ASTRONICS CORP 10-Q

Item 1a. Risk Factors In addition to other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 10-K”), which could materially affect our business, financial condition or results of operations. Our risk factors have not changed materially from those risk factors previously disclosed in our 2023 10-K except as set forth below. The risks described in this report and in the 2023 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations. Our ABL Revolving Credit Facility and Term Loan Facility contain financial and restrictive covenants that we may be unable to satisfy, and that, if not satisfied, could result in the acceleration of any outstanding indebtedness thereunder and limit our ability to borrow additional funds. In addition, the terms of our ABL Revolving Credit Facility and Term Loan Facility contain covenants that restrict our current and future operations, particularly our ability to take certain actions. Our ABL Revolving Credit Facility and Term Loan Facility each subject us to various financial and other affirmative and negative covenants with which we must comply on an ongoing or periodic basis. These include financial covenants pertaining to minimum excess availability and minimum fixed charge coverage ratio requirements. An unexpected decline in our revenues or operating income, including occurring as a result of events beyond our control, could cause us to violate our financial covenants. A covenant violation could result in a default under the ABL Revolving Credit Facility and Term Loan Facility. If any such default occurs, the lenders may elect to declare all outstanding borrowings, together with accrued interest and other amounts payable thereunder, to be immediately due and payable. Further, as the amount available to us under our credit facilities is subject to borrowing base calculations determined by the value of accounts receivable, inventory, real estate and machinery and equipment (under our ABL Revolving Credit Facility), an unexpected decline in the value of these assets would require a mandatory prepayment. If any of these events were to occur, we may not be able to pay our debts and other monetary obligations as they come due, and our ability to continue to operate as a going concern could be impaired, which could in turn cause a significant decline in our stock price and could result in a significant loss of value for our shareholders. Furthermore, the lenders also have the right in these circumstances to terminate any commitments they have to provide further borrowings, which could leave us without access to sufficient liquidity to operate our business. In addition, following an event of default, the lenders under the ABL Revolving Credit Facility and Term Loan Facility will have the right to proceed against the collateral granted to them to secure the debt, which includes our available accounts receivable, inventory, machinery and equipment, real estate and intellectual property. If the debt under the ABL Revolving Credit Facility and Term Loan Facility were to be accelerated, we cannot assure you that our assets would be sufficient to repay in full our debt. Additionally, our ABL Revolving Credit Facility and Term Loan Facility also contain a number of restrictive covenants that impose significant operating and financial restrictions on the Company and our subsidiaries and may limit our ability to engage in acts that we believe to be in our long-term best interests. The ABL Revolving Credit Facility and Term Loan Facility include covenants restricting, among other things, the ability of the Company and our subsidiaries to: • incur additional indebtedness; • pay dividends on or repurchase our capital stock; • make certain acquisitions or investments; • sell assets; and • engage in certain business activities. Currently, our AES subsidiary is a defendant in actions filed in various jurisdictions by Lufthansa Technik AG relating to an allegation of patent infringement and based on rulings to date we have concluded that losses related to these proceedings are probable and the amounts of such losses could be substantial. Lufthansa Technik AG (“Lufthansa”) filed actions in Germany, the United Kingdom (“UK”) and France. These matters are more fully discussed in Note 19 in Item 8, Financial Statements and Supplementary Data of our Form 10-K, and in Note 14 of our Consolidated Financial Statements in Item 1, Financial Information of this report. In both Germany and the UK, the Company has been found to infringe the patents of Lufthansa and will be subject to monetary damages, estimates of which have been accrued as liabilities in our financial statements, but the actual amount of damages that may be addressed in the future could be substantially higher. In the matter before the UK High Court of Justice, Lufthansa has pleaded its case for monetary compensation at a separate trial which was 31 Table of Contents conducted in October 2024. Lufthansa is seeking damages significantly higher than the amount which has been accrued as a liability by the Company. Lufthansa has calculated its loss as up to $107 million, excluding interest. While we believe we have valid defenses and are vigorously defending all such litigation and proceedings, if the monetary damages award is decided adversely against the Company, the associated damages could have a material adverse effect on our results of operations, financial condition, cash flows, or business, and, based upon the amount of such damages award, there could be scenarios in which it could be difficult for the Company to satisfy the amount of such damages, in whole or in part. While the Company is performing scenario planning and is engaged with its lenders to seek to be in a position to cover the range of possible outcomes and satisfy any potential damages, these activities and other activities that the Company may undertake may not be successful or may not be sufficient to cover the full amount of any damages assessed.