What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-04 compared with 2020-05-07 · 115 added, 91 removed, 175 unchanged (54% of the section changed)

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

Important factors affecting our growth and profitability are the 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.

Important factors affecting our growth and profitability are the ongoing impacts of the COVID-19 pandemic and the timing and extent of recovery (as discussed more fully below), the rate at which new aircraft are produced, government funding of military programs, our ability to have our products designed into new aircraft and the rates at which aircraft owners, including commercial airlines, refurbish or install upgrades to their aircraft.

New aircraft build rates and aircraft owners spending on upgrades and refurbishments is cyclical and dependent on the strength of the global economy.

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CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK

Three Months Ended

($ in thousands) March 28, 2020 March 30, 2019

Six Months Ended Three Months Ended

($ in thousands) June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

Sales $ 281,278 $ 397,272 $ 123,694 $ 189,098

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Net (Loss) Income $ (90,542) $ 84,872 $ (23,579) $ 6,726

Financial results reflect the divestiture of the Test Systems’ semiconductor business on February 13, 2019, and the acquisitions of Freedom acquired in July 2019, and Diagnosys acquired in October 2019 (collectively, the “Acquired Businesses”).

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

CONSOLIDATED FIRST QUARTER RESULTS

Consolidated sales were down $50.6 million compared to the first quarter of 2019, which was the third highest revenue quarter in the Company’s history.

CONSOLIDATED SECOND QUARTER RESULTS

Consolidated sales were down $65.4 million compared to the second quarter of 2019.

Aerospace sales were down $71.7 million.

Test System sales decreased $3.2 million.

Acquisitions contributed $3.5 million in sales in the first quarter of 2020.

Semiconductor sales were down $1.7 million, as that business was divested in February 2019.

Consolidated cost of products sold in the first quarter of 2020 was $121.9 million, compared with $156.1 million in the prior-year period.

Test System sales increased $6.3 million.

The Acquired Businesses contributed $2.5 million in sales in the second quarter of 2020.

Consolidated cost of products sold in the second quarter of 2020 was $96.9 million, compared with $148.7 million in the prior-year period.

The decrease was primarily due to lower sales volume.

Selling, general and administrative (“SG&A”) expenses were $28.9 million in the first quarter of 2019 compared with $29.2 million.

Further, non-cash impairment charges of $74.4 million in the Aerospace segment were recognized in the current quarter due to reduced expectations of future operating results due to the COVID-19 pandemic, which has significantly impacted the global economy, and particularly the aerospace industry.

The Company recognized full impairments of the goodwill of our Astronics Connectivity Systems and Certification (“ACSC”), PGA and Custom Control Concepts (“CCC”) reporting units, and a partial impairment of the goodwill of our PECO reporting unit.

The effective tax rate for the quarter was 3.3%, compared with 22.6% in the first quarter of 2019.

The 2020 tax rate was impacted by permanently non-deductible goodwill impairments and a partial Federal valuation allowance recorded during the three months ended March 28, 2020 of approximately $7.0 million related to deferred tax assets that are not expected to be realizable in the future as a result of losses in recent periods and projected losses due to the COVID-19 pandemic.

The Company expects to be able to carryback tax losses generated in 2020 under the Coronavirus Aid, Relief, and Economic Security Act (“CARES act”) enacted March 2020 in order to be able to recover income taxes previously paid.

Selling, general and administrative (“SG&A”) expenses were $32.9 million in the second quarter of 2020 compared with $29.8 million in the prior-year period.

The Company incurred $4.9 million in restructuring-related severance charges in the second quarter of 2020, primarily in the Aerospace segment, compared to $2.2 million in the prior-year period, primarily in the Test Systems segment.

Further, non-cash goodwill impairment charges of $12.6 million in the Aerospace segment were recognized in the current quarter due to reduced expectations of future operating results due to further commercial aircraft order reductions, delays and cancellations at a major customer of our PECO reporting unit.

Other Expense, Net of Other Income includes a $3.5 million impairment of an equity investment.

The effective tax rate for the quarter was 3.6%, compared with 23.8% in the second quarter of 2019.

The 2020 tax rate was impacted by permanently non-deductible goodwill impairment of $12.6 million which no tax benefit has been recognized, and a Federal valuation allowance recorded during the three months ended June 27, 2020 of approximately $0.5 million.

Net loss was $23.6 million, or $(0.77) per diluted share, compared with net income of $6.7 million, or $0.20 per diluted share in the prior year.

The after tax impact of the impairment loss was $68.8 million, or $2.23 per diluted share.

The impact of the impairment loss was $(0.41) per diluted share.

Bookings were $61.5 million, for a book-to-bill ratio of 0.50:1.

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Approximately $178.3 million of backlog is expected to ship in the remainder of 2020.

Of the Company’s backlog at March 28, 2020, $3.0 million is no longer expected to be recognized as revenue as a result of order cancellations received subsequent to quarter end in the Aerospace segment.

In September 2019, Astronics’ Board of Directors approved a share repurchase program, authorizing the Company to repurchase, in the aggregate, up to $50 million of its outstanding stock.

Approximately 282,000 shares were repurchased in the first quarter at a cost of $7.7 million before the 10b5-1 plan associated with the share repurchase program was terminated on February 3, 2020.

The recently amended credit agreement temporarily restricts the repurchase of the Company’s common stock.

CONSOLIDATED YEAR-TO-DATE RESULTS

Consolidated sales were down $116.0 million compared to the first half of 2019.

Aerospace sales were down $119.1 million.

Test System sales increased $3.2 million.

The Acquired Businesses contributed $6.0 million in sales in the first half of 2020.

Consolidated cost of products sold in the first half of 2020 was $218.7 million, compared with $304.8 million in the prior-year period.

The decrease was primarily due to lower sales volume.

SG&A expenses were $61.8 million in the first half of 2020 compared with $59.0 million the prior-year period.

The Company incurred $5.4 million in restructuring-related severance charges in the first half of 2020, primarily in the Aerospace segment, compared to $2.2 million in the prior-year period, primarily in the Test Systems segment.

Further, non-cash goodwill and long-

lived asset impairment charges of $87.0 million in the Aerospace segment were recognized in the current year due to reduced expectations of future operating results due to the COVID-19 pandemic, which has significantly impacted the global economy, and particularly the aerospace industry.

Total goodwill impairment losses were $86.3 million in the six months ended June 27, 2020.

The effective tax rate for the first half of was 3.4%, compared with 22.7% in the first half of 2019.

The 2020 tax rate was impacted by permanently non-deductible goodwill impairments of $60.8 million and a Federal valuation allowance recorded during the six months ended June 27, 2020 of approximately $7.5 million.

Net loss was $90.5 million, or $(2.94) per diluted share, compared with net income of $84.9 million, or $2.56 per diluted share in the prior year.

The after tax impact of the goodwill and long-lived asset impairment losses was $81.4 million, or $(2.64) per diluted share.

Impact of COVID-19 and Operational Adjustments

As previously disclosed, we face risks related to outbreaks of infectious diseases, including the ongoing COVID-19 pandemic.

The challenges posed by the COVID-19 pandemic on the global economy increased significantly as the first quarter progressed.

The challenges posed by the COVID-19 pandemic on the global economy increased significantly as the first half of 2020 progressed.

COVID-19 has caused disruption and volatility in the global capital markets, and has authored an economic slowdown.

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• Implementing social distancing measures, the use of masks, restricting visitors and unnecessary travel, and working from home whenever possible;

• Workforce furlough and layoff activities to align capacity with expected demand reducing headcount by approximately 30% to approximately 2,000 employees currently.

Those reductions are split between layoffs and furloughs, the latter of which we hope to bring back in time;

• Workforce reduction activities to align capacity with expected demand, reducing headcount by approximately 20% to approximately 2,300 employees currently;

• Eliminated consultants and temporary labor where possible;

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• Suspending cash bonus plans and wage adjustments;

• Amending our revolving credit facility on May 4, 2020, as further described in the “Liquidity and Capital Resources” section below;

• Amended our revolving credit facility on May 4, 2020, as further described in the “Liquidity and Capital Resources” section below;

• Suspending share repurchases;

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• Restrictions on marketing, trade shows, travel and discretionary spending for the remainder of the year.

These reductions collectively are substantial, lowering our cost structure by an estimated $55 to $60 million for the year, beginning in the second quarter.

These reductions collectively are substantial, lowering our cost structure by an estimated $55 million to $60 million for the year, beginning in the second quarter.

Analysis of Impact on Demand by Markets

The Company evaluated the demand from three market drivers to analyze the potential impact to its business.

The three revenue streams are (1) defense and other government markets, (2) new airplane production or OE demand, and (3) the aftermarket for commercial transport aircraft.

Approximately 20% of Astronics’ sales in 2019 were to the defense or other government markets, including the majority of the Test business and certain military aircraft programs.

Demand in these areas has not been affected to date by the pandemic and shows significant strength.

An estimated 55% of sales in 2019 were driven by the production of new airplanes in the commercial transport and business jet markets.

The Company continues to monitor demand from three revenue streams to analyze the potential impact of the pandemic to its business.

The three revenue streams are (1) new airplane production and OE demand, (2) the aftermarket for commercial transport aircraft, and (3) defense and other government markets.

An estimated 55% of sales in 2019, or about $425 million, was driven by the production of new airplanes in the commercial transport and business jet markets.

For Astronics, the commercial transport market is the more significant of the two.

Major manufacturers in both markets have revised their production plans downward for the near future, typically on the order of 30% to 35%, which directly impacts expected sales.

The remaining 25% of sales in 2019 were to the aftermarket for commercial transport aircraft, primarily for inflight entertainment and passenger power systems (“IFE”) sold to airlines and aircraft leasing companies.

With the severe decline in airline traffic due to COVID-19, the Company expects that aftermarket IFE sales will be down substantially in 2020.

Evaluating the demand from these markets, and considering first quarter actual results, Astronics expects a significant decline in sales in 2020 and has restructured the business to be cash flow positive even if sales were to decline between 30% to 35% from sales of $773 million in 2019.

As discussed above, the Company believes revenue could drop 30% to 35% from 2019, although other outcomes are possible.

Major manufacturers in both markets have revised their production plans downward given the pandemic, typically on the order of 35% to 45%, which is somewhat more than initial reductions announced earlier in the COVID-19 crisis.

This number is significantly complicated by the 737 MAX, which was one of the Company’s largest production programs in 2019 and remains grounded.

Another 25% of sales in 2019, or about $195 million, was to the aftermarket for commercial transport aircraft.

These sales were primarily for inflight entertainment/connectivity and passenger power systems (“IFE”) that were sold to airlines and aircraft leasing companies.

This market is holding up better than initially anticipated.

The current run rate has been about 50% of last year’s demand level.

Approximately 20% of Astronics’ revenue in 2019, or about $145 million, was to the defense or other government markets.

This was comprised of the majority of the Test business and certain military aircraft programs.

Demand in these end markets has not been affected by the pandemic and instead shows relative strength.

Additionally, Astronics has initiated efforts to develop new revenue streams that are technically attractive and complementary to existing engineering and manufacturing skill sets.

These initiatives are expected to contribute up to $20 million in revenue in the second half of 2020.

Evaluating the demand from these revenue streams, and considering first half actual results, Astronics expects a significant decline in 2020 sales, perhaps to the range of $500 million to $525 million .

As discussed above, the Company believes that, given its assumptions on the economic impacts of COVID-19 on its revenue streams in its Aerospace business, consolidated revenue could be in the range of $500 million to $525 million.

Given the fluidity of the situation with the pandemic and local, state, and national government responses, other outcomes, both positive and negative, are very possible.

Management believes it has structured the Company to be cash positive at this level

Consolidated backlog at March 28, 2020 was $369.4 million.

Approximately 73% of the backlog is expected to ship in 2020.

The effective tax benefit rate for 2020 is expected to be in the range of 2% to 6%.

Capital expenditures for 2020 are expected to be approximately $8 million, reduced from initial plans of $20 million to $25 million for the year.

The reduction reflects the change in tooling and equipment capacity requirements for certain programs that were either postponed or cancelled, as well as the deferral or cancellation of discretionary investments.

Consolidated backlog at June 27, 2020 was $307.2 million.

Approximately 58% of the backlog is expected to ship in 2020.

The effective tax benefit rate for 2020 is expected to be in the range of 2% to 6%.

The ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy and specifically on the markets we are active in, which is uncertain and cannot be predicted at this time.

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AEROSPACE SEGMENT

Three Months Ended

(In thousands) March 28, 2020 March 30, 2019

Six Months Ended Three Months Ended

(In thousands) June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

Sales $ 243,734 $ 362,793 $ 102,597 $ 174,292

Less Intersegment Sales

(91) (5) (24) (5)

Total Aerospace Sales

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$ 243,643 $ 362,788 $ 102,573 $ 174,287

(In thousands) March 28, 2020 December 31, 2019

(In thousands) June 27, 2020 December 31, 2019

$ 501,536 $ 629,371

$ 226,364 $ 275,754

AEROSPACE FIRST QUARTER RESULTS

AEROSPACE SECOND QUARTER RESULTS

Aerospace segment sales decreased $71.7 million, or 41.1%, to $102.6 million.

Sales were negatively affected by the continued grounding of the 737 MAX and the OEM’s decision to temporarily cease production in January, along with the spread of the COVID-19 pandemic in the later part of the quarter.

Electrical Power and Motion sales were down $23.1 million compared with the prior-year period due to lower demand in cabin power and data products.

Avionics sales were down $11.7 million compared with the prior-year period due to lower demand in the quarter for inflight entertainment and connectivity (“IFEC”) products.

Additionally, Lighting & Safety sales decreased $10.7 million, due primarily to decreased demand for passenger service units resulting from the OEM’s temporary halt in production of its 737 MAX aircraft, which began in January 2020.

Sales were negatively affected by the continued grounding of the 737 MAX and the OEM’s decision to reduce production rates, along with the spread of the COVID-19 virus throughout the second quarter.

Electrical Power and Motion sales were down $37.5 million compared with the prior-year period.

Lighting & Safety sales decreased $19.0 million.

Additionally, Avionics sales were down $6.5 million compared with the prior-year period.

Aerospace segment operating loss was $17.1 million compared with operating profit of $14.4 million the same period last year.

Aerospace operating profit was impacted by goodwill impairment charges of $12.6 million and restructuring-related severance charges of $4.6 million, as previously discussed.

Operating leverage lost on reduced sales also significantly impacted operating results.

AEROSPACE YEAR-TO-DATE RESULTS

Aerospace segment sales decreased $119.1 million, or 32.8%, to $243.6 million.

Sales were negatively affected by the continued grounding of the 737 MAX and the OEM’s decision to reduce production rates, along with the spread of the COVID-19 virus beginning in the later part of the first quarter.

Electrical Power and Motion sales were down $60.6 million compared with the prior-year period.

Lighting & Safety sales decreased $29.7 million.

Additionally, Avionics sales were down $18.3 million compared with the prior-year period.

Aerospace segment operating loss was $80.2 million compared with operating profit of $40.2 million the same period last year.

Aerospace operating profit was impacted by impairment charges of $87.0 million, of which $86.3 million was related to goodwill, as previously discussed.

Leverage lost on reduced sales also significantly impacted operating results.

Restructuring-related severance charges of $5.1 million and leverage lost on reduced sales also significantly impacted operating results.

AEROSPACE OUTLOOK

Aerospace bookings in the first quarter of 2020 were $151.0 million, for a book-to-bill ratio of 1.07:1.

The Aerospace segment’s backlog at the end of the first quarter of 2020 was $285.7 million with approximately $229.0 million expected to be shipped over the remaining part of 2020 and $245.1 million is expected to ship over the next 12 months.

Of the Company’s Aerospace backlog at March 28, 2020, $3.0 million is no longer expected to be recognized as revenue as a result of order cancellations received subsequent to quarter end.

Aerospace bookings in the second quarter of 2020 were $43.3 million, for a book-to-bill ratio of 0.42:1.

The Aerospace segment’s backlog at the end of the second quarter of 2020 was $226.4 million with approximately $147.9 million expected to be shipped over the remaining part of 2020 and $185.9 million is expected to ship over the next 12 months.

TEST SYSTEMS SEGMENT

Three Months Ended

(In thousands) March 28, 2020 March 30, 2019

Six Months Ended Three Months Ended

(In thousands) June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

Sales $ 37,985 $ 34,649 $ 21,432 $ 14,925

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(In thousands)

March 28, 2020 December 31, 2019

June 27, 2020 December 31, 2019

$ 104,392 $ 110,994

Backlog $ 80,822 $ 83,837

TEST SYSTEMS FIRST QUARTER RESULTS

Test Segment sales were $16.5 million, down $3.2 million compared to the prior-year period.

Semiconductor sales decreased $1.7 million due to the sale of the semiconductor business which was divested on February 13, 2019, while organic Aerospace & Defense sales decreased $5.0 million.

Freedom and Diagnosys contributed $3.5 million in sales in the first quarter of 2020.

Test Systems operating profit was $0.7 million, or 4.4% of sales, compared with operating profit of $2.2 million, or 11.1% of sales, in last year’s first quarter.

Operating profit was impacted mostly by lower leverage on decreased sales volume.

TEST SYSTEMS SECOND QUARTER RESULTS

Test Segment sales were $21.1 million, up $6.3 million compared to the prior-year period.

The Acquired Businesses contributed $2.5 million in sales in the second quarter of 2020.

Test Systems operating profit was $2.6 million, or 12.4% of sales, compared with last year’s essentially breakeven second quarter.

Operating profit for the second quarter of 2019 was impacted by restructuring-related severance charges of $2.0 million.

TEST SYSTEMS YEAR-TO-DATE RESULTS

Test Segment sales were $37.6 million, up $3.2 million compared to the prior-year period.

The Acquired Businesses contributed $6.0 million in sales in the first half of 2020, while Semiconductor sales decreased $2.8 million due to the sales of the semiconductor business which was divested on February 13, 2019.

Test Systems operating profit was $3.3 million, or 8.9% of sales, compared with operating profit of $2.1 million in the prior-year period.

Operating profit in the prior-year period was impacted by restructuring-related severance charges of $2.0 million.

TEST SYSTEMS OUTLOOK

Bookings for the Test Systems segment in the quarter were $18.2 million, for a book-to-bill ratio of 0.86:1 for the quarter.

The Test Systems segment’s backlog at the end of the first quarter of 2020 was $83.7 million, with approximately $39.1 million expected to be shipped over the remaining part of 2020 and approximately $52.8 million scheduled to ship over the next 12 months.

The Test Systems segment’s backlog at the end of the second quarter of 2020 was $80.8 million, with approximately $30.3 million expected to be shipped over the remaining part of 2020 and approximately $55.3 million scheduled to ship over the next 12 months.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities:

Cash provided by operating activities totaled $23.3 million for the first three months of 2020, as compared with $11.4 million cash provided by operating activities during the same period in 2019.

Cash flow from operating activities increased compared with the same period of 2019 primarily due to the net non-cash effect on net income of the goodwill impairment loss in the first three months of 2020 compared to the net non-cash effect on net income of the gain from sale of the semiconductor business in the first three months of 2019.

Cash provided by operating activities totaled $41.5 million for the first six months of 2020, as compared with $9.1 million cash provided by operating activities during the same period in 2019.

Cash flow from operating activities increased compared with the same period of 2019 primarily due to the change in net operating assets compared with the prior period as well as the net non-cash effect on net income of the goodwill impairment loss in the first six months of 2020 compared to the net non-cash effect on net income of the gain from sale of the semiconductor business in the first six months of 2019.

Investing Activities:

Cash used for investing activities was $2.8 million for the first three months of 2020 compared with $100.3 million in cash provided by investing activities in the same period of 2019.

The change compared to the prior was a result of the $103.8 million in proceeds from the divestiture of the semiconductor business in 2019, slightly offset with a decrease in capital expenditures in the first quarter of 2020 compared with the first quarter of 2019.

Cash used for investing activities was $2.3 million for the first six months of 2020 compared with $96.9 million in cash provided by investing activities in the same period of 2019.

The change compared to the prior-year period was a result of the $103.8 million in proceeds from the divestiture of the semiconductor business in 2019, slightly offset with a decrease in capital expenditures in the first half of 2020 compared with 2019.

The Company expects capital spending in 2020 to be approximately $8 million.

Financing Activities:

The primary financing activities in the first three months of 2020 related net payments on our senior credit facility of $145.0 million.

The primary financing activities in the first three months of 2019 related to net payments on our senior credit facility of $112.0 million.

The primary financing activities in the first six months of 2020 related to net payments on our senior credit facility of $15.0 million.

The primary financing activities in the first six months of 2019 related to net payments on our senior credit facility of $105.0 million.

The Company's Fifth Amended and Restated Credit Agreement (the “Agreement”) provided 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 March 28, 2020, there was $333.0 million outstanding on the revolving credit facility and there remained $165.5 million available, net of outstanding letters of credit and bank guarantees.

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 March 28, 2020, outstanding letters of credit and bank guarantees totaled $1.5 million.

The maximum permitted leverage ratio of funded debt, net of cash 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 was in compliance with its financial covenant at March 28, 2020.

The Company paid 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.

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The maximum net leverage ratio will be 6.00 to 1 for the third quarter of 2021, 5.50 to 1 for the fourth quarter of 2021, 4.50 to 1 for the first quarter of 2022, and return to 3.75 to 1 for each quarter thereafter.

During the suspension period, the amended facility requires the Company to maintain minimum liquidity, defined as unrestricted cash plus the unused revolving credit commitments, of $180 million at all times, and a minimum interest coverage ratio of 1.75x on a quarterly basis, except for the first quarter of 2021, which is set at 1.50x.

At June 27, 2020, there was $173.0 million outstanding on the revolving credit facility and there remained $200.5 million available subject to the minimum liquidity covenant discussed below, net of outstanding letters of credit and bank guarantees.

The credit facility allocates up to $20 million of the $375 million revolving credit line for the issuance of letters of credit, including certain existing letters of credit.

At June 27, 2020, outstanding letters of credit and bank guarantees totaled $1.5 million.

Through the third quarter of 2021, the Amended Facility requires the Company to maintain minimum liquidity, defined as unrestricted cash plus the unused revolving credit commitments, of $180 million at all times, and a minimum interest coverage ratio of 1.75x on a quarterly basis, except for the first quarter of 2021, which is set at 1.50x.

The Company was in compliance with its financial covenants at June 27, 2020.

During the suspension period, the Company will pay interest on the unpaid principal amount of the Amended Facility at a rate equal to one-, three- or six-month LIBOR (which shall be at least 1.00%) plus 2.25%.

The Company will also pay a commitment fee to the lenders in an amount equal to 0.35% on the undrawn portion of the credit facility.

After the suspension period, the Company will pay interest on the

unpaid principal amount of the amended facility at a rate equal to one-, three- or six-month LIBOR (which shall be at least 1.00%) plus between 1.00% to 2.25% based upon the Company’s leverage ratio.

The Company will also pay a commitment fee to the lenders in an amount equal to 0.10% to 0.35% on the undrawn portion of the credit facility, based upon the Company’s leverage ratio.

The Company will also pay a commitment fee to the lenders in an amount equal to 0.35% on the undrawn portion of the Amended Facility.

After the suspension period, the Company will pay interest on the unpaid principal amount of the Amended Facility at a rate equal to one-, three- or six-month LIBOR (which shall be at least 1.00%) plus between 1.00% to 2.25% based upon the Company’s leverage ratio.

The Company will also pay a commitment fee to the lenders in an amount equal to 0.10% to 0.35% on the undrawn portion of the Amended Facility, based upon the Company’s leverage ratio.

The Amended Facility provides for the payment of a consent fee of 15 basis points of the commitment for each consenting lender.

The amended facility also temporarily restricts certain activities, including acquisitions and share repurchases, and requires mandatory repayments during the suspension period when the Company’s cash balance exceeds $100 million.

We expect to make a mandatory repayment in the second quarter of 2020 under this requirement.

The Company’s obligations under the Credit Agreement as amended are jointly and severally guaranteed by each domestic subsidiary of the Company other than non-material subsidiaries.

The Amended Facility also temporarily restricts certain activities, including acquisitions and share repurchases, and requires mandatory prepayments during the suspension period when the Company’s cash balance exceeds $100 million.

During the three months ended June 27, 2020, subsequent to the execution of the Amended Facility, the Company made prepayments approximating $160 million.

The Company’s obligations under the Amended Facility are jointly and severally guaranteed by each domestic subsidiary of the Company other than non-material subsidiaries.

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.

In the event of voluntary or involuntary bankruptcy of the Company or any subsidiary, all unpaid principal and other amounts owing under the Amended Facility 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 Company’s cash needs for working capital, debt service and capital equipment during the remainder of 2020 is expected to be met by cash flows from operations and cash balances and, if necessary, utilization of the revolving credit facility.

The Company’s backlog at March 28, 2020 was $369.4 million compared with $359.6 million at December 31, 2019 and $400.2 million at March 30, 2019.

The Company’s backlog at June 27, 2020 was $307.2 million compared with $359.6 million at December 31, 2019 and $379.7 million at June 29, 2019.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following table represents contractual obligations as of March 28, 2020:

The following table represents contractual obligations as of June 27, 2020:

Payments Due by Period

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Lease Obligations 31,041 3,763 13,930 7,056 6,292

Other Long-term Liabilities 8,550 6,605 768 745 432

Other Liabilities 5,232 3,445 732 672 383

Total Contractual Obligations $ 357,765 $ 93,029 $ 49,792 $ 182,602 $ 32,342

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Long-Term Debt — See Part 1 Financial Information, Item 1 Financial Statements, Note 7, Long-Term Debt and Notes Payable included in this report.

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 March 28, 2020.

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 June 27, 2020.

Actual future borrowings and rates may differ from these estimates.

Future interest payments do not reflect the terms of the amended facility, which was entered into on May 4, 2020.

The terms of the amended agreement are described in the “Liquidity and Capital Resources” section above.

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 2020 includes $4.7 million litigation accrual related to damages awarded to Lufthansa in the patent dispute related to direct sales.

See Note 15 of the Consolidated Financial Statements for additional information.

Table excludes the $16.2 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.

Other Liabilities — Table excludes the $16.4 million accrual recorded as management's best estimate of damages related to Lufthansa’s indirect sales claim in Germany, as discussed in Part 1 Financial Information, Item 1 Financial Statements, Note 15, Legal Proceedings, as this will not become a contractual obligation until the appeals process is complete and amount of damages has been finalized.

The Company believes that there have been no material changes in the current year regarding the market risk information for its exposure to interest rate fluctuations.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis