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Item 1A. Risk Factors

2023-03-10 compared with 2022-03-04 · 131 added, 128 removed, 193 unchanged (57% of the section changed)

Covid-19 Pandemic Risks

Our business, financial results, and prospects are dependent on global aerospace demand.

The continuing effects of the COVID-19 pandemic have had and are expected to continue to have a significant negative impact on aerospace demand, our business and our industry, including any potential impacts of vaccination requirements.

Other epidemics or outbreaks of infectious diseases may have a similar impact.

As previously disclosed, we face risks related to outbreaks of infectious diseases, including the ongoing COVID-19 pandemic.

The COVID-19 coronavirus pandemic has caused significant volatility in financial markets, including the market price of our stock, and the aerospace industry.

The continuing effects of the COVID-19 pandemic have had and are expected to continue to have a significant negative impact on aviation demand, our business, our supply chain and our industry, including any potential impacts of vaccination requirements.

The extent to which the pandemic will continue to negatively affect our business and results of operations will depend on many changing factors and developments including, without limitation, the following:

• the severity, extent, and duration of the pandemic including emerging variants of the virus, its impact on the aircraft industry and aviation and related aftermarket demand, and any additional production suspensions or reductions relating to the pandemic;

• the effectiveness of vaccines and treatments against emerging variant strains of COVID-19 and over the long-term;

• continued travel restrictions and bans, bans on public gatherings, and closures of non-essential businesses;

• any potential impacts of vaccination requirements and the ability to retain and recruit the workforce required to meet production requirements;

• economic stimulus efforts;

• economic recessions resulting from the pandemic;

• any inability of significant portions of our workforce to work effectively, including because of illness, remote work, quarantines, social distancing, government actions, or other restrictions in connection with the COVID-19 pandemic;

• potential lawsuits or regulatory actions due to COVID-19 spread in the workplace;

• our ability to maintain our compliance practices and procedures, financial reporting processes and related controls, and manage the complex accounting issues presented by the COVID-19 pandemic;

• the impact on the Company’s vendors and outsourced business processes and their process and controls documentation;

• potential failure or reduced capacity of third parties on which the Company relies, including suppliers, lenders, and other business partners, to meet the Company’s obligations and needs;

• the impact of the pandemic on the financial position of our customers;

• the impact of the pandemic on the availability and cost of materials;

• the impact on our contracts with our customers and suppliers, including force majeure provisions;

• the impact on the financial markets, including volatility in the financial markets;

• the availability and cost of credit to the Company;

• the impact of government health and protection policies on future air traffic demand.

Several of these effects have already occurred and any or all of these items may occur or recur, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

While the Company has taken action to reduce costs, increase liquidity and strengthen its financial position in light of the COVID-19 pandemic, there can be no assurance that our actions will mitigate the impact of the pandemic on our business.

We expect that the COVID-19 pandemic will continue to have a significant negative impact on our business for the duration of the pandemic and for an indeterminate time thereafter until demand grows closer to 2019 levels and supply chain challenges abate.

Our business improvement depends on OEM production of aircraft at sufficient levels, which depends upon the public’s willingness to use aircraft travel, the success of vaccination programs across the globe, sufficient OEM demand and orders (without suspension) from airlines, and the ability of airlines to weather the crisis and expand.

Further, we expect that the pandemic recovery time for wide-body aircraft may be longer than for narrow-body aircraft due to reduced traveler demand and lower volumes of international travel.

If the pandemic worsens or there is significant uncertainty on the commercial aerospace industry’s recovery, we may find it difficult to obtain additional financing and/or fund our operations and meet our debt repayment obligations.

Recognizing the unprecedented nature, scale and uncertainty associated with this global health crisis, the duration and extent of the on-going impacts cannot be reasonably estimated at this time.

Our business faces many risks, and you should carefully consider the following risk factors, together with all of the other information included in this report, including the financial statements and related notes contained in Item 8 of this report, when deciding to invest in us.

Any of the risks discussed below, or elsewhere in this report or in our other SEC filings, could have a material impact on our business, financial condition or results of operations.

Additional risks not currently known to us or that we currently consider immaterial also may materially adversely affect our business, financial condition or results of operations in the future.

The loss of Boeing or Panasonic as major customers or a significant reduction in business with either of those customers would reduce our sales and earnings.

In 2021, we had a concentration of sales to Boeing representing approximately 10.0% of our sales.

In 2020 and 2019, we also had a concentration of sales to Panasonic in excess of 10% of sales in those years.

In 2022 and 2021, we had a concentration of sales to Boeing representing approximately 11.0% and 10.0% of our sales, respectively.

In 2020, we also had a concentration of sales to Panasonic representing approximately 11.1% of our sales.

Revenue earned from sales to Boeing or Panasonic may decline or fluctuate significantly in the future.

We may not be able to offset any decline in sales from Boeing or Panasonic with sales from new customers or other existing customers.

The loss of these customers or a significant reduction in business with them would significantly reduce our sales and earnings.

In October 2018 and March of 2019, two commercial aircraft accidents led to the grounding by the Federal Aviation Administration and other regulators of the Boeing 737 MAX aircraft, on which we have significant content, and which represented our largest OEM production program before the pandemic.

The grounding of the Boeing 737 MAX, which started in March of 2019, caused the production rate of that aircraft to be lower than expected in fiscal year 2019 and 2020.

The 737 MAX grounding affected our business both because of the production pause, impacting our line-fit content, and because it left many of our airline customers short of capacity, particularly in 2019 but continuing into 2020, which made them reluctant to take other aircraft out of service to install the types of retrofit products they buy from us.

Although the 737 MAX was re-certified in the United States in November 2020 and in Europe in January 2021, if production rates do not materialize as anticipated, our Aerospace segment sales could be significantly impacted in the near or long-term, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Even as deliveries of the 737 MAX program resume, demand for the aircraft could be lower than was expected prior to the initial grounding of the aircraft due to the continuing effects of the COVID-19 pandemic.

The markets we serve are cyclical and sensitive to domestic and foreign economic conditions and events, which may cause our operating results to fluctuate.

Demand for our products is, to a large extent, dependent on the demand and success of our customers' products where we are a supplier to an OEM.

In our Aerospace segment, demand by the business jet markets for our products is dependent upon several factors, including capital investment, product innovations, economic growth and wealth creation and technology upgrades.

In addition, the commercial airline industry is highly cyclical and sensitive to such things as fuel price increases, labor disputes, global economic conditions, availability of capital to fund new aircraft purchases and upgrades of existing aircraft and passenger demand, all of which have been significantly impacted by the ongoing COVID-19 pandemic.

Accordingly, a portion of our potential for success will depend on our continued ability to develop and manage our relationships with Boeing and Panasonic.

The markets we serve are cyclical and sensitive to domestic and foreign economic conditions, conflicts and events, which may cause our operating results to fluctuate.

The markets we serve are sensitive to fluctuations in general business cycles, global pandemics, domestic and foreign governmental tariffs, trade and monetary policies, national and international conflicts, and economic conditions and events, and are facing varying levels of pressure from the COVID-19 pandemic.

The COVID-19 pandemic drastically reduced air traffic as travel restrictions and social distancing measures were implemented to help control the spread of the virus.

domestic air travel has recovered, international travel utilizing wide-body aircraft will take longer to fully recover.

Furthermore, as companies and employees become accustomed to working remotely, business travel and the associated flight hours may not reach the pre-pandemic levels.

As such, OEMs may continue to directionally match their wide-body aircraft production rates with the reduced, albeit recovering, air traffic volume, which could lower demand for our products.

If the pandemic worsens or there is significant uncertainty in the commercial aerospace industry’s recovery, we may find it difficult to access our existing financing or obtain additional financing and/or fund our operations and meet our debt service obligations.

In our Aerospace segment, demand by the general aviation markets for our products is dependent upon several factors, including capital investment, product innovations, economic growth and wealth creation and technology upgrades.

In addition, the commercial airline industry is highly cyclical with significant downturns in the past and sensitive to such things as fuel price increases, labor disputes, global economic conditions, availability of capital to fund new aircraft purchase and upgrades of existing aircraft and passenger demand.

A change in any of these factors could result in a further reduction in the amount of air travel and the ability of airlines to invest in new aircraft or to upgrade existing aircraft.

Therefore, our business is directly affected by economic factors and other trends that affect our customers in the commercial aerospace industry.

These factors would reduce orders for new aircraft and would likely reduce airlines’ spending for cabin upgrades for which we supply products, thus reducing our sales and profits.

A reduction in air travel may also result in our commercial airline customers being unable to pay our invoices on a timely basis or not at all.

A reduction in air travel may also result in our commercial airline customers being unable to pay our invoices on a timely basis or at all.

We are a supplier on various new aircraft programs just entering or expected to begin production in the future.

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As is customary for our business, we purchase inventory and invest in specific capital equipment to support our production requirements generally based on delivery schedules provided by our customer.

If a program or aircraft is not successful, we may have to write-off all or

a part of the inventory, accounts receivable and capital equipment related to the program.

If a program or aircraft is not successful, we may have to write-off all or a part of the inventory, accounts receivable and capital equipment related to the program.

A write-off of these assets could result in a significant reduction of earnings and cause covenant violations relating to our debt agreements.

This could result in our being unable to borrow additional funds under our bank credit facility or being obliged to refinance or renegotiate the terms of our bank indebtedness.

This could result in our being unable to borrow additional funds under our bank credit facility or being obliged to refinance or renegotiate the terms of our indebtedness.

In our Test Systems segment, the market for our products is concentrated with a limited number of significant customers accounting for a substantial portion of the purchases of test equipment.

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Our products are sold in highly competitive markets.

Some of our competitors are larger, more diversified corporations and have greater financial, marketing, production and research and development resources.

As a result, they may be better able to withstand the effects of periodic economic downturns.

Some of our competitors are larger, more diversified corporations and have greater financial, marketing, production and research and development resources than we do.

As a result, they may be better able to withstand the effects of periodic economic downturns or other market changing events.

Our operations and financial performance will be negatively impacted if our competitors:

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Maintaining and improving our competitive position will require continued investment in manufacturing, engineering, quality standards, marketing, customer service and support and our distribution networks.

If we do not maintain sufficient resources to make these investments, or are not successful in maintaining our competitive position, our operations and financial performance will suffer.

If we do not maintain, or are otherwise unable to maintain, sufficient resources to make these investments, or are not successful in maintaining our competitive position, our business operations and financial performance will suffer.

We depend on government contracts and subcontracts with defense prime contractors and subcontractors that may not be fully funded, may be terminated, or may be awarded to our competitors.

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The funding of these programs is generally subject to annual congressional appropriations, and congressional priorities are subject to change.

We cannot be certain that current levels of congressional funding for programs involving our products or services will continue and that our business related to these products and services will not decline or increase at currently anticipated levels, or that we will not be subject to delays in the negotiation of contracts or increased costs due to changes in the funding of U.S.

government programs or government shutdowns.

In addition, government expenditures for defense programs may decline or these defense programs may be terminated.

A decline in governmental expenditures or the termination of existing contracts may result in a reduction in the volume of contracts awarded to us.

A decline in governmental expenditures, a change in spending priorities (e.g., shifting funds to efforts to combat the impact of the pandemic or efforts to assist Ukraine in the Russia and Ukraine conflict), or the termination of existing contracts may result in a reduction in the volume of contracts awarded to us.

Furthermore, on contracts for which we are a subcontractor and not the prime contractor, the U.S.

government could terminate the prime contract for convenience or otherwise, irrespective of our performance as a subcontractor.

Also, sales to the U.S.

government and its contractors as well as foreign military and government customers, either directly or as a subcontractor to other contractors, often use a competitive bidding process and have unique purchasing and delivery requirements, which often makes the timing of sales to these customers unpredictable.

We have resources applied to specific government contracts and if any of those contracts were terminated, we may incur substantial costs redeploying those resources.

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We have been, and expect to continue to be, subjected to audits and investigations by government agencies.

The failure to comply with the terms of our government contracts could harm our business reputation.

It could also result in suspension or debarment from future government contracts.

The failure to comply with the terms of our government contracts could harm our business reputation, which could significantly reduce our sales and earnings.

It could also result in our suspension or debarment from future government contracts, which would adversely affect our business, financial condition, results of operations, and cash flows.

Strategic Risks

If we are unable to adapt to technological change, demand for our products may be reduced.

The technologies related to our products have undergone, and in the future may undergo, significant changes.

To succeed in the future, we will need to continue to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis, and we cannot be certain that we will be able to do so successfully, if at all, or on a timely, cost effective, or repeatable basis.

Our competitors may develop technologies and products that are more effective than those we develop or that render our technology and products obsolete or noncompetitive.

Furthermore, our products could become unmarketable if new industry standards emerge.

We may have to modify our products significantly in the future to remain competitive, and new products we introduce may not be accepted by our customers.

Our new product development efforts may not be successful, which would result in a reduction in our sales and earnings.

We may experience difficulties that could delay or prevent the successful development of new products or product

enhancements, and new products or product enhancements may not be accepted by our customers.

Because it is generally not possible to predict the amount of time required and the costs involved in achieving certain research, development, and engineering objectives, the development expenses we incur may exceed our cost estimates and estimated product development schedules may be extended.

Furthermore, any new products we develop may not generate sales sufficient to offset our costs.

If any of these events occur, our sales and profits could be adversely affected.

We may incur losses and liabilities as a result of our acquisition strategy.

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In addition, any acquisition, once successfully integrated, could negatively impact our financial performance if it does not perform as planned, does not increase earnings, or does not prove otherwise to be beneficial to us.

If we are unable to adapt to technological change, demand for our products may be reduced.

The technologies related to our products have undergone, and in the future may undergo, significant changes.

To succeed in the future, we will need to continue to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis.

Our competitors may develop technologies and products that are more effective than those we develop or that render our technology and products obsolete or uncompetitive.

Furthermore, our products could become unmarketable if new industry standards emerge.

We may have to modify our products significantly in the future to remain competitive, and new products we introduce may not be accepted by our customers.

Our new product development efforts may not be successful, which would result in a reduction in our sales and earnings.

We may experience difficulties that could delay or prevent the successful development of new products or product enhancements, and new products or product enhancements may not be accepted by our customers.

In addition, the development expenses we incur may exceed our cost estimates, and new products we develop may not generate sales sufficient to offset our costs.

If any of these events occur, our sales and profits could be adversely affected.

Operational Risks

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We conduct regular periodic training of our employees as to the protection of sensitive information which includes security awareness training intended to prevent the success of “phishing” attacks.

The threats we face vary from attacks common to most industries to more advanced and persistent, highly organized adversaries, including nation states, which target us and other defense contractors because we protect sensitive information.

The threats we face vary from attacks common to most industries, such as ransomware attacks to disable critical infrastructure and extort companies for ransom payments, to more advanced and persistent, highly organized adversaries, including nation states, which target us and other defense contractors because we protect sensitive information.

If we are unable to protect sensitive information, our customers or governmental authorities could question the adequacy of our threat mitigation and detection processes and procedures, and depending on the severity of the incident, our customers’ data, our employees’ data, our intellectual property, and other third-party data (such as subcontractors, suppliers and vendors) could be compromised.

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government contractors, such as Astronics, may increase the likelihood that they are targeted by the same cyber threats we face.

If we experience a data security breach from an external source or from an insider threat, we may have a loss in sales or increased costs arising from the restoration or implementation of additional security measures, either of which could adversely affect our business and financial results.

Other potential costs could include damage to our reputation, loss of brand value, incident response costs, loss of stock market value, regulatory inquiries, litigation and management distraction.

A security breach that involves classified information could subject us to civil or criminal penalties, loss of a government contract, loss of access to classified information, or debarment as a government contractor.

Similarly, a breach that involves loss of customer-provided data could subject us to loss of a customer, loss of a contract, litigation costs and legal damages and reputational harm.

Our inability to adequately enforce and protect our intellectual property or defend against assertions of infringement could prevent or restrict our ability to compete.

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Our inability to defend against the unauthorized use of these rights and assets could have an adverse effect on our results of operations and financial condition.

We cannot assure you that our means of protecting our proprietary rights in the United States or abroad will be adequate, or that others will not develop technologies similar or superior to our technology or design around our proprietary rights.

Litigation may be necessary to protect our intellectual property rights or defend against claims of infringement.

This litigation could result in significant costs and divert our management’s focus away from operations.

Refer to the risk factor related to pending patent infringement litigation below and Note 19 to the consolidated financial statements in Item 8 of this report for further discussion.

Refer to the risk factor related to pending patent

infringement litigation below and Note 19 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this report for further discussion.

If critical components or raw materials used to manufacture our products or used in our development programs become scarce or unavailable, then we may incur delays in manufacturing and delivery of our products and in completing our development programs, which has damaged, and could continue to damage, our business, results of operations and financial condition.

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The COVID-19 pandemic has also contributed to and exacerbated this strain.

This constrained supply environment has adversely

affected, and could further affect, availability, lead times and cost of components, and could impact our ability to complete development programs, respond to accelerated or quick-turn delivery requests from customers, or meet customer demand and product delivery dates for our end customers where we cannot timely secure adequate supply of these components.

This constrained supply environment has adversely affected, and could further affect, availability, lead times and cost of components, and could impact our ability to complete development programs, respond to accelerated or quick-turn delivery requests from customers, or meet customer demand and product delivery dates for our end customers where we cannot timely secure adequate supply of these components.

Moreover, if any of our suppliers become financially unstable, or otherwise unable or unwilling to provide us with raw materials or components, then we may have to find new suppliers.

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Any significant increases in the costs attributable to our self-insured health and workers’ compensation plans could adversely impact our business, results of operations, financial condition and cash flows.

Government vaccine mandates could result in workforce attrition for us and our suppliers which could adversely affect our operations and supply chain.

On September 9, 2021, President Biden issued an executive order requiring all employers with U.S.

Government contracts to ensure that their U.S.-based employees, contractors, and subcontractors, that work in affected facilities or work on or in support of U.S.

Government contracts are fully vaccinated.

The deadline for vaccination was initially December 8, 2021, but the White House announced on November 4, 2021 that the deadline would be extended to January 4, 2022.

The executive order includes on-site and remote U.S.-based employees, contractors and subcontractors and permits only limited exceptions for medical and religious reasons.

Substantially all of our subsidiaries are either directly subject to the executive order, or will be required to comply with the executive order via flowdown from our affected customers.

It is currently not possible to predict with certainty the impact the executive order will have on our workforce, or on our suppliers who may also be impacted.

Government contractor, and as a supplier to customers who are U.S.

Government contractors, we took steps to comply with the executive order mandating COVID-19 vaccines across our U.S.-based workforce, contractors and subcontractors that service or support our U.S.

Government contracts, and who do not qualify for medical or religious exemptions, to be fully vaccinated by January 4, 2022, until it was enjoined by a federal court in December 2021.

The vaccine mandate currently remains enjoined and the Government has announced that it will take no efforts to enforce it, absent further notice from the contracting agency, where the place of performance is a U.S.

state or an excluded outlying area.

If the vaccine mandate is revived, the Company will resume efforts to work with employees who have not yet either submitted proof of vaccination or requested an accommodation.

Additional vaccine mandates may be announced in jurisdictions in which our businesses operate.

Implementation of these requirements may result in attrition, including attrition of critically skilled labor, and difficulty securing future labor needs, which could have a material adverse effect on our business, financial condition, and

results of operations.

Further, implementation of these requirements by our suppliers may result in workforce attrition at our suppliers, which may result in disruption to our supply chain which, in turn, may have a negative impact on our revenues and results of operations by impacting ability to acquire certain raw materials and components used in the manufacture of our products and in our development programs.

Price inflation for labor and materials, further exacerbated by the Russian invasion of Ukraine, could adversely affect our business, results of operations and financial condition.

We experienced considerable price inflation in our costs for labor and materials during 2022, which adversely affected our business, results of operations and financial condition.

We may not be able to pass through inflationary cost increases under our existing fixed-price contracts.

Our ability to raise prices to reflect increased costs may be limited by competitive conditions in the market for our products and services.

Russia’s invasion of Ukraine, and prolonged conflict there, may continue to result in increased inflation, escalating energy and commodity prices and increasing costs of materials.

We continue to work to mitigate such pressures on our business operations as they develop.

To the extent the war in Ukraine adversely affects our business as discussed above, it may also have the effect of heightening

many of the other risks described herein, such as those relating to cybersecurity, supply chain, volatility in prices and market conditions, any of which could negatively affect our business and financial condition.

If our subcontractors fail to perform their contractual obligations, our prime contract performance and our ability to obtain future business could be materially and adversely impacted.

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Some of our contracts contain late delivery penalties .

Failure to deliver in a timely manner due to supplier problems, development schedule slides, manufacturing difficulties, or similar schedule-related events could have a material adverse effect on our business.

Failure to deliver in a timely manner due to supplier and supply chain problems, labor availability, development schedule slides, manufacturing difficulties, or similar schedule-related events could have a material adverse effect on our business.

No significant penalties have been incurred to date.

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Depending on the fixed price negotiated, these contacts may provide us with an opportunity to achieve higher profits based on the relationship between our costs and the contract’s fixed price.

However, we bear the risk that increased or unexpected costs may reduce our profit.

However, we bear the risk that increased or unexpected costs may reduce our profit or cause us to incur a loss on the contract, which would reduce our net earnings.

Because our ability to terminate contracts is generally limited, we may not be able to terminate our performance requirements under these contracts at all or without substantial liability and, therefore, in the event we are sustaining reduced profits or losses, we could continue to sustain these reduced profits or losses for the duration of the contract term.

The failure of our products may damage our reputation, necessitate a product recall or result in claims against us that exceed our insurance coverage, thereby requiring us to pay significant damages.

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However, this insurance coverage may not be sufficient to fully cover the payment of any potential claim.

Additionally, should insurance market conditions change, aircraft and non-aircraft product liability insurance coverage may not be available in the future at a cost acceptable to us.

A product recall or a product liability claim not covered by insurance could have a material adverse effect on our business, financial condition and results of operations.

Financial Risks

We are subject to debt covenant restrictions.

The terms of our credit facility may restrict our current and future operations, particularly our ability to take certain actions.

Our credit facility contains certain financial covenants.

An unexpected decline in our operating income could cause us to violate our covenants.

A covenant violation could result in a default under the revolving credit facility.

We have incurred losses in prior fiscal years and our future profitability is not certain.

For the year ended December 31, 2022, we incurred a net loss of $35.7 million.

Our operating results for future periods are subject to numerous uncertainties and we cannot be certain that we will be profitable or that we will not experience substantial net losses in the future.

If we are not able to increase revenue and reduce our costs, we may not be able to achieve profitability in future periods and our business, financial condition, results of operations and cash flows may be adversely affected.

Our ABL Revolving Credit Facility and Term Loan Facility contain financial and restrictive covenants that we may be unable to satisfy, and that, if not satisfied, could result in the acceleration of any outstanding indebtedness thereunder and limit our ability to borrow additional funds.

In addition, the terms of our ABL Revolving Credit Facility and Term Loan Facility contain covenants that restrict our current and future operations, particularly our ability to take certain actions.

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, minimum fixed charge coverage ratio requirements, maximum capital expenditure 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.

A covenant violation could result in a default under the ABL Revolving Credit Facility and Term Loan Facility.

If any such default occurs, the lenders may elect to declare all outstanding borrowings, together with accrued interest and other amounts payable thereunder, to be immediately due and payable.

The lenders also have the right in these circumstances to terminate any commitments they have to provide further borrowings.

In addition, following an event of default, the lenders under the credit facility will have the right to proceed against the collateral granted to them to secure the debt, which includes our available cash.

If the debt under the credit facility were to be accelerated, we cannot assure that our assets would be sufficient to repay in full our debt.

Additionally, our credit facility also contains a number of restrictive covenants that impose significant operating and financial restrictions on the Company and may limit our ability to engage in acts that may be in our long-term best interests.

The credit facility includes covenants restricting, among other things, the ability of the Company to:

Further, as the amount available to us under our credit facilities is subject to borrowing base calculations determined by the value of accounts

receivable and inventory (under our ABL Revolving Credit Facility) and real estate and fixed assets (under our Term Loan Facility), an unexpected decline in the value of these assets would require a mandatory prepayment.

If any of these events were to occur, we may not be able to pay our debts and other monetary obligations as they come due, and our ability to continue to operate as a going concern could be impaired, which could in turn cause a significant decline in our stock price and could result in a significant loss of value for our shareholders.

Furthermore, the lenders also have the right in these circumstances to terminate any commitments they have to provide further borrowings, which could leave us without access to sufficient liquidity to operate our business.

In addition, following an event of default, the lenders under the ABL Revolving Credit Facility and Term Loan Facility will have the right to proceed against the collateral granted to them to secure the debt, which includes our available accounts receivable, inventory, machinery and equipment, real estate and intellectual property.

If the debt under the ABL Revolving Credit Facility and Term Loan Facility were to be accelerated, we cannot assure you that our assets would be sufficient to repay in full our debt.

Additionally, our ABL Revolving Credit Facility and Term Loan Facility also contain a number of restrictive covenants that impose significant operating and financial restrictions on the Company and our subsidiaries and may limit our ability to engage in acts that we believe to be in our long-term best interests.

The ABL Revolving Credit Facility and Term Loan Facility includes covenants restricting, among other things, the ability of the Company and our subsidiaries to:

• incur additional indebtedness;

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The amount of debt we have outstanding, as well as any debt we may incur in the future, could have an adverse effect on our operational and financial flexibility.

As of December 31, 2021, we had approximately $163.0 million of long-term debt outstanding.

As of December 31, 2022, we had approximately $164.0 million of debt outstanding.

Changes to our level of debt subsequent to December 31, 2022 could have significant consequences to our business, including the following:

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• We may be more leveraged than some of our competitors, which may result in a competitive disadvantage.

Our inability to refinance our existing long-term debt maturing in 2023 on terms that are favorable to us may materially and adversely impact our operations and future growth and expansion initiatives.

Our credit facility, of which $163.0 million is outstanding as of December 31, 2021, is currently scheduled to mature in 2023.

While we expect to be able to refinance, replace or extend the maturity date of our credit facility before it matures, we cannot be sure that we will be able to obtain such debt refinancing on commercially reasonable terms or at all.

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 highly 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.

Furthermore, certain covenants and other terms of our existing credit facility impose significant restrictions on our operational flexibility.

In connection with debt refinancing, our ability to negotiate more favorable and flexible covenants and terms, including financial covenants, is highly uncertain.

An inability to complete our debt refinancing on terms that are more favorable to us than the covenants and terms in effect under our existing credit facility could materially and adversely impact our business, operations and future growth and expansion initiatives.

In particular, if the covenants and terms under our refinanced indebtedness were to remain unchanged as compared to those under our current credit facility, we may be required to take certain operational measures or decline to pursue certain growth initiatives in order to maintain compliance with these restrictive covenants and terms, which could materially and adversely affect our business, results of operations and financial condition.

Subject to the limits contained in our ABL Revolving Credit Facility and Term Loan Facility, we may incur additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes.

If we do so, the risks described above related to our debt could intensify.

A write-off of all or part of our goodwill or other intangible assets could adversely affect our operating results and net worth.

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In 2020, we recorded goodwill impairment charges associated with four Aerospace reporting units, totaling $86.3 million.

In 2019, we recorded goodwill and intangible asset impairment charges of $1.6 million and $6.2 million related to our AeroSat antenna business, respectively.

We had no such impairment charges during 2021.

We had no such impairment charges during 2022 or 2021.

Our goodwill and other intangible assets may increase in the future since our strategy includes growing through acquisitions.

We may have to write-off all or part of our goodwill or purchased intangible assets if their value becomes impaired.

Although this write-off would not result in an outlay of cash, it could reduce our earnings and net worth significantly.

Although this write-off would not result in an outlay of cash and is not included in the financial covenant calculation, it could reduce our earnings and net worth significantly.

We are subject to financing and interest rate exposure risks that could adversely affect our business, liquidity and operating results.

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At December 31, 2022, all of our debt was subject to variable interest rates.

The potential phase out of LIBOR may negatively impact our debt agreements and financial position, results of operations and liquidity .

On July 27, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021 and it is unclear whether new methods of calculating LIBOR will be established.

If LIBOR ceases to exist after 2021, a comparable or successor reference rate as approved by the Administrative Agent under the Credit Agreement will apply or such other reference rate as may be agreed by the Company and the lenders under the Credit Agreement.

Prior to its amendment on March 1, 2022, the interest rate under our Amended Credit Facility was calculated using LIBOR.

In conjunction with the amendment, our Amended Credit Facility is now based on the Secured Overnight Financing Rate (“SOFR”), rather than LIBOR.

However, that agreement

expires in May 2023 and it is unclear at this time whether different benchmark rates used to price indebtedness will develop.

We cannot predict the impact that an alternative benchmark rate may have on the terms of our future indebtedness or interest cost.

However, an increase in our cost of borrowing could result in an adverse effect on our financial position, results of operations, and liquidity.

Our future operating results could be impacted by estimates used to calculate impairment losses on long-lived assets.

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Actual future results could differ from those estimates.

As discussed in Note 23 to the consolidated financial statements in Item 8 of this report, we recorded a long-lived asset impairment charge of approximately $0.7 million and $9.5 million in the years ending December 31, 2020 and 2019, respectively.

We had no such impairment charges in 2021.

discussed in Note 22 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this report, we recorded a long-lived asset impairment charge of approximately $0.7 million in the year ending December 31, 2020.

We had no such impairment charges in 2022 or 2021.

Changes in discount rates and other estimates could affect our future earnings and equity.

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Changes in these assumptions could affect our future earnings and equity.

Changes in tax laws and regulations or exposure to additional tax liabilities could adversely affect our financial results.

Changes in U.S.

(federal or state) or foreign tax laws and regulations, or their interpretation and application, including those with retroactive effect, could result in increases in our tax expense and affect profitability and cash flows.

For example, beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years for tax purposes.

The most significant impact of this provision is to the cash tax liability for 2023 (as the liability for 2022 is partially offset by certain tax credits and loss carryforwards);

the impact will decline annually thereafter over the five-year amortization period to an immaterial amount in year six.

Legal and Compliance Risks

We currently are involved or may become involved in the future, in legal proceedings that, if adversely adjudicated or settled, could materially impact our financial condition.

As an aerospace company, we may become a party to litigation in the ordinary course of our business, including, among others, matters alleging product liability, warranty claims, breach of commercial or government contract or other legal actions.

In general, litigation claims can be expensive and time consuming to bring or defend against and could result in settlements or damages that could significantly impact results of operations and financial condition.

Currently, our subsidiary, AES is a defendant in actions filed in various jurisdictions by Lufthansa Technik AG relating to an allegation of patent infringement and based on rulings to date we have concluded that losses related to these proceedings are probable.

We currently are involved in, and may become involved in the future in, legal proceedings that, if adversely adjudicated or settled, could materially and adversely impact our financial condition.

As an aerospace company, we may become a party to litigation, including, among others, matters alleging product liability, warranty claims, intellectual property infringement, breach of commercial or government contract or other legal actions.

In general, litigation claims can be expensive and time consuming to bring or defend against and could result in settlements or damages that could significantly and adversely impact our results of operations and financial condition.

Currently, our AES subsidiary is a defendant in actions filed in various jurisdictions by Lufthansa Technik AG relating to an allegation of patent infringement and based on rulings to date we have concluded that losses related to these proceedings are probable.

If these actions are decided adversely against the Company, the associated damages could result in a material adverse effect on our results of operations or financial condition.

Refer to Note 19 of our consolidated financial statements in Item 8 of this report for discussion on this and other legal proceedings.

Refer to Note 19 of our consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this report for discussion on this and other legal proceedings.

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 results of operations or financial condition.

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Our failure, or failure by an authorized agent or representative that is attributable to us, to comply with these laws and regulations could result in administrative, civil or criminal liabilities and could, in the extreme case, result in monetary penalties, suspension or debarment from government contracts or suspension of our export privileges, which would have a material adverse effect on us.

Trade policies, treaties, and tariffs could have a material adverse effect on our business.

Our business is dependent on the availability of raw materials and components for our products, particularly electrical components common in the semiconductor industry.

There is continued uncertainty about the future relationship between the United States and various other countries, most significantly China, with respect to trade policies, treaties, tariffs, and taxes.

Under the Biden administration, changes in U.S.

administrative policy could lead to changes in existing trade agreements, greater restrictions on free trade generally, and significant increases in tariffs on goods imported into the United States, particularly tariffs on products manufactures in China and Mexico, among other possible changes.

These developments, or the perception that any of them could occur, could have a material effect on global economic conditions and the stability of global financial markets, and could significantly reduce global trade and, in particular, trade between the impacted nations and the United States.

We may face reputational, regulatory or financial risks from a perceived, or an actual, failure to achieve our sustainability goals.

The increased focus on sustainability practices and disclosures is rapidly evolving, as is the criteria to measure our sustainability performance;

both of which could result in greater expectations and may cause us to undertake costly initiatives to satisfy the evolving criteria.

As we advance our sustainable business model, we are pursuing programs that we believe will improve our environmental practices, social engagement and how we govern ourselves.

We periodically publish information about our sustainability goals, standards and frameworks.

Achievement of these objectives is subject to risks and uncertainties, many of which are outside of our direct control, and it is possible we may fail, or be perceived to have failed, in the achievement of our sustainability goals.

Also, certain customers, associates, shareholders, investors, suppliers, business partners, government agencies and non-governmental organizations may not be satisfied with our sustainability efforts.

A failure or perceived failure of our sustainability goals could negatively affect our reputation and our results of operations.

This uncertainty includes:

(i) the possibility of altering the existing tariffs or penalties on products manufactured outside the United States, including the U.S.

government’s 25% tariff on a range of products from China;

(ii) the effects stemming from the removal of such previously imposed tariffs;

(iii) subsequent tariffs imposed by the United States on any other U.S.

trading partners such as Russia;

and (iv) potential tariffs imposed by trading partners on U.S.

The institution of trade tariffs on items imported by us from other countries could increase our costs, which could have a negative impact on our business.

We cannot predict whether, and to what extent, there may be changes to international trade agreements or whether quotas, duties, tariffs, exchange controls or other restrictions on our products will be changed or imposed.

In addition, an open conflict or war across any region could affect our ability to obtain raw materials.

For example, the current military conflict between Russia and Ukraine, and related sanctions, export controls or other actions that may be initiated by nations, including the United States, the European Union or Russia (e.g., potential cyberattacks, disruption of energy flows, etc.) or potential sanctions or relevant export controls related to China or Taiwan could adversely affect our business and/or our supply chain or our business partners or customers in other countries beyond Russia and Ukraine.

Although we currently maintain alternative sources for raw materials, i f we are unable to source our products from the countries where we wish to purchase them, either because of the occurrence or threat of wars or other conflicts, regulatory changes or for any other reason, or if the cost of doing so increases, it could have a material adverse effect on our business, financial condition and results of operations.

Disruptions in the supply of raw materials and components could temporarily impair our ability to manufacture our products for our customers or require us to pay higher prices to obtain these raw materials or components from other sources, which could have a material adverse effect on our business and our results of operations.

General Risks

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If we fail to meet expectations of securities analysts or investors due to fluctuations in our sales or operating results, our stock price could decline significantly.

Our sales and earnings may fluctuate from quarter to quarter due to a number of factors, including delays or cancellations of programs and the impacts of the ongoing COVID-19 pandemic on revenues and costs.

It is likely that in some future quarters our operating results may fall below the expectations of securities analysts or investors.

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The price of our common stock has been and likely will continue to be subject to wide fluctuations in response to a number of events and factors, such as:

• our ability to comply with the financial and other affirmative and negative covenants included in our ABL Revolving Credit Facility and Term Loan Facility;

• quarterly variations in operating results;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors