(The following should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's Form 10-K for the year ended December 31, 2020.)
OVERVIEW
Astronics Corporation ("Astronics" or the "Company") is a leading supplier of
advanced technologies and products to the global aerospace and defense
industries. Our products and services include advanced, high-performance
electrical power generation and distribution systems, seat motion solutions,
lighting and safety systems, avionics products, aircraft structures, systems
certification, and automated test systems.
Our Aerospace segment designs and manufactures products for the global aerospace
industry. Product lines include lighting and safety systems, electrical power
generation, distribution and seat motions 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, military and general aviation markets, suppliers to those OEM's,
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, communications 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 OEM's and prime government contractors for both
electronics and military products.
Our strategy is to increase our value by developing technologies and
capabilities, either internally or through acquisition, and using those
capabilities to provide innovative solutions to our targeted markets where our
technology can be beneficial.
Important factors affecting our growth and profitability are the ongoing impacts
of the COVID-19 pandemic and the timing and extent of recovery (as discussed
more fully below), the rate at which new aircraft are produced, government
funding of military programs, our ability to have our products designed into new
aircraft and the rates at which aircraft owners, including commercial airlines,
refurbish or install upgrades to their aircraft. New aircraft build rates and
aircraft owners spending on upgrades and refurbishments is cyclical and
dependent on the strength of the global economy. Once designed into a new
aircraft, the spare parts business is 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.
In September 2021 the Company also entered into an agreement with the U.S.
Department of Transportation ("USDOT") under the Aviation Manufacturing Jobs
Protection Program ("AMJP") for a grant of up to $14.7 million. The Company
received the first installment of $7.3 million under the grant in September
2021. The remaining balance due to be received of $7.4 million has been
classified within Prepaid Expenses and Other Current Assets on the Consolidated
Condensed Balance Sheets as of October 2, 2021. The Company expects to receive a
second installment in the range of $5 million to $6 million during the fourth
quarter of 2021 and a final installment in the second or third quarter of 2022
upon final confirmation from the USDOT of the Company meeting its grant
commitments. The receipt of the full award is primarily conditioned upon the
Company committing to not furlough or lay off a defined group of employees
during the six-month period of performance between September 2021 and March
2022. The grant benefit will be recognized over the six-month performance period
as a reduction to Cost of Products Sold in proportion to the compensation
expense that the award is intended to defray. During the quarter ended
October 2, 2021, the Company recognized $1.1 million of the award. The unearned
portion of the AMJP award of $13.6 million has been reported within Accrued
Expenses and Other Current Liabilities in the Consolidated Balance Sheet at
October 2, 2021.
On February 13, 2019, the Company completed a divestiture of its semiconductor
test business within the Test Systems segment. The total proceeds of the
divestiture amounted to $103.8 million plus certain contingent purchase
consideration ("earn-out").
The transaction included two elements of contingent earnouts. The First Earnout
is calculated based on a multiple of all future sales of existing and certain
future derivative products to existing and future customers in each annual
period from 2019 through 2022. The First Earnout may not exceed $35.0 million in
total. The Second Earnout is calculated based on a multiple of future sales
related to an existing product and program with an existing customer exceeding
an annual threshold for each annual period from 2019 through 2022. The Second
Earnout is not capped. For the Second Earnout, if the applicable sales in an
annual
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period do not exceed the annual threshold, no amounts will be paid relative to
such annual period; the sales in such annual period do not carry over to the
next annual period. Due to the degree of uncertainty associated with estimating
the future sales levels of the divested business and its underlying programs,
and the lack of reliable predictive market information, the Company will
recognize such earnout proceeds, if received, as additional gain on sale when
such proceeds are realized or realizable. No amounts were payable for the year
ended December 31, 2019.
In February 2021, the Company was notified by the buyer that they have
calculated $10.7 million as being payable to the Company under the contingent
earnouts related to the year ended December 31, 2020. In April 2021, the buyer
provided a revised calculation, indicating, rather, that $7.1 million is payable
to the Company for the 2020 earnout. The Company and the buyer are currently
reviewing the calculations and underlying data and are engaged in negotiations.
The Company expects to record the additional gain when that review is complete
and agreement is reached. The timing and amount of any amount realized is
uncertain and subject to risks and uncertainties as we continue the review and
negotiation process.

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