(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, 2021.)
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), supply chain pressures, the rate at which new aircraft are
produced, government funding of military programs, our ability to have our
products designed into new aircraft and the rates at which aircraft owners,
including commercial airlines, refurbish or install upgrades to their aircraft.
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 $7.4 million under the grant in 2021 and $5.2 million in the first
quarter of 2022. The Company expects to receive the remainder in the 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, lay off or reduce the compensation
levels of a defined group of employees during the six-month period of
performance between September 2021 and March 2022. The grant benefit was
recognized over the six-month performance period as a reduction to cost of
products sold in proportion to the compensation expense that the award is
intended to defray. The Company recognized the remaining $6.0 million of the
award during the six months ended July 2, 2022.
On February 13, 2019, the Company completed a divestiture of its semiconductor
test business within the Test Systems segment. The total proceeds of the
divestiture included two elements of contingent purchase consideration
("earnout"). 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 in the amount of $11.3
million. The Company recorded the gain and received the payment in the first
quarter of 2022.
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