Astronics Corp Annual Report 2019

FY2019 Annual Report · Astronics Corp

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2019 Annual Report

Nasdaq: ATRO

We serve the world’s aerospace, defense,
and other mission-critical industries with
proven, innovative technology solutions.
We work side-by-side with customers,
integrating our array of power, connectivity,
lighting, structures, interiors and test
technologies to solve complex challenges.

For over 50 years, we have delivered
creative, customer-focused solutions with
exceptional responsiveness. Today, global
airframe manufacturers, airlines, military
branches, completion centers and Fortune
500 companies rely on our collaborative spirit
and innovation to deliver leading technology
and solutions.

SALES
(in millions)

BOOKINGS
(in millions)

BACKLOG
(in millions)

2
7
7
$

3
0
8
$
5

4
2
6
$

2
9
6
$

3
3
6
$

7
3
8
$

8
0
7
$

9
2
7
$

6
1
6
$

4
8
5
$

5
1
4
$

3
9
3
$

9
5
3
$

4
7
2
$

8
5
2
$

'15 '16 '17 '18 '19

Dear Shareholders,

2019 was a year of significant transition and progress for our Company. We accomplished a lot and felt at the
end of the year that we were well positioned for 2020. But 2020 is turning out to be something unexpected, which
is discussed at the end of this letter.

2019 Review

2019 had measurable forward progress in both our segments. Our Test business was significantly rearranged,
while our Aerospace segment saw a concentrated focus on resolving issues with our “three challenged
businesses.”

As for the rearrangement of our Test segment, in February 2019, we sold our semiconductor test product line for
$104 million resulting in a pre-tax gain of $80 million. By divesting the business, we put the technology in the
hands of another company that can further its adoption for the benefit of its customers and employees. It was a
transaction which we believe turned out well for all involved.

The transaction significantly downsized our Test footprint, but also allowed us to focus on our core market and
explore other opportunities for growth. One promising pursuit is the mass transit market involving trains and
subways, which are becoming more integrated and digitized. Operators are looking to implement test regimes
that are similar to those that are practiced in the aerospace and defense industry, so we believe our skillset is
increasingly applicable in this market. Our first significant mass transit win was with New York City for a $30
million program. And late in 2019 we acquired Diagnosys, a Boston-based test company, focused on the transit
space, to broaden our resources and capabilities. We have a number of pursuits in process and are hopeful that
mass transit test will be a noteworthy contributor to our results in the immediate future.

We also made progress furthering our pursuit of the radio test market, geared at the sophisticated communication
devices used by military forces and civilian first responder organizations such as police forces and fire
departments. We have long been focused on the military market, but supplemented our efforts with the
acquisition mid-year of Freedom Communications Technologies, which focuses on the civilian market. Combined
we are a stronger operation.

In our Aerospace segment, we resolved our challenges with our “three struggling business,” such that the
cumulative operating loss of $32.7 million that they realized in 2019, excluding restructuring and impairment
charges, will trend towards break-even in 2020.

This was partially accomplished by a physical relocation in Chicago of three separate facilities into two. We also
finally completed the development phase of our new cabin management system for large business jets called
Avenir, which turned out to be a much more expensive development program than we originally expected.
Finally, late in the year, we restructured our antenna business significantly, downsizing the operation and
narrowing its focus. The antenna restructuring came with write-offs and reserves of $34 million, but these actions
collectively are expected to largely eliminate the operating losses at the struggling businesses, reducing the
margin headwinds we have seen in the Aerospace segment in the recent past.

For the year, consolidated revenue declined from $803 million to $773 million, driven largely by the decline in
semiconductor test sales of $75 million due to the sale of that business. Adjusted for the semiconductor sale*,
revenue grew 6.1% in 2019.

Net income was $52 million, or $1.60 per diluted share, and benefited from the gain on the sale of the
semiconductor business. Adjusted Net Income* was 3.9% of sales after backing out the effects of the
semiconductor sale, a legal reserve for ongoing litigation, and write-offs associated with the antenna restructuring.

It was an eventful year in which much was accomplished, and we ended it feeling we were well prepared for the
future.

The Astronics Board of Directors

Our Board also saw significant changes during the year.

Sadly, we lost two members, John Drenning and Kevin Keane, both of whom joined our board in 1970. John was
our corporate counsel and drafted many of the Company’s foundational documents. Kevin led the Company as
CEO from 1974 to 2003 and Chairman from 1974 to 2019. The two were great friends and they have left an
indelible mark on our Company. We will always remember their enthusiasm and support.

We also welcomed two new members during the year, Tonit Calaway and Robert Keane. They both bring strong
skills and broad experience to our board and have hit the ground running. Our Board now consists of nine
people, six of whom have served fewer than five years, and represents a healthy combination of fresh
perspectives, tenured industry expertise, and long-term Company familiarity.

2020 Coronavirus

Unfortunately, 2020 has seen the onset of COVID-19, with significant ramifications for our Company, our industry,
and the world. As I write this, much of the world is in lockdown, many countries have closed their borders, and
the airline industry is suffering significant losses.

We are encouraged that national governments around the world recognize the importance of the aerospace
industry and are taking steps to preserve and support it. We hope for a quick recovery, but the reality is that
nobody knows how badly the industry will be damaged, nor what a recovery will look like.

We have taken aggressive steps in response to the situation including shoring up cash reserves, cutting capital
spending, suspending acquisition initiatives and share buybacks, and adjusting our capacity to align with where
we expect demand to settle out.

But, we are aiming at moving targets today and there are many unknowns. Astronics will stay flexible and
focused as the situation develops, responding appropriately to events as they unfold.

We have built a great Company with an impressive array of capabilities that our customers rely on every day. We
have products on just about every aircraft that flies. We know that the virus will pass and the world will keep
turning, and our goal is to emerge from this episode a stronger organization with even better opportunities --
tested and hardened by the experience. Our 2,500 team members are committed to this goal, and I am confident
of success.

Sincerely,

Peter J. Gundermann
President and CEO
April 6, 2020

*RECONCILIATION OF GAAP TO NON-GAAP PERFORMANCE MEASURES

The Company’s letter to shareholders contains financial information regarding consolidated sales and net income
adjusted to remove the direct effects of the semiconductor business, the legal reserve increase, the antenna
business restructuring and impairment charges and the impairment of an equity investment from all periods
presented. These adjusted balances are non-GAAP performance measures. Management believes these non-
GAAP measures are useful to investors in understanding the performance of the ongoing business.

(Unaudited, $ in thousands)
Consolidated

Sales

Consolidated sales
Non-GAAP Adjustment - Semiconductor
business**

Adjusted Consolidated Sales

Income from Operations

Consolidated income from operations
Non-GAAP Adjustments:

Semiconductor business**
Legal reserve increase

Antenna business impairment and
restructuring

Adjusted Income from Operations

Net Income

Consolidated net income
Non-GAAP Adjustments:

Semiconductor business**
Legal reserve increase

Antenna business impairment and
restructuring
Equity investment impairment

Adjusted Net Income

GAAP depreciation and amortization

Year Ended

12/31/2019

12/31/2018

772,702

$ 803,256

(9,692)
763,010

(84,254)
$ 719,002

1,701

63,663

(6,753)
19,619

(24,109)
1,000

28,836
43,403
5.7 %

—
40,554
5.6 %

52,017

46,803

(65,666)
15,485

(18,014)
789

22,780
5,000
29,616

—
—
29,578

33,049

35,032

** The non-GAAP adjustment eliminates all semiconductor test sales and associated direct costs from all periods
presented. There are significant indirect costs, overheads, and other general and administrative costs that are
not included in the non-GAAP adjustment, as such functions benefited all operations and products within the Test
Systems segment and have not been eliminated as a result of the divestiture. The non-GAAP adjustment to net
income for the year ended December 31, 2019 also eliminates the impact of the gain on the sale of the
semiconductor business, net of tax.

FIVE-YEAR PERFORMANCE HIGHLIGHTS(in thousands, except employee and per share data)PERFORMANCE201720162015Sales:Aerospace Segment$692,614$675,744$534,724$534,408$549,738Less Aerospace Intersegment Sales$(5)$(119)$(121)$(367)$---Test Systems Segment$80,495$127,679$89,861$99,082$142,596Less Test Intersegment Sales$(402)$(48)$---$---$(55)Total Sales$772,702$803,256$624,464$633,123$692,279Gross Profit$156,142$180,696$137,113$159,467$187,942Gross Margin20.2%22.5%22.0%25.2%27.1%Impairment Loss$11,083 $---$16,237$---$---Selling, General and Administrative Expense$143,358$117,033$90,516$86,328$89,141Operating Profit$1,701$63,663$30,360$73,139$98,801Operating Margin0.2%7.9%4.9%11.6%14.3%Net Gain on Sale of Businesses $78,801$---$---$---$---Other Expense $6,058$1,671$1,741$1,743$---Net Income $52,017$46,803$19,679$48,424$66,974Diluted Earnings Per Share$1.60$1.41$0.58$1.40$1.93Weighted Average Shares Outstanding - Diluted32,45933,13633,71834,53734,706Return on Average Shareholders' Equity13.4%13.1%5.9%15.2%25.3%YEAR END FINANCIAL POSITIONTotal Assets $782,716$774,640$735,956$604,344$609,243Indebtedness$188,224$233,982$271,767$148,120$169,789Shareholders' Equity$388,857$386,625$329,927$337,449$300,225Book Value Per Share$12.54$11.86$10.22$10.13$8.93OTHER YEAR END DATADepreciation and Amortization$33,049$35,032$27,063$25,790$25,309Capital Expenditures$12,083$16,317$13,478$13,037$18,641Shares Outstanding30,99932,59332,26933,32833,635Number of Employees2,8282,6902,5162,3042,30420192018

2019 SALES BY MARKETS, PRODUCTS AND MAJOR FOCUS

Other
3%

Business
Jet
9%

Test
10%

Military
10%

Commercial
Transport
68%

Structures
3%

Other
3%

Test
10%

Systems
Certification
2%

Avionics
14%

Electrical Power
& Motion
44%

Lighting & Safety
24%

Flight Critical
Electrical Power 4%

All Other
12%

Test
10%

Lighting &
Safety
24%

In Flight
Entertainment &
Connectivity
50%

SALES BY MARKETS

SALES BY PRODUCTS

SALES BY MAJOR FOCUS

FIVE-YEAR PERFORMANCE HIGHLIGHT

($ in thousands)

MARKETS

Aerospace Segment

2019

2018

2017

2016

2015

Commercial Transport

$523,921

$536,269

$414,523

$435,552

$455,569

Military

Business Jet

Other

76,542

67,541

24,605

68,138

43,090

28,128

61,270

41,298

17,512

54,556

25,407

18,526

43,295

32,796

18,078

Aerospace Total

692,609

675,625

534,603

534,041

549,738

Test Systems Segment

Semiconductor

Aerospace & Defense

Test Systems Total

TOTAL

PRODUCTS

9,692

70,401

80,093

84,254

43,377

127,631

31,999

57,862

89,861

37,939

61,143

99,082

92,136

50,405

142,541

$772,702

$803,256

$624,464

$633,123

$692,279

Aerospace Segment

2019

2018

Electrical Power & Motion

$338,237

$303,180

Lighting & Safety

Avionics

Systems Certification

Structures

Other

185,462

106,787

14,401

23,117

24,605

174,383

131,849

13,951

24,134

28,128

2017

$264,286

158,663

53,960

14,333

25,849

17,512

2016

$288,465

156,871

32,761

16,531

20,887

18,526

2015

$279,752

157,143

56,150

21,317

16,372

19,004

Aerospace Total

692,609

675,625

534,603

534,041

549,738

Test Systems Segment

Semiconductor

Aerospace & Defense

Test Systems Total

9,692

70,401

80,093

84,254

43,377

127,631

31,999

57,862

89,861

37,939

61,143

99,082

92,136

50,405

142,541

TOTAL

$772,702

$803,256

$624,464

$633,123

$692,279

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2019 Form 10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________
Form 10-K
___________________________________________________________

☒

☐

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the transition period from__________ to __________

For the Fiscal Year Ended December 31, 2019

Commission File Number 0-7087
___________________________________________________________

Astronics Corporation

(Exact Name of Registrant as Specified in its Charter)
___________________________________________________________

New York
(State or other jurisdiction of
incorporation or organization)

16-0959303
(I.R.S. Employer
Identification No.)

130 Commerce Way, East Aurora, NY 14052
(Address of principal executive office)
Registrant’s telephone number, including area code (716) 805-1599
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $.01 par value per share

ATRO

NASDAQ Stock Market

___________________________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the

Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and

will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a

smaller reporting company. See definition of “large accelerated filer”, an “accelerated filer”, a “non-accelerated filer” and a
“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☒
Non-accelerated filer

☐
Smaller Reporting Company ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

Accelerated filer

☐

As of February 24, 2020, 30,720,701 shares were outstanding, consisting of 23,205,729 shares of Common Stock $.01 par

value and 7,514,972 shares of Class B Stock $.01 par value. The aggregate market value, as of the last business day of the
Company’s most recently completed second fiscal quarter, of the shares of Common Stock and Class B Stock of Astronics
Corporation held by non-affiliates was approximately $1,107,000,000 (assuming conversion of all of the outstanding Class B
Stock into Common Stock and assuming the affiliates of the Registrant to be its directors, executive officers and persons known to
the Registrant to beneficially own more than 10% of the outstanding capital stock of the Corporation).

Portions of the Company’s Proxy Statement for the 2020 Annual Meeting of Shareholders to be held May 21, 2020 are

incorporated by reference into Part III of this Report.

DOCUMENTS INCORPORATED BY REFERENCE

Table of Contents

ASTRONICS CORPORATION
Index to Annual Report
on Form 10-K

Year Ended December 31, 2019

PART I

Business

Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.

Properties

Legal Proceedings

Item 3.
Item 4. Mine Safety Disclosures

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of

Equity Securities

Selected Financial Data

Item 6.
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

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information

PART III

Item 10. Directors, Executive Officers and Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accountant Fees and Services

PART IV

Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary

Page

FORWARD LOOKING STATEMENTS

Information included or incorporated by reference in this report that does not consist of historical facts, including statements
accompanied by or containing words such as “may,” “will,” “should,” “believes,” “expects,” “expected,” “intends,” “plans,”
“projects,” “approximate,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume” and “assume,”
are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to several
factors, risks and uncertainties, the impact or occurrence of which could cause actual results to differ materially from the
expected results described in the forward-looking statements. Certain of these factors, risks and uncertainties are discussed in
the sections of this report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations.” New factors, risks and uncertainties may emerge from time to time that may affect the forward-looking
statements made herein. Given these factors, risks and uncertainties, investors should not place undue reliance on forward-
looking statements as predictive of future results. We disclaim any obligation to update the forward-looking statements made in
this report.

ITEM 1.

BUSINESS

PART I

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.

We have principal operations in the United States (“U.S.”), Canada, France and the United Kingdom (“UK”), as well as
engineering offices in the Ukraine and India. We design and build our products through our wholly owned subsidiaries
Astronics Advanced Electronic Systems Corp. (“AES”); Astronics AeroSat Corporation (“AeroSat”); Armstrong Aerospace,
Inc. (“Armstrong”); Astronics Test Systems, Inc. (“ATS”); Ballard Technology, Inc. (“Ballard”); Astronics Custom Control
Concepts Inc. (“CCC”); Astronics Connectivity Systems and Certification Corp. and subsidiaries (“CSC”); Diagnosys Inc. and
its affiliates (“Diagnosys”); Astronics DME LLC (“DME”); Freedom Communication Technologies, Inc. (“Freedom”);
Luminescent Systems, Inc. (“LSI”); Luminescent Systems Canada, Inc. (“LSI Canada”); Max-Viz, Inc. (“Max-Viz”); Peco, Inc.
(“Peco”); and PGA Electronic s.a. (“PGA”).

Acquisitions

On October 4, 2019, the Company acquired the stock of the primary operating subsidiaries as well as certain other assets from
mass transit and defense market test solution provider, Diagnosys Test Systems Limited, for $7.0 million in cash, plus
contingent purchase consideration (“earn-out”) estimated at a fair value of $2.5 million. Diagnosys is included in our Test
Systems segment. Diagnosys is a developer and manufacturer of comprehensive automated test equipment providing test,
support, and repair of high value electronics, electro-mechanical, pneumatic and printed circuit boards focused on the global
mass transit and defense markets. The terms of the acquisition allow for a potential earn-out of up to an additional $13.0 million
over the next three years based on achievement of new order levels of over $72.0 million during that period. The acquired
business has operations in Westford, Massachusetts as well as Ferndown, England, and an engineering center of excellence in
Bangalore, India.

Divestitures

On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems
segment. The business was not core to the future of the Test Systems segment. The total proceeds received for the sale
amounted to $103.8 million. The Company recorded a pre-tax gain on the sale of $80.1 million in the first quarter of 2019. The
Company recorded income tax expense relating to the gain of $19.7 million.

The transaction also includes 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 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 due under the First Earnout.

On July 12, 2019, the Company sold intellectual property and certain assets associated with its Airfield Lighting product line
for $1.0 million in cash. The Airfield Lighting product line, part of the Aerospace segment, was not core to the business and
represented less than 1% of revenue. The Company recorded a pre-tax loss on the sale of approximately $1.3 million.

Products and Customers

Our Aerospace segment designs and manufactures products for the global aerospace and defense industry. Product lines include
lighting and safety systems, electrical power generation, distribution and motions systems, aircraft structures, avionics products,
systems certification, and other products. Our 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. During 2019, this segment’s sales were
divided 76% to the commercial transport market, 11% to the military aircraft market, 10% to the business jet market and 3% to
other markets. Most of this segment’s sales are a result of contracts or purchase orders received from customers, placed on a
day-to-day basis or for single year procurements rather than long-term multi-year contract commitments. On occasion, the
Company does receive contractual commitments or blanket purchase orders from our customers covering multiple-year
deliveries of hardware to our customers.

Our Test Systems segment designs, develops, manufactures and maintains automated test systems that support the aerospace,
communications and weapons test systems 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.

Sales by segment, geographic region, major customer and foreign operations are provided in Note 20 of Item 8, Financial
Statements and Supplementary Data in this report.

We have a significant concentration of business with two major customers; The Boeing Company (“Boeing”) and Panasonic
Avionics Corporation (“Panasonic”). Sales to Boeing accounted for 13.6% of sales in 2019, 14.3% of sales in 2018, and 16.8%
of sales in 2017. Sales to Panasonic accounted for 13.0% of sales in 2019, 14.4% of sales in 2018, and 19.1% of sales in 2017.

Strategy

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

Practices as to Maintaining Working Capital

Liquidity is discussed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of
Operations, in the Liquidity and Capital Resources section of this report.

Competitive Conditions

We experience considerable competition in the market sectors we serve, principally with respect to product performance and
price, from various competitors, many of which are substantially larger and have greater resources. Success in the markets we
serve depends upon product innovation, customer support, responsiveness and cost management. We continue to invest in
developing the technologies and engineering support critical to competing in our markets.

Government Contracts

All U.S. government contracts, including subcontracts where the U.S. government is the ultimate customer, may be subject to
termination at the election of the government. Our revenue stream relies on military spending. Approximately 13% of our
consolidated sales were made to the military aircraft and military test systems markets combined.

Raw Materials

Materials, supplies and components are purchased from numerous sources. We believe that the loss of any one source, although
potentially disruptive in the short-term, would not materially affect our operations in the long-term.

Seasonality

Our business is typically not seasonal.

Backlog

At December 31, 2019, our consolidated backlog was $359.6 million. At December 31, 2018, our backlog was $415.5 million.
Excluding backlog related to the divested semiconductor business, our backlog was $403.3 million at December 31, 2018.
Backlog in the Aerospace segment was $275.8 million at December 31, 2019, of which $249.6 million is expected to be
recognized as revenue in 2020. Backlog in the Test Systems segment was $83.8 million at December 31, 2019. The Test
Systems segment expects to recognize as revenue $51.4 million of backlog in 2020.

Patents

We have a number of patents. While the aggregate protection of these patents is of value, our only material business that is
dependent upon the protection afforded by these patents is our cabin power distribution products. Our patents and patent
applications relate to electroluminescence, instrument panels, cord reels and handsets, and a broad patent covering the cabin
power distribution technology. We regard our expertise and techniques as proprietary and rely upon trade secret laws and
contractual arrangements to protect our rights. We have trademark protection in our major markets.

Research, Development and Engineering Activities

We are engaged in a variety of engineering and design activities as well as basic research and development activities directed to
the substantial improvement or new application of our existing technologies. These costs are expensed when incurred and
included in cost of sales. Research, development and engineering costs amounted to approximately $108.9 million in 2019,
$114.3 million in 2018 and $95.0 million in 2017.

Employees

We employed approximately 2,800 employees at December 31, 2019. We consider our relations with our employees to be
good. We have approximately 165 hourly production employees at Peco who are subject to collective bargaining agreements.

Available information

We file our financial information and other materials as electronically required with the Securities and Exchange Commission
(“SEC”). These materials can be accessed electronically via the Internet at www.sec.gov. Such materials and other information
about the Company are also available through our website at www.astronics.com.

ITEM 1A.

RISK FACTORS

The loss of Boeing or Panasonic as major customers or a significant reduction in business with either of those customers
would reduce our sales and earnings. In 2019, we had a concentration of sales to Boeing and Panasonic representing
approximately 13.6% and 13.0% of our sales, respectively. The loss of either of these customers or a significant reduction in
business with them would significantly reduce our sales and earnings.

In October 2018 and March of 2019, two commercial aircraft accidents led to the grounding by the Federal Aviation
Administration and other regulators of the Boeing 737 MAX aircraft, on which we have significant content. The grounding of
the Boeing 737 MAX, which started in March of 2019, has caused the production rate of that aircraft to be lower than expected
in fiscal year 2019. The ongoing 737 MAX grounding affects our business both because of the production pause, impacting our
line-fit content, and because it leaves many of our airline customers short of capacity, which makes them reluctant to take other
aircraft out of service to install the types of retrofit products they buy from us. Although we expect, based on information that
Boeing has made publicly available, that deliveries of the 737 MAX program will resume and that the demand for the aircraft in
the long-term has not changed, a prolonged or permanent grounding of the Boeing 737 MAX could substantially decrease our
Aerospace segment sales in the near or long-term, which could have a material adverse effect on our business, financial
condition, results of operations, and cash flows. Even if deliveries of the 737 MAX program resume, demand for the aircraft
could be lower than was expected prior to the initial grounding of the aircraft.

A write-off of all or part of our goodwill or other intangible assets could adversely affect our operating results and net
worth. At December 31, 2019, goodwill and net intangible assets were approximately 18.5% and 16.3% of our total assets,
respectively. In 2019, we recorded goodwill and intangible asset impairment charges of $1.6 million and $6.2 million related to
our AeroSat antenna business, respectively. Our goodwill and other intangible assets may increase in the future since our
strategy includes growing through acquisitions. We may have to write-off all or part of our goodwill or purchased intangible
assets if their value becomes impaired. Although this write-off would not result in an outlay of cash, it could reduce our
earnings and net worth significantly.

The markets we serve are cyclical and sensitive to domestic and foreign economic conditions and events, which may
cause our operating results to fluctuate. Demand for our products is, to a large extent, dependent on the demand and success
of our customers' products where we are a supplier to an OEM. In our Aerospace segment, demand by the business jet markets
for our products is dependent upon several factors, including capital investment, product innovations, economic growth and
wealth creation and technology upgrades. In addition, the commercial airline industry is highly cyclical and sensitive to such
things as fuel price increases, labor disputes, global economic conditions, availability of capital to fund new aircraft purchases
and upgrades of existing aircraft and passenger demand. A change in any of these factors could result in a reduction in the
amount of air travel and the ability of airlines to invest in new aircraft or to upgrade existing aircraft. These factors would
reduce orders for new aircraft and would likely reduce airlines’ spending for cabin upgrades for which we supply products, thus

reducing our sales and profits. A reduction in air travel may also result in our commercial airline customers being unable to pay
our invoices on a timely basis or not at all.

We are a supplier on various new aircraft programs just entering or expected to begin production in the future. As with any new
program, there is risk as to whether the aircraft or program will be successful and accepted by the market. As is customary for
our business, we purchase inventory and invest in specific capital equipment to support our production requirements generally
based on delivery schedules provided by our customer. If a program or aircraft is not successful, we may have to write-off all or
a part of the inventory, accounts receivable and capital equipment related to the program. A write-off of these assets could
result in a significant reduction of earnings and cause covenant violations relating to our debt agreements. This could result in
our being unable to borrow additional funds under our bank credit facility or being obliged to refinance or renegotiate the terms
of our bank indebtedness.

In our Test Systems segment, the market for our products is concentrated with a limited number of significant customers
accounting for a substantial portion of the purchases of test equipment. In any one reporting period, a single customer or several
customers may contribute an even larger percentage of our consolidated sales. In addition, our ability to increase sales will
depend, in part, on our ability to obtain orders from current or new significant customers. The opportunities to obtain orders
from these customers may be limited, which may impair our ability to grow sales. We expect that sales of our Test Systems
products will continue to be concentrated with a limited number of significant customers for the foreseeable future.
Additionally, demand for some of our test products is dependent upon government funding levels for our products, our ability
to compete successfully for those contracts and our ability to develop products to satisfy the demands of our customers.

Our products are sold in highly competitive markets. Some of our competitors are larger, more diversified corporations and
have greater financial, marketing, production and research and development resources. As a result, they may be better able to
withstand the effects of periodic economic downturns. Our operations and financial performance will be negatively impacted if
our competitors:

•

develop products that are superior to our products;

develop products that are more competitively priced than our products;

develop methods of more efficiently and effectively providing products and services; or

adapt more quickly than we do to new technologies or evolving customer requirements.

We believe that the principal points of competition in our markets are product quality, price, design and engineering
capabilities, product development, conformity to customer specifications, quality of support after the sale, timeliness of delivery
and effectiveness of the distribution organization. Maintaining and improving our competitive position will require continued
investment in manufacturing, engineering, quality standards, marketing, customer service and support and our distribution
networks. If we do not maintain sufficient resources to make these investments, or are not successful in maintaining our
competitive position, our operations and financial performance will suffer.

Our future success depends to a significant degree upon the continued contributions of our management team and
technical personnel. The loss of members of our management team could have a material and adverse effect on our business.
In addition, competition for qualified technical personnel in our industry is intense, and we believe that our future growth and
success will depend on our ability to attract, train and retain such personnel.

We may incur losses and liabilities as a result of our acquisition strategy. Growth by acquisition involves risks that could
adversely affect our financial condition and operating results, including:

•

diversion of management time and attention from our core business;

the potential exposure to unanticipated liabilities;

the potential that expected benefits or synergies are not realized and that operating costs increase;

the risks associated with incurring additional acquisition indebtedness, including that additional indebtedness
could limit our cash flow availability for operations and our flexibility;

difficulties in integrating the operations and personnel of acquired companies; and

the potential loss of key employees, suppliers or customers of acquired businesses.

In addition, any acquisition, once successfully integrated, could negatively impact our financial performance if it does not
perform as planned, does not increase earnings, or does not prove otherwise to be beneficial to us.

We currently are involved or may become involved in the future, in legal proceedings that, if adversely adjudicated or
settled, could materially impact our financial condition. As an aerospace company, we may become a party to litigation in
the ordinary course of our business, including, among others, matters alleging product liability, warranty claims, breach of
commercial or government contract or other legal actions. In general, litigation claims can be expensive and time consuming to
bring or defend against and could result in settlements or damages that could significantly impact results of operations and
financial condition.

Currently, our subsidiary, AES is a defendant in actions filed in various jurisdictions by Lufthansa Technik AG relating
to an allegation of patent infringement and based on rulings to date we have concluded that losses related to these
proceedings are probable. Refer to Note 19 of our Consolidated Financial Statements in Item 8 for discussion on the legal
proceedings. If these actions are decided adversely against the Company, the associated damages could result in a material
adverse effect on our results of operations or financial condition.

Other than these proceedings, we are not party to any significant pending legal proceedings that management believes will
result in a material adverse effect on our results of operations or financial condition.

The amount of debt we have outstanding, as well as any debt we may incur in the future, could have an adverse effect on
our operational and financial flexibility. As of December 31, 2019, we had approximately $188.2 million of debt outstanding
of which $188.0 million is long-term debt. Changes to our level of debt subsequent to December 31, 2019 could have
significant consequences to our business, including the following:

•

Depending on interest rates and debt maturities, a substantial portion of our cash flow from operations could
be dedicated to paying principal and interest on our debt, thereby reducing funds available for our acquisition
strategy, capital expenditures or other purposes;

A significant amount of additional debt could make us more vulnerable to changes in economic conditions or
increases in prevailing interest rates;

Our ability to obtain additional financing for acquisitions, capital expenditures or for other purposes could be
impaired;

The increase in the amount of debt we have outstanding increases the risk of non-compliance with some of
the covenants in our debt agreements which require us to maintain specified financial ratios; and

We may be more leveraged than some of our competitors, which may result in a competitive disadvantage.

We are subject to debt covenant restrictions. Our credit facility contains certain financial and other restrictive covenants. A
significant decline in our operating income could cause us to violate our covenants. A covenant violation would require a
waiver by the lenders or an alternative financing arrangement be achieved. This could result in our being unable to borrow
under our bank credit facility or being obliged to refinance and renegotiate the terms of our bank indebtedness. Historically both
choices have been available to us, however, it is difficult to predict the availability of these options in the future.

We are subject to financing and interest rate exposure risks that could adversely affect our business, liquidity and
operating results. Changes in the availability, terms and cost of capital, and increases in interest rates could cause our cost of
doing business to increase and place us at a competitive disadvantage. At December 31, 2019, substantially all of our debt was
subject to variable interest rates.

The potential phase out of LIBOR may negatively impact our debt agreements and financial position, results of
operations and liquidity. On July 27, 2017, the UK’s Financial Conduct Authority announced that it intends to phase out
LIBOR by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established or whether different
benchmark rates used to price indebtedness will develop. If LIBOR ceases to exist, we may need to renegotiate our debt
agreements that extend beyond 2021 that utilize LIBOR as a factor in determining the interest rate, which may negatively
impact the terms of such indebtedness. In addition, the overall financial markets may be disrupted as a result of the phase out or
replacement of LIBOR. Disruption in the financial markets could have an adverse effect on our financial position, results of
operations, and liquidity.

Our future operating results could be impacted by estimates used to calculate impairment losses on long-lived assets.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management
to make significant and subjective estimates and assumptions that may affect the reported amounts of long-lived assets in the

financial statements. These estimates are integral in the determination of whether a potential non-cash impairment loss exists as
well as the calculation of that loss. Actual future results could differ from those estimates. As discussed in Note 23 to the
Consolidated Financial Statements, we recorded long-lived asset impairment losses of $9.5 million (excluding goodwill
impairment, which has been previously discussed) in connection with the AeroSat restructuring.

Future terror attacks, war, or other civil disturbances could negatively impact our business. Continued terror attacks, war
or other disturbances could lead to economic instability and decreases in demand for our products, which could negatively
impact our business, financial condition and results of operations. Terrorist attacks world-wide have caused instability from
time to time in global financial markets and the aviation industry. The long-term effects of terrorist attacks on us are unknown.
These attacks and the U.S. government’s continued efforts against terrorist organizations may lead to additional armed
hostilities or to further acts of terrorism and civil disturbance in the U.S. or elsewhere, which may further contribute to
economic instability.

General business conditions are vulnerable to the effects of epidemics, such as the COVID-19 coronavirus, which could
materially disrupt our business. We are vulnerable to the global economic effects of epidemics and other public health crises,
such as the novel strain of COVID-19 virus reported to have surfaced in Wuhan, China in 2019. Due to the recent outbreak of
the COVID-19 virus, there has been a substantial curtailment of global travel and business activities which could have an
impact on airline spending and demand, and could negatively impact our sales if conditions worsen or extend for a prolonged
period of time. China has also limited the shipment of products in and out of its borders, which could negatively impact our
ability to receive products from our China-based suppliers and our ability to ship products to customers in that region. Supply
chain disruptions could negatively impact our sales. If not resolved quickly, the impact of the epidemic could have a material
adverse effect on our business.

Our business and operations could be adversely impacted in the event of a failure of our information technology
infrastructure or adversely impacted by a successful cyber-attack. We are dependent on various information technologies
throughout our company to administer, store and support multiple business activities. We routinely experience various
cybersecurity threats, threats to our information technology infrastructure, unauthorized attempts to gain access to our company
sensitive information, and denial-of-service attacks as do our customers, suppliers and subcontractors. We conduct regular
periodic training of our employees as to the protection of sensitive information which includes security awareness training
intended to prevent the success of “phishing” attacks.

The threats we face vary from attacks common to most industries to more advanced and persistent, highly organized
adversaries, including nation states, which target us and other defense contractors because we protect sensitive information. If
we are unable to protect sensitive information, our customers or governmental authorities could question the adequacy of our
threat mitigation and detection processes and procedures, and depending on the severity of the incident, our customers’ data,
our employees’ data, our intellectual property, and other third-party data (such as subcontractors, suppliers and vendors) could
be compromised. As a consequence of their persistence, sophistication and volume, we may not be successful in defending
against all such attacks. Due to the evolving nature of these security threats, the impact of any future incident cannot be
predicted.

Although we work cooperatively with our customers, suppliers, and subcontractors to seek to minimize the impact of cyber
threats, other security threats or business disruptions, we must rely on the safeguards put in place by these entities, which may
affect the security of our information. These entities have varying levels of cybersecurity expertise and safeguards and their
relationships with U.S. government contractors, such as Astronics, may increase the likelihood that they are targeted by the
same cyber threats we face.

Our inability to adequately enforce and protect our intellectual property or defend against assertions of infringement
could prevent or restrict our ability to compete. We rely on patents, trademarks and proprietary knowledge and technology,
both internally developed and acquired, in order to maintain a competitive advantage. Our inability to defend against the
unauthorized use of these rights and assets could have an adverse effect on our results of operations and financial condition.
Litigation may be necessary to protect our intellectual property rights or defend against claims of infringement. This litigation
could result in significant costs and divert our management’s focus away from operations. Refer to the risk factor related to
pending patent infringement litigation above and Note 19 to the Consolidated Financial Statements for further discussion.

If we are unable to adapt to technological change, demand for our products may be reduced. The technologies related to
our products have undergone, and in the future may undergo, significant changes. To succeed in the future, we will need to
continue to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and
cost effective basis. Our competitors may develop technologies and products that are more effective than those we develop or
that render our technology and products obsolete or uncompetitive. Furthermore, our products could become unmarketable if

new industry standards emerge. We may have to modify our products significantly in the future to remain competitive, and new
products we introduce may not be accepted by our customers.

Our new product development efforts may not be successful, which would result in a reduction in our sales and
earnings. We may experience difficulties that could delay or prevent the successful development of new products or product
enhancements, and new products or product enhancements may not be accepted by our customers. In addition, the development
expenses we incur may exceed our cost estimates, and new products we develop may not generate sales sufficient to offset our
costs. If any of these events occur, our sales and profits could be adversely affected.

We depend on government contracts and subcontracts with defense prime contractors and subcontractors that may not
be fully funded, may be terminated, or may be awarded to our competitors. The failure to be awarded these contracts,
the failure to receive funding or the termination of one or more of these contracts could reduce our sales. Sales to the
U.S. government and its prime contractors and subcontractors represent a significant portion of our business. The funding of
these programs is generally subject to annual congressional appropriations, and congressional priorities are subject to change. In
addition, government expenditures for defense programs may decline or these defense programs may be terminated. A decline
in governmental expenditures or the termination of existing contracts may result in a reduction in the volume of contracts
awarded to us. We have resources applied to specific government contracts and if any of those contracts were terminated, we
may incur substantial costs redeploying those resources.

If our subcontractors or suppliers fail to perform their contractual obligations, our prime contract performance and our
ability to obtain future business could be materially and adversely impacted. Many of our contracts involve subcontracts
with other companies upon which we rely to perform a portion of the services we must provide to our customers. There is a risk
that we may have disputes with our subcontractors, including disputes regarding the quality and timeliness of work performed
by the subcontractor or customer concerns about the subcontractor. Failure by our subcontractors to satisfactorily provide, on a
timely basis, the agreed-upon supplies or perform the agreed-upon services may materially and adversely impact our ability to
perform our obligations with our customer and could result in the assessment of late delivery penalties. Subcontractor
performance deficiencies could result in a customer terminating our contract for default. A default termination could expose us
to liability and substantially impair our ability to compete for future contracts and orders. In addition, a delay in our ability to
obtain components and equipment parts from our suppliers may affect our ability to meet our customers’ needs and may have
an adverse effect upon our profitability.

Our results of operations are affected by our fixed-price contracts, which could subject us to losses in the event that we
have cost overruns. For the year ended December 31, 2019, fixed-price contracts represented almost all of the Company’s
sales. On fixed-price contracts, we agree to perform the scope of work specified in the contract for a predetermined price.
Depending on the fixed price negotiated, these contacts may provide us with an opportunity to achieve higher profits based on
the relationship between our costs and the contract’s fixed price. However, we bear the risk that increased or unexpected costs
may reduce our profit.

Some of our contracts contain late delivery penalties. Failure to deliver in a timely manner due to supplier problems,
development schedule slides, manufacturing difficulties, or similar schedule-related events could have a material adverse effect
on our business.

The failure of our products may damage our reputation, necessitate a product recall or result in claims against us that
exceed our insurance coverage, thereby requiring us to pay significant damages. Defects in the design and manufacture of
our products may necessitate a product recall. We include complex system design and components in our products that could
contain errors or defects, particularly when we incorporate new technology into our products. If any of our products are
defective, we could be required to redesign or recall those products or pay substantial damages or warranty claims. Such an
event could result in significant expenses, disrupt sales and affect our reputation and that of our products. We are also exposed
to product liability claims. We carry aircraft and non-aircraft product liability insurance consistent with industry norms.
However, this insurance coverage may not be sufficient to fully cover the payment of any potential claim. A product recall or a
product liability claim not covered by insurance could have a material adverse effect on our business, financial condition and
results of operations.

Changes in discount rates and other estimates could affect our future earnings and equity. Our goodwill asset impairment
evaluations are determined using valuations that involve several assumptions, including discount rates, cash flow estimates,
growth rates and terminal values. Certain of these assumptions, particularly the discount rate, are based on market conditions
and are outside of our control. Changes in these assumptions could affect our future earnings and equity.

Additionally, pension obligations and the related costs are determined using actual results and actuarial valuations that involve
several assumptions. The most critical assumption is the discount rate. Other assumptions include mortality, salary increases

and retirement age. The discount rate assumptions are based on current market conditions and are outside of our control.
Changes in these assumptions could affect our future earnings and equity.

Contracting in the defense industry is subject to significant regulation, including rules related to bidding, billing and
accounting kickbacks and false claims, and any non-compliance could subject us to fines and penalties or possible
debarment. Like all government contractors, we are subject to risks associated with this contracting. These risks include the
potential for substantial civil and criminal fines and penalties. These fines and penalties could be imposed for failing to follow
procurement integrity and bidding rules, employing improper billing practices or otherwise failing to follow cost accounting
standards, receiving or paying kickbacks or filing false claims. We have been, and expect to continue to be, subjected to audits
and investigations by government agencies. The failure to comply with the terms of our government contracts could harm our
business reputation. It could also result in suspension or debarment from future government contracts.

If we fail to meet expectations of securities analysts or investors due to fluctuations in our sales or operating results, our
stock price could decline significantly. Our sales and earnings may fluctuate from quarter to quarter due to a number of
factors, including delays or cancellations of programs. It is likely that in some future quarters our operating results may fall
below the expectations of securities analysts or investors. In this event, the trading price of our stock could decline significantly.

Our operations in foreign countries expose us to political and currency risks and adverse changes in local legal and
regulatory environments. In 2019, approximately 11% of our sales were made by our subsidiaries in foreign countries,
predominately in our subsidiaries in France and Canada. Net assets held by these two subsidiaries total $64.3 million at
December 31, 2019. Approximately 25% of our consolidated sales in 2019 were made to customers outside of the United
States. Our financial results may be adversely affected by fluctuations in foreign currencies and by the translation of the
financial statements of our foreign subsidiaries from local currencies into U.S. dollars. We expect international operations and
export sales to continue to contribute to our earnings for the foreseeable future. Both the sales from international operations and
export sales are subject in varying degrees to risks inherent in doing business outside of the U.S. Such risks include the
possibility of unfavorable circumstances arising from host country laws or regulations, changes in tariff and trade barriers and
import or export licensing requirements, and political or economic reprioritization, insurrection, civil disturbance or war.

Government regulations could limit our ability to sell our products outside the U.S. and could otherwise adversely affect
our business. Certain of our sales are subject to compliance with U.S. export regulations. Our failure to obtain, or fully adhere
to the limitations contained in, the requisite licenses, meet registration standards or comply with other government export
regulations would hinder our ability to generate sales of our products outside the U.S. Compliance with these government
regulations may also subject us to additional fees and operating costs. The absence of comparable restrictions on competitors in
other countries may adversely affect our competitive position. In order to sell our products in European Union countries, we
must satisfy certain technical requirements. If we are unable to comply with those requirements with respect to a significant
quantity of our products, our sales in Europe would be restricted. Doing business internationally also subjects us to numerous
U.S. and foreign laws and regulations, including regulations relating to import-export control, technology transfer restrictions,
foreign corrupt practices and anti-boycott provisions. Our failure, or failure by an authorized agent or representative that is
attributable to us, to comply with these laws and regulations could result in administrative, civil or criminal liabilities and could,
in the extreme case, result in monetary penalties, suspension or debarment from government contracts or suspension of our
export privileges, which would have a material adverse effect on us.

Our stock price is volatile. For the year ended December 31, 2019, our stock price ranged from a low of $26.08 to a high of
$44.20. The price of our common stock has been and likely will continue to be subject to wide fluctuations in response to a
number of events and factors, such as:

•

quarterly variations in operating results;

variances of our quarterly results of operations from securities analyst estimates;

changes in financial estimates;

announcements of technological innovations and new products;

news reports relating to trends in our markets; and

the cancellation of major contracts or programs with our customers.

In addition, the stock market in general, and the market prices for companies in the aerospace and defense industry in particular,
have experienced significant price and volume fluctuations that often have been unrelated to the operating performance of the
companies affected by these fluctuations. These broad market fluctuations may adversely affect the market price of our
common stock, regardless of our operating performance.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None

ITEM 2.

PROPERTIES

On December 31, 2019, we own or lease 1.4 million square feet of space, distributed by segment as follows:

Aerospace

Test Systems

Total Square Feet

Owned

Leased

749,000

—

749,000

445,000

158,000

603,000

Total

1,194,000

158,000

1,352,000

We have principal operations in the U.S., Canada, France and the UK, as well as engineering offices in the Ukraine and India.

Upon the expiration of our current leases, we believe that we will be able to either secure renewal terms or enter into leases for
or purchases of alternative locations at market terms. We believe that our properties have been adequately maintained and are
generally in good condition.

ITEM 3.

LEGAL PROCEEDINGS

Currently, we are involved in legal proceedings relating to an allegation of patent infringement and based on rulings to date we
have concluded that losses related to these proceedings are probable. For a discussion of contingencies related to legal
proceedings, see Note 19 to our Consolidated Financial Statements.

ITEM 4.

MINE SAFETY DISCLOSURES

Not Applicable

PART II

ITEM 5.
ISSUER PURCHASES OF EQUITY SECURITIES

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND

The table below sets forth the range of prices for the Company’s Common Stock, traded on the NASDAQ National Market
System, for each quarterly period during the last two years. The approximate number of shareholders of record as of
February 24, 2020, was 726 for Common Stock and 2,003 for Class B Stock.

2019
First

Second

Third

Fourth

2018
First

Second

Third

Fourth

High

Low

36.01

44.20

41.86

31.50

High

41.18

34.23

40.10

37.80

28.55

31.69

26.08

27.95

Low

30.94

29.40

31.60

28.46

The Company has not paid any cash dividends in the three-year period ended December 31, 2019. The Company has no plans
to pay cash dividends as it plans to retain all cash from operations as a source of capital to finance working capital and growth
in the business.

On February 24, 2016, the Company’s Board of Directors authorized the repurchase of up to $50 million of common stock,
which allowed 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 repurchased approximately 1,675,000 shares and has
completed that program in 2017. On December 12, 2017, the Company’s Board of Directors authorized an additional
repurchase of up to $50 million. No shares were repurchased in 2018. The Company repurchased approximately 1,823,000
shares and completed that program in the third quarter of 2019. On September 17, 2019, the Company’s Board of Directors
authorized an additional repurchase of up to $50 million. An additional 28,000 shares were repurchased under the new program
as of December 31, 2019 at a cost of $0.8 million. Subsequent to December 31, 2019, approximately 282,000 additional shares
were repurchased at a cost of $7.7 million.

The following graph and table shows the performance of the Company’s common stock compared with the S&P 500 Index —
Total Return and the NASDAQ US and Foreign Companies for a $100 investment made December 31, 2014:

Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2019

200.00

150.00

100.00

50.00

0.00

2014

2015

2016

2017

2018

2019

Astronics Corp.

S&P 500 Index - Total Return

NASDAQ Stock Market (US and Foreign Companies)

Astronics Corp.

S&P 500 Index - Total Returns

2014

2015

2016

2017

2018

2019

Return %

— (15.99)

(1.75)

22.55

(13.30)

(8.21)

Cum $

100.00

Return %

—

84.01

1.38

82.53

11.96

101.14

21.83

87.69

(4.38)

80.49

31.49

Cum $

100.00

101.38

113.51

138.29

132.23

173.86

NASDAQ Stock Market (US and Foreign Companies) Return %

— 6.99

8.80

29.37

(2.95)

35.78

Cum $

100.00

106.99

116.42

150.60

146.15

198.45

ITEM 6.

SELECTED FINANCIAL DATA

Five-Year Performance Highlights

(Amounts in thousands, except for employees and per share data)
RESULTS OF OPERATIONS:

Sales

Impairment Loss included in Net Income (4)

Net Gain on Sales of Businesses (5)

Net Income

Net Margin

Diluted Earnings Per Share (1)

Weighted Average Shares Outstanding – Diluted (1)

Return on Average Equity
YEAR-END FINANCIAL POSITION:

Working Capital (2)

Total Assets

Indebtedness

Shareholders’ Equity

Book Value Per Share (1)

OTHER YEAR-END DATA:

Depreciation and Amortization

Capital Expenditures

Shares Outstanding (1)

Number of Employees

2019 (6)

2018

2017 (3)

2016

2015

$ 772,702

$ 803,256

$ 624,464

$ 633,123

$ 692,279

11,083

78,801

52,017

6.7 %

1.60

32,459

13.4 %

— $

16,237

— $

46,803

5.8 %

1.41

33,136

13.1 %

19,679

3.2 %

0.58

33,718

5.9 %

— $

48,424

7.6 %

1.40

34,537

15.2 %

—

66,974

9.7 %

1.93

34,706

25.3 %

$ 222,441

$ 246,079

$ 212,438

$ 168,513

$ 145,735

$ 782,716

$ 774,640

$ 735,956

$ 604,344

$ 609,243

$ 188,224

$ 233,982

$ 271,767

$ 148,120

$ 169,789

$ 388,857

$ 386,625

$ 329,927

$ 337,449

$ 300,225

12.54

33,049

12,083

30,999

2,828

11.86

35,032

16,317

32,593

2,690

10.22

27,063

13,478

32,269

2,516

10.13

25,790

13,037

33,328

2,304

8.93

25,309

18,641

33,635

2,304

1. Diluted Earnings Per Share, Weighted Average Shares Outstanding - Diluted, Book Value Per Share and Shares
Outstanding have been adjusted for the impact of the October 12, 2018 fifteen percent Class B stock distribution,
October 11, 2016 fifteen percent Class B stock distribution and the October 8, 2015 fifteen percent Class B stock
distribution.

2. Working capital is calculated as the difference between Current Assets and Current Liabilities.

Information includes the results of CCC, acquired on April 3, 2017, and CSC, acquired on December 1, 2017, each
from the acquisition date forward.

4. The Company recorded impairment charges in conjunction with restructuring, impairment and other activities during
the fourth quarter of 2019, as described in Note 23 in our consolidated financial statements. The Company recorded a
goodwill impairment charge during the fourth quarter of 2017.

5. The Company recorded a gain of $80.1 million upon the sale of the semiconductor business on February 13, 2019,

offset by a $1.3 million loss on the sale of the airfield lighting product line on July 12, 2019.

Information includes the results of Freedom, acquired on July 1, 2019, and Diagnosys, acquired on October 4, 2019,
each from the acquisition date forward. Information reflects the sale of the semiconductor business, divested on
February 13, 2019. Information included in 2019 is impacted by restructuring, impairment and other charges; as
described in Note 23 in our consolidated financial statements.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

OVERVIEW

Astronics, through its subsidiaries, is a leading supplier of advanced, high-performance electrical power generation, distribution
and seat motion solutions, lighting and safety systems, avionics products, systems certification, aircraft structures and
automated test systems.

Our strategy is to increase our value by developing technologies and capabilities either internally or through acquisition, and
use those capabilities to provide innovative solutions to the aerospace & defense and other markets where our technology can
be beneficial.

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 the Ukraine and India.

Our Aerospace segment serves three primary markets. They are the military, commercial transport and business jet markets.
Our Test Systems segment serves the aerospace & defense and mass transit markets.

Important factors affecting our growth and profitability are 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 business is
dependent on developing and procuring new and follow-on business in the mass-transit market as well as with the military. The
nature of our Test Systems business is such that it pursues large 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.

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.

Challenges which continue to face us include 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
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, 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. 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.

ACQUISITIONS

acquisition allow for a potential earn-out of up to an additional $13.0 million over the next three years based on achievement of
new order levels of over $72.0 million during that period. The acquired business has operations in Westford, Massachusetts as
well as Ferndown, England, and an engineering center of excellence in Bangalore, India. Refer to Note 21 for additional
information.

DIVESTITURES

RESTRUCTURING

In the fourth quarter of 2019, in an effort to reduce the significant operating losses at our AeroSat business, we initiated a
restructuring plan to reduce costs and minimize losses of our AeroSat antenna business. The plan narrows the initiatives for the
AeroSat business to focus primarily on near-term opportunities pertaining to business jet connectivity. The plan has a
downsized manufacturing operation remaining in New Hampshire, with significantly reduced personnel and operating
expenses.

The Company's total impairments and restructuring charges recorded in the fourth quarter of 2019 amounted to $28.8 million
all of which is included in the Aerospace segment. Refer to Note 23 for additional discussion.

MARKETS

Commercial Transport Market

Sales to the commercial transport market include sales of electrical power generation, distribution, seat motion, lighting &
safety products, avionics products, systems certification and structures products. Sales to this market totaled approximately
$523.9 million or 67.8% of our consolidated sales in 2019.

Maintaining and growing sales to the commercial transport market will depend 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. Although we expect, based on information that Boeing has made publicly available, that deliveries of the 737 MAX
program will resume and the demand for the aircraft in the long-term has not changed, a prolonged grounding of the 737 MAX
could substantially decrease sales to this market in the near or long term which could have a material adverse effect on our
business, financial condition, results of operations and cash flows. The 737 MAX situation affects us not only because it has
been our largest production program, but also because the grounding has reduced capacity in the world’s airline fleets,
challenging our aftermarket business. 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 & safety products, avionics products, electrical power & motion
products and structures products. Sales to this market totaled approximately 9.9% of our consolidated sales and amounted to
$76.5 million in 2019.

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 regarding this market.

Business Jet Market

Sales to the business jet market include sales of lighting & safety products, avionics products, and electrical power & motion
products. Sales to this market totaled approximately 8.7% of our consolidated sales in 2019 and amounted to $67.5 million.

Sales to the business jet market are driven by our ship set content on new aircraft and build rates of new aircraft. Business jet
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 & safety, electrical power and avionics technologies in this market.
There is risk involved in the development of 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.

Tests Systems Products

Our Test Systems segment accounted for approximately 10.4% of our consolidated sales in 2019 and amounted to $80.1
million. Sales to the aerospace & defense market were approximately $70.4 million in 2019. Sales to the semiconductor market
were approximately $9.7 million. The Company completed a divestiture of its semiconductor test business on February 13,
2019.

CRITICAL ACCOUNTING POLICIES

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 of 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

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 invoicing, 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. As of December 31, 2019, the
Company does 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 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 December 31, 2019, the Company does not have material capitalized fulfillment costs. Capitalized
fulfillment costs were $9.6 million as of December 31, 2018. These costs were associated with a contract that is included in the
divestiture of the semiconductor business and as such, the balance is included in Assets Held for Sale in the accompanying
consolidated balance sheet at December 31, 2018. Amortization of fulfillment costs recognized within Cost of Products Sold
was approximately $1.0 million for the year ended December 31, 2018.

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, which is generally upon delivery and acceptance by the customer. 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 on a straight-line basis
throughout the contract period.

Reviews for Impairment of Long-Lived Assets

Goodwill Impairment Testing

Our goodwill is the result of the excess of purchase price over net assets acquired from acquisitions. As of December 31, 2019,
we had approximately $145.0 million of goodwill. As of December 31, 2018, we had approximately $125.0 million of
goodwill.

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.

Companies may perform a qualitative assessment as the initial step in the annual goodwill impairment testing process for all or
selected reporting units under certain circumstances. Companies are also allowed to bypass the qualitative analysis and perform
a quantitative analysis if desired. Economic uncertainties and the length of time from the calculation of a baseline fair value are
factors that we would consider in determining whether to perform a quantitative test.

Quantitative testing first requires a comparison of the fair value of each reporting unit to the carrying value. 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 any loss must be measured. Goodwill impairment
is measured as the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying value of
goodwill.

In 2019, we performed quantitative assessments for the reporting units which had goodwill as of the first day of the fourth
quarter. Based on our quantitative assessment, the Company recorded a full goodwill impairment charge of approximately
$1.6 million in the December 31, 2019 consolidated statement of operations associated with the AeroSat reporting unit. The
impairment loss was incurred in the Aerospace segment and is reported within the Impairment Loss line of the Consolidated
Statements of Operations.

CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK

(In thousands, except percentages)
Sales

Gross Margin

SG&A Expenses as a Percentage of Sales

Impairment Loss

Net Gain on Sale of Businesses

Interest Expense

Effective Tax Rate

Net Income

2019 (2)

2018

2017 (1)

772,702

803,256

624,464

20.2 %

18.6 %

11,083
78,801
6,141

23.8 %

52,017

$
$
$

22.5 %

14.6 %

— $
— $
$

9,710

10.5 %

46,803

22.0 %

14.2 %

16,237
—
5,369

21.3 %

19,679

$
$
$

(1) Our results of operations for 2017 include the operations of CCC, beginning April 3, 2017, and the operations of CSC,
beginning December 1, 2017.

(2) Our results of operations for 2019 include the operations of Freedom, beginning July 1, 2019, and the operations of
Diagnosys, beginning October 4, 2019. 2019 results also reflect the divestiture of the semiconductor business on February 13,
2019.

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

CONSOLIDATED OVERVIEW OF OPERATIONS

2019 Compared With 2018

Consolidated sales for the full year of 2019 decreased $30.6 million to $772.7 million, primarily because of the divested
semiconductor business which had sales of $9.7 million in 2019 and $84.3 million in 2018.

Consolidated cost of products sold decreased $6.0 million to $616.6 million in 2019 from $622.6 million in the prior year. The
decline was due to lower sales, primarily due to the divestiture of the semiconductor business, partially offset with incremental
tariff expense of $5.9 million and $15.4 million of charges associated with the restructuring and impairment charges of our
AeroSat antenna business which required classification within cost of products sold.

Selling, general and administrative (“SG&A”) expenses were $143.4 million, or 18.6% or sales, compared with $117.0 million,
or 14.6% of sales, for the prior year period. The $26.3 million increase was due to increased legal reserves for the long-term
patent dispute of $19.6 million and impairment and restructuring charges related to the antenna business classified within
SG&A expense of $2.4 million.

The Company recorded a gain of $80.1 million upon the sale of the semiconductor business on February 13, 2019, offset by a
$1.3 million loss on the sale of the airfield lighting product line on July 12, 2019.

Other expense, net in 2019 includes a $5.0 million impairment of an equity investment.

2018 Compared With 2017

Consolidated sales were $803.3 million, up 28.6%, or $178.8 million, from the same period last year. Organic sales increased
$94.0 million, or 15.0%. Acquired sales for 2018 were $84.8 million related to CSC and CCC and all related to the Aerospace
segment. Aerospace segment sales of $675.6 million were up 26.4%, or $141.0 million, and Test Systems segment sales were
up 42.0% to $127.6 million.

Consolidated cost of products sold increased $135.2 million to $622.6 million in 2018 from $487.4 million in the prior year.
The increase was due primarily to the cost associated with the higher organic sales volume, coupled with the cost of products
sold related to CSC and CCC.

SG&A expenses were $117.0 million, or 14.6% or sales, compared with $88.8 million, or 14.2% of sales, for the prior year
period. The $28.3 million increase was due primarily to the incremental SG&A costs of CSC and CCC, which added $20.9
million. This included $7.4 million of incremental intangible asset amortization expense in 2018. Corporate overhead expenses
increased $2.6 million due primarily to increased staffing and infrastructure development.

Interest expense increased in 2018 compared to 2017 due primarily to increased average debt levels.

Income Taxes

Our effective tax rates for 2019, 2018 and 2017 were 23.8%, 10.5% and 21.3%, respectively. Our tax rate is affected by
recurring items, such as tax rates in foreign jurisdictions and the relative amount of income we earn in those jurisdictions, which
we expect to be fairly consistent in the near term. It is also affected by discrete items that may occur in any given year, but are
not consistent from year to year. 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 2019 and 2018 and 35% in 2017) and our effective tax
rate:

2019:

2018:

2017:

Recognition of approximately $3.1 million of 2019 U.S. R&D tax credits.

Recognition of approximately $3.2 million of 2018 U.S. R&D tax credits.

Benefit of approximately $3.5 million from revised state filing position.

Recognition of approximately $2.9 million of 2017 U.S. R&D tax credits.

Permanent differences, primarily the impact of the Domestic Production Activities Deduction.

Provisional amounts related to the Federal tax expense on deemed repatriation of foreign earnings
($1.3 million), partially offset by revaluation of the deferred tax balances ($0.9 million) as a result of
a reduction in the Federal tax rate from tax law changes enacted in 2017.

2020 Outlook

The continued grounding of the 737 MAX and the associated production pause has caused us to withdraw revenue guidance
temporarily. The MAX situation affects us not only because it is one of our largest production programs, but also because the
grounding has reduced capacity for the world’s airlines, challenging our aftermarket business. We look forward to the MAX’s
return to service, and issuing sales guidance as soon as practical.

We expect first quarter sales in 2020 to be in the range of $155 million to $165 million, with Aerospace generating about 90%
of the total. We expect the first quarter will be the lightest quarter of 2020, with results strengthening throughout the year. In
2019, we saw strong results at the beginning of the year which weakened towards the end. We expect 2020 will be just the
opposite, with a weaker start and a stronger finish.

We have not currently estimated the impact which could result if the COVID-19 coronavirus becomes more significant
globally. It is unknown whether and how global airline demand and spending, as well as global supply chains, may be affected
if such an epidemic persists for an extended period of time.

The effective tax rate for 2020 is expected to be approximately 18% to 22%.

Capital equipment spending in 2020 is expected to be in the range of $22 million to $25 million.

Depreciation and Amortization in 2020 is expected to in the range of $33 million and $35 million.

SEGMENT RESULTS OF OPERATIONS AND OUTLOOK

Operating profit, as presented below, is sales less cost of products sold and other operating expenses excluding interest expense,
corporate expenses and other non-operating sales and expenses. Cost of products sold and operating expenses are directly
attributable to the respective segment. Operating profit is reconciled to earnings before income taxes in Note 20 of Item 8,
Financial Statements and Supplementary Data, of this report.

AEROSPACE SEGMENT

(In thousands, except percentages)
Sales

Operating Profit

Operating Margin

Total Assets

Backlog

Sales by Market
Commercial Transport

Military

Business Jet

Other

Total

2019

2018

2017

692,609

16,657

2.4 %

675,625

69,761

10.3 %

534,603

38,888

7.3 %

2019

2018

629,371

275,754

647,870

326,047

2019

2018

2017

523,921

536,269

414,523

76,542

67,541
24,605
692,609

68,138

43,090
28,128
675,625

61,270

41,298
17,512
534,603

Sales by Product Line
Electrical Power & Motion

Lighting & Safety

Avionics

Systems Certification

Structures

Other

Total

2019 Compared With 2018

2019

2018

2017

338,237

303,180

185,462

106,787

14,401

23,117

24,605

174,383

131,849

13,951

24,134

28,128

264,286

158,663

53,960

14,333

25,849

17,512

692,609

675,625

534,603

Aerospace segment sales increased by $17.0 million, or 2.5%, to $692.6 million, when compared with the prior-year period.

Electrical Power & Motion sales increased $35.1 million, or 11.6%, due primarily to increased sales of in-seat power and
motion products. Lighting & Safety sales increased $11.1 million due to higher sales of products to the military market.
Avionics sales decreased by $25.1 million for similar reasons in the quarter. Sales of Other products were down $3.5 million.

Aerospace operating profit for 2019 was $16.7 million, or 2.4% of sales, compared with $69.8 million, or 10.3% of sales, in the
same period of 2018. Aerospace operating profit was impacted by the legal reserve for the patent dispute of $19.6 million for
the full year incremental tariff expense of $5.9 million and antenna business impairment and restructuring charges of $28.8
million.

2018 Compared With 2017

Aerospace segment sales increased by $141.0 million, or 26.4%, to $675.6 million, when compared with the prior-year period
of $534.6 million. Organic sales increased $56.2 million, or 10.5%, to $590.8 million, while acquired sales from CSC and CCC
were $84.8 million.

Avionics sales increased by $77.9 million, driven primarily by the acquisitions, which contributed incremental sales of $72.5
million. Electrical Power & Motion sales increased $38.9 million, or 14.7%, due to higher sales of in-seat power and seat
motion products. Lighting & Safety sales increased $15.7 million due to a general increase in volume. Sales of Other products
were up $10.6 million, due to the CSC business. The increases were slightly offset by a decrease in Structures sales of $1.7
million.

Aerospace operating profit for 2018 was $69.8 million, or 10.3% of sales, compared with $38.9 million, or 7.3% of sales, in the
same period of 2017. Aerospace operating profit benefited from higher organic sales and profits of CSC, offset partially by
increased operating losses of CCC, AeroSat and Armstrong which improved by $3.8 million to $34.7 million compared with
the prior year, excluding Armstrong’s 2017 goodwill impairment charge. For the year, intangible asset amortization expense
was $9.2 million related to CSC and CCC. Operating profit in the prior year was negatively impacted by the $16.2 million
impairment at Armstrong.

2020 Outlook for Aerospace – The Aerospace segment’s backlog at December 31, 2019 was $275.8 million, compared to
$326.0 million at December 31, 2018. Approximately $249.6 million of the backlog at December 31, 2019 is expected to be
shipped over the next 12 months.

TEST SYSTEMS SEGMENT

(In thousands, except percentages)
Sales

Operating Profit

Operating Margin

Total Assets

Backlog (1)

2019

2018

2017

80,093

4,494

5.6 %

127,631

10,718

8.4 %

89,861

7,359

8.2 %

2019

2018

110,994
83,837

$
$

97,056
89,470

$
$

(1) Test Systems backlog as of December 31, 2018, includes $12.2 million related to the divested semiconductor business.

Sales by Market
Semiconductor

Aerospace & Defense

Total

2019 Compared With 2018

2019

2018

2017

9,692

70,401

80,093

84,254

43,377

127,631

31,999

57,862

89,861

Test Segment sales decreased from $127.6 million to $80.1 million for 2019, primarily due to the divestiture of the
semiconductor test business, which contributed sales of $84.3 million in 2018 and $9.7 million in 2019.

Operating profit was $4.5 million, or 5.6% of sales, compared with $10.7 million, or 8.4% of sales, in 2018.

2018 Compared With 2017

Sales in 2018 increased 42.0% to $127.6 million compared with sales of $89.9 million for 2017. The growth was driven by a
$52.3 million increase in sales to the Semiconductor market, offset by a decrease in Aerospace & Defense sales of $14.5
million.

Operating profit was $10.7 million, or 8.4% of sales, compared with $7.4 million, or 8.2% of sales, in 2017. This was primarily
due to increased sales volume partially offset by approximately $2.0 million in increased engineering costs and elevated initial
costs associated with new products.

2020 Outlook for Test Systems – Backlog in the Test Systems segment was $83.8 million at December 31, 2019, compared to
Test Systems backlog, exclusive of the divested semiconductor business, of $77.3 million at December 31, 2018. The Test
Systems segment expects to recognize as revenue $51.4 million of backlog in 2020.

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.

CONTRACTUAL OBLIGATIONS

The following table represents contractual obligations as of December 31, 2019:

(In thousands)
Long-term Debt

Interest on Long-term Debt

Purchase Obligations

Supplemental Retirement Plan and Post
Retirement Obligations
Lease Obligations

Other Long-term Liabilities

Total Contractual Obligations

Notes to Contractual Obligations Table

Total

2020

2021-2022

2023-2024

After 2024

Payments Due by Period

188,224

224

— $

188,000

17,078

129,282

27,651
33,197
8,467

5,481

121,034

404
7,026
6,541

10,964

8,248

753
13,445
748

633

—

973
6,749
746

403,899

140,710

34,158

197,101

—

25,521
5,977
432

31,930

Long-term Debt — See Item 8, Financial Statements and Supplementary Data, Note 8, Long-Term Debt and Note Payable in
this report. The timing of the payments above consider the amendment to the revolving credit facility as discussed in Note 8.

Interest on Long-term Debt — Future interest payments have been calculated using the applicable interest rate of each debt
facility based on actual borrowings as of December 31, 2019. Actual future borrowings and rates may differ from these
estimates.

Purchase Obligations — Purchase obligations are comprised of the Company’s commitments for goods and services in the
normal course of business.

Lease Obligations — Financing and Operating lease obligations are primarily related to the Company's facility leases and
interest.

Other Long-term Liabilities — Balance in 2021-2022 includes $4.5 million litigation accrual related to damages awarded to
Lufthansa in the patent dispute related to direct sales. See Note 19 of the Consolidated Financial Statements for additional
information. Table excludes the $16.1 million accrual recorded as management's best estimate of damages related to indirect
sales claim, as this will not become a contractual obligation until the appeals process is complete and amount of damages has
been finalized.

LIQUIDITY AND CAPITAL RESOURCES

(In thousands)
Net cash flows from:

Operating Activities

Investing Activities

Financing Activities

2019

2018

2017

42,689

64,630

54,881

37,783

(19,667) $

(129,561)

(92,182) $

(36,134) $

91,425

Our cash flow from operations and available borrowing capacity provide us with the financial resources needed to run our
operations and reinvest in our business.

Operating Activities

Cash provided by operating activities was $42.7 million in 2019 compared with $54.9 million in 2018. The decrease of $12.2
million in 2019 was primarily due to the net non-cash effect on net income of the net gain from the sale of businesses, the legal
reserve and the antenna business impairment and restructuring charges, partially offset by a change in net operating assets.

Cash provided by operating activities was $54.9 million in 2018 compared with $37.8 million in 2017. The increase of $17.1
million in 2018 was primarily a result of increased net income in 2018 when compared with 2017, offset with a change in net
operating assets.

Cash provided by operating activities was $37.8 million in 2017 compared with $48.9 million in 2016. The decrease of $11.1
million in 2017 was primarily a result of decreased net income and net operating assets in 2017 when compared with 2016.

Our cash flows from operations are primarily dependent on our net income adjusted for non-cash expenses and the timing of
collections of receivables, level of inventory and payments to suppliers and employees. Sales and operating results of our
Aerospace segment are influenced by the 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 & 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. We
maintain a revolving credit facility to fund our short and long-term capital requirements including acquisitions and share
repurchase efforts.

Investing Activities

Cash provided by investing activities in 2019 was $64.6 million, primarily the result of the $103.8 million in proceeds from the
divestiture of the semiconductor business offset by purchases of property, plant and equipment (“PP&E”) of $12.1 million.
Cash provided by investing activities in 2019 was also offset by net cash used for the purchases of Freedom and Diagnosys for
$21.8 million and $7.0 million, respectively.

Cash used for investing activities in 2018 was $19.7 million, primarily related to purchases of PP&E of $16.3 million.

Cash used for investing activities in 2017 was $129.6 million, primarily related to the acquisitions of CCC and CSC of $114.0
million and purchases of PP&E of $13.5 million.

Our expectation for 2020 is that we will invest between $22 million and $25 million for PP&E. 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

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, and our
operations in the future.

The Company's Fifth Amended and Restated Credit Agreement (the “Agreement”) provides for a $500 million revolving credit
line with the option to increase the line by up to $150 million. The maturity date of the loans under the Agreement is February
16, 2023. At December 31, 2019, there was $188.0 million outstanding on the revolving credit facility and there remains $310.9
million available, net of outstanding letters of credit. The credit facility allocates up to $20 million of the $500 million
revolving credit line for the issuance of letters of credit, including certain existing letters of credit. At December 31, 2019,
outstanding letters of credit totaled $1.1 million.

The maximum permitted leverage ratio of funded debt to Adjusted EBITDA (as defined in the Agreement) was 3.75 to 1,
increasing to 4.50 to 1 for up to four fiscal quarters following the closing of an acquisition permitted under the Agreement,
subject to limitations. The Company is in compliance with its financial covenant at December 31, 2019. The Company will pay
interest on the unpaid principal amount of the facility at a rate equal to one-, three- or six-month LIBOR plus between 1.00%
and 1.50% based upon the Company’s leverage ratio. The Company will also pay a commitment fee to the Lenders in an
amount equal to between 0.10% and 0.20% on the undrawn portion of the credit facility, based upon the Company’s leverage
ratio.

The Company’s obligations under the Credit Agreement as amended are jointly and severally guaranteed by each domestic
subsidiary of the Company other than a non-material subsidiary. The obligations are secured by a first priority lien on
substantially all of the Company’s and the guarantors’ assets.

In the event of voluntary or involuntary bankruptcy of the Company or any subsidiary, all unpaid principal and other amounts
owing under the Credit Agreement 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 agreements give the Agent the option to declare all such amounts immediately due and payable.

The primary financing activities in 2019 related to the repurchase of approximately 1,851,000 shares at an aggregate cost of
$50.8 million under our share purchase program, coupled with net payments on our senior credit facility of $39.0 million. The
primary financing activities in 2018 related to net repayments on our senior facility of $35.0 million.

The Company’s cash needs for working capital, debt service, capital equipment, and acquisition opportunities during 2020 is
expected to be met by cash flows from operations and cash balances and, if necessary, utilization of the revolving 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.

BACKLOG

At December 31, 2019, our consolidated backlog was $359.6 million. At December 31, 2018, our backlog was $415.5 million.
Excluding backlog related to the divested semiconductor business, our backlog was $403.3 million at December 31, 2018.
Backlog in the Aerospace segment was $275.8 million at December 31, 2019, of which $249.6 million is expected to be
recognized as revenue in 2020. Backlog in the Test Systems segment was $83.8 million at December 31, 2019, of which $51.4
million is expected to be recognized as revenue of in 2020.

RELATED-PARTY TRANSACTIONS

Information regarding certain relationships and related transactions is incorporated herein by reference to the information
included in the Company’s 2020 Proxy Statement which will be filed with the Commission within 120 days after the end of the
Company’s 2019 fiscal year.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1 of the Consolidated Financial Statements at Item 8 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. The impact of transactions denominated in any other foreign currency is insignificant.
Approximately 89% of the Company’s consolidated sales are transacted in U.S. dollars. Net assets held in or measured in
Canadian dollars amounted to $23.6 million at December 31, 2019. Net assets held in or measured in Euros amounted to $40.8
million at December 31, 2019.

Risk due to fluctuation in foreign exchange rates to net income was insignificant in 2019; however it could be significant in the
future. Risk due to fluctuation in interest rates is a function of the Company’s floating rate debt obligations, which total
approximately $188.0 million at December 31, 2019. A change of 1% in interest rates of all variable rate debt would impact
annual net income by approximately $1.9 million, before income taxes.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and 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,
2019 and 2018, the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 2019, 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, 2019 and
2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, 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, 2019, 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 2, 2020 expressed an unqualified opinion thereon.

Adoption of New Accounting Standards

As discussed in Note 2 to the consolidated financial statements, the Company changed its method for recognizing revenue as a
result of the adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic
606), and the amendments in ASUs 2015-14, 2016-08, 2016-10 and 2016-12, effective January 1, 2018. As discussed in Note 1
to the consolidated financial statements, the Company changed its method of accounting for leases as a result of the adoption of
ASU No. 2016-02, Leases (Topic 842), as amended, effective January 1, 2019.

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.

Description of
the Matter

Valuation of Goodwill

As of December 31, 2019, the Company’s goodwill balance was $145 million. As discussed in Notes 1
and 7 of the consolidated financial statements, the Company tests goodwill for impairment 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. For each
reporting unit, the Company performed a quantitative test using the discounted cash flow method to
estimate fair value. The discounted cash flow method incorporates various assumptions, the most
significant being projected revenue growth rates 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.

Auditing management’s assumptions was especially subjective due to the estimation required in
determining the fair value of the Company’s reporting units. The fair value estimates for these reporting
units were sensitive to the significant assumptions of the revenue growth rate and the weighted-average
cost of capital, which are affected by expectations about future market or economic conditions,
particularly those in the aerospace industry.

How We
Addressed the
Matter in Our
Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over the Company’s goodwill impairment test process, including the determination of the underlying
significant assumptions described above, and the completeness and accuracy of the impairment analysis.

To test the estimated fair value of the Company’s reporting units, we performed audit procedures with the
assistance of our valuation professionals that included, among others, assessing the methodology used,
testing the significant assumptions discussed above and testing the underlying data used in the impairment
analysis. We compared the significant assumptions used by management
industry and
economic trends, historical trends of the Company, and other relevant factors. We assessed the historical
accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to
evaluate the changes in the fair value of the reporting units that would result from changes in the
assumptions. We also involved our valuation professionals to assist in our evaluation of the weighted
average cost of capital used in the fair value estimates. In addition, we tested the reconciliation of the fair
value of the Company’s reporting units to the market capitalization of the Company as of the annual
impairment testing date.

to current

Description of
the Matter

Revenue Recognition

For the year ended December 31, 2019, the Company’s revenues totaled $772.7 million. As discussed in
Note 2 to the consolidated financial statements, some of the Company’s contracts with customers contain
multiple performance obligations. 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 product, which is generally upon
delivery and acceptance by the customer. For contracts with customers in which the Company satisfies its
promise to the customer to provide a product 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 the Company’s
performance obligations.

Auditing management’s evaluation of contracts with customers was especially challenging due to the
effort required to analyze the terms and conditions of the Company’s various customer contracts given
that such terms and conditions are nonstandard. This included the identification and determination of the
performance obligations and the timing of revenue recognition.

How We
Addressed the
Matter in Our
Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls
over the Company’s revenue recognition process. For example, we tested controls over management’s
review of the terms and conditions of contracts with customers which included an analysis of the distinct
performance obligations and a review of the conclusion as to whether revenue from such performance
obligations should be recognized over time or at a point in time. We also tested management’s centralized
monitoring control over completeness of the contract reviews and appropriateness of the accounting
conclusions.

We performed procedures to test the identification and determination of the performance obligations and
the timing of revenue recognition which included reading a sample of executed contracts and purchase
orders to understand the contract, performing an independent assessment of the identification of distinct
revenue recognition, and comparing our
performance obligations and the appropriate timing of
assessment to that of management. We tested the completeness and accuracy of the Company’s contract
summary documentation, specifically related to the identification and determination of distinct
performance obligations and the timing of revenue recognition.

We have served as the Company's auditor since 1992.
Buffalo, New York
March 2, 2020

/s/ Ernst & Young LLP

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, 2019 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, 2019.

We completed acquisitions in 2019, which were excluded from our management’s report on internal control over financial
reporting as of December 31, 2019. We acquired Freedom Communication Technologies, Inc. on July 1, 2019 and the primary
operating subsidiaries from Diagnosys Test Systems Limited, on October 4, 2019. These acquisitions were included in our 2019
consolidated financial statements and constituted $55.8 million and $33.6 million of total and net assets, respectively, as of
December 31, 2019 and $12.9 million and ($2.1) million of sales and net income, respectively, for the year then ended.

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

Peter J. Gundermann

President & Chief Executive Officer

(Principal Executive Officer)

/s/ David C. Burney

David C. Burney

Executive Vice President and Chief Financial
Officer
(Principal Financial Officer)

March 2, 2020

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and 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, 2019, 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, 2019, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal
controls of Freedom Communication Technologies, Inc. (“FCT”) and the primary operating subsidiaries of Diagnosys Test
Systems Limited (“Diagnosys”), which are included in the 2019 consolidated financial statements of the Company and
constituted approximately 7% and 10% of total and net assets, respectively, as of December 31, 2019 and approximately 2%
and (4)% of sales and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of
the Company also did not include an evaluation of the internal control over financial reporting of FCT and Diagnosys.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the 2019 consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated
statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period
ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) and our
report dated March 2, 2020 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 2, 2020

ASTRONICS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)
Sales

Cost of Products Sold

Gross Profit

Selling, General and Administrative Expenses

Impairment Loss

Income from Operations

Net Gain on Sale of Businesses

Other Expense, Net of Other Income

Interest Expense, Net of Interest Income

Income Before Income Taxes

Provision for Income Taxes

Net Income

Basic Earnings Per Share

Diluted Earnings Per Share

Year Ended December 31,

2019

2018

2017

772,702

803,256

616,560

156,142

143,358

11,083

1,701

78,801

6,058

6,141

68,303

16,286

52,017

1.62

1.60

622,560

180,696

117,033

—

63,663

—

1,671

9,710

52,282

5,479

46,803

1.45

1.41

624,464

487,351

137,113

88,775

16,237

32,101

—

1,741

5,369

24,991

5,312

19,679

0.60

0.58

See notes to consolidated financial statements.

ASTRONICS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)
Net Income

Other Comprehensive Income (Loss):

Foreign Currency Translation Adjustments

Retirement Liability Adjustment – Net of Tax

Other Comprehensive Income (Loss)

Comprehensive Income

Year Ended December 31,

2019

2018

2017

52,017

46,803

19,679

114

(2,413)

(2,299)

(2,691)

4,087

1,396

49,718

48,199

4,132

(1,990)

2,142

21,821

See notes to consolidated financial statements.

ASTRONICS CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

ASSETS

Current Assets:

Cash and Cash Equivalents
Accounts Receivable, Net of Allowance for Doubtful Accounts
Inventories
Prepaid Expenses and Other Current Assets
Assets Held for Sale

Total Current Assets

Property, Plant and Equipment, Net of Accumulated Depreciation
Operating Right-of-Use Assets
Other Assets
Intangible Assets, Net of Accumulated Amortization
Goodwill
Total Assets

Current Liabilities:

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Maturities of Long-term Debt
Accounts Payable
Accrued Payroll and Employee Benefits
Accrued Income Taxes
Current Operating Lease Liabilities
Other Accrued Expenses
Customer Advanced Payments and Deferred Revenue
Liabilities Held for Sale

Total Current Liabilities

Long-term Debt
Supplemental Retirement Plan and Other Liabilities for Pension Benefits
Long-term Operating Lease Liabilities
Other Liabilities
Deferred Income Taxes
Total Liabilities
Shareholders’ Equity:
Common Stock, $.01 par value, Authorized 40,000,000 Shares
26,874,223 Shares Issued and 23,348,205 Outstanding at December 31, 2019
25,978,037 Shares Issued and 24,303,323 Outstanding at December 31, 2018
Convertible Class B Stock, $.01 par value, Authorized 15,000,000 Shares
7,650,382 Shares Issued and Outstanding at December 31, 2019
8,289,794 Shares Issued and Outstanding at December 31, 2018

Additional Paid-in Capital
Accumulated Other Comprehensive Loss
Retained Earnings
Treasury Stock; 3,526,018 Shares at December 31, 2019, 1,674,714 Shares at December 31,
2018
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity

See notes to consolidated financial statements.

December 31,

2019

2018

31,906
147,998
145,787
15,853
1,537
343,081
112,499
23,602
31,271
127,293
144,970
782,716

224
35,842
22,485
1,080
4,517
25,132
31,360
—
120,640
188,000
27,247
21,039
33,011
3,922
393,859

16,622
182,308
138,685
17,198
19,358
374,171
120,862
—
21,272
133,383
124,952
774,640

1,870
50,664
31,732
312
—
15,728
26,880
906
128,092
232,112
22,689
—
1,923
3,199
388,015

269

260

76
76,340
(15,628)
428,584

(100,784)
388,857
782,716

83
73,044
(13,329)
376,567

(50,000)
386,625
774,640

ASTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
Cash Flows from Operating Activities

Net Income
Adjustments to Reconcile Net Income to Cash Provided By Operating
Activities, Excluding the Effects of Acquisitions and Divestitures:

Non-cash Items:

Year Ended December 31,

2019

2018

2017

52,017

46,803

19,679

Depreciation and Amortization
Provision for Losses on Inventory and Receivables
Equity-based Compensation Expense
Deferred Tax Benefit

Operating Lease Expense

Net Gain on Sale of Businesses
Impairment Loss

Accrued Litigation Claim
Equity Investment Other Than Temporary Impairment
Restructuring Activities
Other

Cash Flows from Changes in Operating Assets and Liabilities, net
of the Effects from Acquisitions and Divestitures of Businesses:

Accounts Receivable
Inventories
Prepaid Expenses and Other Current Assets
Accounts Payable
Accrued Expenses
Income Taxes Payable
Customer Advanced Payments and Deferred Revenue
Operating Lease Liabilities
Supplemental Retirement Plan and Other Liabilities

Cash Flows from Operating Activities
Cash Flows from Investing Activities

Acquisitions of Businesses, Net of Cash Acquired
Proceeds from Sale of Businesses
Capital Expenditures
Other Investing Activities

Cash Flows from Investing Activities
Cash Flows from Financing Activities
Proceeds From Long-term Debt
Principal Payments on Long-term Debt
Purchase of Outstanding Shares for Treasury

Debt Acquisition Costs
Stock Options Activity
Finance Lease Principal Payments
Cash Flows From Financing Activities
Effect of Exchange Rates on Cash
Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
Supplemental Cash Flow Information:

Interest Paid
Income Taxes Paid, Net of Refunds

33,049
16,947
3,843
(14,385)

4,208
(78,801)
11,083
19,619
5,000
6,539
1,610

34,083
(12,711)
(1,160)
(16,617)
(10,737)
3,371
(11,919)
(3,840)
1,490
42,689

(28,907)
104,877
(12,083)
743
64,630

117,000
(156,107)
(50,784)
—
(545)
(1,746)
(92,182)
147
15,284
16,622
31,906

5,707
27,343

35,032
3,271
3,098
(2,680)

—
—
—
1,000
—
—
(668)

(47,291)
(14,695)
464
9,171
8,177
(4,460)
15,735
—
1,924
54,881

—
—
(16,317)
(3,350)
(19,667)

35,015
(72,834)
—
(516)
2,201
—
(36,134)
(372)
(1,292)
17,914
16,622

9,710
12,218

27,063
2,973
2,598
(5,494)

—
—
16,237
—
—
—
(937)

(9,844)
(18,116)
(2,132)
10,439
(702)
(376)
(4,918)
—
1,313
37,783

(114,039)
—
(13,478)
(2,044)
(129,561)

147,086
(23,720)
(32,382)
—
441
—
91,425
366
13
17,901
17,914

4,775
10,777

See notes to consolidated financial statements.

ASTRONICS CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)
Common Stock

Beginning of Year

Net Exercise of Stock Options

Class B Stock Converted to Common Stock

End of Year

Convertible Class B Stock

Beginning of Year

Net Exercise of Stock Options

Class B Stock Converted to Common Stock

End of Year

Additional Paid in Capital

Beginning of Year

Net Exercise of Stock Options and Equity-based Compensation
Expense
End of Year

Accumulated Other Comprehensive Loss

Beginning of Year

Adoption of ASU 2018-02

Foreign Currency Translation Adjustments

Retirement Liability Adjustment – Net of Taxes

End of Year

Retained Earnings

Beginning of Year

Adoption of ASU 2014-09

Adoption of ASU 2018-02

Net income

Cash Paid in Lieu of Fractional Shares from Stock Distribution

End of Year

Treasury Stock

Beginning of Year

Purchase of Shares

End of Year

Total Shareholders’ Equity

Year Ended December 31,

2019

2018

2017

260

229

269

(8)

73,044

3,296

260

111

(30)

67,748

5,296

76,340

73,044

220

—

229

120

—

(9)

111

64,709

3,039

67,748

(13,329) $

(13,352) $

(15,494)

—

114

(2,413)

(1,373)

(2,691)

4,087

—

4,132

(1,990)

(15,628) $

(13,329) $

(13,352)

376,567

325,191

305,512

—

52,017

—
428,584

3,268

1,373

46,803

(68)
376,567

—

19,679

—
325,191

(50,000) $

(50,784)

—

(100,784) $

(50,000) $

(17,618)

(32,382)

(50,000)

388,857

386,625

329,927

See notes to consolidated financial statements.

ASTRONICS CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY, CONTINUED

(Share data, in thousands)
Common Stock

Beginning of Year

Issuance of Restricted Stock

Net Issuance from Exercise of Stock Options

Class B Stock Converted to Common Stock

End of Year

Convertible Class B Stock

Beginning of Year

Net Issuance from Exercise of Stock Options

Class B Stock Converted to Common Stock

End of Year

Treasury Stock

Beginning of Year

Purchase of Shares

End of Year

Year Ended December 31,

2019

2018

2017

25,978

22,861

21,955

815

26,874

8,290

175

(815)

7,650

1,675

1,851

3,526

—

166

2,951

25,978

11,083

158

(2,951)

8,290

1,675

—

1,675

—

880

22,861

11,896

(880)

11,083

523

1,152

1,675

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 motion systems, lighting and safety systems, avionics products, systems and certification, aircraft structures
and automated test systems.

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 test systems as well
as training and simulation devices for both commercial and military applications.

On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems
segment. The business was not core to the future of the Test Systems segment. The total proceeds received for the sale
amounted to $103.8 million, plus certain contingent earn-outs as described in Note 22. The Company recorded a pre-tax gain on
the sale of approximately $80.1 million in the first quarter of 2019. The Company recorded income tax expense relating to the
gain of $19.7 million.

For more information regarding these acquisitions and divestitures see Note 21 and Note 22.

For more information regarding the restructuring plan see Note 23.

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.

Acquisitions are accounted for under the acquisition method and, accordingly, the operating results for the acquired companies
are included in the consolidated statements of operations from the respective dates of acquisition.

For additional information on the acquired businesses, see Note 21.

Cost of Products Sold, Engineering 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 engineering and design activities as
well as basic research and development activities directed to the substantial improvement or new application of the Company’s
existing technologies. These costs are expensed when incurred and included in cost of products sold. Research and
development, design and related engineering expenses amounted to $108.9 million in 2019, $114.3 million in 2018 and $95.0
million in 2017. Selling, general and administrative (“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, 2019, 2018 and 2017.

Shipping and Handling

Shipping and handling costs are included in costs 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”). This Topic requires all equity-based payments to employees, including grants of
employee stock options and restricted stock units (“RSU's”), 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. Vesting requirements vary for directors, officers
and key employees. In general, options and RSU's granted to outside directors vest six months from the date of grant and
options granted to officers and key employees vest with graded vesting over a five-year period, 20% each year, from the date of
grant. In general, RSU's granted to officers and key employees cliff vest in three years. Equity-based compensation expense is
included in selling, general and administrative 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.

Accounts Receivable and Allowance for Doubtful Accounts

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 potentially uncollectible accounts receivable. The allowance is determined based on our knowledge of the business,
specific customers, review of the receivables’ aging and a specific identification of accounts where collection is at risk. Account
balances are charged against the allowance after all means of collections have been exhausted and recovery is considered
remote. The Company typically does not require collateral.

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
valuation 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.

Property, Plant and Equipment

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; 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.

Buildings acquired under capital leases amounted to $3.4 million ($8.2 million, net of $4.8 million of accumulated
amortization) at December 31, 2018. The weighted-average interest rate on the building capital lease obligation at December
31, 2018 was 5.3%. See Note 10 for additional lease disclosures as required upon adoption of ASC 842.

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 $13.7 million, $15.0 million and $14.1 million in 2019, 2018 and 2017, respectively.

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.

See Note 23 for further information regarding the long-lived asset impairment charge in 2019 related to AeroSat. The charge
was comprised of PP&E, intangible assets and right-of-use assets.

Assets Held for Sale

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.

As of December 31, 2019, the Company has agreed to sell certain facilities within the Aerospace segment. Accordingly, the
property, plant and equipment assets associated with these facilities have been classified as held for sale in the consolidated
Balance Sheet at December 31, 2019.

As of December 31, 2018, the Company’s Board of Directors had approved a plan to sell the semiconductor test business within
the Test Systems segment. Accordingly, the assets and liabilities associated with these operations have been classified as held
for sale in the accompanying consolidated Balance Sheet at December 31, 2018. The carrying value of the disposal group was
lower than its fair value, less costs to sell, and accordingly, no impairment loss was required at December 31, 2018.

Goodwill

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. The
Company’s nine reporting units with goodwill were subject to the goodwill impairment test as of the first day of our fourth
quarter.

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 is considered
impaired and any loss must be measured. Accordingly, goodwill impairment is measured as the amount by which a reporting
unit's carrying value exceeds its fair value, not to exceed the carrying value of goodwill.

See Note 7 for further information regarding the goodwill impairment charge in 2019 associated to the AeroSat reporting unit.
The 2018 assessment indicated no impairment to the carrying value of goodwill in any of the Company’s reporting units and no
impairment charge was recognized. An impairment charge associated with the Armstrong reporting unit was recorded as result
of the 2017 assessment.

Intangible Assets

Acquired intangibles are generally valued 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. As the undiscounted cash flows of the AeroSat reporting unit were insufficient to recover the carrying value
of the long-lived assets, the Company proceeded to determine the fair value of the intangible assets in AeroSat. The Company
concluded that the fair value of the intangible assets was de minimis as a result of their nominal projected future cash flows and
the Company recorded a full impairment charge of approximately $6.2 million in the December 31, 2019 consolidated
statement of operations associated to intangible assets of the AeroSat reporting unit in conjunction with restructuring activities.
The qualitative factors applied under this new provision indicated no impairment to the Company’s indefinite lived intangible
assets in 2018 or 2017.

Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable,
notes 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, accounts receivable, accounts payable, and notes 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 Statement of Operations. Such amounts were immaterial in the year ended December 31, 2019 and
not applicable in 2018 or 2017. 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.

The Company determined there were indicators of impairment over one of its investments in 2019 as a result of the investee’s
deteriorating operating performance and limited access to capital. There were no observable price changes for this investment
during 2019. We determined that the fair value of this investment was de minimis at December 31, 2019 and we recorded an
impairment charge of $5.0 million recorded within Other Expense, Net of Other Income in the accompanying Consolidated
Statement Operations.

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 loss included in operations was insignificant in 2019 and the gain included in operations was
insignificant in 2018 and 2017.

Dividends

The Company has not paid any cash dividends in the three-year period ended December 31, 2019.

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.

Acquisitions

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. See
Note 21 regarding the acquisitions in 2019.

Newly Adopted and Recent Accounting Pronouncements

Recent Accounting Pronouncements Adopted

Standard
ASU No. 2016-02
Leases (Topic 842)

Description
The standard requires lessees to recognize most
leases as assets and liabilities on the balance sheet,
but record expenses on the statement of operations
in a manner similar to current accounting. For
lessors, the guidance modifies the classification
criteria and accounting for sales-type and direct
financing leases. The standard also requires
additional disclosures about leasing arrangements
and requires a modified retrospective transition
approach for existing leases, whereby the standard
will be applied to the earliest year presented. The
provisions of the standard are effective for fiscal
years beginning after December 15, 2018,
including interim periods within those fiscal years.
Early adoption is permitted.

Financial Statement Effect or Other Significant Matters
The Company adopted this guidance as of January 1,
2019 using the cumulative-effect method. The standard
requires lessees to recognize a lease liability and a right-
of-use (“ROU”) asset on the balance sheet for operating
leases. Accounting for finance leases is substantially
unchanged. Prior year financial statements were not
recast under the new method. We elected the package of
transition provisions available for expired or existing
contracts, which allowed us to carryforward our
historical assessments of (1) whether contracts are or
contain leases, (2) lease classification and (3) initial
direct costs. As of January 1, 2019, operating lease
ROU assets of approximately $18.4 million and lease
liabilities of approximately $18.5 million were
recognized on our balance sheet for our leased office
and manufacturing facilities and equipment leases.
There was a reclassification to ROU assets of $3.5
million from net PP&E for assets under existing finance
leases at the transition date and a reclassification of
existing lease liabilities of $6.5 million on our balance
sheet for a leased facilities and equipment. The standard
did not materially impact the Company's consolidated
statements of operations or retained earnings. Refer to
Note 19 for additional information.

Date of adoption: Q1 2019

Recent Accounting Pronouncements Not Yet Adopted

Standard

Description

ASU No. 2016-13
Financial
Instruments -
Credit Losses
(Topic 326)

ASU No. 2018-13
Fair Value
Measurement
(Topic 820)

The standard replaces the incurred loss model with
the current expected credit loss (CECL) model to
estimate credit losses for financial assets measured
at amortized cost and certain off-balance sheet
credit exposures. The CECL model requires a
Company to estimate credit losses expected over
the life of the financial assets based on historical
experience, current conditions and reasonable and
supportable forecasts. The provisions of the
standard are effective for fiscal years beginning
after December 15, 2019 and interim periods
within those fiscal years. Early adoption is
permitted. The amendment requires a modified
retrospective approach by recording a cumulative-
effect adjustment to retained earnings as of the
beginning of the period of adoption.
The standard removes the disclosure requirements
for the amount of and reasons for transfers between
Level 1 and Level 2 of the fair value hierarchy. The
provisions of this ASU are effective for years
beginning after December 15, 2019, with early
adoption permitted.

Financial Statement Effect or Other Significant Matters

This ASU does not have a significant impact on our
consolidated financial statements.

Planned date of adoption: Q1 2020

This ASU does not have a significant impact on our
consolidated financial statements, as it only includes
changes to disclosure requirements.

Planned date of adoption: Q1 2020

ASU No. 2018-14
Compensation—
Retirement
Benefits—Defined
Benefit Plans—
General (Subtopic
715-20)

The standard includes updates to the disclosure
requirements for defined benefit plans including
several additions, deletions and modifications to
the disclosure requirements. The provisions of this
ASU are effective for years beginning after
December 15, 2020, with early adoption permitted.

This ASU does not have a significant impact on our
consolidated financial statements, as it only includes
changes to disclosure requirements.

Planned date of adoption: Q1 2021

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

Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, was adopted on January 1, 2018
using the modified retrospective method, which required the recognition of the cumulative effect of the transition as an
adjustment to retained earnings, net of tax effects, of $3.3 million.

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.

On December 31, 2019, we had $359.6 million of remaining performance obligations, which we refer to as total backlog. We
expect to recognize approximately $300.9 million of our remaining performance obligations as revenue in 2020.

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
Doubtful Accounts on our Consolidated Balance Sheet.

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 Sheet 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 $19.6 million and $8.1 million during the year ended December 31, 2019 and 2018, 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. Non-current contract liabilities are reported in our Consolidated Balance Sheet within Other
Liabilities. The following table presents the beginning and ending balances of contract assets and contract liabilities:

(In thousands)

Beginning Balance, January 1, 2019

Ending Balance, December 31, 2019

Contract Assets

Contract Liabilities

33,030 $

19,567 $

27,347

38,758

The decrease in contract assets reflects the net impact of revenue recognized in excess of additional unbilled revenues recorded
during the period. The increase in contract liabilities reflects the net impact of additional customer advances or deferred
revenues recorded in excess of revenue recognized during the period and acquired contract liabilities.

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

(In thousands)
Aerospace Segment

Commercial Transport

Military

Business Jet

Other

Aerospace Total

Test Systems Segment

Semiconductor

Aerospace & Defense

Test Systems Total

2019

2018

2017

523,921

536,269

414,523

76,542

67,541

24,605

692,609

9,692

70,401

80,093

68,138

43,090

28,128

675,625

84,254

43,377

127,631

61,270

41,298

17,512

534,603

31,999

57,862

89,861

Total

772,702

803,256

624,464

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

(In thousands)
Aerospace Segment

Electrical Power & Motion

Lighting & Safety

Avionics

Systems Certification

Structures

Other

Aerospace Total

Test Systems

Total

NOTE 3 — ACCOUNTS RECEIVABLE

Accounts receivable at December 31 consists of:

(In thousands)
Trade Accounts Receivable

Unbilled Recoverable Costs and Accrued Profits

Total Receivables, Gross

Less Allowance for Doubtful Accounts

Total Receivables, Net

NOTE 4 — INVENTORIES

Inventories at December 31 are as follows:

(In thousands)
Finished Goods

Work in Progress

Raw Material

Total Inventories

2019

2018

2017

338,237
185,462

106,787

14,401

23,117

24,605

692,609

303,180 $
174,383

131,849

13,951

24,134

28,128

675,625

264,286
158,663

53,960

14,333

25,849

17,512

534,603

80,093

127,631

89,861

772,702

803,256 $

624,464

2019

2018

131,990

150,764

19,567

151,557

(3,559)

33,030

183,794

(1,486)

147,998

182,308

2019

2018

33,434
25,594

86,759

33,100
27,409

78,176

145,787

138,685

Additionally, net Inventories of $14.4 million are classified in Assets Held for Sale at December 31, 2018. Refer to Note 22.

At December 31, 2019, the Company’s reserve for inventory valuation was $33.6 million, or 18.7% of gross inventory,
inclusive of inventory and its associated reserves held for sale. At December 31, 2018, the Company’s reserve for inventory
valuation was $20.8 million, or 12.0% of gross inventory.

NOTE 5 — PROPERTY, PLANT AND EQUIPMENT

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

(In thousands)
Land

Building and Improvements

Machinery and Equipment

Construction in Progress

Total Property, Plant and Equipment, Gross

Less Accumulated Depreciation

Total Property, Plant and Equipment, Net

2019

2018

9,802

74,723

115,202

5,453

205,180

92,681

112,499

11,191

83,812

106,327

6,404

207,734

86,872

120,862

Net Property, Plant and Equipment of $1.5 million and $3.5 million is classified in Assets Held for Sale at December 31, 2019
and 2018, respectively. Refer to Note 22.

Additionally, there was a $2.3 million impairment of property, plant and equipment in the year ended December 31, 2019,
classified within Impairment Loss in the Consolidated Statement of Operations, as more fully disclosed in Note 23.

NOTE 6 — INTANGIBLE ASSETS

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

(In thousands)
Patents

Non-compete Agreement

Trade Names

Completed and Unpatented Technology

Customer Relationships

Total Intangible Assets

Weighted
Average Life

Gross Carrying
Amount

Accumulated
Amortization

Gross Carrying
Amount

Accumulated
Amortization

2019

2018

11 years $

2,146

1,804

2,146

4 years

10 years

9 years

15 years

11,318

11,438

48,201

142,212

7,696

6,550

21,196

50,776

10,900

11,454

36,406

136,894

12 years $

215,315

88,022

197,800

1,716

4,680

5,182

14,964

37,875

64,417

Additionally, net Intangible Assets of $0.7 million are classified in Assets Held for Sale at December 31, 2018. Refer to Note
22.

Amortization is computed on the straight line method for financial reporting purposes. Amortization expense for intangibles
was $17.6 million, $19.4 million and $12.3 million for 2019, 2018 and 2017, respectively. Additionally, there was a
$6.2 million impairment of intangible assets as more fully described in Note 23. The amount is classified within Impairment
Loss in the Consolidated Statement of Operations.

Based upon acquired intangible assets at December 31, 2019, amortization expense for each of the next five years is estimated
to be:

(In thousands)
2020

2021

2022

2023

2024

16,620

15,394

14,963

13,927

12,908

NOTE 7 — GOODWILL

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

(In thousands)
Balance at December 31, 2017

Acquisitions and Divestitures

Foreign Currency Translations and Other

Balance at December 31, 2018

Acquisitions and Divestitures

Impairment Charge

Foreign Currency Translations and Other

Balance at December 31, 2019

Goodwill, Gross

Accumulated Impairment Losses

Goodwill, Net

Aerospace

Test Systems

Total

125,645

— $

125,645

(241)

(452)

—

(241)

(452)

124,952

— $

124,952

(262) $

21,932 $

(1,610)

(42)

123,038

157,427

(34,389)

123,038

—

21,670

(1,610)

(42)

21,932 $

144,970

21,932 $

179,359

—

(34,389)

21,932 $

144,970

As discussed in Note 1, goodwill is not amortized but is periodically tested for impairment. For the nine reporting units with
goodwill on the first day of our fourth quarter, the Company performed a quantitative assessment of the goodwill’s carrying
value.

In the year ending December 31, 2019, we performed quantitative assessments for the reporting units which had goodwill as of
the first day of the fourth quarter, prior to the initiation of the antenna business restructuring activities. Based on our
quantitative assessment, the Company recorded a full impairment charge of approximately $1.6 million in the December 31,
2019 consolidated statement of operations associated with the AeroSat reporting unit. The impairment loss was incurred in the
Aerospace segment and is reported within the Impairment Loss line of the Consolidated Statements of Operations.

The 2018 assessment indicated no impairment to the carrying value of goodwill in any of the Company’s reporting units and no
impairment charge was recognized.

NOTE 8 — LONG-TERM DEBT AND NOTES PAYABLE

Long-term Debt, including capital leases, at December 31 is as follows:

(In thousands)
Revolving Credit Line issued under the Fifth Amended and Restated Credit Agreement.
Interest is at LIBOR plus between 1.00% and 1.50% (2.75% at December 31, 2019).
Other Bank Debt

Capital Lease Obligations

Total Debt

Less Current Maturities

Total Long-term Debt

2019

2018

188,000

227,000

224
—

188,224

224

338
6,644

233,982

1,870

188,000

232,112

In the year ended December 31, 2019, capital lease obligations are included within Other Accrued Expenses and Other
Liabilities in the Consolidated Balance Sheets, as appropriate. Refer to Note 10 for additional detail on lease obligations and the
implementation of ASC 842.

Principal maturities of long-term debt, including capital leases, are approximately:

(In thousands)
2020

2021

2022

2023

2024 and thereafter

Total Debt

224

—

188,000

—

188,224

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:

(In thousands)
Balance at Beginning of the Year

Warranty Liabilities Divested or Acquired

Warranties Issued

Reassessed Warranty Exposure

Warranties Settled

Balance at End of the Year

NOTE 10 — LEASES

2019

2018

2017

5,027

5,136

(80)

3,781

1,451

(2,519)

—

2,806

(370)

(2,545)

7,660

5,027

4,675

511

1,782

540

(2,372)

5,136

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
facilities and office equipment, 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 remaining fixed minimum rental
payments used in the calculation of the 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 Sheet, while variable lease payments based on
usage of the underlying asset have been excluded, 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. Variable lease costs are expensed in the period they are incurred. We have also elected to adopt the
practical expedient under ASC 842 to not separate lease and non-lease components in contracts where the base lease payment
contains both. In this situation, these lease agreements are accounted for as a single lease component for all classes of
underlying assets. While we do have real estate leases with options to purchase the facility at a market value at the date of
exercise, these are not included in the calculation of the lease liability, as these options are not expected to be exercised.

Any new additional operating lease liabilities and corresponding ROU assets are based on the present value of the remaining
minimum rental payments. The present value of the Company’s lease liability at transition was calculated using a weighted-
average incremental borrowing rate of 3.7%. In determining the incremental borrowing rate, we have considered borrowing
data for secured debt obtained from our lending institution. As of December 31, 2019, the Company recognized an operating
ROU asset and lease liability of $23.6 million and $25.6 million, respectively. The Company obtained ROU assets of
$10.4 million in exchange for operating lease liabilities from new leases entered into or acquired, net of modifications, during
the year ended December 31, 2019.

As of December 31, 2019, the Company recognized a financing ROU asset of $2.5 million included in Other Assets. As of
December 31, 2019, the Company recognized a financing lease liability of $4.7 million, of which $1.9 million and $2.8 million
are within Other Accrued Expenses and Other Liabilities, respectively. No new financing lease liabilities were entered into
during the year ended December 31, 2019.

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 right-of-use asset. Furthermore, as permitted by ASC 842,
the Company elected to apply the package of practical expedients, which allows companies not to reassess: (a) whether its
expired or existing contracts are or contain leases, (b) the lease classification for any expired or existing leases, and (c) initial
direct costs for any existing leases.

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

(In thousands)

Finance Lease Cost:

Amortization of ROU Assets

Interest on Lease Liabilities
Total Finance Lease Cost

Operating Lease Cost

Impairment Charge of Operating Lease ROU Asset

Variable Lease Cost

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

Less Sublease and Rental (Income) Expense
Total Operating Lease Cost

Total Net Lease Cost

2019

1,020
314
1,334

5,050

1,018

1,236

223

(629)
6,898

8,232

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

(In thousands)

Operating Cash Flows Used for Finance Leases

Operating Cash Flows Used for Operating Leases

Financing Cash Flows Used for Finance Leases

2019

314

4,718

1,746

The weighted-average remaining term for the Company's operating and financing leases are approximately 6 years and 2 years,
respectively. The weighted-average discount rates for the Company's operating and financing leases are approximately 3.4%
and 5.0%, respectively.

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

(In thousands)

2020

2021

2022

2023

2024

Thereafter

Total Lease Payments

Less: Interest

Total Lease Liability

Operating Leases

Financing Leases

4,898

5,370

5,152

3,911

2,837

5,977

28,145

2,589

25,556

2,128

2,181

743

—

5,052

314

4,738

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 expected to be realized. Investment tax credits are recognized
on the flow through method.

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

(In thousands)
Current

U.S. Federal

State

Foreign

Current

Deferred

U.S. Federal

State

Foreign

Deferred

Total

2019

2018

2017

23,798

7,540

4,471

2,402

30,671

(16,250)
727
1,138

(14,385)

(504)

1,123

8,159

(1,799)
(1,584)
703

(2,680)

16,286

5,479

8,436

2,054

316

10,806

(3,850)
(326)
(1,318)

(5,494)

5,312

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

Statutory Federal Income Tax Rate

Permanent Items

Stock Compensation Expense

Domestic Production Activity Deduction

Other

Foreign Tax Rate Differential

State Income Tax, Net of Federal Income Tax Effect

Revised State Filing Tax Benefit, Net of Federal Income Tax Effect, Net of
Reserve
Research and Development Tax Credits

Change in Valuation Allowance

Net GILTI and FDII Tax Expense (Benefit)

Tax Expense (Benefit) on Deemed Repatriation of Foreign Earnings

Revaluation of Deferred Taxes for Federal Tax Rate Change

Other

Effective Tax Rate

2019

2018

2017

21.0 %

35.0 %

(0.5)%

— %

0.5 %

1.4 %

6.0 %

— %

(4.6)%

1.1 %

(1.2)%

— %

0.1 %

23.8 %

(0.9)%

— %

0.4 %

0.5 %

2.8 %

(6.7)%

(6.2)%

— %

0.2 %

(0.8)%

(0.1)%

0.3 %

10.5 %

1.1 %

(4.7)%

0.5 %

(5.6)%

4.5 %

— %

(11.5)%

— %

5.6 %

(3.5)%

(0.1)%

21.3 %

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.

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

(In thousands)
Deferred Tax Assets:

Asset Reserves

Deferred Compensation

State Investment and Research and Development Tax Credit Carryforwards, Net of
Federal Tax
Customer Advanced Payments and Deferred Revenue

Net Operating Loss Carryforwards and Other

ASC 606 Revenue Recognition

Lease Liabilities

Other

Total Gross Deferred Tax Assets

Valuation Allowance for Foreign Tax Credit, State Deferred Tax Assets and Tax Credit
Carryforwards, Net of Federal Tax
Deferred Tax Assets

Deferred Tax Liabilities:

Depreciation

Goodwill and Intangible Assets

ASC 606 Revenue Recognition - Section 481(a) Adjustment

Lease Assets

Other

Deferred Tax Liabilities
Net Deferred Tax Assets (Liabilities)

2019

2018

17,071

6,427

854

3,472

8,212

2,612
7,466

3,170
49,284

(13,303)

35,981

10,060

4,683

496

6,377

751

22,367

13,614

8,808

5,628

1,066

875

7,407

1,641
1,743

—
27,168

(8,098)

19,070

10,783

4,438

767

904

3,812

20,704

(1,634)

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

(In thousands)
Other Assets — Long-term

Assets Held for Sale

Deferred Tax Liabilities — Long-term

Liabilities Held for Sale

Net Deferred Tax Assets (Liabilities)

2019

2018

17,536

—

(3,922)

—

13,614

3,999

(1,528)

(3,199)

(906)

(1,634)

At December 31, 2019, state tax credit carryforwards amounted to approximately $0.8 million which will expire from 2020
through 2033.

At December 31, 2019, federal net operating loss carryforwards, which the Company expects to utilize, even with annual
limitations under IRC Section 382, amounted to approximately $6 million and expire at various dates between 2038 and 2039.

At December 31, 2019, state net operating loss carryforwards which the Company expects to utilize amounted to approximately
$6.9 million and expire at various dates between 2027 and 2038. Due to the uncertainty as to the Company’s ability to generate
sufficient taxable income in certain states in the future and utilize certain of the Company’s state operating loss carryforwards
before they expire, the Company has recorded a valuation allowance accordingly. These state net operating loss carryforwards
amount to approximately $108.4 million and expire at various dates from 2022 through 2039.

The Company adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting during 2017 and
beginning with 2017, the excess tax benefits associated with stock option exercises are no longer recorded directly to
shareholders’ equity, but rather, are recorded in the provision for income taxes, when realized. A benefit of approximately $0.6
million, $0.7 million and $0.5 million was recorded in the provision for incomes taxes for the year ended December 31, 2019,
2018 and 2017, respectively.

At December 31, 2019, estimated foreign tax credit carryforwards, which the Company expects to utilize, amounted to
approximately $0.2 million. The Company expects to generate general limitation foreign source income in the future and will
utilize these foreign tax credits. Therefore, during 2019 the Company has removed the valuation allowance that was recorded at
December 31, 2018.

During 2019, the Company recorded a valuation allowance on a deferred tax asset related to an equity investment impairment,
as the Company does not expect to utilize the capital loss in the future. In addition, the Company also removed the state
valuation allowance on the deferred tax assets of one of its subsidiaries, which are now expected to be utilized in the future.
Finally, the Company added a state valuation allowance on the deferred tax assets of one of its subsidiaries, which are now
expected not to be utilized in the future.

During the year ended December 31, 2018, the Company, determined that a revised state filing position could be taken which
would reduce the taxable income apportioned for state income tax purposes. Based on the assessment performed, the Company
concluded that amended state income tax returns would be filed for the open tax years of 2014 through 2017 to reflect this
revised tax position and claim the associated tax benefits. The Company is also claiming the benefit of the revised filing
position for 2018 and subsequent tax years. In addition, the revised state tax filing position also resulted in a deferred tax
benefit due to the revaluation of deferred tax liabilities. Accordingly, the Company recognized the tax benefits, and related tax
reserves, for the revised state filing position during the year ended December 31, 2019 and 2018. Absent a state tax audit notice
related to the refund claim, the statute of limitations will expire on various dates in 2020 for the amended returns for tax years
2014 and 2015, at which time approximately $0.8 million of the unrecognized tax benefits is expected to be recognized. Absent
a state tax audit notice related to the refund claim, the statute of limitations will expire one year from the date the refund checks
are issued for the amended returns for tax years 2016 and 2017 and will expire in 2022 and 2023 for tax years 2018 and 2019,
respectively.

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 associated with that liability would be recorded as interest expense. Penalties, if any, would be recorded as
operating expenses. During the year ended December 31, 2019, reserves for uncertain tax positions were recorded in association
with revised state income tax filing positions pursuant to ASC Topic 740-10. No reserves for uncertain income tax positions

were deemed necessary for the year ended December 31, 2017. A reconciliation of the total amounts of unrecognized tax
benefits, excluding interest and penalties, is as follows:

(in thousands)
Balance at Beginning of the Year

Decreases as a Result of Tax Positions Taken in Prior Years

Increases as a Result of Tax Positions Taken in the Current Year

Balance at End of the Year

2019

2018

2017

2,197

— $

—

368

—

2,197

2,565

2,197

—

The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate amounted to $2.6 million and
$2.2 million at December 31, 2019 and 2018, respectively. There are no material penalties or interest liabilities accrued as of
December 31, 2019 or 2018, nor are any material penalties or interest costs included in expense for each of the years ended
December 31, 2019, 2018 and 2017. 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 2016 through 2019 for federal purposes and
2015 through 2019 for state purposes.

Pretax income from the Company’s foreign subsidiaries amounted to $12.2 million, $7.3 million and $1.1 million for 2019,
2018 and 2017, respectively. The balance of pretax earnings for each of those years were domestic.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Act”). The
legislation significantly changed U.S. tax law by, among other things, lowering corporate income tax rates, implementing a
territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. The Act
permanently reduced the U.S. corporate income tax rate from a maximum of 35% to a 21% rate, effective January 1, 2018.

The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.
As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Cuts and Jobs Act, the
Company revalued its ending net deferred tax liabilities at December 31, 2017 and recognized a $0.1 million tax benefit and a
provisional $0.9 million tax benefit in the Company’s consolidated statement of income for the years ended December 31, 2018
and 2017 respectively.

The Tax Cuts and Jobs Act provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign
subsidiary earnings and profits (“E&P”) through the year ended December 31, 2017. The Company had an estimated $10.3
million of undistributed foreign E&P subject to the deemed mandatory repatriation and recognized a provisional $1.4 million of
income tax expense in the Company’s consolidated statement of income for the year ended December 31, 2017. The Company
made an adjustment to its provisional amounts included in its consolidated financial statements for the year ended December
31, 2017 resulting in a benefit of approximately $0.4 million recorded during the year ended December 31, 2018. No additional
provision for U.S. federal or foreign taxes has been made as the foreign subsidiaries’ undistributed earnings (approximately
$29.7 million at December 31, 2019) are considered to be permanently reinvested. It is not practicable to determine the amount
of outside basis differences related to the investment in foreign subsidiaries and other taxes that would be payable if these
amounts were repatriated to the U.S.

While the Tax Cuts and Jobs Act provides for a territorial tax system, beginning in 2018, it includes the foreign-derived
intangible income (“FDII”) and global intangible low-taxed income (“GILTI”) provisions. The Company elected to account for
GILTI tax in the period in which it is incurred. The GILTI provisions require the Company to include in its U.S. income tax
return foreign subsidiary earnings from its Controlled Foreign Corporations (“CFCs”) in excess of an allowable return on the
foreign subsidiary’s tangible assets. The GILTI tax expense resulted from excess net tested income over net deemed tangible
income return from the CFCs. The GILTI expense would have been completely offset by a foreign tax credit absent the
required allocations of interest expense to the GILTI income, which created a U.S. foreign tax credit limitation. The FDII
provisions allow for a deduction equal to a percentage of the foreign-derived intangible income of a domestic corporation. As a
result of these provisions, net, the Company recorded a tax benefit of approximately $0.8 million during the year ended
December 31, 2019 and tax expense of approximately $0.2 million during the year ended December 31, 2018.

The Base Erosion and Anti-Abuse Tax (“BEAT”) provisions in the Tax Cuts and Jobs Act eliminates the deduction of certain
base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax. The
Company does not expect it will be subject to this tax and therefore has not included any tax impacts of BEAT in its
consolidated financial statements for the year ended December 31, 2019 and 2018.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S.
GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including
computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act. The
Company had recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax
assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017.
The accounting for these income tax effects of the Tax Cuts and Jobs Act was completed during the fourth quarter of 2018 and
the provisional tax impacts were adjusted for the year ended December 31, 2018.

NOTE 12 — PROFIT SHARING/401(k) PLAN

The Company offers eligible domestic full-time employees participation in certain profit sharing/401(k) plans. The plans
provide for a discretionary annual company contribution. In addition, employees may contribute a portion of their salary to the
plans which is partially matched by the Company. The plans may be amended or terminated at any time.

Total charges to income before income taxes for these plans were approximately $10.0 million, $8.3 million and $7.4 million in
2019, 2018 and 2017, respectively.

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, 2019 and 2018 amounts to
$25.2 million and $21.0 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, 2019 or 2018 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 $2.2 million ($2.8 million net of $0.6 million in taxes) and unrecognized actuarial losses of
$6.0 million ($7.6 million net of $1.6 million in taxes) are included in AOCI at December 31, 2019 and have not yet been
recognized in net periodic pension cost. The prior service cost included in AOCI that is expected to be recognized in net
periodic pension cost during the fiscal year-ended December 31, 2020 is $0.3 million ($0.4 million net of $0.1 million in taxes).
The actuarial loss included in AOCI expected to be recognized in net periodic pension cost during the fiscal year-ended
December 31, 2020 is $0.5 million ($0.6 million net of $0.1 million in taxes).

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:

(In thousands)
Funded Status

Projected Benefit Obligation

Beginning of the Year — January 1

Service Cost

Interest Cost

Actuarial Loss (Gain)
Benefits Paid
End of the Year — December 31

2019

2018

21,970

25,141

181

916

3,827

(347)

26,547

200

899

(3,922)

(348)

21,970

The assumptions used to calculate the projected benefit obligation as of December 31 are as follows:

Discount Rate

Future Average Compensation Increases

2019

3.17%

2.00%

2018

4.20%

2.00%

The plans are unfunded at December 31, 2019 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 $26.2 million. This also is the
expected future contribution to the plan, since the plan is unfunded.

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

(In thousands)
Net Periodic Cost

Service Cost — Benefits Earned During Period

Interest Cost

Amortization of Prior Service Cost

Amortization of Losses

Net Periodic Cost

2019

2018

2017

181

916

386

300

200

899

386

629

186

897

387

369

1,783

2,114

1,839

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

Discount Rate

Future Average Compensation Increases

2019

4.20%

2.00%

2018

3.60%

2017

4.20%

2.00% - 3.00% 3.00% - 5.00%

The Company expects the benefits to be paid in each of the next four years to be $0.3 million, $0.6 million in 2024, and $5.4
million in the aggregate for the next five years after that. This also is the expected Company contribution to the plans.

Participants in 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 reconciliation of the beginning and ending balances of the accumulated postretirement benefit obligation for the years
ended December 31, is as follows:

(In thousands)
Funded Status

Accumulated Postretirement Benefit Obligation

Beginning of the Year — January 1

Service Cost

Interest Cost

Actuarial Gain

Benefits Paid

2019

2018

1,136

1,307

13
46

(28)

(63)

16
46

(162)

(71)

1,136

End of the Year — December 31

1,104

The assumptions used to calculate the accumulated post-retirement benefit obligation as of December 31 are as follows:

Discount Rate

2019

3.17%

2018

4.20%

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

(In thousands)
Net Periodic Cost

Service Cost — Benefits Earned During Period

Interest Cost

Amortization of Prior Service Cost

Amortization of Losses

Net Periodic Cost

2019

2018

2017

118

137

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

Discount Rate

Future Average Healthcare Benefit Increases

2019

4.20%

4.98%

2018

3.60%

5.38%

2017

4.20%

5.50%

Unrecognized prior service costs of less than $0.1 million and unrecognized actuarial losses of $0.3 million for medical, dental
and long-term care insurance benefits (net of taxes of $0.1 million) are included in AOCI at December 31, 2019 and have not
been recognized in net periodic cost. The Company estimates that the prior service costs and net losses in AOCI as of
December 31, 2019 that will be recognized as components of net periodic benefit cost during the year ended December 31,
2020 for the Plan will be insignificant. For measurement purposes, a 5.2% increase in the cost of health care benefits was
assumed for 2020 and a range between 4.2% and 5.4% from 2021 through 2070. A one percentage point increase or decrease in
this rate would change the post retirement benefit obligation by approximately $0.1 million. The plan is recognized in the
accompanying Consolidated Balance Sheet as a current accrued pension liability of $0.1 million and a long-term accrued
pension liability of $1.0 million. The Company expects the benefits to be paid in each of the next five years to be less than $0.1
million per year and approximately $0.3 million in the aggregate for the next five years after that. This also is the expected
Company contribution to the plan, as it is unfunded.

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 92.7%
funded as of January 1, 2019. The Company’s contributions to the plan were $1.1 million in each of 2019, 2018 and 2017.
These contributions represent less than 1% of total contributions to the plan.

NOTE 14 — SHAREHOLDERS’ EQUITY

Share Buyback Program

On February 24, 2016, the Company’s Board of Directors authorized the repurchase of up to $50 million of common stock (the
“Buyback Program”). The Buyback Program allowed 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 repurchased
approximately 1,675,000 shares and completed that program in 2017. On December 12, 2017, the Company’s Board of
Directors authorized an additional repurchase of up to $50 million of common stock. The Company repurchased approximately
1,823,000 shares and completed that program in the third quarter of 2019. On September 17, 2019, the Company’s Board of
Directors authorized an additional repurchase of up to $50 million. An additional 28,000 shares have been repurchased under
the new program as of December 31, 2019 at a cost of $0.8 million. Subsequent to December 31, 2019, approximately 282,000
additional shares have been repurchased at a cost of $7.7 million.

Reserved Common Stock

At December 31, 2019, approximately 11.8 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 Income and Accumulated Other Comprehensive Income (Loss)

Comprehensive income consists of net income 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 income (loss) are as follows:

(In thousands)
Foreign Currency Translation Adjustments

Retirement Liability Adjustment – Before Tax

Tax Benefit

Retirement Liability Adjustment – After Tax

Accumulated Other Comprehensive Loss

The components of other comprehensive (loss) income are as follows:

(In thousands)
Foreign Currency Translation Adjustments

Retirement Liability Adjustment

Tax (Expense) Benefit

Retirement Liability Adjustment

Other Comprehensive (Loss) Income

NOTE 15 — EARNINGS PER SHARE

Earnings per share computations are based upon the following table:

(In thousands, except per share data)
Net Income

Basic Earnings Weighted Average Shares

Net Effect of Dilutive Stock Options

Diluted Earnings Weighted Average Shares

Basic Earnings Per Share

Diluted Earnings Per Share

2019

2018

(7,042) $

(10,868)

2,282

(8,586)

(7,156)

(7,814)

1,641

(6,173)

(15,628) $

(13,329)

2019

2018

2017

114

(2,691) $

(3,054)

641

(2,413)

5,174

(1,087)

4,087

(2,299) $

1,396

4,132

(2,377)

387

(1,990)

2,142

2019

2018

2017

52,017

46,803

32,028

431

32,459

32,351

785

33,136

1.62

1.60

1.45

1.41

19,679

32,874

844

33,718

0.60

0.58

The above information has been adjusted to reflect the impact of the three-for-twenty distribution of Class B Stock for
shareholders of record on October 12, 2018.

Stock options with exercise prices greater than the average market price of the underlying common shares are excluded from
the computation of diluted earnings per share because they are out-of-the-money and the effect of their inclusion would be anti-
dilutive. The number of common shares excluded from the computation was approximately 0.5 million for the year ended
December 31, 2019, 0.2 million for the year ended December 31, 2018, and 0.1 million for the year ended December 31, 2017.

NOTE 16 — EQUITY COMPENSATION

The Company has equity compensation plans that authorize the issuance of restricted stock units or options for shares of
Common Stock to directors, officers and key employees. Equity-based compensation is designed to reward long-term
contributions to the Company and provide incentives for recipients to join and to remain with the Company. The exercise price
of stock options, determined by a committee of the Board of Directors, may not be less than the fair market value of the
Common Stock on the grant date. Options become exercisable over periods not exceeding ten years. The Company’s practice
has been to issue new shares upon the exercise of the options.

The Company established Incentive Stock Option Plans for the purpose of attracting and retaining executive officers and key
employees, and to align management’s interest with those of the shareholders. Generally, the options must be exercised within
10 years from the grant date and vest ratably over a five-year period. The exercise price for the options is equal to the share
price at the date of grant. At December 31, 2019, the Company had options outstanding for 603,184 shares under the plans.

The Company established the Directors Stock Option Plans for the purpose of attracting and retaining the services of
experienced and knowledgeable outside directors, and to align their interest with those of the shareholders. The options must be
exercised within ten years from the grant date. The exercise price for the option is equal to the share price at the date of grant
and vests six months from the grant date. At December 31, 2019, the Company had options outstanding for 177,080 shares
under the plans.

During 2017, the Company established the Long Term Incentive Plan for the purpose of attracting and retaining directors,
executive officers and key employees, and to align management's interest with those of the shareholders. The Plan contemplates
the use of a mix of equity award types, and contains, with certain exceptions, a three-year pro-rata vesting schedule for time-
based awards. The Long Term Incentive Plan was amended on December 14, 2018 to provide a six-month pro-rata vesting
schedule for directors. For stock options, the exercise price is equal to the share price on the date of grant. Upon inception, the
remaining options available for future grant under the 2011 Incentive Stock Option Plan and the Directors Stock Option Plans
were rolled in the Long Term Incentive Plan, and no further grants may be made out of those plans. At December 31, 2019, the
Company had stock options and RSU's outstanding of 453,733 shares under the Long Term Incentive Plan, and there were
1,305,613 shares available for future grant under this plan.

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. Vesting requirements vary for directors, officers and key employees. In
general, options granted to outside directors vest six months from the date of grant and options granted to officers and key
employees straight line vest over a five-year period from the date of grant. RSUs granted to officers and key employees cliff
vest three years from the date of grant.

The following table provides compensation expense information based on the fair value of stock options and RSU's for the
years ended December 31 as follows:

(In thousands)
Equity-based Compensation Expense

Tax Benefit

Equity-based Compensation Expense, Net of Tax

Stock Options

Weighted Average Fair Value of the Options Granted

2019

2018

2017

3,843

(452)

3,391

3,098

(179)

2,919

2,598

(140)

2,458

2019

2018

2017

11.93

14.64

15.30

The weighted average fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted-average assumptions:

Risk-free Interest Rate

Dividend Yield

Volatility Factor

Expected Life in Years

2019

2018

2017

1.67% – 1.78%

2.63% – 2.87%

2.05% – 2.36%

—%
0.39

5.0 – 7.0

5.0 – 8.0

—%
0.40 – 0.41

5.0 – 8.0

To determine expected volatility, the Company uses historical volatility based on weekly closing prices of its Common Stock
and considers currently available information to determine if future volatility is expected to differ over the expected terms of the
options granted. The risk-free rate is based on the U.S. Treasury yield curve at the time of grant for the appropriate term of the
options granted. Expected dividends are based on the Company’s history and expectation of dividend payouts. The expected
term of stock options is based on vesting schedules, expected exercise patterns and contractual terms.

A summary of the Company’s stock option activity and related information for the years ended December 31 is as follows:

(Aggregate intrinsic value in
thousands)

Outstanding at January 1

Options Granted

Options Exercised

Options Forfeited

Outstanding at December 31

Exercisable at December 31

2019

Weighted
Average
Exercise
Price

Options

Aggregate
Intrinsic
Value

Options

2018

Weighted
Average
Exercise
Price

Aggregate
Intrinsic
Value

Options

2017

Weighted
Average
Exercise
Price

Aggregate
Intrinsic
Value

18.13

$ 13,042

1,506,604

14.65

$ 23,801

1,539,017

12.91

$ 35,630

1,327,919

138,300

(313,326) $

(36,848) $

1,116,045

802,873

30.04

5.38

21.56

23.07

19.79

(289)

120,270

(226)

118,612

(7,072)

(274,941) $

(7,303)

(131,904) $

(235)

(24,014) $

34.13

(19,121) $

24.27

5,446

6,551

1,327,919

1,043,596

18.13

$ 16,360

1,506,604

14.27

$ 16,885

1,252,315

14.65

$ 32,253

11.17

$ 31,177

33.40

9.77

315

(3,467)

(225)

32.33

3.89

The aggregate intrinsic value in the preceding table represents the total pretax option holder’s intrinsic value, based on the
Company’s closing stock price of Common Stock which would have been received by the option holders had all option holders
exercised their options as of that date. The Company’s closing stock price of Common Stock was $27.95, $30.45 and $36.06 as
of December 31, 2019, 2018 and 2017, respectively.

The weighted average fair value of options vested during 2019, 2018 and 2017 was $15.91, $16.54 and $12.39, respectively.
The total fair value of options that vested during the year amounted to $1.6 million, $1.4 million and $1.6 million for the years
ended December 31, 2019, 2018 and 2017, respectively. At December 31, 2019, total compensation costs related to non-vested
awards not yet recognized amounts to $5.2 million and will be recognized over a weighted average period of 2.34 years.

The following is a summary of weighted average exercise prices and contractual lives for outstanding and exercisable stock
options as of December 31, 2019:

Exercise Price Range
$ 3.19 – $ 13.63

$ 22.69 – $ 35.82

$ 45.89 – $ 45.89

Restricted Stock Units

419,944

677,848

18,253

1,116,045

Outstanding

Weighted Average
Remaining Life
in Years

Weighted
Average
Exercise Price

1.9 $

7.3 $

5.2 $

9.58

30.82

45.89

23.07

Exercisable

Weighted Average
Remaining Life
in Years

Weighted
Average
Exercise Price

1.9 $

6.0 $

5.2 $

3.8 $

9.58

30.25

45.89

19.79

419,944

364,676

18,253

802,873

The fair value of each RSU granted is equal to the fair market value of the Company’s Common Stock on the date of grant. The
RSU’s cliff vest three years from the date of grant. There were 87,634 RSU’s granted in 2019 at a weighted-average price of
$36.01, of which 17,776 awards were vested during 2019. Forfeitures during the year were insignificant. Included in total
equity-based compensation expense for the year ended December 31, 2019 was $1.6 million related to RSU's. At December 31,
2019, total compensation costs related to non-vested awards not yet recognized amounts to $2.2 million and will be recognized
over a weighted average period of approximately 2 years.

Employee Stock Purchase Plan

In addition to the stock options and RSU's discussed above, the Company has established the Employee Stock Purchase Plan to
encourage employees to invest in Astronics Corporation. The plan provides employees the opportunity to invest up to the IRS
annual maximum of approximately $25,000 in Astronics common stock at a price equal to 85% of the fair market value of the
Astronics common stock, determined each October 1. Employees are allowed to enroll annually. Employees indicate the
number of shares they wish to obtain through the program and their intention to pay for the shares through payroll deductions
over the annual cycle of October 1 through September 30. Employees can withdraw anytime during the annual cycle, and all
money withheld from the employees pay is returned with interest. If an employee remains enrolled in the program, enough
money will have been withheld from the employees’ pay during the year to pay for all the shares that the employee opted for
under the program. At December 31, 2019, employees had subscribed to purchase 133,979 shares at $24.75 per share. The
weighted average fair value of the options was approximately $8.26, $8.48 and $5.15 for options granted during the year ended
December 31, 2019, 2018 and 2017, respectively.

The fair value for the options granted under the Employee Stock Purchase Plan was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average assumptions:

Risk-free Interest Rate

Dividend Yield

Volatility Factor

Expected Life in Years

NOTE 17 — FAIR VALUE

2019

1.73 %

— %

0.53

1.0

2018

2.60 %

— %

0.33

1.0

2017

1.31 %

— %

0.26

1.0

ASC Topic 820, Fair Value Measurements and Disclosures, (“ASC Topic 820”) defines fair value, establishes a framework for
measuring fair value and expands the related disclosure requirements. This statement applies under other accounting
pronouncements that require or permit fair value measurements. The statement indicates, among other things, that a fair value
measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or
liability or, in the absence of a principal market, the most advantageous market for the asset or liability. ASC Topic 820 defines
fair value based upon an exit price model. The Company’s assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and involves consideration of factors specific to the asset or liability.

ASC Topic 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This
hierarchy prioritizes the inputs into three broad levels as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for
the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the
financial instrument.

Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair
value.

On a Recurring Basis:

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant
to the fair value measurement. There were no financial assets or liabilities carried at fair value measured on a recurring basis at
December 31, 2019 or 2018.

The terms of the Diagnosys acquisition allow for a potential earn-out of up to an additional $13.0 million over the next three
years based on achievement of new order levels of over $72.0 million during that period. The fair value of this contingent
consideration is estimated at $2.5 million as of December 31, 2019. The fair value assigned to the earn-out is determined using
the real options method, which requires inputs such as new order forecasts, discount rate, volatility factors, and other market
variables to assess the probability of Diagnosys achieving certain order levels over the period.

On a Non-recurring Basis:

In accordance with the provisions of ASC Topic 350, Intangibles – Goodwill and Other, the Company estimates the fair value
of reporting units, utilizing unobservable Level 3 inputs. Level 3 inputs require significant management judgment due to the
absence of quoted market prices or observable inputs for assets of a similar nature. The Company utilizes a discounted cash
flow method to estimate the fair value of reporting units utilizing unobservable inputs. The fair value measurement of the
reporting unit under the step-one analysis of the quantitative goodwill impairment test are classified as Level 3 inputs. In 2019,
we performed quantitative assessments for the reporting units which had goodwill as of the first day of the fourth quarter, prior
to the initiation of the AeroSat restructuring activities. Based on our quantitative assessment, the Company recorded a full
impairment charge of approximately $1.6 million in the December 31, 2019 consolidated statement of operations associated
with the AeroSat reporting unit.

There were no impairment charges to goodwill in any of the Company’s reporting units in 2018.

As a result of the annual goodwill impairment test for 2017, the Company recorded an impairment charge of $16.2 million
related to the Armstrong reporting unit. The goodwill impairment was calculated as the amount by which the reporting unit's
carrying value exceeded its fair value, not to exceed the carrying value of goodwill.

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. In conjunction with the restructuring of AeroSat in 2019, the
Company recorded impairment charges to long-lived assets including intangible assets, property, plant and equipment and ROU
assets of approximately $9.5 million in the Consolidated Statement of Operations associated to the AeroSat reporting unit in
conjunction with restructuring activities.

There were no impairment charges to any of the Company’s long-lived assets in either of the Company’s segments in 2018 or
2017.

From time to time, the Company makes long-term, strategic equity investments in companies to promote business and strategic
objectives. These investments are included in Other Assets on the Consolidated Balance Sheets. One of the investments
incurred a full impairment charge which accounts for $5.0 million recorded within the Other Expense, Net of Other Income line
in the accompanying Consolidated Statement of Operations for the year ended December 31, 2019. This is a Level 3
measurement as there were no observable price changes during the year.

The Freedom and Diagnosys intangible assets were valued using a discounted cash flow methodology, as of their respective
acquisitions dates, and are classified as Level 3 inputs.

Due to their short-term nature, the carrying value of cash and equivalents, accounts receivable, accounts payable, and notes
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.

NOTE 18 — SELECTED QUARTERLY FINANCIAL INFORMATION

The following table summarizes selected quarterly financial information for 2019 and 2018:

Quarter Ended

(Unaudited)

Dec. 31,

Sep. 28,

June 29, March 30,

Dec. 31,

Sep. 29,

June 30, March 31,

(In thousands, except for per share data)
Sales
Gross Profit (sales less cost of products sold) $ 26,908
Impairment Loss
$ 11,083

2019

2018

$198,412 $ 177,018

$ 189,098

$ 208,174

$202,917

$212,674

$208,606

$ 179,059

$ 36,794

$ 40,363

$ 52,077

$ 47,672

$ 46,320

$ 49,572

$ 37,132

— $

Income Before Income Taxes

Net Income

Basic Earnings Per Share

Diluted Earnings Per Share

$(43,282) $

$(34,065) $

(1.10) $

1,760

1,210

0.04

8,830

$ 100,995

$ 15,594

$ 15,580

$ 17,182

6,726

$ 78,146

$ 12,485

$ 16,999

$ 14,025

0.21

0.20

2.40

2.35

0.38

0.37

0.53

0.52

0.43

0.42

—

3,926

3,294

0.10

Information for 2019 includes the results of Freedom, acquired on July 1, 2019, and Diagnosys, acquired on October 4, 2019,
each from the acquisition date forward. Information for 2019 reflects the divestiture of the semiconductor business on February
13, 2019.

Additionally, several events occurred in the fourth quarter of 2019 which impacted the results as presented. Information
included in 2019 is impacted by a significant increase to a legal reserve as well as restructuring, impairment and other charges
as discussed in Note 19 and Note 23 in our consolidated financial statements, respectively.

NOTE 19 — COMMITMENTS AND CONTINGENCIES

The Company leases certain facilities and equipment under various lease contracts with terms that meet the accounting
definition of operating leases, as well as finance leases. Refer to Note 10 for additional information.

Legal Proceedings

On December 29, 2010, Lufthansa Technik AG (“Lufthansa”) filed a Statement of Claim in the Regional State Court of
Mannheim, Germany. Lufthansa’s claim asserted that a subsidiary of the Company, AES, sold, marketed, and brought into use
in Germany a power supply system that infringes upon a German patent held by Lufthansa. Lufthansa sought an order requiring
AES to stop selling and marketing the allegedly infringing power supply system, a recall of allegedly infringing products sold
to commercial customers in Germany since November 26, 2003, and compensation for damages related to direct sales of the
allegedly infringing power supply system in Germany (referred to as “direct sales”). The claim did not specify an estimate of
damages and a related damages claim is being pursued by Lufthansa in separate court proceedings in an action filed in July
2017, as further discussed below.

In February 2015, the Regional State Court of Mannheim, Germany rendered its decision that the patent was infringed. The
judgment did not require AES to recall products that are already installed in aircraft or had been sold to other end users. On July
15, 2015, Lufthansa advised AES of their intention to enforce the accounting provisions of the decision, which required AES to
provide certain financial information regarding direct sales of the infringing product in Germany to enable Lufthansa to make
an estimate of requested damages.

The Company appealed to the Higher Regional Court of Karlsruhe. On November 15, 2016, the Higher Regional Court of
Karlsruhe issued its ruling and upheld the lower court’s decision. The Company submitted a petition to grant AES leave for
appeal to the German Federal Supreme Court. On April 18, 2018, the German Federal Supreme Court granted Astronics’
petition in part, namely with respect to the part concerning the amount of damages. On January 8, 2019, the German Federal
Supreme Court held the hearing on the appeal. By judgment of March 26, 2019, the German Federal Supreme Court dismissed
AES's appeal. With this decision, the above-mentioned proceedings are complete.

In July 2017, Lufthansa filed an action in the Regional State Court of Mannheim for payment of damages caused by the court’s
decision that AES infringed the patent, specifically related to direct sales of the product into Germany (associated with the
original December 2010 action discussed above). In this action, which was served to AES on April 11, 2018, Lufthansa claimed
payment of approximately $6.2 million plus interest. An oral hearing was held on September 13, 2019. A first instance decision
is in this matter was handed down on December 6, 2019. According to this ruling, Lufthansa was awarded damages in the
amount of approximately $3.2 million plus interest. Inclusive of interest, this equates to approximately $4.5 million through
December 31, 2019. Interest will continue to accrue at a statutory rate until final payment to Lufthansa. In February 2020 we
received notice that Lufthansa’s intention is to provide a security and to enforce payment on the first instance judgment. If
Lufthansa provides a security deposit in a sufficient amount, as they have stated is their intention, the Company will be required
to remit the payment. Based on this information, we believe payment for damages and interest on the direct sales claim will be
required in 2020. AES has appealed this decision and the appeal is currently pending before the Higher Regional Court of
Karlsruhe. If the first instance judgment is later reversed on appeal, the Company could reclaim any amounts that the court
determines to be “excessive”, but there can be no assurances that we will be successful on such appeal. Prior to 2019, the
Company had accrued $1.0 million related to this matter. As a result of the judgment on direct sales into Germany, the
Company has reflected an incremental reserve of $3.5 million in its December 31, 2019 financial statements related to this
matter, for a total reserve of $4.5 million.

On December 29, 2017, Lufthansa filed another infringement action against AES in the Regional State Court of Mannheim
claiming that sales by AES to its international customers have infringed Lufthansa's patent if AES's customers later shipped the
products to Germany (referred to as “indirect sales”). This action, therefore, addresses sales other than those covered by the
action filed on December 29, 2010, discussed above. In this action, served on April 11, 2018, Lufthansa sought an order
obliging AES to provide information and accounting and a finding that AES owes damages for the attacked indirect sales.
Moreover, Lufthansa sought accounting and a finding that the sale of individual components of the EmPower system – either
directly to Germany or to international customers if these customers later shipped products to Germany – constitutes an indirect
patent infringement of Lufthansa's patent in Germany. In addition, Lufthansa sought an order obliging AES to confirm by an
affidavit that the accounting provided in September 2015 was accurate and a finding that AES is also liable for damages for the
sale of modified products if the modification of the products was not communicated to all subsequent buyers of the products.
No amount of claimed damages has been specified by Lufthansa.

An oral hearing in this matter was held on September 13, 2019, as part of the oral hearing for the direct sales damages claim
discussed above. A first instance decision in this matter was handed down on December 6, 2019. According to this judgment,
Lufthansa's claims were granted in part. The court granted Lufthansa's claims for a finding that indirect sales (as defined above)

by AES to international customers constitute a patent infringement under the conditions specified in the judgment and that the
sale of components of the EmPower system to Germany constitutes an indirect patent infringement. Moreover, the Court
granted Lufthansa's request for an affidavit confirming that the accounting provided in September 2015 was accurate. The Court
rejected Lufthansa's request for a finding that AES is also liable for damages for the sale of modified products as inadmissible.
This is relevant, as it provides that once AES modified the system to remove the infringing feature, any subsequent outlets are
deemed not to be infringing outlets for purposes of calculating damages. AES and Lufthansa both appealed this decision and the
appeal is currently pending before the Higher Regional Court of Karlsruhe. The appeal is not likely to be settled in 2020.

If the decision is confirmed on appeal, this would mean that AES would be responsible for payment of damages for indirect
sales of patent-infringing EmPower in-seat power supply systems in the period from December 29, 2007 to May 22, 2018. AES
modified the outlet units at the end of 2014 and the modified outlet units sold from 2015 do not infringe the patent of Lufthansa.
Since only sales of systems comprising patent-infringing outlet units trigger damages claims, the period for which AES is liable
for damages in connection with indirect sales finished at the end of 2014.

After the accounting, Lufthansa is expected to enforce its claim for damages in separate court proceedings. These proceedings
would probably be tried before the Mannheim Court again, which makes it probable that the Mannheim court will determine the
damages for the indirect sales on the basis of the same principles as in the direct sales proceedings. Based on the information
available currently, we estimate that the resulting damages would be approximately $11.6 million plus approximately $4.5
million of accrued interest at the end of 2019, for a total of approximately $16.1 million. Similar to the direct sales claim,
interest will accrue at a rate of 5% above the European Central Bank rate until final payment to Lufthansa.

Based upon the determination of the damages in the direct sales claim discussed above, in the December 31, 2019 consolidated
financial statements, we have reflected a total accrual (inclusive of interest through December 31, 2019) of $4.5 million related
to the direct sales claim, and $16.1 million related to the indirect sales claim as management’s best estimate of the total
exposure related to these matters that is probable and that can be reasonably estimated at this time. Expenses recorded in 2019
related to these claims ($3.5 million related to the direct sales claim and $16.1 million related to the indirect sales claim) have
been recorded within Selling, General and Administrative Expense in the Company’s Consolidated Statement of Operations.
We estimate that payment for the damages and related interest of the direct sales claim will be paid before December 31, 2020,
therefore the liability related to this matter, totaling $4.5 million, is classified within Other Accrued Expenses (current) in the
Consolidated Balance Sheet at December 31, 2019. In connection with the indirect sales claims, we currently believe it is
unlikely that the appeals process will be completed and the damages and related interest will be paid before December 31, 2020.
Therefore the liability related to this matter, totaling $16.1 million, is classified within Other Liabilities (non-current) in the
Consolidated Balance Sheet at December 31, 2019.

In December 2017, Lufthansa filed patent infringement cases in the UK and in France against AES. The Lufthansa patent
expired in May 2018. In those cases, Lufthansa accuses AES of having manufactured, used, sold and offered for sale a power
supply system, and offered and supplied parts for a power supply system that infringed upon a Lufthansa patent in those
respective countries. In the UK matter, a trial has been scheduled for June 2020 to address the issues of infringement and
validity.

The France and UK claims are separate and apart from the claims in Germany and validity and infringement of the Lufthansa
patent will first need to be determined by the courts in these countries, whose laws differ from those in Germany. Also the
principles of calculating damages in German patent infringement proceedings differ substantially from the calculation methods
in the UK and France. Therefore the Company has assessed this separate from the German claims. However, it reasonably
possible that additional damages and interest could be incurred if the courts in France and the UK were to rule in favor of
Lufthansa, but at this time we cannot reasonably estimate the range of loss. As loss exposure is neither probable nor estimable
at this time, the Company has not recorded any liability with respect to these matters as of December 31, 2019.

On November 26, 2014, Lufthansa filed a complaint in the United States District for the Western District of Washington.
Lufthansa’s complaint in that action alleges that AES manufactures, uses, sells and offers for sale a power supply system that
infringes upon a U.S. patent held by Lufthansa. The patent at issue in the U.S. action is based on technology similar to that
involved in the German action. On April 25, 2016, the Court issued its ruling on claim construction, holding that the sole
independent claim in the patent is indefinite, rendering all claims in the patent indefinite. Based on this ruling, AES filed a
motion for summary judgment on the grounds that the Court’s ruling that the patent is indefinite renders the patent invalid and
unenforceable. On July 20, 2016, the U.S. District Court granted the motion for summary judgment and issued an order
dismissing all claims against AES with prejudice.

Lufthansa appealed the District Court's decision to the United States Court of Appeals for the Federal Circuit. On October 19,
2017, the Federal Circuit affirmed the district court’s decision, holding that the sole independent claim of the patent is

indefinite, rending all claims on the patent indefinite. Lufthansa did not file a petition for en banc rehearing or petition the U.S.
Supreme Court for a writ of certiorari. Therefore, there is no longer a risk of exposure from that lawsuit.

Other than these proceedings, we are not party to any significant pending legal proceedings that management believes will
result in a material adverse effect on our financial condition or results of operations.

NOTE 20 — SEGMENTS

Segment information and reconciliations to consolidated amounts for the years ended December 31 are as follows:

(In thousands)
Sales:

Aerospace

Less Inter-segment Sales

Total Aerospace Sales

Test Systems

Less Inter-segment Sales

Test Systems

Total Consolidated Sales

Operating Profit and Margins:

Aerospace

Test Systems

Total Operating Profit

Additions to (Deductions from) Operating Profit:

Net Gain on Sale of Businesses

Interest Expense, Net of Interest Income

Corporate and Other Expenses, Net

Income before Income Taxes

Depreciation and Amortization:

Aerospace

Test Systems

Corporate

Total Depreciation and Amortization

Assets:

Aerospace

Test Systems

Corporate

Total Assets

Capital Expenditures:

Aerospace

Test Systems
Corporate

Total Capital Expenditures

2019

2018

2017

692,614

675,744

534,724

(5)

692,609

80,495

(402)

80,093

772,702

16,657

2.4 %

4,494

5.6 %

(119)

675,625

127,679

(48)

127,631

803,256

69,761

10.3 %

10,718

8.4 %

(121)

534,603

89,861

—

89,861

624,464

38,888

7.3 %

7,359

8.2 %

21,151

80,479

46,247

2.7 %

10.0 %

7.4 %

78,801

— $

(6,141)

(25,508)

68,303

27,879
4,534

636
33,049

629,371

110,994

42,351

782,716

11,552

380

151

(9,710)

(18,487)

52,282

29,947
4,500

585
35,032

647,870

97,056

29,714

774,640

14,680

1,370

267

—

(5,369)

(15,887)

24,991

22,111
4,302

650
27,063

621,047

90,859

24,050

735,956

10,656

2,721

101

12,083

16,317

13,478

Operating profit is sales less cost of products sold and other operating expenses, excluding interest expense and other corporate
expenses. Cost of products sold and other operating expenses are directly identifiable to the respective segment.

For the year ended December, 31 2019, there was a goodwill impairment loss of $1.6 million and intangible asset impairment
of $6.2 million recorded in the Aerospace segment. In 2018, there were no goodwill or purchased intangible asset impairment
losses in either the Aerospace or Test System segment. In 2017, there was a goodwill impairment loss of $16.2 million recorded
in the Aerospace segment. In the Aerospace segment, goodwill amounted to $123.0 million and $125.0 million at December 31,
2019 and 2018, respectively. In the Test Systems segment, goodwill amounted to $21.9 million as of December 31, 2019. There
was no goodwill in the Test Systems segment as of December 31, 2018.

The following table summarizes the Company’s sales into the following geographic regions for the years ended December 31:

(In thousands)
United States

North America (excluding United States)

Asia

Europe

South America

Other

Total

2019

2018

2017

583,589

575,830

482,219

12,585

40,764

130,227

862

4,675

10,834

112,135

98,193

1,973

4,291

6,198

58,732

73,677

1,280

2,358

772,702

803,256

624,464

The following table summarizes the Company’s property, plant and equipment by country for the years ended December 31:

(In thousands)
United States

France

India
Canada
Total

2019

2018

101,169

8,740
1,509
1,081
112,499

110,738

9,241
—
883
120,862

Sales recorded by the Company’s foreign operations were $85.9 million, $70.6 million and $53.9 million in 2019, 2018 and
2017, respectively. Net income from these locations was $8.6 million, $5.5 million and $2.2 million in 2019, 2018 and 2017,
respectively. Net assets held outside of the U.S. total $66.4 million and $45.0 million at December 31, 2019 and 2018,
respectively. The exchange loss included in determining net income was insignificant in 2019 and 2018. Cumulative translation
adjustments amounted to $(7.0) million and $(7.2) million at December 31, 2019 and 2018, respectively.

The Company has a significant concentration of business with two major customers; The Boeing Company (“Boeing”) and
Panasonic Aviation Corporation (“Panasonic”). The following is information relating to the activity with those customers:

Percent of Consolidated Sales

Boeing

Panasonic

(In thousands)
Accounts Receivable at December 31,

Boeing

Panasonic

2019

2018

2017

13.6%
13.0%

14.3%
14.4%

16.8%
19.1%

2019

2018

21,806

15,831

24,649

14,994

Sales to Boeing and Panasonic are primarily in the Aerospace segment.

NOTE 21 — ACQUISITIONS

Diagnosys Inc. and its affiliates

On October 4, 2019, the Company acquired the stock of the primary operating subsidiaries as well as certain other assets from
mass transit and defense market test solution provider, Diagnosys Test Systems Limited for $7.0 million in cash, plus an earn-
out estimated at a fair value of $2.5 million. The terms of the acquisition allow for a potential earn-out of up to an additional

$13.0 million over the next three years based on achievement of new order levels of over $72.0 million during that period. The
acquired business has operations in Westford, Massachusetts as well as Ferndown, England, and an engineering center of
excellence in Bangalore, India. Diagnosys is included in our Test Systems segment. Diagnosys is a developer and manufacturer
of comprehensive automated test equipment providing test, support, and repair of high value electronics, electro-mechanical,
pneumatic and printed circuit boards focused on the global mass transit and defense markets.

The purchase price allocation for this acquisition has not yet been finalized. Purchased intangible assets and goodwill are not
expected to be deductible for tax purposes. This transaction was not considered material to the Company’s financial position or
results of operations.

Freedom Communication Technologies, Inc.

On July 1, 2019, the Company acquired all of the issued and outstanding capital stock of Freedom Communication
Technologies, Inc. Freedom, located in Kilgore, Texas, is a leader in wireless communication testing, primarily for the civil
land mobile radio market. Freedom is included in our Test Systems segment. The total consideration for the transaction was
$21.8 million, net of $0.6 million in cash acquired. The purchase price allocation for this acquisition has not yet been finalized.
Purchased intangible assets and goodwill are not expected to be deductible for tax purposes. This transaction was not
considered material to the Company’s financial position or results of operations.

Astronics Connectivity Systems and Certification Corp.

On December 1, 2017, Astronics completed the acquisition of substantially all of the assets and liabilities of Telefonix Inc.,
including 100% of the stock of a related company, Product Development Technologies, LLC and its subsidiaries. The combined
group designs and manufactures advanced in-flight entertainment and connectivity equipment, and provides industry leading
design consultancy services for the global aerospace industry. The company’s products include wireless access points, file
servers, content loaders, passenger control units and cord reels, as well as engineering services for its customers. We purchased
the assets of these companies for $103.8 million, net of $0.2 million in cash acquired. All of the goodwill and purchased
intangible assets are expected to be deductible for tax purposes over 15 years. The acquired companies are included in our
Aerospace reporting segment. Adjustments made to the preliminary purchase price valuation during the measurement period
were not significant. The purchase price allocation for this acquisition has been finalized.

The following is a summary of the sales and amounts included in income from operations for CSC included in the consolidated
financial statements of the Company from the date of acquisition to December 31, 2017 (in thousands):

Sales

Operating Loss

6,174

(499)

The following summary, prepared on a pro forma basis, combines the consolidated results of operations of the Company with
those of CSC as if the acquisition took place on January 1, 2017. The pro forma consolidated results include the impact of
certain adjustments, including increased interest expense on acquisition debt, amortization of purchased intangible assets and
income taxes.

(In thousands, except earnings per share)

Sales

Net income

Basic earnings per share

Diluted earnings per share

Unaudited

2017

683,541

18,302

0.56

0.54

The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been in effect
for the year ended December 31, 2017. In addition, they are not intended to be a projection of future results.

Astronics Custom Control Concepts, Inc.

On April 3, 2017, Astronics Custom Control Concepts Inc., a wholly owned subsidiary of the Company, acquired substantially
all the assets and certain liabilities of Custom Control Concepts LLC (“CCC”), located in Kent, Washington. CCC is a provider
of cabin management and in-flight entertainment systems for a range of aircraft. The total consideration for the transaction was
$10.2 million, net of $0.5 million in cash acquired. All of the goodwill and purchased intangible assets are expected to be
deductible for tax purposes over 15 years. CCC is included in our Aerospace segment. The purchase price allocation for this
acquisition has been finalized.

NOTE 22 — DIVESTITURE ACTIVITIES

Semiconductor Test Business

As of December 31, 2018, the Company’s Board of Directors approved a plan to sell the semiconductor test business within the
Test Systems segment. Accordingly, the assets and liabilities associated with these operations have been classified as held for
sale in the accompanying consolidated Balance Sheet at December 31, 2018. The carrying value of the disposal group was
lower than its fair value, less costs to sell, and accordingly, no impairment loss was required at December 31, 2018.

The following is a summary of the assets and liabilities held for sale as of December 31:

(In thousands)

Assets Held for Sale

Inventories

Prepaid Expenses and Other Current Assets

Net Property, Plant and Equipment

Other Assets

Intangible Assets, Net of Accumulated Amortization

Total Assets Held for Sale

Liabilities Held for Sale

Deferred Income Taxes

2018

14,385

3,521

714

651

19,358

906

On February 13, 2019, the Company completed the divestiture. The business was not core to the future of the Test Systems
segment. The total proceeds received for the sale amounted to $103.8 million. The Company recorded a pre-tax gain on the sale
of approximately $80.1 million in the first quarter of 2019. The income tax expense relating to the gain was $19.7 million.

The transaction also includes 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
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 to the Company under the First Earnout.

Airfield Lighting Product Line

As of December 31, 2019, the Company has agreed to sell certain facilities within the Aerospace segment. Accordingly, the
property, plant and equipment assets associated with these facilities of $1.5 million have been classified as held for sale in the
consolidated Balance Sheet at December 31, 2019.

NOTE 23 — RESTRUCTURING, IMPAIRMENTS AND OTHER CHARGES

Antenna Business Impairment and Restructuring

In 2019, we performed quantitative assessments for the reporting units which had goodwill as of the first day of the fourth
quarter, prior to the initiation of the antenna business restructuring activities. Based on our quantitative assessment, the
Company recorded a full goodwill impairment charge of approximately $1.6 million in the December 31, 2019 Consolidated
Statement of Operations associated with the AeroSat reporting unit.

As a result of the restructuring plan, the Company's total impairments and restructuring charges recorded in the fourth quarter of
2019 (including the goodwill impairment described above) amounted to $28.8 million, all of which is included in the Aerospace
segment. Any future restructuring actions will depend upon market conditions, customer actions and other factors.

A summary of the restructuring, impairment and other charges, and their location on the Consolidated Statement of Operations,
are presented as of December 31, 2019:

(In thousands)

Cost of Products Sold

Selling, General and
Administrative

Impairment Loss

Amounts

Restructuring Charges

Accounts Receivable, Net

— $

1,785 $

— $

Inventories

Prepaid Expenses and Other Current Assets

Property, Plant and Equipment, Net

Other Assets

Intangible Assets, Net

Goodwill

Accrued Payroll and Employee Benefits

Other Accrued Expenses

Other Liabilities

9,429

1,227

—

164

4,577

—

122

—

449

—

2,268

1,019

6,186

1,610

—

15,397 $

2,356 $

11,083 $

1,785

9,429

1,227

2,268

1,141

6,186

1,610

449

164

4,577

28,836

The charge to Prepaid Expenses and Other Current Assets is comprised of prepaid installation fees associated with programs
that were either cancelled or are no longer being pursued as a result of the restructuring. The charge to Other Assets is
comprised of the right-of-use asset values for the AeroSat facility lease. The charge to Accrued Payroll and Employee Benefits
is comprised of employee termination benefits expected to be paid in 2020. The charge to Other Accrued Expenses and Other
Liabilities represents the estimated current and non-current portions of payments to be made under non-cancelable inventory
purchase commitments in the future for inventory which is not expected to be purchased prior to the expiration date of such
agreements as a result of the restructuring plan. None of the restructuring or impairment charges resulted in the utilization of
cash during 2019.

Financial Instrument Impairment

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of Company Management, including
the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures are effective as of
the end of the period covered by this report, to ensure that information required to be disclosed in reports filed or submitted
under the Exchange Act is made known to them on a timely basis, and that these disclosure controls and procedures are
effective to ensure such information is recorded, processed, summarized and reported within the time periods specified in the
Commission’s rules and forms.

Management’s Report on Internal Control over Financial Reporting

See the report appearing under Item 8, Financial Statements and Supplemental Data, Managements Report on Internal Control
Over Financial Reporting.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B.

OTHER INFORMATION

None

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information regarding directors is contained under the captions “Election of Directors” and “Security Ownership of Certain
Beneficial Owners and Management” and is incorporated herein by reference to the 2020 Proxy to be filed within 120 days of
the end of our fiscal year is incorporated herein by reference.

The executive officers of the Company, their ages, their positions and offices with the Company, and the date each assumed
their office with the Company as of December 31, 2019, are as follows:

Name and Age of Executive Officer
Peter J. Gundermann
Age 57
David C. Burney
Age 57

Mark A. Peabody
Age 60

James S. Kramer
Age 56
James F. Mulato
Age 59

Michael C. Kuehn
Age 59

Positions and Offices with Astronics
President, Chief Executive Officer and Director of
the Company
Executive Vice President, Secretary and Chief
Financial Officer of the Company
Astronics Advanced Electronic Systems President
and Executive Vice President of Astronics
Corporation
Luminescent Systems Inc. President and Executive
Vice President of Astronics Corporation
President of Astronics Test Systems, Inc. and
Executive Vice President of Astronics Corporation
Astronics Connectivity Systems & Certification
Corp. and Armstrong Aerospace, Inc. President and
Executive Vice President of Astronics Corporation

Year First
Elected Officer

2001

2003

2010

2019

The principal occupation and employment for Messrs. Gundermann, Burney, Kramer, Mulato and Peabody for the past five
years has been with the Company in their respective current roles.

Mr. Kuehn and Mr. Mulato became Executive Vice Presidents of the Company on January 1, 2019.

Mr. Kuehn has been the President of Astronics Connectivity Systems & Certification Corp. (“ACSC”) since its acquisition by
the Company in 2017, and the President of Armstrong Aerospace, Inc. since 2018. Prior to acquisition, Mr. Kuehn ran the
ACSC business as President of Telefonix, Incorporated for eight years.

The Company has adopted a Code of Business Conduct and Ethics that applies to the Chief Executive Officer, Chief Financial
Officer as well as other directors, officers and employees of the Company. This Code of Business Conduct and Ethics is
available upon request without charge by contacting Astronics Corporation at (716) 805-1599. The Code of Business Conduct
and Ethics is also available on the Investors section of the Company’s website at www.astronics.com.

ITEM 11.

EXECUTIVE COMPENSATION

The information contained under the caption “Executive Compensation” and “Summary Compensation Table” in the
Company’s definitive Proxy Statement to be filed within 120 days of the end of our fiscal year is incorporated herein by
reference.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The information contained under the captions “Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters” and “Executive Compensation” in the Company’s definitive Proxy Statement to be filed within 120 days
of the end of our fiscal year is incorporated herein by reference.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information contained under the captions “Certain Relationships and Related Transactions and Director Independence” and
“Proposal One: Election of Directors” in the Company’s definitive Proxy Statement to be filed within 120 days of the end of
our fiscal year is incorporated herein by reference.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information contained under the caption “Audit and Non-Audit Fees” in the Company’s definitive Proxy Statement to be
filed within 120 days of the end of our fiscal year is incorporated herein by reference.

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

PART IV

The documents filed as a part of this report are as follows:

The following financial statements are included:

i.
ii.

iii.
iv.
v.

vi.
vii.
viii.

Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019,
2018 and 2017
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2019, 2018
and 2017
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Management’s Report on Internal Control Over Financial Reporting

Financial Statement Schedule

Schedule II. Valuation and Qualifying Accounts

All other consolidated financial statement schedules are omitted because they are inapplicable, not required, or the

information is included elsewhere in the consolidated financial statements or the notes thereto.

Exhibits

Exhibit
No.

3 (a)

(b)

(c)

10.1*

10.2*

10.3*

10.4*

10.5*

10.6*

10.7*

10.8*

10.9*

10.10*

10.11*

10.12*

10.13*

10.14*

Description

Restated Certificate of Incorporation, incorporated by reference to the registrant’s 2013 Annual Report on
Form 10-K, Exhibit 3(a), filed March 7, 2014 (File No. 000-07087).

By-Laws, as amended, incorporated by reference to the registrant’s 2008 Annual Report on Form 10-K,
Exhibit 3(b), filed March 11, 2009 (File No. 000-07087).

Certificate of Amendment of the Certificate of Incorporation of Astronics Corporation, incorporated by
reference to the registrant’s Form 8-K, Exhibit 3.1, filed July 1, 2016 (File No. 000-07087).

Restated Thrift and Profit Sharing Retirement Plan, incorporated by reference to the registrant’s 2010
Annual Report on Form 10-K, Exhibit 10.1, filed March 3, 2011 (File No. 000-07087).

2001 Stock Option Plan, incorporated by reference to the registrant’s 2010 Annual Report on Form 10-K,
Exhibit 10.4, filed March 3, 2011 (File No. 000-07087).

Non-Qualified Supplemental Retirement Plan, incorporated by reference to the registrant’s 2010 Annual
Report on Form 10-K, Exhibit 10.5, filed March 3, 2011 (File No. 000-07087).

Employment Termination Benefits Agreement dated December 16, 2003 between Astronics Corporation
and Peter J. Gundermann, President and Chief Executive Officer of Astronics Corporation, incorporated by
reference to the registrant’s 2010 Annual Report on Form 10-K, Exhibit 10.6, filed March 3, 2011 (File
No. 000-07087).

Employment Termination Benefits Agreement dated December 16, 2003 between Astronics Corporation
and David C. Burney, Vice President and Chief Financial Officer of Astronics Corporation, incorporated
by reference to the registrant’s 2010 Annual Report on Form 10-K, Exhibit 10.7, filed March 3, 2011 (File
No. 000-07087).

2005 Director Stock Option Plan, incorporated by reference to the registrant’s 2010 Annual Report on
Form 10-K, Exhibit 10.8, filed March 3, 2011 (File No. 000-07087).

Supplemental Retirement Plan, Amended and Restated, March 6, 2012, incorporated by reference to the
registrant’s 2012 Annual Report on Form 10-K, Exhibit 10.10, filed February 22, 2013 (File No.
000-07087).

First Amendment of the Employment Termination Benefits Agreement dated December 30, 2008 between
Astronics Corporation and Peter J. Gundermann, President and Chief Executive Officer of Astronics,
incorporated by reference to the registrant’s 2008 Annual Report on Form 10-K, Exhibit 10.11, filed
March 11, 2009 (File No. 000-07087).

First Amendment of the Employment Termination Benefits Agreement dated December 30, 2008 between
Astronics Corporation and David C. Burney, Vice President and Chief Financial Officer of Astronics
Corporation, incorporated by reference to the registrant’s 2008 Annual Report on Form 10-K, Exhibit
10.12, filed March 11, 2009 (File No. 000-07087).

Employment Termination Benefits Agreement Dated February 18, 2005 between Astronics Corporation
and Mark A. Peabody, Executive Vice President of Astronics Advanced Electronic Systems, Inc.,
incorporated by reference to the registrant’s 2010 Annual Report on Form 10-K, Exhibit 10.13, filed
March 3, 2011 (File No. 000-07087).

First Amendment of the Employment Termination Benefits Agreement dated December 31, 2008 between
Astronics Corporation and Mark A. Peabody, Executive Vice President of Astronics Advanced Electronic
Systems, Inc., incorporated by reference to the registrant’s 2010 Annual Report on Form 10-K, Exhibit
10.14, filed March 3, 2011 (File No. 000-07087).

Form of Indemnification Agreement as executed by each of Astronics Corporation’s Directors and
Executive Officers, incorporated by reference to the registrant’s 2010 Annual Report on Form 10-K,
Exhibit 10.15, filed March 3, 2011 (File No. 000-07087).

2011 Employee Stock Option Plan, incorporated by reference to the registrant’s Form S-8, Exhibit 4.1 filed
on August 4, 2011 (File No. 000-07087).

Supplemental Retirement Plan II, incorporated by reference to the registrant’s 2012 Annual Report on
Form 10-K, Exhibit 10.18, filed February 22, 2013 (File No. 000-07087).

10.15*

10.16

10.17

10.18

10.19

10.20

10.21

21**

23**

31.1**

31.2**

32**

Astronics Corporation 2017 Long Term Incentive Plan (incorporated by reference as Exhibit A to the
Registrant’s Definitive Proxy Statement on Schedule 14A, as filed with the Commission on April 17,
2017).

Asset Purchase Agreement dated as of March 16, 2017 by and between UJB Acquisition Corp. and Custom
Control Concepts LLC filed as Exhibit 10.1 on Form 8-K filed on April 6, 2017 (File No. 000-07087).

Asset Purchase Agreement entered as of October 26, 2017, by and among Talon Acquisition
Corp., Telefonix, Incorporated, Product Development Technologies, LLC, and Paul Burke filed as
Exhibit 10.1 on Form 8-K filed on October 27, 2017 (File No. 000-07087).

Fifth Amended and Restated Credit Agreement entered into by and among Astronics Corporation, HSBC
Bank USA, National Association, HSBC Securities (USA) Inc. and Merrill Lynch, Pierce, Fenner & Smith
Inc., and Suntrust Bank, filed as Exhibit 10.1 on Form 8-K filed on February 21, 2018 (File No.
000-07087).

Amended and Restated Asset Purchase Agreement dated as of February 13, 2019 by and Among Astronics
Test Systems, Inc., Astronics Corporation and Advantest Test Solutions, Inc., filed as Exhibit 10.1 on
Form 8-K filed on February 19, 2019 (File No. 000-07087).

Stock Purchase Agreement dated as of July 1, 2019, among Astronics Corporation, Freedom
Communication Technologies, the Sellers and Hanover Partners, filed as Exhibit 10.1 on Form 8-K Filed
on July 1, 2019 (File No. 000-07087)

Amendment to the Astronics Corporation 2017 Long Term Incentive Plan, dated December 14, 2018.

Subsidiaries of the Registrant; filed herewith.

Consent of Independent Registered Public Accounting Firm; filed herewith.

Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002; filed herewith.

Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002; filed herewith.

Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002; filed herewith.

101.INS**

XBRL Instance Document

101.SCH**

XBRL Taxonomy Extension Schema Document

101.CAL**

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**

XBRL Taxonomy Extension Label Linkbase Document

101.PRE**

XBRL Taxonomy Extension Presentation Linkbase Document

Identifies a management contract or compensatory plan or arrangement as required by Item 15(a) (3) of Form 10-K.

Submitted electronically herewith

SCHEDULE II

Valuation and Qualifying Accounts

Description

Balance at the
Beginning of
Period

Additions Charged to
Cost and Expense

Write-Offs/
Other

Balance at
End of
Period

Year

(In thousands)
2019

Allowance for Doubtful Accounts

Reserve for Inventory Valuation
Deferred Tax Valuation Allowance

2018

Allowance for Doubtful Accounts

Reserve for Inventory Valuation

Deferred Tax Valuation Allowance

2017

Allowance for Doubtful Accounts

Reserve for Inventory Valuation

Deferred Tax Valuation Allowance

1,486

2,144

(71) $

3,559

20,826

8,098

14,803

5,205

(2,023)

—

33,606

13,303

960

589

(63) $

1,486

18,013

7,823

2,682

275

131

—

20,826

8,098

602

271

960

15,410

3,816

2,885

4,007

(282)

18,013

—

7,823

ITEM 16.

FORM 10-K SUMMARY

None.

This page intentionally left blank

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned; thereunto duly authorized, on March 2, 2020.

SIGNATURES

Astronics Corporation

/s/ Peter J. Gundermann

/s/ David C. Burney

Peter J. Gundermann President and Chief Executive
Officer

David C. Burney, Executive Vice President, Chief
Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ Peter J. Gundermann
Peter J. Gundermann

/s/ David C. Burney
David C. Burney

/s/ Nancy L. Hedges
Nancy L. Hedges

/s/ Raymond W. Boushie
Raymond W. Boushie

/s/ Robert T. Brady
Robert T. Brady

/s/ Tonit Calaway
Tonit Calaway

/s/ Jeffry D. Frisby
Jeffry D. Frisby

/s/ Peter J. Gundermann
Peter J. Gundermann

/s/ Warren C. Johnson
Warren C. Johnson

/s/ Robert S. Keane
Robert S. Keane

/s/ Neil Kim
Neil Kim

/s/ Mark J. Moran
Mark J. Moran

President and Chief Executive Officer
(Principal Executive Officer)

March 2, 2020

Executive Vice President, Chief Financial Officer
(Principal Financial Officer)

March 2, 2020

Corporate Controller and Principal Accounting Officer

March 2, 2020

Director

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SHAREHOLDER INFORMATION

Corporate Headquarters

Astronics Corporation
130 Commerce Way
East Aurora, New York 14052
716.805.1599
www.astronics.com

2020 Annual Meeting

Astronics Corporation’s Annual Meeting of Shareholders
will be held at 10:00 am ET on May, 21, 2020 at

Astronics Connectivity Systems and Certification Corp.
804 S. Northpoint Blvd
Waukegan, IL 60085

Investor Relations

DIRECTORS AND OFFICERS

EXECUTIVE LEADERSHIP

Peter J. Gundermann
Chairman, President and Chief Executive Officer,
Astronics Corporation

David C. Burney
Executive Vice President- Finance and Chief Financial Officer,
Astronics Corporation

James S. Kramer
Executive Vice President, Astronics Corporation;
President, Astronics Luminescent Systems, Inc.

Michael C. Kuehn
Executive Vice President, Astronics Corporation;
President, Astronics Connectivity Systems and Certification
Corporation

James F. Mulato
Executive Vice President, Astronics Corporation;
President, Astronics Test Systems, Inc.

Investors, stockbrokers, security analysts and others
seeking information about Astronics Corporation should
contact:

Mark A. Peabody
Executive Vice President, Astronics Corporation;
President, Astronics Advanced Electronic Systems Corporation

David C. Burney
Chief Financial Officer
716.805.1599
invest@astronics.com

Deborah K. Pawlowski
Kei Advisors LLC
716.843.3908
dpawlowski@keiadvisors.com

Transfer Agent

For services, such as reporting a change of address,
replacement of lost stock certificates, conversion of
Class B shares, changes in registered ownership, or
for inquiries about your account, contact:

EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120
Tel: 800.468.9716
651.450.4064
www.shareowneronline.com

Attorneys

Hodgson Russ LLP
Buffalo, New York

Independent Auditors

Ernst & Young LLP
Buffalo, New York

BOARD OF DIRECTORS

Peter J. Gundermann
President and Chief Executive Officer, Astronics Corporation
Chairman of the Board, Astronics Corporation

Raymond W. Boushie 1, 2C
President and Chief Executive Officer, retired,
Crane Aerospace and Electronics

Robert T. Brady 1C, 3
Chief Executive Officer and Executive Chairman of the Board,
retired, Moog Inc.

Tonit Calaway2, 3
Executive Vice President, Chief Legal Officer and Secretary,
BorgWarner Inc.

Jeffry D. Frisby 1, 3C
President and Chief Executive Officer, PCX Aerostructures, LLC;
former President and Chief Executive Officer, Triumph Group Inc.

Warren C. Johnson 2, 3
President, retired, Aircraft Group for Moog, Inc.

Robert Keane 1, 2
Chairman, President and Chief Executive Officer, Cimpress plc

Neil Kim 1, 2
Executive Vice President and Chief Technology Officer, retired,
Marvell Technology Group Ltd.

Mark Moran 2, 3
Chief Operations Officer, retired,
Continental Airlines

1 Audit Committee 2 Compensation Committee
3 Nominating/Governance Committee

C Committee Chairman

Nasdaq: ATRO

130 Commerce Way ● East Aurora, New York 14052
716.805.1599 ● www.astronics.com