Astronics Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

EQUITY COMPENSATION

EQUITY COMPENSATION

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

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, is equal to the fair market value of the Common Stock on the grant date. Options become exercisable over periods not exceeding ten years, and must be exercised within 10 years from the grant date. The Company’s practice has been to issue new shares upon the exercise of the options.

The Company established its 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. At December 31, 2022, the Company had options outstanding for 521,973 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. At December 31, 2022, the Company had options outstanding for 63,149 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 Long Term Incentive Plan contemplates the use of a mix of equity award types. 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, 2022, the Company had stock options and RSU's outstanding that covered 1,369,810 shares under the Long Term Incentive Plan, and there were 1,226,057 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 or RSU’s 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 three- to five-year period from the date of grant. RSU’s granted to officers and key employees generally 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)	2022		2021		2020
Equity-based Compensation Expense	$	6,497	$	6,460	$	5,184
Tax Benefit	(1,068)		(924)		(709)
Equity-based Compensation Expense, Net of Tax	$	5,429	$	5,536	$	4,475

Tax benefit excludes the impact of valuation allowances recorded against deferred tax assets.

Stock Options

No options were granted during the year ending December 31, 2020.


	2022		2021		2020
Weighted Average Fair Value of the Options Granted	$	5.97	$	7.05	$	—

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 assumptions:


	2022	2021	2020
Risk-free Interest Rate	3.48% – 3.62%	0.45% - 1.52%	—%
Dividend Yield	—%	—%	—%
Volatility Factor	0.61	0.58	—
Expected Life in Years	5 – 9 years	5 - 10 years	—

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 year ended December 31 is as follows:


	2022
(Aggregate intrinsic value in thousands)	Options	Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at January 1	1,263,658	$	21.64	$	—
Options Granted	276,298	$	9.74	$	—
Options Exercised	(51,138)	$	9.85	$	—
Options Forfeited	(112,100)	$	13.33	$	—
Outstanding at December 31	1,376,718	$	20.37	$	—
Exercisable at December 31	687,682	$	27.35	$	—

The aggregate intrinsic value in the preceding table represents the total pretax option holder’s intrinsic value, based on the closing stock price of the Company’s Common Stock which would have been received by the option holders had all option holders exercised their options as of that date. The closing stock price of the Company’s Common Stock was $10.30, $12.00 and $13.23 as of December 31, 2022, 2021 and 2020, respectively. As the stock price of $10.30 was below the weighted average exercise price, intrinsic value is zero.

The weighted average fair value of options vested during 2022, 2021 and 2020 was $12.89, $14.58 and $14.77, respectively. The total fair value of options that vested during the year amounted to $2.4 million, $1.2 million and $1.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. At December 31, 2022, total compensation costs related to non-vested option awards not yet recognized amounts to $4.6 million and will be recognized over a weighted average period of approximately 3 years.

The following is a summary of weighted average exercise prices and contractual lives for outstanding and exercisable stock options as of December 31, 2022:


	Outstanding				Exercisable
Exercise Price Range	Shares	Weighted Average Remaining Life in Years	Weighted Average Exercise Price		Shares	Weighted Average Remaining Life in Years	Weighted Average Exercise Price
$3.19 – $14.45	757,791	8.9	$	11.59	140,770	7.9	$	12.28
$22.69 – $35.82	609,800	4.5	$	30.91	537,785	4.1	$	30.97
$45.89 – $45.89	9,127	2.2	$	45.89	9,127	2.2	$	45.89
	1,376,718	6.9	$	20.37	687,682	4.9	$	27.35

Restricted Stock Units

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 granted to employees generally cliff vest three years from the date of grant, while RSU’s granted to directors cliff vest six months from the date of grant. There were 314,264 RSU’s granted in 2022 at a weighted-average price of $13.56, of which 129,422 awards were vested and issued during 2022. Forfeitures during the year were 25,781. Included in total equity-based compensation expense for the year ended December 31, 2022 was $3.5 million related to RSU’s. At December 31, 2022, total compensation costs related to non-vested awards not yet recognized amounts to $3.5 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. 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, 2022, employees had subscribed to purchase 473,666 shares at $7.10 per share. The weighted average fair value of the options was approximately $2.39, $5.00 and $3.43 for options granted during the year ended December 31, 2022, 2021 and 2020, 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 assumptions:


	2022		2021		2020
Risk-free Interest Rate	4.01	%	0.09	%	0.12	%
Dividend Yield	—	%	—	%	—	%
Volatility Factor	0.50		0.71		1.00
Expected Life in Years	1.0		1.0		1.0