ASTRONICS CORP 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (The following should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the 2024 10-K.) OVERVIEW Astronics Corporation, through its subsidiaries, is a leading supplier of advanced technologies and products to the global aerospace and defense industries. Our products and services include advanced, high-performance electrical power generation and distribution systems, seat motion solutions, lighting and safety systems, avionics products, aircraft structures, systems certification, and automated test systems. We have two reportable segments, Aerospace and Test Systems. Our Aerospace segment has principal operating facilities in the United States, Canada and France and an engineering office in Ukraine. Our Test Systems segment has principal operating facilities in the United States and an engineering office in India. Our Aerospace segment designs and manufactures products for the global aerospace industry. Product lines include lighting and safety systems, electrical power generation, distribution and seat motion systems, aircraft structures, avionics products, systems certification, and other products. Our primary Aerospace customers are the airframe manufacturers (“OEM”) that build aircraft for the commercial transport, military and general aviation markets, suppliers to those OEMs, aircraft operators such as airlines, suppliers to the aircraft operators, and branches of the U.S. Department of Defense (“USDOD”). Our Test Systems segment designs, develops, manufactures and maintains automated test systems that support the aerospace and defense and mass transit industries as well as training and simulation devices for both commercial and military applications. In the Test Systems segment, Astronics’ products are sold to a global customer base including OEMs and prime government contractors for both electronics and military products. Our strategy is to increase our value by developing technologies and capabilities, either internally or through acquisition, and using those capabilities to provide innovative solutions to our targeted markets where our technology can be beneficial. Important factors affecting our growth and profitability are the rate at which new aircraft are produced, government funding and timing of awards of military programs, our ability to have our products designed into new aircraft, the rates at which aircraft owners, including commercial airlines, refurbish or install upgrades to their aircraft and supply chain and labor market pressures. New aircraft build rates and aircraft owners’ spending on upgrades and refurbishments is cyclical and dependent on the strength of the global economy. Once one of our products is designed into a new aircraft, the spare parts business associated thereto is also frequently retained by the Company. Future growth and profitability of the Test Systems business is dependent on developing and procuring new and follow-on business. The nature of our Test Systems business is such that it pursues large, often multi-year, projects. There can be significant periods of time between orders in this business, which may result in large fluctuations of sales and profit levels and backlog from period to period. Test Systems segment customers include the USDOD, prime contractors to the USDOD, mass transit operators and prime contractors to mass transit operators. Each of the markets that we serve presents opportunities that we expect will provide growth for the Company over the long-term. We continue to look for opportunities in all of our markets to capitalize on our core competencies to expand our existing business and to grow through strategic acquisitions. The main challenges that we continue to face include varying levels of supply chain pressures, material availability and cost increases (including costs associated with the recent imposition of tariffs by the United States and other countries discussed herein), labor availability and cost, and improving shareholder value through increasing profitability. Increasing profitability is dependent on many things, primarily sales growth, both acquired and organic, and the Company’s ability to pass cost increases along to customers and control operating expenses, and to identify means of creating improved productivity. Sales are driven by increased build rates for existing aircraft, market acceptance and economic success of new aircraft and our products, continued government funding of defense programs, the Company’s ability to obtain production contracts for parts we currently supply or have been selected to design and develop for new aircraft platforms and continually identifying and winning new business for our Test Systems segment. Reduced aircraft build rates driven by regulatory actions impacting OEM production, a weak economy, aircraft groundings, tight credit markets, reduced air passenger travel, tariffs impacting OEM demand, and an increasing supply of used aircraft on the market would likely result in reduced demand for our products, which will result in lower profits. Reduction of defense spending may result in fewer opportunities for us to compete, which could result in lower profits in the future. Many of our newer development programs are based on new and unproven technology and at the same time we are challenged to develop the technology on a schedule that is consistent with specific programs. Delays in delivery schedules and incremental costs resulting 21 Table of Content from tariffs and other trade policy matters, supply chain pressures, and labor market pressures have in the past resulted in, and could in the future also result in, lower profits. We will continue to address these challenges by working to improve operating efficiencies and focusing on executing on the growth opportunities currently in front of us. Our ABL Revolving Credit Facility subjects us to various financial and other affirmative and negative covenants with which we must comply on an ongoing or periodic basis. These include financial covenants pertaining to minimum excess availability requirements and minimum fixed charge coverage ratio requirements. An unexpected decline in our revenues or operating income, including occurring as a result of events beyond our control, could cause us to violate our financial covenants. While the Company expects to remain in compliance with the required financial covenants for the duration of the agreements, any unexpected negative impacts to our business, including as a result of declines in aircraft production rates from expectations or production delays resulting from regulatory actions or labor strikes affecting OEMs, additional supply chain pressures, tariffs and our ability to mitigate tariff effects, the timing of customer orders, our ability to meet customer delivery schedules, or labor availability and cost pressures, could result in lower revenues and reduced financial profits, and, as a result thereof, our inability to satisfy the financial covenants in our ABL Revolving Credit Facility. Challenges affecting the commercial aviation industry or key participants can adversely impact the demand for our products and services, the timing of orders, deliveries and related payments and other factors. We are monitoring the production levels and anticipated ramp-up at The Boeing Company, and we continue to align with them on production expectations. We are monitoring the ongoing conflict between Russia and Ukraine and the related export controls and financial and economic sanctions imposed on certain industry sectors, including the aviation sector, and parties in Russia by the U.S., the U.K., the European Union and others. Although the conflict has not resulted in a direct material adverse impact on our business to date, the implications of the Russia and Ukraine conflict in the short-term and long-term are difficult to predict at this time. Factors such as increased energy costs, the availability of certain raw materials for aircraft manufacturers, embargoes on flights from Russian airlines, sanctions on Russian companies, and the stability of Ukrainian customers could impact the global economy and aviation sector. On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law in the United States. The OBBBA permanently extends and modifies significant provisions enacted in 2017 as part of the Tax Cuts and Jobs Act (“TCJA”) that were originally set to expire at the end of 2025. In addition, the OBBBA makes changes to certain U.S. corporate tax provisions, many of which are not in effect until 2026. Changes in tax laws may affect recorded deferred tax assets and deferred tax liabilities and our effective tax rate in the future and the Company is currently evaluating the impacts of the new legislation. CONSOLIDATED RESULTS OF OPERATIONS Six Months Ended Three Months Ended ($ in thousands) June 28, 2025 June 29, 2024 June 28, 2025 June 29, 2024 Sales $ 410,614 $ 383,188 $ 204,678 $ 198,114 Gross Profit (sales less cost of products sold) $ 113,676 $ 103,082 $ 52,827 $ 55,568 Gross Margin 27.7 % 26.9 % 25.8 % 28.0 % Research and Development Expenses $ 22,639 $ 27,537 $ 11,572 $ 14,214 Selling, General and Administrative Expenses (“SG&A”) $ 73,142 $ 66,329 $ 36,497 $ 33,804 SG&A Expenses as a Percentage of Sales 17.8 % 17.3 % 17.8 % 17.1 % Interest Expense, Net $ 6,247 $ 11,615 $ 3,097 $ 5,856 Effective Tax Rate 9.8 % 49.7 % 29.0 % (21.8) % Net Income (Loss) $ 10,842 $ (1,645) $ 1,314 $ 1,533 A discussion by segment can be found in “Segment Results of Operations” in this MD&A. CONSOLIDATED SECOND QUARTER RESULTS Growth in sales were driven by the Aerospace segment’s continued strength in demand primarily from the Commercial Transport market. Aerospace sales increased $16.7 million, or 9.4%, which more than offset a $10.1 million decline in Test Systems sales. Consolidated sales were negatively impacted by $6.4 million due to revisions of estimated costs to complete certain long-term mass transit contracts in the Test Systems segment. Consolidated cost of products sold in the second quarter of 2025 was $151.9 million, compared with $142.5 million in the same prior-year period. The increase was primarily due to higher sales volume. Additionally, simplification initiatives in the 22 Table of Content Aerospace segment, including costs related to footprint rationalization and product portfolio shaping activities, resulted in $5.8 million in charges within cost of products sold during the quarter. Both periods reflect the change in presentation for research & development expenses (“R&D”), which is now identified as an expense item on the income statement below gross profit. In the second quarter of 2025, the $2.7 million increase in selling, general and administrative expenses (“SG&A”) is primarily attributable to a $3.5 million legal fee reimbursement charge relating to the patent infringement dispute in the UK, partially offset by a $1.7 million decrease in litigation-related legal expenses. R&D was down $2.6 million reflecting the timing of projects. As a result of the refinancing in December 2024 which resulted in a lower average interest rate, interest expense was down $2.8 million. Tax expense in the quarter was $0.5 million compared with a tax benefit of $0.3 million in the prior-year period. Consolidated net income of $1.3 million, or $0.04 per diluted share, compares with net income of $1.5 million, or $0.04 per diluted share, in the prior-year period. Bookings of $177.0 million in the quarter resulted in a book-to-bill ratio of 0.86:1. For the trailing twelve months, bookings totaled $841.8 million and the book-to-bill ratio was 1.02:1. Backlog at the end of the quarter was $645.4 million. CONSOLIDATED YEAR-TO-DATE RESULTS Growth in sales were driven by the Aerospace segment due to continued strength in demand primarily from the Commercial Transport and Military Aircraft markets. Aerospace sales increased $44.4 million, or 13.0%, which more than offset the $17.0 million decline in Test Systems sales. Consolidated sales were negatively impacted by $8.3 million, resulting from revisions of estimated costs to complete certain long-term mass transit contracts in the Test Systems segment. Consolidated cost of products sold in the first half of 2025 was $296.9 million, compared with $280.1 million in the same prior-year period. The increase was primarily due to higher sales volume. Additionally, simplification initiatives in the Aerospace segment, including costs related to footprint rationalization and product portfolio shaping activities, resulted in $5.8 million in charges within cost of products sold during the quarter. Both periods reflect the change in presentation for R&D, which is now identified as an expense item on the income statement below gross profit. In the first half of 2025, the $6.8 million increase in SG&A included a $9.7 million reserve adjustment relating to a patent infringement dispute in the UK. This included a $0.5 million increase to the original damages award reserve of $11.9 million, $5.7 million in interest expense related to the damages award, and a $3.5 million legal fee reimbursement charge. This increase was partially offset by a $2.4 million decrease in litigation-related legal expenses. R&D was down $4.9 million reflecting the timing of projects. As a result of the lower outstanding borrowings and the reduced cost of debt resulting from the refinancing in December 2024, interest expense was down $5.4 million, or 46.2%. Tax expense in the first half of 2025 was $1.2 million compared with a tax benefit of $1.6 million in the prior-year period. Tax expense in the first half of 2025 was partially offset by a $1.1 million discrete adjustment to reverse certain federal and state deferred tax liabilities. Stronger profitability and lower interest expense resulted in consolidated net income of $10.8 million, or $0.30 per diluted share, up from the net loss of $1.6 million, or $0.05 per diluted share, in the same prior-year period. Bookings of $456.8 million in the first half of 2025 resulted in a book-to-bill ratio of 1.11:1. SEGMENT RESULTS OF OPERATIONS Operating profit, as presented below, is sales less cost of products sold and other operating expenses, excluding interest expense, other corporate expenses and other non-operating sales and expenses. Cost of products sold and other operating expenses are directly identifiable to the respective segment. Operating profit is reconciled to income (loss) before income taxes in Note 14, Segment Information, to the Consolidated Condensed Financial Statements in Item 1, Financial Statement, of this report. 23 Table of Content AEROSPACE SEGMENT Six Months Ended Three Months Ended ($ in thousands) June 28, 2025 June 29, 2024 June 28, 2025 June 29, 2024 Sales $ 385,035 $ 340,623 $ 193,647 $ 176,948 Less Inter-segment Sales (34) (42) (21) (5) Total Aerospace Sales $ 385,001 $ 340,581 $ 193,626 $ 176,943 Operating Profit $ 40,303 $ 31,377 $ 18,039 $ 19,280 Operating Margin 10.5 % 9.2 % 9.3 % 10.9 % Aerospace Sales by Market (In thousands) Commercial Transport $ 283,115 $ 249,829 $ 145,573 $ 128,399 Military Aircraft 60,696 41,860 27,433 24,781 General Aviation 33,613 38,566 18,370 19,015 Other 7,577 10,326 2,250 4,748 $ 385,001 $ 340,581 $ 193,626 $ 176,943 Aerospace Sales by Product Line (In thousands) Electrical Power & Motion $ 195,246 $ 173,452 $ 95,166 $ 90,328 Lighting & Safety 102,670 88,241 52,999 46,454 Avionics 65,284 54,565 37,050 28,971 Systems Certification 7,904 7,812 2,836 3,364 Structures 6,320 6,185 3,325 3,078 Other 7,577 10,326 2,250 4,748 $ 385,001 $ 340,581 $ 193,626 $ 176,943 (In thousands) June 28, 2025 December 31, 2024 Total Assets $ 517,145 $ 498,528 Backlog $ 570,913 $ 537,563 AEROSPACE SECOND QUARTER RESULTS Aerospace segment sales of $193.6 million increased $16.7 million, or 9.4%. Sales in the Commercial Transport market increased $17.2 million, or 13.4%. Growth was primarily related to increased demand by airlines for cabin power and inflight entertainment & connectivity (“IFEC”) products. Military Aircraft sales increased $2.7 million, or 10.7%, to $27.4 million, driven by increased demand for lighting and safety products. General Aviation sales decreased $0.6 million, or 3.4%, to $18.4 million due to lower airframe power sales. Other sales decreased $2.5 million as the Company is winding down its non-core contract manufacturing arrangements. Aerospace segment operating profit of $18.0 million, or 9.3% of sales, decreased over the prior-year period as a result of the previously discussed $6.2 million charge related to simplification initiatives, a $3.5 million legal fee reimbursement charge related to the UK patent dispute, and a $1.0 million warranty expense true-up related to a new product launch that requires a field modification. These were partially offset by a $1.5 million decrease in litigation-related expenses. Aerospace bookings were $150.6 million for a book-to-bill ratio of 0.78:1. Backlog for the Aerospace segment was a $570.9 million at quarter end. AEROSPACE YEAR-TO-DATE RESULTS Aerospace segment sales of $385.0 million increased $44.4 million, or 13.0%. Sales in the Commercial Transport market increased $33.3 million, or 13.3%. Growth was primarily related to increased demand by airlines for cabin power and IFEC products. Military Aircraft sales increased $18.8 million, or 45.0%, to $60.7 million, driven by progress on the FLRAA 24 Table of Content program and increased demand for lighting and safety products. General Aviation sales decreased $5.0 million, or 12.8%, to $33.6 million due to lower VVIP and airframe power sales. Aerospace segment operating profit of $40.3 million, or 10.5% of sales, improved over the prior-year period resulting from leverage gained on higher volume and improving production efficiencies and a $2.8 million decrease in litigation-related expenses, partially offset by the previously discussed $9.7 million true-up in legal reserves related to the UK patent dispute and $6.5 million in simplification initiatives. Aerospace bookings were $418.4 million for a book-to-bill ratio of 1.09:1. TEST SYSTEMS SEGMENT Six Months Ended Three Months Ended ($ in thousands) June 28, 2025 June 29, 2024 June 28, 2025 June 29, 2024 Sales $ 25,933 $ 42,607 $ 11,341 $ 21,171 Less Inter-segment Sales (320) — (289) — Total Test Systems Sales $ 25,613 $ 42,607 $ 11,052 $ 21,171 Operating Loss $ (8,933) $ (8,415) $ (6,710) $ (5,336) Operating Margin (34.9) % (19.8) % (60.7) % (25.2) % All Test Systems sales are to the Government and Defense Market. (In thousands) June 28, 2025 December 31, 2024 Total Assets $ 111,046 $ 128,828 Backlog $ 74,454 $ 61,666 TEST SYSTEMS SECOND QUARTER RESULTS Test Systems segment sales were $11.1 million, down $10.1 million from the comparator quarter in 2024. Segment sales were negatively impacted by $6.4 million due to revisions of estimated costs to complete certain long-term mass transit Test contracts. The revisions resulted in reduced revenue recognized in the period due to lower estimates of the percentage of work completed on the programs. Test Systems segment operating loss was $6.7 million, compared with an operating loss of $5.3 million in the second quarter of 2024. The revisions to the estimated costs to complete had a $6.9 million detrimental impact to operating income and masked the savings realized from recent restructuring activities. Test Systems continues to be negatively affected by mix and under absorption of fixed costs at current volume levels. Test Systems bookings were $26.4 million for a book-to-bill ratio of 2.39:1. Backlog for the Test Systems segment was $74.5 million at quarter end. TEST SYSTEMS YEAR-TO-DATE RESULTS Test Systems segment sales were $25.6 million, down $17.0 million from 2024. Segment sales were negatively impacted by $8.3 million due to revisions of estimated costs to complete certain long-term mass transit Test contracts. The revisions resulted in reduced revenue recognized in the period due to lower estimates of the percentage of work completed on the programs. Test Systems segment operating loss was $8.9 million, compared with an operating loss of $8.4 million in the same prior-year period. The revisions to the estimated costs to complete had a $8.8 million detrimental impact to operating income and masked the savings realized from recent restructuring activities. Test Systems continues to be negatively affected by mix and under absorption of fixed costs at current volume levels. Test Systems bookings were $38.4 million for a book-to-bill ratio of 1.50:1. LIQUIDITY AND CAPITAL RESOURCES Operating Activities: Cash provided by operating activities totaled $13.0 million for the first six months of 2025, as compared with $4.2 million cash used for operating activities during the same period in 2024. Cash flow from operating activities increased compared with the 25 Table of Content same period of 2024 primarily the result of higher cash earnings resulting from higher net income and improved working capital management. Cash provided by operating activities in the first six months of 2025 included $21.6 million in payments related to the UK patent dispute and $12.8 million in net income tax payments. Investing Activities: Cash used for investing activities was $6.7 million for the first six months of 2025 compared with $3.4 million in cash used for investing activities in the same period of 2024 representing capital expenditures for each period. The higher level of capital expenditures relates to the ongoing facility expansion activities. Financing Activities: Cash used for financing activities totaled $12.5 million for the first six months of 2025, as compared with cash provided by financing activities of $0.8 million during the same prior-year period. The Company made net payments under its credit facilities of $10.0 million in the first six months of 2025 compared with net borrowings of $5.9 million in the same prior-year period. 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. 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 is 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 June 28, 2025, there was no balance outstanding on the ABL Revolving Credit Facility and there remained $197.8 million available for future borrowings, before our minimum excess availability requirement discussed below. The amount available for future borrowings as of June 28, 2025, is net of $2.3 million in outstanding letters of credit. 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 a minimum excess availability of the greater of 10% of the borrowing base under the ABL Revolving Credit Facility, or $15.0 million. As of June 28, 2025, the Company was in compliance with these covenants. On December 3, 2024, the Company issued $165.0 million aggregate principal amount of 5.500% Convertible Senior Notes due 2030 (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 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. 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 redeemed at the option of the holder. During the fiscal quarter ended June 28, 2025, our stock price met the price trigger defined above, and therefore, holders of our Convertible Notes may convert their notes at their option at any time during our third fiscal quarter ended September 27, 2025. The fair value of the 26 Table of Content Convertible Notes was approximately $284.0 million and $176.9 million as of June 28, 2025 and December 31, 2024, respectively, based on quoted prices for these instruments in active markets, and is classified as a Level 1 measurement within the fair value hierarchy. Interest expense was $3.1 million and $5.9 million for the three months ended and $6.2 million and $11.6 million for the six months ended June 28, 2025 and June 29, 2024, respectively. The Company entered into a $90.0 million Term Loan Facility on January 19, 2023, and paid interest at a rate equal to SOFR (which was required to be at least 2.50%) plus 8.75%. The Company refinanced its credit facilities on July 11, 2024, and repaid in full all outstanding indebtedness under the previous term loan dated January 19, 2023. Debt issuance cost amortization expense was $0.6 million and $0.9 million for the three months ended and $1.2 million and $1.7 million for the six months ended June 28, 2025 and June 29, 2024, respectively. All costs are amortized to interest expense over the term of the respective agreement. Unamortized deferred debt issuance costs associated with the ABL Revolving Credit Facility ($2.4 million and $3.0 million as of June 28, 2025 and December 31, 2024, respectively) are recorded within Other Assets and those associated with the Convertible Notes ($5.7 million and $6.3 million as of June 28, 2025 and December 31, 2024, respectively) are recorded as a reduction of the carrying value of the debt on the Consolidated Condensed Balance Sheets. 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. 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 three and six months ended June 28, 2025, and June 29, 2024, the Company did not sell any shares of its common stock under the ATM Program. As of June 28, 2025, 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. Cash on hand at the end of the quarter was $13.5 million. Net debt was $151.5 million, compared with $156.6 million at the end of 2024. Lufthansa Technik AG (“Lufthansa”) filed actions in Germany, the United Kingdom (“UK”) and France. These matters are more fully discussed in Note 13, Legal Proceedings, to the Consolidated Condensed Financial Statements in Item 1, Financial Statements, of this report. The Company expects its cash flow from operations will provide sufficient cash flows to fund operations, including payment of any further amounts related to the Lufthansa matters. The Company paid $21.6 million ordered liabilities for damages, interest and legal fee reimbursement related to the UK matter in the second quarter of 2025. The Company may also evaluate various actions and alternatives to enhance its profitability and cash generation from operating activities, which could include manufacturing efficiency initiatives, cost-reduction measures, working with vendors and suppliers to reduce lead times and expedite shipment of critical components, and working with customers to expedite receivable collections. The Company may also utilize available capacity under the ABL Revolving Credit Facility. Our ability to maintain sufficient liquidity and comply with financial debt covenants is highly dependent upon achieving expected operating results. Failure to achieve expected operating results could have a material adverse effect on our liquidity, our ability to obtain financing or access our existing financing, and our operations in the future and could allow our debt holders to demand payment of all outstanding amounts. OFF BALANCE SHEET ARRANGEMENTS We do not have any material off balance sheet arrangements that have or are reasonably likely to have a material future effect on our results of operations or financial condition. BACKLOG The Company’s backlog on June 28, 2025 was $645.4 million compared with $599.2 million on December 31, 2024 and $626.4 million on June 29, 2024. 27 Table of Content CONTRACTUAL OBLIGATIONS AND COMMITMENTS Our contractual obligations and commitments have not changed materially from the disclosures in our 2024 10-K except as set forth below. MARKET RISK Although the majority of our sales, expenses, and cash flows are transacted in U.S. dollars, we have exposure to changes in foreign currency exchange rates related primarily to the Euro and the Canadian dollar. The Company believes that the impact of changes in foreign currency exchange rates on its business and financial results for the three and six months ended June 28, 2025 was not significant. The future impacts of U.S. trade policies, treaties, and tariffs and their residual effects, including economic uncertainty, inflationary environment, and disruption within the global supply chain, and aerospace industry, on our business remain uncertain. As we cannot predict what actions may ultimately be taken with respect to tariffs or trade relations between the United States and China, Malaysia or other countries, what products may be subject to such actions, what actions may be taken by the other countries in retaliation, and what actions we may be able to take to address and mitigate such tariffs, the ultimate financial impact on our results cannot be reasonably estimated but could be material. The impact of tariffs on its business and financial results for the three and six months ended June 28, 2025 was not significant. CRITICAL ACCOUNTING POLICIES Refer to Note 2, Revenue, to the Consolidated Condensed Financial Statements in Item 1, Financial Statements, of this report for the Company’s critical accounting policies with respect to revenue recognition. For a complete discussion of the Company’s other critical accounting policies, refer to the 2024 10-K. RECENT ACCOUNTING PRONOUNCEMENTS Refer to Note 1, Basis of Presentation, to the Consolidated Condensed Financial Statements in Item 1, Financial Statements, of this report. FORWARD-LOOKING STATEMENTS Information included or incorporated by reference in this report that does not consist of historical facts, including statements accompanied by or containing words such as “may,” “will,” “should,” “believes,” “expects,” “expected,” “intends,” “plans,” “projects,” “approximate,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume,” and “assume,” and other words and terms of similar meaning, including their negative counterparts, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to several factors, risks and uncertainties, the impact or occurrence of which could cause actual results to differ materially from the expected results described in the forward-looking statements. Certain of these factors, risks and uncertainties are discussed in the sections of this report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” New factors, risks and uncertainties may emerge from time to time that may affect the forward-looking statements made herein. Given these factors, risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictive of future results. Except as may be required by law, we disclaim any obligation to update the forward-looking statements made in this report to reflect any change in our expectations with regard thereto, or any changes in events, conditions or circumstances on which any such statement is based. Item 3. Quantitative and Qualitative Disclosures About Market Risk The disclosure above under the heading “Market Risk” in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this report is incorporated by reference into this Item 3. 28 Table of Content