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Our Test Systems segment has principal operating facilities in the United States and the United Kingdom.
−Removed: We have engineering offices in the Ukraine and India.
+Added: We have engineering offices in Ukraine and India.
Our Aerospace segment designs and manufactures products for the global aerospace industry.
−Removed: Product lines include lighting and safety systems, electrical power generation, distribution and seat motions systems, aircraft structures, avionics products, systems certification, and other products.
−Removed: Our primary Aerospace customers are the airframe manufacturers (“OEM”) that build aircraft for the commercial, military and general aviation markets, suppliers to those OEM’s, aircraft operators such as airlines, suppliers to the aircraft operators, and branches of the U.S.
+Added: Product lines include lighting and safety systems, electrical power generation, distribution and seat motion systems, aircraft structures, avionics products, systems certification, and other products.
+Added: Our primary Aerospace customers are the airframe manufacturers (“OEM”) that build aircraft for the commercial transport, military and general aviation markets, suppliers to those OEMs, aircraft operators such as airlines, suppliers to the aircraft operators, and branches of the U.S.
Department of Defense (“USDOD”).
−Removed: 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.
−Removed: In the Test Systems segment, Astronics’ products are sold to a global customer base including OEM's and prime government contractors for both electronics and military products.
+Added: Our Test Systems segment designs, develops, manufactures and maintains automated test systems that support the aerospace and defense and mass transit industries as well as training and simulation devices for both commercial and military applications.
+Added: In the Test Systems segment, Astronics’ products are sold to a global customer base including 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.
−Removed: 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 pressures, the rate at which new aircraft are produced, government funding 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.
+Added: 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 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.
−Removed: Once designed into a new aircraft, the spare parts business is frequently retained by the Company.
+Added: 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.
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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.
−Removed: Challenges which continue to face us include the ongoing COVID-19 pandemic and its continued impact on the aerospace industry and improving shareholder value through increasing profitability.
−Removed: Increasing profitability is dependent on many things, primarily sales growth, both acquired and organic, and the Company’s ability to control operating expenses and to identify means of creating improved productivity.
+Added: 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.
+Added: 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.
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Reduction of defense spending may result in fewer opportunities for us to compete, which could result in lower profits in the future.
−Removed: 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.
+Added: Many of our newer development programs are based on new and unproven technology and at the
+Added: 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.
−Removed: continue to address these challenges by working to improve operating efficiencies and focusing on executing on the growth opportunities currently in front of us.
+Added: 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.
+Added: 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.
+Added: 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.
+Added: 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.
+Added: 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 based upon our 2023 Outlook as described herein, 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.
+Added: 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 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.
+Added: See Part I, Item 1A, Risk Factors, for an additional discussion of risks associated with our potential inability to satisfy the financial and restrictive covenants set forth in the ABL Revolving Credit Facility and Term Loan Facility.
In September 2021, the Company entered into an agreement with the U.S.
Department of Transportation (“USDOT”) under the Aviation Manufacturing Jobs Protection Program (“AMJP”) for a grant of up to $14.7 million.
−Removed: The Company received $7.4 million under the grant in 2021.
−Removed: The Company expects to receive a second installment of approximately $5.2 million in the first quarter of 2022 and a final installment in the second or third quarter of 2022 upon final confirmation from the USDOT of the Company meeting its grant commitments.
−Removed: The receipt of the full award is primarily conditioned upon the Company committing to not furlough, lay off or reduce the compensation levels of a defined group of employees during the six-month period of performance between September 2021 and March 2022.
−Removed: The grant benefit will be 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 is intended to defray.
−Removed: During the year ended December 31, 2021, the Company recognized $8.7 million of the award and expects to recognize the remaining $6.0 million in the first quarter of 2022.
+Added: 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.
+Added: The grant benefit was recognized over the six-month performance period as a reduction to cost of products sold in proportion to the compensation expense that the award is intended to defray.
+Added: During the years ended December 31, 2022 and 2021, the Company recognized $6.0 million and $8.7 million of the award, respectively.
The COVID-19 pandemic caused a significant impact on our sales and net income for fiscal 2022, 2021 and 2020.
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Restructuring charges in severance expense totaling $0.6 million, associated primarily with the Aerospace segment, were recorded in the year ended December 31, 2021, compared with $4.9 million recorded in the year ended December 31, 2020.
−Removed: In the fourth quarter of 2019, in an effort to reduce the significant operating losses at our AeroSat business, we initiated a restructuring plan to reduce costs and minimize losses of our AeroSat antenna business.
−Removed: The plan focused the initiatives for the AeroSat business on near-term opportunities pertaining to business jet connectivity.
−Removed: The plan resulted in a downsized manufacturing operation remaining in New Hampshire, with significantly reduced personnel and operating expenses.
−Removed: Impairments and restructuring charges recorded in 2019 as a result of the restructuring plan amounted to $28.8 million, all of which is included in the Aerospace segment.
−Removed: The Company incurred an impairment charge to right-of-use assets of approximately $0.7 million and $0.4 million in restructuring charges associated with severance at AeroSat during the year ended December 31, 2020.
−Removed: On July 1, 2019, the Company acquired all of the issued and outstanding capital stock of Freedom Communication Technologies, Inc.
−Removed: Freedom, located in Kilgore, Texas, is a leader in wireless communication testing, primarily for the civil land mobile radio market.
−Removed: Freedom is included in our Test Systems segment.
−Removed: The total consideration for the transaction was $21.8 million, net of $0.6 million in cash acquired.
−Removed: 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 earnouts estimated at a fair value of $2.5 million at acquisition.
−Removed: Diagnosys Inc.
−Removed: and its affiliates (“Diagnosys”) is included in our Test Systems segment.
−Removed: Diagnosys is a developer and manufacturer of comprehensive automated test equipment providing test, support, and repair of high value electronics, electro-mechanical, pneumatic and printed circuit boards focused on the global mass transit and defense markets.
−Removed: The acquired business has operations in Westford, Massachusetts as well as Ferndown, England, and an engineering center of excellence in Bangalore, India.
−Removed: The terms of the acquisition allowed for a potential earnout of up to an additional $13.0 million over the three years post-acquisition based on achievement of new order levels of over $72.0 million during that period.
−Removed: Based on actual and forecasted new orders, the fair value of the earnout was reduced to zero in the 2021 second quarter.
+Added: We are also monitoring the 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.
+Added: 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.
+Added: 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.
−Removed: The total proceeds of the divestiture amounted to $103.8 million plus certain contingent purchase consideration (“earnout”).
−Removed: The transaction included two elements of contingent earnouts.
+Added: The total proceeds of the divestiture 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.
−Removed: On February 14, 2022, the Company was notified by the purchaser that they had calculated $11.2 million as being payable for the calendar 2021 earnout.
−Removed: We are in the process of reviewing the calculation, and expect to record the additional gain on the sale, and receive the payment, in the first quarter of 2022.
−Removed: See further information in Note 22 of Item 8, Financial Statements and Supplementary Data in this report.
−Removed: On July 12, 2019, the Company sold intellectual property and certain assets associated with its Airfield Lighting product line for $1.0 million in cash.
−Removed: The Airfield Lighting product line, part of the Aerospace segment, was not core to the business and represented less than 1% of revenue.
−Removed: The Company recorded a pre-tax loss on the sale of approximately $1.3 million.
−Removed: On October 6, 2021, as part of a planned consolidation effort, the Company sold one of its Aerospace facilities for $9.2 million.
−Removed: Net cash proceeds were approximately $8.8 million.
−Removed: A gain on sale of approximately $5.0 million was recorded in 2021.
−Removed: The business of that facility will be relocated to one of the Company’s other operations.
+Added: In March 2022, the Company agreed with the earnout calculation for the calendar 2021 earnout in the amount of $11.3 million.
+Added: The Company recorded the gain and received the payment in the first quarter of 2022.
+Added: In February 2023, the Company was notified by the buyer that they have calculated $3.4 million as being payable for the calendar 2022 earnout.
+Added: The Company is in the process of reviewing the calculation and expects to record the additional gain on sale, and receive the payment, in the first quarter of 2023.
+Added: We are not eligible for any further earnout payments related to this divestiture.
+Added: See further information in Note 21 in Item 8, Financial Statements and Supplementary Data, of this report.
+Added: On October 6, 2021, the Company sold one of its Aerospace buildings for $9.2 million.
+Added: Net cash proceeds were approximately $8.8 million and a gain on sale of approximately $5.0 million was recorded.
+Added: The operation has been integrated into another facility.
Commercial Transport Market
The commercial transport market is our largest end market with sales driven by new aircraft production and aftermarket airline retrofit programs.
−Removed: In the commercial transport market, while many of our key long-term fundamentals remain intact, we continue to see near-term market pressure due to COVID-19.
−Removed: Despite solid progress on the vaccine front, 2022 will remain very challenging for our commercial transport products with improvement expected throughout 2022 driven by the planned increased production rate of the 737 MAX and an expectation of improved activity with our airline customers.
+Added: In the commercial transport market, while many of our key long-term fundamentals remain intact, we continue to see near-term market pressure due to effects of the COVID-19 pandemic and certain supply chain challenges.
+Added: Despite increases in sales in 2022 compared to the prior year, we expect 2023 will remain challenging for our commercial transport products with improvement expected to continue throughout 2023 driven by the planned increased production rate of the 737 MAX and an expectation of improved activity with our airline customers.
Aircraft build rates are expected to improve modestly during 2023 from current levels as production of the 737 MAX and A-320 picks up, and the aftermarket is expected to strengthen over the course of the year as aircraft utilization and load factors increase.
−Removed: On the other hand, wide-body production rates and usage are expected to remain depressed throughout 2022 and possibly for several years due to low international travel demand caused by the pandemic.
−Removed: Sales to the commercial transport market include sales of lighting and safety systems, electrical power generation, distribution and motions systems, aircraft structures, avionics products and systems certification.
+Added: On the other hand, wide-body production rates and usage are expected to remain depressed throughout 2023 and possibly for several years due to low international travel demand caused by the COVID-19 pandemic, though we are seeing signs of recovery in the widebody/long-haul market.
+Added: Sales to the commercial transport market include sales of lighting and safety systems, electrical power and seat motion systems, aircraft structures, avionics products and systems certification.
Sales to this market totaled approximately $314.6 million or 58.8% of our consolidated sales in 2022.
−Removed: As a result of the COVID-19 pandemic and its adverse impact on air travel worldwide, the commercial aerospace industry has been significantly disrupted.
+Added: As a result of the COVID-19 pandemic and its adverse impact on air travel worldwide, the commercial aerospace industry has been significantly disrupted, but has shown continued improvement during 2022.
Maintaining and growing sales to the commercial transport market will depend not only on market recovery from the impacts of the COVID-19 pandemic, but also on airlines’ capital spending budgets for cabin upgrades as well as the purchase of new aircraft by global airlines.
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Military Aerospace Market
−Removed: Sales to the military aerospace market include sales of lighting & safety products, avionics products, electrical power & motion products and structures products.
+Added: Sales to the military aerospace market include sales of lighting and safety products, avionics products, electrical power and seat motion products and structures products.
Sales to this market totaled approximately 10.2% of our consolidated sales and amounted to $54.5 million in 2022.
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Astronics does not have significant reliance on any one program such that cancellation of a particular program will cause material financial loss.
−Removed: We believe that we will continue to have opportunities similar to past years regarding this market.
−Removed: Business Jet Market
−Removed: The business jet market has also been impacted by the pandemic with new aircraft build rates significantly lower than pre-pandemic levels.
+Added: We believe that we will continue to have opportunities similar to past years with respect to this market.
+Added: General Aviation Market
+Added: The general aviation market has also been impacted by the pandemic with new aircraft build rates significantly lower than pre-pandemic levels.
Most of our sales in this market are line-fit products driven by aircraft build rates although there are some aftermarket sales as well.
We expect improvement in 2023 as build rates are expected to increase.
−Removed: Sales to the business jet market include sales of lighting & safety products, avionics products, and electrical power & motion products.
+Added: Sales to the general aviation market include sales of lighting and safety products, avionics products, and electrical power and seat motion products.
Sales to this market totaled approximately 11.9% of our consolidated sales in 2022 and amounted to $63.4 million.
−Removed: Sales to the business jet market are driven by our ship set content on new aircraft and build rates of new aircraft.
−Removed: Business jet OEM build rates are impacted by global wealth creation and corporate profitability.
−Removed: We continue to see opportunities on new aircraft currently in the design phase to employ our lighting & safety, electrical power and avionics technologies in this market.
−Removed: There is risk involved in the development of any new aircraft including the risk that the aircraft will not ultimately be produced
−Removed: or that it will be produced in lower quantities than originally expected and thus impacting our return on our engineering and development efforts.
−Removed: Tests Systems Products
+Added: Sales to the general aviation market are driven by our ship set content on new aircraft and build rates of new aircraft.
+Added: General aviation OEM build rates are impacted by global wealth creation and corporate profitability.
+Added: We continue to see opportunities on new aircraft currently in the design phase to employ our lighting and safety, electrical power and avionics technologies in this market.
+Added: There is risk involved in the development of products for any new aircraft including the risk that the aircraft will not ultimately be produced or that it will be produced in lower quantities than originally expected and thus impacting our return on our engineering and development efforts.
+Added: Test Systems Products
Sales by our Test Systems segment accounted for approximately 13.8% of our consolidated sales in 2022 and amounted to $73.7 million.
This 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.
−Removed: Sales to the aerospace & defense market were approximately $62.9 million in 2021.
−Removed: Sales to the mass transit market were approximately $16.8 million.
+Added: Sales to the aerospace and defense market were $49.3 million in 2022.
+Added: Sales to the mass transit market were $13.5 million and sales to other markets were $10.9 million in 2022.
Sales to the military market are subject to fluctuations resulting from changes in governmental spending, elimination of certain programs, or failure to win new business through the competitive bid process.
Consistent with the Aerospace segment, the Test Systems segment does not significantly rely on any one program such that cancellation of a particular program will cause material financial loss, and we believe that we will continue to have opportunities similar to past years regarding this market.
−Removed: CRITICAL ACCOUNTING POLICIES
+Added: CRITICAL ACCOUNTING ESTIMATES
Our financial statements and accompanying notes are prepared in accordance with U.S.
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The preparation of the Company’s financial statements requires management to make estimates, assumptions and judgments that affect the amounts reported.
−Removed: These estimates, assumptions and judgments are affected by management’s application of accounting policies, which are discussed in the Notes to Consolidated Financial Statements, Note 1 of Item 8, Financial Statements and Supplementary Data of this report.
+Added: These estimates, assumptions and judgments are affected by management’s application of accounting policies, which are discussed in the Notes to Consolidated Financial Statements, Note 1 in Item 8, Financial Statements and Supplementary Data, of this report.
The critical accounting policies have been reviewed with the Audit Committee of our Board of Directors.
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The majority of our revenue is recognized at a point-in-time when control is transferred, which is generally evidenced by the shipment or delivery of the product to the customer, a transfer of title, a transfer of the significant risks and rewards of ownership, and customer acceptance.
−Removed: For certain contracts under which we produce products with no alternative use and for which we have an enforceable right to recover costs incurred plus a reasonable profit margin for work completed to date and for certain other contracts under which we create or enhance a customer-owned asset while performing repair and overhaul services, control is transferred to the customer over-time.
+Added: For certain contracts under which we produce products with no alternative use and for which we have an enforceable right to recover costs incurred plus a reasonable profit margin for work completed to date and for certain other contracts under which we create or enhance a customer-owned asset while performing repair and overhaul services, control is transferred to the customer overtime.
The Company recognizes revenue using an over time recognition model for these types of contracts.
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Cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends and other economic projections.
−Removed: See Note 2 to the consolidated financial statements in Item 8 of this report for a further description of revenue recognition under ASC 606.
+Added: See Note 2 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this report for a further description of revenue recognition under ASC 606.
Reviews for Impairment of Goodwill
Our goodwill is the result of the excess of purchase price over net assets acquired from acquisitions.
−Removed: As of December 31, 2021 and December 31, 2020, we had approximately $58.3 million of goodwill.
+Added: As of December 31, 2022 and 2021, we had approximately $58.2 million and $58.3 million of goodwill, respectively.
We identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components.
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We use the discounted cash flow method to estimate the fair value of each of our reporting units.
−Removed: The discounted cash flow method incorporates various assumptions, the most significant being projected sales growth rates, operating profit margins and cash flows, the terminal growth rate and the discount rate.
+Added: The discounted cash flow method incorporates various assumptions, the most significant being projected sales growth rates, operating profit margins and
+Added: cash flows, the terminal growth rate and the discount rate.
Management projects sales growth rates, operating margins and cash flows based on each reporting unit’s current business, expected developments and operational strategies.
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The Company’s four reporting units remaining with goodwill as of the first day of our fourth quarter were subject to the annual goodwill impairment test.
−Removed: Based on our quantitative assessments of our reporting units, we concluded that goodwill was not impaired in 2021.
+Added: Based on our quantitative assessments of our reporting units, we concluded that goodwill was not impaired in 2022 or 2021.
As a result of the qualitative factors related to the COVID-19 pandemic that surfaced during the first quarter of 2020, we performed interim quantitative assessments for the eight reporting units which had goodwill as of March 28, 2020, and an additional quantitative assessment for our PECO reporting unit as of June 27, 2020 driven by reductions from previously forecasted aircraft build rates.
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Net Gain on Sale of Facility $ — $ 5,014
−Removed: Impairment Loss $ — $ 87,016
Loss from Operations $ (30,044) $ (28,674)
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2022 Compared With 2021
−Removed: Consolidated sales were down $57.7 million to $444.9 million compared to the prior year.
−Removed: Aerospace sales were down $52.8 million and continue to be negatively affected by the continued impacts of the COVID-19 pandemic, while the prior-year period was inclusive of the pre-pandemic levels during the first quarter.
+Added: Consolidated sales were up $90.0 million to $534.9 million compared to the prior year.
+Added: Aerospace sales were up $96.0 million.
Test System sales decreased $6.0 million.
−Removed: Consolidated cost of products sold were down $26.2 million to $379.5 million in 2021 from $405.7 million in the prior year.
−Removed: The decrease was primarily due to lower volume related to the continued impacts of the COVID-19 pandemic on the global aerospace industry.
−Removed: The current year period benefited from $8.7 million recognized as an offset to cost of products sold related to the AMJP award, but was negatively impacted by higher warranty expenses of $3.9 million.
−Removed: Selling, general and administrative (“SG&A”) expenses were $99.1 million compared with $110.5 million for the prior year period.
−Removed: The decrease in 2021 was due to the cost control measures implemented at the onset of the pandemic late in the first quarter of 2020 which resulted in lower labor costs and discretionary spending.
−Removed: The Company incurred $0.6 million in restructuring-related severance charges in the current year and $5.3 million in the prior year, primarily in the Aerospace segment.
−Removed: SG&A in the current year also benefited from a $2.2 million non-cash reduction of the fair value of a contingent consideration liability.
−Removed: However, in January 2022, the Company was notified of an adverse ruling in its long-running intellectual property dispute with Lufthansa Technik, which has been in litigation since 2010 in the U.S., France, Germany and the United Kingdom.
−Removed: Most recently, the U.K.
−Removed: Court has ruled that the subject patent is valid and that the Company has been infringing the expired patent.
−Removed: Based on the information currently available, the Company accrued $8.4 million relative to the U.K.
−Removed: matter in 2021, although the actual amount of damages will not be known until the damages trial is completed, which is expected to occur sometime in 2023.
−Removed: This amount was recorded within SG&A in the fourth quarter of 2021.
−Removed: On October 6, 2021, the Company sold one of its Aerospace facilities for $9.2 million.
−Removed: Net cash proceeds were approximately $8.8 million.
−Removed: A gain on sale of approximately $5.0 million was recorded in the fourth quarter of 2021.
−Removed: Non-cash goodwill and long-lived asset impairment charges of $87.0 million in the Aerospace segment were recognized in 2020 due to reduced expectations of future operating results caused by the COVID-19 pandemic.
−Removed: In 2021, the Company recorded a gain of $10.7 million as additional gain on the sale of the Company’s former semiconductor business resulting from the contingent earnout for the 2020 calendar year.
−Removed: Other Expense, Net of Other Income decreased $2.8 million when compared to 2020.
−Removed: The prior year included a $3.5 million impairment of an equity investment.
−Removed: The effective tax rate for 2021 was 5.1%, compared with (3.0)% in 2020.
−Removed: The tax rate in 2021 was impacted by State and Foreign income taxes as well as changes in the valuation allowance previously recorded against U.S.
−Removed: Federal and most State deferred tax assets.
−Removed: The effective tax rate in 2020 was impacted by a $21.5 million valuation allowance against federal deferred tax assets as well as permanently non-deductible goodwill impairments.
−Removed: See Note 11 of the consolidated financial statements at Item 8 of this report for additional information regarding the valuation allowance recorded in 2020.
+Added: The increase in sales validates both the recovery we are seeing in our commercial aerospace market as well as the progress being made with our supply chain.
+Added: Although challenges remain, our supply chain continues to improve, which is necessary for us to meet our goals for the year.
+Added: Consolidated cost of products sold were up $83.8 million to $463.4 million in 2022 from $379.5 million in the prior year.
+Added: The increase was primarily due to higher volume as the global aerospace industry continues its recovery from the COVID-19 pandemic coupled with increased costs associated with material and labor inflation.
+Added: The current year period benefited from $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 $8.7 million in the prior year.
+Added: Research and development expenses increased $5.0 million due to higher innovation spend.
+Added: Margins remained under pressure in the quarter because of inflation and supply chain workarounds.
+Added: We are passing on increased costs
+Added: where we can although it will take time to roll through sales.
+Added: We are expecting improvement in pricing as well as reduction in certain input costs as we advance through 2023.
+Added: Selling, general and administrative (“SG&A”) expenses were $101.6 million compared with $99.1 million for the prior year period primarily due to increased wages and benefits.
+Added: The current-year period reflects $3.1 million related to the settlement of a litigation claim, a customer accommodation dispute, and a lease termination settlement.
+Added: The prior-year period also benefited from a $2.2 million non-cash reduction of the fair value of a contingent consideration liability.
+Added: During the prior year period, the Company also recorded an $8.4 million reserve related to its ongoing patent litigation dispute.
+Added: On October 6, 2021, the Company sold one of its Aerospace buildings for $9.2 million.
+Added: Net cash proceeds were approximately $8.8 million and a gain on sale of approximately $5.0 million was recorded.
+Added: The operation has been integrated into another facility.
+Added: The Company recorded gains of $11.3 million and $10.7 million in 2022 and 2021, respectively, as additional gain on the sale of the Company’s former semiconductor business resulting from the contingent earnout payments for the 2021 and 2020 calendar year.
+Added: In February 2023, the Company was notified by the buyer that they have calculated $3.4 million as being payable for the calendar 2022 earnout.
+Added: The Company is in the process of reviewing the calculation and expects to record the additional gain on the sale, and receive the payment, in the first quarter of 2023.
+Added: We are not eligible for any further earnout payments related to this divested business.
Consolidated net loss was $35.7 million, or $(1.11) per diluted share, compared with net loss of $25.6 million, or $(0.82) per diluted share in the prior year.
−Removed: The after-tax impact of the impairment loss in 2020 was $(2.64) per diluted share.
−Removed: 2020 Compared With 2019
−Removed: For a comparison of our results of operations for the years ended December 31, 2020 and 2019, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 1, 2021.
Our effective tax rates for 2022 and 2021 were (20.0)% and 5.1%, respectively.
+Added: In the past, research and development costs were deducted as incurred.
+Added: However, beginning with the 2022 tax year, these costs are required to be capitalized for tax purposes and amortized over 5 years.
+Added: While this would typically result in the creation of an associated deferred tax asset, due to our cumulative three-year pre-tax loss, a valuation allowance was applied against the deferred tax asset.
In addition to state income taxes, the following items had the most significant impact on the difference between our statutory U.S.
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• Recognition of approximately $13.2 million of valuation allowance against federal deferred tax assets.
−Removed: See Note 11 of the consolidated financial statements at Item 8 of this report for additional information.
+Added: See Note 11 of the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this report for additional information.
• Recognition of approximately $2.6 million of 2022 U.S.
−Removed: R&D tax credits which were offset by the federal valuation allowance recognized during the year.
+Added: R&D tax credits.
• Recognition of approximately $6.8 million of valuation allowance against federal deferred tax assets.
−Removed: See Note 11 of the consolidated financial statements at Item 8 of this report for additional information.
−Removed: • Permanently non-deductible goodwill impairment.
+Added: See Note 11 of the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this report for additional information.
• Recognition of approximately $2.6 million of 2021 U.S.
−Removed: R&D tax credits.
+Added: R&D tax credits which were offset by the federal valuation allowance recognized during the year.
+Added: 2021 Compared With 2020
+Added: For a comparison of our results of operations for the years ended December 31, 2021 and 2020, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 4, 2022.
COVID-19 Impacts on Our Business
−Removed: In early 2020, we implemented workforce reduction activities to align capacity with expected demand.
−Removed: We also implemented significant cost conservation measures, and we continue to closely monitor spending priorities.
−Removed: As economic activity recovers, we continue to monitor the situation, to assess further possible implications on our operations, supply chain, liquidity, cash flow
−Removed: and customer orders, and to take actions in an effort to mitigate adverse consequences.
−Removed: While the industry is seeing some improvement on rising vaccination rates and easing travel restrictions, 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, vaccination rates and efficacy and the related length of impact on the global economy, supply chain and the aerospace industry, which are uncertain and cannot be predicted at this time.
−Removed: We believe that our existing financial arrangements are sufficient to meet our operating needs, and have adequate borrowings availability under our Credit Agreement that could provide additional relief if necessary.
−Removed: See Part I, Item 1A, Risk Factors, for an additional discussion of risk related to supply chain disruptions and the recent government vaccine mandates.
−Removed: In 2021, we experienced an increase in bookings, however we have also been impacted by supply chain pressures that we expect will continue to impact delivery schedules and costs, limiting the Company’s ability to respond to accelerated or quick-turn delivery requests from customers and delaying shipments that otherwise would have been made in 2021.
−Removed: We estimate that we had backlog at the end of the year of $15 million to $17 million that would have shipped if our supply chain had been functioning normally.
−Removed: Our initial expectation is that 2022 revenue will be in the range of $550 million to $600 million for the year, which includes what we consider reasonable allowances for continued supply chain and labor disruptions.
−Removed: We expect the first quarter to show a modest volume increase over the fourth quarter, with a stronger ramp in the latter half of the year, though supply chain and the tight labor market are risk items.
−Removed: Based on current estimates, we expect the AMJP to contribute approximately $6.0 million to gross profit to be recorded in the first quarter of 2022.
−Removed: The six-month period of performance over which the grant is recognized will conclude in March 2022.
−Removed: We also expect a benefit in the first quarter of 2022 of approximately $11.2 million related with the calendar 2021 earnout from the sale of the semiconductor business based on the earnout statement provided to us in February 2022.
−Removed: Given our forecast expectations, and the structure of our credit agreement, combined with AMJP proceeds, tax refunds and the earnouts from the sale of the semiconductor business, we expect to have sufficient liquidity to operate through the COVID-19 pandemic and its economic impacts.
−Removed: We expect to remain compliant with our debt covenants for the duration of the agreement based on our current financial projections, and expect the Company to generate cash in 2022, which will be used to reduce debt.
+Added: On March 11, 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic.
+Added: 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.
+Added: The impacts of the pandemic have placed labor and supply chain pressures on our business and we have been impacted by customer demand variability.
+Added: Although we saw stable and growing backlog throughout 2022 in our aerospace business, disruptions are ongoing and continue to adversely challenge our commercial transport market.
+Added: 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.
+Added: As economic activity continues to recover, we
+Added: will continue to monitor the situation, assessing further possible implications on our operations, supply chain, liquidity, cash flow and customer orders.
+Added: See Part I, Item 1A, Risk Factors, for an additional discussion of risk related to supply chain disruptions.
+Added: Bookings in 2022 of $690.6 million demonstrates continued strong demand for our products and further substantiates our expectations for another 20% increase in sales in 2023.
+Added: We are forecasting revenue of $640 million to $680 million for 2023.
+Added: The midpoint of this range would represent growth of 23% for the year, slightly higher than the 20% growth achieved in 2022.
+Added: We are encouraged by our fourth quarter revenue performance, our record backlog, and continued strong demand which is beginning to benefit from a recovery in the widebody/long-haul market.
+Added: The first quarter is expected to be our lightest with revenue in the range of $140 million to $150 million.
+Added: We expect subsequent quarterly revenue to be in the range of $160 million to $185 million, increasing throughout the year.
+Added: Our ability to meet forecast for 2023 will depend on the cooperation of our supply chain, which we perceive is slowly improving.
+Added: Challenges certainly remain, but our supply base is getting more predictable and the ratio of positive surprises relative to negative surprises is improving.
+Added: We have record backlog going into 2023, and believe our supply chain will support our expected revenue range.
At December 31, 2022, our consolidated backlog was $571.4 million.
4 unchanged sentences
Cash taxes related to 2022 are expected to be in the range of $6 million to $8 million.
+Added: Cash taxes related to the 2023 calendar year activity are expected to be in the range of $12 million to $14 million.
Capital equipment spending in 2023 is expected to be in the range of $17 million to $20 million, up from $7.7 million in 2022, due to investments in customer programs.
−Removed: 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
−Removed: Operating profit, 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.
+Added: Operating 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 is reconciled to loss before income taxes in Note 20 of Item 8, Financial Statements and Supplementary Data, of this report.
+Added: We do not have 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.
AEROSPACE SEGMENT
8 unchanged sentences
Military 54,534 70,312
−Removed: Business Jet 56,673 60,437
+Added: General Aviation 63,395 56,673
Other 28,703 36,263
9 unchanged sentences
2022 Compared With 2021
−Removed: Aerospace segment sales decreased $52.8 million, or 12.6%, to $365.2 million.
−Removed: In particular, commercial aerospace sales remained below pre-pandemic levels, declining $60.6 million, or 23.1%.
−Removed: While improving domestic travel, increased production rates including the 737 MAX and higher fleet utilization drove increased demand for commercial aerospace products in the second half of 2021, sales continued to be negatively affected by supply chain pressures resulting in delays in fulfilling orders.
−Removed: General Aviation sales were down $3.8 million, or 6.2%, due to lower VVIP activity, offset by improvements in the business jet market.
−Removed: The Company expects the strong demand being realized in the business jet industry to translate into higher demand for its products as production levels begin to increase in 2022.
−Removed: Military Aircraft sales increased $2.4 million, or 3.5%.
−Removed: Other revenues increased $9.3 million, driven by higher contract manufacturing programs.
−Removed: The prior-year period was inclusive of the pre-pandemic levels during the first quarter of the year.
−Removed: Electrical Power & Motion sales decreased $37.5 million compared with the prior-year period.
−Removed: Additionally, Lighting & Safety sales decreased $15.2 million and Avionics sales decreased by $11.2 million.
−Removed: Aerospace segment operating loss was $8.6 million compared with operating loss of $89.8 million in the same period last year.
−Removed: 2021 results benefited from $8.7 million related to the AMJP grant and a $5.0 million gain related to the sale of a facility.
−Removed: These benefits were offset by accruals related to the Lufthansa dispute totaling $8.4 million and increased warranty charges of $4.0 million in the Aerospace segment.
−Removed: Leverage lost on reduced commercial aircraft sales combined with supply chain pressures and costs significantly impacted operating results.
−Removed: Aerospace operating loss in the prior-year period was impacted by impairment charges of $87.0 million, of which $86.3 million was related to goodwill, and restructuring-related severance charges of $5.3 million.
+Added: Aerospace segment sales increased $96.0 million, or 26.3%, to $461.2 million.
+Added: Commercial transport sales increased 55.7%, or $112.6 million, and drove the improvement.
+Added: Sales to this market were $314.6 million compared with $202.0 million in 2021.
+Added: Improving domestic airline travel is driving higher fleet utilization, higher airline spending and increased narrowbody production rates which are driving demand for Astronics’ products.
+Added: General Aviation sales increased $6.7 million, or 11.9%, to $63.4 million due in part to higher demand in the business jet market for antenna systems.
+Added: The Company expects strong 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.
+Added: Military aerospace sales decreased $15.8 million, or 22.4%, to $54.5 million.
+Added: The prior-year period benefited from incremental non-recurring engineering revenue associated with development programs and higher sales of lighting and safety and avionics products.
+Added: Other revenue decreased $7.6 million to $28.7 million driven by decreased contract manufacturing programs.
+Added: Electrical Power & Motion sales increased $45.7 million compared with the prior-year period.
+Added: Additionally, Avionics sales increased by $32.3 million and Lighting & Safety sales increased by $20.6 million.
+Added: Aerospace segment operating loss was $1.9 million compared with operating loss of $8.6 million last year.
+Added: Lower operating loss was driven by higher volume primarily in the commercial transport market and $5.2 million higher research and development expenses, but was partially offset by increased material and labor costs.
+Added: Operating loss in the current year included $6.0 million offset to cost of products sold from the Aviation Manufacturing Jobs Protection (“AMJP”) Program grant and $2.6 million of expense related to settlements of a litigation claim and a customer accommodation claim.
+Added: The prior year period included $8.7 million of AMJP benefit and a $5.0 million gain on the sale of a facility.
+Added: During the prior year period, the Company also recorded an $8.4 million reserve related to its ongoing patent litigation dispute.
2021 Compared With 2020
1 unchanged sentence
2023 Outlook for Aerospace
+Added: Aerospace bookings in 2022 were $604.2 million, for a book-to-bill ratio of 1.31:1.
The Aerospace segment’s backlog at December 31, 2022 was $477.7 million, compared to $334.7 million at December 31, 2021.
−Removed: Approximately $299 million of the December 31, 2021 backlog is expected to be recognized as revenue over the next 12 months.
+Added: Approximately $402.4 million of the December 31, 2022 backlog is expected to be recognized as revenue over the next twelve months.
TEST SYSTEMS SEGMENT
1 unchanged sentence
Sales $ 73,698 $ 79,670
−Removed: Operating (Loss) Profit $ (3,765) $ 5,549
+Added: Operating Loss $ (8,118) $ (3,765)
Operating Margin (11.0) % (4.7) %
1 unchanged sentence
Backlog $ 93,696 $ 81,033
−Removed: Sales by Market 2021 2020
−Removed: Semiconductor $ — $ 3,483
−Removed: Aerospace & Defense 79,670 81,116
−Removed: Total $ 79,670 $ 84,599
2022 Compared With 2021
−Removed: Test Systems segment sales were $79.7 million, down $4.9 million compared with the prior year.
−Removed: Aerospace & Defense sales decreased $1.4 million.
−Removed: Sales from the divested semiconductor business contributed $3.5 million in the prior year.
−Removed: Test Systems operating loss was $3.8 million, or 4.7% of sales, compared with operating profit of $5.5 million, or 6.6% of sales, in 2020.
−Removed: Operating results in 2021 was negatively affected by COVID-related delays and low volume and $3.3 million in legal fees related to infringement claims and contractual disputes.
−Removed: Operating results in 2020 benefited from $3.5 million in semiconductor warranty revenue.
−Removed: In 2021, the Company reached an agreement with the buyer of its former semiconductor test business, which was sold in 2019, related to earnout payments.
−Removed: For its calendar 2020 earnout payment, the Company agreed to an earnout amount of $10.7 million, which was recorded in the fourth quarter of 2021 and was paid to the Company in early January.
+Added: Test Systems segment sales were $73.7 million, down $6.0 million compared with the prior year driven by lower revenue on defense and mass transit programs.
+Added: Test Systems operating loss was $8.1 million, or 11.0% of sales, compared with an operating loss of $3.8 million, or 4.7% of sales, in 2021.
+Added: The higher operating loss was primarily attributable to mix and underabsorption of fixed costs due to volume and investments in staffing in preparation for the expected contract award from the U.S.
+Added: As previously disclosed, Astronics Test Systems was selected as the down select winner for the development of its Radio Test Set referred to as TS-4549/T.
+Added: The Test Systems segment has been investing in significant new development programs which are expected to result in more profitable business in the near future.
2021 Compared With 2020
1 unchanged sentence
2023 Outlook for Test Systems
+Added: Bookings for the Test Systems segment in 2022 were $86.4 million, for a book-to-bill ratio of 1.17:1 for the year.
Backlog in the Test Systems segment was $93.7 million at December 31, 2022, compared to $81.0 million at December 31, 2021.
The Test Systems segment expects to recognize $49.0 million of backlog as revenue in 2023.
−Removed: We do not have 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.
+Added: In 2022, as mentioned above, our Test Systems business was down-selected by the U.S.
+Added: Army as the winner of the TS-4549/T radio test competition.
+Added: A directed sole-source procurement is underway to finalize the terms of a contract, a process that is expected to be completed in the third quarter.
+Added: Preliminarily, the Company expects the program to generate sales of $200 million over the next seven years.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
−Removed: For further information on our contractual obligations and other commitments as of December 31, 2021 and estimated timing thereof, see the notes referenced below, of Item 8, Financial Statements and Supplementary Data, of this report.
+Added: For further information on our contractual obligations and other commitments as of December 31, 2022 and estimated timing thereof, see the notes referenced below, in Item 8, Financial Statements and Supplementary Data, of this report.
Long-term Debt and Interest Payments — Refer to Note 8, Long-Term Debt, in this report.
−Removed: Future current and long-term interest payments of $6.0 million and $0.7 million, respectively, have been calculated using the applicable interest rate of each debt facility based on actual borrowings as of December 31, 2021.
−Removed: Actual future borrowings and rates may differ from these estimates.
−Removed: The current credit facility expires on May 30, 2023.
−Removed: Purchase Obligations — Purchase obligations are comprised of the Company’s commitments for goods and services in the normal course of business and amount to approximately $134.0 million payable in the coming year.
−Removed: Supplemental Retirement Plan and Post Retirement Obligations — Anticipated payments related with the Company’s defined benefit plans are detailed in Note 13, Retirement Plans and Related Post Retirement Benefits.
−Removed: Lease Obligations — Refer to Note 10, Leases, for details on obligations and timing of expected future lease payments, including a five-year maturity schedule.
−Removed: In January 2022, the Company entered into a lease which is expected to become effective in December 2022 and will require annual payments of approximately $1.5 million through 2031.
−Removed: Legal Reserves — Refer to Note 19, Legal Proceedings, for management’s estimate of damages to be paid related to our ongoing litigation with Lufthansa Technik and timing thereof.
+Added: The Company completed a financing transaction totaling $205 million subsequent to the year ending December 31, 2022, which refinanced its previous revolving credit facility that was scheduled to mature in November 2023.
+Added: The new financing consists of a $90 million asset-based Term Loan Facility and a $115 million asset-based revolving credit facility.
+Added: 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.
+Added: The Term Loan Facility has an interest rate of SOFR plus 8.75% and is collateralized primarily by real estate, fixed assets and intellectual property.
+Added: Amortization of the term loan principal will begin in April 2023 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% monthly thereafter.
+Added: During 2023, scheduled principal payments of $4.5 million are due under the Term Loan Facility.
+Added: The Term Loan Facility requires a commitment fee of $4.5 million, $1.8 million of which was paid on the closing date, $1.8 million of which will be paid on June 19, 2023 and $0.9 million of which will be paid on the date that the financial statements and compliance certificate for the fiscal quarter of the Company ending on or about March 31, 2024 are required to be delivered under the Term Loan Facility.
+Added: The revolving credit facility has a scheduled maturity of January 19, 2026, an interest rate of SOFR plus 2.25% to 2.75% and is collateralized primarily by inventory and accounts receivable.
+Added: The revolving credit facility requires a quarterly commitment fee under the revolving credit agreement in an amount equal to 0.25% or 0.375% based on the Company’s average excess availability.
+Added: Future interest payments under the two credit facilities of approximately $52.5 million have been estimated using the applicable interest rate of each debt facility based on expected future borrowings and scheduled term loan repayments.
+Added: Actual future ABL borrowings and rates may differ from those used to estimate the amounts discussed above.
+Added: Purchase Obligations — Purchase obligations are comprised of the Company’s commitments for goods and services in the normal course of business and amount to approximately $155.8 million payable over the next twelve months.
+Added: Supplemental Retirement Plan and Post Retirement Obligations — Anticipated payments related with the Company’s defined benefit plans are detailed in Note 13, Retirement Plans and Related Post Retirement Benefits in Item 8, Financial Statements and Supplementary Data, of this report.
+Added: Lease Obligations — Refer to Note 10, Leases in Item 8, Financial Statements and Supplementary Data, of this report for details on obligations and timing of expected future lease payments, including a five-year maturity schedule.
+Added: These amounts exclude annual operating lease payments of approximately $1.7 million per year through 2033, which represents legal binding lease payments for leases signed, but not yet commenced.
+Added: Legal Reserves — Refer to Note 19, Legal Proceeding in Item 8, Financial Statements and Supplementary Data, of this report for management’s estimate of damages to be paid related to our ongoing litigation with Lufthansa Technik and timing thereof.
LIQUIDITY AND CAPITAL RESOURCES
13 unchanged sentences
Our ability to maintain sufficient liquidity is highly dependent upon achieving expected operating results.
−Removed: Failure to achieve expected operating results could have a material adverse effect on our liquidity, our ability to obtain financing, and our operations in the future.
+Added: 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.
Operating Activities
−Removed: Cash used for operating activities totaled $5.5 million in 2021, as compared with $37.3 million cash provided by operating activities in 2020.
−Removed: Cash flow from operating activities decreased compared with the 2020 due to lower net income adjusted for non-cash or non-operating expense or income items, coupled with changes in net operating assets, primarily increases in accounts receivable and inventories.
−Removed: Non-cash items in 2021 include the $10.7 million earnout from the sale of the semiconductor business, the $5.0 million net gain on the sale of facilities within the Aerospace segment, as well as the $8.4 million incremental reserve for estimated impacts of the intellectual property dispute with Lufthansa Technik.
−Removed: Our cash flows from operations are primarily dependent on our net income adjusted for non-cash expenses and the timing of collections of receivables, level of inventory and payments to suppliers and employees.
−Removed: Sales and operating results of our Aerospace segment are influenced by the impact in 2021 and 2020 of the COVID-19 pandemic on the aerospace industry, in particular, build rates of new aircraft, which are subject to general economic conditions, airline passenger travel and spending
−Removed: for government and military programs.
−Removed: Our Test Systems segment sales depends in part on capital expenditures of the aerospace & defense industry which, in turn, depend on current and future demand for those products.
+Added: Cash used for operating activities totaled $28.3 million in 2022, as compared with $5.5 million cash used for operating activities in 2021.
+Added: Cash flow from operating activities decreased compared with the 2021 primarily related to increases in net operating assets, primarily accounts receivable and inventory, more than offsetting cash received from income tax refunds and the AMJP program.
+Added: 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 to be purchased further in advance.
+Added: Non-cash items in 2022 and 2021 include the $11.3 million and $10.7 million earnout from the sale of the semiconductor business, respectively.
+Added: Additional non-cash items in 2021 include the $5.0 million net gain on the sale of facilities within the Aerospace segment, as well as the $8.4 million incremental reserve for estimated impacts of the intellectual property dispute with Lufthansa Technik.
+Added: Our cash flows from operations are primarily dependent on our net income (loss) adjusted for non-cash expenses and income and the timing of collections of receivables, inventory levels and payments to suppliers and employees.
+Added: Sales and operating results of our Aerospace segment are influenced by the impact of the COVID-19 pandemic on the aerospace industry, in particular, build rates of new aircraft, which are subject to general economic conditions, airline passenger travel and spending for government and military programs.
+Added: Our Test Systems segment sales depends in part on capital expenditures of the aerospace and defense industry which, in turn, depend on current and future demand for those products.
A reduction in demand for our customers’ products would adversely affect our operating results and cash flows.
−Removed: We expect cash flows from operations in 2022 to continue to be impacted by the COVID-19 pandemic and continued supply chain pressures, particularly in the first half of the year.
−Removed: We expect to receive a second installment of approximately $5.2 million associated with the AMJP grant in the first quarter of 2022, with a final installment of approximately $2.1 million anticipated in the second or third quarter of 2022 upon final confirmation from the USDOT of the Company meeting its grant commitments.
−Removed: The Company also expects to receive approximately $9.0 million in tax refunds in early 2022.
−Removed: We will continue to maintain a credit facility sufficient to fund our short and long-term capital requirements including working capital, acquisitions and share repurchase efforts.
+Added: The Company generated positive cash flows from operations in the fourth quarter of 2022, and expects to continue to do so for the full year ending December 31, 2023.
Investing Activities
+Added: Cash provided by investing activities in 2022 was $14.4 million.
+Added: 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, offset by $7.7 million in capital expenditures.
Cash provided by investing activities in 2021 was $3.2 million, primarily the result of $9.2 million in proceeds from the sale of assets within the Aerospace segment, offset by purchases of property, plant and equipment (“PP&E”) of $6.0 million.
−Removed: Cash used for investing activities in 2020 was $5.8 million, primarily the result of PP&E of $7.5 million, partially offset by proceeds from sales of PP&E.
Our expectation for 2023 is that we will invest between $17 million and $20 million for PP&E.
2 unchanged sentences
We expect to continue to evaluate acquisition opportunities in the future.
−Removed: Investing cash flows in 2022 will be positively impacted by the receipt of $10.7 million related with the calendar 2020 earnout from the sale of the semiconductor business and approximately $11.2 million related with the calendar 2021 earnout, which is expected to be received in the first quarter of 2022.
Financing Activities
−Removed: Cash used for financing activities totaled $7.5 million for 2021, as compared with $24.6 million for 2020.
−Removed: The Company made net repayments towards our senior credit facility of $10.0 million in 2021 compared with net repayments of $15.0 million in 2020.
−Removed: Cash used in 2020 also included $7.7 million of share repurchases before the 10b-5 plan associated with the share repurchase program was terminated.
−Removed: The Company's Fifth Amended and Restated Credit Agreement (the “Agreement”) was amended in May 2020 (the “Amended Facility”) and reduced the revolving credit line from $500 million to $375 million.
−Removed: The Amended Facility suspended the application of the leverage ratio up through and including the second quarter of 2021 (the “suspension period”).
−Removed: The maximum net leverage ratio, which represents the ratio of funded debt, net of cash to adjusted EBITDA (as defined in the Agreement) was set at 6.00 to 1 for the third quarter of 2021, 5.50 to 1 for the fourth quarter of 2021, 4.50 to 1 for the first quarter of 2022, and returns to 3.75 to 1 for each quarter thereafter.
−Removed: Through the second quarter of 2021, the Company was also required to maintain a minimum interest coverage ratio.
−Removed: As noted above, the maximum net leverage ratio was set at 5.50 to 1 for the quarter ended December 31, 2021.
−Removed: During the suspension period, the Company paid interest on the unpaid principal amount of the Amended Facility at a rate of 3.25% and a commitment fee of 0.35% on the undrawn portion of the Amended Facility.
−Removed: After the suspension period, the Company pays interest on the unpaid principal amount of the Amended Facility at LIBOR (of at least 1.00%) plus between 1.00% to 2.25% and a commitment fee of 0.10% to 0.35% on the undrawn portion of the Amended Facility, both based upon the Company’s leverage ratio.
−Removed: The Amended Facility provided for the payment of a consent fee of 15 basis points of the commitment for each consenting lender.
−Removed: At December 31, 2021, there was $163.0 million outstanding on the revolving credit facility and there remained $210.9 million available subject to the minimum liquidity covenant discussed below, net of outstanding letters of credit.
−Removed: The credit facility allocates up to $20 million of the $375 million revolving credit line for the issuance of letters of credit, including certain existing letters of credit.
−Removed: At December 31, 2021, outstanding letters of credit totaled $1.1 million.
−Removed: On March 1, 2022, the Company executed an amendment to the Amended Facility, which reduced the revolving credit line from $375 million to $225 million and extended the maturity date of the loans under the facility from February 16, 2023 to May 30, 2023.
−Removed: Interest will be 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 between 1.50% to 3.25% based upon the Company’s leverage ratio.
−Removed: The Company will also pay a commitment fee to the lenders in an amount equal to 0.10% to 0.40% on the undrawn portion of the Amended Facility, based upon the Company’s leverage ratio.
−Removed: The amendment provided for the payment of a consent fee of 10 basis points of the commitment for each consenting lender.
−Removed: The amendment will require the Company to maintain minimum liquidity, defined as unrestricted cash plus the unused revolving credit commitments, of $35 million.
−Removed: The maximum net leverage ratio is set at 4.75 to 1 for the first and second quarters of 2022 and 3.75 to 1 thereafter, and the definition of Adjusted EBITDA has been modified to exclude income from earnout payments and asset sales.
−Removed: The Company was in compliance with its financial covenants at December 31, 2021.
−Removed: The Amended Facility continues the temporary restrictions on certain activities, including dividend payments, acquisitions and share repurchases, through the third quarter of 2022.
−Removed: The Company’s obligations under the Amended Facility are jointly and severally guaranteed by each domestic subsidiary of the Company other than non-material subsidiaries.
−Removed: The obligations are secured by a first priority lien on substantially all of the Company’s and the guarantors’ assets.
−Removed: 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 automatically become due and payable.
−Removed: 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 agreements give the agent the option to declare all such amounts immediately due and payable.
+Added: Cash used for financing activities totaled $1.4 million for 2022, as compared with cash used for financing activities of $7.5 million for 2021.
+Added: The Company made net repayments towards our senior credit facility of $1.0 million in 2022 compared with net repayments of $10.0 million in 2021, coupled with $2.4 million in costs associated with amending and refinancing our credit facility in 2022.
+Added: The Company's long-term debt at December 31, 2022 and 2021 consisted of borrowings under its Fifth Amended and Restated Credit Agreement (the “Agreement”).
+Added: 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 maturity date of the loans under the facility from February 16, 2023 to May 30, 2023.
+Added: On August 9, 2022, the Company executed a further amendment to the Agreement, which reduced the revolving credit line from $225 million to $190 million until September 12, 2022 with further reductions to $180 million effective September 12, 2022 and $170 million effective October 11, 2022.
+Added: The amendment extended the maturity date of the loans under the facility from May 30, 2023 to August 31, 2023.
+Added: On October 21, 2022, 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.
+Added: 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.
+Added: Another 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.
+Added: Under the Amended Facility, the revolving credit line was set at $180 million, with a reduction to $170 million effective December 21, 2022.
+Added: The amendment required the Company to maintain minimum liquidity, defined as unrestricted cash plus the unused revolving credit commitments ($10 million as of November 30, 2022 and December 31, 2022).
+Added: The Amended Facility required the Company to comply with a minimum Adjusted EBITDA covenant on a trailing twelve month basis.
+Added: The amendment eliminated the net leverage ratio covenant for the remaining term of the agreement.
+Added: Each amendment executed in 2022 required payment of a consent fee of 5 to 10 basis points of the commitment for each consenting lender.
+Added: At December 31, 2022, there was $164.0 million outstanding on the Amended Facility and there remained $6.0 million available subject to the minimum liquidity covenant discussed above.
+Added: The credit facility allocated up to $20 million of the $170 million revolving credit line for the issuance of letters of credit.
+Added: Interest on the debt outstanding at December 31, 2022 was payable on the unpaid principal amount of the facility at a rate equal to the Secured Overnight Financing Rate (“SOFR”, which is required to be at least 1.00%), plus 5.50% with an increase to a rate equal to SOFR (which is required to be at least 1.00%), plus 8.50% effective January 17, 2023.
+Added: The Company also was required to pay a commitment fee to the lenders in an amount equal to 0.40% on the undrawn portion of the Amended Facility.
+Added: The Company amended its existing revolving credit facility on January 19, 2023 by entering into the Sixth Amended and Restated Credit Agreement (the “ABL Revolving Credit Facility”).
+Added: The ABL Revolving Credit Facility set the maximum aggregate amount that the Company can borrow under the revolving credit line at $115 million, with borrowings subject to a borrowing base determined primarily by certain domestic inventory and accounts receivable.
+Added: The maturity date of borrowings under the ABL Revolving Credit Facility is January 19, 2026.
+Added: Under the terms of the ABL Revolving Credit Facility, the Company will now pay interest on the unpaid principal amount of the facility at a rate equal to SOFR (which is required to be at least 1.00%) plus 2.25% to 2.75%.
+Added: 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.
+Added: 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.
+Added: Eligible cash receipts that have not yet been applied to outstanding debt balance will be classified as restricted cash in the accompanying consolidated balance sheets.
+Added: The Company also entered into a $90 million asset-based Term Loan Facility on January 19, 2023.
+Added: The Term Loan Facility is secured primarily by fixed assets, real estate and intellectual property.
+Added: 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.
+Added: The Company will pay interest under the Term Loan Facility at a rate equal to SOFR (which is required to be at least 2.50%) plus 8.75%.
+Added: 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 of which will be paid on June 19, 2023 and $0.9 million of which will be paid on the date that the financial statements and compliance certificate for the fiscal quarter of the Company ending on or about March 31, 2024 are required to be delivered under the Term Loan Facility.
+Added: Amortization of the principal under the Term Loan Facility will begin 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
+Added: for the period July 1, 2023 through September 1, 2023 then increasing to 0.833% thereafter.
+Added: Total scheduled principal payments of $4.5 million are payable in 2023 and as such, have been classified as current in the accompanying consolidated balance sheet as of December 31, 2022.
+Added: The weighted-average interest rate on current maturities of long-debt is 13.60%.
+Added: 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 $14.7 million for the Company’s first quarter of 2023, $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.
+Added: In addition, mandatory prepayment of a portion of excess cash flow, as defined by the Term Loan Facility, is payable towards the principle amount outstanding at the end of 2023.
+Added: Any voluntary prepayments made are subject to a prepayment fee, as defined by the Term Loan Facility.
+Added: 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.
+Added: Beginning with the first quarter of 2024, the Company is subject to a minimum fixed charge coverage ratio of 1.10 to 1.00.
+Added: Further, the Company is subject to excess cash flow repayment provisions, restrictions on additional indebtedness, share repurchases and dividend payments, and a limitation on capital expenditures.
+Added: Upon execution of the amendment to its ABL Revolving Credit Facility and the Term Loan Facility on January 19, 2023, the Company incurred an additional $6.1 million in debt issuance costs, allocated between the ABL Revolving Credit Facility and the Term Loan Facility.
+Added: Deferred debt issuance costs associated with the ABL Revolving Credit Facility will be recorded within other assets and those associated with the Term Loan Facility will be recorded as a reduction of the carrying value of the debt on the Consolidated Balance Sheets.
+Added: Certain of the Company’s subsidiaries are borrowers or guarantors under the ABL Revolving Credit Facility and the Term Loan Facility.
+Added: In the event of voluntary or involuntary bankruptcy of the Company or any subsidiary, all unpaid principal and other amounts owing under the credit facilities automatically become due and payable.
+Added: Other events of default, such as failure to make payments as they become due and breach of financial and other covenants, change of control, 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.
+Added: The Company expects its sales growth and reductions in working capital will provide sufficient cash flows to fund operations.
+Added: 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 to expedite receivable collections.
+Added: Our ability to maintain sufficient liquidity and comply with financial debt covenants is highly dependent upon achieving expected operating results.
+Added: 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.
+Added: Refer to Item 1A, Risk Factors, for further discussion.
Refer to Note 8 of our consolidated financial statements in Item 8, Financial Statement and Supplementary Data, of this report for additional information regarding our credit facility.
−Removed: We intend to refinance the amended agreement with a new long-term financing facility in the coming months.
Management believes that it should retain the capital generated from operating activities for investment in advancing technologies, acquisitions and debt retirement.
Accordingly, there are no plans to institute a cash dividend program.
−Removed: At December 31, 2021, our consolidated backlog was $415.7 million.
−Removed: At December 31, 2020, our backlog was $283.4 million.
−Removed: Backlog in the Aerospace segment was $334.7 million at December 31, 2021, of which $299.4 million is expected to be recognized as revenue in 2022.
−Removed: Backlog in the Test Systems segment was $81.0 million at December 31, 2021, of which $40.5 million is expected to be recognized as revenue of in 2022.
+Added: Further, we are precluded from payment of dividends under our credit facilities.
RELATED-PARTY TRANSACTIONS
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RECENT ACCOUNTING PRONOUNCEMENTS
−Removed: See Note 1 of the consolidated financial statements at Item 8 of this report.
+Added: See Note 1 of the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this report
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.