ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 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 ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021,~~2022, respectively. These costs are included in cost of products sold.

Valuation of Goodwill ~~Impairment~~and 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 ~~October~~July 1, ~~2022~~2023 and ~~for the three and nine month periods then ended,~~July 2, 2022, the Company concluded that no indicators of impairment relating to ~~long-lived~~intangible assets ~~existed.~~

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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 ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021.~~2022.

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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 ~~October~~July 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 ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 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 ~~nine~~six months ended ~~October~~July 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 ~~October~~July 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

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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.

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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

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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 ~~2022~~2023 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 ~~nine~~six months ended ~~October~~July 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

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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 ~~consists~~at 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 the~~The maturity date of the loans under the ~~facility from February 16, 2023 to May~~Agreement 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 payments~~Company 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 reduced~~can borrow under the revolving credit line ~~from $225~~at $115 million, with borrowings subject to ~~$190 million until September 12, 2022 with further reductions to $180 million effective September 12, 2022~~a 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 loans~~borrowings 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 ~~shall~~is required to be at least 1.00%), plus ~~8.50%~~2.25% to 2.75%. The Company ~~also pays~~will pay a quarterly commitment fee tounder the ~~lenders~~ABL Revolving Credit Facility in an amount equal to ~~0.40%~~0.25% or 0.375% based on the ~~undrawn portion~~Company’s average excess availability.

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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 executed~~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 ~~2022~~the accompanying consolidated balance sheets. The Company is also required ~~payment~~to maintain minimum liquidity of ~~a consent fee~~$20 million through the date of ~~5 to 10 basis points~~delivery of the ~~commitment~~compliance 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 ~~Amended~~Company also entered into a $90 million asset-based credit agreement (the “Term Loan Facility”) on January 19, 2023. The Term Loan Facility ~~restricts dividend payments~~is secured primarily by fixed assets, real estate and ~~share repurchases through the~~intellectual 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 obligations~~Company pays interest under the ~~Amended~~Term Loan Facility ~~are jointly and severally guaranteed by each domestic subsidiary~~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 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 ~~obligations~~Company 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 by~~amortized 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 lien~~reduction of the carrying value of the debt on ~~substantially all~~the 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 Facility~~credit 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

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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 ~~improvement~~reductions in ~~inventory management~~working 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.

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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 ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 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 ~~2022~~2023 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 ~~2022~~2023 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, ~~2021~~2022 and ~~2020,~~2021, the Company determined that a portion of its deferred tax assets ~~are~~were not expected to be realizable in the future and the Company continues to maintain the valuation allowance against its deferred tax assets as of ~~October~~July 1, ~~2022.~~2023.

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~~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 ~~1,106,000~~594,000 shares as of ~~October~~July 1, ~~2022~~2023 and ~~647,000~~1,338,000 shares as of ~~October~~July 2, ~~2021.~~2022. Further, due to our net loss in the three and ~~nine~~six month periods ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 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 ~~October~~July 1, ~~2022~~2023 with treasury stock in lieu of cash. The earnings per share calculation for the quarter ended ~~October~~July 1, ~~2022~~2023 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 ~~October~~July 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 months~~six month periods ended ~~October~~July 1, 2023 and July 2, 2022, the Company reissued ~~545,000~~164,000 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 ~~Loss~~Income (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)

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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 ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021~~2022 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 ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021,~~2022, the Company had ~~no customers~~one 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

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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 pursuing~~pleaded its case for monetary compensation, which will be determined at a ~~claim~~separate trial, which is now set to take place in ~~the UK matter~~October 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 ~~was~~for AES and its indemnified customers of approximately ~~$24.6~~$7.3 million and $7.0 million at July 1, 2023 and December 31, ~~2021~~2022, respectively. This variance is due to currency fluctuation and ~~$24.1 million at~~interest 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 million~~2024, 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 ~~October~~July 1, ~~2022~~2023 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 nine~~six months ended ~~October~~July 1, ~~2022.~~2023.

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~~At December 31, 2021, we had recorded a~~A liability ~~of $1.0 million~~ for reimbursement of Lufthansa’s legal expenses associated with the UK ~~matter. During the nine months ended October~~matter 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 million~~2023 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 ~~October~~July 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 discovery~~2022. 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 ~~October~~July 1, ~~2022~~2023 or December 31, ~~2021~~2022 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.

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~~15)~~16) Segment Information

Below are the sales and operating ~~loss~~profit (loss) by segment for the three and ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021~~2022 and a reconciliation of segment operating ~~loss~~profit (loss) to loss before income taxes. Operating ~~loss~~profit (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 nine~~six months ended ~~October~~July 1, ~~2022,~~2023, $5.8 million was recognized in sales related to the ~~Company settled~~reversal of a deferred revenue liability assumed with an acquisition and associated with a customer ~~accommodation dispute~~program within our Test Systems Segment which is no longer expected to occur, which also benefits operating loss for ~~$2.1~~the 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 that~~associated with the ~~transaction to sell an asset or transfer~~reversal 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.~~

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~~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 over~~equity investment, as we will no longer be required to make the ~~three years post-acquisition based on achievement~~associated 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 ~~Operations~~Operations. 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 ~~October~~July 1, ~~2022~~2023 or December 31, ~~2021.~~2022.

~~On a Non-recurring Basis:~~

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There were no non-recurring fair value measurements performed in the ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021.~~2022.

Due to their short-term nature, the carrying value of cash and equivalents, accounts receivable ~~accounts payable,~~ and ~~notes~~accounts 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.

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~~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.~~

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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 ~~motions~~motion 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's~~OEMs 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.

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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 with~~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”) ~~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. ~~The~~During the six months ended July 2, 2022, the Company recognized ~~the remaining~~ $6.0 million of the ~~award during~~award.

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 divestiture~~transaction 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.

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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 ~~THIRD~~SECOND QUARTER RESULTS

Consolidated sales were up ~~$19.6~~$45.3 million, or 35.1%, from the ~~third~~second quarter of ~~2021.~~2022, and up 11.4% sequentially. Aerospace sales ~~were up $16.4~~increased $49.1 million over the comparator quarter, or ~~17.1%~~44.9%, ~~and~~driven by higher sales to the commercial transport market. Test Systems sales ~~increased $3.2 million.~~decreased $3.8 million on lower defense revenue.

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Consolidated cost of products sold in the ~~third~~second quarter of ~~2022~~2023 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 with~~and 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 ~~third~~second quarter of ~~2022~~2023 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 $4.6~~driven 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 million~~current period, primarily due to ~~changes in~~a valuation allowance applied against the ~~year-to-date~~deferred 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 ~~for~~in the quarter resulting in a book-to-bill ratio of ~~1.40:~~1.19:1. ~~Backlog at the end~~The 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 months~~half 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 ~~2022~~the 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 year~~prior-year period benefited ~~from~~the 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 ~~2022~~the 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-year~~benefits 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 $4.6~~the 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 $1.5~~an 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. The~~current period, compared with $3.3 million in the prior-year period, ~~also benefited from a $2.2~~primarily driven by higher interest rates on the Company’s new credit facilities. Interest expense includes approximately $1.4 million of non-cash ~~reduction~~amortization of ~~the fair value of a contingent consideration liability.~~capitalized financing-related fees.

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~~The effective~~Income tax ~~rate for 2022~~expense was ~~(28.3)%, compared with (1.4)%~~$9.4 million in the ~~prior year period. In~~current 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 costs~~that 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, the~~The 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 of~~throughout 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.

~~Outlook~~

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

Table of $140 million to $150 million in the fourth quarter of 2022, an increase of 10%, or $14 million, at the midpoint over the trailing third quarter. This would result in estimated 2022 sales to be up approximately 17% from last year’s revenue of $445 million. While disappointed with the lower sales level for the year than we had previously anticipated, we remain very encouraged with the demand for our products, our position in the industry and the significant opportunities in which we are engaged.

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 ~~loss~~profit (loss) is reconciled to loss before income taxes in Note 1516 of the Notes to Consolidated Condensed Financial Statements included in this report.

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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 ~~THIRD~~SECOND 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 ~~third~~second quarter of ~~2021.~~2022. Improving ~~domestic~~global 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 $6.9~~profit improved to $13.7 million, or 8.7% of sales, compared with operating ~~profit~~loss of ~~$1.9~~$3.3 million ~~for~~in the same period last year. ~~Higher~~The improved operating ~~losses were~~profit was driven by ~~inflationary impacts on input costs and inefficiencies associated with production execution due to supply chain constraints that restricted shipment~~higher 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 profit~~commercial transport market.

Aerospace bookings in the ~~prior-year period benefited from~~second quarter were $188.8 million, for a book-to-bill ratio of 1.19:1. Backlog for the ~~$1.1~~Aerospace segment was a record $522.6 million ~~AMJP benefit.~~at quarter end.

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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 $7.1~~profit improved to $17.8 million compared with operating loss of ~~$6.4~~$0.2 million ~~for~~in the same period last ~~year. Aerospace segment experienced increased~~year, which included an AMJP grant offset to cost of sales ~~and~~of $6.0 million. Absent the ~~$6.0~~impact of the AMJP grant on the first half of last year, aerospace operating profit improved $24.0 million ~~AMJP benefit~~on 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 benefit~~commercial 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 impacts~~material 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 ~~Aerospace~~Government 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 ~~THIRD~~SECOND QUARTER RESULTS

Test Systems segment sales were ~~$19.3~~$16.1 million, ~~up $3.2~~down $3.8 million ~~compared with the prior-year period driven by higher~~primarily 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 $8.6~~operating 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 loss~~negatively affected by mix, under absorption of ~~$2.0~~fixed 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 settlement~~Test 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-bill~~the 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 ~~third~~second quarter of ~~2022~~2023 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 $51.3~~the prior-year period primarily as a result of a reversal of a $5.8 million ~~expected~~deferred 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.

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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 ~~nine~~six 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 ~~2021~~2022 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 by~~used for investing activities was ~~$17.7~~$0.4 million for the first ~~nine~~six months of ~~2022~~2023 compared with ~~$4.6~~$19.5 million in cash ~~used for~~provided 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 ~~2022~~2023 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 $4.9~~of $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 to~~2022. The Company had net ~~payments~~proceeds on our ~~senior~~ credit ~~facility~~facilities of ~~$4.0~~$19.0 million in the first ~~nine~~six months of ~~2022, coupled~~2023 compared with ~~$1.0~~net 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.

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 ~~shall~~is 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 ~~lenders~~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. The remaining $0.9 million is due within the next twelve months and is classified in ~~an amount~~the accompanying Consolidated Condensed Balance Sheet within current maturities of long-term debt.

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~~equal~~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 ~~0.40%~~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 ~~undrawn~~accompanying 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 ~~Amended~~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. ~~Each amendment executed in 2022 required payment~~Beginning with the first quarter of 2024, the Company is subject to a ~~consent fee~~minimum fixed charge coverage ratio of 51.10 to ~~10 basis points of~~1.00. Further, the ~~commitment for each consenting lender.~~

~~The Amended Facility restricts~~Company is subject to restrictions on additional indebtedness, share repurchases and dividend payments, and ~~share repurchases through~~a 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 date~~new 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 under~~respective agreement. Unamortized deferred debt issuance costs associated with the ~~Amended~~ABL Revolving Credit Facility ($2.4 million as of July 1, 2023) are ~~jointly~~recorded within other assets and ~~severally guaranteed by each domestic subsidiary~~those 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 all~~Certain of the Company’s subsidiaries are borrowers or guarantors under the ABL Revolving Credit Facility and the ~~guarantors’ assets.~~ Term Loan Facility.

~~We are currently in~~Cash on hand at the ~~process~~end 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~~quarter 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 number~~end 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.

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.

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BACKLOG

The Company’s backlog at ~~October~~July 1, ~~2022~~2023 was ~~$547.1~~$611.1 million compared with ~~$415.7~~$571.4 million at December 31, ~~2021~~2022 and ~~$354.4~~$494.4 million at ~~October~~July 2, ~~2021.~~2022.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

~~Except as noted below, our~~Our contractual obligations and commitments have not changed materially from the disclosures in our ~~2021~~2022 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 to~~floating 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 result~~July 1, 2023. A change of ~~amendments to our credit facility since December 31, 2021, future~~1% in interest ~~payments are expected to be $15.7 million through the expiration~~rates 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.

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~~MARKET RISK~~

~~Interest on our revolving credit facility is payable on the unpaid principal amount of the facility at a~~all 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 ~~income~~net 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 ~~2022~~2023 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 Risk~~The 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.

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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 ~~October~~July 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 ~~October~~July 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.

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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 ~~sales~~Sales of ~~equity securities~~Equity Securities and ~~use~~Use of ~~proceeds~~Proceeds

The following table summarizes our purchases of our common stock for the three months ended ~~October~~July 1, ~~2022.~~2023:


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 ~~Value~~Value) 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, ~~2022~~2023	—	$	—	—	$	41,483,815

(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 plan~~million. Approximately 310,000 shares were ~~approximately 310,000 shares~~repurchased 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.

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Item 6. Exhibits


Exhibit ~~10.1~~3.1						Certificate of Amendment ~~No. 3~~of 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 10.1~~Company's Current Report on Form 8-K ~~filed on August 10, 2022 (File No. 000-07087).~~dated May 24, 2023)

Exhibit ~~10.2~~10.1						First Amendment ~~No. 4~~ to ~~the Fifth~~Sixth Amended and Restated Credit Agreement ~~filed~~dated as ~~Exhibit 10.1~~of 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).~~

~~Exhibit 10.3~~						~~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)

Exhibit 31.1						Section 302 Certification - Chief Executive Officer

Exhibit 31.2						Section 302 Certification - Chief Financial Officer

Exhibit 32						Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 101.1*						Instance Document

Exhibit 101.2*						Schema Document

Exhibit 101.3*						Calculation Linkbase Document

Exhibit 101.4*						Labels Linkbase Document

Exhibit 101.5*						Presentation Linkbase Document

Exhibit 101.6*						Definition Linkbase Document


*			Submitted electronically herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ASTRONICS CORPORATION

(Registrant)

Date:

~~November 15, 2022~~August 7, 2023

By:

/s/ David C. Burney

David C. Burney

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)


(In thousands)
2022	$	14,922
2023	$	13,878
2024	$	12,856
2025	$	10,935
2026	$	9,533
2027	$	7,825