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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2023
or
 
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
Commission File Number 0-7087
 
ASTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
 
New York
(State or other jurisdiction of
incorporation or organization)
16-0959303
(IRS Employer
Identification Number)
130 Commerce Way, East Aurora, New York
(Address of principal executive offices)
14052
(Zip code)
(716) 805-1599
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $.01 par value per shareATRONASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act: None
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, an “accelerated filer”, a “non-accelerated filer”, a “smaller reporting company” and an “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filer
Emerging growth company
Non-accelerated filer
Smaller Reporting Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act. ¨
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ý
As of November 3, 2023, 33,940,478 shares of common stock were outstanding consisting of 27,948,897 shares of common stock ($.01 par value) and 5,991,581 shares of Class B common stock ($.01 par value).



TABLE OF CONTENTS
PAGE
PART I
Item 1
Item 2
Item 3
Item 4
PART II
Item 1
Item 1a
Item 2
Item 3
Item 4
Item 5
Item 6

2

Part I – Financial Information
Item 1. Financial Statements
ASTRONICS CORPORATION
Consolidated Condensed Balance Sheets
September 30, 2023 with Comparative Figures for December 31, 2022
(Unaudited)
(In thousands)
 
September 30, 2023December 31, 2022
Current Assets:
Cash and Cash Equivalents
$3,981 $13,778 
Restricted Cash3,670  
Accounts Receivable, Net of Allowance for Estimated Credit Losses
152,961 147,790 
Inventories
203,900 187,983 
Prepaid Expenses and Other Current Assets
16,714 15,743 
Total Current Assets
381,226 365,294 
Property, Plant and Equipment, Net of Accumulated Depreciation86,742 90,658 
Operating Right-of-Use Assets28,137 13,028 
Other Assets7,915 8,605 
Intangible Assets, Net of Accumulated Amortization68,682 79,277 
Goodwill58,169 58,169 
Total Assets
$630,871 $615,031 
Current Liabilities:
Current Maturities of Long-term Debt
$8,996 $4,500 
Accounts Payable
69,561 64,193 
Current Operating Lease Liabilities4,598 4,441 
Accrued Expenses and Other Current Liabilities
48,941 45,911 
Customer Advance Payments and Deferred Revenue
26,127 32,567 
Total Current Liabilities
158,223 151,612 
Long-term Debt160,000 159,500 
Long-term Operating Lease Liabilities25,025 9,942 
Other Liabilities55,216 54,057 
Total Liabilities398,464 375,111 
Shareholders’ Equity:
Common Stock
368 354 
Accumulated Other Comprehensive Loss(9,086)(9,526)
Other Shareholders’ Equity
241,125 249,092 
Total Shareholders’ Equity
232,407 239,920 
Total Liabilities and Shareholders’ Equity$630,871 $615,031 
See notes to consolidated condensed financial statements.
3

ASTRONICS CORPORATION
Consolidated Condensed Statements of Operations
Three and Nine Months Ended September 30, 2023 With Comparative Figures for 2022
(Unaudited)
(In thousands, except per share data)
 
Nine Months EndedThree Months Ended
September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Sales$493,914 $376,741 $162,922 $131,438 
Cost of Products Sold413,091 326,711 142,304 117,050 
Gross Profit80,823 50,030 20,618 14,388 
Selling, General and Administrative Expenses95,276 76,907 35,097 28,702 
Loss from Operations(14,453)(26,877)(14,479)(14,314)
Net Gain on Sale of Business(3,427)(11,284)  
Other (Income) Expense, Net of Other Expense (Income)(562)1,180 348 427 
Interest Expense, Net of Interest Income17,381 5,812 5,991 2,519 
Loss Before Income Taxes(27,845)(22,585)(20,818)(17,260)
Provision for (Benefit from) Income Taxes5,552 6,383 (3,835)(2,403)
Net Loss$(33,397)$(28,968)$(16,983)$(14,857)
Loss Per Share:
Basic
$(1.02)$(0.90)$(0.51)$(0.46)
Diluted
$(1.02)$(0.90)$(0.51)$(0.46)
See notes to consolidated condensed financial statements.
4

ASTRONICS CORPORATION
Consolidated Condensed Statements of Comprehensive Loss
Three and Nine Months Ended September 30, 2023 With Comparative Figures for 2022
(Unaudited)
(In thousands)
 
Nine Months EndedThree Months Ended
September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Net Loss$(33,397)$(28,968)$(16,983)$(14,857)
Other Comprehensive Income (Loss):
Foreign Currency Translation Adjustments
(117)(3,241)(828)(1,674)
Retirement Liability Adjustment – Net of Tax
557 1,046 185 348 
Total Other Comprehensive Income (Loss)440 (2,195)(643)(1,326)
Comprehensive Loss$(32,957)$(31,163)$(17,626)$(16,183)
See notes to consolidated condensed financial statements.
5

ASTRONICS CORPORATION
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 30, 2023 With Comparative Figures for 2022

Nine Months Ended
(Unaudited, In thousands)
September 30, 2023October 1, 2022
Cash Flows from Operating Activities:
Net Loss$(33,397)$(28,968)
Adjustments to Reconcile Net Loss to Cash Flows from Operating Activities:
Depreciation and Amortization19,758 20,905 
Amortization of Deferred Financing Fees2,148  
Provisions for Non-Cash Losses on Inventory and Receivables13,713 1,033 
Equity-based Compensation Expense5,603 5,178 
Operating Lease Non-Cash Expense3,816 4,568 
Non-Cash Accrued 401K Contribution3,773 3,300 
Net Gain on Sale of Business, Before Taxes(3,427)(11,284)
Non-Cash Litigation Provision Adjustment(1,305)2,000 
Non-Cash Deferred Liability Recovery(5,824) 
Other911 2,997 
Changes in Operating Assets and Liabilities Providing (Using) Cash:
Accounts Receivable(12,980)(28,196)
Inventories(24,024)(35,444)
Accounts Payable4,033 17,595 
Accrued Expenses5,111 935 
Customer Advance Payments and Deferred Revenue(562)1,990 
Income Taxes3,443 14,583 
Operating Lease Liabilities(3,660)(5,715)
Supplemental Retirement Plan Liabilities(304)(306)
Other Assets and Liabilities898 (4,312)
Net Cash Used by Operating Activities(22,276)(39,141)
Cash Flows from Investing Activities:
Proceeds from Sale of Business and Assets3,427 21,981 
Capital Expenditures(6,037)(4,283)
Net Cash (Used) Provided by Investing Activities(2,610)17,698 
Cash Flows from Financing Activities:
Proceeds from Long-term Debt135,732 109,625 
Principal Payments on Long-term Debt(125,984)(113,625)
Stock Award Activity2,480 104 
Proceeds from At-the-Market Stock Sales13,045  
Finance Lease Principal Payments(47)(85)
Debt Acquisition Costs(6,447)(968)
Net Cash Provided (Used) by Financing Activities18,779 (4,949)
Effect of Exchange Rates on Cash(20)(797)
Decrease in Cash and Cash Equivalents and Restricted Cash(6,127)(27,189)
Cash and Cash Equivalents and Restricted Cash at Beginning of Period13,778 29,757 
Cash and Cash Equivalents and Restricted Cash at End of Period$7,651 $2,568 
Supplemental Disclosure of Cash Flow Information
Non-Cash Investing Activities: Capital Expenditures in Accounts Payable$ $1,392 
See notes to consolidated condensed financial statements.
6

ASTRONICS CORPORATION
Consolidated Condensed Statements of Shareholders’ Equity
Three and Nine Months Ended September 30, 2023 With Comparative Figures for 2022
(Unaudited)
(In thousands)
Nine Months EndedThree Months Ended
September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Common Stock
Beginning of Period$291 $289 $295 $290 
Issuance of Common Stock Through At-the-Market (“ATM”) Offering8 — 8 — 
Net Exercise of Stock Options, including ESPP4 — 4 — 
Net Issuance of Common Stock for Restricted Stock Units (“RSU’s”)2 1 1 — 
Class B Stock Converted to Common Stock3 1 — 1 
End of Period308 291 308 291 
Convertible Class B Stock
Beginning of Period63 64 60 64 
Class B Stock Converted to Common Stock(3)(1)— (1)
End of Period60 63 60 63 
Additional Paid in Capital
Beginning of Period98,630 92,037 102,020 95,861 
Issuance of Common Stock Through ATM Offering, Net of Offering Costs13,611 — 13,611 — 
Net Exercise of Stock Options, including ESPP, and Equity-based Compensation Expense8,714 5,579 4,721 1,457 
Tax Withholding Related to Issuance of RSU’s(636)(298)(33)— 
End of Period120,319 97,318 120,319 97,318 
Accumulated Comprehensive Loss
Beginning of Period(9,526)(14,495)(8,443)(15,364)
Foreign Currency Translation Adjustments(117)(3,241)(828)(1,674)
Retirement Liability Adjustment – Net of Taxes557 1,046 185 348 
End of Period(9,086)(16,690)(9,086)(16,690)
Retained Earnings
Beginning of Period240,360 287,225 221,698 266,338 
Net Loss(33,397)(28,968)(16,983)(14,857)
Reissuance of Treasury Shares for 401K Contribution(3,142)(9,158)(894)(2,382)
End of Period203,821 249,099 203,821 249,099 
Treasury Stock
Beginning of Period(89,898)(108,516)(85,229)(96,513)
Shares Issued to Fund 401K Obligation6,883 15,523 2,214 3,520 
End of Period(83,015)(92,993)(83,015)(92,993)
Total Shareholders’ Equity$232,407 $237,088 $232,407 $237,088 
See notes to consolidated condensed financial statements.





7

ASTRONICS CORPORATION
Consolidated Condensed Statements of Shareholders’ Equity, Continued
Three and Nine Months Ended September 30, 2023 With Comparative Figures for 2022
(Unaudited)
(In thousands)
Nine Months EndedThree Months Ended
(Shares)September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Common Stock
Beginning of Period29,122 28,911 29,478 29,047 
Issuance of Common Stock Through ATM Offering834 — 834 — 
Net Issuance from Exercise of Stock Options, including ESPP438 20 437 — 
Net Issuance of Common Stock for RSU’s145 105 55 57 
Class B Stock Converted to Common Stock305 74 40 6 
End of Period30,844 29,110 30,844 29,110 
Convertible Class B Stock
Beginning of Period6,314 6,375 6,049 6,331 
Net Issuance from Exercise of Stock Options— 24 — — 
Class B Stock Converted to Common Stock(305)(74)(40)(6)
End of Period6,009 6,325 6,009 6,325 
Treasury Stock
Beginning of Period3,155 3,808 2,991 3,387 
Shares Issued to Fund 401K Obligation(242)(545)(78)(124)
End of Period2,913 3,263 2,913 3,263 
See notes to consolidated condensed financial statements.


8

ASTRONICS CORPORATION
Notes to Consolidated Condensed Financial Statements
September 30, 2023
(Unaudited)
1) Basis of Presentation
The accompanying unaudited statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included.
Operating Results
The results of operations for any interim period are not necessarily indicative of results for the full year. In addition, the COVID-19 pandemic and supply chain disruptions have increased the volatility we experience in our financial results in recent periods and this could continue in future interim and annual periods. Operating results for the nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
The balance sheet on December 31, 2022, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements.
For further information, refer to the financial statements and footnotes included in Astronics Corporation’s 2022 annual report on Form 10-K.
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 motion systems, lighting and safety systems, avionics products, systems and certification, aircraft structures, and automated test systems.
We have principal operations in the United States (“U.S.”), Canada, France, and England, as well as engineering offices in Ukraine and India.
On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment. The transaction included two elements of contingent earnouts. In March 2022, the Company agreed with the earnout calculation for the calendar 2021 earnout for $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.
In April 2023, the Test Systems segment implemented restructuring initiatives to align the workforce and management structure with near-term revenue expectations and operational needs. The Company incurred $0.6 million in severance charges during the nine months ended September 30, 2023 recorded as selling, general and administrative expenses, of which $0.1 million remain unpaid as of September 30, 2023.
In November 2023, a non-core contract manufacturing customer reported within the Aerospace segment filed for bankruptcy under Chapter 11. As a result, the Company recorded a full reserve of $7.5 million for outstanding accounts receivable and $3.6 million for dedicated inventory. The reserves are non-cash in the current quarter and year to date, as the associated assets existed prior to 2023.
Impact of the COVID-19 Pandemic
On March 11, 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic. The spread of the COVID-19 pandemic disrupted businesses on a global scale, led to significant volatility in financial markets, and affected the aviation and industrial industries. The impacts of the pandemic continue to place labor and supply chain pressures on our business and we have been impacted by customer demand variability. Although we saw a stable and growing backlog during 2022 and into 2023 in our aerospace business, supply chain-related disruptions are ongoing and continue to adversely challenge our markets. While we remain bullish about the aerospace business, we believe the recovery to pre-pandemic activity, particularly in the widebody market, will take longer than originally anticipated at the outset of the pandemic. As economic
9

activity continues to recover, we will continue to monitor the situation, assessing further possible implications on our operations, supply chain, liquidity, cash flow, and customer orders.
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 $5.2 million in the first quarter of 2022. The grant benefit was recognized ratably over the 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 nine months ended October 1, 2022, the Company recognized $6.0 million of the award.
Restricted Cash
Under the provisions of the ABL Revolving Credit Facility (as defined and discussed below in Note 7), the Company has a lockbox arrangement with the banking institution for its accounts within the United States whereby daily lockbox receipts are contractually utilized to pay down outstanding balances on the ABL Revolving Credit Facility debt. Lockbox balances that have not yet been applied to the ABL Revolving Credit Facility are classified as restricted cash in the accompanying Consolidated Condensed Balance Sheets. The following table provides a reconciliation of cash and restricted cash included in Consolidated Condensed Balance Sheets to the amounts included in the Consolidated Condensed Statements of Cash Flows.
(In thousands)September 30, 2023October 1, 2022
Cash and Cash Equivalents$3,981 $2,568 
Restricted Cash3,670  
Total Cash and Restricted Cash Shown in Statements of Cash Flows$7,651 $2,568 
Trade Accounts Receivable and Contract Assets
The allowance for estimated 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. In November 2023, a non-core contract manufacturing customer filed for bankruptcy under Chapter 11, and as a result, an additional allowance for credit losses was recorded on outstanding receivables of $7.5 million in the three and nine months ended September 30, 2023.
The allowance for estimated credit losses balance was $9.2 million and $2.6 million at September 30, 2023 and December 31, 2022, respectively. The Company’s bad debt expense was $7.5 million and $7.7 million during the three and nine months ended September 30, 2023, and $0.3 million and $0.4 million during the three and nine months ended October 1, 2022. Total write-offs charged against the allowance were $0.4 million and $1.2 million in the three and nine months ended September 30, 2023, and insignificant in the three and nine months ended October 1, 2022. Total recoveries were insignificant in the three and nine months ended September 30, 2023 and October 1, 2022.
The Company's exposure to credit losses may increase if its customers are adversely affected by global economic recessions, disruption associated with the COVID-19 pandemic or the Russian/Ukrainian conflict, industry conditions, or other customer-specific factors. Although the Company has historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables and contract assets as airlines and other aerospace companies’ cash flows are impacted by the COVID-19 pandemic and associated supply chain disruptions.
Research and Development Expenses
Research and development costs are expensed as incurred and include salaries, benefits, consulting, material costs, and depreciation. Research and development expenses amounted to $14.1 million and $12.0 million for the three months ended and $39.5 million and $36.8 million for the nine months ended September 30, 2023 and October 1, 2022, respectively. These costs are included in cost of products sold.
Valuation of Goodwill and Long-Lived Assets
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.
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
10

with the 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.
As of September 30, 2023 and October 1, 2022, the Company concluded that no indicators of impairment relating to intangible assets or goodwill existed and an interim test was not performed in the nine-month periods then ended.
Foreign Currency Translation
The aggregate foreign currency transaction gain or loss included in operations was insignificant for the three and nine months ended September 30, 2023 and October 1, 2022.
Newly Adopted Accounting Pronouncement
We consider the applicability and impact of all ASUs. Recent ASUs 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.
2) Revenue
On September 30, 2023, we had $604.3 million of remaining performance obligations, which we refer to as total backlog. In conjunction with the customer bankruptcy discussed in Note 1, we have removed all outstanding backlog, approximately $19.9 million, related to such customer. We expect to recognize approximately $505.3 million of our remaining performance obligations as revenue over the next twelve months and the balance thereafter.
We recognized $9.3 million and $7.3 million during the three months ended and $22.1 million and $13.3 million during the nine months ended September 30, 2023 and October 1, 2022, respectively, in revenues that were included in the contract liability balance at the beginning of the period.
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 during the nine months ended September 30, 2023:
(In thousands)Contract AssetsContract Liabilities
Beginning Balance, January 1, 2023
$27,349 $33,209 
Ending Balance, September 30, 2023
$39,654 $27,029 
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 Work in Progress within Inventories in the accompanying Consolidated Condensed Balance Sheets. Should future orders not materialize or it is determined the costs are no longer probable of recovery, the capitalized costs are written off. As of September 30, 2023 and December 31, 2022, the Company capitalized $4.2 million and $2.5 million of costs, respectively.
11

The following table presents our revenue disaggregated by Market Segments as follows:
Nine Months EndedThree Months Ended
(In thousands)September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Aerospace Segment
Commercial Transport
$308,016 $211,721 $101,724 $78,389 
Military Aircraft
44,335 41,336 16,687 12,463 
General Aviation
60,656 48,748 16,193 14,751 
Other
23,076 21,056 7,500 6,574 
Aerospace Total436,083 322,861 142,104 112,177 
Test Systems Segment
Government & Defense
57,831 53,880 20,818 19,261 
Test Systems Total57,831 53,880 20,818 19,261 
Total$493,914 $376,741 $162,922 $131,438 
The following table presents our revenue disaggregated by Product Lines as follows:
Nine Months EndedThree Months Ended
(In thousands)September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Aerospace Segment
Electrical Power & Motion
$185,712 $132,757 $64,312 $46,155 
Lighting & Safety
116,967 90,339 38,496 29,740 
Avionics
83,011 67,453 22,347 24,172 
Systems Certification
19,832 6,656 6,535 3,985 
Structures
7,485 4,600 2,914 1,551 
Other
23,076 21,056 7,500 6,574 
Aerospace Total436,083 322,861 142,104 112,177 
Test Systems57,831 53,880 20,818 19,261 
Total$493,914 $376,741 $162,922 $131,438 
3) Inventories
Inventories consisted of the following:
(In thousands)
September 30, 2023December 31, 2022
Finished Goods
$32,690 $30,703 
Work in Progress
34,532 29,895 
Raw Material
136,678 127,385 
$203,900 $187,983 
As further described in Note 1, as a result of a non-core contract manufacturing customer declaring bankruptcy in November 2023, we recorded a $3.6 million reduction in inventory in the three and nine months ended September 30, 2023 to reflect the inventory carried for this customer at its net realizable value.
12

4) Property, Plant and Equipment
Property, Plant and Equipment consisted of the following:
(In thousands)
September 30, 2023December 31, 2022
Land
$8,567 $8,578 
Buildings and Improvements
71,255 73,744 
Machinery and Equipment
125,578 123,071 
Construction in Progress
6,013 6,415 
211,413 211,808 
Less Accumulated Depreciation
124,671 121,150 
$86,742 $90,658 
5) Intangible Assets
The following table summarizes acquired intangible assets as follows:
September 30, 2023December 31, 2022
(In thousands)
Weighted
Average Life
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Patents11 years$2,146 $2,132 $2,146 $2,066 
Non-compete Agreement4 years11,082 11,067 11,082 11,052 
Trade Names10 years11,393 9,879 11,402 9,350 
Completed and Unpatented Technology9 years47,840 38,010 47,855 34,877 
Customer Relationships15 years142,107 84,798 142,133 77,996 
Total Intangible Assets12 years$214,568 $145,886 $214,618 $135,341 
All acquired intangible assets other than goodwill and one trade name are being amortized. Amortization expense for acquired intangibles is summarized as follows:
Nine Months EndedThree Months Ended
(In thousands)
September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Amortization Expense
$10,577 $11,254 $3,381 $3,728 
Amortization expense for acquired intangible assets expected for 2023 and for each of the next five years is summarized as follows:
(In thousands)
2023$13,893 
2024$12,856 
2025$10,935 
2026$9,533 
2027$7,825 
2028$7,037 
6) Goodwill
The following table summarizes the changes in the carrying amount of goodwill for the nine months ended September 30, 2023:
(In thousands)December 31, 2022
Foreign
Currency
Translation
September 30, 2023
Aerospace$36,534 $ $36,534 
Test Systems21,635  21,635 
$58,169 $ $58,169 
13

7) Long-term Debt and Notes Payable
The Company's long-term debt on December 31, 2022, consisted of borrowings under its Fifth Amended and Restated Credit Agreement (the “Agreement”). The maturity date of the loans under the Agreement was November 30, 2023. On December 31, 2022, there was $164.0 million outstanding on the Agreement and there remained $6.0 million available.
The Company amended the Agreement on January 19, 2023, by entering into the Sixth Amended and Restated Credit Agreement (the “ABL Revolving Credit Facility”). The ABL Revolving Credit Facility set the maximum aggregate amount that the Company can borrow under the revolving credit line at $115 million, with borrowings subject to a borrowing base determined primarily by certain domestic inventory and accounts receivable. The maturity date of borrowings under the ABL Revolving Credit Facility is January 19, 2026. Under the terms of the ABL Revolving Credit Facility, the Company pays interest on the unpaid principal amount of the facility at a rate equal to SOFR (which is required to be at least 1.00%) plus 2.25% to 2.75%. The Company will pay a quarterly commitment fee under the ABL Revolving Credit Facility in an amount equal to 0.25% or 0.375% based on the Company’s average excess availability.
On June 28, 2023, the Company amended the ABL Revolving Credit Facility, temporarily increasing the maximum aggregate amount that the Company can borrow under the revolving credit line by $5 million from $115 million to $120 million until October 31, 2023, at which time the limit was to return to $115 million. On October 31, 2023, the Company executed a second amendment to the ABL Revolving Credit facility to extend the temporary limit of $120 million until January 31, 2024. Under the provisions of the ABL Revolving Credit Facility, the Company has a cash dominion arrangement with the lead banking institution whereby eligible daily cash receipts are contractually utilized to pay down outstanding borrowings. Eligible cash receipts that have not yet been applied to outstanding debt balances are classified as restricted cash in the accompanying consolidated balance sheets. The Company is also required to maintain minimum liquidity of $20 million through the date of delivery of the compliance certificate for the quarter ended March 31, 2024, and $10 million thereafter. On September 30, 2023, there was $86.0 million outstanding on the ABL Revolving Credit Facility and there remained $33.7 million available, net of outstanding letters of credit.
The Company also entered into a $90 million asset-based credit agreement (the “Term Loan Facility”) on January 19, 2023. The Term Loan Facility is secured primarily by fixed assets, real estate, and intellectual property. The maturity date of the Term Loan Facility is the earlier of the stated maturity date of the ABL Revolving Credit Facility or January 19, 2027, provided the ABL Revolving Credit Facility is extended beyond that date. The Company pays interest under the Term Loan Facility at a rate equal to SOFR (which is required to be at least 2.50%) plus 8.75%. The Company will pay a commitment fee under the Term Loan Facility of 5% of the total aggregate commitment, or $4.5 million, $1.8 million which was paid on the closing date, $1.8 million which was paid on June 20, 2023, and $0.9 million of which will be paid in the second quarter of 2024.
Amortization of the principal under the Term Loan Facility began in April with a monthly amortization rate of 0.292% of the outstanding term loan principal balance for the period April 1, 2023 through June 1, 2023, increased to 0.542% per month for the period July 1, 2023 through September 1, 2023, and increased to 0.833% thereafter. Total scheduled principal payments of approximately $9.0 million are payable over the next twelve months and as such, have been classified as current in the accompanying Consolidated Condensed Balance Sheet as of September 30, 2023. The weighted-average interest rate on current maturities of long-debt is 14.1%. The remaining balance of $78.8 million on September 30, 2023, is recorded as long-term in the accompanying Consolidated Condensed Balance Sheet.
Pursuant to the ABL Revolving Credit Facility and the Term Loan Facility, the Company is required to comply with a minimum trailing four-quarter EBITDA of $23.3 million in the second quarter, $39.2 million in the third quarter, $51.7 million in the fourth quarter, $57.6 million in the first quarter of 2024, $65.2 million in the second quarter of 2024 and $70 million thereafter. The non-cash accounts receivable reserve recorded in the quarter was not required to be included in the calculation of EBITDA pursuant to our ABL Revolving Credit Facility and the Term Loan Facility. In addition, mandatory prepayment of a portion of excess cash flow, as defined by the Term Loan Facility, is payable towards the principal amount outstanding on an annual basis. Any voluntary prepayments made are subject to a prepayment fee, as defined by the Term Loan Facility. Beginning with the first quarter of 2024, the Company is subject to a minimum fixed charge coverage ratio of 1.10 to 1.00. Further, the Company is subject to restrictions on additional indebtedness, share repurchases and dividend payments, and a limitation on capital expenditures. The Company is in compliance with all covenant requirements as of September 30, 2023.
The Company incurred $8.6 million in incremental debt issuance costs related to the new facilities, allocated between the ABL Revolving Credit Facility and the Term Loan Facility. 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 ($2.2 million as of September 30, 2023) are recorded within other assets and those associated with the Term Loan Facility ($4.8 million as of September 30, 2023) are recorded as a reduction of the carrying value of the debt on the Consolidated Condensed Balance Sheet.
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Certain of the Company’s subsidiaries are borrowers or guarantors under the ABL Revolving Credit Facility and the Term Loan 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.
The Company expects its sales growth, reductions in working capital and availability under its ABL Revolving Credit Facility will provide sufficient cash flows to fund operations. However, the Company may also evaluate various actions and alternatives to enhance its profitability and cash generation from operating activities, which could include manufacturing efficiency initiatives, cost-reduction measures, working with vendors and suppliers to reduce lead times and expedite shipment of critical components, and working with customers or other institutions to expedite receivable collections.
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.
8) Product Warranties
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 is summarized as follows:
Nine Months EndedThree Months Ended
(In thousands)September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Balance at Beginning of Period$8,009 $8,183 $7,705 $7,759 
Warranties Issued4,463 2,541 2,555 858 
Warranties Settled(3,060)(2,769)(909)(859)
Reassessed Warranty Exposure(548)(221)(487)(24)
Balance at End of Period$8,864 $7,734 $8,864 $7,734 
9) Leases
During the nine months ended September 30, 2023, the Company entered into an operating lease and recorded a right-of-use asset and corresponding liabilities of $12.7 million. The lease will require annual payments between $1.6 million and $1.9 million into 2033. Associated lease costs are $1.7 million per year. Other leasing activity during the year was insignificant.
10) Income Taxes
The effective tax rates were approximately 18.4% and 13.9% for the three months ended and (19.9)% and (28.3)% for the nine months ended September 30, 2023 and October 1, 2022, respectively. Beginning with the 2022 tax year, certain research and development costs are required to be capitalized and amortized over sixty months for income tax purposes. The tax rate in the 2023 period was impacted by a valuation allowance applied against the deferred tax asset associated with the research and development costs that are expected to be capitalized and was partially offset by the removal of valuation allowances related to net operating losses and certain timing differences that are expected to reverse during 2023. In addition, the tax rate in the 2023 period was also impacted by state income taxes and the federal research and development credit expected for 2023.
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. Losses in recent periods and cumulative pre-tax losses in the three-year period ending with the current year, combined with the significant uncertainty brought about by the COVID-19 pandemic, are collectively considered significant negative evidence under ASC 740 when assessing whether an entity can use projected income as a basis for concluding that deferred tax assets are realizable on a more-likely than not basis. For purposes of assessing the recoverability of deferred tax assets, the Company
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determined that it could not include future projected earnings in the analysis due to its recent history of losses and therefore had insufficient objective positive evidence that the Company will generate sufficient future taxable income to overcome the negative evidence of cumulative losses. Accordingly, during the years ended December 31, 2022 and 2021, the Company determined that a portion of its deferred tax assets were not expected to be realizable in the future and the Company continues to maintain the valuation allowance against its deferred tax assets as of September 30, 2023.
11) Earnings Per Share
Basic and diluted weighted-average shares outstanding are as follows:
Nine Months Ended
Three Months Ended
(In thousands)
September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Weighted Average Shares - Basic32,707 32,085 33,000 32,241 
Net Effect of Dilutive Stock Options    
Weighted Average Shares - Diluted32,707 32,085 33,000 32,241 
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 number of common shares covered by out-of-the-money stock options was approximately 594,000 shares as of September 30, 2023 and 1,106,000 shares as of October 1, 2022. Further, due to our net loss in the three and nine-month periods ended September 30, 2023 and October 1, 2022, the assumed exercise of stock compensation had an anti-dilutive effect and therefore was excluded from the computation of diluted loss per share.
Currently, the Company expects to fund its discretionary 401K contribution for the quarter ended September 30, 2023, with treasury stock in lieu of cash. The earnings per share calculation for the quarter ended September 30, 2023, is inclusive of the approximately 0.1 million in shares outstanding for the equivalent shares needed to fulfill the obligation using the closing share price as of September 30, 2023. Actual shares issued may differ based on the sale price on the settlement date.
12) Shareholders' Equity
Share Buyback and Reissuance
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. Common shares repurchased by the Company are recorded at cost as treasury shares and result in a reduction of equity. Under its current credit agreements, the Company is currently restricted from further stock repurchases.
When treasury shares are reissued, the Company determines the cost using an average cost method. The difference between the average cost of the treasury shares and the reissuance price is included in Retained earnings. During the nine month periods ended September 30, 2023 and October 1, 2022, the Company reissued 242,000 and 545,000 treasury shares, respectively, associated with the funding of employer 401K contributions and recorded the difference between the average cost and the reissuance price, $3.1 million and $9.2 million, respectively, as a reduction to Retained earnings.
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 (“Common Stock”) having an aggregate offering price of up to $30.0 million. Shares of Common Stock under the ATM Program are offered using Wells Fargo Securities, LLC and HSBC Securities (USA) Inc., as sales agents (the “Sales Agents” and each a “Sales Agent”), pursuant to the equity distribution agreement, dated August 8, 2023, by and among the Company and the Sales Agents (the “Equity Distribution Agreement”). Under the terms of the Equity Distribution Agreement and subject to the instructions of the Company, the Sales Agents may sell shares of Common Stock by any lawful method deemed to be an “at-the-market offering” defined by Rule 415(a)(4) of the Securities Act of 1933, as amended, including without limitation sales made directly on the Nasdaq Global Select Market, on any other existing trading market for the shares of Common Stock, to or through a market maker or in negotiated transactions. The timing and volume of any sales of shares of Common Stock under the ATM Program will depend on a variety of factors to be determined by the Company. Sales may be made at market prices prevailing at the time of the sale, at prices related to prevailing market prices, or at negotiated prices and, as a result, sales prices may vary. Under the terms of the Equity Distribution Agreement, the Sales Agents are entitled to compensation at a fixed commission rate of 1.5% of the gross proceeds from the sale of shares of Common Stock under the ATM Program.
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During the three and nine months ended September 30, 2023, the Company sold 834,228 shares of our common stock under the ATM Program. The Company generated $13.9 million in aggregate gross proceeds from sales under the ATM Program at an average sale price of $16.70 per share. Aggregate net proceeds from the ATM Program were $13.6 million after deducting related expenses, including commissions to the Sales Agents and issuance costs. Of this amount, $13.1 million in net cash proceeds were received in the three and nine months ended September 30, 2023, with the remainder received in October 2023. The Company currently is obligated to use the net proceeds from any sale of shares of Common Stock pursuant to the ATM Program to pay down the outstanding principal amount of, and any unpaid interest on, the ABL Revolving Credit Facility. However, any principal amount paid down on our ABL Revolving Credit Facility using the proceeds of the ATM Program will be, subject to compliance with the requirements and conditions set forth in the ABL Revolving Credit Facility, available to be reborrowed by the Company and used for, among other items, working capital and general corporate purposes. If the outstanding principal amount balance of the ABL Revolving Credit Facility has been reduced to zero, then the Company intends to use the net proceeds of the ATM Program for general corporate purposes. As of September 30, 2023, the Company had remaining capacity under the ATM Program to sell shares of Common Stock having an aggregate offering price up to approximately $16.1 million.
Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:
(In thousands)September 30, 2023December 31, 2022
Foreign Currency Translation Adjustments$(7,452)$(7,335)
Retirement Liability Adjustment – Before Tax(3,916)(4,473)
Tax Benefit of Retirement Liability Adjustment2,282 2,282 
Retirement Liability Adjustment – After Tax(1,634)(2,191)
Accumulated Other Comprehensive Loss$(9,086)$(9,526)
The components of other comprehensive income (loss) are as follows:
Nine Months EndedThree Months Ended
(In thousands)September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Foreign Currency Translation Adjustments$(117)$(3,241)$(828)$(1,674)
Retirement Liability Adjustments:
Reclassifications to Selling, General and Administrative Expenses:
Amortization of Prior Service Cost
288 302 95 101 
Amortization of Net Actuarial Losses
269 744 90 247 
Retirement Liability Adjustment557 1,046 185 348 
Other Comprehensive Income (Loss)$440 $(2,195)$(643)$(1,326)
13) Supplemental Retirement Plan 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 following table sets forth information regarding the net periodic pension cost for the plans.
Nine Months EndedThree Months Ended
(In thousands)September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Service Cost$79 $103 $26 $34 
Interest Cost976 626 324 209 
Amortization of Prior Service Cost288 290 95 97 
Amortization of Net Actuarial Losses269 712 90 238 
Net Periodic Cost$1,612 $1,731 $535 $578 
Participants in the SERP are entitled to paid medical, dental, and long-term care insurance benefits upon retirement under the plan. The Company also has a defined benefit plan related to its subsidiary in France. The net periodic cost for both plans for the three and nine months ended September 30, 2023 and October 1, 2022, is immaterial.
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The service cost component of net periodic benefit costs above is recorded in Selling, General and Administrative Expenses within the Consolidated Condensed Statements of Operations, while the remaining components are recorded in Other Income, Net of Other Expense.
14) Sales to Major Customers
The loss of major customers or a significant reduction in business with a major customer would significantly, and negatively impact our sales and earnings. In the three and nine months ended September 30, 2023, the Company had one customer over 10% of consolidated sales. Sales to The Boeing Company (“Boeing”) accounted for 11.6% and 11.1% of sales in the three and nine months ended September 30, 2023. Accounts receivable from Boeing on September 30, 2023 were approximately $17.8 million. In the three and nine months ended October 1, 2022, the Company had no customers over 10% of consolidated sales.
15) Legal Proceedings
Lufthansa
One of the Company’s subsidiaries is involved in numerous patent infringement actions brought by Lufthansa Technik AG (“Lufthansa”) in Germany, the United Kingdom (“UK”) and France. The Company is vigorously defending all such litigation and proceedings. Additional information about these legal proceedings can be found in Note 19 “Legal Proceedings” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. On July 12, 2023, the Higher Regional Court of Karlsruhe in Germany (the “German Court”) reduced the Company’s liability for direct damages. Additionally, accrued interest on direct damages had previously been assessed at 5%. As part of the July 12, 2023 ruling, the German Court reduced that interest rate to 4%. Accordingly, the Company reclaimed overpaid damages and interest from Lufthansa in the amount of approximately $1.2 million. We recorded this gain in the third quarter of 2023 as an offset to Selling, General and Administrative Expenses upon receipt of the refund.
The reserve for the German indirect claim and interest was approximately $17.8 million on December 31, 2022 and $16.9 million on September 30, 2023. Accrued interest on the indirect damages reserve was estimated using the same interest rate as the direct damages. Given the reduction in the direct damages interest rate as discussed above, we recorded a reduction to the indirect damages reserve of $1.3 million in the nine months ended September 30, 2023, which was recorded as an offset to Selling, General and Administrative Expenses. The Company currently believes it is unlikely that the damages in the indirect proceedings and related interest will be paid within the next twelve months. Therefore, the liability related to these matters is classified within Other Liabilities (non-current) in the Consolidated Condensed Balance Sheets on September 30, 2023 and December 31, 2022.
In the matter before the UK High Court of Justice, as previously disclosed, Lufthansa has pleaded its case for monetary compensation, which will be determined at a separate trial, which is now set to take place in October 2024. Lufthansa has elected to pursue a claim in relation to the defendants’ profits from their infringing activities. We have estimated damages and accrued interest for AES and its indemnified customers of approximately $7.1 million and $7.0 million as of September 30, 2023 and December 31, 2022, respectively. This variance is due to currency fluctuation and interest accrued. Interest will accrue until the final payment to Lufthansa. This amount is subject to change as additional data is received and evaluated, and as additional information regarding the nature of its claim is put forward by Lufthansa in advance of the damages trial. The damages trial is scheduled to be heard starting in October 2024, with payment likely due in late 2024 or early 2025. The Company currently believes it is unlikely that the appeals process will be completed or the damages and related interest will be paid within the next twelve months. Therefore, the liability related to these matters is classified within Other Liabilities (non-current) in the Consolidated Condensed Balance Sheets on September 30, 2023 and December 31, 2022.
As previously disclosed, in 2020, Lufthansa filed a patent infringement action on December 29, 2017, before the Paris Court of First Instance. 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 Paris Court of Appeal upheld the first instance judgment in favor of AES. On March 20, 2023, Lufthansa lodged an appeal before the French Supreme Court. In September 2023, the French Supreme Court determined it will review the Paris Court of Appeal’s reasoning around the nullification of a certain claim of the subject patent. The Company’s brief supporting the decision of the Paris Court of Appeal is due on January 22, 2024. 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 September 30, 2023 or December 31, 2022.
There were no other significant developments in any of these matters during the nine months ended September 30, 2023.
A liability for reimbursement of Lufthansa’s legal expenses associated with the UK matter was approximately $0.7 million on September 30, 2023 and December 31, 2022, which is expected to be paid within the next twelve months and, as such, is
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classified in Accrued Expenses and Other Current Liabilities in the accompanying Consolidated Condensed Balance Sheet as of September 30, 2023.
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 infringement of its digital instruments providing over-voltage detection and protection and copyright infringement of test equipment software, specifically emulating software using Teradyne’s declarations, 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. ATS requested and, on August 26, 2021, the District Court granted, a stay of litigation during the IPR proceeding. Oral arguments on the IPR were held on April 21, 2022. The PTAB issued its decision on July 20, 2022, in which it invalidated all of Teradyne’s patent claims. Teradyne will not appeal the decision. The stay of litigation was lifted with respect to the remaining claims in August 2022. Discovery has been completed. 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. The parties are currently engaged in summary judgment briefing with a hearing on the motions scheduled for December 4, 2023. If the case is not disposed of on summary judgment, a trial will be held in 2024, though no trial date is currently set. No amounts have been accrued for this matter in the September 30, 2023, or December 31, 2022 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.
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16) Segment Information
Below are the sales and operating profit (loss) by segment for the three and nine months ended September 30, 2023 and October 1, 2022, and a reconciliation of segment operating profit (loss) to loss before income taxes. Operating profit (loss) is net sales less cost of products sold and other operating expenses excluding interest and corporate expenses. Cost of products sold and other operating expenses are directly identifiable to the respective segment.
Nine Months EndedThree Months Ended
(In thousands)September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Sales:
Aerospace$436,217 $322,871 $142,116 $112,177 
Less Inter-segment Sales(134)(10)(12) 
Total Aerospace Sales436,083 322,861 142,104 112,177 
Test Systems57,831 53,899 20,818 19,261 
Less Inter-segment Sales (19)  
Total Test Systems Sales57,831 53,880 20,818 19,261 
Total Consolidated Sales$493,914 $376,741 $162,922 $131,438 
Segment Measure of Operating Profit (Loss) and Margins
Aerospace
$10,342 $(7,085)$(7,464)$(6,859)
2.4 %(2.2)%(5.3)%(6.1)%
Test Systems
(8,521)(4,125)(1,781)(2,312)
(14.7)%(7.7)%(8.6)%(12.0)%
Total Segment Measure of Operating Profit (Loss)1,821 (11,210)(9,245)(9,171)
0.4 %(3.0)%(5.7)%(7.0)%
Deductions from Segment Measure of Operating Profit (Loss):
Net Gain on Sale of Business(3,427)(11,284)  
Interest Expense, Net of Interest Income
17,381 5,812 5,991 2,519 
Corporate Expenses and Other
15,712 16,847 5,582 5,570 
Loss Before Income Taxes$(27,845)$(22,585)$(20,818)$(17,260)
During the the three and nine months ended September 30, 2023, $3.6 million reduction to inventory and $7.5 million of allowance for estimated credit losses associated with a bankrupt customer was recorded to Aerospace Operating Profit (Loss). See Note 1 for further discussion. During the nine months ended September 30, 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 operating loss for the period. Absent that benefit, Test Systems’ operating loss was $14.3 million. Corporate expenses and other for the nine months ended September 30, 2023, includes income of $1.8 million associated with the reversal of a liability related to an equity investment, as we will no longer be required to make the associated payment. This amount is included in Other Income, Net of Other Expense in the Consolidated Condensed Statement of Operations. In the nine months ended October 1, 2022, $6.0 million of the AMJP grant was recognized as an offset to the cost of products sold in the Aerospace segment.
Total Assets:
(In thousands)
September 30, 2023December 31, 2022
Aerospace
$497,054 $481,416 
Test Systems
117,648 111,513 
Corporate
16,169 22,102 
Total Assets
$630,871 $615,031 
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17) Fair Value
There were no financial assets or liabilities carried at fair value measured on a recurring basis on September 30, 2023 or December 31, 2022.
There were no non-recurring fair value measurements performed in the nine months ended September 30, 2023 and October 1, 2022.
Due to their short-term nature, the carrying value of cash and equivalents, 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.
18) Subsequent Events
The Company was notified on November 6, 2023, that a non-core contract manufacturing customer within the Aerospace Segment filed for bankruptcy under Chapter 11. As a result, an allowance for estimated credit losses of $7.5 million for outstanding receivables was recorded to Selling, General and Administrative Expenses, and a $3.6 million reduction in the carrying value of inventory was recorded to Cost of Products Sold within the Consolidated Condensed Statement of Operations for the three and nine months ended September 30, 2023.
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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 Company’s Form 10-K for the year ended December 31, 2022.)
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.
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 ongoing impacts of the COVID-19 pandemic and the timing and extent of recovery (as discussed more fully below), supply chain and labor market pressures, the rate at which new aircraft are produced, government funding and timing of awards of military programs, our ability to have our products designed into new aircraft and the rates at which aircraft owners, including commercial airlines, refurbish or install upgrades to their aircraft. New aircraft build rates and aircraft owners spending on upgrades and refurbishments are 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 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 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.
Challenges which continue to face us include the ongoing COVID-19 pandemic and its continued impact on the aerospace industry, supply chain pressures including material availability and cost increases, labor availability and cost, inflationary pressures, and improving shareholder value through increasing profitability. 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 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 a weak economy, aircraft groundings, tight credit markets, reduced air passenger travel, 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 from supply chain pressures can also result in lower profits. We will continue to address these challenges by working to improve operating efficiencies and focusing on executing the growth opportunities currently in front of us.
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Our ABL Revolving Credit Facility and Term Loan Facility each subject us to various financial and other affirmative and negative covenants with which we must comply on an ongoing or periodic basis. These include financial covenants pertaining to minimum trailing four-quarter EBITDA requirements, minimum liquidity requirements and minimum fixed charge coverage ratio requirements, and excess cash flow repayment provisions. 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. During 2023, given the ongoing challenges faced in our business as described herein, including as a result of the COVID-19 pandemic and its continued impact on the aerospace industry and supply chain disruptions, our ability to satisfy the already tight financial covenants in our ABL Revolving Credit Facility and Term Loan Facility is expected to be challenging and is an item that our management team will be closely monitoring throughout the year. While the Company expects to remain in compliance with the required financial covenants for the duration of the agreements, any unexpected negative impacts to our business, including as a result of additional supply chain pressures, the timing of customer orders, and our ability to 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 and Term Loan Facility.
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 $5.2 million in the first quarter of 2022. The grant benefit was recognized ratably over the six-month performance period as a reduction to cost of products sold in proportion to the compensation expense that the award was intended to defray. During the nine months ended October 1, 2022, the Company recognized $6.0 million of the award.
We are also monitoring the ongoing conflict between Russia and Ukraine and the related export controls and financial and economic sanctions imposed on certain industry sectors, including the aviation sector, and parties in Russia by the U.S., the U.K., the European Union, and others. 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 February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment. The transaction included two elements of contingent earnouts. In March 2022, the Company agreed with the earnout calculation for the calendar 2021 earnout for $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.
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 $3.6 million reduction of dedicated inventory. The reserves are non-cash in the current quarter and year to date, as the associated assets existed prior to 2023.
CONSOLIDATED RESULTS OF OPERATIONS
Nine Months EndedThree Months Ended
($ in thousands)September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Sales$493,914 $376,741 $162,922 $131,438 
Gross Profit (sales less cost of products sold)$80,823 $50,030 $20,618 $14,388 
Gross Margin16.4 %13.3 %12.7 %10.9 %
Selling, General and Administrative Expenses$95,276 $76,907 $35,097 $28,702 
SG&A Expenses as a Percentage of Sales19.3 %20.4 %21.5 %21.8 %
Net Gain on Sale of Business$(3,427)$(11,284)$— $— 
Interest Expense, Net$17,381 $5,812 $5,991 $2,519 
Effective Tax Rate(19.9)%(28.3)%18.4 %13.9 %
Net Loss$(33,397)$(28,968)$(16,983)$(14,857)
A discussion by segment can be found in “Segment Results of Operations” in this MD&A.
23

CONSOLIDATED THIRD QUARTER RESULTS
Consolidated sales were up $31.5 million, or 24.0%. Aerospace sales increased $29.9 million, or 26.7%, driven primarily by higher sales to the commercial transport market. Test Systems sales increased $1.6 million on higher defense revenue.
Consolidated cost of products sold in the third quarter of 2023 was $142.3 million, compared with $117.1 million in the prior-year period. The increase was primarily due to higher volume. In November 2023, a non-core contract manufacturing customer declared bankruptcy, and as a result, a non-cash $3.6 million reduction in inventory was recorded in the third quarter of 2023. The customer was classified within the “Other” product category of the Aerospace segment.
Selling, general and administrative (“SG&A”) expenses were $35.1 million in the third quarter of 2023 compared with $28.7 million in the prior-year period. The current period is negatively impacted by a $7.5 million reserve for accounts receivable associated with the customer bankruptcy previously discussed, litigation-related legal expenses and reserve adjustments of $3.3 million, and warranty expense of $2.1 million. The prior year was negatively impacted by a $2.1 million customer accommodation settlement and $3.3 million in litigation-related legal expenses and reserve adjustments.
Interest expense was $6.0 million in the current period, compared with $2.5 million in the prior-year period, primarily driven by higher interest rates on the Company’s new credit facilities which were refinanced in January of this year. Interest expense included approximately $0.8 million of non-cash amortization of capitalized financing-related fees.
Tax benefit in the quarter was $3.8 million, primarily due to changes in the year-to-date and forecasted pre-tax results.    
Consolidated net loss was $17.0 million, or $0.51 per diluted share, improved over net loss of $14.9 million, or $0.46 per diluted share, in the prior year. The reserve for the customer bankruptcy on a per share basis was $0.33.
Bookings were $176.0 million in the quarter resulting in a book-to-bill ratio of 1.08:1. For the trailing twelve months, bookings totaled $723.3 million. Backlog at the end of the quarter was $604.3 million and excludes $19.9 million of backlog associated with the customer bankruptcy referred to previously. Approximately $505.3 million of backlog is expected to ship over the next twelve months.
CONSOLIDATED YEAR-TO-DATE RESULTS
Consolidated sales were up $117.2 million, or 31.1%. Aerospace sales increased $113.2 million, or 35.1%, driven by higher sales to the commercial transport market. Test Systems sales increased $4.0 million, due primarily to the reversal of a $5.8 million deferred revenue liability assumed with an acquisition and associated with a customer program which is no longer expected to occur, partially offset by lower defense revenue.
Consolidated cost of products sold in 2023 was $413.1 million, compared with $326.7 million in the prior-year period. The increase was primarily due to higher volume and higher material and labor costs as well as a $3.6 million reduction in inventory associated with the bankruptcy of a customer. The prior-year period benefited the AMJP Program grant which provided a $6.0 million offset to cost of products sold.
SG&A expenses were $95.3 million in 2023 compared with $76.9 million in the prior-year period primarily due to increased wages and benefits, accounts receivable reserve of $7.5 million associated with the bankruptcy of a customer, and a net increase of $6.1 million in litigation-related legal expenses and reserve adjustments. The 2022 period also reflects $2.6 million related to a customer accommodation dispute and a lease termination settlement.
In the current year period, the Company recognized a final earnout of $3.4 million for the 2019 sale of its semiconductor test business, compared with $11.3 million recognized in the prior-year period. Other income in 2023 included $1.8 million associated with the reversal of a liability related to an equity investment.
Interest expense was $17.4 million in the current period, compared with $5.8 million in the prior-year period, primarily driven by higher interest rates on the Company’s new credit facilities. Interest expense includes approximately $2.1 million of non-cash amortization of capitalized financing-related fees.
Tax expense was $5.6 million in the current period, primarily due to a valuation allowance applied against the deferred tax asset associated with research and development costs that are required to be capitalized for tax purposes.
Consolidated net loss was $33.4 million, or $1.02 per diluted share, compared with net loss of $29.0 million, or $0.90 per diluted share, in the prior year.
24

COVID-19 Impacts on Our Business
On March 11, 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic. The spread of the COVID-19 pandemic disrupted businesses on a global scale, led to significant volatility in financial markets, and affected the aviation and industrial industries. The impacts of the pandemic have placed labor and supply chain pressures on our business and we have been impacted by customer demand variability. Although we saw a stable and growing backlog throughout 2022 and into 2023 in our aerospace business, disruptions are ongoing and continue to adversely challenge our commercial transport market. While we remain bullish about the aerospace business, we believe the recovery to pre-pandemic activity, particularly in the widebody market, will take longer than originally anticipated at the outset of the pandemic. As economic activity continues to recover, we will continue to monitor the situation, assessing further possible implications on our operations, supply chain, liquidity, cash flow, and customer orders.
SEGMENT RESULTS OF OPERATIONS
Operating profit (loss), as presented below, is sales less cost of products sold and other operating expenses, excluding interest expense, other corporate expenses, and other non-operating sales and expenses. Cost of products sold and other operating expenses are directly identifiable to the respective segment. Operating profit (loss) is reconciled to loss before income taxes in Note 16 of the Notes to Consolidated Condensed Financial Statements included in this report.
AEROSPACE SEGMENT
Nine Months EndedThree Months Ended
($ in thousands)September 30, 2023October 1, 2022September 30, 2023October 1, 2022
Sales$436,217 $322,871 $142,116 $112,177 
Less Inter-segment Sales
(134)(10)(12)— 
Total Aerospace Sales
$436,083 $322,861 $142,104 $112,177 
Operating Profit (Loss)$10,342 $(7,085)$(7,464)$(6,859)
Operating Margin2.4 %(2.2)%(5.3)%(6.1)%
Aerospace Sales by Market
(In thousands)
Commercial Transport$308,016 $211,721 $101,724 $78,389 
Military Aircraft44,335 41,336 16,687 12,463 
General Aviation60,656 48,748 16,193 14,751 
Other23,076 21,056 7,500 6,574 
$436,083 $322,861 $142,104 $112,177 
Aerospace Sales by Product Line
(In thousands)
Electrical Power & Motion$185,712 $132,757 $64,312 $46,155 
Lighting & Safety116,967 90,339 38,496 29,740 
Avionics83,011 67,453 22,347 24,172 
Systems Certification19,832 6,656 6,535 3,985 
Structures7,485 4,600 2,914 1,551 
Other23,076 21,056 7,500 6,574 
$436,083 $322,861 $142,104 $112,177