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What changed in ASTRONICS CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ASTRONICS CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+261 added−272 removedSource: 10-K (2024-03-05) vs 10-K (2023-03-10)

Top changes in ASTRONICS CORP's 2023 10-K

261 paragraphs added · 272 removed · 199 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThe inspection, maintenance and repair procedures for the various types of aircraft and equipment are prescribed by regulatory authorities and can be performed only by certified repair facilities utilizing certified technicians. Certification and conformance is required prior to installation of a part on an aircraft. Our operations may in the future be subject to new and more stringent regulatory requirements.
Biggest changeCertification and conformance is required 5 prior to installation of a part on an aircraft. Our operations may in the future be subject to new and more stringent regulatory requirements. In that regard, we closely monitor the FAA and industry trade groups in an attempt to understand how possible future regulations might impact us.
Astronics has an Equal 7 Employment Opportunity Policy whereby the Company commits to providing equal employment opportunity and affirmative action plans for all qualified employees and applicants without regard to race, color, sex, sexual orientation, gender identity, religion, national origin, disability, veteran status, age, marital status, pregnancy, genetic information or other legally protected status.
Astronics has an Equal Employment Opportunity Policy whereby the Company commits to providing equal employment opportunity and affirmative action plans for all qualified employees and applicants without regard to race, color, sex, sexual orientation, gender identity, religion, national origin, disability, veteran status, age, marital status, pregnancy, genetic information or other legally protected status.
ITEM 1. BUSINESS Astronics Corporation (“Astronics” or the “Company”) is a leading provider of advanced technologies to the global aerospace, defense and electronics industries. Our products and services include advanced, high-performance electrical power generation, distribution and seat motion systems, lighting and safety systems, avionics products, systems and certification, aircraft structures and automated test systems.
ITEM 1. 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.
See Part I, Item 1A, Risk Factors, for an additional discussion of risk related to supply chain disruptions. In September 2021 the Company was awarded a grant of up to $14.7 million from the U.S. Department of Transportation under the Aviation Manufacturing Jobs Protection Program (“AMJP”).
See Part I, Item 1A, Risk Factors, for an additional discussion of risk related to supply chain disruptions. 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”).
We have principal operations in the United States (“U.S.”), Canada, France and England, as well as engineering offices in the Ukraine and India. The operation in Ukraine is a small engineering office and we have not experienced any significant disruption in staffing or services as a result of the Ukrainian and Russian conflict.
We have principal operations in the United States (“U.S.”), Canada, France and England, as well as engineering offices in Ukraine and India. Our operation in Ukraine is a small engineering office and we have not experienced any significant disruption in staffing or services as a result of the Ukrainian and Russian conflict.
We ask these in an effort to ensure that the acquisition candidate is a positive cultural fit and to minimize any risk when assessing the acquisition candidate. In addition, our Corporate Governance Guidelines outline expectations that the Board establish and promote policies that encourage a positive, supportive work culture.
We ask these in an effort to ensure that the acquisition candidate is a positive cultural fit and to minimize any risk when assessing the acquisition candidate. 6 In addition, our Corporate Governance Guidelines outline expectations that the Board establish and promote policies that encourage a positive, supportive work culture.
We also make available free of charge through our website at www.astronics.com our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file those reports with, or furnish them to, the SEC.
We also make available free of charge through our website at www.astronics.com our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file those reports with, or furnish them to, the SEC.
Available information We file our financial information and other materials as electronically required with the Securities and Exchange Commission (“SEC”). These materials can be accessed electronically via the Internet at www.sec.gov.
Available information We file our financial information and other materials as electronically required with the U.S. Securities and Exchange Commission (“SEC”). These materials can be accessed electronically via the Internet at www.sec.gov.
President and Executive Vice President of Astronics Corporation 2010 James F. Mulato Age 62 President of Astronics Test Systems, Inc. and Executive Vice President of Astronics Corporation 2019 Michael C. Kuehn Age 62 Astronics Connectivity Systems & Certification Corp. President and Executive Vice President of Astronics Corporation 2019 The principal occupation and employment for Messrs.
President and Executive Vice President of Astronics Corporation 2010 James F. Mulato Age 63 President of Astronics Test Systems, Inc. and Executive Vice President of Astronics Corporation 2019 Michael C. Kuehn Age 63 Astronics Connectivity Systems & Certification Corp. President and Executive Vice President of Astronics Corporation 2019 The principal occupation and employment for Messrs.
Gundermann Age 60 President, Chief Executive Officer and Director of the Company 2001 David C. Burney Age 60 Executive Vice President, Secretary and Chief Financial Officer of the Company 2003 Mark A. Peabody Age 63 President, Aerospace Segment and Executive Vice President of Astronics Corporation 2010 James S. Kramer Age 59 Luminescent Systems Inc.
Gundermann Age 61 President, Chief Executive Officer and Director of the Company 2001 David C. Burney Age 61 Executive Vice President, Treasurer and Chief Financial Officer of the Company 2003 Mark A. Peabody Age 64 President, Aerospace Segment and Executive Vice President of Astronics Corporation 2010 James S. Kramer Age 60 Luminescent Systems Inc.
The Company received $7.4 million under the grant in 2021, $5.2 million in the first quarter of 2022 and $2.1 million in the third quarter of 2022. The grant benefit was recognized ratably over the six-month performance period as a reduction to cost of products sold in proportion to the compensation expense that the award is intended to defray.
The Company received $7.3 million and $7.4 million under the grant in 2022 and 2021, respectively. The grant benefit was recognized ratably over the six-month performance period as a reduction to Cost of Products Sold in proportion to the compensation expense that the award was intended to defray.
Sales by segment, geographic region, major customer and foreign operations are provided in Note 20 in Item 8, Financial Statements and Supplementary Data, of this report. We have historically had a significant concentration of business with two major customers; Panasonic Avionics Corporation (“Panasonic”) and The Boeing Company (“Boeing”).
Sales by segment, geographic region, major customer and foreign operations are provided in Note 20 in Item 8, Financial Statements and Supplementary Data, of this report. We have a significant concentration of business with one major customer, The Boeing Company (“Boeing”).
The total proceeds of the divestiture included two elements of contingent purchase consideration (“earnout”). In the fourth quarter of 2021, the Company agreed to an earnout payment of $10.7 million for the calendar 2020 earnout, which was 4 recorded in 2021 as a separate line item below operating loss and was received by the Company in early January 2022.
In the fourth quarter of 2021, the Company agreed to an earnout payment of $10.7 million for the calendar 2020 earnout, which was recorded in 2021 as a separate line item below operating loss and was received by the Company in early January 2022.
Sales to Panasonic accounted for less than 10% of sales in 2022 and 2021, and 11.1% of sales in 2020. Sales to Boeing accounted for 11.0% of sales in 2022, 10.0% of sales in 2021, and less than 10% of sales in 2020. Sales to Panasonic and Boeing are primarily in the Aerospace segment.
Sales to Boeing accounted for 11.0% of sales in 2023, 11.0% of sales in 2022, and 10.0% of sales in 2021. Sales to Boeing are primarily in the Aerospace segment.
The increase in backlog is driven primarily by recovering demand from our commercial transport and general aviation customers, with increased OEM build rates and increased spending by commercial airlines on fleet improvements. Backlog in the Aerospace segment was $477.7 million at December 31, 2022, of which $402.4 million is expected to be recognized as revenue in 2023.
At December 31, 2022, our backlog was $571.4 million. The increase in backlog is driven primarily by recovering demand from our commercial transport and general aviation customers, with increased OEM build rates and increased spending by commercial airlines on fleet improvements.
In March 2022, the Company agreed with the earnout calculation for the calendar 2021 earnout in the amount of $11.3 million. The Company recorded the gain and received the payment in the first quarter of 2022. In February 2023, the Company was notified by the buyer that they have calculated $3.4 million as being payable for the calendar 2022 earnout.
In March 2022, the Company agreed with the earnout calculation for the calendar 2021 earnout in the amount of $11.3 million. The Company recorded the gain and received the payment in the first quarter of 2022. In March 2023, the Company agreed with the final earnout calculation for the calendar 2022 earnout in the amount of $3.4 million.
For additional details regarding the subsidies and grants, and their impact on consolidated results of operations and financial position, see Note 1 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this report.
During the years ended December 31, 2022 and 2021, the Company recognized $6.0 million and $8.7 million of the award, respectively. For additional details regarding government subsidies and grants, and their impact on consolidated results of operations and financial position, see Note 1 to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report.
The Company is in the process of reviewing the calculation and expects to record the additional gain on sale, and receive the payment, in the first quarter of 2023. We are not eligible for any further earnout payments related to this divestiture. For further information, see Note 21 in Item 8, Financial Statements and Supplementary Data, of this report.
The Company recorded the gain and received the payment in the first quarter of 2023. We are not eligible for any further earnout payments related to this divestiture. For further information, see Note 21 in Item 8, Financial Statements and Supplementary Data, of this report. On October 6, 2021, the Company sold one of its Aerospace buildings for $9.2 million.
Gundermann, Burney, Kramer, Kuehn, Mulato and Peabody for over five years has been with the Company in their respective current roles. Mr. Kuehn and Mr. Mulato became Executive Vice Presidents of the Company on January 1, 2019. 8
Gundermann, Burney, Kramer, Kuehn, Mulato and Peabody for over five years have been with the Company in their respective current roles.
We provide employees with competitive salaries and bonuses, opportunities for equity ownership, development programs that enable continued learning and growth and a robust employment package that promotes well-being across all aspects of their lives, including; • Health and dental insurance • Generous paid time off • 401K, profit sharing, and bonus programs • Flexible spending accounts • Employee stock purchase plan • Disability and life insurance • Commute reduction, fitness, tuition programs • Community service opportunities The COVID-19 pandemic had a sudden and significant impact on the global economy, and particularly in the aerospace industry, causing us to make difficult cost conservation measures including workforce reductions activities to align capacity with expected demand as well as suspension of certain benefit programs.
We provide employees with competitive salaries and bonuses, opportunities for equity ownership, development programs that enable continued learning and growth and a robust employment package that promotes well-being across all aspects of their lives, including; • Health and dental insurance • Generous paid time off • 401K, profit sharing, and bonus programs • Flexible spending accounts • Employee stock purchase plan • Disability and life insurance • Commute reduction, fitness, and tuition programs • Community service opportunities Employee Engagement The lifeblood of any organization is its employee base.
Information About Our Executive Officers The executive officers of the Company, their ages, their positions and offices with the Company, and the date each assumed their office with the Company as of December 31, 2022, are as follows: Name and Age of Executive Officer Positions and Offices with Astronics Year First Elected Officer Peter J.
The information contained on our website is not incorporated by reference in this annual report on Form 10-K and should not be considered a part of this report. 7 Information About Our Executive Officers The executive officers of the Company, their ages, their positions and offices with the Company as of December 31, 2023, and the date each assumed their office with the Company, are as follows: Name and Age of Executive Officer Positions and Offices with Astronics Year First Elected Officer Peter J.
We have approximately 110 hourly production employees at PECO who are subject to collective bargaining agreements. We also leverage temporary workers to provide flexibility for our business and manufacturing needs. We greatly value our employees and recognize that, without them, the Company would not have achieved the success it has accomplished since inception.
We also leverage temporary workers to provide flexibility for our business and manufacturing needs. We greatly value our employees and recognize that, without them, the Company would not have achieved the success it has accomplished since inception. We strive to provide a positive, supportive work culture with a clear global vision and a collaborative work style.
While the aggregate protection of these patents is of value, our only material business that is dependent upon the protection afforded by these patents is our cabin power distribution products. Our patents and patent applications relate to electroluminescence, instrument panels, cord reels and handsets, and a broad patent covering the cabin power distribution technology.
Patents We have a number of patents. While the aggregate protection of these patents is of value, our only material business that is dependent upon the protection afforded by these patents is our cabin power distribution products.
We have reinstituted all of the previously-suspended benefits. Employee Engagement The lifeblood of any organization is its employee base. We rely on our individual subsidiaries to regularly gather employee feedback, using the method each subsidiary believes is most appropriate. In some instances that feedback is obtained through “Town Hall” formats; in other instances, it is obtained through surveys.
We rely on our individual subsidiaries to regularly gather employee feedback, using the method each subsidiary believes is most appropriate. In some instances that feedback is obtained through “Town Hall” formats; in other instances, it is obtained through surveys. We also expect our managers to solicit and, where applicable, use employee feedback to improve its business practices and working environment.
We also expect our managers to solicit and, where applicable, use employee feedback to improve its business practices and working environment. We are proud to have received numerous awards, recognizing both product quality as well as the ability to provide an excellent work environment.
We are proud to have received numerous awards, recognizing both product quality as well as the ability to provide an excellent work environment.
Approximately 11% of our 2022 consolidated sales were made to government-related markets. 5 Government Regulation The Federal Aviation Administration (“FAA”) regulates the manufacture, repair and operation of all aircraft and aircraft parts operated in the United States.
Approximately 12% of our 2023 consolidated sales were made to U.S. government-related markets. Government Regulation The FAA regulates the manufacture, repair and operation of all aircraft and aircraft parts operated in the United States. Its regulations are designed to ensure that all aircraft and aviation equipment are continuously maintained in proper condition to ensure safe operation of the aircraft.
When considering an acquisition or partnership, we embed questions specific to human capital management within our due diligence approach. These questions are in the areas of culture, equal employment opportunity, compliance with governing bodies, ethics, as well as employee benefits.
These questions are in the areas of culture, equal employment opportunity, compliance with governing bodies, ethics, as well as employee benefits.
These costs are included in Cost of products sold. 6 Human Capital Resources Human Capital Management and Corporate Culture As of December 31, 2022, we employed approximately 2,400 employees, of whom approximately 2,000 were employed in the United States and approximately 400 were employed outside of the United States.
Human Capital Resources Human Capital Management and Corporate Culture As of December 31, 2023, we employed approximately 2,500 employees, of whom approximately 2,000 were employed in the United States and approximately 500 were employed outside of the United States. We have approximately 140 non-exempt production employees at PECO who are subject to collective bargaining agreements.
Its regulations are designed to ensure that all aircraft and aviation equipment are continuously maintained in proper condition to ensure safe operation of the aircraft. Similar rules apply in other countries. All aircraft must be maintained under a continuous condition monitoring program and must periodically undergo thorough inspection and maintenance.
Similar rules apply in other countries. All aircraft must be maintained under a continuous condition monitoring program and must periodically undergo thorough inspection and maintenance. The inspection, maintenance and repair procedures for the various types of aircraft and equipment are prescribed by regulatory authorities and can be performed only by certified repair facilities utilizing certified technicians.
There has been no material adverse effect to our consolidated financial statements nor competitive positions as a result of these government regulations. Raw Materials Materials, supplies and components are purchased from numerous sources. We believe that the loss of any one source, although potentially disruptive in the short-term, would not materially affect our operations in the long-term.
Raw Materials Materials, supplies and components are purchased from numerous sources. We believe that the loss of any one source, although potentially disruptive in the short-term, would not materially affect our operations in the long-term. Seasonality Our business is typically not seasonal. Backlog At December 31, 2023, our consolidated backlog was $592.3 million.
The Term Loan Facility requires monthly amortization beginning in April 2023, bears interest at the Secured Overnight Financing Rate (“SOFR”) plus 8.75%, is collateralized by real estate, fixed assets and intellectual property, and is scheduled to mature on the earlier of the maturity of the ABL Revolving Credit Facility or January 19, 2027.
The Term Loan Facility requires monthly amortization that began in April 2023 and bears interest at the Secured Overnight Financing Rate (“SOFR”) plus 8.75%. The ABL Revolving Credit Facility bears interest at SOFR plus between 2.25% and 2.75%.
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.
Domestic air travel has recovered from the impact of the COVID-19 pandemic, and international travel utilizing primarily widebody aircraft is close to pre-pandemic levels. As economic activity continues to recover, we will continue to monitor the situation, assessing further possible implications on our operations, supply chain, liquidity, cash flow and customer orders.
For additional information, see discussion in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 8, Long-Term Debt, of Item 8, Financial Statements and Supplementary Data, of this report. Divestitures On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment.
For additional information, see discussion in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 8, Long-Term Debt, of Item 8, Financial Statements and Supplementary Data, of this report. Impact of the COVID-19 Pandemic Our business continues to face varying levels of supply chain pressures from the residual impacts of the COVID-19 pandemic.
Backlog in the Test Systems segment was $93.7 million at December 31, 2022. The Test Systems segment expects to recognize $49.0 million of this backlog as revenue in 2023. Patents We have a number of patents.
Backlog in the Aerospace segment was $517.2 million at December 31, 2023, of which $474.5 million is expected to be recognized as revenue in 2024. Backlog in the Test Systems segment was $75.0 million at December 31, 2023. The Test Systems segment expects to recognize $52.1 million of this backlog as revenue in 2024.
On October 6, 2021, the Company sold one of its Aerospace buildings for $9.2 million. Net cash proceeds were approximately $8.8 million and a gain on sale of approximately $5.0 million was recorded. The operation has been integrated into another facility. Products and Customers Our Aerospace segment designs and manufactures products for the global aerospace industry.
Net cash proceeds were approximately $8.8 million and a gain on sale of approximately $5.0 million was recorded. The operation has been integrated into another facility. 4 Customer Bankruptcy In November 2023, a non-core contract manufacturing customer reported within the Aerospace segment filed for bankruptcy under Chapter 11.
We strive to provide a positive, supportive work culture with a clear global vision and a collaborative work style. We strongly believe that a focus on learning and supporting career development can lead to success. Astronics Corporation regularly earns “best employer” awards.
We strongly believe that a focus on learning and supporting career development can lead to success. Astronics Corporation regularly earns “best employer” awards. As it relates to customers, investors, suppliers and partners, our Company is dedicated to conducting business with integrity and responsibility for the greater good.
In that regard, we closely monitor the FAA and industry trade groups in an attempt to understand how possible future regulations might impact us. Our businesses which sell products directly to the U.S. Government or for use in systems delivered to the U.S. Government can be subject to various laws and regulations governing pricing and other factors.
Our businesses which sell products directly to the U.S. Government or for use in systems delivered to the U.S. Government can be subject to various laws and regulations governing pricing and other factors. There has been no material adverse effect to our Consolidated Financial Statements nor competitive positions as a result of these government regulations.
We regard our expertise and techniques as proprietary and rely upon trade secret laws and contractual arrangements to protect our rights. We have trademark protection in our major markets. Research and Development Expenses Research and development costs are expensed as incurred and include salaries, benefits, consulting, material costs and depreciation.
Our patents and patent applications relate to electroluminescence, instrument panels, cord reels and handsets, and a broad patent covering the cabin power distribution technology. We regard our expertise and techniques as proprietary and rely upon trade secret laws and contractual arrangements to protect our rights. We have trademark protection in our major markets.
As it relates to customers, investors, suppliers and partners, our Company is dedicated to conducting business with integrity and responsibility for the greater good. We promote honest and ethical conduct, compliance with applicable government regulations and accountability by all of its directors, officers and employees.
We promote honest and ethical conduct, compliance with applicable government regulations and accountability by all of its directors, officers and employees. When considering an acquisition or partnership, we embed questions specific to human capital management within our due diligence approach.
During 2022, this segment’s sales were divided 68% to the commercial transport market, 12% to the military aircraft market, 14% to the general aviation market and 6% to other markets. As a result of the COVID-19 pandemic and its adverse impact on air travel worldwide, the commercial aerospace industry has been significantly disrupted.
During 2023, this segment’s sales were divided 72% to the commercial transport market, 10% to the military aircraft market, 13% to the general aviation market and 5% to other markets.
Research and development expenses amounted to $48.3 million in 2022, $43.3 million in 2021 and $40.2 million in 2020.
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 $53.5 million in 2023, $48.3 million in 2022 and $43.3 million in 2021. These costs are included in Cost of Products Sold.
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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.
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Divestitures On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment. The total proceeds of the divestiture included two elements of contingent purchase consideration (“earnout”).
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The impacts of the pandemic have placed labor and supply chain pressures on our business and we have been impacted by customer demand variability. Although we saw stable and growing backlog during 2022 in our aerospace business, COVID-19 related disruptions are ongoing and continue to adversely challenge our markets.
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As a result, the Company recorded a full reserve of $7.5 million for outstanding accounts receivable and $3.6 million for dedicated inventory. The associated assets existed prior to 2023. Products and Customers Our Aerospace segment designs and manufactures products for the global aerospace industry.
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During the years ended December 31, 2022 and 2021, the Company recognized $6.0 million and $8.7 million of the award, respectively. Additionally, the Company qualified for government subsidies from the Canadian and French governments as a result of the COVID-19 pandemic’s impact on our foreign operations.
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The Canadian and French subsidies are income-based grants intended to reimburse the Company for certain employee wages. The grants are recognized as income over the periods in which the Company recognizes as expenses the costs the grants are intended to defray. The amounts recognized during 2022 were immaterial.
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The ABL Revolving Credit Facility bears interest at SOFR plus between 2.25% and 2.75%, is collateralized by certain domestic accounts receivable and inventory, and is scheduled to mature on January 19, 2026.
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The COVID-19 pandemic has significantly disrupted the global supply chain for certain components. See further discussion within the Risk Factor discussion in Item 1A. Seasonality Our business is typically not seasonal. Backlog At December 31, 2022, our consolidated backlog was $571.4 million. At December 31, 2021, our backlog was $415.7 million.
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These measures were taken to maintain the financial health and liquidity of the business. We are continuously evaluating the impact of the COVID-19 pandemic, which is dependent on future developments, including the duration of the pandemic and the its impact on the global economy and the aerospace industry, which are uncertain and cannot be predicted at this time.
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The information contained on our website is not incorporated by reference in this annual report on Form 10-K and should not be considered a part of this report.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur sales and earnings may fluctuate from quarter to quarter due to a number of factors, including delays or cancellations of programs and the impacts of the ongoing COVID-19 pandemic and supply chain challenges on revenues and costs. It is likely that in some future quarters our operating results may fall below the expectations of securities analysts or investors.
Biggest changeIf we fail to meet expectations of securities analysts or investors due to fluctuations in our sales or operating results, our stock price could decline significantly. Our sales and earnings may fluctuate from quarter to quarter due to a number of factors, including delays or cancellations of programs and supply chain challenges on revenues and costs.
If we are unable to comply with those requirements with respect to a significant quantity of our products, our sales in Europe would be restricted. Doing business internationally also subjects us to numerous 15 U.S. and foreign laws and regulations, including regulations relating to import-export control, technology transfer restrictions, foreign corrupt practices and anti-boycott provisions.
If we are unable to comply with those requirements with respect to a significant quantity of our products, our sales in Europe would be restricted. Doing business internationally also subjects us to numerous U.S. and foreign laws and regulations, including regulations relating to import-export control, technology transfer restrictions, foreign corrupt practices and anti-boycott provisions.
These factors would reduce orders for new aircraft and would likely reduce airlines’ spending for cabin upgrades for which we supply products, thus reducing our sales and profits. A reduction in air travel may also result in our commercial airline customers being unable to pay our invoices on a timely basis or at all.
These factors would reduce orders for new aircraft and would likely reduce airlines’ spending for cabin upgrades for which we supply 8 products, thus reducing our sales and profits. A reduction in air travel may also result in our commercial airline customers being unable to pay our invoices on a timely basis or at all.
If any of these events were to occur, we may not be able to pay our debts and other monetary obligations as they come due, and our ability to continue to operate as a going concern could be impaired, which could in turn cause a significant decline in our stock price and could result in a significant loss of value for our shareholders.
If any of these events were to occur, we may not be able to pay our debts and other monetary obligations as they come due, and our ability to continue to 13 operate as a going concern could be impaired, which could in turn cause a significant decline in our stock price and could result in a significant loss of value for our shareholders.
Changes to our level of debt subsequent to December 31, 2022 could have significant consequences to our business, including the following: • Depending on interest rates and debt maturities, a substantial portion of our cash flow from operations could be dedicated to paying principal and interest on our debt, thereby reducing funds available for our acquisition strategy, capital expenditures or other purposes; • A significant amount of additional debt could make us more vulnerable to changes in economic conditions or increases in prevailing interest rates; • Our ability to obtain additional financing for acquisitions, capital expenditures or for other purposes could be impaired; • The increase in the amount of debt we have outstanding and the associated interest expense increases the risk of non-compliance with some of the covenants in our debt agreements which require us to maintain specified financial ratios; and • We may be more leveraged than some of our competitors, which may result in a competitive disadvantage.
Changes to our level of debt subsequent to December 31, 2023 could have significant consequences to our business, including the following: • Depending on interest rates and debt maturities, a substantial portion of our cash flow from operations could be dedicated to paying principal and interest on our debt, thereby reducing funds available for our acquisition strategy, capital expenditures or other purposes; • A significant amount of additional debt could make us more vulnerable to changes in economic conditions or increases in prevailing interest rates; • Our ability to obtain additional financing for acquisitions, capital expenditures or for other purposes could be impaired; • The increase in the amount of debt we have outstanding and the associated interest expense increases the risk of non-compliance with some of the covenants in our debt agreements which require us to maintain specified financial ratios; and • We may be more leveraged than some of our competitors, which may result in a competitive disadvantage.
Further, as the amount available to us under our credit facilities is subject to borrowing base calculations determined by the value of accounts 13 receivable and inventory (under our ABL Revolving Credit Facility) and real estate and fixed assets (under our Term Loan Facility), an unexpected decline in the value of these assets would require a mandatory prepayment.
Further, as the amount available to us under our credit facilities is subject to borrowing base calculations determined by the value of accounts receivable and inventory (under our ABL Revolving Credit Facility) and real estate and fixed assets (under our Term Loan Facility), an unexpected decline in the value of these assets would require a mandatory prepayment.
This litigation could result in significant costs and divert our management’s focus away from operations. Refer to the risk factor related to pending patent 11 infringement litigation below and Note 19 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this report for further discussion.
This litigation could result in significant costs and divert our management’s focus away from operations. Refer to the risk factor related to pending patent infringement litigation below and Note 19 to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report for further discussion.
Our financial results could be adversely impacted by the escalation of labor and benefit costs. Consistent with the experience of other employers, our labor, medical and workers’ compensation costs have increased substantially in recent years and are expected to continue to rise.
Our financial results could continue to be adversely impacted by the escalation of labor and benefit costs. Consistent with the experience of other employers, our labor, medical and workers’ compensation costs have increased substantially in recent 11 years and are expected to continue to rise.
Additionally, demand for some of our test products is dependent upon government funding levels for our products, our ability to compete successfully for those contracts and our ability to develop products to satisfy the demands of our customers. 9 Our products are sold in highly competitive markets.
Additionally, demand for some of our test products is dependent upon government funding levels for our products, our ability to compete successfully for those contracts and our ability to develop products to satisfy the demands of our customers. Our products are sold in highly competitive markets.
If we are not able to increase revenue and reduce our costs, we may not be able to achieve profitability in future periods and our business, financial condition, results of operations and cash flows may be adversely affected.
If we are not able to increase revenue or reduce our costs, we may not be able to achieve profitability in future periods and our business, financial condition, results of operations and cash flows may be adversely affected.
Like all government contractors, we are subject to risks associated with this contracting. These risks include the potential for substantial civil and criminal fines and penalties.
Like all government contractors, we are subject to risks associated with this contracting. These risks include the 9 potential for substantial civil and criminal fines and penalties.
We may experience difficulties that could delay or prevent the successful development of new products or product 10 enhancements, and new products or product enhancements may not be accepted by our customers.
We may experience difficulties that could delay or prevent the successful development of new products or product enhancements, and new products or product enhancements may not be accepted by our customers.
These supply chain constraints and their related challenges could result in shortages, increased material costs or use of cash, engineering design changes, and delays in new product introductions, each of which could adversely impact our growth, gross margin and financial results. These types of negative financial impacts on our business may become more acute as supply chain pressures increase.
These supply chain constraints and their related challenges could result in shortages, increased material costs or use of cash, engineering design changes, and delays in new product introductions, each of which could adversely impact our growth, gross margin and financial results. These types of negative financial impacts on our business may become more acute if supply chain pressures increase.
Our results of operations are affected by our fixed-price contracts, which could subject us to losses in the event that we have cost overruns. For the year ended December 31, 2022, fixed-price contracts represented almost all of the Company’s sales. On fixed-price contracts, we agree to perform the scope of work specified in the contract for a predetermined price.
Our results of operations are affected by our fixed-price contracts, which could subject us to losses in the event that we have cost overruns. For the year ended December 31, 2023, fixed-price contracts represented almost all of the Company’s sales. On fixed-price contracts, we agree to perform the scope of work specified in the contract for a predetermined price.
Depending on the fixed price negotiated, these contacts may provide us with an opportunity to achieve higher profits based on the relationship between our costs and the contract’s fixed price. However, we bear the risk that increased or unexpected costs may reduce our profit or cause us to incur a loss on the contract, which would reduce our net earnings.
Depending on the fixed price negotiated, these contracts may provide us with an opportunity to achieve higher profits based on the relationship between our costs and the contract’s fixed price. However, we bear the risk that increased or unexpected costs may reduce our profit or cause us to incur a loss on the contract, which would reduce our net earnings.
Changes in discount rates and other estimates could affect our future earnings and equity. Our goodwill asset impairment evaluations are determined using valuations that involve several assumptions, including discount rates, cash flow estimates, growth rates and terminal values. Certain of these assumptions, particularly the discount rate, are based on market conditions and are outside of our control.
Our goodwill asset impairment evaluations are determined using valuations that involve several assumptions, including discount rates, cash flow estimates, 14 growth rates and terminal values. Certain of these assumptions, particularly the discount rate, are based on market conditions and are outside of our control. Changes in these assumptions could affect our future earnings and equity.
The ABL Revolving Credit Facility and Term Loan Facility includes covenants restricting, among other things, the ability of the Company and our subsidiaries to: • incur additional indebtedness; • pay dividends on or repurchase our capital stock; • make certain acquisitions or investments; • sell assets; and • engage in certain business activities.
The ABL Revolving Credit Facility and Term Loan Facility include covenants restricting, among other things, the ability of the Company and our subsidiaries to: • incur additional indebtedness; • pay dividends on or repurchase our capital stock; • make certain acquisitions or investments; • sell assets; and • engage in certain business activities.
We had no such impairment charges during 2022 or 2021. Our goodwill and other intangible assets may increase in the future since our strategy includes growing through acquisitions. We may have to write-off all or part of our goodwill or purchased intangible assets if their value becomes impaired.
We had no goodwill impairment charges during 2023, 2022 or 2021. Our goodwill and other intangible assets may increase in the future since our strategy includes growing through acquisitions. We may have to write-off all or part of our goodwill or purchased intangible assets if their value becomes impaired.
ITEM 1A. RISK FACTORS Our business faces many risks, and you should carefully consider the following risk factors, together with all of the other information included in this report, including the financial statements and related notes contained in Item 8 of this report, when deciding to invest in us.
ITEM 1A. RISK FACTORS Our business faces many risks, and you should carefully consider the following risk factors, together with all of the other information included in this report, including the financial statements and related notes contained in Item 8, Financial Statements and Supplementary Data, of this report, when deciding to invest in us.
The price of our common stock has been and likely will continue to be subject to wide fluctuations in response to a number of events and factors, such as: • our ability to comply with the financial and other affirmative and negative covenants included in our ABL Revolving Credit Facility and Term Loan Facility; • quarterly variations in operating results; • variances of our quarterly results of operations from securities analyst estimates; • changes in financial estimates; • announcements of technological innovations and new products; • news reports relating to trends in our markets; • the cancellation of major contracts or programs with our customers; and • impacts of the COVID-19 pandemic on the aerospace industry and our Company.
The price of our common stock has been and likely will continue to be subject to wide fluctuations in response to a number of events and factors, such as: • our ability to comply with the financial and other affirmative and negative covenants included in our ABL Revolving Credit Facility and Term Loan Facility; • quarterly variations in operating results; • variances of our quarterly results of operations from securities analyst estimates; • changes in financial estimates; • announcements of technological innovations and new products; • news reports relating to trends in our markets or adverse happenings at our customers; • the cancellation of major contracts or programs with our customers; and • residual impacts of the COVID-19 pandemic on the aerospace industry and our Company.
This constrained supply environment has adversely affected, and could further affect, availability, lead times and cost of components, and could impact our ability to complete development programs, respond to accelerated or quick-turn delivery requests from customers, or meet customer demand and product delivery dates for our end customers where we cannot timely secure adequate supply of these components.
This constrained supply environment has adversely affected, and could further affect, availability, lead times and the cost of components, and could impact our ability to timely complete development programs, respond to accelerated or quick-turn delivery requests from customers, or meet customer demand and product delivery dates for our end customers in situations where we cannot timely secure adequate supply of these components.
Under the Biden administration, changes in U.S. administrative policy could lead to changes in existing trade agreements, greater restrictions on free trade generally, and significant increases in tariffs on goods imported into the United States, particularly tariffs on products manufactures in China and Mexico, among other possible changes.
Changes in U.S. administrative policy could lead to changes in existing trade agreements, greater restrictions on free trade generally, and significant increases in tariffs on goods imported into the United States, particularly tariffs on products manufactures in China and Mexico, among other possible changes.
Due to increased demand across a range of industries, the global supply chain for certain critical components or raw materials used in the manufacture of our products and used in our development programs has experienced significant strain in recent periods.
Due to increased demand across a range of industries, the global supply chain for certain critical components or raw materials used in the manufacture of our products and used in our development programs has experienced, and may in future periods experience, significant strain in recent periods.
To the extent the war in Ukraine adversely affects our business as discussed above, it may also have the effect of heightening 12 many of the other risks described herein, such as those relating to cybersecurity, supply chain, volatility in prices and market conditions, any of which could negatively affect our business and financial condition.
To the extent the war in Ukraine or the Israel-Hamas war adversely affects our business as discussed above, it may also have the effect of heightening many of the other risks described herein, such as those relating to cybersecurity, supply chain, volatility in prices and market conditions, any of which could negatively affect our business and financial condition.
Any significant increases in the costs attributable to our self-insured health and workers’ compensation plans could adversely impact our business, results of operations, financial condition and cash flows. Price inflation for labor and materials, further exacerbated by the Russian invasion of Ukraine, could adversely affect our business, results of operations and financial condition.
Any significant increases in the costs attributable to our self-insured health and workers’ compensation plans could adversely impact our business, results of operations, financial condition and cash flows. Price inflation for labor and materials, further exacerbated by the Russian invasion of Ukraine or the Israel-Hamas war, could adversely affect our business, results of operations and financial condition.
Our failure, or failure by an authorized agent or representative that is attributable to us, to comply with these laws and regulations could result in administrative, civil or criminal liabilities and could, in the extreme case, result in monetary penalties, suspension or debarment from government contracts or suspension of our export privileges, which would have a material adverse effect on us.
Our failure, or failure by an authorized agent or representative that is attributable to us, to comply with these laws and regulations could result in administrative, civil or criminal liabilities and could, in the extreme case, result in monetary penalties, suspension or debarment from government contracts or suspension of our export privileges, which would have a material adverse effect on us. 15 Trade policies, treaties, and tariffs could have a material adverse effect on our business.
The markets we serve are sensitive to fluctuations in general business cycles, global pandemics, domestic and foreign governmental tariffs, trade and monetary policies, national and international conflicts, and economic conditions and events, and are facing varying levels of pressure from the COVID-19 pandemic.
The markets we serve are sensitive to fluctuations in general business cycles, global pandemics, domestic and foreign governmental tariffs, trade and monetary policies, national and international conflicts, and economic conditions and events, and are facing varying levels of supply chain pressures from the residual impacts of the COVID-19 pandemic.
We experienced considerable price inflation in our costs for labor and materials during 2022, which adversely affected our business, results of operations and financial condition. We may not be able to pass through inflationary cost increases under our existing fixed-price contracts.
We have experienced considerable price inflation in our costs for labor and materials in recent years, which has adversely affected our business, results of operations and financial condition. We may not be able to pass through inflationary cost increases under our existing fixed-price contracts.
Our ability to raise prices to reflect increased costs may be limited by competitive conditions in the market for our products and services. Russia’s invasion of Ukraine, and prolonged conflict there, may continue to result in increased inflation, escalating energy and commodity prices and increasing costs of materials.
Our ability to raise prices to reflect increased costs may be limited by competitive conditions in the market for our products and services. Russia’s invasion of Ukraine and the Israel-Hamas war, and prolonged conflict in either such situation, may continue to result in increased inflation, escalating energy and commodity prices and increasing costs of materials.
The amount of debt we have outstanding, as well as any debt we may incur in the future, could have an adverse effect on our operational and financial flexibility. As of December 31, 2022, we had approximately $164.0 million of debt outstanding.
The amount of debt we have outstanding, as well as any debt we may incur in the future, could have an adverse effect on our operational and financial flexibility. As of December 31, 2023, we had approximately $172.5 million of debt outstanding.
Market Risks The loss of Boeing or Panasonic as major customers or a significant reduction in business with either of those customers would reduce our sales and earnings. In 2022 and 2021, we had a concentration of sales to Boeing representing approximately 11.0% and 10.0% of our sales, respectively.
Market Risks The loss of Boeing as a major customer or a significant reduction in business with this customer would reduce our sales and earnings. In 2023, 2022, and 2021 we had a concentration of sales to Boeing representing approximately 11.0%, 11.0%, and 10.0% of our sales, respectively.
Financial Risks We have incurred losses in prior fiscal years and our future profitability is not certain. For the year ended December 31, 2022, we incurred a net loss of $35.7 million.
Financial Risks We have incurred losses in prior fiscal years and our future profitability is not certain. For the year ended December 31, 2023, we incurred net loss of $26.4 million.
Although we work cooperatively with our customers, suppliers, and subcontractors to seek to minimize the impact of cyber threats, other security threats or business disruptions, we must rely on the safeguards put in place by these entities, which may affect the security of our information.
Due to the evolving nature of these security threats, the impact of any future incident cannot be predicted. 10 Although we work cooperatively with our customers, suppliers, and subcontractors to seek to minimize the impact of cyber threats, other security threats or business disruptions, we must rely on the safeguards put in place by these entities, which may affect the security of our information.
If this trend continues, the cost of labor and to provide healthcare and other benefits to our employees could increase, adversely impacting profitability. As the labor market recovers from the effects of the COVID-19 pandemic, competition for employees has escalated which has increased costs associated with attracting and retaining employees.
If this trend continues, the cost of labor and to provide healthcare and other benefits to our employees could continue to increase, adversely impacting our future profitability. Competition for employees has escalated in the labor market which has increased costs associated with attracting and retaining employees.
These broad market fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. Global health crises, such as the current COVID-19 pandemic, with the breadth of its impact worldwide, and particularly on the aerospace industry, could also cause significant volatility in the market price.
These broad market fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. Global health crises, similar to the COVID-19 pandemic, with the breadth of its impact worldwide, and particularly on the aerospace industry, could also cause significant volatility in the market price. ITEM 1B. UNRESOLVED STAFF COMMENTS None. 17
In 2022, approximately 9% of our sales were made by our subsidiaries in foreign countries, predominately in our subsidiaries in France and Canada. Net assets held by our foreign subsidiaries total $36.6 million at December 31, 2022. Approximately 22% of our consolidated sales in 2022 were made to customers outside of the United States.
In 2023, approximately 10% of our sales were made by our subsidiaries in foreign countries, predominately in our subsidiaries in France and Canada. Net assets held by our foreign subsidiaries total $39.1 million at December 31, 2023. Approximately 25% of our consolidated sales in 2023 were made to customers outside of the United States.
Also, certain customers, associates, shareholders, investors, suppliers, business partners, government agencies and non-governmental organizations may not be satisfied with our sustainability efforts. A failure or perceived failure of our sustainability goals could negatively affect our reputation and our results of operations.
Also, certain customers, associates, shareholders, investors, suppliers, business partners, government agencies and non-governmental organizations may not be satisfied with our sustainability efforts. A failure or perceived failure of our sustainability goals could negatively affect our reputation and our results of operations. We are subject to extensive regulation and audit by the Defense Contract Audit Agency.
A decline in governmental expenditures, a change in spending priorities (e.g., shifting funds to efforts to combat the impact of the pandemic or efforts to assist Ukraine in the Russia and Ukraine conflict), or the termination of existing contracts may result in a reduction in the volume of contracts awarded to us.
In addition, government expenditures for defense programs may decline or these defense programs may be terminated. A decline in governmental expenditures, a change in spending priorities (e.g., shifting funds to assist Ukraine in the Russia and Ukraine conflict), or the termination of existing contracts may result in a reduction in the volume of contracts awarded to us.
Our future operating results could be impacted by estimates used to calculate impairment losses on long-lived assets. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make significant and subjective estimates and assumptions that may affect the reported amounts of tangible and intangible long-lived assets in the financial statements.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make significant and subjective estimates and assumptions that may affect the reported amounts of tangible and intangible long-lived assets, including goodwill, in the financial statements.
The discount rate assumptions are based on current market conditions and are outside of our control. Changes in these assumptions could affect our future earnings and equity. Changes in tax laws and regulations or exposure to additional tax liabilities could adversely affect our financial results. Changes in U.S.
Changes in these assumptions could affect our future earnings and equity. Changes in tax laws and regulations or exposure to additional tax liabilities could adversely affect our financial results. Changes in U.S.
Changes in these assumptions could affect our future earnings and equity. Additionally, pension obligations and the related costs are determined using actual results and actuarial valuations that involve several assumptions. The most critical assumption is the discount rate. Other assumptions include mortality, salary levels and retirement age.
Additionally, pension obligations and the related costs are determined using actual results and actuarial valuations that involve several assumptions. The most critical assumption is the discount rate. Other assumptions include mortality, salary and bonus levels and retirement age. The discount rate assumptions are based on current market conditions and are outside of our control.
These attacks and the U.S. government’s continued efforts against terrorist organizations may lead to additional armed hostilities or to further acts of terrorism and civil disturbance in the U.S. or elsewhere, which may further contribute to economic instability. 16 If we fail to meet expectations of securities analysts or investors due to fluctuations in our sales or operating results, our stock price could decline significantly.
These attacks and the U.S. government’s continued efforts against terrorist organizations may lead to additional armed hostilities or to further acts of terrorism and civil disturbance in the U.S. or elsewhere, which may further contribute to economic instability.
There is continued uncertainty about the future relationship between the United States and various other countries, most significantly China, with respect to trade policies, treaties, tariffs, and taxes.
Our business is dependent on the availability of raw materials and components for our products, particularly electrical components common in the semiconductor industry. There is continued uncertainty about the future relationship between the United States and various other countries, most significantly China, with respect to trade policies, treaties, tariffs, and taxes.
As a consequence of their persistence, sophistication and volume, we may not be successful in defending against all such attacks. Due to the evolving nature of these security threats, the impact of any future incident cannot be predicted.
As a consequence of their persistence, sophistication and volume, we may not be successful in defending against all such attacks.
These estimates are integral in the determination of whether a potential non-cash impairment loss exists as well as the calculation of that loss. Actual future results could differ from those estimates.
These estimates are integral in the determination of whether a potential non-cash impairment loss exists as well as the calculation of that loss. Actual future results could differ from those estimates. We had no such asset impairment charges in 2023, 2022 or 2021. Changes in discount rates and other estimates could affect our future earnings and equity.
In 2020, we also had a concentration of sales to Panasonic representing approximately 11.1% of our sales. Revenue earned from sales to Boeing or Panasonic may decline or fluctuate significantly in the future. We may not be able to offset any decline in sales from Boeing or Panasonic with sales from new customers or other existing customers.
Revenue earned from sales to Boeing may decline or fluctuate significantly in the future. We may not be able to offset any decline in sales from Boeing with sales from new customers or other existing customers. The loss of this customer or a significant reduction in business with them would significantly reduce our sales and earnings.
Changes in the availability, terms and cost of capital, and increases in interest rates could cause our cost of doing business to increase and place us at a competitive disadvantage. At December 31, 2022, all of our debt was subject to variable interest rates.
We are subject to financing and interest rate exposure risks that could adversely affect our business, liquidity and operating results. Changes in the availability, terms and cost of capital, and increases in interest rates could cause our cost of doing business to increase and place us at a competitive disadvantage.
If the pandemic worsens or there is significant uncertainty in the commercial aerospace industry’s recovery, we may find it difficult to access our existing financing or obtain additional financing and/or fund our operations and meet our debt service obligations.
If a global health crisis, similar to the COVID-19 pandemic, we to occur in the future, we may find it difficult to access our existing financing or obtain additional financing and/or fund our operations and meet our debt service obligations.
In our Aerospace segment, demand by the general aviation markets for our products is dependent upon several factors, including capital investment, product innovations, economic growth and wealth creation and technology upgrades.
Any new pandemic or other future public health crisis, or a resurgence of COVID-19 or variants could materially impact our financial condition or results of operations. In our Aerospace segment, demand by the general aviation markets for our products is dependent upon several factors, including capital investment, product innovations, economic growth and wealth creation and technology upgrades.
The markets we serve are cyclical and sensitive to domestic and foreign economic conditions, conflicts and events, which may cause our operating results to fluctuate.
Accordingly, a portion of our potential for success will depend on our continued ability to develop and manage our relationship with Boeing. The markets we serve are cyclical and sensitive to domestic and foreign economic conditions, conflicts and events, which may cause our operating results to fluctuate.
Although this write-off would not result in an outlay of cash and is not included in the financial covenant calculation, it could reduce our earnings and net worth significantly. We are subject to financing and interest rate exposure risks that could adversely affect our business, liquidity and operating results.
Although this write-off would not result in an outlay of cash and is not included in the financial covenant calculation, it could reduce our earnings and net worth significantly. Our future operating results could be impacted by estimates used to calculate impairment losses on goodwill and long-lived assets.
In this event, the trading price of our stock could decline significantly. Our stock price is volatile. For the year ended December 31, 2022, our stock price ranged from a low of $7.61 to a high of $14.71.
It is likely that in some future quarters our operating results may fall below the expectations of securities analysts or investors. In this event, the trading price of our stock could decline significantly. Our stock price is volatile. For the year ended December 31, 2023, our stock price ranged from a low of $10.14 to a high of $22.01.
In addition, some suppliers have indicated that, as a result of current shortages, they intend to cease manufacture of certain components used in our products.
In addition, some suppliers have indicated that, as a result of current shortages, they intend to cease manufacture of certain components used in our products. Limits on manufacturing availability or capacity or delays in production or delivery of components or raw materials could further delay or inhibit our ability to obtain supply of components and produce finished goods.
A write-off of all or part of our goodwill or other intangible assets could adversely affect our operating results and net worth. At December 31, 2022, goodwill and net intangible assets were approximately 9.5% and 12.9% of our total assets, respectively. In 2020, we recorded goodwill impairment charges associated with four Aerospace reporting units, totaling $86.3 million.
At December 31, 2023, all of our debt was subject to variable interest rates. A write-off of all or part of our goodwill or other intangible assets could adversely affect our operating results and net worth. At December 31, 2023, goodwill and net intangible assets were approximately 9.2% and 10.3% of our total assets, respectively.
Removed
The loss of these customers or a significant reduction in business with them would significantly reduce our sales and earnings. Accordingly, a portion of our potential for success will depend on our continued ability to develop and manage our relationships with Boeing and Panasonic.
Added
Domestic air travel has recovered from the impact of the COVID-19 pandemic, and international travel utilizing primarily widebody aircraft is close to pre-pandemic levels.
Removed
The COVID-19 pandemic drastically reduced air traffic as travel restrictions and social distancing measures were implemented to help control the spread of the virus. While U.S. domestic air travel has recovered, international travel utilizing wide-body aircraft will take longer to fully recover.
Added
Residual impacts of the COVID-19 pandemic have contributed to and exacerbated this strain to varying degrees.
Removed
Furthermore, as companies and employees become accustomed to working remotely, business travel and the associated flight hours may not reach the pre-pandemic levels. As such, OEMs may continue to directionally match their wide-body aircraft production rates with the reduced, albeit recovering, air traffic volume, which could lower demand for our products.
Added
Our operations depend on our manufacturing facilities, which are subject to physical and other risks that could disrupt production. Our manufacturing facilities or our customers' facilities could be damaged or disrupted by a natural disaster, war, 12 or terrorist activity.
Removed
In addition, government expenditures for defense programs may decline or these defense programs may be terminated.
Added
We maintain property damage and business interruption insurance at the levels typical in our industry or for our customers and suppliers, however, a pandemic or other major catastrophe, such as an earthquake, hurricane, fire, flood, tornado or other natural disaster at any of our sites, or war or terrorist activities in any of the areas where we conduct operations could result in a prolonged interruption of our business.
Removed
Particularly, the market for electronic components is experiencing increased demand, creating substantial uncertainty regarding our suppliers’ continued production of key components for our products. The COVID-19 pandemic has also contributed to and exacerbated this strain.
Added
Any disruption resulting from these events could cause significant delays in shipments of products and the loss of sales and customers, and we may not have insurance to adequately compensate us for any of these events. For leased facilities, timely renewal of leases and risk mitigation from the sale of our leased facilities is required to avoid any business interruption.
Removed
Limits on manufacturing availability or capacity or delays in production or delivery of components or raw materials due to COVID-related restrictions could further delay or inhibit our ability to obtain supply of components and produce finished goods. There can be no assurance that the impacts of the pandemic on the supply chain will not continue, or worsen, in the future.
Added
We may be subject to work stoppages at our facilities or those of our principal customers and suppliers, which could seriously impact the profitability of our business. Many aircraft manufacturers, airlines, and aerospace suppliers have unionized work forces.
Removed
As 14 discussed in Note 22 to the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this report, we recorded a long-lived asset impairment charge of approximately $0.7 million in the year ending December 31, 2020. We had no such impairment charges in 2022 or 2021.
Added
Any strikes, work stoppages, or slowdowns experienced by aircraft manufacturers, airlines, or aerospace suppliers could reduce our customers’ demand for additional aircraft structures or prevent us from completing production of our products. A small percentage of our workforce is represented by unions.
Removed
Trade policies, treaties, and tariffs could have a material adverse effect on our business. Our business is dependent on the availability of raw materials and components for our products, particularly electrical components common in the semiconductor industry.
Added
If we were unable to renew our labor agreements at expiration, or if our workers were to engage in a strike, work stoppage, or other slowdown, we could experience a disruption of our operations, which could cause us to be unable to deliver products to certain of our customers on a timely basis and could result in a breach of such supply agreements.
Added
This could negatively impact our results. In addition, our non-unionized labor force may become subject to labor union organizing efforts, which could cause us to incur additional labor costs and increase the related risks that we now face.
Added
The construction of aircraft is heavily regulated, and failure to comply with applicable laws could reduce our sales or require us to incur additional costs to achieve compliance, and we may incur significant expenses to comply with new or more stringent governmental regulation.
Added
The aerospace industry is highly regulated in the United States by the FAA and in other countries by similar agencies. We must be certified by the FAA and, in some cases, by individual OEMs in order to engineer and service parts, components and aerostructures used in specific aircraft models.
Added
If any of our material authorizations or approvals were revoked or suspended, our operations would be adversely affected. New or more stringent governmental regulations may be adopted, or industry oversight heightened in the future, and we may incur significant expenses to comply with any new regulations or any heightened industry oversight.
Added
In addition, in January 2024, the FAA ordered the temporary grounding of Boeing 737-9 MAX aircraft as a result of an incident where a Boeing 737-9 MAX lost a “door plug.” This incident and the subsequent investigation, and the potential for more issues to be identified during further investigations, could result in a suspension or reduction of manufacturing of 737 MAX aircraft by Boeing.
Added
Air travelers may also respond negatively to the 737 MAX aircraft due to perceived safety concerns, which would negatively impact Boeing. Boeing is a major customer of ours and any financial or customer losses it suffers may result in a negative impact on our business, financial condition and results of operations.
Added
The accuracy and appropriateness of certain costs and expenses used to substantiate our direct and indirect costs for the U.S. Government contracts are subject to extensive regulation and audit by the Defense Contract Audit Agency, an arm of the U.S. Department of Defense (“USDOD”). Such audits and reviews could result in adjustments to our contract costs and profitability.
Added
However, we cannot ensure the outcome of any future audits and adjustments may be required to reduce net sales or profits upon completion and final negotiation of audits.
Added
If any audit or review were to uncover inaccurate costs or improper activities, we could be subject to penalties and sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from conducting future business with the U.S. Government. Any such outcome could have a material adverse effect on our financial results.
Added
We are subject to the requirements of the National Industrial Security Program Operating Manual for facility security clearance, which is a prerequisite for our ability to perform on classified contracts for the U.S. Government.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFor a discussion of contingencies related to legal proceedings, see Note 19 to our consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this report. ITEM 4. MINE SAFETY DISCLOSURES Not Applicable 17 PART II
Biggest changeFor a discussion of contingencies related to legal proceedings, see Note 19 to our Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report. ITEM 4. MINE SAFETY DISCLOSURES Not Applicable. 19 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThis program authorizes repurchases of up to $50 million of common stock. Cumulative repurchases under this plan were approximately 310,000 shares at a cost of $8.5 million before the 10b5-1 plan associated with the share repurchase program was terminated on February 3, 2020.
Biggest changeCumulative repurchases under this plan were approximately 310,000 shares at a cost of $8.5 million before the 10b5-1 plan associated with the share repurchase program was terminated on February 3, 2020. 20 The following graph compares the Company’s annual percentage change in cumulative total return on common shares over the past five years with the cumulative total return of companies comprising the S&P 500 Index and the NASDAQ Composite Index.
This presentation assumes that $100 was invested in shares of the relevant issuers on December 31, 2017, and that dividends received were immediately invested in additional shares. The graph plots the value of the initial $100 investment at one-year intervals for the fiscal years shown. 2017 2018 2019 2020 2021 2022 Astronics Corp.
This presentation assumes that $100 was invested in shares of the relevant issuers on December 31, 2018, and that dividends received were immediately invested in additional shares. The graph plots the value of the initial $100 investment at one-year intervals for the fiscal years shown. 2018 2019 2020 2021 2022 2023 Astronics Corp.
The Company has not paid any cash dividends in the three-year period ended December 31, 2022. The Company has no plans to pay cash dividends as it plans to retain all cash from operations as a source of capital to service debt and finance working capital and growth in the business.
The Company has not paid any cash dividends in the three-year period ended December 31, 2023. The Company has no plans to pay cash dividends in the future as it plans to retain all cash from operations as a source of capital to service debt and finance working capital and growth in the business.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s Common Stock is traded on the Nasdaq Global Select Market under the symbol “ATRO”. The approximate number of shareholders of record as of March 6, 2023, was 0 for Common Stock and 0 for Class B Stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s Common Stock is traded on the Nasdaq Global Select Market under the symbol “ATRO”. The approximate number of shareholders of record as of February 26, 2024, was 717 for Common Stock and 1,878 for Class B Stock.
The following table summarizes our purchases of our common stock for the quarter ended December 31, 2022: Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Value of Shares that may yet be Purchased Under the Program October 2 - October 29 — $ — — $ 41,483,815 October 30 - November 26 — $ — — $ 41,483,815 November 27 - December 31* 588 $ 10.14 — $ 41,483,815 Total 588 $ 10.14 — *Represents shares withheld for taxes on the net settlement of RSU issuances On September 17, 2019, the Board of Directors authorized an additional share repurchase program.
The following table summarizes our purchases of our common stock for the three months ended December 31, 2023: Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs Maximum Numbers (or approximate Dollar Value) of Shares that may yet be Purchased Under the Program (1) October 1 - October 28 — $ — — $ 41,483,815 October 29 - November 25 — $ — — $ 41,483,815 November 26 - December 31 — $ — — $ 41,483,815 (1) On September 17, 2019, the Board of Directors authorized an additional share repurchase program.
Return % — (13.30) (8.21) (52.67) (9.30) (14.18) Cum $ 100.00 86.70 79.58 37.67 34.17 29.32 S&P 500 Index - Total Returns Return % — (4.38) 31.49 18.40 28.71 (18.11) Cum $ 100.00 95.62 125.72 148.85 191.58 156.88 NASDAQ Composite-Total Return Return % — (2.84) 36.69 44.92 22.18 (32.54) Cum $ 100.00 97.16 132.81 192.47 235.15 158.65 19 ITEM 6. [Reserved]
Return % — (8.21) (52.67) (9.30) (14.18) 69.10 Cum $ 100.00 91.79 43.45 39.41 33.82 57.19 S&P 500 Index - Total Returns Return % — 31.49 18.40 28.71 (18.11) 26.29 Cum $ 100.00 131.49 155.68 200.37 164.08 207.21 NASDAQ Composite-Total Return Return % — 36.69 44.92 22.18 (32.54) 44.64 Cum $ 100.00 136.69 198.10 242.03 163.28 236.17 21 ITEM 6. [Reserved]
Removed
There have been no repurchases under this plan since that date. 18 The following graph compares the Company’s annual percentage change in cumulative total return on common shares over the past five years with the cumulative total return of companies comprising the S&P 500 Index and the NASDAQ Composite Index.
Added
This program authorizes repurchases of up to $50 million of common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

92 edited+35 added−56 removed36 unchanged
Biggest changeApproximately $402.4 million of the December 31, 2022 backlog is expected to be recognized as revenue over the next twelve months. 27 TEST SYSTEMS SEGMENT (In thousands, except percentages) 2022 2021 Sales $ 73,698 $ 79,670 Operating Loss $ (8,118) $ (3,765) Operating Margin (11.0) % (4.7) % 2022 2021 Total Assets $ 111,513 $ 105,335 Backlog $ 93,696 $ 81,033 2022 Compared With 2021 Test Systems segment sales were $73.7 million, down $6.0 million compared with the prior year driven by lower revenue on defense and mass transit programs.
Biggest changeApproximately $474.5 million of the December 31, 2023 backlog is expected to be recognized as revenue over the next twelve months. 2022 Compared With 2021 For a comparison of Aerospace segment results for the years ended December 31, 2022 and 2021, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 10, 2023. 28 TEST SYSTEMS SEGMENT (In thousands, except percentages) 2023 2022 Sales $ 84,376 $ 73,698 Operating Loss $ (8,745) $ (8,118) Operating Margin (10.4) % (11.0) % 2023 2022 Total Assets $ 122,681 $ 111,513 Backlog $ 75,036 $ 93,696 2023 Compared With 2022 Test Systems segment sales were $84.4 million, up $10.7 million compared with the prior year as a result of the reversal of a $5.8 million deferred revenue liability recorded with a previous acquisition and higher radio test revenue.
Our cash flows from operations are primarily dependent on our net income (loss) adjusted for non-cash expenses and income and the timing of collections of receivables, inventory levels and payments to suppliers and employees.
Our cash flows from operations are primarily dependent on our net loss adjusted for non-cash expenses and income and the timing of collections of receivables, inventory levels and payments to suppliers and employees.
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 20 same time we are challenged to develop the technology on a schedule that is consistent with specific programs.
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.
Operating loss is reconciled to loss before income taxes in Note 20 of Item 8, Financial Statements and Supplementary Data, of this report. We do not have 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.
Operating profit (loss) is reconciled to loss before income taxes in Note 20 of Item 8, Financial Statements and Supplementary Data, of this report. We do not have 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.
The discounted cash flow method incorporates various assumptions, the most significant being projected sales growth rates, operating profit margins and 23 cash flows, the terminal growth rate and the discount rate. Management projects sales growth rates, operating margins and cash flows based on each reporting unit’s current business, expected developments and operational strategies.
The discounted cash flow method incorporates various assumptions, the most significant being projected sales growth rates, operating profit margins and cash flows, the terminal growth rate and the discount rate. Management projects sales growth rates, operating margins and cash flows based on each reporting unit’s current business, expected developments and operational strategies.
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.
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.
Future interest payments under the two credit facilities of approximately $52.5 million have been estimated using the applicable interest rate of each debt facility based on expected future borrowings and scheduled term loan repayments. Actual future ABL borrowings and rates may differ from those used to estimate the amounts discussed above.
Future interest payments under the two credit facilities of approximately $35.5 million have been estimated using the applicable interest rate of each debt facility based on expected future borrowings and scheduled term loan repayments. Actual future ABL borrowings and rates may differ from those used to estimate the amounts discussed above.
RECENT ACCOUNTING PRONOUNCEMENTS See Note 1 of the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this report 32
RECENT ACCOUNTING PRONOUNCEMENTS See Note 1 of the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report.
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 is also frequently retained by the Company.
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.
For certain contracts under which we produce products with no alternative use and for which we have an enforceable right to recover costs incurred plus a reasonable profit margin for work completed to date and for certain other contracts under which we create or enhance a customer-owned asset while performing repair and overhaul services, control is transferred to the customer overtime.
For certain contracts under which we produce products with no alternative use and for which we have an enforceable right to recover costs incurred plus a reasonable profit margin for work completed to date and for certain other contracts under which we create or enhance a customer-owned asset while performing repair and overhaul services, control is transferred to the customer over time.
SEGMENT RESULTS OF OPERATIONS AND OUTLOOK Operating 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.
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.
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.
The Company must 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.
As of December 31, 2022 and 2021, we had approximately $58.2 million and $58.3 million of goodwill, respectively. We identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components.
We had approximately $58.2 million of goodwill as of December 31, 2023 and 2022. We identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and segment management regularly reviews the operating results of those components.
Under the terms of the ABL Revolving Credit Facility, the Company will now pay 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%.
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 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 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%.
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. Operating Activities Cash used for operating activities totaled $28.3 million in 2022, as compared with $5.5 million cash used for operating activities in 2021.
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. Operating Activities Cash used for operating activities totaled $24.0 million in 2023, as compared with $28.3 million cash used for operating activities in 2022.
In addition to state income taxes, the following items had the most significant impact on the difference between our statutory U.S. federal income tax rate (21% in 2022 and 2021) and our effective tax rate: 2022: • Recognition of approximately $13.2 million of valuation allowance against federal deferred tax assets.
In addition to state income taxes, the following items had the most significant impact on the difference between our statutory U.S. federal income tax rate (21% in 2023 and 2022) and our effective tax rate: 2023: • Recognition of approximately $6.8 million of valuation allowance against federal deferred tax assets.
See Note 11 of the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this report for additional information. • Recognition of approximately $2.6 million of 2022 U.S. R&D tax credits. 2021: • Recognition of approximately $6.8 million of valuation allowance against federal deferred tax assets.
See Note 11 of the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report for additional information. • Recognition of approximately $3.4 million of 2023 U.S. R&D tax credits. 2022: • Recognition of approximately $13.2 million of valuation allowance against federal deferred tax assets.
The revolving credit facility has a scheduled maturity of January 19, 2026, an interest rate of SOFR plus 2.25% to 2.75% and is collateralized primarily by inventory and accounts receivable. The revolving credit facility requires a quarterly commitment fee under the revolving credit agreement in an amount equal to 0.25% or 0.375% based on the Company’s average excess availability.
The ABL Revolving Credit Facility has a scheduled maturity of January 19, 2026, an interest rate of SOFR plus 2.25% to 2.75% and is collateralized primarily by inventory and accounts receivable. The ABL Revolving Credit Facility requires payment of a quarterly commitment fee of 0.25% or 0.375% based on the Company’s average excess availability.
Amortization of the principal under the Term Loan Facility will begin 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, increasing to 0.542% per month 31 for the period July 1, 2023 through September 1, 2023 then increasing to 0.833% thereafter.
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, increasing to 0.542% per month for the period July 1, 2023 through September 1, 2023 and 0.833% monthly thereafter.
Sales to this market totaled approximately 11.9% of our consolidated sales in 2022 and amounted to $63.4 million. Sales to the general aviation market are driven by our ship set content on new aircraft and build rates of new aircraft. General aviation OEM build rates are impacted by global wealth creation and corporate profitability.
Sales to this market totaled approximately 11.7% of our consolidated sales in 2023 and amounted to $80.8 million. Sales to the general aviation market are driven by our ship set content on new aircraft and build rates of new aircraft. General aviation OEM build rates are impacted by global wealth creation and corporate profitability.
Refer to Note 8 of our consolidated financial statements in Item 8, Financial Statement and Supplementary Data, of this report for additional information regarding our credit facility. DIVIDENDS Management believes that it should retain the capital generated from operating activities for investment in advancing technologies, acquisitions and debt retirement. Accordingly, there are no plans to institute a cash dividend program.
Refer to Note 8 of our Consolidated Financial Statements in Item 8, Financial Statement and Supplementary Data, of this report for additional information regarding our credit facility. 32 DIVIDENDS Management believes that it should retain the capital generated from operating activities for investment in advancing technologies, acquisitions and debt retirement.
Aircraft build rates are expected to improve modestly during 2023 from current levels as production of the 737 MAX and A-320 picks up, and the aftermarket is expected to strengthen over the course of the year as aircraft utilization and load factors increase.
Aircraft build rates are expected to continue to improve during 2024 and 2025 from current levels as production of the 737 MAX and A-320 is expected to increase, and the aftermarket is expected to strengthen over the course of 23 the year as aircraft utilization and load factors increase.
Military Aerospace Market Sales to the military aerospace market include sales of lighting and safety products, avionics products, electrical power and seat motion products and structures products. Sales to this market totaled approximately 10.2% of our consolidated sales and amounted to $54.5 million in 2022. The military market is dependent on governmental funding which can change from year to year.
Military Aerospace Market Sales to the military aerospace market include sales of lighting and safety products, avionics products, electrical power and seat motion products and structures products. Sales to this market totaled approximately 8.9% of our consolidated sales and amounted to $61.6 million in 2023. The military market is dependent on governmental funding which can change from year to year.
The total proceeds of the divestiture included two elements of contingent purchase consideration (“earnout”). In the fourth quarter of 2021, the Company agreed to an earnout payment of $10.7 million for the calendar 2020 earnout, which was recorded in 2021 as a separate line item below operating loss and was received by the Company in early January 2022.
In the fourth quarter of 2021, the Company agreed to an earnout payment of $10.7 million for the calendar 2020 earnout, which was recorded in 2021 as a separate line item below operating loss and was received by the Company in early January 2022.
Sales to the mass transit market were $13.5 million and sales to other markets were $10.9 million in 2022. Sales to the military market are subject to fluctuations resulting from changes in governmental spending, elimination of certain programs, or failure to win new business through the competitive bid process.
Sales to the military and mass transit markets are subject to fluctuations resulting from changes in governmental spending, elimination of certain programs, or failure to win new business through the competitive bid process.
See Part I, Item 1A, Risk Factors, for an additional discussion of risks associated with our potential inability to satisfy the financial and restrictive covenants set forth in the ABL Revolving Credit Facility and Term Loan Facility. In September 2021, the Company entered into an agreement with the U.S.
See Part I, Item 1A, Risk Factors, for an additional discussion of risks associated with our potential inability to satisfy the financial and restrictive covenants set forth in the 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.
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 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.
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.
Sales and operating results of our Aerospace segment are influenced by the impact of the COVID-19 pandemic on the aerospace industry, in particular, build rates of new aircraft, which are subject to general economic conditions, airline passenger travel and spending for government and military programs.
Sales and operating results of our Aerospace segment are influenced by build rates of new aircraft, which are subject to general economic conditions, airline passenger travel and spending for government and military programs.
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 $14.7 million for the Company’s first quarter of 2023, $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.
Pursuant to the ABL Revolving Credit Facility and the Term Loan Facility, the Company was required to comply with a minimum trailing four quarter Adjusted EBITDA, as defined in the ABL Revolving Credit Facility and Term Loan Facility Agreements, of $51.7 million in the Company’s fourth quarter of 2023, increasing to $57.6 million in the first quarter of 2024, $65.2 million in the second quarter of 2024 and $70 million thereafter.
Deferred debt issuance costs associated with the ABL Revolving Credit Facility will be recorded within other assets and those associated with the Term Loan Facility will be recorded as a reduction of the carrying value of the debt on the Consolidated Balance Sheets.
Unamortized deferred debt issuance costs associated with the ABL Revolving Credit Facility ($2.0 million as of December 31, 2023) are recorded within Other Assets and those associated with the Term Loan Facility ($4.3 million as of December 31, 2023) are recorded as a reduction of the carrying value of the debt on the Consolidated Balance Sheets.
Our cash flow from operations and available borrowing capacity provide us with the financial resources needed to run our operations and reinvest in our business. Our ability to maintain sufficient liquidity is highly dependent upon achieving expected operating results.
Our cash flow from operations, available borrowing capacity, and proceeds under our ATM Program (as defined below) are expected to provide us with the financial resources needed to run our operations and reinvest in our business for at least the next 12 months. Our ability to maintain sufficient liquidity is highly dependent upon achieving expected operating results.
Consistent with the Aerospace segment, the Test Systems segment does not significantly rely on any one program such that cancellation of a particular program will cause material financial loss, and we believe that we will continue to have opportunities similar to past years regarding this market.
Consistent with the Aerospace segment, the Test Systems segment does not significantly rely on any one program such that cancellation of a particular program will cause material financial loss, and we believe that we will continue to have opportunities similar to past years regarding this market. 24 CRITICAL ACCOUNTING ESTIMATES Our financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles.
Further, we are precluded from payment of dividends under our credit facilities. RELATED-PARTY TRANSACTIONS Information regarding certain relationships and related transactions is incorporated herein by reference to the information included in the Company’s 2023 Proxy Statement which will be filed with the Commission within 120 days after the end of the Company’s 2022 fiscal year.
RELATED-PARTY TRANSACTIONS Information regarding certain relationships and related transactions is incorporated herein by reference to the information included in the Company’s 2024 Proxy Statement which will be filed with the SEC within 120 days after the end of the Company’s 2023 fiscal year.
There is risk involved in the development of products for any new aircraft including the risk that the aircraft will not ultimately be produced or that it will be produced in lower quantities than originally expected and thus impacting our return on our engineering and development efforts. 22 Test Systems Products Sales by our Test Systems segment accounted for approximately 13.8% of our consolidated sales in 2022 and amounted to $73.7 million.
There is risk involved in the development of products for any new aircraft including the risk that the aircraft will not ultimately be produced or that it will be produced in lower quantities than originally expected and thus impacting our return on our engineering and development efforts.
General Aviation sales increased $6.7 million, or 11.9%, to $63.4 million due in part to higher demand in the business jet market for antenna systems. The Company expects strong demand in the business jet industry to drive higher OEM production rates in the near future, resulting in further increases in demand for its products.
General Aviation sales increased $17.4 million, or 27.5%, to $80.8 million due in part to higher demand in the business jet market for electrical power and motion and avionics products. The Company expects strong demand in the business jet industry to drive higher OEM production rates in the near future, resulting in further increases in demand for its products.
This segment designs, develops, manufactures and maintains automated test systems that support the aerospace and defense, communications and mass transit industries as well as training and simulation devices for both commercial and military applications. Sales to the aerospace and defense market were $49.3 million in 2022.
Test Systems Products Sales by our Test Systems segment accounted for approximately 12.2% of our consolidated sales in 2023 and amounted to $84.4 million. This segment designs, develops, manufactures and maintains automated test systems that support the aerospace and defense, communications and mass transit industries as well as training and simulation devices for both commercial and military applications.
Maintaining and growing sales to the commercial transport market will depend not only on market recovery from the impacts of the COVID-19 pandemic, but also on airlines’ capital spending budgets for cabin upgrades as well as the purchase of new aircraft by global airlines.
Sales to this market totaled approximately $432.2 million or 62.8% of our consolidated sales in 2023. Maintaining and growing sales to the commercial transport market will depend not only on continued market recovery post-pandemic, but also on airlines’ capital spending budgets for cabin upgrades as well as the purchase of new aircraft by global airlines.
In March 2022, the Company agreed with the earnout calculation for the calendar 2021 earnout in the amount of $11.3 million. The Company recorded the gain and received the payment in the first quarter of 2022. In February 2023, the Company was notified by the buyer that they have calculated $3.4 million as being payable for the calendar 2022 earnout.
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 operation has been integrated into another facility. 21 MARKETS Commercial Transport Market The commercial transport market is our largest end market with sales driven by new aircraft production and aftermarket airline retrofit programs.
Net cash proceeds were approximately $8.8 million and a gain on sale of approximately $5.0 million was recorded. The operation has been integrated into another facility. MARKETS Commercial Transport Market The commercial transport market is our largest end market with sales driven by new aircraft production and aftermarket airline retrofit programs.
While this would typically result in the creation of an associated deferred tax asset, due to our cumulative three-year pre-tax loss, a valuation allowance was applied against the deferred tax asset.
However, beginning with the 2022 tax year, these costs are required to be capitalized for tax purposes and amortized over 5 years. While this would typically result in the creation of an associated deferred tax asset, due to our cumulative three-year pre-tax loss, a valuation allowance was applied against the deferred tax asset.
CONSOLIDATED RESULTS OF OPERATIONS, PERFORMANCE AND OUTLOOK (In thousands, except percentages, employees and per share data) 2022 2021 RESULTS OF OPERATIONS: Sales $ 534,894 $ 444,908 Gross Margin 13.4 % 14.7 % SG&A Expenses as a Percentage of Sales 19.0 % 22.3 % Net Gain on Sale of Facility $ — $ 5,014 Loss from Operations $ (30,044) $ (28,674) Operating Margin (5.6) % (6.4) % Net Gain on Sale of Businesses $ 11,284 $ 10,677 Other Expense, Net of Other Income $ 1,611 $ 2,159 Interest Expense, Net $ 9,422 $ 6,804 Effective Tax Rate (20.0) % 5.1 % Net Loss $ (35,747) $ (25,578) Net Loss Margin (6.7) % (5.7) % Diluted Loss Per Share $ (1.11) $ (0.82) Weighted Average Shares Outstanding – Diluted 32,164 31,061 OTHER YEAR-END DATA: Number of Employees 2,400 2,100 A discussion by segment can be found at “Segment Results of Operations and Outlook” in this MD&A.
Based on our quantitative assessments of our reporting units, we concluded that goodwill was not impaired in 2023, 2022 or 2021. 25 CONSOLIDATED RESULTS OF OPERATIONS AND PERFORMANCE (In thousands, except percentages, employees and per share data) 2023 2022 RESULTS OF OPERATIONS: Sales $ 689,206 $ 534,894 Gross Margin 17.5 % 13.4 % SG&A Expenses as a Percentage of Sales 18.5 % 19.0 % Loss from Operations $ (6,671) $ (30,044) Operating Margin (1.0) % (5.6) % Net Gain on Sale of Businesses $ 3,427 $ 11,284 Other (Income) Expense, Net $ (261) $ 1,611 Interest Expense, Net $ 23,328 $ 9,422 Effective Tax Rate (0.4) % (20.0) % Net Loss $ (26,421) $ (35,747) Net Loss Margin (3.8) % (6.7) % Diluted Loss Per Share $ (0.80) $ (1.11) Weighted Average Shares Outstanding – Diluted 33,104 32,164 OTHER YEAR-END DATA: Number of Employees 2,500 2,400 A discussion by segment can be found at “Segment Results of Operations” in this MD&A.
In addition, mandatory prepayment of a portion of excess cash flow, as defined by the Term Loan Facility, is payable towards the principle amount outstanding at the end of 2023. Any voluntary prepayments made are subject to a prepayment fee, as defined by the Term Loan Facility.
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. No such amounts are payable for the year ended December 31, 2023. Any voluntary prepayments made are subject to a prepayment fee, as defined by the Term Loan Facility.
The Term Loan Facility has an interest rate of SOFR plus 8.75% and is collateralized primarily by real estate, fixed assets and intellectual property.
The Term Loan Facility has an interest rate of SOFR plus 8.75% and is collateralized primarily by real estate, fixed assets and intellectual property. Amortization of the term loan principal has a monthly amortization rate of 0.833% until maturity, at which time the remaining outstanding balance is due.
Further, the Company is subject to excess cash flow repayment provisions, restrictions on additional indebtedness, share repurchases and dividend payments, and a limitation on capital expenditures.
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 excess cash flow repayment provisions, restrictions on 31 additional indebtedness, share repurchases and dividend payments, and a limitation on capital expenditures.
These estimates, assumptions and judgments are affected by management’s application of accounting policies, which are discussed in the Notes to Consolidated Financial Statements, Note 1 in Item 8, Financial Statements and Supplementary Data, of this report. The critical accounting policies have been reviewed with the Audit Committee of our Board of Directors.
The preparation of the Company’s financial statements requires management to make estimates, assumptions and judgments that affect the amounts reported. These estimates, assumptions and judgments are affected by management’s application of accounting policies, which are discussed in the Notes to Consolidated Financial Statements, Note 1 in Item 8, Financial Statements and Supplementary Data, of this report.
The grant benefit was recognized over the six-month performance period as a reduction to cost of products sold in proportion to the compensation expense that the award is intended to defray. During the years ended December 31, 2022 and 2021, the Company recognized $6.0 million and $8.7 million of the award, respectively.
Department of Transportation (“USDOT”) under the Aviation Manufacturing Jobs Protection Program (“AMJP”). The Company received $7.3 million and $7.4 million under the grant in 2022 and 2021, respectively. The grant benefit was recognized ratably over the six-month performance period as a reduction to Cost of Products Sold in proportion to the compensation expense that the award is intended to defray.
The Company’s four reporting units remaining with goodwill as of the first day of our fourth quarter were subject to the annual goodwill impairment test. Based on our quantitative assessments of our reporting units, we concluded that goodwill was not impaired in 2022 or 2021.
The Company’s four reporting units remaining with goodwill as of the first day of our fourth quarter were subject to the annual goodwill impairment test.
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 of which will be paid on June 19, 2023 and $0.9 million of which will be paid on the date that the financial statements and compliance certificate for the fiscal quarter of the Company ending on or about March 31, 2024 are required to be delivered under the Term Loan Facility.
The Company must pay a commitment fee under the Term Loan Facility of 5% of the total aggregate commitment, or $4.5 million, $1.8 million of which was paid on the closing date, $1.8 million of which was paid on June 19, 2023 and $0.9 million of which is due in the second quarter of 2024.
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 based upon our 2023 Outlook as described herein, 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 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 during 2023.
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.
Preliminarily, the Company expects the program to generate sales of $200 million over the next seven years. 28 CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS For further information on our contractual obligations and other commitments as of December 31, 2022 and estimated timing thereof, see the notes referenced below, in Item 8, Financial Statements and Supplementary Data, of this report.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS For further information on our contractual obligations and other commitments as of December 31, 2023 and estimated timing thereof, see the notes referenced below, in Item 8, Financial Statements and Supplementary Data, of this report. Long-term Debt and Interest Payments — Refer to Note 8, Long-Term Debt, in this report.
Supplemental Retirement Plan and Post Retirement Obligations — Anticipated payments related with the Company’s defined benefit plans are detailed in Note 13, Retirement Plans and Related Post Retirement Benefits in Item 8, Financial Statements and Supplementary Data, of this report.
Purchase Obligations — Purchase obligations are comprised of the Company’s commitments for goods and services in the normal course of business and amount to approximately $191.1 million payable over the next twelve months. 29 Supplemental Retirement Plan and Post Retirement Obligations — Anticipated payments related with the Company’s defined benefit plans are detailed in Note 13, Retirement Plans and Related Post Retirement Benefits in Item 8, Financial Statements and Supplementary Data, of this report.
Total scheduled principal payments of $4.5 million are payable in 2023 and as such, have been classified as current in the accompanying consolidated balance sheet as of December 31, 2022. The weighted-average interest rate on current maturities of long-debt is 13.60%.
Total scheduled principal payments of $9.0 million are payable in 2024 and as such, have been classified as current in the accompanying Consolidated Balance Sheets as of December 31, 2023. The interest rate on current maturities of long-term debt is variable at SOFR plus 8.75%, and was 14.2% at December 31, 2023.
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. DIVESTITURES On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment.
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. In November 2023, a non-core contract manufacturing customer reported within the Aerospace segment filed for bankruptcy under Chapter 11.
The Company expects its sales growth and reductions in working capital will provide sufficient cash flows to fund operations.
The Company expects its cash flow from operations will provide sufficient cash flows to fund operations.
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 balance will be classified as restricted cash in the accompanying consolidated balance sheets.
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 and any ending cash balances subject to the dominion arrangement collateralize the outstanding borrowings under the ABL Revolving Credit Facility.
The Test Systems segment has been investing in significant new development programs which are expected to result in more profitable business in the near future. 2021 Compared With 2020 For a comparison of Test Systems segment results for the years ended December 31, 2021 and 2020, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 4, 2022. 2023 Outlook for Test Systems Bookings for the Test Systems segment in 2022 were $86.4 million, for a book-to-bill ratio of 1.17:1 for the year.
The Test Systems segment expects to recognize $52.1 million of backlog as revenue in 2024. 2022 Compared With 2021 For a comparison of Test Systems segment results for the years ended December 31, 2022 and 2021, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 10, 2023.
As economic activity continues to recover, we 25 will continue to monitor the situation, assessing further possible implications on our operations, supply chain, liquidity, cash flow and customer orders.
Domestic air travel has recovered from the impact of the COVID-19 pandemic, and international travel utilizing primarily widebody aircraft is close to pre-pandemic levels. As economic activity continues to recover, we will continue to monitor the situation, assessing further possible implications on our operations, supply chain, liquidity, cash flow and customer orders.
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.
These include financial covenants pertaining to minimum trailing four-quarter EBITDA requirements, minimum liquidity requirements, 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.
In the commercial transport market, while many of our key long-term fundamentals remain intact, we continue to see near-term market pressure due to effects of the COVID-19 pandemic and certain supply chain challenges.
In the commercial transport market, while many of our key long-term fundamentals remain intact, we continue to see residual, though improving, near-term market pressure due to effects of certain supply chain challenges. We have experienced improvement throughout 2023 driven by the increased production rate of the 737 MAX and improved activity with our airline customers.
Revenue Recognition Astronics recognizes revenue when it transfers control of a promised good or service to a customer in an amount that reflects the consideration it expects to receive in exchange for the good or service. Our performance obligations are satisfied and control is transferred either at a point-in-time or over-time.
The critical accounting policies have been reviewed with the Audit Committee of our Board of Directors. Revenue Recognition Astronics recognizes revenue when it transfers control of a promised good or service to a customer in an amount that reflects the consideration it expects to receive in exchange for the good or service.
AEROSPACE SEGMENT (In thousands, except percentages) 2022 2021 Sales $ 461,196 $ 365,238 Operating Loss $ (1,883) $ (8,614) Operating Margin (0.4) % (2.4) % 2022 2021 Total Assets $ 481,416 $ 458,334 Backlog $ 477,660 $ 334,659 26 Sales by Market 2022 2021 Commercial Transport $ 314,564 $ 201,990 Military 54,534 70,312 General Aviation 63,395 56,673 Other 28,703 36,263 Total $ 461,196 $ 365,238 Sales by Product Line 2022 2021 Electrical Power & Motion $ 187,446 $ 141,746 Lighting & Safety 124,347 103,749 Avionics 97,234 64,901 Systems Certification 17,222 13,050 Structures 6,244 5,529 Other 28,703 36,263 Total $ 461,196 $ 365,238 2022 Compared With 2021 Aerospace segment sales increased $96.0 million, or 26.3%, to $461.2 million.
AEROSPACE SEGMENT (In thousands, except percentages) 2023 2022 Sales $ 604,830 $ 461,196 Operating Profit (Loss) $ 24,629 $ (1,883) Operating Margin 4.1 % (0.4) % 2023 2022 Total Assets $ 493,660 $ 481,416 Backlog $ 517,240 $ 477,660 27 Sales by Market 2023 2022 Commercial Transport $ 432,199 $ 314,564 Military 61,617 54,534 General Aviation 80,842 63,395 Other 30,172 28,703 Total $ 604,830 $ 461,196 Sales by Product Line 2023 2022 Electrical Power & Motion $ 268,049 $ 187,446 Lighting & Safety 157,434 124,347 Avionics 113,117 97,234 Systems Certification 26,255 17,222 Structures 9,803 6,244 Other 30,172 28,703 Total $ 604,830 $ 461,196 2023 Compared With 2022 Aerospace segment sales increased $143.6 million, or 31.1%, to $604.8 million.
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.
The main challenges that we continue to face include varying levels of supply chain pressures from the residual impacts of the COVID-19 pandemic, material availability and cost increases, labor availability and cost, and improving shareholder value through increasing profitability.
Long-term Debt and Interest Payments — Refer to Note 8, Long-Term Debt, in this report. The Company completed a financing transaction totaling $205 million subsequent to the year ending December 31, 2022, which refinanced its previous revolving credit facility that was scheduled to mature in November 2023.
The Company completed a financing transaction totaling $205 million on January 19, 2023, which refinanced its previous revolving credit facility that was scheduled to mature in November 2023.
Our ability to maintain sufficient liquidity and comply with financial debt covenants is highly dependent upon achieving expected operating results.
The Company may also utilize available capacity under the ABL Revolving Credit Facility and sales proceeds from the ATM Program. Our ability to maintain sufficient liquidity and comply with financial debt covenants is highly dependent upon achieving expected operating results.
During 2023, scheduled principal payments of $4.5 million are due under the Term Loan Facility.
Scheduled principal payments of $9.0 million are due under the Term Loan Facility during 2024. The Term Loan Facility required a commitment fee of $4.5 million, $0.9 million of which is due in the second quarter of 2024.
See Note 11 of the consolidated financial statements in Item 8, Financial Statements and Supplementary Data, of this report for additional information. • Recognition of approximately $2.6 million of 2021 U.S.
See Note 11 of the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report for additional information. • Recognition of approximately $2.6 million of 2022 U.S. R&D tax credits. Impact of the COVID-19 Pandemic Our business continues to face varying levels of supply chain pressures from the residual impacts of the COVID-19 pandemic.
R&D tax credits which were offset by the federal valuation allowance recognized during the year. 2021 Compared With 2020 For a comparison of our results of operations for the years ended December 31, 2021 and 2020, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 4, 2022.
See Part I, Item 1A, Risk Factors, for an additional discussion of risk related to supply chain disruptions. 2022 Compared With 2021 For a comparison of our results of operations for the years ended December 31, 2022 and 2021, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 10, 2023.
Most of our sales in this market are line-fit products driven by aircraft build rates although there are some aftermarket sales as well. We expect improvement in 2023 as build rates are expected to increase. Sales to the general aviation market include sales of lighting and safety products, avionics products, and electrical power and seat motion products.
We have seen notable improvement in the current year and expect that to continue into 2024 as build rates are expected to increase post-pandemic. Sales to the general aviation market include sales of lighting and safety products, avionics products, and electrical power and seat motion products.
The Company also was required to pay a commitment fee to the lenders in an amount equal to 0.40% on the undrawn portion of the Amended Facility. The Company amended its existing revolving credit facility on January 19, 2023 by entering into the Sixth Amended and Restated Credit Agreement (the “ABL Revolving Credit Facility”).
The Company amended the existing revolving credit facility on January 19, 2023 by entering into the Sixth Amended and Restated Credit Agreement (the “ABL Revolving Credit Facility”).
The new financing consists of a $90 million asset-based Term Loan Facility and a $115 million asset-based revolving credit facility. 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 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, if the ABL Revolving Credit Facility is extended beyond that date.
Margins remained under pressure in the quarter because of inflation and supply chain workarounds. We are passing on increased costs 24 where we can although it will take time to roll through sales. We are expecting improvement in pricing as well as reduction in certain input costs as we advance through 2023.
Research and development expenses increased $5.2 million due to higher innovation spend. Margins remained under pressure in the year because of inflation and supply chain workarounds. We are passing on increased costs where we can although it will take time to be reflected in sales.
Investing cash flows in 2022 were positively impacted by the receipt of $10.7 million and $11.3 million related to the calendar 2020 and 2021 earnouts, respectively, from the sale of the semiconductor business, offset by $7.7 million in capital expenditures.
Investing cash flows in 2023 were positively impacted by the receipt of $3.4 million related to the calendar 2022 earnout from the sales of the semiconductor business compared to the receipt of $10.7 million and $11.3 million related to the calendar 2020 and 2021 earnouts, respectively, in 2022. 30 Future requirements for PP&E depend on numerous factors, including expansion of existing product lines and introduction of new products.
Backlog in the Aerospace segment was $477.7 million at December 31, 2022, of which $402.4 million is expected to be recognized as revenue in 2023. Backlog in the Test Systems segment was $93.7 million at December 31, 2022. The Test Systems segment expects to recognize $49.0 million of backlog as revenue in 2023.
Backlog in the Test Systems segment was $75.0 million at December 31, 2023, compared to $93.7 million at December 31, 2022.
We expect to continue to evaluate acquisition opportunities in the future. 30 Financing Activities Cash used for financing activities totaled $1.4 million for 2022, as compared with cash used for financing activities of $7.5 million for 2021.
Management believes that our cash flow from operations and current borrowing arrangements will provide for these capital expenditures. We expect to continue to evaluate acquisition opportunities in the future. Financing Activities Cash provided by financing activities totaled $25.4 million for 2023, as compared with cash used for financing activities of $1.4 million for 2022.
Legal Reserves — Refer to Note 19, Legal Proceeding in Item 8, Financial Statements and Supplementary Data, of this report for management’s estimate of damages to be paid related to our ongoing litigation with Lufthansa Technik and timing thereof. 29 LIQUIDITY AND CAPITAL RESOURCES (In thousands) 2022 2021 CASH FLOW DATA: Net Cash Flows from: Operating Activities $ (28,312) $ (5,530) Investing Activities $ 14,386 $ 3,179 Financing Activities $ (1,412) $ (7,505) YEAR-END FINANCIAL POSITION: Working Capital (1) $ 213,682 $ 221,248 Indebtedness $ 164,000 $ 163,000 OTHER YEAR-END DATA: Capital Expenditures $ 7,675 $ 6,034 (1) Working capital is calculated as the difference between Current Assets and Current Liabilities.
LIQUIDITY AND CAPITAL RESOURCES (In thousands) 2023 2022 Cash Flow Data Net Cash Flows from: Operating Activities $ (23,950) $ (28,312) Investing Activities $ (4,106) $ 14,386 Financing Activities $ 25,435 $ (1,412) Year-end Financial Position Working Capital (1) $ 246,448 $ 213,682 Indebtedness $ 172,499 $ 164,000 Other Year-end Data Capital Expenditures $ 7,643 $ 7,675 (1) Working capital is calculated as the difference between Current Assets and Current Liabilities.
We believe that we will continue to have opportunities similar to past years with respect to this market. General Aviation Market The general aviation market has also been impacted by the pandemic with new aircraft build rates significantly lower than pre-pandemic levels.
We believe that we will continue to have opportunities similar to past years with respect to this market. General Aviation Market Sales to the general aviation market consist mostly of line-fit products driven by aircraft build rates although there are some aftermarket sales as well.
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. Beginning with the first quarter of 2024, the Company is subject to a minimum fixed charge coverage ratio of 1.10 to 1.00.
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.
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.
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. 22 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.
Selling, general and administrative (“SG&A”) expenses were $101.6 million compared with $99.1 million for the prior year period primarily due to increased wages and benefits. The current-year period reflects $3.1 million related to the settlement of a litigation claim, a customer accommodation dispute, and a lease termination settlement.
Selling, General and Administrative (“SG&A”) expenses were $127.5 million in 2023 compared with $101.6 million in the prior-year period primarily due to increased wages and benefits, an accounts receivable reserve charge of $7.5 million associated with the bankruptcy of a customer, a net increase of $7.9 million in litigation-related legal expenses and reserve adjustments, and a $2.8 million increase of incentive compensation expenses recorded in SG&A.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeA 10% change in the value of the U.S. dollar versus the Euros would have had a $0.1 million impact to 2022 net loss. Risk due to fluctuation in interest rates is a function of the Company’s floating rate debt obligations, which total approximately $164.0 million at December 31, 2022.
Biggest changeA 10% change in the value of the U.S. dollar versus the Euros would have had an immaterial impact to 2023 net loss. Risk due to fluctuation in interest rates is a function of the Company’s floating rate debt obligations, which total approximately $172.5 million as of December 31, 2023.
As we cannot anticipate the ultimate duration or scope of the Russia-Ukraine war and the COVID-19 pandemic, the ultimate financial impact to our results cannot be reasonably estimated, but could be material. 33
As we cannot anticipate the ultimate duration or scope of the Russia-Ukraine war and the residual effects of the COVID-19 pandemic, the ultimate financial impact to our results cannot be reasonably estimated, but could be material. 33
A change of 1% in interest rates of all variable rate debt would impact annual net loss by approximately $1.6 million, before income taxes.
A change of 1% in interest rates of all variable rate debt would impact annual net loss by approximately $1.7 million, before income taxes.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has limited exposure to fluctuation in foreign currency exchange rates to U.S. dollar, primarily in Canadian dollars and Euros currency. Approximately 91% of the Company’s consolidated sales are transacted in U.S. dollars. Net assets held in or measured in Canadian dollars amounted to $8.8 million at December 31, 2022.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has limited exposure to fluctuation in foreign currency exchange rates to U.S. dollar, primarily in Canadian dollars and Euros currency. Approximately 90% of the Company’s consolidated sales are transacted in U.S. dollars. Net assets held in or measured in Canadian dollars amounted to $11.1 million at December 31, 2023.
A 10% change in the value of the U.S. dollar versus the Canadian dollar would have had a $0.2 million impact to 2022 net loss. Net assets held in or measured in Euros amounted to $25.3 million at December 31, 2022.
A 10% change in the value of the U.S. dollar versus the Canadian dollar would have had an immaterial impact to 2023 net loss. Net assets held in or measured in Euros amounted to $24.8 million at December 31, 2023.

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