The accompanying unaudited statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included.

The results of operations for any interim period are not necessarily indicative of results for the full year. In addition, the COVID-19 pandemic and supply chain disruptions have increased the volatility we experience in our financial results in recent periods and this could continue in future interim and annual periods. Operating results for the ninethree months ended OctoberApril 1, 20222023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023.

The balance sheet at December 31, 20212022 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements.

For further information, refer to the financial statements and footnotes thereto included in Astronics Corporation’s 20212022 annual report on Form 10-K.

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

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

On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment. The transaction included two elements of contingent earnouts. In December 2021, the Company agreed to a payment of $10.7 million for the calendar 2020 earnout, which was recorded in the fourth quarter of 2021 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 in the amount of $11.3 million. The Company recorded the gain and received the payment in the first quarter of 2022. In March 2023, the Company agreed with the final earnout calculation for the calendar 2022 earnout in the amount of $3.4 million. The Company recorded the gain and received the payment in the first quarter of 2023.

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 $7.4 million under the grant in 2021, $5.2 million in the first quarter of 2022 and $2.1 million in the third quarter of 2022. The grant benefit was recognized ratably over the six-month performance period as a reduction to cost of products sold in proportion to the compensation expense that the award is intended to defray. During the ninethree months ended October 1,April 2, 2022, the Company recognized $6.0 million of the award.

Under the provisions of the ABL Revolving Credit Facility (see Note 7), the Company has a lockbox arrangement with the banking institution for its accounts within the United States whereby daily lockbox receipts are contractually utilized to pay down outstanding balances on the Revolving Credit Facility debt. Lockbox balances that have not yet been applied to the Revolving Credit Facility are classified as restricted cash in the accompanying Consolidated Condensed Balance Sheets. The following table presentsprovides a reconciliation of cash and restricted cash included in Consolidated Condensed Balance Sheets to the COVID-19 related government assistance, including AMJP, recorded duringamounts included in the three and nine months ended October 1, 2022 and October 2, 2021:Consolidated Condensed Statements of Cash Flows.

The allowance for estimated credit losses is based on the Company’s assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as the age of the receivable balances, historical experience, credit quality, current economic conditions, and reasonable and supportable forecasts of future economic conditions that may affect a customer’s ability to pay. The allowance for estimated credit losses balance was $3.4$2.3 million and $3.2$2.6 million at OctoberApril 1, 20222023 and December 31, 2021,2022, respectively. The Company’s bad debt expense was $0.3 million and $0.4 million during the three and nine months ended October 1, 2022 and insignificant during the three and nine months ended OctoberApril 1, 2023 and April 2, 2021.2022. Total write-offs charged against the allowance were insignificant in both the three and nine months ended OctoberApril 1, 20222023 and OctoberApril 2, 2021.2022. Total recoveries were insignificant$0.3 million in both the three and nine months ended OctoberApril 1, 20222023 and October$0.2 million in the three months ended April 2, 2021.2022.

The Company's exposure to credit losses may increase if its customers are adversely affected by global economic recessions, disruption associated with the current COVID-19 pandemic or the Russian/Ukrainian conflict, industry conditions, or other customer-specific factors. Although the Company has historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables and contract assets as airlines and other aerospace companies’ cash flows are impacted by the COVID-19 pandemic.pandemic and associated supply chain disruptions.

Research and development costs are expensed as incurred and include salaries, benefits, consulting, material costs and depreciation. Research and development expenses amounted to $12.0$12.7 million and $11.3$12.2 million for the three months ended April 1, 2023 and $36.8 million and $31.9 million for the nine months ended October 1,April 2, 2022, and October 2, 2021, respectively. These costs are included in cost of products sold.

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

Long-lived assets are evaluated for recoverability whenever adverse effects or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability test consists of comparing the undiscounted projected cash flows with the carrying amount. Should the carrying amount exceed undiscounted projected cash flows, an impairment loss would be recognized to the extent the carrying amount exceeds fair value.

As of OctoberApril 1, 20222023 and for the three and nine month periods then ended,April 2, 2022, the Company concluded that no indicators of impairment relating to long-livedintangible assets existed.

The aggregate foreign currency transaction gain or loss included in operations was insignificant for the three and nine months ended OctoberApril 1, 20222023 and OctoberApril 2, 2021.2022.

We consider the applicability and impact of all ASUs. Recent 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.

On OctoberApril 1, 2022,2023, we had $547.1$578.5 million of remaining performance obligations, which we refer to as total backlog. We expect to recognize approximately $426.5$498.7 million of our remaining performance obligations as revenue over the next twelve months and the balance thereafter.

We recognized $7.3$14.1 million and $6.5$6.0 million during the three months ended April 1, 2023 and $13.3 million and $15.1 million during the nine months ended October 1,April 2, 2022, and October 2, 2021, respectively, in revenues that were included in the contract liability balance at the beginning of the period.

The Company's contract assets and contract liabilities consist primarily of costs and profits in excess of billings and billings in excess of cost and profits, respectively. The following table presents the beginning and ending balances of contract assets and contract liabilities during the ninethree months ended OctoberApril 1, 2022:2023:

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 Condensed Balance Sheets. Should future orders not materialize or it is determined the costs are no longer probable of recovery, the capitalized costs are written off. As of OctoberApril 1, 2023 and December 31, 2022, the Company has capitalized $1.6$3.0 million and $2.5 million of costs. As of December 31, 2021, the Company did not have material capitalized fulfillment costs.costs, respectively.

The Company has evaluated the carrying value of existing inventories and believe they are properly reflected at their lower of carrying value or net realizable value. Future changes in demand or other market developments could result in future inventory charges. The Company is actively managing inventories and aligning them to meet known current and future demand.

The Company's long-term debt consistsat December 31, 2022 consisted of borrowings under its Fifth Amended and Restated Credit Agreement (the “Agreement”). On March 1, 2022, the Company executed an amendment to the Agreement, which reduced the revolving credit line from $375 million to $225 million and extended theThe maturity date of the loans under the facility from February 16, 2023 to MayAgreement was November 30, 2023. At December 31, 2022, there was $164.0 million outstanding on the Agreement and there remained $6.0 million available.

The definition of Adjusted EBITDA was modified to exclude income from earnout paymentsCompany amended the Agreement on January 19, 2023 by entering into the Sixth Amended and asset sales. On August 9, 2022,Restated Credit Agreement (the “ABL Revolving Credit Facility”). The ABL Revolving Credit Facility set the maximum aggregate amount that the Company executed a further amendment to the Agreement, which reducedcan borrow under the revolving credit line from $225at $115 million, with borrowings subject to $190 million until September 12, 2022 with further reductions to $180 million effective September 12, 2022a borrowing base determined primarily by certain domestic inventory and $170 million effective October 11, 2022.accounts receivable. The amendment extended the maturity date of the loansborrowings under the facility from May 30, 2023 to August 31, 2023. On October 21, 2022,ABL Revolving Credit Facility is January 19, 2026. Under the terms of the ABL Revolving Credit Facility, the Company executed an additional amendment to the Agreement, under which the lenders waived enforcement of their rights against the Company arising from the Company’s failure to comply with the maximum net leverage ratio and minimum liquidity covenants, each as of September 30, 2022. The amendment increased the revolving credit line to $180 million as of October 21, 2022, with a reduction to $170 million effective November 21, 2022. Under the provisions of this amendment, the inclusion of any “going concern” language in the Company’s financial statements would constitute an event of default.

receipts are contractually utilized to pay down outstanding borrowings. Eligible cash receipts that have not yet been applied to outstanding debt balance are classified as restricted cash in 2022the accompanying consolidated balance sheets. At April 1, 2023, there was $88.1 million outstanding on the ABL Revolving Credit Facility and there remained $26.9 million available. The Company is also required paymentto maintain minimum liquidity of a consent fee$20 million through the date of 5 to 10 basis pointsdelivery of the commitmentcompliance certificate for each consenting lender.the quarter ended March 31, 2024, and $10 million thereafter.

The AmendedCompany also entered into a $90 million asset-based Term Loan Facility restricts dividend paymentson January 19, 2023. The Term Loan Facility is secured primarily by fixed assets, real estate and share repurchases through theintellectual property. The maturity date of the Amended Facility.Term Loan Facility is the earlier of the stated maturity date of the ABL Revolving Credit Facility or January 19, 2027, provided the ABL Revolving Credit Facility is extended beyond that date. The Company’s obligationsCompany pays interest under the AmendedTerm Loan Facility are jointlyat a rate equal to SOFR (which is required to be at least 2.50%) plus 8.75%. The Company will pay a commitment fee under the Term Loan Facility of 5% of the total aggregate commitment, or $4.5 million, $1.8 million which was paid on the closing date, $1.8 million of which will be paid on June 19, 2023 and severally guaranteed by each domestic subsidiary$0.9 million of which will be paid on the date that the financial statements and compliance certificate for the fiscal quarter of the Company other than non-material subsidiaries.ending on or about March 31, 2024 are required to be delivered under the Term Loan Facility.

The obligationsCompany incurred $8.5 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 secured byamortized to interest expense over the term of the respective agreement. Deferred debt issuance costs associated with the ABL Revolving Credit Facility ($2.6 million as of April 1, 2023) are recorded within other assets and those associated with the Term Loan Facility ($5.8 million as of April 1, 2023) are recorded as a first priority lienreduction of the carrying value of the debt on substantially allthe Consolidated Condensed Balance Sheet.

Certain of the Company’s subsidiaries are borrowers or guarantors under the ABL Revolving Credit Facility and the guarantors’ assets. 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 Amended Facilitycredit 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, judgments over a certain amount, and cross default under other material debt agreements, and a going concern qualification for any reason other than loan maturity date give the agent the option to declare all such amounts immediately due and payable.

The effective tax rates were approximately 13.9%(41.3)% and (4.9)%161.7% for the three months ended April 1, 2023 and (28.3)% and (1.4)% for the nine months ended October 1,April 2, 2022, and October 2, 2021, respectively. Beginning with the 2022 tax year, certain research and development costs are required to be capitalized and amortized over sixty months for income tax purposes. The tax rate in the 20222023 period was impacted by a valuation allowance applied against the deferred tax asset associated with the research and development costs that are expected to be capitalized and was partially offset by the removal of valuation allowances related to net operating losses tax credit carryovers, and certain timing differences that are expected to reverse during 2022.2023. In addition, the tax rate in the 20222023 period was also impacted by state income taxes and the federal research and development credit expected for 2022.2023.

The Company records a valuation allowance against the deferred tax assets if and to the extent it is more likely than not that the Company will not recover the deferred tax assets. In evaluating the need for a valuation allowance, the Company weighs all relevant positive and negative evidence, and considers among other factors, historical financial performance, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, and tax planning strategies. Losses in recent periods and cumulative pre-tax losses in the three year period ending with the current year, combined with the significant uncertainty brought about by the COVID-19 pandemic, is collectively considered significant negative evidence under ASC 740 when assessing whether an entity can use projected income as a basis for concluding that deferred tax assets are realizable on a more-likely than not basis. For purposes of assessing the recoverability of deferred tax assets, the Company determined that it could not include future projected earnings in the analysis due to recent history of losses and therefore had insufficient objective positive evidence that the Company will generate sufficient future taxable income to overcome the negative evidence of cumulative losses. Accordingly, during the years ended December 31, 20212022 and 2020,2021, the Company determined that a portion of its deferred tax assets arewere not expected to be realizable in the future and the Company continues to maintain the valuation allowance against its deferred tax assets as of OctoberApril 1, 2022.2023.