ASTRONICS CORP 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Astronics Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Astronics Corporation (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 5, 2025 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Valuation of Goodwill of the Test Systems Reporting Unit Description of the Matter As of December 31, 2024, the Company’s goodwill balance was $58.1 million, of which $21.6 million related to the Test Systems reporting unit. As discussed in Notes 1 and 7 of the consolidated financial statements, the Company tests goodwill for impairment at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For each reporting unit, the Company performed a quantitative test using the discounted cash flow method to estimate fair value. The discounted cash flow method incorporates various assumptions, the most significant being projected sales growth rates, operating margins and cash flows, EBITDA margins, the terminal growth rate, and the weighted average cost of capital. If the carrying value of the reporting unit exceeds its fair value, goodwill impairment is measured as the amount by which the reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. Auditing management’s assumptions was challenging due to the estimation required in determining the fair value of the Company’s Test Systems reporting unit with goodwill. The fair value estimate for the Test Systems reporting unit was sensitive to the significant assumptions of the projected sales growth rates and EBITDA margins. These assumptions are affected by expectations about future market and economic conditions. 36 How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment testing process. This included the determination of the underlying significant assumptions described above, and the completeness and accuracy of the data used in the impairment analysis. To test the estimated fair value of the Company’s Test Systems reporting unit, we performed audit procedures with the assistance of our valuation professionals that included, among others, assessing the methodology used, testing the significant assumptions discussed above and testing the underlying data used in the impairment analysis. We compared the significant assumptions used by management to current industry and economic trends, historical trends of the Company, and other relevant factors. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptions. In addition, we tested the reconciliation of the fair value of the Company’s reporting units to the market capitalization of the Company as of the annual impairment testing date. Revenue Recognition Description of the Matter For the year ended December 31, 2024, the Company’s sales totaled $795.4 million. As discussed in Note 2 to the consolidated financial statements, the majority of the Company’s revenue from contracts with customers is recognized at a point in time when the customer obtains control of the product, which is generally upon delivery to the customer. For contracts with customers in which the Company satisfies its promise to the customer to provide a service or a product that has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company recognizes revenue over time as it satisfies the performance obligation. Auditing management’s evaluation of contracts with customers was especially challenging due to the judgment required to analyze the terms and conditions of the Company’s various customer contracts given that such terms and conditions are nonstandard. This included the assessment of alternative use and enforceable right to payment for purposes of determining if revenue from the contract should be recognized over time or at a point in time. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s revenue recognition process. We tested controls over management’s review of the terms and conditions of contracts with customers which included an analysis of the determination of alternative use and a review of the conclusion as to whether revenue from such performance obligations should be recognized over time or at a point in time. We performed procedures to test revenue recognition which included, among others, reading a sample of executed contracts and purchase orders to understand the contract and performing an independent assessment of alternative use and enforceable rights to payment. We tested the completeness and accuracy of the Company’s contract summary documentation, specifically related to determination of alternative use consideration and enforceable rights to payment plus profit which determines the timing of revenue recognition. /s/ Ernst & Young LLP We have served as the Company’s auditor since 1992. Buffalo, New York March 5, 2025 37 Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2024 based upon the framework in Internal Control – Integrated Framework originally issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting is effective as of December 31, 2024. Ernst & Young LLP, independent registered public accounting firm, has audited our Consolidated Financial Statements included in this Annual Report on Form 10-K and, as part of their audit, has issued their report, included herein, on the effectiveness of our internal control over financial reporting. By: /s/ Peter J. Gundermann March 5, 2025 Peter J. Gundermann President and Chief Executive Officer (Principal Executive Officer) /s/ Nancy L. Hedges March 5, 2025 Nancy L. Hedges Vice President and Chief Financial Officer (Principal Financial Officer) 38 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Astronics Corporation Opinion on Internal Control Over Financial Reporting We have audited Astronics Corporation’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Astronics Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) and our report dated March 5, 2025 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Buffalo, New York March 5, 2025 39 ASTRONICS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, (In thousands, except per share data) 2024 2023 2022 Sales $ 795,426 $ 689,206 $ 534,894 Cost of Products Sold 627,084 568,410 463,354 Gross Profit 168,342 120,796 71,540 Selling, General and Administrative Expenses 141,876 127,467 101,584 Income (Loss) from Operations 26,466 ( 6,671 ) ( 30,044 ) Net Gain on Sale of Businesses — 3,427 11,284 Loss on Extinguishment of Debt 10,148 — — Other Expense (Income), Net 2,187 ( 261 ) 1,611 Interest Expense, Net of Interest Income 21,998 23,328 9,422 Loss Before Income Taxes ( 7,867 ) ( 26,311 ) ( 29,793 ) Provision for Income Taxes 8,348 110 5,954 Net Loss $ ( 16,215 ) $ ( 26,421 ) $ ( 35,747 ) Basic Loss Per Share $ ( 0.46 ) $ ( 0.80 ) $ ( 1.11 ) Diluted Loss Per Share $ ( 0.46 ) $ ( 0.80 ) $ ( 1.11 ) See notes to Consolidated Financial Statements. 40 ASTRONICS CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Year Ended December 31, (In thousands) 2024 2023 2022 Net Loss $ ( 16,215 ) $ ( 26,421 ) $ ( 35,747 ) Other Comprehensive Income: Foreign Currency Translation Adjustments ( 1,871 ) 984 ( 1,928 ) Retirement Liability Adjustment – Net of Tax 7,434 ( 884 ) 6,897 Total Other Comprehensive Income 5,563 100 4,969 Comprehensive Loss $ ( 10,652 ) $ ( 26,321 ) $ ( 30,778 ) See notes to Consolidated Financial Statements. 41 ASTRONICS CORPORATION CONSOLIDATED BALANCE SHEETS December 31, (In thousands, except share and per share data) 2024 2023 ASSETS Current Assets: Cash and Cash Equivalents $ 9,285 $ 4,756 Restricted Cash 9,143 6,557 Accounts Receivable, Net of Allowance for Estimated Credit Losses 191,446 172,108 Inventories 199,741 191,801 Prepaid Expenses and Other Current Assets 16,557 14,560 Total Current Assets 426,172 389,782 Property, Plant and Equipment, Net of Accumulated Depreciation 80,687 85,436 Operating Right-of-Use Assets 23,609 27,909 Other Assets 7,763 7,035 Intangible Assets, Net of Accumulated Amortization 52,477 65,420 Goodwill 58,056 58,210 Total Assets $ 648,764 $ 633,792 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Current Maturities of Long-term Debt $ — $ 8,996 Accounts Payable 42,960 61,134 Accrued Payroll and Employee Benefits 33,409 22,038 Accrued Income Taxes 6,678 3,045 Current Operating Lease Liabilities 4,697 5,069 Other Accrued Expenses 40,917 21,023 Customer Advanced Payments and Deferred Revenue 27,491 22,029 Total Current Liabilities 156,152 143,334 Long-term Debt 168,669 159,237 Supplemental Retirement Plan and Other Liabilities for Pension Benefits 24,088 29,290 Long-term Operating Lease Liabilities 20,508 24,376 Other Liabilities 21,816 26,730 Deferred Income Taxes 1,434 1,307 Total Liabilities 392,667 384,274 Shareholders’ Equity: Common Stock, $ .01 par value, Authorized 80,000,000 Shares 32,870,619 Shares Issued and 30,176,364 Outstanding at December 31, 2024 31,402,141 Shares Issued and 28,569,316 Outstanding at December 31, 2023 329 314 Convertible Class B Stock, $ .01 par value, Authorized 15,000,000 Shares 5,086,169 Shares Issued and Outstanding at December 31, 2024 5,952,203 Shares Issued and Outstanding at December 31, 2023 51 59 Additional Paid-in Capital 144,149 129,544 Accumulated Other Comprehensive Loss ( 3,863 ) ( 9,426 ) Retained Earnings 192,208 209,753 Treasury Stock, 2,694,255 Shares at December 31, 2024 2,832,825 Shares at December 31, 2023 ( 76,777 ) ( 80,726 ) Total Shareholders’ Equity 256,097 249,518 Total Liabilities and Shareholders’ Equity $ 648,764 $ 633,792 See notes to Consolidated Financial Statements. 42 ASTRONICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (In thousands) 2024 2023 2022 Cash Flows from Operating Activities Net Loss $ ( 16,215 ) $ ( 26,421 ) $ ( 35,747 ) Adjustments to Reconcile Net Loss to Cash from Operating Activities: Non-cash Items: Depreciation and Amortization 24,466 26,104 27,777 Amortization of Deferred Financing Fees 3,194 3,023 — Provisions for Non-Cash Losses on Inventory and Receivables 13,782 16,003 3,415 Equity-based Compensation Expense 8,571 7,198 6,497 Loss on Extinguishment of Debt 10,148 — — Deferred Tax (Benefit) Expense ( 20 ) 146 19 Operating Lease Non-cash Expense 5,175 5,088 6,028 Non-cash 401K Contribution and Quarterly Bonus Accrual 3,454 6,549 4,512 Non-cash Annual Stock Bonus Accrual — 2,806 — Net Gain on Sale of Business, Before Taxes — ( 3,427 ) ( 11,284 ) Non-cash Litigation Provision Adjustment 4,468 ( 1,305 ) 500 Non-cash Deferred Liability Recovery — ( 5,824 ) — Other 5,807 1,913 3,086 Changes in Operating Assets and Liabilities: Accounts Receivable ( 21,983 ) ( 31,872 ) ( 41,646 ) Inventories ( 21,551 ) ( 13,283 ) ( 34,058 ) Accounts Payable ( 17,693 ) ( 4,495 ) 27,843 Accrued Expenses 21,987 4,634 1,193 Income Taxes 4,498 ( 1,949 ) 16,134 Customer Advanced Payments and Deferred Revenue 5,693 ( 4,835 ) 5,264 Operating Lease Liabilities ( 5,125 ) ( 4,880 ) ( 7,295 ) Supplemental Retirement Plan Liabilities ( 410 ) ( 408 ) ( 405 ) Other Assets and Liabilities 2,320 1,285 ( 145 ) Net Cash from Operating Activities 30,566 ( 23,950 ) ( 28,312 ) Cash Flows from Investing Activities Proceeds from Sale of Businesses and Assets — 3,537 22,061 Capital Expenditures ( 8,428 ) ( 7,643 ) ( 7,675 ) Net Cash from Investing Activities $ ( 8,428 ) $ ( 4,106 ) $ 14,386 43 A STRONICS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED Year Ended December 31, (In thousands) 2024 2023 2022 Cash Flows from Financing Activities Proceeds from Long-term Debt $ 377,392 $ 139,732 $ 125,825 Principal Payments on Long-term Debt ( 374,890 ) ( 131,233 ) ( 124,825 ) Stock Award and Employee Stock Purchase Plan (“ESPP”) activity ( 241 ) 2,476 97 Proceeds from At-the-Market (“ATM”) Stock Sales — 21,269 — Financing-Related Costs ( 12,150 ) ( 6,762 ) ( 2,416 ) Financing Extinguishment Costs ( 4,496 ) — — Other ( 145 ) ( 47 ) ( 93 ) Net Cash from Financing Activities ( 14,530 ) 25,435 ( 1,412 ) Effect of Exchange Rates on Cash ( 493 ) 156 ( 641 ) Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash 7,115 ( 2,465 ) ( 15,979 ) Cash and Cash Equivalents and Restricted Cash at Beginning of Year 11,313 13,778 29,757 Cash and Cash Equivalents and Restricted Cash at End of Year $ 18,428 $ 11,313 $ 13,778 Supplemental Disclosure of Cash Flow Information Interest Paid $ 19,238 $ 17,689 $ 7,605 Income Taxes Paid, Net of Refunds $ 3,537 $ 1,964 $ ( 9,978 ) See notes to Consolidated Financial Statements. 44 ASTRONICS CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Year Ended December 31, (In thousands) 2024 2023 2022 Common Stock Beginning of Year $ 314 $ 291 $ 289 Issuance of Common Stock Through At-the-Market Offering — 14 — Net Exercise of Stock Options, including ESPP 2 4 — Net Issuance of Common Stock for Restricted Stock Units (“RSUs”) 5 1 1 Class B Stock Converted to Common Stock 8 4 1 End of Year $ 329 $ 314 $ 291 Convertible Class B Stock Beginning of Year $ 59 $ 63 $ 64 Class B Stock Converted to Common Stock ( 8 ) ( 4 ) ( 1 ) End of Year $ 51 $ 59 $ 63 Additional Paid in Capital Beginning of Year $ 129,544 $ 98,630 $ 92,037 Issuance of Common Stock Through ATM Offering, Net of Offering Costs — 21,246 — Equity-based Compensation Expense and Net Exercise of Stock Options, including ESPP 11,544 10,309 6,897 Gross Shares Issued to Fund Bonus Obligations 6,281 — — Tax Withholding Related to Issuance of RSUs and Shares for Bonus Obligations ( 3,220 ) ( 641 ) ( 304 ) End of Year $ 144,149 $ 129,544 $ 98,630 Accumulated Comprehensive Loss Beginning of Year $ ( 9,426 ) $ ( 9,526 ) $ ( 14,495 ) Foreign Currency Translation Adjustments ( 1,871 ) 984 ( 1,928 ) Retirement Liability Adjustment – Net of Taxes 7,434 ( 884 ) 6,897 End of Year $ ( 3,863 ) $ ( 9,426 ) $ ( 9,526 ) Retained Earnings Beginning of Year $ 209,753 $ 240,360 $ 287,225 Net Loss ( 16,215 ) ( 26,421 ) ( 35,747 ) Reissuance of Treasury Shares for 401K Contribution ( 1,330 ) ( 4,186 ) ( 11,118 ) End of Year $ 192,208 $ 209,753 $ 240,360 Treasury Stock Beginning of Year $ ( 80,726 ) $ ( 89,898 ) $ ( 108,516 ) Shares Issued to Fund 401K Obligation 3,949 9,172 18,618 End of Year $ ( 76,777 ) $ ( 80,726 ) $ ( 89,898 ) Total Shareholders’ Equity $ 256,097 $ 249,518 $ 239,920 See notes to Consolidated Financial Statements. ASTRONICS CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY, CONTINUED Year Ended December 31, (Share data, in thousands) 2024 2023 2022 Common Stock Beginning of Year 31,402 29,122 28,911 Issuance of Common Stock Through ATM Offering — 1,334 — Net Issuance from Exercise of Stock Options, including ESPP 220 437 20 Net Issuance to Fund Bonus Obligations 218 — — Net Issuance of Common Stock for RSUs 165 147 106 Class B Stock Converted to Common Stock 866 362 85 End of Year 32,871 31,402 29,122 Convertible Class B Stock Beginning of Year 5,952 6,314 6,375 Net Issuance from Exercise of Stock Options — — 24 Class B Stock Converted to Common Stock ( 866 ) ( 362 ) ( 85 ) End of Year 5,086 5,952 6,314 Treasury Stock Beginning of Year 2,833 3,155 3,808 Shares Issued to Fund 401K Obligation ( 139 ) ( 322 ) ( 653 ) End of Year 2,694 2,833 3,155 See notes to Consolidated Financial Statements. 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND PRACTICES Description of the Business Astronics Corporation (“Astronics” or the “Company”) is a leading provider of advanced technologies to the global aerospace, defense, and electronics industries. Our products and services include advanced, high-performance electrical power generation, distribution and 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 and France, as well as engineering offices in Ukraine and India. The Company has two reportable segments, Aerospace and Test Systems. The Aerospace segment designs and manufactures products for the global aerospace and defense industry. 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. Principles of Consolidation The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. The Company accounts for its acquisitions under Accounting Standard Codification (“ASC”) Topic 805, Business Combinations and Reorganizations (“ASC Topic 805”). ASC Topic 805 provides guidance on how the acquirer recognizes and measures the consideration transferred, identifiable assets acquired, liabilities assumed, non-controlling interests, and goodwill acquired in a business combination. ASC Topic 805 also expands required disclosures surrounding the nature and financial effects of business combinations. There were no acquisitions in 2024, 2023 or 2022. Cost of Products Sold, Research and Development and Selling, General and Administrative Expenses Cost of Products Sold includes the costs to manufacture products such as direct materials and labor and manufacturing overhead as well as all engineering and developmental costs. The Company is engaged in a variety of research and development activities directed to the substantial improvement or new application of the Company’s existing technologies. Research and development costs are expensed as incurred and include salaries, benefits, consulting, material costs and depreciation. Research and development expenses amounted to $ 52.1 million in 2024, $ 53.5 million in 2023 and $ 48.3 million in 2022. These costs are included in Cost of Products Sold. SG&A expenses include costs primarily related to our sales, marketing and administrative departments. Interest expense is shown net of interest income. Interest income was insignificant for the years ended December 31, 2024, 2023 and 2022. Government Subsidies In September 2021, the Company was awarded a grant of up to $ 14.7 million from the U.S. Department of Transportation (“USDOT”) under the Aviation Manufacturing Jobs Protection Program (“AMJP”). The Company received $ 7.3 million under the grant in 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 was intended to defray. During the year ended December 31, 2022, the Company recognized $ 6.0 million of the award. There was no additional expense reduction recognized in 2024 or 2023. Shipping and Handling Shipping and handling costs are included in Cost of Products Sold. Equity-Based Compensation The Company accounts for its stock options following ASC Topic 718, Compensation – Stock Compensation (“ASC Topic 718”). ASC Topic 718 requires all equity-based payments to employees, including grants of employee stock options and RSUs, to be recognized in the statement of earnings based on the grant date fair value of the award. For awards with graded vesting, the Company uses a straight-line method of attributing the value of stock-based compensation expense, subject to minimum levels of expense, based on vesting. The Company accounts for forfeitures as they occur. 46 Under ASC Topic 718, stock compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Equity-based compensation expense is included in SG&A Expenses. Cash and Cash Equivalents All highly liquid instruments with a maturity of three months or less at the time of purchase are considered cash equivalents. Restricted Cash Under the provisions of the ABL Revolving Credit Facility (as defined and discussed below in Note 8, Long-Term Debt), the Company has a cash dominion arrangement with the banking institution for its accounts within the United States whereby daily cash receipts are contractually utilized to pay down outstanding balances on the ABL Revolving Credit Facility. Account balances that have not yet been applied to the ABL Revolving Credit Facility are classified as restricted cash in the accompanying Consolidated Balance Sheets. The following table provides a reconciliation of cash and restricted cash included in Consolidated Balance Sheets to the amounts included in the Consolidated Statements of Cash Flows. December 31, (In thousands) 2024 2023 Cash and Cash Equivalents $ 9,285 $ 4,756 Restricted Cash 9,143 6,557 Total Cash and Restricted Cash Shown in Statements of Cash Flows $ 18,428 $ 11,313 Customer Bankruptcies In October 2024, a customer reported within the Aerospace segment declared bankruptcy. As a result, the Company recorded a full reserve of $ 1.0 million for outstanding receivables, a reserve of $ 1.7 million for inventory and $ 0.6 million for impairment of fixed assets. 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 a reserve of $ 3.6 million for inventory. The associated assets existed prior to 2023. Accounts Receivable and Allowance for Estimated Credit Losses Accounts receivable are composed of trade and contract receivables recorded at either the invoiced amount or costs in excess of billings, are expected to be collected within one year, and do not bear interest. The Company records a valuation allowance to account for estimated credit losses. The estimate for credit losses is based on the Company’s assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as the age of the receivable balances, historical experience, credit quality, current economic conditions, and reasonable and supportable forecasts of future economic conditions that may affect a customer’s ability to pay. Balances are written off when determined to be uncollectible. Although the Company has historically not experienced significant credit losses, the Company’s exposure to credit losses may increase if its customers are adversely affected by global economic recessions, industry conditions, or other customer-specific factors. Inventories We record our inventories at the lower of cost or net realizable value. We determine the cost basis of our inventory on a first-in, first-out or weighted average basis using a standard cost methodology that approximates actual cost. The Company records reserves to provide for excess, slow moving or obsolete inventory. In determining the appropriate reserve, the Company considers the age of inventory on hand, the overall inventory levels in relation to forecasted demands as well as reserving for specifically identified inventory that the Company believes is no longer salable or whose value has diminished. Cloud Computing Arrangements The Company incurs costs to implement cloud computing arrangements that are hosted by third party vendors. Implementation costs associated with cloud computing arrangements are capitalized when incurred during the application development phase. Amortization is calculated on a straight-line basis over the contractual term of the cloud computing arrangement. Capitalized amounts related to such arrangements are recorded within Other Current Assets and other non-current assets in the Consolidated Balance Sheets and were insignificant as of December 31, 2024 and December 31, 2023. 47 Property, Plant and Equipment Property, plant and equipment (“PP&E”) are recorded at cost less accumulated depreciation. Depreciation of property, plant and equipment is computed using the straight-line method for financial reporting purposes and using accelerated methods for income tax purposes. Estimated useful lives of the assets are as follows: buildings, 25 - 40 years; and machinery and equipment, 4 - 10 years. Leased buildings and associated leasehold improvements are amortized over the shorter of the terms of the lease or the estimated useful lives of the assets, with the amortization of such assets included within depreciation expense. The cost of properties sold or otherwise disposed of and the accumulated depreciation thereon are eliminated from the accounts and the resulting gain or loss, as well as maintenance and repair expenses, is reflected within operating income. Replacements and improvements are capitalized. Depreciation expense was approximately $ 11.5 million, $ 12.2 million and $ 12.0 million in 2024, 2023 and 2022, respectively. Deferred Financing Costs The Company incurs debt issuance costs in connection with amending or entering into new credit facilities. These costs are amortized as an adjustment to interest expense over term of the credit facility on a straight-line basis, which approximates the effective interest method. This amortization expense is included in interest expense in the Company’s Consolidated Statements of Operations. Upon early termination or modification of a credit facility, all or a portion of unamortized fees related to such facility may be accelerated into interest expense or loss on debt extinguishment. See Note 8, Long-Term Debt, for details of our deferred financing costs. Long-Lived Assets Long-lived assets to be held and used are initially recorded at cost. The carrying value of these assets is evaluated for recoverability whenever adverse effects or changes in circumstances indicate that the carrying amount may not be recoverable. Impairments are recognized if future undiscounted cash flows from operations are not expected to be sufficient to recover long-lived assets. The carrying amounts are then reduced to fair value, which is typically determined by using a discounted cash flow model. Assets held for sale are to be reported at lower of its carrying amount or fair value less cost to sell. Judgment is required in estimating the sales price of assets held for sale and the time required to sell the assets. These estimates are based upon available market data and operating cash flows of the assets held for sale. Goodwill The Company tests goodwill at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We may elect to perform a qualitative assessment that considers economic, industry and company-specific factors for all or selected reporting units. If, after completing the assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to a quantitative test. We may also elect to perform a quantitative test instead of a qualitative test for any or all of our reporting units. Quantitative testing requires a comparison of the fair value of each reporting unit to its carrying value. We use the discounted cash flow method to estimate the fair value of our reporting units. The discounted cash flow method incorporates various assumptions, the most significant being projected sales growth rates, operating margins and cash flows, the terminal growth rate and the weighted average cost of capital, which are Level 3 inputs in the fair value hierarchy. If the carrying value of the reporting unit exceeds its fair value, goodwill impairment is measured as the amount by which the reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. The 2024, 2023 and 2022 assessments indicated no impairment to the carrying value of goodwill in any of the Company’s reporting units and no impairment charges were recognized. Intangible Assets The estimated fair values of acquired intangibles are generally determined based upon future economic benefits such as earnings and cash flows. Acquired identifiable intangible assets are recorded at fair value and are amortized over their estimated useful lives. Acquired intangible assets with an indefinite life are not amortized, but are reviewed for impairment at least annually or more frequently whenever events or changes in circumstances indicate that the carrying amounts of those assets are 48 below their estimated fair values. Impairment is tested under ASC Topic 350, Intangibles - Goodwill and Other, as amended by ASU 2012-2. The 2024, 2023 and 2022 assessments indicated no impairment to the intangible assets in any of the Company’s reporting units and no impairment charges were recognized. Financial Instruments The Company’s financial instruments consist primarily of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and long-term debt. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. The Company does not hold or issue financial instruments for trading purposes. Due to their short-term nature, the carrying values of cash and equivalents, restricted cash, accounts receivable and accounts payable approximate fair value. The carrying value of the Company’s variable rate long-term debt instruments also approximates fair value due to the variable rate feature of these instruments. The fair value of the Convertible Senior Notes due 2030 (the “Convertibles Notes”) was approximately $ 176.9 million as of December 31, 2024 based on quoted prices for these instruments in active markets, and is classified as a Level 1 measurement within the fair value hierarchy. From time to time, the Company makes long-term, strategic equity investments in companies to promote business and strategic objectives. These investments as classified within other assets in the Consolidated Balance Sheets. For investments requiring equity method accounting, we recognize our share of the investee’s earnings or losses within Other Expense, Net of Other Income in the Consolidated Statements of Operations. For investments not requiring equity method accounting, if the investment has no readily determinable fair value, we have elected the practicability exception of ASU 2016-01, under which the investment is measured at cost, less impairment, plus or minus observable price changes from orderly transactions of an identical or similar investment of the same issuer. We recognized income of $ 1.8 million associated with the reversal of a liability related to an equity investment, as we were no longer required to make an associated payment. This amount is included in Other Expense, Net of Other Income in the Consolidated Statement of Operations in 2023. Our ownership percentage in this company was diluted during 2023, thus our equity investment was converted to the cost method. Deferred Tax Asset Valuation Allowance The Company records a valuation allowance against the deferred tax assets if and to the extent it is more likely than not that the Company will not recover the deferred tax assets. In evaluating the need for a valuation allowance, the Company weighs all relevant positive and negative evidence, and considers among other factors, historical financial performance, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, and tax planning strategies. After considering the losses in recent periods and cumulative pre-tax losses in the three-year period ending with the current year, the Company determined that projections of future taxable income could not be relied upon as a source of income to realize its deferred tax assets. However, the Company is relying on a significant portion of its existing deferred tax liabilities for the realizability of deferred tax assets. As a result, the Company has valuation allowances against its deferred tax assets of approximately $ 78.7 million, $ 65.6 million, and $ 57.4 million during the years ended December 31, 2024, 2023 and 2022, respectively, for the portion of deferred tax asset not realizable by the Company’s existing deferred tax liabilities. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of sales and expenses during the reporting periods in the financial statements and accompanying notes. Actual results could differ from those estimates. Foreign Currency Translation The Company accounts for its foreign currency translation in accordance with ASC Topic 830, Foreign Currency Translation . The aggregate transaction gains and losses included in operations were insignificant in 2024, 2023 and 2022. Dividends The Company has no t paid any cash dividends in the three-year period ended December 31, 2024. 49 Loss Contingencies Loss contingencies may from time to time arise from situations such as claims and other legal actions. Loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. In all other instances, legal fees are expensed as incurred. Disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the recorded provision. Contingent liabilities are often resolved over long time periods. In recording liabilities for probable losses, management is required to make estimates and judgments regarding the amount or range of the probable loss. Management continually assesses the adequacy of estimated loss contingencies and, if necessary, adjusts the amounts recorded as better information becomes known. Recent Accounting Pronouncements Recent Accounting Pronouncements Adopted Standard Description Financial Statement Effect or Other Significant Matters ASU No. 2023-07 Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosure The standard includes updates to the disclosure requirements for a public entity’s reportable segments and provides more detailed information about a reportable segment’s expenses. The new standard is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024, with retrospective application required. The adoption resulted in additional disclosures in the notes to our Consolidated Financial Statements. The standard does not change how the Company identifies its operating or reportable segments, and did not impact the Company’s consolidated financial condition, results of operations or cash flows. 50 Recent Accounting Pronouncements Not Yet Adopted Standard Description Financial Statement Effect or Other Significant Matters ASU No. 2023-09 Income Taxes (Topic 740), Improvements to Income Tax Disclosures The amendments in this update require enhanced disclosures within the annual rate reconciliation, including new requirements to present reconciling items on a gross basis in specified categories, disclosure of both percentages and dollar amounts, and disaggregation of the reconciling items by nature when they meet a quantitative threshold. The update also includes enhanced disclosure requirements for income taxes paid. The new standard is effective for fiscal periods beginning after December 15, 2024; early adoption is permitted. The Company is currently reviewing the guidance and evaluating the impact on our Consolidated Financial Statements and related disclosures. ASU No. 2024-03 Income Statement - Reporting Comprehensive Income-Expense Disaggregation Disclosures (Topic 220), Disaggregation of Income Statement Expenses This standard requires disclosure of specified information about certain cost and expenses at each interim and annual reporting period. This includes disclosure of the amounts of purchases of inventory, employee compensation, depreciation and intangible asset for each relevant expense caption on the income statement, as well as the total amount of selling expenses. Additionally, the amendments require disclosing a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated. The provisions of the standard are effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to all prior periods presented in the financial statements. The Company is currently reviewing the guidance and evaluating the impact on our Consolidated Financial Statements and related disclosures. ASU No. 2024-04 -Debt - Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments The amendments in this update clarify the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion or an extinguishment. The new standard is effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company is currently reviewing the guidance and evaluating the impact on our Consolidated Financial Statements and related disclosures. We consider the applicability and impact of all ASUs. ASUs not listed above were assessed and determined to be either not applicable or had or are expected to have minimal impact on our financial statements and related disclosures. NOTE 2 — REVENUE Revenue is recognized when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration the Company expects to be entitled in exchange for transferring those products or services. Sales shown on the Company’s Consolidated Statements of Operations are from contracts with customers. Payment terms and conditions vary by contract, although terms generally include a requirement of payment within a range from 30 to 90 days after the performance obligation has been satisfied; or in certain cases, up-front deposits. In circumstances where the timing of revenue recognition differs from the timing of receipt of consideration, the Company has determined that the Company’s contracts generally do not include a significant financing component. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from sales. The Company recognizes an asset for the incremental, material costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year and the costs are expected to be recovered. These incremental costs include, but are not limited to, sales commissions incurred to obtain a contract with a customer. The Company has elected the practical expedient available under ASC 340-40-25-4 to immediately expense the incremental cost of obtaining a contract when the expected benefit of those costs is less than one year. As of December 31, 2024 and 2023, the Company did not have material incremental costs on any open contracts with an original expected duration of greater than one year. The Company recognizes an asset for certain, material costs to fulfill a contract if it is determined that the costs relate directly to a contract or an anticipated contract that can be specifically identified, generate or enhance resources that will be used in satisfying performance obligations in the future, and are expected to be recovered. Such costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods to which the asset relates. Start-up costs are expensed as incurred. Capitalized fulfillment costs are included in Inventories in the accompanying Consolidated Balance Sheets. Should future orders not materialize or it is determined the costs are no longer probable of recovery, the capitalized costs are written 51 off. The Company has capitalized $ 8.3 million a nd $ 4.7 million of costs as of December 31, 2024 and 2023, respectively. Amortization of fulfillment costs recognized within Cost of Products Sold was $ 3.1 million in 2024 . No amortization of fulfillment costs was recorded in 2023 or 2022 . A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts which are, therefore, not distinct. Thus, the contract’s transaction price is the revenue recognized when or as that performance obligation is satisfied. Promised goods or services that are immaterial in the context of the contract are not separately assessed as performance obligations. Some of our contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the product lifecycle (development, production, maintenance and support). For contracts with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus margin approach, under which expected costs are forecast to satisfy a performance obligation and then an appropriate margin is added for that distinct good or service. Shipping and handling activities that occur after the customer has obtained control of the good are considered fulfillment activities, not performance obligations. Some of our contracts offer price discounts or free units after a specified volume has been purchased. The Company evaluates these options to determine whether they provide a material right to the customer, representing a separate performance obligation. If the option provides a material right to the customer, revenue is allocated to these rights and recognized when those future goods or services are transferred, or when the option expires. Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for goods or services that are distinct, and, therefore, are accounted for as new contracts. The effect of modifications has been reflected when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price. The majority of the Company’s revenue from contracts with customers is recognized at a point in time, when the customer obtains control of the promised product. In general, the customer has obtained control when they have legal title, significant risks and rewards of ownership of the asset, and the Company has a present right to payment for the product. These contracts may provide credits or incentives, which may be accounted for as variable consideration. Variable consideration is estimated at the most likely amount to predict the consideration to which the Company will be entitled, and only to the extent it is probable that a subsequent change in estimate will not result in a significant revenue reversal when estimating the amount of revenue to recognize. Variable consideration is treated as a change to the sales transaction price and based on an assessment of all information (i.e., historical, current and forecasted) that is reasonably available to the Company, and estimated at contract inception and updated at the end of each reporting period as additional information becomes available. Most of our contracts do not contain rights to return product; where this right does exist, it is evaluated as possible variable consideration. For contracts that are subject to the requirement to accrue anticipated losses, the Company recognizes the entire anticipated loss in the period that the loss becomes probable. For contracts with customers in which the Company promises to provide a product to the customer that has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company satisfies the performance obligation and recognizes revenue over time, using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material and overhead. The Company also recognizes revenue from service contracts (including service-type warranties) over time. The Company recognizes revenue over time during the term of the agreement as the customer is simultaneously receiving and consuming the benefits provided throughout the Company’s performance. The Company typically recognizes revenue over time using a cost-to-cost method, where revenues are recognized proportionally as costs are incurred, or on a straight-line basis throughout the contract period. On December 31, 2024, we had $ 599.2 million of remaining performance obligations, which we refer to as total backlog. We expect to recognize approximately $ 488.8 million of our remaining performance obligations as revenue in 2025. Costs in excess of billings includes unbilled amounts resulting from revenues under contracts with customers that are satisfied over time and when the cost-to-cost measurement method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. Amounts may not exceed their net 52 realizable value. Costs in excess of billings are classified as current assets, within Accounts Receivable, Net of Allowance for Estimated Credit Losses on our Consolidated Balance Sheets. Billings in excess of cost includes billings in excess of revenue recognized as well as other elements of deferred revenue, which includes advanced payments, up-front payments, and progress billing payments. Billings in excess of cost are reported in our Consolidated Balance Sheets classified as current liabilities, within Customer Advance Payments and Deferred Revenue, and non-current liabilities, within Other Liabilities. To determine the revenue recognized in the period from the beginning balance of billings in excess of cost, the contract liability as of the beginning of the period is recognized as revenue on a contract-by-contract basis when the Company satisfies the performance obligation related to the individual contract. Once the beginning contract liability balance for an individual contract has been fully recognized as revenue, any additional payments received in the period are recognized as revenue once the related costs have been incurred. The Company's contract assets and contract liabilities consist primarily of costs and profits in excess of billings and billings in excess of cost and profits, respectively. The following table presents the beginning and ending balances of contract assets and contract liabilities: (In thousands) Contract Assets Contract Liabilities Beginning Balance, January 1, 2024 $ 46,321 $ 22,888 Ending Balance, December 31, 2024 $ 54,171 $ 28,171 The increase in contract assets reflects the net impact of new revenue recognized in excess of billings exceeding billing of previously unbilled revenue during the period, partially offset by a $ 3.5 million revision of estimated costs to complete certain long-term mass transit Test contracts which was recorded in the second quarter of 2024. The revision resulted in reduced revenue recognized during 2024 due to lower estimates of the percentage of work completed on the programs. The increase in contract liabilities reflects the net impact of new customer advances or deferred revenues recorded in excess of revenue recognized. We recognized $ 16.8 million and $ 27.6 million during the year ended December 31, 2024 and 2023, respectively, in revenues that were included in the contract liability balance at the beginning of the period. The following table presents our revenue disaggregated by Market Segments as of December 31 as follows: (In thousands) 2024 2023 2022 Aerospace Segment Commercial Transport $ 524,572 $ 432,199 $ 314,564 Military Aircraft 88,019 61,617 54,534 General Aviation 74,344 80,842 63,395 Other 19,749 30,172 28,703 Aerospace Total 706,684 604,830 461,196 Test Systems Segment Government & Defense 88,742 84,376 73,698 Test Systems Total 88,742 84,376 73,698 Total $ 795,426 $ 689,206 $ 534,894 53 The following table presents our revenue disaggregated by Product Lines as of December 31 as follows: (In thousands) 2024 2023 2022 Aerospace Segment Electrical Power & Motion $ 359,043 $ 268,049 $ 187,446 Lighting & Safety 179,403 157,434 124,347 Avionics 120,183 113,117 97,234 Systems Certification 17,003 26,255 17,222 Structures 11,303 9,803 6,244 Other 19,749 30,172 28,703 Aerospace Total 706,684 604,830 461,196 Test Systems 88,742 84,376 73,698 Total $ 795,426 $ 689,206 $ 534,894 NOTE 3 — ACCOUNTS RECEIVABLE Accounts receivable at December 31 consists of: (In thousands) 2024 2023 Trade Accounts Receivable $ 139,652 $ 134,980 Unbilled Recoverable Costs and Accrued Profits 54,171 46,321 Total Receivables, Gross 193,823 181,301 Less Allowance for Estimated Credit Losses ( 2,377 ) ( 9,193 ) Total Receivables, Net $ 191,446 $ 172,108 The following table provides a roll-forward of the allowance for estimated credit losses that is deducted from accounts receivable to present the net amount expected to be collected at December 31: (In thousands) Balance at December 31, 2022 $ 2,630 Bad Debt Expense, Net of Recoveries 7,772 Write-off Charges Against the Allowance and Other Adjustments ( 1,209 ) Balance at December 31, 2023 9,193 Bad Debt Expense, Net of Recoveries 1,348 Write-off Charges Against the Allowance and Other Adjustments ( 8,164 ) Balance at December 31, 2024 $ 2,377 As further described in Note 1, Summary of Significant Accounting Principles and Practices, the Company recorded a $ 1.0 million and $ 7.5 million reserve for outstanding receivables for customer bankruptcies within the Aerospace segment in 2024 and 2023, respectively. The reserve associated with the customer bankruptcy in 2023 was subsequently written off in 2024. 54 NOTE 4 — INVENTORIES Inventories at December 31 are as follows: (In thousands) 2024 2023 Finished Goods $ 27,941 $ 29,013 Work in Progress 31,927 32,118 Raw Material 139,873 130,670 Total Inventories $ 199,741 $ 191,801 At December 31, 2024, the Company’s reserve for inventory valuation was $ 43.3 million, or 17.8 % of gross inventory. At December 31, 2023, the Company’s reserve for inventory valuation was $ 38.5 million, or 16.7 % of gross inventory. As further described in Note 1, Summary of Significant Accounting Principles and Practices, the Company recorded a $ 1.7 million and $ 3.6 million reduction in inventory for customer bankruptcies within the Aerospace segment in 2024 and 2023, respectively. NOTE 5 — PROPERTY, PLANT AND EQUIPMENT Property, Plant and Equipment at December 31 are as follows: (In thousands) 2024 2023 Land $ 8,551 $ 8,606 Building and Improvements 72,150 71,480 Machinery and Equipment 125,874 126,725 Construction in Progress 3,997 4,219 Total Property, Plant and Equipment, Gross 210,572 211,030 Less Accumulated Depreciation 129,885 125,594 Total Property, Plant and Equipment, Net $ 80,687 $ 85,436 NOTE 6 — INTANGIBLE ASSETS The following table summarizes acquired intangible assets at December 31 as follows: 2024 2023 (In thousands) Weighted Average Life Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Patents 11 years $ 2,146 $ 2,146 $ 2,146 $ 2,146 Non-compete Agreement 4 years 11,082 11,082 11,082 11,072 Trade Names 10 years 11,380 10,351 11,426 9,973 Completed and Unpatented Technology 9 years 47,818 42,617 47,896 38,961 Customer Relationships 15 years 142,065 95,818 142,208 87,186 Total Intangible Assets 13 years $ 214,491 $ 162,014 $ 214,758 $ 149,338 Amortization is computed on the straight line method for financial reporting purposes. Amortization expense for intangibles was $ 12.9 million, $ 13.9 million and $ 14.9 million for 2024, 2023 and 2022, respectively. Based upon acquired intangible assets at December 31, 2024, amortization expense for each of the next five years is estimated to be: (In thousands) 2025 $ 10,935 2026 $ 9,533 2027 $ 7,825 2028 $ 7,037 2029 $ 5,664 55 NOTE 7 — GOODWILL The following table summarizes the changes in the carrying amount of goodwill at December 31 as follows: (In thousands) Aerospace Test Systems Total Balance at December 31, 2022 $ 36,534 $ 21,635 $ 58,169 Foreign Currency Translations and Other 41 — 41 Balance at December 31, 2023 36,575 21,635 58,210 Foreign Currency Translations and Other ( 154 ) — ( 154 ) Balance at December 31, 2024 $ 36,421 $ 21,635 $ 58,056 Goodwill, Gross $ 157,122 $ 21,635 $ 178,757 Accumulated Impairment Losses ( 120,701 ) — ( 120,701 ) Goodwill, Net $ 36,421 $ 21,635 $ 58,056 The Company’s four reporting units with goodwill as of the first day of our fourth quarters of 2024, 2023 and 2022 were subject to the annual goodwill impairment test. Based on our quantitative assessments of our reporting units performed during our annual goodwill impairment tests, the Company concluded that no impairment to the carrying value of goodwill in any of the Company’s reporting units was indicated and no impairment charges were recognized in 2024, 2023 and 2022. NOTE 8 — LONG-TERM DEBT The Company amended its asset-based revolving credit facility (the “ABL Revolving Credit Facility”) on July 11, 2024, by entering into the Seventh Amended and Restated Credit Agreement, which set the maximum aggregate amount that the Company can borrow pursuant to the revolving credit line at $ 200.0 million, with borrowings subject to a borrowing base determined primarily by inventory, accounts receivable, machinery and equipment and real estate. The Company also entered into a $ 55.0 million Term Loan Facility on July 11, 2024. The Company repaid in full all outstanding indebtedness under the previous term loan dated January 19, 2023. The payoff amount of approximately $ 84.5 million consisted of a repayment of the principal amount of approximately $ 80.3 million, plus accrued but unpaid interest, fees and expenses, including a call premium of 4.00 % which satisfied all of the Company’s indebtedness obligations thereunder. The Company funded the repayment of its obligations under the previous agreement with borrowings under the ABL Revolving Credit Facility and the Term Loan Facility. On November 25, 2024, the Company entered into a second amendment to the ABL Revolving Credit Facility which increased the maximum aggregate amount that the Company can borrow pursuant to the ABL Revolving Credit Facility to $ 220.0 million from $ 200.0 million. The maturity date of borrowings under the ABL Revolving Credit Facility remains July 11, 2027. The Company and the applicable lenders also agreed in a separate first amendment to increase the amount of unsecured indebtedness the Company is permitted to incur under the ABL Revolving Credit Facility, subject to completion of the Convertible Notes offering (discussed below). Under the terms of the ABL Revolving Credit Facility, the Company pays interest on the unpaid principal amount of the ABL Revolving Credit Facility at a rate equal to SOFR plus a term SOFR adjustment in the amount of 0.10 % per annum (which collectively shall be at least 1.00 %) plus an applicable margin ranging from 2.75 % to 3.25 % determined based upon the Company’s Excess Availability (as defined in the ABL Revolving Credit Facility). The Company is required to pay a quarterly commitment fee under the ABL Revolving Credit Facility on undrawn revolving credit commitments in an amount equal to 0.25 % or 0.375 % based on the Company’s average excess availability under the ABL Revolving Credit Facility. On December 31, 2024, there was $ 10.0 million outstanding on the ABL Revolving Credit Facility and there remained $ 209.7 million available for future borrowings, net of outstanding letters of credit, before our minimum excess availability requirement discussed below. Pursuant to the ABL Revolving Credit Facility, the Company is subject to a minimum fixed charge coverage ratio of 1.10 to 1.00. The Company is also required to maintain minimum excess availability of the greater of 10% of the borrowing base under the ABL Revolving Credit Facility, or $ 15.0 million. As of December 31, 2024, the Company was in compliance with these covenants. On December 3, 2024, the Company issued $ 165.0 million aggregate principal amount of the Convertible Notes, which amount includes the additional Convertible Notes issued pursuant to the initial purchasers’ full exercise of their option to purchase additional Convertible Notes. The Convertible Notes bear interest at a rate of 5.500 % per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2025. The Convertible Notes will mature on 56 March 15, 2030, unless earlier converted, redeemed or repurchased. The initial conversion rate is 43.6814 shares of common stock per $1,000 principal amount of Convertible Notes, which represent the initial conversion price of $ 22.89 per share. The Convertible Notes are convertible at the option of the holders at any time on or after December 15, 2029, until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon conversion, the Company will satisfy its conversion obligations by paying and/or delivering, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election. Beginning March 20, 2028, if the Company’s stock price has been at least 130 % of the conversion price for a specified period of time, the Convertible Notes may be called at the option of the issuer. Under the same conditions, the Company can elect to redeem the Convertible Notes for cash. After the first quarter of 2025, if the Company’s stock price has been at least 130 % of the conversion price for 20 of 30 trading days ending on and including the last trading day of the immediately preceding quarter, the Convertible Notes may be called at the option of the holder. The fair value of the Convertible Notes was approximately $ 176.9 million as of December 31, 2024 based on quoted prices for these instruments in active markets, and is classified as a Level 1 measurement within the fair value hierarchy. On December 3, 2024, the Company repaid in full all outstanding indebtedness under the Term Loan Facility. The Term Loan Facility payoff consisted of a repayment of a principal amount of approximately $ 54.9 million, plus accrued but unpaid interest, fees and expenses, including a call premium of 3.00 % which satisfied all of the Company’s indebtedness obligations thereunder. The Company funded the repayment of its obligations under the Term Loan Facility with a portion of the proceeds received from the issuance and sale of the Convertible Notes. Scheduled principal payments of $ 9.0 million were payable under the Term Loan Facility and were classified as current in the accompanying Consolidated Balance Sheets as of December 31, 2023. The interest rate on current maturities of long-term debt was 14.20 % at December 31, 2023. The Company incurred $ 12.2 million in incremental debt issuance costs during 2024. All costs are amortized to interest expense over the term of the respective agreement. Debt issuance cost amortization expense was approximately $ 2.6 million, $ 3.0 million and $ 0.8 million in 2024, 2023 and 2022, respectively. Unamortized deferred debt issuance costs associated with the ABL Revolving Credit Facility ($ 3.0 million as of December 31, 2024) are recorded within Other Assets and those associated with the Convertible Notes ($ 6.3 million as of December 31, 2024) are recorded as a reduction of the carrying value of the debt on the Consolidated Balance Sheets. The unamortized balance of deferred debt issuance costs on our previous credit facilities of $ 2.0 million was recorded within Other Assets and $ 4.3 million was recorded as a reduction of the carrying value of the debt on the Consolidated Balance Sheets at December 31, 2023. In 2024, the Company recorded a loss on extinguishment of the debt of approximately $ 10.1 million below Income from Operations, which was comprised of $ 4.5 million of prepayment fees on the previous term loans and a write-off of $ 5.6 million of unamortized deferred financing costs. The Company also had a write-off of deferred financing costs of approximately $ 0.5 million related to the exiting ABL lender in Interest Expense within the Consolidated Statements of Operations. Certain of the Company’s subsidiaries are borrowers under the ABL Revolving Credit Facility and the assets of such subsidiaries also secure the obligations under the ABL Revolving Credit Facility. 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. 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. NOTE 9 — WARRANTY In the ordinary course of business, the Company warrants its products against defects in design, materials and workmanship typically over periods ranging from twelve to sixty months . The Company determines warranty reserves needed by product line based on experience and current facts and circumstances. Activity in the warranty accrual, which is included in Other Accrued Expenses on the Consolidated Balance Sheets, is summarized as follows: (In thousands) 2024 2023 2022 Balance at Beginning of the Year $ 9,751 $ 8,009 $ 8,183 Warranties Issued 12,078 6,260 3,407 Reassessed Warranty Exposure 11 ( 397 ) ( 65 ) Warranties Settled ( 3,759 ) ( 4,121 ) ( 3,516 ) Balance at End of the Year $ 18,081 $ 9,751 $ 8,009 Warranties issued in 2024 includes an atypical warranty reserve of $ 5.2 million related to a new product launch that requires field modification. 57 NOTE 10 — LEASES The Company has operating and finance leases for leased office and manufacturing facilities and equipment leases. We have concluded that when an agreement grants us the right to substantially all of the economic benefits associated with an identified asset, and we are able to direct the use of that asset throughout the term of the agreement, we have a lease. We lease certain office equipment under finance leases, and we lease certain production facilities, office equipment and vehicles under operating leases. Some of our leases include options to extend or terminate the leases and these options have been included in the relevant lease term to the extent that they are reasonably certain to be exercised. If the lease arrangement also contains non-lease components, the Company elected the practical expedient not to separate any combine d lease and non-lease components for all lease contracts. For our real estate leases, the payments used in the calculation of a new lease liability include fixed payments and variable payments (if the variable payments are based on an index) over the remaining lease term. Variable lease payments based on indices have been included in the related right-of-use assets and lease liabilities on our Consolidated Balance Sheets, while variable lease payments based on usage of the underlying asset have been excluded and are expensed in the period they are incurred, as they do not represent present rights or obligations. Variable lease components for leases relate primarily to common area maintenance charges and other separately billed lessor services, sales and real estate taxes. Any new additional operating and financing lease liabilities and corresponding right-of-use (“ROU”) assets are based on the present value of the remaining minimum rental payments. The Company’s operating lease liability increased approximately $ 1.0 million as a result of acquiring ROU assets from new leases entered into during the year ended December 31, 2024. In determining the incremental borrowing rate, we have considered borrowing data for secured debt obtained from our lending institution. The following is a summary of the Company’s ROU assets and lease liabilities at December 31: (In thousands) 2024 2023 Operating Leases: Operating Right-of-Use Assets, Gross $ 43,626 $ 43,528 Less Accumulated Right-of-Use Asset Impairment — 53 Less Accumulated Amortization 20,017 15,566 Operating Right-of-Use Assets, Net $ 23,609 $ 27,909 Short-term Operating Lease Liabilities $ 4,697 $ 5,069 Long-term Operating Lease Liabilities 20,508 24,376 Operating Lease Liabilities $ 25,205 $ 29,445 Finance Leases: Finance Right-of-Use Assets, Gross $ 329 $ 274 Less Accumulated Amortization 149 80 Finance Right-of-Use Assets, Net — Included in Other Assets $ 180 $ 194 Short-term Finance Lease Liabilities — Included in Other Accrued Expenses $ 79 $ 97 Long-term Finance Lease Liabilities — Included in Other Liabilities 48 104 Finance Lease Liabilities $ 127 $ 201 58 The following is a summary of the Company’s total lease costs as of December 31: (In thousands) 2024 2023 Finance Lease Cost: Amortization of ROU Assets $ 76 $ 54 Interest on Lease Liabilities 10 9 Total Finance Lease Cost 86 63 Operating Lease Cost 6,731 6,352 Impairment Charge of Operating Lease ROU Asset — 53 Variable Lease Cost 2,550 2,240 Short-term Lease Cost (excluding month-to-month) 178 251 Less Sublease and Rental Income ( 969 ) ( 548 ) Total Operating Lease Cost 8,490 8,348 Total Net Lease Cost $ 8,576 $ 8,411 The following is a summary of cash paid for amounts included in the measurement of lease liabilities as of December 31: (In thousands) 2024 2023 Operating Cash Flow for Finance Leases $ 10 $ 9 Operating Cash Flow for Operating Leases $ 6,664 $ 6,180 Financing Cash Flow for Finance Leases $ 135 $ 47 As permitted by ASC 842, leases with expected durations of less than 12 months from inception (i.e. short-term leases) were excluded from the Company’s calculation of its lease liability and ROU asset. The weighted-average remaining term for the Company’s operating and financing leases are approximately 7 years and 1 year, respectively. The weighted-average discount rates for the Company’s operating and financing leases are approximately 5.8 % and 6.3 %, respectively. The following is a summary of the Company’s maturity of lease liabilities: (In thousands) Operating Leases Financing Leases 2025 $ 5,928 $ 84 2026 4,503 43 2027 3,802 13 2028 3,620 — 2029 3,024 — Thereafter 10,161 — Total Lease Payments 31,038 140 Less: Interest 5,833 13 Total Lease Liability $ 25,205 $ 127 These amounts exclude annual operating lease payments of $ 3.3 million per year through 2033, which represents legal binding lease payments for leases signed, but not yet commenced. NOTE 11 — INCOME TAXES The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of tax benefits which are not more likely than not to be realized. 59 The provision for (benefit from) income taxes at December 31 consists of the following: (In thousands) 2024 2023 2022 Current U.S. Federal $ 6,026 $ ( 2,573 ) $ 5,338 State 985 937 ( 153 ) Foreign 1,357 1,600 750 Current 8,368 ( 36 ) 5,935 Deferred U.S. Federal ( 14 ) ( 336 ) 113 State ( 98 ) 583 ( 239 ) Foreign 92 ( 101 ) 145 Deferred ( 20 ) 146 19 Total $ 8,348 $ 110 $ 5,954 The effective tax rates differ from the statutory federal income tax rate as follows: 2024 2023 2022 Statutory Federal Income Tax Rate 21.0 % 21.0 % 21.0 % Permanent Items Stock Compensation Expense ( 2.0 ) % ( 1.4 ) % ( 2.2 ) % Meals and Entertainment ( 1.7 ) % — % — % Parking Expenses ( 1.4 ) % — % — % Other ( 7.4 ) % ( 1.4 ) % ( 0.3 ) % Foreign Tax Rate Differential 7.1 % ( 0.4 ) % ( 2.8 ) % State Income Tax, Net of Federal Income Tax Effect ( 8.9 ) % ( 4.6 ) % 1.0 % Research and Development Tax Credits 47.4 % 14.1 % 7.7 % Change in Valuation Allowance ( 172.7 ) % ( 26.1 ) % ( 44.6 ) % Net GILTI and FDII Tax Expense (Benefit) 16.4 % ( 1.0 ) % 1.8 % Foreign Tax Credit for Dividend Withholding — % — % ( 1.5 ) % Penalties ( 3.1 ) % — % — % Other ( 0.8 ) % ( 0.6 ) % ( 0.1 ) % Effective Tax Rate ( 106.1 ) % ( 0.4 ) % ( 20.0 ) % Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes as well as tax attributes. 60 Significant components of the Company’s deferred tax assets and liabilities at December 31, are as follows: (In thousands) 2024 2023 Deferred Tax Assets: Asset Reserves $ 22,293 $ 19,609 Deferred Compensation 6,096 6,968 Section 163(j) - Interest Expense Limitation 2,982 1,777 State Investment and Research and Development Tax Credit Carryforwards, Net of Federal Tax 1,093 1,430 Customer Advanced Payments and Deferred Revenue 257 870 Net Operating Loss Carryforwards and Other 10,060 11,178 Goodwill and Intangible Assets 890 1,001 ASC 606 Revenue Recognition 374 92 Research & Development Costs 35,061 25,659 Lease Liabilities 6,059 6,952 Other 6,941 5,308 Total Gross Deferred Tax Assets 92,106 80,844 Valuation Allowance ( 78,659 ) ( 65,640 ) Deferred Tax Assets 13,447 15,204 Deferred Tax Liabilities: Depreciation 7,771 8,593 ASC 606 Revenue Recognition - Section 481(a) Adjustment 113 227 Lease Assets 5,695 6,595 Earnout Income Accrual 102 99 Other 1,041 997 Deferred Tax Liabilities 14,722 16,511 Net Deferred Tax Liabilities $ ( 1,275 ) $ ( 1,307 ) The net deferred tax assets and liabilities presented in the Consolidated Balance Sheets are as follows at December 31: (In thousands) 2024 2023 Other Assets — Long-term $ 159 $ — Deferred Tax Liabilities — Long-term ( 1,434 ) ( 1,307 ) Net Deferred Tax Liabilities $ ( 1,275 ) $ ( 1,307 ) The Company records a valuation allowance against the deferred tax assets if and to the extent it is more likely than not that the Company will not recover the deferred tax assets. In evaluating the need for a valuation allowance, the Company weighs all relevant positive and negative evidence, and considers among other factors, historical financial performance, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, and tax planning strategies. After considering the losses in recent periods and cumulative pre-tax losses in the three-year period ending with the current year, the Company determined that projections of future taxable income could not be relied upon as a source of income to realize its deferred tax assets. However, the Company is relying on a significant portion of its existing deferred tax liabilities for the realizability of deferred tax assets. As a result, the Company has valuation allowances against its deferred tax assets of approximately $ 78.7 million, $ 65.6 million, and $ 57.4 million during the years ended December 31, 2024, 2023 and 2022, respectively, for the portion of deferred tax assets not realizable by the Company’s existing deferred tax liabilities. Beginning January 1, 2022, the Tax Cuts and Jobs Act (TCJA) of 2017 eliminated the option to deduct research and development expenditures in the current year and now requires taxpayers to capitalize and amortize research and development costs pursuant to Internal Revenue Code (“IRC”) Section 174. The capitalized expenses are amortized over a 5-year period for domestic expenses and a 15-year period for foreign expenses. As a result of this provision of the TCJA, deferred tax assets related to capitalized research expenses increased by approximately $ 9.4 million and $ 5.8 million during the years ended December 31, 2024 and 2023, respectively. The Company maintains a full valuation allowance against this deferred tax asset. 61 At December 31, 2024, gross federal net operating losses amounted to approximately $ 1.1 million, which are subject to annual limitations under Internal Revenue Code Section 382. Of these net operating losses, $ 0.7 million expire in 2038 and the remaining $ 0.4 million will carryforward indefinitely. The Company maintains a full valuation allowance against this deferred tax asset. At December 31, 2024, gross state net operating loss carryforwards amounted to approximately $ 132.6 million. Of these state net operating loss carryforwards, $ 118.9 million begin to expire at various dates from 2024 through 2044 and the remaining $ 13.7 million will carryforward indefinitely. The Company maintains a full valuation allowance against this deferred tax asset. At December 31, 2024, state income tax credit carryforwards amounted to approximately $ 1.1 million and begin to expire at various dates from 2024 to 2040. Additionally, the Company has approximately $ 0.2 million of foreign tax credits that it can carry forward through 2027. The Company maintains a full valuation allowance against these credits. The Company has analyzed its filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. Should the Company need to accrue a liability for uncertain tax benefits, any interest and penalties associated with that liability would be recorded as income tax expense. A reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties, is as follows: (in thousands) 2024 2023 2022 Balance at Beginning of the Year $ 100 $ 443 $ 1,412 Decreases as a Result of Tax Positions Taken in Prior Years ( 100 ) ( 343 ) ( 969 ) Balance at End of the Year $ — $ 100 $ 443 There are no material penalties or interest liabilities accrued as of December 31, 2024, 2023, or 2022, nor are any material penalties or interest costs included in expense for each of the years ended December 31, 2024, 2023 and 2022. The years under which we conducted our evaluation coincided with the tax years currently still subject to examination by major federal and state tax jurisdictions, those being 2019 through 2024 for federal purposes and 2017 through 2024 for state purposes. Pretax income from the Company’s foreign subsidiaries amounted to approximately $ 9.6 million, $ 6.5 million and $ 0.1 million for 2024, 2023 and 2022, respectively. The balance of pretax earnings or loss for each of those years were domestic. Historically, we have asserted that the unremitted earnings of our foreign subsidiaries were indefinitely reinvested. However, for the years ended December 31, 2024 and 2023, we determined that we could no longer assert indefinite reinvestment on approximately $ 3.0 million and $ 1.9 million of the unremitted earnings of Luminescent Systems Canada Inc., respectively. As a result, we have recorded a deferred tax liability of approximately $ 0.2 million and $ 0.1 million at December 31, 2024 and 2023 respectively, related to local country withholding taxes that are expected to be incurred upon ultimate repatriation of such earnings. All other foreign unremitted earnings, which total approximately $ 18.7 million, continue to be indefinitely reinvested. We continue to be permanently reinvested in outside basis differences other than unremitted earnings as we have no plans to liquidate or sell any foreign subsidiaries. In addition, we have not provided deferred taxes on any outside basis differences of our domestic subsidiaries as we have the ability and intent to recover these basis differences in a tax-free manner. It is not practicable to determine the amount of unrecognized deferred tax related to these basis differences. The Inflation Reduction Act of 2022 (IRA) was signed into law on August 16, 2022. Key provisions under the IRA include a 15% corporate alternative minimum tax imposed on certain large corporations and the extension and expansion of clean energy tax incentives. There were no impacts related to the IRA recorded for the years ending December 31, 2024, 2023, and 2022. Under an Organization for Economic Co-operation and Development Inclusive Framework, countries that agreed to enact a two-pillar solution aim to address the challenges arising from the digitalization of the world economy (Pillar Two). Pillar Two sets out global minimum Effective Tax Rate (ETR) rules to ensure that large multinational businesses with consolidated revenue over €750 million are subject to a minimum ETR of 15% on income arising in low-tax jurisdictions. Rules under Pillar Two generally became effective beginning January 1, 2024 in most jurisdictions that have issued legislation. The Company will continue to monitor the impact of Pillar Two; however, Pillar Two is currently not applicable as the Company does not meet the threshold of having consolidated revenue over €750 million in two out of the four preceding years. NOTE 12 — PROFIT SHARING/401K PLAN The Company offers eligible domestic full-time employees participation in a safe harbor 401K plan. The plan provides for an annual company contribution. In addition, employees may contribute a portion of their salary to the plan. The plan may be amended or terminated at any time. 62 Total charges to income before income taxes for this plan was approximately $ 8.9 million, $ 5.3 million and $ 4.7 million in 2024, 2023 and 2022, respectively. The Company had funded the contributions in 2022, 2023 and the first quarter of 2024 with treasury stock in lieu of cash and funded the remainder of the 2024 contributions with cash. NOTE 13 — RETIREMENT PLANS AND RELATED POST RETIREMENT BENEFITS The Company has two non-qualified supplemental retirement defined benefit plans (“SERP” and “SERP II”) for certain current and retired executive officers. The accumulated benefit obligation of the plans as of December 31, 2024 and 2023 amounts to $ 21.4 million and $ 22.0 million, respectively. The plans provide for benefits based upon average annual compensation and years of service and, in the case of SERP, there are offsets for social security and profit sharing benefits. It is the Company’s intent to fund the plans as plan benefits become payable, since no assets exist at December 31, 2024 or 2023 for either of the plans. The Company accounts for the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of its pension plans in accordance with the recognition and disclosure provisions of ASC Topic 715, Compensation, Retirement Benefits , which requires the Company to recognize the funded status in its balance sheet, with a corresponding adjustment to Accumulated Other Comprehensive Income (“AOCI”), net of tax. These amounts will be subsequently recognized as net periodic pension cost pursuant to the Company’s historical policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic pension cost in the same periods will be recognized as a component of AOCI. If actuarial gains and losses exceed ten percent of the projected benefit obligation, we amortize them over the average expected future lifetime of participants. Unrecognized prior service costs of $ 0.3 million and unrecognized actuarial gains of $ 4.9 million are included in AOCI at December 31, 2024 and have not yet been recognized in net periodic pension cost. The reconciliation of the beginning and ending balances of the projected benefit obligation of the plans for the years ended December 31 is as follows: (In thousands) 2024 2023 Funded Status Projected Benefit Obligation Beginning of the Year — January 1 $ 28,798 $ 26,210 Service Cost — 105 Interest Cost 1,371 1,302 Actuarial (Gain) Loss ( 6,134 ) 1,529 Special Termination Benefits 624 — Benefits Paid ( 348 ) ( 348 ) End of the Year — December 31 $ 24,311 $ 28,798 In 2024, the net actuarial gain of $ 6.1 million is due to the increase of 69 basis points in the discount rate and change in the bonus scale used to measure the benefit obligation as of December 31, 2024 compared to the prior year. The Company incurred charges of $ 0.6 million in 2024 associated with a waiver of an early retirement penalty provided by the plan related to a retiring participant. The assumptions used to calculate the projected benefit obligation as of December 31 are as follows: 2024 2023 Discount Rate 5.48 % 4.79 % Future Average Compensation Increases 3.00 % 3.00 % The plans are unfunded at December 31, 2024 and are recognized in the accompanying Consolidated Balance Sheets as a current accrued pension liability of $ 1.0 million and a long-term accrued pension liability of $ 23.3 million. The service cost component of net periodic benefit cost is included in SG&A expenses, and all other net periodic benefit costs components (such as interest cost, prior service cost amortization and actuarial gain/loss amortization) are reported outside of operating income, within Other (Income) Expense, Net in the accompanying Consolidated Statements of Operations. 63 The following table summarizes the components of the net periodic cost for the years ended December 31: (In thousands) 2024 2023 2022 Net Periodic Cost Service Cost — Benefits Earned During Period $ — $ 105 $ 138 Interest Cost 1,371 1,302 834 Amortization of Prior Service Cost 386 386 386 Amortization of Losses 738 358 949 Net Periodic Cost $ 2,495 $ 2,151 $ 2,307 The assumptions used to determine the net periodic cost are as follows: 2024 2023 2022 Discount Rate 4.79 % 5.00 % 2.75 % Future Average Compensation Increases 3.00 % 2.00 % - 3.00 % 2.00 % - 3.00 % Benefit payments expected in each of the next five years are as follows: 2025 - $ 1.0 million, 2026 - $ 0.9 million, 2027 - $ 0.9 million, 2028 - $ 1.7 million, and 2029 - $ 2.0 million. Benefits expected to be paid in the aggregate between 2030 and 2034 are $ 9.5 million. Given that the plans are unfunded, these amounts are what the Company expects to contribute to the plans in each respective year. Participants in the SERP are entitled to paid medical, dental and long-term care insurance benefits upon retirement under the plan. The measurement date for determining the plan obligation and cost is December 31. The accumulated postretirement benefit obligation is $ 0.8 million at December 31, 2024 and 2023. The plan is recognized in the accompanying Consolidated Balance Sheets as a current accrued pension liability of $ 0.1 million and a long-term accrued pension liability of $ 0.7 million. The net periodic cost for the years ended December 31, 2024, 2023 and 2022 was not material. The Company is a participating employer in a trustee-managed multiemployer defined benefit pension plan for employees who participate in collective bargaining agreements. The plan generally provides retirement benefits to employees based on years of service to the Company. Contributions are based on the hours worked and are expensed on a current basis. The plan is 95.3 % funded as of January 1, 2024. The Company’s contributions to the plan were $ 0.9 million in 2024, $ 0.7 million in 2023 and $ 0.5 million in 2022. These contributions represent less than 1 % of total contributions to the plan. NOTE 14 — SHAREHOLDERS’ EQUITY Share Buyback Program The Company’s Board of Directors from time to time authorizes the repurchase of common stock, which allows the Company to purchase shares of its common stock in accordance with applicable securities laws on the open market or through privately negotiated transactions. The Company has the capacity under the currently authorized program to repurchase additional shares of its common stock with a maximum dollar value of $ 41.5 million. At-the-Market Equity Offering On August 8, 2023, the Company initiated an at-the-market equity offering program (the “ATM Program”) for the sale from time to time of shares of the Company’s common stock, par value $ 0.01 per share having an aggregate offering price of up to $ 30.0 million. During the year ended December 31, 2023, the Company sold 1,334,228 shares of our Common Stock under the ATM Program. The Company generated $ 21.8 million in aggregate gross proceeds from sales under the ATM Program at an average sale price of $ 16.31 per share of Common Stock. Aggregate net proceeds from the ATM Program were $ 21.3 million after deducting related expenses, including commissions to the Sales Agents and issuance costs. No shares were sold under the ATM Program in 2024. As of December 31, 2024, the Company had remaining capacity under the ATM Program to sell shares of Common Stock having an aggregate offering price up to approximately $ 8.2 million. Reserved Common Stock At December 31, 2024, approximately 8.1 million shares of Common Stock were reserved for issuance upon conversion of the Class B stock, exercise of stock options, issuance of restricted stock and purchases under the Employee Stock Purchase Plan. Class B Stock is identical to Common Stock, except Class B Stock has ten votes per share, is automatically converted to Common Stock on a one -for-one basis when sold or transferred other than via gift, devise or bequest and cannot receive dividends unless an equal or greater amount of dividends is declared on Common Stock. 64 Comprehensive Loss and Accumulated Other Comprehensive Loss Comprehensive income or loss consists of net income or loss and the after-tax impact of retirement liability adjustments. No income tax effect is recorded for currency translation adjustments. The components of accumulated other comprehensive loss are as follows: (In thousands) 2024 2023 Foreign Currency Translation Adjustments $ ( 8,222 ) $ ( 6,351 ) Retirement Liability Adjustment – Before Tax 2,077 ( 5,357 ) Tax Benefit 2,282 2,282 Retirement Liability Adjustment – After Tax 4,359 ( 3,075 ) Accumulated Other Comprehensive Loss $ ( 3,863 ) $ ( 9,426 ) In 2024, 2023 and 2022, no tax benefit was recognized as the Company had recorded a full valuation allowance on the deferred tax asset associated with the retirement liability. The components of other comprehensive income are as follows: (In thousands) 2024 2023 2022 Foreign Currency Translation Adjustments $ ( 1,871 ) $ 984 $ ( 1,928 ) Retirement Liability Adjustment 7,434 ( 884 ) 6,897 Other Comprehensive Income $ 5,563 $ 100 $ 4,969 NOTE 15 — LOSS PER SHARE Loss per share computations are based upon the following table: (In thousands, except per share data) 2024 2023 2022 Net Loss $ ( 16,215 ) $ ( 26,421 ) $ ( 35,747 ) Basic Earnings Weighted Average Shares 35,037 33,104 32,164 Net Effect of Dilutive Stock Options — — — Diluted Earnings Weighted Average Shares 35,037 33,104 32,164 Basic Loss Per Share $ ( 0.46 ) $ ( 0.80 ) $ ( 1.11 ) Diluted Loss Per Share $ ( 0.46 ) $ ( 0.80 ) $ ( 1.11 ) Stock options with exercise prices greater than the average market price of the underlying common shares are excluded from the computation of diluted earnings per share because they are out-of-the-money and the effect of their inclusion would be anti-dilutive. The Company includes the dilutive effect of shares issuable upon conversion of its Convertible Notes in the calculation of diluted income per share using the if-converted method. The Company has the option for the Convertible Notes to settle the conversion value in any combination of cash or shares, and as such, the maximum number of shares issuable are included in the dilutive share count if the effect would be dilutive. The Company incurred a net loss for the years ended December 31, 2024, 2023, and 2022, therefore all outstanding stock options, unvested restricted stock units and the effect of the Convertible Notes are excluded from the computation of diluted loss per share because the effect of their inclusion would be antidilutive. Antidilutive shares excluded from diluted loss per share computations were as follows: (In thousands) 2024 2023 2022 Stock Options and Unvested RSUs 1,040 767 1,380 Convertible Notes 553 — — Total Antidilutive Securities 1,593 767 1,380 The Company funded substantially all of its 2023 and a portion of its 2024 401K contributions outstanding with treasury stock in lieu of cash, and returned to cash contributions in the second quarter of 2024. The earnings per share computations for the year ended December 31, 2023 are inclusive of approximately 0.1 million in shares outstanding for the equivalent shares needed to fulfill the period’s 401K obligation using the closing share price as of December 31, 2023. 65 NOTE 16 — EQUITY COMPENSATION The Company has equity compensation plans that authorize the issuance of restricted stock units or options for shares of Common Stock to directors, officers and key employees. Equity-based compensation is designed to reward long-term contributions to the Company and provide incentives for recipients to join and to remain with the Company. The exercise price of stock options, determined by a committee of the Board of Directors, is equal to the fair market value of the Common Stock on the grant date. Options become exercisable over periods not exceeding ten years and must be exercised within ten years from the grant date. The Company’s practice has been to issue new shares upon the exercise of the options. The Company established its 2011 Incentive Stock Option Plan for the purpose of attracting and retaining executive officers and key employees, and to align management’s interest with those of the shareholders. At December 31, 2024, the Company had options outstanding for 124,143 shares under the plans. The Company established the 2005 Directors Stock Option Plan for the purpose of attracting and retaining the services of experienced and knowledgeable outside directors, and to align their interest with those of the shareholders. At December 31, 2024, the Company had options outstanding for 28,254 shares under the plans. During 2017, the Company established the Astronics Corporation 2017 Long Term Incentive Plan for the purpose of attracting and retaining directors, executive officers and key employees, and to align management’s interest with those of the shareholders. The Long Term Incentive Plan contemplates the use of a mix of equity award types. For stock options, the exercise price is equal to the share price on the date of grant. Upon inception, the remaining options available for future grant under the 2011 Incentive Stock Option Plan and the 2005 Directors Stock Option Plan were rolled in the Long Term Incentive Plan, and no further grants may be made out of those plans. The Long Term Incentive Plan was amended and restated in May 2021. At December 31, 2024, the Company had stock options and RSUs outstanding that covered 1,963,720 shares under the Long Term Incentive Plan, and there were 278,560 shares available for future grant under this plan. Stock compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Vesting requirements vary for directors, officers and key employees. In general, options or RSUs granted to outside directors vest six months from the date of grant and options granted to officers and key employees straight line vest over a three - to five-year period from the date of grant. RSUs granted to officers and key employees generally cliff vest three years from the date of grant. The following table provides compensation expense information based on the fair value of stock options and RSUs for the years ended December 31 as follows: (In thousands) 2024 2023 2022 Equity-based Compensation Expense $ 8,570 $ 7,198 $ 6,497 Tax Benefit ( 1,564 ) ( 1,259 ) ( 1,068 ) Equity-based Compensation Expense, Net of Tax $ 7,006 $ 5,939 $ 5,429 Tax benefit excludes the impact of valuation allowances recorded against deferred tax assets. In the fourth quarter of 2024, the Company entered into a Transition and Retirement Agreement with its former CFO, which granted certain benefits related to the retirement. Equity-based Compensation Expense includes $ 0.6 million related with accelerated RSU vesting pursuant to that Agreement. Stock Options 2024 2023 2022 Weighted Average Fair Value of the Options Granted $ 10.55 $ 8.39 $ 5.97 66 The weighted average fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions: 2024 2023 2022 Risk-free Interest Rate 4.13 % 4.20 % - 4.33 % 3.48 % - 3.62 % Dividend Yield — % — % — % Volatility Factor 0.61 0.58 0.61 Expected Life in Years 7 years 3 - 7 years 5 - 9 years To determine expected volatility, the Company uses historical volatility based on weekly closing prices of its Common Stock and considers currently available information to determine if future volatility is expected to differ over the expected terms of the options granted. The risk-free rate is based on the U.S. Treasury yield curve at the time of grant for the appropriate term of the options granted. Expected dividends are based on the Company’s history and expectation of dividend payouts. The expected term of stock options is based on vesting schedules, expected exercise patterns and contractual terms. A summary of the Company’s stock option activity and related information for the year ended December 31 is as follows: 2024 (Aggregate intrinsic value in thousands) Options Weighted Average Exercise Price Aggregate Intrinsic Value Outstanding at January 1 1,410,984 $ 19.47 $ — Options Granted 75,800 $ 16.55 $ — Options Exercised — $ — $ — Options Forfeited / Expired ( 65,291 ) $ 31.35 $ — Outstanding at December 31 1,421,493 $ 18.77 $ — Exercisable at December 31 1,084,536 $ 20.31 $ — The aggregate intrinsic value in the preceding table represents the total pretax option holder’s intrinsic value, based on the closing stock price of the Company’s Common Stock which would have been received by the option holders had all option holders exercised their options as of that date. The closing stock price of the Company’s Common Stock was $ 15.96 , $ 17.42 and $ 10.30 as of December 31, 2024, 2023 and 2022, respectively. As the stock price of $ 15.96 was below the weighted average exercise price, intrinsic value is zero . The weighted average fair value of options vested during 2024, 2023 and 2022 was $ 7.30 , $ 11.53 and $ 12.89 , respectively. The total fair value of options that vested during the year amounted to $ 2.1 million, $ 3.0 million and $ 2.4 million for the years ended December 31, 2024, 2023 and 2022, respectively. At December 31, 2024, total compensation costs related to non-vested option awards not yet recognized amounts to $ 3.0 million and will be recognized over a weighted average period of approximately one year . The following is a summary of weighted average exercise prices and contractual lives for outstanding and exercisable stock options as of December 31, 2024: Outstanding Exercisable Exercise Price Range Shares Weighted Average Remaining Life in Years Weighted Average Exercise Price Shares Weighted Average Remaining Life in Years Weighted Average Exercise Price $ 9.74 – $ 16.55 945,850 7.5 $ 12.44 608,894 7.2 $ 11.68 $ 22.93 – $ 35.61 471,079 3.3 $ 31.21 471,078 3.3 $ 31.21 $ 45.89 – $ 45.89 4,564 0.2 $ 45.89 4,564 0.2 $ 45.89 1,421,493 6.1 $ 18.77 1,084,536 5.5 $ 20.31 Restricted Stock Units The fair value of each RSU granted is equal to the fair market value of the Company’s Common Stock on the date of grant. The RSUs granted to employees generally cliff vest three years from the date of grant, while RSUs granted to directors cliff vest six months from the date of grant. 67 A summary of the Company’s RSU activity and related information for the year ended December 31 is as follows: 2024 RSU Shares Weighted Average Grant Date Fair Value Unvested at January 1 654,160 $ 11.05 Granted 295,496 $ 18.91 Vested ( 222,138 ) $ 16.77 Forfeited ( 32,894 ) $ 14.61 Unvested at December 31 694,624 $ 12.39 Included in total equity-based compensation expense for the year ended December 31, 2024 was $ 5.3 million related to RSUs. At December 31, 2024, total compensation costs related to non-vested awards not yet recognized amounts to $ 3.7 million and will be recognized over a weighted average period of approximately two years . Employee Stock Purchase Plan In addition to the stock options and RSUs discussed above, the Company has established the Employee Stock Purchase Plan to encourage employees to invest in the Company. The plan provides employees the opportunity to invest up to the IRS annual maximum of approximately $ 25,000 in the Company’s common stock at a price equal to 85 % of the fair market value of the Company’s common stock, determined each October 1. Employees are allowed to enroll annually. Employees indicate the aggregate value of shares they wish to obtain through the program and their intention to pay for the shares through payroll deductions over the annual cycle of October 1 through September 30. Employees can withdraw anytime during the annual cycle, and all money withheld from the employees’ pay is returned. If an employee remains enrolled in the program, enough money will have been withheld from the employees’ pay during the year to pay for all the shares that the employee opted for under the program. At December 31, 2024, employees had subscribed to purchase 185,326 shares at $ 16.60 per share. The weighted average fair value of the options was approximately $ 5.02 , $ 4.94 and $ 2.39 for options granted during the year ended December 31, 2024, 2023 and 2022, respectively. The fair value for the options granted under the Employee Stock Purchase Plan was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions: 2024 2023 2022 Risk-free Interest Rate 3.96 % 5.49 % 4.01 % Dividend Yield — % — % — % Volatility Factor 0.41 0.56 0.50 Expected Life in Years 1.0 1.0 1.0 NOTE 17 — FAIR VALUE On a Recurring Basis: A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. There were no financial assets or liabilities carried at fair value measured on a recurring basis at December 31, 2024 or 2023. On a Non-recurring Basis: Long-lived assets are evaluated for recoverability whenever adverse effects or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability test consists of comparing the undiscounted projected cash flows of the asset or asset group (which are Level 3 inputs) with the asset of asset group’s carrying amount. Should the carrying amount exceed undiscounted projected cash flows, an impairment loss would be recognized to the extent the carrying amount exceeds fair value. There were no impairment charges related to long-lived assets in 2024, 2023 or 2022 and no long-lived assets are required to be measured at fair value for purposes of the long-lived asset recoverability test. 68 Due to their short-term nature, the carrying value of cash and equivalents, restricted cash, accounts receivable and accounts payable approximate fair value. The carrying value of the Company’s variable rate long-term debt instruments also approximates fair value due to the variable rate feature of these instruments. Refer to Note 8, Long-Term Debt, for additional information relating to the fair value of the Company's outstanding fixed-rate Convertible Notes. NOTE 18 — SELECTED QUARTERLY FINANCIAL INFORMATION The following table summarizes selected quarterly financial information for 2024 and 2023: Quarter Ended (Unaudited) December 31, December 31, (In thousands, except for per share data) 2024 2023 Sales $ 208,540 $ 195,292 Gross Profit (Sales Less Cost of Products Sold) $ 50,054 $ 39,973 Income Before Income Taxes $ 576 $ 1,534 Net (Loss) Income $ ( 2,832 ) $ 6,976 Basic (Loss) Earnings Per Share $ ( 0.08 ) $ 0.20 Diluted (Loss) Earnings Per Share $ ( 0.08 ) $ 0.20 Income before taxes in 2024 includes an increase in litigation-related legal expenses and legal reserve adjustments of $ 7.0 million compared to the prior-year period, and a loss on extinguishment of the debt of $ 3.2 million. NOTE 19 — LEGAL PROCEEDINGS Lufthansa On December 29, 2010, Lufthansa Technik AG (“Lufthansa”) filed a Statement of Claim in the Regional State Court of Mannheim, Germany. Lufthansa’s claim asserted that a subsidiary of the Company, AES, sold, marketed, and brought into use in Germany a power supply system that infringes upon a German patent held by Lufthansa. Lufthansa sought an order requiring AES to stop selling and marketing the allegedly infringing power supply system, a recall of allegedly infringing products sold to commercial customers in Germany since November 26, 2003, and compensation for damages related to direct sales of the allegedly infringing power supply system in Germany (referred to as “direct sales”). AES modified the outlet units at the end of 2014 and the overwhelming majority of the modified outlet units sold from 2015 do not infringe the patent of Lufthansa. In February 2015, the Regional State Court of Mannheim, Germany held that the patent was infringed. The judgment did not require AES to recall products that are already installed in aircraft or had been sold to other end users. The Company appealed to the Higher Regional Court of Karlsruhe. On November 15, 2016, the Higher Regional Court of Karlsruhe upheld the lower court’s decision. The Company sought permission to appeal to the German Federal Supreme Court. By judgment of March 26, 2019, the German Federal Supreme Court dismissed AES's appeal. With this decision, the above-mentioned proceedings are complete. In July 2017, Lufthansa filed an action in the Regional State Court of Mannheim for payment of damages caused by AES’s direct sales of the product into Germany. A first instance decision in this matter was handed down on December 6, 2019. According to this ruling, Lufthansa was awarded damages in the amount of approximately $ 3.2 million plus interest. In 2020, AES made payment of $ 4.7 million, inclusive of interest, in satisfaction of the first instance judgment. On July 12, 2023, the Higher Regional Court of Karlsruhe in Germany reduced the Company’s liability for direct damages on appeal from approximately $ 3.2 million plus interest to approximately $ 2.8 million plus interest. Additionally, in its judgment, the Court reduced the interest rate on damages from 5 % (as held by the Regional Court of Mannheim) to 4 %. Accordingly, the Company reclaimed overpaid damages and interest from LHT in the amount of approximately $ 1.2 million. This was recorded as an offset to Selling, General and Administrative expenses in the third quarter of 2023, upon receipt of the refund. Both Lufthansa and AES have filed requests with the German Federal Supreme Court to be granted leave to file appeals against this decision. On December 29, 2017, Lufthansa filed another infringement action against AES in the Regional State Court of Mannheim claiming that sales by AES to its international customers have infringed Lufthansa's patent if AES's customers later shipped the products to Germany (referred to as “indirect sales”). This action, therefore, addresses sales other than those covered by the action filed on December 29, 2010, discussed above. No amount of claimed damages has been specified by Lufthansa. 69 A first instance decision in this matter was issued on December 6, 2019. The Court found that indirect sales (as defined above) by AES to international customers infringe the patent under the conditions specified in the judgment and that the sale of components of the EmPower system to Germany constitutes an indirect patent infringement. The Court rejected Lufthansa's claim that AES is also liable for damages for the sale of modified products. This means that AES is not liable for damages based on the sale of modified outlet units that removed the infringing feature. AES and Lufthansa both appealed this decision. On July 12, 2023, the Higher Regional Court of Karlsruhe essentially upheld the first instance ruling. According to the Higher Regional Court of Karlsruhe ruling, AES is responsible for payment of damages for indirect sales of patent-infringing EmPower in-seat power supply systems in the period from December 29, 2007 to May 22, 2018. However, because the outlet units were modified at the end of 2014, the period for which AES is liable for damages in connection with indirect sales into Germany substantially finished at the end of 2014. Both Lufthansa and AES have filed requests with the German Federal Supreme Court to be granted leave to file appeals against this decision. After the accounting, Lufthansa is expected to enforce its claim for damages in separate court proceedings. These proceedings would most likely be tried before the Mannheim Court again, which makes it probable that the Mannheim Court will determine the damages for the indirect sales based on the same principles as in the direct sales proceedings (unless the latter ruling of the Mannheim Court is reversed on appeal). Based on the information available and the determination of the damages in the direct sales claim discussed above, we estimated that the Company’s total exposure related to these matters that was probable and that could be reasonably estimated at December 31, 2024, was approximately $ 11.6 million plus accrued interest. Accrued interest on the indirect damages reserve was estimated using the same interest rate as the direct damages. Approximately $ 0.7 million, $ 0.7 million, and $ 0.6 million was recorded within Selling, General and Administrative Expenses in the Company’s Consolidated Statements of Operations for each of 2024, 2023 and 2022, respectively, for additional interest accrued during such periods. In connection with the indirect sales claims, we currently believe it is unlikely that the appeals process will be completed and any damages and related interest will be paid before December 31, 2025. Therefore, the liability related to this matter (inclusive of accrued interest), totaling $ 17.1 million, is classified within other liabilities (non-current) in the Consolidated Balance Sheets at December 31, 2024 and 2023. This amount may be adjusted depending on the decision of the Court on the direct sales damages appeal referred to previously. In December 2017, Lufthansa filed patent infringement cases in the United Kingdom (“UK”) and in France. The Lufthansa patent expired in May 2018. In those cases, Lufthansa accuses AES and certain of its customers of having manufactured, used, sold and offered for sale a power supply system, and offered and supplied parts for a power supply system that infringed upon a Lufthansa patent in those respective countries. In the normal course of its supply arrangements, AES has indemnified its customers from liability arising from such matters, and as such will bear responsibility for any monetary damages arising from such claims. On December 4, 2020, the Court held the French patent invalid for all asserted claims. There can consequently be no finding of infringement on first instance. Lufthansa has appealed this judgment. The appeal hearing took place on December 8, 2022, and on February 24, 2023, the Court upheld the first instance judgment in favor of AES. Lufthansa lodged an appeal before the French Supreme Court; the French Supreme Court will review the Court of Appeal of Paris’ reasoning around the nullification of one of the claims of the patent. AES filed briefs with the French Supreme Court on January 22, 2024 and on September 11, 2024 in response to Lufthansa’s appeal. The written phase of the procedure was closed in January 2025 and a decision from this Court is currently expected in March 2025. As loss exposure is not probable and estimable at this time, the Company has not recorded any liability with respect to the French matter as of December 31, 2024 or December 31, 2023. In the UK matter, the Court held the UK patent valid and 3 out of 4 asserted claims infringed in June 2020. In contrast to the decisions in Germany, the UK Court found that the modified components infringed a valid claim of the patent, and accordingly, the period for which AES or its customers would be liable in connection with direct sales into the UK extends until the expiration of the patent in May 2018. While AES appealed the ruling, the Court dismissed the appeal on all grounds. Lufthansa sought an account of the profits that AES and certain of its customers had made from UK sales. The trial of that issue took place in October 2024. Both the Company and Lufthansa submitted to the UK High Court of Justice calculations of the estimated profits derived from the reports of the parties’ respective financial experts. The account of profits trial judgment was published on February 21, 2025. The February 2025 judgment quantified the amount payable in aggregate in respect of the profits derived from infringing Lufthansa’s UK patent by the defendants as $ 11.9 million. Any additional amounts required to be paid by the Company related to certain other factors peripheral to the damages award, including potential reimbursement of legal fees related to the damages proceedings, will be determined at follow-up hearings 70 expected to occur in the first half of 2025. The Company is unable to estimate a range of exposure, if any, related to such peripheral issues, and as such, has not recorded any additional liabilities at this time It is expected that one or more of the parties may seek permission to appeal the February 21, 2025 judgment; permission to appeal is not assured under English law. The Company expects that payment of the ordered liability will be required in the second quarter of 2025, and that an appeal, if any, would likely be heard in early 2026. Accordingly, the Company recorded additional expense of $ 4.8 million in the quarter ended December 31, 2024, within Selling, General and Administrative Expenses in the Company’s Consolidated Statements of Operations. The $ 11.9 million liability related to this matter is classified within Accrued Expenses and Other Current Liabilities in the accompanying Consolidated Balance Sheets as of December 31, 2024. The liability related to this matter was $ 7.4 million as of December 31, 2023, classified within Other Liabilities (non-current) in the Company’s Consolidated Balance Sheet at such date. Separate from payment of profits from the February 2025 judgment discussed above, as a result of the first instance judgement in their favor, Lufthansa was entitled to reimbursement from AES of a proportion of its legal expenditures in the UK case. An interim reimbursement was paid to Lufthansa in August 2020. As a result of the appeal decision, Lufthansa will be entitled to reimbursement from AES of a larger proportion of its first instance legal expenditures, as well as a portion of its legal expenditures associated with the appeal. A liability for reimbursement of Lufthansa’s legal expenses associated with the UK matter for the June 2022 trial and the appeal of that decision was approximately $ 1.0 million and $ 0.7 million on December 31, 2024 and December 31, 2023, respectively, which is expected to be paid within the next twelve months and, as such, is classified in Accrued Expenses and Other Current Liabilities in the accompanying Consolidated Condensed Balance Sheet as of December 31, 2024 and December 31, 2023. In the normal course, a defendant in the Company’s position would be ordered to make a partial reimbursement of Lufthansa’s legal costs. Whether that is the case and the amount depends on a number of variables including the size of the order for payment of profits. Additional amounts may be payable by the Company associated with Lufthansa’s legal fees incurred related to the account of profits proceedings, but the Company is unable to estimate a range of exposure and as such has not recorded any additional liabilities at this time. Each of the German, France and UK claims are separate and distinct. Validity and infringement of the Lufthansa patent in each country is a matter for the courts in each of these countries, whose laws differ from each other. In addition, the principles of calculating damages in each jurisdiction differ substantially. Therefore, the Company has assessed each matter separately and cannot apply the same calculation methodology as in the German direct and indirect matters. However, it is reasonably possible that additional damages and interest could be incurred if the appellate court in France was to rule in favor of Lufthansa, or if damages in the UK matter are calculated on a different basis than our estimate or using information not currently available. There were no other significant developments in any of these matters during the year ended December 31, 2024. Other On March 23, 2020, Teradyne, Inc. filed a complaint against the Company and its subsidiary, Astronics Test Systems (“ATS”) (together, “the Defendants”) in the United States District Court for the Central District of California alleging patent and copyright infringement, and certain other related claims. The Defendants moved to dismiss certain claims from the case. On November 6, 2020, the Court dismissed the Company from the case, and also dismissed a number of claims, though the patent and copyright infringement claims remained. The case proceeded to discovery. In addition, on December 21, 2020, ATS filed a petition for inter partes review (“IPR”) with the US Patent Trial and Appeal Board (“PTAB”), seeking to invalidate the subject patent, and on July 21, 2021, the PTAB instituted IPR. The PTAB issued its decision on July 20, 2022, in which it invalidated all of Teradyne’s patent claims. Teradyne did not appeal the decision. On June 5, 2023, the parties attended a court-ordered mediation but did not reach a settlement. After the mediation, Teradyne agreed to drop its remaining state law claims in exchange for ATS dropping one of its defenses, leaving only its copyright claim. On December 7, 2023, the District Court granted ATS’s motion for summary judgment on its affirmative defense of fair use. The Court subsequently entered final judgment in favor of ATS on December 14, 2023. Teradyne appealed to the United States Court of Appeals for the Ninth Circuit. On January 30, 2025, the Ninth Circuit affirmed the District Court’s grant of summary judgment. Teradyne may pursue an appeal by petitioning the United States Supreme Court for a writ of certiorari. It is unknown at this time whether Teradyne will pursue either option, or, if it does, whether the United States Supreme Court will grant a writ of certiorari. No amounts have been accrued for this matter in the December 31, 2024 or 2023 financial statements, as loss exposure was neither probable nor estimable at such times. Other than these proceedings, we are not party to any significant pending legal proceedings that management believes will result in a material adverse effect on our financial condition or results of operations. Accrued legal fees were $ 6.5 million and $ 7.9 million as of December 31, 2024 and 2023, respectively. 71 NOTE 20 — SEGMENTS The Company reports segment information based on the management approach, which designates the internal reporting used by the Chief Operating Decision Maker (“CODM”) for making decisions and assessing performance as the source of the Company’s reportable segments. The CODM, which is the Company’s Chief Executive Officer, allocates resources and assesses the performance of each operating segment based on historical and potential future product sales, gross margin associated with those sales, and operating income (loss) before interest, taxes, and corporate expenses. The Company has determined its reportable segments to be Aerospace and Test Systems based on the information used by the CODM. Segment information and reconciliations to consolidated amounts for the years ended December 31 are as follows: (In thousands) 2024 2023 2022 Sales: Aerospace $ 706,746 $ 605,001 $ 461,206 Less Inter-segment Sales ( 62 ) ( 171 ) ( 10 ) Total Aerospace Sales 706,684 604,830 461,196 Test Systems 88,874 84,376 73,717 Less Inter-segment Sales ( 132 ) — ( 19 ) Test Systems 88,742 84,376 73,698 Total Consolidated Sales $ 795,426 $ 689,206 $ 534,894 Less 1 Cost of Products Sold: Aerospace $ 549,017 $ 499,948 $ 399,834 77.7 % 82.7 % 86.7 % Test Systems $ 78,067 $ 68,462 $ 63,520 88.0 % 81.1 % 86.2 % Other Segment Items 2 Aerospace $ 95,261 $ 80,253 $ 63,245 Test Systems $ 19,152 $ 24,659 $ 18,296 Operating Income (Loss) and Margins: Aerospace $ 62,406 $ 24,629 $ ( 1,883 ) 8.8 % 4.1 % ( 0.4 ) % Test Systems ( 8,477 ) ( 8,745 ) ( 8,118 ) ( 9.6 ) % ( 10.4 ) % ( 11.0 ) % Total Operating Income (Loss) $ 53,929 $ 15,884 $ ( 10,001 ) 6.8 % 2.3 % ( 1.9 ) % Additions to (Deductions from) Operating Profit: Net Gain on Sale of Businesses $ — $ 3,427 $ 11,284 Loss on Extinguishment of Debt ( 10,148 ) — — Interest Expense, Net of Interest Income ( 21,998 ) ( 23,328 ) ( 9,422 ) Corporate and Other Expenses, Net ( 29,650 ) ( 22,294 ) ( 21,654 ) Loss before Income Taxes $ ( 7,867 ) $ ( 26,311 ) $ ( 29,793 ) 1 The significant expenses and amounts presented align with the segment-level information that is regularly provided to the CODM. Inter-segment expenses are included within the amounts shown. 2 Other segment items include Selling, General and Administrative Expenses and sublease and rental income. 72 (In thousands) 2024 2023 2022 Depreciation and Amortization: Aerospace $ 19,458 $ 20,801 $ 22,384 Test Systems 4,813 5,068 4,341 Corporate 195 235 1,052 Total Depreciation and Amortization $ 24,466 $ 26,104 $ 27,777 Assets: Aerospace $ 498,528 $ 493,660 Test Systems 128,828 122,681 Corporate 21,408 17,451 Total Assets $ 648,764 $ 633,792 Capital Expenditures: Aerospace $ 7,346 $ 5,003 $ 4,289 Test Systems 1,066 2,640 3,299 Corporate 16 — 87 Total Capital Expenditures $ 8,428 $ 7,643 $ 7,675 During the year ended December 31, 2024 and 2023, reserves associated with customer bankruptcies of $ 3.2 million and $ 11.1 million, respectively, negatively impacted Aerospace Operating Income. Aerospace Operating Income in the years ended December 31, 2024 and 2023 include compensation expense related to resumed incentive programs including bonuses, 401K and profit sharing contributions of $ 19.9 million and $ 6.7 million, respectively. In the year ended December 31, 2022, $ 6.0 million of the AMJP grant was recognized as an offset to the cost of products sold in the Aerospace segment. During the year ended December 31, 2023, $ 5.8 million was recognized in sales related to the reversal of a deferred revenue liability assumed with an acquisition and associated with a customer program within our Test Systems Segment which is no longer expected to occur, which also benefits Test Systems’ operating loss for the year. Corporate expenses and other for the year ended December 31, 2023, includes income of $ 1.8 million associated with the reversal of a liability related to an equity investment, as we are no longer required to make the associated payment. This amount is included in Other Income, Net. The following table summarizes the Company’s sales into the following geographic regions for the years ended December 31: (In thousands) 2024 2023 2022 United States $ 593,943 $ 518,096 $ 419,431 North America (excluding United States) 13,107 14,878 9,222 Asia 44,176 26,165 21,242 Europe 139,384 123,682 78,625 South America 1,445 2,071 3,629 Other 3,371 4,314 2,745 Total $ 795,426 $ 689,206 $ 534,894 The following table summarizes the Company’s property, plant and equipment by country for the years ended December 31: (In thousands) 2024 2023 United States $ 73,749 $ 77,939 France 5,625 6,417 India 357 487 Canada 956 593 Total $ 80,687 $ 85,436 Sales recorded by the Company’s foreign operations were $ 82.1 million, $ 69.3 million and $ 50.0 million in 2024, 2023 and 2022, respectively. Net income (loss) from foreign operations was $ 7.6 million, $ 5.3 million and $( 0.2 ) million in 2024, 2023 73 and 2022, respectively. Net assets held outside of the U.S. total $ 41.3 million and $ 39.1 million at December 31, 2024 and 2023, respectively. The exchange gain (loss) included in determining net income (loss) was insignificant in 2024, 2023 and 2022. Cumulative translation adjustments amounted to $ 8.2 million and $ 6.4 million at December 31, 2024 and 2023, respectively. The Company has a significant concentration of business with The Boeing Company (“Boeing”). Sales to Boeing are primarily in the Aerospace segment. The following is information relating to the activity with this customer: 2024 2023 2022 Percent of Consolidated Sales Boeing 10.2 % 11.0 % 11.0 % (In thousands) 2024 2023 Accounts Receivable at December 31, Boeing $ 10,474 $ 17,314 NOTE 21 — DIVESTITURE ACTIVITIES Semiconductor Test Business On February 13, 2019, the Company completed a divestiture of its semiconductor business within the Test Systems segment. The total proceeds of the divestiture included two elements of contingent earnouts. The “First Earnout” was calculated based on a multiple of all future sales of existing and certain future derivative products to existing and future customers in each annual period from 2019 through 2022. The First Earnout was capped at $ 35.0 million in total. The “Second Earnout” was calculated based on a multiple of future sales related to an existing product and program with an existing customer exceeding an annual threshold for each annual period from 2019 through 2022. The Second Earnout was not capped. For the Second Earnout, if the applicable sales in an annual period did not exceed the annual threshold, no amounts would be paid relative to such annual period; the sales in such annual period did not carry over to the next annual period. Due to the degree of uncertainty associated with estimating the future sales levels of the divested business and its underlying programs, and the lack of reliable predictive market information, the Company elected an accounting policy to recognize such earnout proceeds, if received, as additional gain on sale when such proceeds are realized or realizable. We consider the proceeds realizable when we have received communication from the purchaser of its calculation of the earnout and the parties reach agreement on the calculation. No amounts were payable to the Company under either earnout for the calendar 2019 earnout. The Company agreed to an earnout payment of $ 10.7 million for the calendar 2020 earnout, which was recorded in the fourth quarter of 2021 as Other Income and was paid to the Company in early January 2022. In March 2022, the Company agreed with the earnout calculation for the calendar 2021 earnout in the amount of $ 11.3 million. The Company recorded the gain and received the payment in the first quarter of 2022. In March 2023, the Company agreed with the final earnout calculation for the calendar 2022 earnout for $ 3.4 million. The Company recorded the gain and received the payment in the first quarter of 2023. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 74