What changed in this filing

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Item 1. Business

2024-03-05 compared with 2023-03-10 · 38 added, 51 removed, 123 unchanged (42% of the section changed)

Astronics Corporation (“Astronics” or the “Company”) is a leading provider of advanced technologies to the global aerospace, defense and electronics industries.

Our products and services include advanced, high-performance electrical power generation, distribution and seat motion systems, lighting and safety systems, avionics products, systems and certification, aircraft structures and automated test systems.

We have principal operations in the United States (“U.S.”), Canada, France and England, as well as engineering offices in the Ukraine and India.

The operation in Ukraine is a small engineering office and we have not experienced any significant disruption in staffing or services as a result of the Ukrainian and Russian conflict.

Our products and services include advanced, high-performance electrical power generation, distribution and motion systems, lighting and safety systems, avionics products, systems and certification, aircraft structures and automated test systems.

We have principal operations in the United States (“U.S.”), Canada, France and England, as well as engineering offices in Ukraine and India.

Our operation in Ukraine is a small engineering office and we have not experienced any significant disruption in staffing or services as a result of the Ukrainian and Russian conflict.

On January 19, 2023, the Company completed a financing transaction totaling $205 million, which refinanced its previous revolving credit facility which was scheduled to mature in November 2023.

The new financing consists of a $90 million asset-based term loan (the “Term Loan Facility”) and a $115 million asset-based revolving credit facility (the “ABL Revolving Credit Facility”).

The Term Loan Facility requires monthly amortization that began in April 2023 and bears interest at the Secured Overnight Financing Rate (“SOFR”) plus 8.75%.

The ABL Revolving Credit Facility bears interest at SOFR plus between 2.25% and 2.75%.

For additional information, see discussion in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 8, Long-Term Debt, of Item 8, Financial Statements and Supplementary Data, of this report.

Impact of the COVID-19 Pandemic

On March 11, 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic.

The spread of the COVID-19 pandemic disrupted businesses on a global scale, led to significant volatility in financial markets and affected the aviation and industrial industries.

The impacts of the pandemic have placed labor and supply chain pressures on our business and we have been impacted by customer demand variability.

Although we saw stable and growing backlog during 2022 in our aerospace business, COVID-19 related disruptions are ongoing and continue to adversely challenge our markets.

While we remain bullish about the aerospace business, we believe the recovery to pre-pandemic activity, particularly in the widebody market, will take longer than originally anticipated at the outset of the pandemic.

Our business continues to face varying levels of supply chain pressures from the residual impacts of the COVID-19 pandemic.

Domestic air travel has recovered from the impact of the COVID-19 pandemic, and international travel utilizing primarily widebody aircraft is close to pre-pandemic levels.

As economic activity continues to recover, we will continue to monitor the situation, assessing further possible implications on our operations, supply chain, liquidity, cash flow and customer orders.

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In September 2021, the Company was awarded a grant of up to $14.7 million from the U.S.

Department of Transportation under the Aviation Manufacturing Jobs Protection Program (“AMJP”).

The Company received $7.4 million under the grant in 2021, $5.2 million in the first quarter of 2022 and $2.1 million in the third quarter of 2022.

The grant benefit was recognized ratably over the six-month performance period as a reduction to cost of products sold in proportion to the compensation expense that the award is intended to defray.

Department of Transportation (“USDOT”) under the Aviation Manufacturing Jobs Protection Program (“AMJP”).

The Company received $7.3 million and $7.4 million under the grant in 2022 and 2021, respectively.

The grant benefit was recognized ratably over the six-month performance period as a reduction to Cost of Products Sold in proportion to the compensation expense that the award was intended to defray.

During the years ended December 31, 2022 and 2021, the Company recognized $6.0 million and $8.7 million of the award, respectively.

Additionally, the Company qualified for government subsidies from the Canadian and French governments as a result of the COVID-19 pandemic’s impact on our foreign operations.

The Canadian and French subsidies are income-based grants intended to reimburse the Company for certain employee wages.

The grants are recognized as income over the periods in which the Company recognizes as expenses the costs the grants are intended to defray.

The amounts recognized during 2022 were immaterial.

For additional details regarding the subsidies and grants, and their impact on consolidated results of operations and financial position, see Note 1 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this report.

On January 19, 2023, the Company completed a financing transaction totaling $205 million, which refinanced its previous revolving credit facility which was scheduled to mature in November 2023.

The new financing consists of a $90 million asset-based term loan (the “Term Loan Facility”) and a $115 million asset-based revolving credit facility (the “ABL Revolving Credit Facility”).

The Term Loan Facility requires monthly amortization beginning in April 2023, bears interest at the Secured Overnight Financing Rate (“SOFR”) plus 8.75%, is collateralized by real estate, fixed assets and intellectual property, and is scheduled to mature on the earlier of the maturity of the ABL Revolving Credit Facility or January 19, 2027.

The ABL Revolving Credit Facility bears interest at SOFR plus between 2.25% and 2.75%, is collateralized by certain domestic accounts receivable and inventory, and is scheduled to mature on January 19, 2026.

For additional details regarding government subsidies and grants, and their impact on consolidated results of operations and financial position, see Note 1 to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report.

On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment.

The total proceeds of the divestiture 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.

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.

In March 2022, the Company agreed with the earnout calculation for the calendar 2021 earnout in the amount of $11.3 million.

The Company recorded the gain and received the payment in the first quarter of 2022.

In February 2023, the Company was notified by the buyer that they have calculated $3.4 million as being payable for the calendar 2022 earnout.

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.

In March 2023, the Company agreed with the final earnout calculation for the calendar 2022 earnout in the amount of $3.4 million.

The Company recorded the gain and received the payment in the first quarter of 2023.

We are not eligible for any further earnout payments related to this divestiture.

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The operation has been integrated into another facility.

Customer Bankruptcy

In November 2023, a non-core contract manufacturing customer reported within the Aerospace segment filed for bankruptcy under Chapter 11.

As a result, the Company recorded a full reserve of $7.5 million for outstanding accounts receivable and $3.6 million for dedicated inventory.

The associated assets existed prior to 2023.

Products and Customers

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During 2023, this segment’s sales were divided 72% to the commercial transport market, 10% to the military aircraft market, 13% to the general aviation market and 5% to other markets.

As a result of the COVID-19 pandemic and its adverse impact on air travel worldwide, the commercial aerospace industry has been significantly disrupted.

Most of this segment’s sales are a result of contracts or purchase orders received from customers, placed on a day-to-day basis or for single year procurements rather than long-term multi-year contract commitments.

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Sales by segment, geographic region, major customer and foreign operations are provided in Note 20 in Item 8, Financial Statements and Supplementary Data, of this report.

We have historically had a significant concentration of business with two major customers;

Panasonic Avionics Corporation (“Panasonic”) and The Boeing Company (“Boeing”).

Sales to Panasonic accounted for less than 10% of sales in 2022 and 2021, and 11.1% of sales in 2020.

Sales to Boeing accounted for 11.0% of sales in 2022, 10.0% of sales in 2021, and less than 10% of sales in 2020.

Sales to Panasonic and Boeing are primarily in the Aerospace segment.

We have a significant concentration of business with one major customer, The Boeing Company (“Boeing”).

Sales to Boeing accounted for 11.0% of sales in 2023, 11.0% of sales in 2022, and 10.0% of sales in 2021.

Sales to Boeing are primarily in the Aerospace segment.

Our strategy is to increase our value by developing technologies and capabilities either internally or through acquisition, and use those capabilities to provide innovative solutions to our targeted markets where our technology can be beneficial.

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Our revenue stream relies on military spending.

Approximately 11% of our 2022 consolidated sales were made to government-related markets.

Approximately 12% of our 2023 consolidated sales were made to U.S.

government-related markets.

Government Regulation

The Federal Aviation Administration (“FAA”) regulates the manufacture, repair and operation of all aircraft and aircraft parts operated in the United States.

The FAA regulates the manufacture, repair and operation of all aircraft and aircraft parts operated in the United States.

Its regulations are designed to ensure that all aircraft and aviation equipment are continuously maintained in proper condition to ensure safe operation of the aircraft.

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The inspection, maintenance and repair procedures for the various types of aircraft and equipment are prescribed by regulatory authorities and can be performed only by certified repair facilities utilizing certified technicians.

Certification and conformance is required prior to installation of a part on an aircraft.

Certification and conformance is required

prior to installation of a part on an aircraft.

Our operations may in the future be subject to new and more stringent regulatory requirements.

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We believe that the loss of any one source, although potentially disruptive in the short-term, would not materially affect our operations in the long-term.

The COVID-19 pandemic has significantly disrupted the global supply chain for certain components.

See further discussion within the Risk Factor discussion in Item 1A.

Our business is typically not seasonal.

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As of December 31, 2023, we employed approximately 2,500 employees, of whom approximately 2,000 were employed in the United States and approximately 500 were employed outside of the United States.

We have approximately 110 hourly production employees at PECO who are subject to collective bargaining agreements.

We have approximately 140 non-exempt production employees at PECO who are subject to collective bargaining agreements.

We also leverage temporary workers to provide flexibility for our business and manufacturing needs.

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• Disability and life insurance

• Commute reduction, fitness, tuition programs

• Commute reduction, fitness, and tuition programs

• Community service opportunities

The COVID-19 pandemic had a sudden and significant impact on the global economy, and particularly in the aerospace industry, causing us to make difficult cost conservation measures including workforce reductions activities to align capacity with expected demand as well as suspension of certain benefit programs.

These measures were taken to maintain the financial health and liquidity of the business.

We are continuously evaluating the impact of the COVID-19 pandemic, which is dependent on future developments, including the duration of the pandemic and the its impact on the global economy and the aerospace industry, which are uncertain and cannot be predicted at this time.

We have reinstituted all of the previously-suspended benefits.

Employee Engagement

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The Company believes that diversity and inclusion is critical for the attraction and retention of top talent, and employs policies and procedures to recruit women and minority talent as well as policies to ensure pay equality.

Astronics has an Equal

Employment Opportunity Policy whereby the Company commits to providing equal employment opportunity and affirmative action plans for all qualified employees and applicants without regard to race, color, sex, sexual orientation, gender identity, religion, national origin, disability, veteran status, age, marital status, pregnancy, genetic information or other legally protected status.

Astronics has an Equal Employment Opportunity Policy whereby the Company commits to providing equal employment opportunity and affirmative action plans for all qualified employees and applicants without regard to race, color, sex, sexual orientation, gender identity, religion, national origin, disability, veteran status, age, marital status, pregnancy, genetic information or other legally protected status.

Health and Safety

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Available information

We file our financial information and other materials as electronically required with the Securities and Exchange Commission (“SEC”).

We file our financial information and other materials as electronically required with the U.S.

Securities and Exchange Commission (“SEC”).

These materials can be accessed electronically via the Internet at www.sec.gov.

We also make available free of charge through our website at www.astronics.com our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file those reports with, or furnish them to, the SEC.

We also make available free of charge through our website at www.astronics.com our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file those reports with, or furnish them to, the SEC.

The information contained on our website is not incorporated by reference in this annual report on Form 10-K and should not be considered a part of this report.

Information About Our Executive Officers

The executive officers of the Company, their ages, their positions and offices with the Company, and the date each assumed their office with the Company as of December 31, 2022, are as follows:

The executive officers of the Company, their ages, their positions and offices with the Company as of December 31, 2023, and the date each assumed their office with the Company, are as follows:

Name and Age of Executive Officer Positions and Offices with Astronics Year First

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President, Chief Executive Officer and Director of the Company 2001

Executive Vice President, Secretary and Chief Financial Officer of the Company 2003

Executive Vice President, Treasurer and Chief Financial Officer of the Company 2003

President, Aerospace Segment and Executive Vice President of Astronics Corporation 2010

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The principal occupation and employment for Messrs.

Gundermann, Burney, Kramer, Kuehn, Mulato and Peabody for over five years has been with the Company in their respective current roles.

Kuehn and Mr.

Mulato became Executive Vice Presidents of the Company on January 1, 2019.

Gundermann, Burney, Kramer, Kuehn, Mulato and Peabody for over five years have been with the Company in their respective current roles.

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 1. Business