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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Astronics Corporation, through its subsidiaries, is a leading supplier of advanced technologies and products to the global aerospace and defense industries. Our products and services include advanced, high-performance electrical power generation and distribution systems, seat motion solutions, lighting and safety systems, avionics products, aircraft structures, systems certification, and automated test systems.

We have two reportable segments, Aerospace and Test Systems. Our Aerospace segment has principal operating facilities in the United States, Canada and France. Our Test Systems segment has principal operating facilities in the United States and the United Kingdom. We have engineering offices in Ukraine and India.

Our Aerospace segment designs and manufactures products for the global aerospace industry. Product lines include lighting and safety systems, electrical power generation, distribution and seat motion systems, aircraft structures, avionics products, systems certification, and other products. Our primary Aerospace customers are the airframe manufacturers (“OEM”) that build aircraft for the commercial transport, military and general aviation markets, suppliers to those OEMs, aircraft operators such as airlines, suppliers to the aircraft operators, and branches of the U.S. Department of Defense (“USDOD”). Our Test Systems segment designs, develops, manufactures and maintains automated test systems that support the aerospace and defense and mass transit industries as well as training and simulation devices for both commercial and military applications. In the Test Systems segment, Astronics’ products are sold to a global customer base including OEMs and prime government contractors for both electronics and military products.

Our strategy is to increase our value by developing technologies and capabilities, either internally or through acquisition, and using those capabilities to provide innovative solutions to our targeted markets where our technology can be beneficial.

Important factors affecting our growth and profitability are the rate at which new aircraft are produced, government funding and timing of awards of military programs, our ability to have our products designed into new aircraft, the rates at which aircraft owners, including commercial airlines, refurbish or install upgrades to their aircraft and supply chain and labor market pressures. New aircraft build rates and aircraft owners spending on upgrades and refurbishments is cyclical and dependent on the strength of the global economy. Once one of our products is designed into a new aircraft, the spare parts business associated thereto is also frequently retained by the Company. Future growth and profitability of the Test Systems business is dependent on developing and procuring new and follow-on business. The nature of our Test Systems business is such that it pursues large, often multi-year, projects. There can be significant periods of time between orders in this business, which may result in large fluctuations of sales and profit levels and backlog from period to period. Test Systems segment customers include the USDOD, prime contractors to the USDOD, mass transit operators and prime contractors to mass transit operators.

Each of the markets that we serve presents opportunities that we expect will provide growth for the Company over the long-term. We continue to look for opportunities in all of our markets to capitalize on our core competencies to expand our existing business and to grow through strategic acquisitions.

The main challenges that we continue to face include varying levels of supply chain pressures 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. Increasing profitability is dependent on many things, primarily sales growth, both acquired and organic, and the Company’s ability to pass cost increases along to customers and control operating expenses, and to identify means of creating improved productivity. Sales are driven by increased build rates for existing aircraft, market acceptance and economic success of new aircraft and our products, continued government funding of defense programs, the Company’s ability to obtain production contracts for parts we currently supply or have been selected to design and develop for new aircraft platforms and continually identifying and winning new business for our Test Systems segment.

Reduced aircraft build rates driven by a weak economy, aircraft groundings, tight credit markets, reduced air passenger travel, and an increasing supply of used aircraft on the market would likely result in reduced demand for our products, which will result in lower profits. Reduction of defense spending may result in fewer opportunities for us to compete, which could result in lower profits in the future. Many of our newer development programs are based on new and unproven technology and at the same time we are challenged to develop the technology on a schedule that is consistent with specific programs. Delays in delivery schedules and incremental costs resulting from supply chain and labor rate pressures have in the past resulted, and could in the future also result in, lower profits. We will continue to address these challenges by working to improve operating efficiencies and focusing on executing on the growth opportunities currently in front of us.

Our ABL Revolving Credit Facility 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, 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. Our ability to satisfy the tight financial covenants in our ABL Revolving Credit Facility and Term Loan Facility is expected to be challenging in 2024 and is an item that our management team continues to closely monitor. 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.

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. 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. During the years ended December 31, 2022 and 2021, the Company recognized $6.0 million and $8.7 million of the award, respectively.

We are monitoring the ongoing conflict between Russia and Ukraine and the related export controls and financial and economic sanctions imposed on certain industry sectors, including the aviation sector, and parties in Russia by the U.S., the U.K., the European Union and others. Although the conflict has not resulted in a direct material adverse impact on our business to date, the implications of the Russia and Ukraine conflict in the short-term and long-term are difficult to predict at this time. Factors such as increased energy costs, the availability of certain raw materials for aircraft manufacturers, embargoes on flights from Russian airlines, sanctions on Russian companies, and the stability of Ukrainian customers could impact the global economy and aviation sector.

In November 2023, a non-core contract manufacturing customer reported within the Aerospace segment filed for bankruptcy under Chapter 11. As a result, the Company recorded a full reserve of $7.5 million for outstanding accounts receivable and a $3.6 million reserve against dedicated inventory. The associated assets existed prior to 2023.

DIVESTITURES

On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment. The transaction included two elements of contingent earnouts. In 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 March 2022, the Company agreed with the earnout calculation for the calendar 2021 earnout for $11.3 million. The Company recorded the gain and received the payment in the first quarter of 2022. In March 2023, the Company agreed with the final earnout calculation for the calendar 2022 earnout for $3.4 million. The Company recorded the gain and received the payment in the first quarter of 2023. See further information in 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. 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. 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. 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

the year as aircraft utilization and load factors increase. International travel utilizing primarily widebody aircraft is close to pre-pandemic levels and we believe widebody aircraft production rates will continue to directionally match air traffic volumes.

Sales to the commercial transport market include sales of lighting and safety systems, electrical power and seat motion systems, aircraft structures, avionics products and systems certification. 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. This spending by the airlines is impacted by their profits, cash flow and available financing as well as competitive pressures between the airlines to improve the travel experience for their passengers. We expect that new aircraft will be equipped with more passenger and aircraft connectivity and in-seat power than previous generation aircraft which drives demand for our avionics and power products. This market has historically experienced strong growth from airlines installing in-seat passenger power systems on their existing and newly delivered aircraft. Our ability to maintain and grow sales to this market depends on our ability to maintain our technological advantages over our competitors and maintain our relationships with major in-flight entertainment suppliers and global airlines.

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. Risks are that overall spending may be reduced in the future, specific programs may be eliminated or that we fail to win new business through the competitive bid process. Astronics does not have significant reliance on any one program such that cancellation of a particular program will cause material financial loss. 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. 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. 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. We continue to see opportunities on new aircraft currently in the design phase to employ our lighting and safety, electrical power and avionics technologies in this market. 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.

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. Sales to the aerospace and defense market were $48.2 million in 2023. Sales to the mass transit market were $18.9 million and sales to other markets were $17.3 million in 2023.

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. 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.

CRITICAL ACCOUNTING ESTIMATES

Our financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. 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 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. Our performance obligations are satisfied and control is transferred either at a point-in-time or over-time. The majority of our revenue is recognized at a point-in-time when control is transferred, which is generally evidenced by the shipment or delivery of the product to the customer, a transfer of title, a transfer of the significant risks and rewards of ownership, and customer acceptance. 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. The Company recognizes revenue using an over time recognition model for these types of contracts.

We utilize the cost-to-cost method as a measure of progress for performance obligations that are satisfied over time as we believe this input method best represents the transfer of control to the customer. Under the cost-to-cost method, the extent of progress toward completion is measured based on the proportion of costs incurred to date to the total estimated costs at completion of the performance obligation. These projections require management to make numerous assumptions and estimates relating to items such as the complexity of design and related development costs, performance of subcontractors, availability and cost of materials, labor productivity and cost, overhead, capital costs, and manufacturing efficiency. We review our cost estimates on a periodic basis, or when circumstances change and warrant a modification to a previous estimate. Cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends and other economic projections.

See Note 2 to the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report for a further description of revenue recognition under ASC 606.

Reviews for Impairment of Goodwill

Our goodwill is the result of the excess of purchase price over net assets acquired from acquisitions. 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. The Test Systems operating segment is its own reporting unit while the other reporting units are one level below our Aerospace operating segment.

The Company tests goodwill at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

We use the discounted cash flow method to estimate the fair value of each of our reporting units. 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. If the carrying value of the reporting unit exceeds its fair value, goodwill is considered impaired and the impairment loss is recorded for the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill.

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 2023, 2022 or 2021.

CONSOLIDATED RESULTS OF OPERATIONS AND PERFORMANCE

(In thousands, except percentages, employees and per share data) 2023 2022

RESULTS OF OPERATIONS:

SG&A Expenses as a Percentage of Sales 18.5 % 19.0 %

Operating Margin (1.0) % (5.6) %

Net Gain on Sale of Businesses $ 3,427 $ 11,284

Other (Income) Expense, Net $ (261) $ 1,611

Effective Tax Rate (0.4) % (20.0) %

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:

A discussion by segment can be found at “Segment Results of Operations” in this MD&A.

CONSOLIDATED OVERVIEW OF OPERATIONS

2023 Compared With 2022

Consolidated sales were up $154.3 million, or 28.8%, to $689.2 million compared to the prior year. Aerospace sales increased $143.6 million, or 31.1%, driven by increased demand across our range of aerospace product lines. Test System sales increased $10.7 million, due primarily to the reversal of a $5.8 million deferred revenue liability assumed with an acquisition and associated with a customer program which is no longer expected to occur, and higher radio test product revenue.

Consolidated Cost of Products Sold in 2023 was $568.4 million, compared with $463.4 million in the prior year. The increase was primarily due to higher volume as well a $3.6 million inventory reserve charge associated with the bankruptcy of a customer and $1.4 million in non-cash stock bonuses reinstated in the current year. The prior-year period benefited from the AMJP Program grant which provided a $6.0 million offset to Cost of Products Sold. 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. We are expecting continued improvement in pricing as well as stabilization in certain input costs as we advance into 2024.

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. The prior-year period reflects $2.6 million in expense related to a customer accommodation dispute and a lease termination settlement.

In 2023, the Company recognized a final earnout of $3.4 million for the 2019 sale of its semiconductor test business, compared with $11.3 million recognized in the prior year. Other Income in 2023 included $1.8 million associated with the reversal of a liability related to an equity investment.

Interest expense was $23.3 million in the current year, compared with $9.4 million in the prior year, primarily driven by higher interest rates on credit facilities entered into in January 2023.

Consolidated net loss was $26.4 million, or $0.80 per diluted share, compared with net loss of $35.7 million, or $1.11 per diluted share, in the prior year.

At December 31, 2023, our consolidated backlog was $592.3 million. At December 31, 2022, our backlog was $571.4 million. Backlog in the Aerospace segment was $517.2 million at December 31, 2023. Backlog in the Test Systems segment was $75.0 million at December 31, 2023.

Income Taxes

Our effective tax rates for 2023 and 2022 were (0.4)% and (20.0)%, respectively. In the past, research and development costs were deducted as incurred. 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. 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 $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. 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. 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.

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.

SEGMENT RESULTS OF OPERATIONS

Operating profit (loss), as presented below, is sales less cost of products sold and other operating expenses, excluding interest expense, other corporate expenses and other non-operating sales and expenses. Cost of products sold and other operating expenses are directly identifiable to the respective segment. Operating profit (loss) is reconciled to loss before income taxes in Note 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.

AEROSPACE SEGMENT

(In thousands, except percentages) 2023 2022

Operating Margin 4.1 % (0.4) %

2023 Compared With 2022

Aerospace segment sales increased $143.6 million, or 31.1%, to $604.8 million. The improvement was driven by a 37.4%, or $117.6 million, increase in commercial transport sales. Sales to this market were $432.2 million, or 62.8% of consolidated sales in 2023, compared with $314.6 million, or 58.8% of consolidated sales in 2022. Higher airline spending and increasing OEM build rates drove the increased demand.

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.

Military Aircraft sales increased $7.1 million, or 13.0%, to $61.6 million from increased production of higher sales of lighting and safety and avionics products.

Aerospace segment operating profit improved to $24.6 million compared with an operating loss of $1.9 million last year, which included an Aviation Manufacturing Jobs Protection (“AMJP”) Program grant offset to Cost of Products Sold of $6.0 million. Operating margin expansion reflects the leverage gained on higher volume, partially offset by the $11.1 million in charges related to the customer bankruptcy, an increase in litigation-related legal expenses and reserve adjustments of $2.9 million, and an increase in incentive compensation expense of $2.8 million.

Aerospace bookings in 2023 were $664.3 million, for a book-to-bill ratio of 1.10:1. The book-to-bill ratio is calculated as total orders received during the period compared with total revenue recognized during the period. The Aerospace segment’s backlog at December 31, 2023 was $517.2 million, compared to $477.7 million at December 31, 2022. Approximately $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.

TEST SYSTEMS SEGMENT

(In thousands, except percentages) 2023 2022

Operating Margin (10.4) % (11.0) %

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.

Test Systems operating loss was $8.7 million compared with operating loss of $8.1 million in 2022. Absent the non-operating sales adjustment resulting from the reversal of the deferred revenue liability, Test Systems operating loss for the current period was $14.5 million and continued to be negatively affected by mix and under absorption of fixed costs due to volume, a $5.0 million increase in litigation-related legal expenses, and $0.7 million of non-cash bonuses. 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.

Bookings for the Test Systems segment in 2023 were $59.9 million, for a book-to-bill ratio of 0.76:1 for the year. Backlog in the Test Systems segment was $75.0 million at December 31, 2023, compared to $93.7 million at December 31, 2022. 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.

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. 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. The new financing consists of a $90 million asset-based Term Loan Facility and a $115 million asset-based revolving credit facility, which was later amended to temporarily increase the limit to $120 million until January 31, 2024 and then returning to the original $115 million. 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 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. 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. 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. 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.

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.

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.

Lease Obligations — Refer to Note 10, Leases in Item 8, Financial Statements and Supplementary Data, of this report for details on obligations and timing of expected future lease payments, including a five-year maturity schedule.

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.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Data

Net Cash Flows from:

Year-end Financial Position

Other Year-end Data

(1)Working capital is calculated as the difference between Current Assets and Current Liabilities.

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. 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. Cash flow from operating activities improved compared with 2022 primarily related to improvement in our financial results, coupled with accounts receivable and inventory using less cash as supply chain challenges have improved, partially offset by increased outflows related to accounts payable. The $3.4 million and $11.3 million earnouts in 2023 and 2022, respectively, from the sale of the semiconductor business are treated as investing activities and thus are shown as non-cash gains removed from the calculation of cash flow from operations. Additional non-cash items in 2023 include $12.6 million incremental provisions for inventory and receivables, primarily the result of the customer bankruptcy previously discussed, and a $5.8 million deferred liability recovery. Operating cash flows in 2022 benefited from the receipt of income tax refunds and AMJP grant proceeds.

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. 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. Our Test Systems segment sales depends in part on capital expenditures of the aerospace and defense industry which, in turn, depend on current and future demand for those products. A reduction in demand for our customers’ products would adversely affect our operating results and cash flows.

Investing Activities

Cash used for investing activities in 2023 was $4.1 million compared to $14.4 million cash provided by investing activities in 2022. 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.

Future requirements for PP&E depend on numerous factors, including expansion of existing product lines and introduction of new products. 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. The Company received proceeds from our at-the-market equity offering program (the “ATM Program”) of $21.3 million in 2023. Additionally, the Company made net borrowings under our credit facilities of $8.5 million in 2023 compared with net repayments of $1.0 million in 2022, partially offset by an increase in costs associated with amending and refinancing our credit facilities.

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 ABL Revolving Credit Facility set the maximum aggregate amount that the Company can borrow under the revolving credit line at $115 million, with borrowings subject to a borrowing base determined primarily by certain domestic inventory and accounts receivable. The maturity date of borrowings under the ABL Revolving Credit Facility is January 19, 2026. Under the terms of the ABL Revolving Credit Facility, the Company pays interest on the unpaid principal amount of the facility at a rate equal to SOFR (which is required to be at least 1.00%) plus 2.25% to 2.75%. The Company 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.

On June 28, 2023, the Company amended the ABL Revolving Credit Facility, temporarily increasing the maximum aggregate amount that the Company can borrow under the revolving credit line by $5 million from $115 million to $120 million until October 31, 2023, at which time the limit was to return to $115 million. On October 31, 2023, the Company executed a second amendment to extend the temporary limit of $120 million until January 31, 2024 at which time the limit returned to $115 million. 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. Eligible cash receipts that have not yet been applied to outstanding debt balances are classified as restricted cash in the accompanying Consolidated Balance Sheets. The Company is also required to maintain minimum liquidity of $20 million through the date of delivery of the compliance certificate for the quarter ended March 31, 2024, and $10 million thereafter. On December 31, 2023, there was $87.0 million outstanding on the ABL Revolving Credit Facility and there remained $32.7 million available, net of outstanding letters of credit (though subject to the minimum liquidity requirement).

The Company also entered into a $90 million asset-based Term Loan Facility on January 19, 2023. The Term Loan Facility is secured primarily by fixed assets, real estate and intellectual property. The maturity date of the Term Loan Facility is the earlier of the stated maturity date of the ABL Revolving Credit Facility or January 19, 2027, if the ABL Revolving Credit Facility is extended beyond that date. The Company pays interest under the Term Loan Facility at a rate equal to SOFR (which is required to be at least 2.50%) plus 8.75%. The Company 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.

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. 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. The remaining balance of $76.5 million as of December 31, 2023, is recorded as long-term in the accompanying Consolidated Balance Sheets.

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. The non-cash accounts receivable reserve associated with the customer bankruptcy recorded in 2023 was not required to be included in the calculation of EBITDA pursuant to our ABL Revolving Credit Facility and 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. 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

additional indebtedness, share repurchases and dividend payments, and a limitation on capital expenditures. The Company was in compliance with debt covenants under the ABL Revolving Credit Facility and Term Loan Facility as of and for the year ended December 31, 2023. The Company was in compliance with debt covenants under the ABL Revolving Credit Facility and Term Loan Facility as of and for the year ended December 31, 2023.

The Company incurred $8.8 million in incremental debt issuance costs related to the new facilities, allocated between the ABL Revolving Credit Facility and the Term Loan Facility. All costs are amortized to interest expense over the term of the respective agreement. Unamortized deferred debt issuance costs associated with the ABL Revolving Credit Facility ($2.0 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.

Certain of the Company’s subsidiaries are borrowers or guarantors under the ABL Revolving Credit Facility and the Term Loan Facility.

In the event of voluntary or involuntary bankruptcy of the Company or any subsidiary, all unpaid principal and other amounts owing under the credit facilities automatically become due and payable. Other events of default, such as failure to make payments as they become due and breach of financial and other covenants, change of control, cross default under other material debt agreements, and a going concern qualification for any reason other than loan maturity date give the agent the option to declare all such amounts immediately due and payable.

On June 5, 2023, the Company filed a shelf registration statement on Form S-3 with the SEC, which allows us to issue shares of common stock, preferred stock, warrants, subscription rights, purchase contracts and debt securities in one or more offerings up to an aggregate offering price of $150 million and on terms to be determined at the time of the offering. On August 8, 2023, the Company initiated an at-the-market equity offering program (the “ATM Program”) for the sale from time to time of shares of the Company’s common stock, par value $0.01 per share having an aggregate offering price of up to $30 million. Shares of Common Stock under the ATM Program are offered using Wells Fargo Securities, LLC and HSBC Securities (USA) Inc., as sales agents (the “Sales Agents” and each a “Sales Agent”), pursuant to the equity distribution agreement, dated August 8, 2023, by and among the Company and the Sales Agents.

During the year ended December 31, 2023, the Company sold 1,334,228 shares of our common stock under the ATM Program, generating aggregate net proceeds of $21.3 million after deducting related expenses. The Company currently is obligated to use the net proceeds from any sale of shares of common stock pursuant to the ATM Program to pay down the outstanding principal amount of, and any unpaid interest on, the ABL Revolving Credit Facility. However, any principal amount paid down on our ABL Revolving Credit Facility using the proceeds of the ATM Program will be, subject to compliance with the requirements and conditions set forth in the ABL Revolving Credit Facility, available to be reborrowed by the Company and used for, among other items, working capital and general corporate purposes. If the outstanding principal amount balance of the ABL Revolving Credit Facility has been reduced to zero, then the Company intends to use the net proceeds of the ATM Program for general corporate purposes. As of December 31, 2023, the Company had remaining capacity under the ATM Program to sell shares of common stock having an aggregate offering price up to approximately $8.2 million.

Cash on hand at the end of the year was $11.3 million. Net debt was $161.2 million, compared with $150.2 million at the end of 2022.

The Company expects its cash flow from operations will provide sufficient cash flows to fund operations. However, the Company may also evaluate various actions and alternatives to enhance its profitability and cash generation from operating activities, which could include manufacturing efficiency initiatives, cost-reduction measures, working with vendors and suppliers to reduce lead times and expedite shipment of critical components, and working with customers to expedite receivable collections. 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. Failure to achieve expected operating results could have a material adverse effect on our liquidity, our ability to obtain financing or access our existing financing, and our operations in the future and could allow our debt holders to demand payment of all outstanding amounts. Refer to Item 1A, Risk Factors, for further discussion.

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. 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 2024 Proxy Statement which will be filed with the SEC within 120 days after the end of the Company’s 2023 fiscal year.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1 of the Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this report.

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 an immaterial impact to 2023 net loss. Net assets held in or measured in Euros amounted to $24.8 million at December 31, 2023. A 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. 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.

As disclosed elsewhere in this report, the future impacts of the Russia and Ukraine conflict and the COVID-19 pandemic and their residual effects, including economic uncertainty, inflationary environment and disruption within the global supply chain, labor markets and aerospace industry, on our business remain uncertain. 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.

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Astronics Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Astronics Corporation (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 4, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Goodwill

Revenue Recognition

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1992.

Buffalo, New York

March 4, 2024

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023 based upon the framework in Internal Control – Integrated Framework originally issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting is effective as of December 31, 2023.

Ernst & Young LLP, independent registered public accounting firm, has audited our Consolidated Financial Statements included in this Annual Report on Form 10-K and, as part of their audit, has issued their report, included herein, on the effectiveness of our internal control over financial reporting.

By: /s/ Peter J. Gundermann March 4, 2024

Peter J. Gundermann

President & Chief Executive Officer

(Principal Executive Officer)

/s/ David C. Burney March 4, 2024

David C. Burney

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Astronics Corporation

Opinion on Internal Control Over Financial Reporting

We have audited Astronics Corporation’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Astronics Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) and our report dated March 4, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Buffalo, New York

March 4, 2024

ASTRONICS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended December 31,

Net Gain on Sale of Facility — — 5,014

Provision for (Benefit from) Income Taxes 110 5,954 (1,382)

Basic Loss Per Share $ (0.80) $ (1.11) $ (0.82)

Diluted Loss Per Share $ (0.80) $ (1.11) $ (0.82)

See notes to Consolidated Financial Statements.

ASTRONICS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Year Ended December 31,

Other Comprehensive Income:

Foreign Currency Translation Adjustments 984 (1,928) (939)

Retirement Liability Adjustment – Net of Tax (884) 6,897 2,894

See notes to Consolidated Financial Statements.

ASTRONICS CORPORATION

CONSOLIDATED BALANCE SHEETS

December 31,

(In thousands, except share and per share data) 2023 2022

ASSETS

Current Assets:

Restricted Cash 6,557 —

Prepaid Expenses and Other Current Assets 14,560 15,743

Property, Plant and Equipment, Net of Accumulated Depreciation 85,436 90,658

Intangible Assets, Net of Accumulated Amortization 65,420 79,277

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:

Current Maturities of Long-term Debt $ 8,996 $ 4,500

Accrued Payroll and Employee Benefits 22,038 15,588

Current Operating Lease Liabilities 5,069 4,441

Customer Advanced Payments and Deferred Revenue 22,029 32,567

Long-term Operating Lease Liabilities 24,376 9,942

Shareholders’ Equity:

Accumulated Other Comprehensive Loss (9,426) (9,526)

Total Liabilities and Shareholders’ Equity $ 633,792 $ 615,031

See notes to Consolidated Financial Statements.

ASTRONICS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) Year Ended December 31,

Adjustments to Reconcile Net Loss to Cash Flows from Operating Activities:

Non-cash Items:

Amortization of Deferred Financing Fees 3,023 — —

Provisions for Non-Cash Losses on Inventory and Receivables 16,003 3,415 3,942

Deferred Tax Expense (Benefit) 146 19 (441)

Net Gain on Sales of Assets — — (5,083)

Contingent Consideration Liability Fair Value Adjustment — — (2,200)

Non-cash Accrued Stock Bonus Expense 4,249 — —

Non-cash Litigation Provision Adjustment (1,305) 500 8,374

Non-cash Deferred Liability Recovery (5,824) — —

Changes in Operating Assets and Liabilities:

Customer Advanced Payments and Deferred Revenue (4,835) 5,264 (235)

Supplemental Retirement Plan Liabilities (408) (405) (404)

Cash Flows from Investing Activities

ASTRONICS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(In thousands) Year Ended December 31,

Stock Award and Employee Stock Purchase Plan (“ESPP”) activity 2,476 97 3,396

Proceeds from At-the-Market (“ATM”) Stock Sales 21,269 — —

Finance Lease Principal Payments (47) (93) (901)

Effect of Exchange Rates on Cash 156 (641) (799)

Supplemental Disclosure of Cash Flow Information

See notes to Consolidated Financial Statements.

ASTRONICS CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Year Ended December 31,

Common Stock

Issuance of Common Stock Through At-the-Market Offering 14 — —

Net Exercise of Stock Options, including ESPP 4 — 5

Net Issuance of Common Stock for Restricted Stock Units (“RSUs”) 1 1 1

Class B Stock Converted to Common Stock 4 1 5

Convertible Class B Stock

Beginning of Year $ 63 $ 64 $ 69

Class B Stock Converted to Common Stock (4) (1) (5)

Additional Paid in Capital

Issuance of Common Stock Through ATM Offering, Net of Offering Costs 21,246 — —

Tax Withholding Related to Issuance of RSUs (641) (304) (179)

Accumulated Comprehensive Loss

Foreign Currency Translation Adjustments 984 (1,928) (939)

Retirement Liability Adjustment – Net of Taxes (884) 6,897 2,894

Retained Earnings

Reissuance of Treasury Shares for 401K Contribution (4,186) (11,118) —

Treasury Stock

See notes to Consolidated Financial Statements.

ASTRONICS CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY, CONTINUED

Year Ended December 31,

Common Stock

Issuance of Common Stock Through ATM Offering 1,334 — —

Net Issuance from Exercise of Stock Options, including ESPP 437 20 485

Net Issuance of Common Stock for RSUs 147 106 70

Class B Stock Converted to Common Stock 362 85 531

Convertible Class B Stock

Net Issuance of Restricted Stock — — 4

Net Issuance from Exercise of Stock Options — 24 25

Class B Stock Converted to Common Stock (362) (85) (531)

Treasury Stock

Shares Issued to Fund 401K Obligation (322) (653) —

See notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND PRACTICES

Description of the Business

Astronics Corporation (“Astronics” or the “Company”) is a leading provider of advanced technologies to the global aerospace, defense, and electronics industries. Our products and services include advanced, high-performance electrical power generation, distribution and seat motion systems, lighting and safety systems, avionics products, systems and certification, aircraft structures and automated test systems.

We have principal operations in the United States (“U.S.”), Canada, France, and England, as well as engineering offices in Ukraine and India.

The Company has two reportable segments, Aerospace and Test Systems. The Aerospace segment designs and manufactures products for the global aerospace and defense industry. Our Test Systems segment designs, develops, manufactures and maintains automated test systems that support the aerospace and defense, communications and mass transit industries as well as training and simulation devices for both commercial and military applications.

See Note 21 for details of our divestiture related activities in 2023, 2022 and 2021. There was no acquisition activity in 2023, 2022 or 2021.

Impact of the COVID-19 Pandemic

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. 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, primarily during 2021 with an immaterial amount recognized during 2022.

The following table presents the COVID-19 related government assistance, including AMJP, recorded during the years ended December 31, 2023, 2022 and 2021:

Year Ended December 31,

Reduction in Cost of Products Sold $ — $ 6,062 $ 10,682

Reduction in Selling, General and Administrative Expenses — 11 228

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated.

The Company accounts for its acquisitions under ASC Topic 805, Business Combinations and Reorganizations (“ASC Topic 805”). ASC Topic 805 provides guidance on how the acquirer recognizes and measures the consideration transferred, identifiable assets acquired, liabilities assumed, non-controlling interests, and goodwill acquired in a business combination. ASC Topic 805 also expands required disclosures surrounding the nature and financial effects of business combinations. There were no acquisitions in 2023, 2022 or 2021.

Cost of Products Sold, Research and Development and Selling, General and Administrative Expenses

Cost of Products Sold includes the costs to manufacture products such as direct materials and labor and manufacturing overhead as well as all engineering and developmental costs. The Company is engaged in a variety of research and development activities directed to the substantial improvement or new application of the Company’s existing technologies. Research and development costs are expensed as incurred and include salaries, benefits, consulting, material costs and depreciation. Research and development expenses amounted to $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. SG&A expenses include costs primarily related to our sales, marketing and administrative departments. Interest expense is shown net of interest income. Interest income was insignificant for the years ended December 31, 2023, 2022 and 2021.

Shipping and Handling

Shipping and handling costs are included in Cost of Products Sold.

Equity-Based Compensation

The Company accounts for its stock options following Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation (“ASC Topic 718”). ASC Topic 718 requires all equity-based payments to employees, including grants of employee stock options and restricted stock units (“RSUs”), to be recognized in the statement of earnings based on the grant date fair value of the award. For awards with graded vesting, the Company uses a straight-line method of attributing the value of stock-based compensation expense, subject to minimum levels of expense, based on vesting. The Company accounts for forfeitures as they occur.

Under ASC Topic 718, stock compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Equity-based compensation expense is included in SG&A Expenses.

Cash and Cash Equivalents

All highly liquid instruments with a maturity of three months or less at the time of purchase are considered cash equivalents.

Restricted Cash

Under the provisions of the ABL Revolving Credit Facility (as defined and discussed below in Note 8), the Company has a cash dominion arrangement with the banking institution for its accounts within the United States whereby daily cash receipts are contractually utilized to pay down outstanding balances on the ABL Revolving Credit Facility. Account balances that have not yet been applied to the ABL Revolving Credit Facility are classified as restricted cash in the accompanying Consolidated Balance Sheets.The following table provides a reconciliation of cash and restricted cash included in Consolidated Balance Sheets to the amounts included in the Consolidated Statements of Cash Flows.

December 31,

Restricted Cash 6,557 —

Accounts Receivable and Allowance for Estimated Credit Losses

Accounts receivable are composed of trade and contract receivables recorded at either the invoiced amount or costs in excess of billings, are expected to be collected within one year, and do not bear interest. The Company records a valuation allowance to account for estimated credit losses. The estimate for credit losses is based on the Company’s assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as the age of the receivable balances, historical experience, credit quality, current economic conditions, and reasonable and supportable forecasts of future economic conditions that may affect a customer’s ability to pay. Balances are written off when determined to be uncollectible.

Although the Company has historically not experienced significant credit losses, the Company’s exposure to credit losses may increase if its customers are adversely affected by global economic recessions, industry conditions, or other customer-specific factors.

Inventories

We record our inventories at the lower of cost or net realizable value. We determine the cost basis of our inventory on a first-in, first-out or weighted average basis using a standard cost methodology that approximates actual cost. The Company records reserves to provide for excess, slow moving or obsolete inventory. In determining the appropriate reserve, the Company considers the age of inventory on hand, the overall inventory levels in relation to forecasted demands as well as reserving for specifically identified inventory that the Company believes is no longer salable or whose value has diminished.

Cloud Computing Arrangements

The Company incurs costs to implement cloud computing arrangements that are hosted by third party vendors. Implementation costs associated with cloud computing arrangements are capitalized when incurred during the application development phase. Amortization is calculated on a straight-line basis over the contractual term of the cloud computing arrangement. Capitalized amounts related to such arrangements are recorded within Other Current Assets and other non-current assets in the Consolidated Balance Sheets and were insignificant as of December 31, 2023 and December 31, 2022.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost less accumulated depreciation. Depreciation of property, plant and equipment (“PP&E”) is computed using the straight-line method for financial reporting purposes and using accelerated methods for income tax purposes. Estimated useful lives of the assets are as follows: buildings, 25-40 years; and machinery and equipment, 4-10 years. Leased buildings and associated leasehold improvements are amortized over the shorter of the terms of the lease or the estimated useful lives of the assets, with the amortization of such assets included within depreciation expense.

The cost of properties sold or otherwise disposed of and the accumulated depreciation thereon are eliminated from the accounts and the resulting gain or loss, as well as maintenance and repair expenses, is reflected within operating income. Replacements and improvements are capitalized.

Depreciation expense was approximately $12.2 million, $12.0 million and $12.7 million in 2023, 2022 and 2021, respectively.

Deferred Financing Costs

The Company incurs debt issuance costs in connection with amending or entering into new credit facilities. These costs are amortized as an adjustment to interest expense over term of the credit facility on a straight-line basis, which approximates the effective interest method. Debt issuance amortization expense was approximately $3.0 million, $0.8 million and $0.4 million in 2023, 2022 and 2021, respectively.

On January 19, 2023, the Company completed a financing transaction, which refinanced its previous revolving credit facility which was scheduled to mature in November 2023. The new financing consists of a $90 million asset-based term loan (the “Term Loan Facility”) and a $115 million asset-based revolving credit facility (the “ABL Revolving Credit Facility”). The Company incurred $8.8 million in debt issuance costs related to the new facilities, allocated between the ABL Revolving Credit Facility and the Term Loan Facility. 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. The unamortized balance of deferred financing costs on our previous credit facility of $3.2 million is recorded within Other Assets on the Consolidated Balance Sheet at December 31, 2022.

Long-Lived Assets

Long-lived assets to be held and used are initially recorded at cost. The carrying value of these assets is evaluated for recoverability whenever adverse effects or changes in circumstances indicate that the carrying amount may not be recoverable. Impairments are recognized if future undiscounted cash flows from operations are not expected to be sufficient to recover long-lived assets. The carrying amounts are then reduced to fair value, which is typically determined by using a discounted cash flow model.

Assets held for sale are to be reported at lower of its carrying amount or fair value less cost to sell. Judgment is required in estimating the sales price of assets held for sale and the time required to sell the assets. These estimates are based upon available market data and operating cash flows of the assets held for sale. During the fourth quarter of 2021, we sold a facility resulting in a gain of $5.0 million. Refer to Note 21.

Goodwill

We may elect to perform a qualitative assessment that considers economic, industry and company-specific factors for all or selected reporting units. If, after completing the assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we proceed to a quantitative test. We may also elect to perform a quantitative test instead of a qualitative test for any or all of our reporting units.

Quantitative testing requires a comparison of the fair value of each reporting unit to its carrying value. We use the discounted cash flow method to estimate the fair value of our reporting units. The discounted cash flow method incorporates various assumptions, the most significant being projected sales growth rates, operating margins and cash flows, the terminal growth rate and the weighted average cost of capital. If the carrying value of the reporting unit exceeds its fair value, goodwill impairment is measured as the amount by which the reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill.

The 2023, 2022 and 2021 assessments indicated no impairment to the carrying value of goodwill in any of the Company’s reporting units and no impairment charges were recognized.

Intangible Assets

The estimated fair values of acquired intangibles are generally determined based upon future economic benefits such as earnings and cash flows. Acquired identifiable intangible assets are recorded at fair value and are amortized over their estimated useful lives. Acquired intangible assets with an indefinite life are not amortized, but are reviewed for impairment at least annually or more frequently whenever events or changes in circumstances indicate that the carrying amounts of those assets are below their estimated fair values. Impairment is tested under ASC Topic 350, Intangibles - Goodwill and Other, as amended by Accounting Standards Update (“ASU”) 2012-2.

Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and long-term debt. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. The Company does not hold or issue financial instruments for trading purposes. Due to their short-term nature, the carrying values of cash and equivalents, restricted cash, accounts receivable and accounts payable approximate fair value. The carrying value of the Company’s variable rate long-term debt instruments also approximates fair value due to the variable rate feature of these instruments.

From time to time, the Company makes long-term, strategic equity investments in companies to promote business and strategic objectives. These investments as classified within other assets in the Consolidated Balance Sheets. For investments requiring equity method accounting, we recognize our share of the investee’s earnings or losses within Other Expense, Net of Other Income in the Consolidated Statements of Operations. For investments not requiring equity method accounting, if the investment has no readily determinable fair value, we have elected the practicability exception of ASU 2016-01, under which the investment is measured at cost, less impairment, plus or minus observable price changes from orderly transactions of an identical or similar investment of the same issuer.

We recognized income of $1.8 million associated with the reversal of a liability related to an equity investment, as we will no longer be required to make an associated payment. This amount is included in Other Expense, Net of Other Income in the Consolidated Statement of Operations as of December 31, 2023. Our ownership percentage in this company was diluted during 2023, thus our equity investment was converted to the cost method.

Deferred Tax Asset Valuation Allowance

The Company records a valuation allowance against the deferred tax assets if and to the extent it is more likely than not that the Company will not recover the deferred tax assets. In evaluating the need for a valuation allowance, the Company weighs all relevant positive and negative evidence, and considers among other factors, historical financial performance, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, and tax planning strategies. After considering the losses in recent periods and cumulative pre-tax losses in the three-year period ending with the current year, the Company determined that projections of future taxable income could not be relied upon as a source of income to realize its deferred tax assets. However, the Company is relying on a significant portion of its existing deferred tax liabilities for the realizability of deferred tax assets. As a result, the Company has valuation allowances against its deferred tax assets of

approximately $65.6 million, $57.4 million, and $43.5 million during the years ended December 31, 2023, 2022 and 2021, respectively, for the portion of deferred tax asset not realizable by the Company’s existing deferred tax liabilities.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of sales and expenses during the reporting periods in the financial statements and accompanying notes. Actual results could differ from those estimates.

Foreign Currency Translation

The Company accounts for its foreign currency translation in accordance with ASC Topic 830, Foreign Currency Translation. The aggregate transaction gains and losses included in operations were insignificant in 2023, 2022 and 2021.

Dividends

The Company has not paid any cash dividends in the three-year period ended December 31, 2023.

Loss Contingencies

Loss contingencies may from time to time arise from situations such as claims and other legal actions. Loss contingencies are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. In all other instances, legal fees are expensed as incurred. Disclosure is required when there is a reasonable possibility that the ultimate loss will exceed the recorded provision. Contingent liabilities are often resolved over long time periods. In recording liabilities for probable losses, management is required to make estimates and judgments regarding the amount or range of the probable loss. Management continually assesses the adequacy of estimated loss contingencies and, if necessary, adjusts the amounts recorded as better information becomes known.

Newly Adopted and Recent Accounting Pronouncements

Recent Accounting Pronouncements Not Yet Adopted

Standard Description Financial Statement Effect or Other Significant Matters

We consider the applicability and impact of all ASUs. ASUs not listed above were assessed and determined to be either not applicable or had or are expected to have minimal impact on our financial statements and related disclosures.

NOTE 2 — REVENUE

Revenue is recognized when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration the Company expects to be entitled in exchange for transferring those products or services. Sales shown on the Company’s Consolidated Statements of Operations are from contracts with customers.

Payment terms and conditions vary by contract, although terms generally include a requirement of payment within a range from 30 to 90 days after the performance obligation has been satisfied; or in certain cases, up-front deposits. In circumstances where the timing of revenue recognition differs from the timing of receipt of consideration, the Company has determined that the Company’s contracts generally do not include a significant financing component. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from sales.

The Company recognizes an asset for the incremental, material costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year and the costs are expected to be recovered. These incremental costs include, but are not limited to, sales commissions incurred to obtain a contract with a customer. The Company has elected the practical expedient available under ASC 340-40-25-4 to immediately expense the incremental cost of obtaining a contract when the expected benefit of those costs is less than one year. As of December 31, 2023 and 2022, the Company did not have material incremental costs on any open contracts with an original expected duration of greater than one year.

The Company recognizes an asset for certain, material costs to fulfill a contract if it is determined that the costs relate directly to a contract or an anticipated contract that can be specifically identified, generate or enhance resources that will be used in satisfying performance obligations in the future, and are expected to be recovered. Such costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods to which the asset relates. Start-up costs are expensed as incurred. Capitalized fulfillment costs are included in Inventories in the accompanying Consolidated Balance Sheets. Should

future orders not materialize or it is determined the costs are no longer probable of recovery, the capitalized costs are written off. The Company has capitalized $4.7 million and $2.5 million of costs as of December 31, 2023 and 2022, respectively.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts which are, therefore, not distinct. Thus, the contract’s transaction price is the revenue recognized when or as that performance obligation is satisfied. Promised goods or services that are immaterial in the context of the contract are not separately assessed as performance obligations.

Some of our contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the product lifecycle (development, production, maintenance and support). For contracts with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus margin approach, under which expected costs are forecast to satisfy a performance obligation and then an appropriate margin is added for that distinct good or service. Shipping and handling activities that occur after the customer has obtained control of the good are considered fulfillment activities, not performance obligations.

Some of our contracts offer price discounts or free units after a specified volume has been purchased. The Company evaluates these options to determine whether they provide a material right to the customer, representing a separate performance obligation. If the option provides a material right to the customer, revenue is allocated to these rights and recognized when those future goods or services are transferred, or when the option expires.

Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for goods or services that are distinct, and, therefore, are accounted for as new contracts. The effect of modifications has been reflected when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price.

The majority of the Company’s revenue from contracts with customers is recognized at a point in time, when the customer obtains control of the promised product. In general, the customer has obtained control when they have legal title, significant risks and rewards of ownership of the asset, and the Company has a present right to payment for the product. These contracts may provide credits or incentives, which may be accounted for as variable consideration. Variable consideration is estimated at the most likely amount to predict the consideration to which the Company will be entitled, and only to the extent it is probable that a subsequent change in estimate will not result in a significant revenue reversal when estimating the amount of revenue to recognize. Variable consideration is treated as a change to the sales transaction price and based on an assessment of all information (i.e., historical, current and forecasted) that is reasonably available to the Company, and estimated at contract inception and updated at the end of each reporting period as additional information becomes available. Most of our contracts do not contain rights to return product; where this right does exist, it is evaluated as possible variable consideration.

For contracts that are subject to the requirement to accrue anticipated losses, the Company recognizes the entire anticipated loss in the period that the loss becomes probable.

For contracts with customers in which the Company promises to provide a product to the customer that has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company satisfies the performance obligation and recognizes revenue over time, using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material and overhead.

The Company also recognizes revenue from service contracts (including service-type warranties) over time. The Company recognizes revenue over time during the term of the agreement as the customer is simultaneously receiving and consuming the benefits provided throughout the Company’s performance. The Company typically recognizes revenue over time using a cost-to-cost method, where revenues are recognized proportionally as costs are incurred, or on a straight-line basis throughout the contract period.

On December 31, 2023, we had $592.3 million of remaining performance obligations, which we refer to as total backlog. We expect to recognize approximately $526.5 million of our remaining performance obligations as revenue in 2024.

Costs in excess of billings includes unbilled amounts resulting from revenues under contracts with customers that are satisfied over time and when the cost-to-cost measurement method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. Amounts may not exceed their net

realizable value. Costs in excess of billings are classified as current assets, within Accounts Receivable, Net of Allowance for Estimated Credit Losses on our Consolidated Balance Sheets.

Billings in excess of cost includes billings in excess of revenue recognized as well as other elements of deferred revenue, which includes advanced payments, up-front payments, and progress billing payments. Billings in excess of cost are reported in our Consolidated Balance Sheets classified as current liabilities, within Customer Advance Payments and Deferred Revenue, and non-current liabilities, within Other Liabilities. To determine the revenue recognized in the period from the beginning balance of billings in excess of cost, the contract liability as of the beginning of the period is recognized as revenue on a contract-by-contract basis when the Company satisfies the performance obligation related to the individual contract. Once the beginning contract liability balance for an individual contract has been fully recognized as revenue, any additional payments received in the period are recognized as revenue once the related costs have been incurred.

We recognized $27.6 million and $14.8 million during the year ended December 31, 2023 and 2022, respectively, in revenues that were included in the contract liability balance at the beginning of the period.

The Company’s contract assets and contract liabilities consist of costs and profits in excess of billings and billings in excess of cost and profits, respectively. The following table presents the beginning and ending balances of contract assets and contract liabilities:

(In thousands) Contract Assets Contract Liabilities

The increase in contract assets reflects the net impact of new revenue recognized in excess of billings exceeding billing of previously unbilled revenue during the period. The decrease in contract liabilities reflects the net impact of revenue recognized in excess of new customer advances or deferred revenues recorded, as well as a $5.8 million reversal of a deferred revenue liability assumed with an acquisition and associated with a customer program within our Test Systems Segment which is no longer expected to occur, resulting in revenue recognized during the year ended December 31, 2023.

The following table presents our revenue disaggregated by Market Segments as of December 31 as follows:

Aerospace Segment

Test Systems Segment

The following table presents our revenue disaggregated by Product Lines as of December 31 as follows:

Aerospace Segment

NOTE 3 — ACCOUNTS RECEIVABLE

Accounts receivable at December 31 consists of:

Unbilled Recoverable Costs and Accrued Profits 46,321 27,349

Less Allowance for Estimated Credit Losses (9,193) (2,630)

The following table provides a rollforward of the allowance for estimated credit losses that is deducted from accounts receivable to present the net amount expected to be collected at December 31:

(In thousands)

Bad Debt Expense, Net of Recoveries 565

Write-off Charges Against the Allowance and Other Adjustments (1,118)

Bad Debt Expense, Net of Recoveries 7,772

Write-off Charges Against the Allowance and Other Adjustments (1,209)

NOTE 4 — INVENTORIES

Inventories at December 31 are as follows:

At December 31, 2023, the Company’s reserve for inventory valuation was $38.5 million, or 16.7% of gross inventory. At December 31, 2022, the Company’s reserve for inventory valuation was $36.8 million, or 16.4% of gross inventory.

NOTE 5 — PROPERTY, PLANT AND EQUIPMENT

Property, Plant and Equipment at December 31 are as follows:

Total Property, Plant and Equipment, Net $ 85,436 $ 90,658

NOTE 6 — INTANGIBLE ASSETS

The following table summarizes acquired intangible assets at December 31 as follows:

Amortization is computed on the straight line method for financial reporting purposes. Amortization expense for intangibles was $13.9 million, $14.9 million and $15.4 million for 2023, 2022 and 2021, respectively.

Based upon acquired intangible assets at December 31, 2023, amortization expense for each of the next five years is estimated to be:

(In thousands)

NOTE 7 — GOODWILL

The following table summarizes the changes in the carrying amount of goodwill at December 31 as follows:

(In thousands) Aerospace Test Systems Total

Foreign Currency Translations and Other (114) 1 (113)

Foreign Currency Translations and Other 41 — 41

The Company’s four reporting units with goodwill as of the first day of our fourth quarters of 2023, 2022 and 2021 were subject to the annual goodwill impairment test. Based on our quantitative assessments of our reporting units performed during our annual goodwill impairment tests, the Company concluded that no impairment to the carrying value of goodwill in any of the Company’s reporting units was indicated and no impairment charges were recognized in 2023, 2022 and 2021.

NOTE 8 — LONG-TERM DEBT

On June 28, 2023, the Company amended the ABL Revolving Credit Facility, temporarily increasing the maximum aggregate amount that the Company can borrow under the revolving credit line by $5 million from $115 million to $120 million until October 31, 2023, at which time the limit was to return to $115 million. On October 31, 2023, the Company executed a second amendment to extend the temporary limit of $120 million until January 31, 2024, at which time the limit returned to $115 million. 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 cash balances subject to the dominion arrangement collateralize the outstanding borrowings under the ABL Revolving Credit Facility. Eligible cash balances that have not yet been applied to outstanding debt balances are classified as restricted cash in the accompanying Consolidated Balance Sheets. The Company is also required to maintain minimum liquidity of $20 million through the date of delivery of the compliance certificate for the quarter ended March 31, 2024, and $10 million thereafter. On December 31, 2023, there was $87.0 million outstanding on the ABL Revolving Credit Facility and there remained $32.7 million available, net of outstanding letters of credit (though subject to the minimum liquidity requirement).

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, 0.542% per month for the period July 1, 2023 through September 1, 2023 and 0.833% monthly thereafter. 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. The remaining balance of $76.5 million as of December 31, 2023, is recorded as long-term in the accompanying Consolidated Balance Sheets.

Certain of the Company’s subsidiaries are borrowers or guarantors under the ABL Revolving Credit Facility and the Term Loan Facility.

The Company expects its sales growth and reductions in working capital will provide sufficient cash flows to fund operations. However, the Company may also evaluate various actions and alternatives to enhance its profitability and cash generation from operating activities, which could include manufacturing efficiency initiatives, cost-reduction measures, working with vendors and suppliers to reduce lead times and expedite shipment of critical components, and working with customers to expedite receivable collections.

NOTE 9 — WARRANTY

In the ordinary course of business, the Company warrants its products against defects in design, materials and workmanship typically over periods ranging from twelve to sixty months. The Company determines warranty reserves needed by product line based on experience and current facts and circumstances. Activity in the warranty accrual, which is included in Other Accrued Expenses on the Consolidated Balance Sheets, is summarized as follows:

Reassessed Warranty Exposure (397) (65) (1,474)

NOTE 10 — LEASES

The Company has operating and finance leases for leased office and manufacturing facilities and equipment leases. We have concluded that when an agreement grants us the right to substantially all of the economic benefits associated with an identified asset, and we are able to direct the use of that asset throughout the term of the agreement, we have a lease. We lease certain

office equipment under finance leases, and we lease certain production facilities, office equipment and vehicles under operating leases. Some of our leases include options to extend or terminate the leases and these options have been included in the relevant lease term to the extent that they are reasonably certain to be exercised.

If the lease arrangement also contains non-lease components, the Company elected the practical expedient not to separate any combined lease and non-lease components for all lease contracts. For our real estate leases, the payments used in the calculation of a new lease liability include fixed payments and variable payments (if the variable payments are based on an index) over the remaining lease term. Variable lease payments based on indices have been included in the related right-of-use assets and lease liabilities on our Consolidated Balance Sheets, while variable lease payments based on usage of the underlying asset have been excluded and are expensed in the period they are incurred, as they do not represent present rights or obligations. Variable lease components for leases relate primarily to common area maintenance charges and other separately billed lessor services, sales and real estate taxes.

Any new additional operating and financing lease liabilities and corresponding right-of-use (“ROU”) assets are based on the present value of the remaining minimum rental payments. The Company’s operating lease liability increased approximately $19.9 million as a result of acquiring ROU assets from new leases entered into during the year ended December 31, 2023. In determining the incremental borrowing rate, we have considered borrowing data for secured debt obtained from our lending institution.

The following is a summary of the Company’s ROU assets and lease liabilities at December 31:

Operating Leases:

Operating Right-of-Use Assets, Gross $ 43,528 $ 29,466

Less Accumulated Right-of-Use Asset Impairment 53 1,710

Operating Right-of-Use Assets, Net $ 27,909 $ 13,028

Short-term Operating Lease Liabilities $ 5,069 $ 4,441

Long-term Operating Lease Liabilities 24,376 9,942

Finance Leases:

Finance Right-of-Use Assets, Gross $ 274 $ 231

Less Accumulated Amortization 80 138

Finance Right-of-Use Assets, Net — Included in Other Assets $ 194 $ 93

Long-term Finance Lease Liabilities — Included in Other Liabilities 104 67

Finance Lease Liabilities $ 201 $ 96

The following is a summary of the Company’s total lease costs as of December 31:

Finance Lease Cost:

Amortization of ROU Assets $ 54 $ 94

Interest on Lease Liabilities 9 4

Total Finance Lease Cost 63 98

Impairment Charge of Operating Lease ROU Asset 53 —

Short-term Lease Cost (excluding month-to-month) 251 602

Less Sublease and Rental Income (548) (1,329)

The following is a summary of cash paid for amounts included in the measurement of lease liabilities as of December 31:

Operating Cash Flow for Finance Leases $ 9 $ 4

Operating Cash Flow for Operating Leases $ 6,180 $ 7,873

Financing Cash Flow for Finance Leases $ 47 $ 93

As permitted by ASC 842, leases with expected durations of less than 12 months from inception (i.e. short-term leases) were excluded from the Company’s calculation of its lease liability and ROU asset.

The weighted-average remaining term for the Company’s operating and financing leases are approximately 8 years and 2 years, respectively. The weighted-average discount rates for the Company’s operating and financing leases are approximately 5.7% and 5.8%, respectively.

The following is a summary of the Company’s maturity of lease liabilities:

(In thousands) Operating Leases Financing Leases

NOTE 11 — INCOME TAXES

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of tax benefits which are not more likely than not to be realized.

The provision for (benefit from) income taxes at December 31 consists of the following:

Current

Deferred

The effective tax rates differ from the statutory federal income tax rate as follows:

Statutory Federal Income Tax Rate 21.0 % 21.0 % 21.0 %

Permanent Items

Stock Compensation Expense (1.4) % (2.2) % (2.1) %

Contingent Consideration Liability Fair Value Adjustment — % — % 1.7 %

Foreign Tax Rate Differential (0.4) % (2.8) % (2.7) %

State Income Tax, Net of Federal Income Tax Effect (4.6) % 1.0 % 2.2 %

Research and Development Tax Credits 14.1 % 7.7 % 12.8 %

Change in Valuation Allowance (26.1) % (44.6) % (29.8) %

Net GILTI and FDII Tax (Benefit) Expense (1.0) % 1.8 % — %

Foreign Tax Credit for Dividend Withholding — % (1.5) % 1.7 %

Tax Rate Change on 2020 Federal Net Operating Loss (NOL) Carryback — % — % 0.9 %

Effective Tax Rate (0.4) % (20.0) % 5.1 %

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes as well as tax attributes.

Significant components of the Company’s deferred tax assets and liabilities at December 31, are as follows:

Deferred Tax Assets:

Section 163(j) - Interest Expense Limitation 1,777 —

Customer Advanced Payments and Deferred Revenue 870 1,917

Net Operating Loss Carryforwards and Other 11,178 11,307

Goodwill and Intangible Assets 1,001 1,277

Deferred Tax Liabilities:

ASC 606 Revenue Recognition - Section 481(a) Adjustment 227 525

Earnout Income Accrual 99 —

Net Deferred Tax Liabilities $ (1,307) $ (1,158)

The net deferred tax assets and liabilities presented in the Consolidated Balance Sheets are as follows at December 31:

Other Assets — Long-term $ — $ 712

Deferred Tax Liabilities — Long-term (1,307) (1,870)

Net Deferred Tax Liabilities $ (1,307) $ (1,158)

Beginning January 1, 2022, the Tax Cuts and Jobs Act (TCJA) of 2017 eliminated the option to deduct research and development expenditures in the current year and now requires taxpayers to capitalize and amortize research and development costs pursuant to Internal Revenue Code (“IRC”) Section 174. The capitalized expenses are amortized over a 5-year period for domestic expenses and a 15-year period for foreign expenses. As a result of this provision of the TCJA, deferred tax assets related to capitalized research expenses increased by approximately $5.8 million and $19.9 million during the years ended December 31, 2023 and 2022, respectively. The Company maintains a full valuation allowance against this deferred tax asset.

At December 31, 2023, gross federal net operating losses amounted to approximately $1.9 million, which are subject to annual limitations under Internal Revenue Code Section 382. Of these net operating losses, $1.5 million expire in 2038 and the remaining $0.4 million will carryforward indefinitely. The Company maintains a full valuation allowance against this deferred tax asset.

At December 31, 2023, gross state net operating loss carryforwards amounted to approximately $138.6 million. These state net operating loss carryforwards begin to expire at various dates from 2023 through 2043. The Company maintains a full valuation allowance against this deferred tax asset.

At December 31, 2023, state income tax credit carryforwards amounted to approximately $0.9 million and begin to expire at various dates from 2023 to 2040. Additionally, the Company has approximately $0.2 million of foreign tax credits that it can carry forward through 2027 and approximately $0.5 million of research and development tax credits that it can carry forward through 2043. The Company maintains a full valuation allowance against these credits.

The Company has analyzed its filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. Should the Company need to accrue a liability for uncertain tax benefits, any interest and penalties associated with that liability would be recorded as income tax expense. A reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties, is as follows:

Decreases as a Result of Tax Positions Taken in Prior Years (343) (969) (478)

There are no material penalties or interest liabilities accrued as of December 31, 2023, 2022, or 2021, nor are any material penalties or interest costs included in expense for each of the years ended December 31, 2023, 2022 and 2021. The years under which we conducted our evaluation coincided with the tax years currently still subject to examination by major federal and state tax jurisdictions, those being 2019 through 2023 for federal purposes and 2017 through 2023 for state purposes.

Pretax income (loss) from the Company’s foreign subsidiaries amounted to approximately $6.5 million, $0.1 million and $(3.3) million for 2023, 2022 and 2021, respectively. The balance of pretax earnings or loss for each of those years were domestic.

Historically, we have asserted that the unremitted earnings of our foreign subsidiaries were indefinitely reinvested. However, for the years ended December 31, 2023 and 2022, we determined that we can no longer assert indefinite reinvestment on

approximately $1.9 million and $3.4 million of the unremitted earnings of Luminescent Systems Canada Inc, respectively. As a result, we have recorded a deferred tax liability of approximately $0.1 million and $0.2 million at December 31, 2023 and 2022, respectively, related to local country withholding taxes that are expected to be incurred upon ultimate repatriation of such earnings. All other foreign unremitted earnings, which total approximately $13.6 million, continue to be indefinitely reinvested. We continue to be permanently reinvested in outside basis differences other than unremitted earnings as we have no plans to liquidate or sell any foreign subsidiaries. In addition, we have not provided deferred taxes on any outside basis differences of our domestic subsidiaries as we have the ability and intent to recover these basis differences in a tax-free manner. It is not practicable to determine the amount of unrecognized deferred tax related to these basis differences.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the economic uncertainty resulting from the COVID-19 pandemic. The CARES Act includes many measures to assist companies, including temporary changes to income and non-income based laws, some of which were enacted as part of the Tax Cuts and Jobs Act of 2017 (“TCJA”). Some of the key changes include eliminating the 80% of taxable income limitation by allowing corporate entities to fully utilize NOLs to offset taxable income in 2018, 2019 and 2020, allowing NOLs originating in 2018, 2019 and 2020 to be carried back five years, enhanced interest deductibility, and retroactively clarifying the immediate recovery of qualified improvement property costs rather than over a 39-year recovery period. During the year ended December 31, 2021, the Company recorded a tax benefit relating to the NOL carryback provisions and the technical correction for qualified improvement property provided for in the CARES Act of approximately $0.3 million. No tax benefit was recorded for the years ending December 31, 2023 and 2022.

The Inflation Reduction Act of 2022 (IRA) was signed into law on August 16, 2022. Key provisions under the IRA include a 15% corporate alternative minimum tax imposed on certain large corporations and the extension and expansion of clean energy tax incentives. There were no impacts related to the IRA recorded for the years ending December 31, 2023 and 2022.

Under an Organization for Economic Co-operation and Development Inclusive Framework, countries that agreed to enact a two-pillar solution aim to address the challenges arising from the digitalization of the world economy (Pillar Two). Pillar Two sets out global minimum Effective Tax Rate (ETR) rules to ensure that large multinational businesses with consolidated revenue over €750 million are subject to a minimum ETR of 15% on income arising in low-tax jurisdictions. Rules under Pillar Two are expected to be enacted beginning January 1, 2024. The Company will continue to monitor the impact of Pillar Two; however, the Pillar Two is currently not applicable as the Company does not meet the threshold of having consolidated revenue over €750 million.

NOTE 12 — PROFIT SHARING/401K PLAN

The Company offers eligible domestic full-time employees participation in a safe harbor 401K plan. The plan provides for an annual company contribution. In addition, employees may contribute a portion of their salary to the plan. In response to the impact of the COVID-19 pandemic, Company contributions were temporarily suspended beginning in the second quarter of 2020. The Company contributions were reinstated in the fourth quarter of 2021. The plan may be amended or terminated at any time.

Total charges to income before income taxes for this plan was approximately $5.3 million, $4.7 million and $4.3 million in 2023, 2022 and 2021, respectively. The Company has funded the 2022 and 2023 contributions to date with treasury stock in lieu of cash and will fund the remaining 2023 contribution with treasury stock in the first quarter of 2024.

NOTE 13 — RETIREMENT PLANS AND RELATED POST RETIREMENT BENEFITS

The Company has two non-qualified supplemental retirement defined benefit plans (“SERP” and “SERP II”) for certain current and retired executive officers. The accumulated benefit obligation of the plans as of December 31, 2023 and 2022 amounts to $22.0 million and $20.5 million, respectively.

The plans provide for benefits based upon average annual compensation and years of service and, in the case of SERP, there are offsets for social security and profit sharing benefits. It is the Company’s intent to fund the plans as plan benefits become payable, since no assets exist at December 31, 2023 or 2022 for either of the plans.

The Company accounts for the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of its pension plans in accordance with the recognition and disclosure provisions of ASC Topic 715, Compensation, Retirement Benefits, which requires the Company to recognize the funded status in its balance sheet, with a corresponding adjustment to Accumulated Other Comprehensive Income (“AOCI”), net of tax. These amounts will be subsequently recognized as net periodic pension cost pursuant to the Company’s historical policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic pension cost in the

same periods will be recognized as a component of AOCI. Those amounts will be subsequently recognized as a component of net periodic pension cost on the same basis as the amounts recognized in AOCI.

Unrecognized prior service costs of $0.6 million ($1.2 million net of $0.6 million in taxes) and unrecognized actuarial losses of $2.0 million ($3.6 million net of $1.6 million in taxes) are included in AOCI at December 31, 2023 and have not yet been recognized in net periodic pension cost.

The reconciliation of the beginning and ending balances of the projected benefit obligation of the plans for the years ended December 31 is as follows:

Funded Status

Projected Benefit Obligation

In 2023, the net actuarial loss of $1.5 million is due to the change in the salary scale and the decrease of 21 basis points in the discount rate used to measure the benefit obligation as of December 31, 2023 compared to the prior year. The assumptions used to calculate the projected benefit obligation as of December 31 are as follows:

Future Average Compensation Increases 3.00% 2.00% - 3.00%

The plans are unfunded at December 31, 2023 and are recognized in the accompanying Consolidated Balance Sheets as a current accrued pension liability of $0.3 million and a long-term accrued pension liability of $28.4 million.

The service cost component of net periodic benefit cost is included in SG&A expenses, and all other net periodic benefit costs components (such as interest cost, prior service cost amortization and actuarial gain/loss amortization) are reported outside of operating income, within Other (Income) Expense, Net in the accompanying Consolidated Statements of Operations.

The following table summarizes the components of the net periodic cost for the years ended December 31:

Net Periodic Cost

Service Cost — Benefits Earned During Period $ 105 $ 138 $ 195

Amortization of Prior Service Cost 386 386 386

The assumptions used to determine the net periodic cost are as follows:

Benefit payments expected in each of the next five years are as follows: 2024 - $0.7 million, 2025 - $0.6 million, 2026 - $0.6 million, 2027 - $0.9 million, and 2028 - $1.9 million. Benefits expected to be paid in the aggregate between 2029 and 2033 are $11.1 million. Given that the plans are unfunded, these amounts are what the Company expects to contribute to the plans in each respective year.

Participants in the SERP are entitled to paid medical, dental and long-term care insurance benefits upon retirement under the plan. The measurement date for determining the plan obligation and cost is December 31. The accumulated postretirement benefit obligation is $0.8 million at December 31, 2023 and 2022. The plan is recognized in the accompanying Consolidated Balance Sheets as a current accrued pension liability of less than $0.1 million and a long-term accrued pension liability of $0.8 million. The net periodic cost for the years ended December 31, 2023, 2022 and 2021 was not material.

The Company is a participating employer in a trustee-managed multiemployer defined benefit pension plan for employees who participate in collective bargaining agreements. The plan generally provides retirement benefits to employees based on years of service to the Company. Contributions are based on the hours worked and are expensed on a current basis. The plan is 99.2% funded as of January 1, 2023. The Company’s contributions to the plan were $0.7 million in 2023, $0.5 million in 2022 and $0.4 million in 2021. These contributions represent less than 1% of total contributions to the plan.

NOTE 14 — SHAREHOLDERS’ EQUITY

Share Buyback Program

The Company’s Board of Directors from time to time authorizes the repurchase of common stock, which allows the Company to purchase shares of its common stock in accordance with applicable securities laws on the open market or through privately negotiated transactions. The Company has the capacity under the currently authorized program to repurchase additional shares of its common stock with a maximum dollar value of $41.5 million. Under its current credit agreement, and as described further in Note 8, the Company is currently restricted from further stock repurchases under this program.

At-the-Market Equity Offering

On August 8, 2023, the Company initiated an at-the-market equity offering program (the “ATM Program”) for the sale from time to time of shares of the Company’s common stock, par value $0.01 per share (“Common Stock”) having an aggregate offering price of up to $30.0 million. Shares of Common Stock under the ATM Program are offered using Wells Fargo Securities, LLC and HSBC Securities (USA) Inc., as sales agents (the “Sales Agents” and each a “Sales Agent”), pursuant to the equity distribution agreement, dated August 8, 2023, by and among the Company and the Sales Agents (the “Equity Distribution Agreement”).

During the year ended December 31, 2023, the Company sold 1,334,228 shares of our Common Stock under the ATM Program. The Company generated $21.8 million in aggregate gross proceeds from sales under the ATM Program at an average sale price of $16.31 per share of Common Stock. Aggregate net proceeds from the ATM Program were $21.3 million after deducting related expenses, including commissions to the Sales Agents and issuance costs. As of December 31, 2023, the Company had remaining capacity under the ATM Program to sell shares of Common Stock having an aggregate offering price up to approximately $8.2 million.

Reserved Common Stock

At December 31, 2023, approximately 9.7 million shares of Common Stock were reserved for issuance upon conversion of the Class B stock, exercise of stock options, issuance of restricted stock and purchases under the Employee Stock Purchase Plan. Class B Stock is identical to Common Stock, except Class B Stock has ten votes per share, is automatically converted to Common Stock on a one-for-one basis when sold or transferred other than via gift, devise or bequest and cannot receive dividends unless an equal or greater amount of dividends is declared on Common Stock.

Comprehensive Loss and Accumulated Other Comprehensive Loss

Comprehensive income or loss consists of net income or loss and the after-tax impact of retirement liability adjustments. No income tax effect is recorded for currency translation adjustments.

The components of accumulated other comprehensive loss are as follows:

Foreign Currency Translation Adjustments $ (6,351) $ (7,335)

Retirement Liability Adjustment – Before Tax (5,357) (4,473)

Retirement Liability Adjustment – After Tax (3,075) (2,191)

Accumulated Other Comprehensive Loss $ (9,426) $ (9,526)

In 2023, 2022 and 2021, no tax benefit was recognized as the Company had recorded a full valuation allowance on the deferred tax asset associated with the retirement liability.

The components of other comprehensive income are as follows:

ATROB US Equity

ATRO · 10-K · period ended 2023-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ATROB US Equity☆

ATRO · 10-K · period ended 2023-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ATROB US Equity