What changed in this filing

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Item 1. Financial Statements

2020-10-30 compared with 2020-08-04 · 148 added, 127 removed, 759 unchanged (27% of the section changed)

2 unchanged sentences

Consolidated Condensed Balance Sheets

June 27, 2020 with Comparative Figures for December 31, 2019

September 26, 2020 with Comparative Figures for December 31, 2019

(In thousands)

June 27, 2020 December 31, 2019

September 26, 2020 December 31, 2019

Current Assets:

41 unchanged sentences

Consolidated Condensed Statements of Operations

Three and Six Months Ended June 27, 2020 With Comparative Figures for 2019

Three and Nine Months Ended September 26, 2020 With Comparative Figures for 2019

(In thousands, except per share data)

Six Months Ended Three Months Ended

June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

Nine Months Ended Three Months Ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Sales $ 387,784 $ 574,290 $ 106,506 $ 177,018

4 unchanged sentences

(Loss) Income from Operations ( 95,232 ) 38,557 ( 8,997 ) 5,103

Gain on Sale of Business — 80,133 — —

Net (Gain) Loss on Sale of Businesses — ( 78,801 ) — 1,332

Other Expense, Net of Other Income 4,546 1,197 369 464

9 unchanged sentences

Consolidated Condensed Statements of Comprehensive (Loss) Income

Three and Six Months Ended June 27, 2020 With Comparative Figures for 2019

Three and Nine Months Ended September 26, 2020 With Comparative Figures for 2019

(In thousands)

Six Months Ended Three Months Ended

June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

Nine Months Ended Three Months Ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Net (Loss) Income $ ( 95,796 ) $ 86,082 $ ( 5,254 ) $ 1,210

9 unchanged sentences

Consolidated Condensed Statements of Cash Flows

Six Months Ended June 27, 2020 With Comparative Figures for 2019

Nine Months Ended September 26, 2020 With Comparative Figures for 2019

(Unaudited, In thousands)

Six Months Ended

Nine Months Ended

Cash Flows from Operating Activities:

June 27, 2020 June 29, 2019

September 26, 2020 September 28, 2019

Net (Loss) Income $ ( 95,796 ) $ 86,082

Adjustments to Reconcile Net (Loss) Income to Cash Flows from Operating Activities, Excluding the Effects of Divestitures:

Adjustments to Reconcile Net (Loss) Income to Cash Flows from Operating Activities, Excluding the Effects of Acquisitions/Divestitures:

Depreciation and Amortization 24,095 24,183

5 unchanged sentences

Non-cash Litigation Provision — 1,700

Gain on Sale of Business, Before Taxes — ( 80,133 )

Net Gain on Sale of Businesses, Before Taxes — ( 78,801 )

Equity Investment Other Than Temporary Impairment 3,493 —

13 unchanged sentences

Cash Flows from Investing Activities:

Acquisition of Business, Net of Cash Acquired — ( 21,785 )

Proceeds on Sale of Business — 104,792

11 unchanged sentences

Effect of Exchange Rates on Cash ( 63 ) ( 284 )

Increase in Cash and Cash Equivalents 14,733 484

(Decrease) Increase in Cash and Cash Equivalents ( 2,009 ) 6,173

Cash and Cash Equivalents at Beginning of Period 31,906 16,622

3 unchanged sentences

Consolidated Condensed Statements of Shareholders' Equity

Three and Six Months Ended June 27, 2020 With Comparative Figures for 2019

Three and Nine Months Ended September 26, 2020 With Comparative Figures for 2019

(In thousands)

Six Months Ended Three Months Ended

June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

Nine Months Ended Three Months Ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Beginning of Period $ 269 $ 260 $ 274 $ 264

28 unchanged sentences

Consolidated Condensed Statements of Shareholders' Equity, Continued

Three and Six Months Ended June 27, 2020 With Comparative Figures for 2019

Three and Nine Months Ended September 26, 2020 With Comparative Figures for 2019

(In thousands)

Six Months Ended Three Months Ended

June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

Nine Months Ended Three Months Ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Beginning of Period 26,874 25,978 27,355 26,343

14 unchanged sentences

Notes to Consolidated Condensed Financial Statements

June 27, 2020

September 26, 2020

1) Basis of Presentation

7 unchanged sentences

In addition, the COVID-19 pandemic has increased the volatility we experience in our financial results in recent periods and this could continue in future interim and annual periods.

Operating results for the six months ended June 27, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Operating results for the nine months ended September 26, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

The balance sheet at December 31, 2019 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S.

37 unchanged sentences

The Company regularly reviews the allowance by considering factors such as the age of the receivable balances, historical experience, credit quality, current economic conditions, and reasonable and supportable forecasts of future economic conditions that may affect a customer’s ability to pay.

The allowance for doubtful accounts balance was $ 5.1 million and $ 3.6 million at June 27, 2020 and December 31, 2019, respectively.

The Company‘s bad debt expense was $ 1.6 million in the three and six months ended June 27, 2020 and insignificant in the three and six months ended June 29, 2019.

Total writeoffs charged against the allowance and total recoveries collected were insignificant in both the three month and six month ended June 27, 2020.

The allowance for doubtful accounts balance was $ 3.9 million and $ 3.6 million at September 26, 2020 and December 31, 2019, respectively.

The Company’s bad debt expense was insignificant and $ 1.7 million in the three and nine months ended September 26, 2020, respectively, and insignificant in the three and nine months ended September 28, 2019.

Total writeoffs charged against the allowance were $ 1.1 million and $ 1.2 million in the three month and nine months ended September 26, 2020, and insignificant in the three and nine months ended September 28, 2019.

Total recoveries collected were insignificant in both the three and nine months ended September 26, 2020 and September 28, 2019.

The Company's exposure to credit losses may increase if its customers are adversely affected by global economic recessions, disruption associated with the current COVID-19 pandemic, industry conditions, or other customer-specific factors.

4 unchanged sentences

These costs are expensed when incurred and included in cost of products sold.

Research and development, design and related engineering amounted to $ 22.4 million and $ 27.7 million for the three months ended and $ 48.6 million and $ 54.4 million for the six months ended June 27, 2020 and June 29, 2019, respectively.

Research and development, design and related engineering amounted to $ 16.4 million and $ 25.6 million for the three months ended and $ 65.0 million and $ 80.0 million for the nine months ended September 26, 2020 and September 28, 2019, respectively.

Selling, general and administrative expenses include costs primarily related to our sales and marketing departments and administrative departments.

Interest expense is shown net of interest income.

Interest income was insignificant for the three and six months ended June 27, 2020 and June 29, 2019.

Interest income was insignificant for the three and nine months ended September 26, 2020 and September 28, 2019.

Goodwill Impairment

1 unchanged sentence

As a result of the qualitative factors related to the COVID-19 pandemic, as discussed above, we performed interim quantitative assessments for the reporting units which had goodwill as of March 28, 2020, and an additional quantitative assessment for our PECO reporting unit as of June 27, 2020.

Based on our quantitative assessments, the Company recorded goodwill impairment charges associated with four Aerospace reporting units, totaling approximately $ 12.6 million and $ 86.3 million within the Impairment Loss line in the Consolidated Condensed Statement of Operations in the three and six months ended June 27, 2020, respectively.

Based on our quantitative assessments, the Company recorded goodwill impairment charges associated with four Aerospace reporting units, totaling $ 86.3 million within the Impairment Loss line in the Consolidated Condensed Statement of Operations in the nine months ended September 26, 2020.

As of September 26, 2020, the

Company concluded that no indicators of additional impairment relating to intangible assets or goodwill existed and an interim test was not performed in the three months then ended.

For additional information regarding the quantitative test and the related goodwill impairment see Note 6.

3 unchanged sentences

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 deteriorating economic conditions associated with the COVID-19 pandemic, we recorded an impairment charge to right-of-use (“ROU”) assets of approximately $ 0.7 million incurred in one reporting unit in the Aerospace segment within the Impairment Loss line in the Consolidated Condensed Statement of Operations in the six months ended June 27, 2020.

No other long-lived asset impairments were warranted based on the quantitative analysis performed.

2 unchanged sentences

There were no observable price changes for this investment during 2020.

We determined that the fair value of this investment was de minimus at June 27, 2020 and we recorded an impairment charge of $ 3.5 million recorded within Other Expense, Net of Other Income in the accompanying Consolidated Condensed Statement Operations.

We determined that the fair value of this investment was de minimus and we recorded an impairment charge of $ 3.5 million recorded within Other Expense, Net of Other Income in the accompanying Consolidated Condensed Statement Operations in the nine months ended September 26, 2020.

Foreign Currency Translation

The aggregate foreign currency transaction gain or loss included in operations was insignificant for the three and six months ended June 27, 2020 and June 29, 2019.

The aggregate foreign currency transaction gain or loss included in operations was insignificant for the three and nine months ended September 26, 2020 and September 28, 2019.

Newly Adopted and Recent Accounting Pronouncements

50 unchanged sentences

These incremental costs include, but are not limited to, sales commissions incurred to obtain a contract with a customer.

As of June 27, 2020, the Company does not have material incremental costs on any open contracts with an original expected duration of greater than one year.

As of September 26, 2020, 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.

3 unchanged sentences

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 June 27, 2020, the Company does not have material capitalized fulfillment costs.

As of September 26, 2020, the Company does not have material capitalized fulfillment costs.

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.

26 unchanged sentences

The Company typically recognizes revenue on a straight-line basis throughout the contract period.

On June 27, 2020, we had $ 307.2 million of remaining performance obligations, which we refer to as total backlog.

On September 26, 2020, we had $ 282.2 million of remaining performance obligations, which we refer to as total backlog.

We expect to recognize approximately $ 115.5 million of our remaining performance obligations as revenue in 2020.

6 unchanged sentences

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 $ 10.6 million and $ 7.8 million during the three months ended and $ 14.5 million and $ 13.2 million for the six months ended June 27, 2020 and June 29, 2019, respectively, in revenues that were included in the contract liability balance at the beginning of the period.

We recognized $ 8.5 million and $ 5.1 million during the three months ended and $ 20.1 million and $ 15.7 million for the nine months ended September 26, 2020 and September 28, 2019, 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 primarily of costs and profits in excess of billings and billings in excess of cost and profits, respectively.

The following table presents the beginning and ending balances of contract assets and contract liabilities during the six months ended June 27, 2020:

The following table presents the beginning and ending balances of contract assets and contract liabilities during the nine months ended September 26, 2020:

(In thousands) Contract Assets Contract Liabilities

Beginning Balance, January 1, 2020 $ 19,567 $ 38,758

Ending Balance, June 27, 2020

Ending Balance, September 26, 2020

$ 19,460 $ 29,392

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

Six Months Ended Three Months Ended

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

Nine Months Ended Three Months Ended

(In thousands) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Aerospace Segment

13 unchanged sentences

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

Six Months Ended Three Months Ended

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

Nine Months Ended Three Months Ended

(In thousands) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Aerospace Segment

14 unchanged sentences

( In thousands )

June 27, 2020 December 31, 2019

September 26, 2020 December 31, 2019

Finished Goods

10 unchanged sentences

(In thousands)

June 27, 2020 December 31, 2019

September 26, 2020 December 31, 2019

$ 9,837 $ 9,802

12 unchanged sentences

The following table summarizes acquired intangible assets as follows:

June 27, 2020 December 31, 2019

September 26, 2020 December 31, 2019

(In thousands) Weighted

9 unchanged sentences

Amortization expense for acquired intangibles is summarized as follows:

Six Months Ended Three Months Ended

Nine Months Ended Three Months Ended

(In thousands)

June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Amortization Expense

8 unchanged sentences

2025 $ 10,996

The following table summarizes the changes in the carrying amount of goodwill for the six months ended June 27, 2020:

(In thousands) December 31, 2019 Impairment Charges Foreign

June 27, 2020

The following table summarizes the changes in the carrying amount of goodwill for the nine months ended September 26, 2020:

(In thousands) December 31, 2019 Acquisition Adjustments Impairment Charges Foreign

September 26, 2020

Aerospace $ 123,038 $ — $ ( 86,312 ) $ ( 178 ) $ 36,548

24 unchanged sentences

As a result of this quantitative test, we determined that the estimated fair value was less than the respective carrying value as of June 27, 2020.

As a result, we recorded non-cash goodwill impairment charges in the Aerospace segment of approximately $ 12.6 million and $ 86.3 million within the Impairment Loss line of the Consolidated Condensed Statements of Operations in the three and six months ended June 27, 2020, respectively.

As a result, we recorded non-cash goodwill impairment charges in the Aerospace segment of approximately $ 86.3 million within the Impairment Loss line of the Consolidated Condensed Statements of Operations in the nine months ended September 26, 2020.

The goodwill remaining in our PECO reporting unit after the impairments is $ 20.2 million.

For the PECO reporting unit, the Company performed sensitivity analyses, utilizing reasonably possible changes in the assumption for the discount rate and revenue growth rates to demonstrate the potential impacts to the estimated fair value.

In isolation, a 100 basis point increase to the discount rate or a 100 basis point decrease to the normalized revenue growth rate, would result in incremental impairment charges of $ 7.6 million or $ 3.5 million, respectively.

There is greater risk of future impairments in the PECO reporting unit as any further deterioration in its performance compared to forecast, changes in order volumes or delivery schedules at its major customer, as well as any changes in economic forecasts and expected recovery in the aerospace industry, may require the Company to complete additional interim impairment tests in future quarters and could result in the reporting unit’s fair value again falling below carrying value in subsequent quarters.

Further, if the composition of the reporting unit’s assets and liabilities were to change and result in an increase in the reporting unit’s carrying value, it could lead to additional impairment testing and further impairment losses.

As of September 26, 2020, the Company concluded that no indicators of additional impairment relating to intangible assets or goodwill existed and an interim test was not performed in the three months then ended.

7) Long-term Debt and Notes Payable

10 unchanged sentences

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.

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.

At September 26, 2020, there was $ 168.0 million outstanding on the revolving credit facility and there remained $ 205.7 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 1.75 x on a quarterly basis, except for the first quarter of 2021, which is set at 1.50 x.

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

At September 26, 2020, outstanding letters of credit and bank guarantees totaled $ 1.3 million.

Through the second quarter of 2021, the Company is required to maintain a minimum interest coverage ratio of 1.75 x on a quarterly basis, except for the first quarter of 2021, which is set at 1.50 x.

The Company was in compliance with its financial covenants at September 26, 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 %.

2 unchanged sentences

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 provided 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 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.

During the nine months ended September 26, 2020, subsequent to the execution of the Amended Facility, the Company made prepayments approximating $ 165 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.

6 unchanged sentences

Activity in the warranty accrual is summarized as follows:

Six Months Ended Three Months Ended

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

Nine Months Ended Three Months Ended

(In thousands) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Balance at Beginning of Period $ 7,660 $ 5,027 $ 6,965 $ 4,806

8 unchanged sentences

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.

The weighted-average remaining term for the Company's operating and financing leases are approximately 7 years and 2 years, respectively.

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

The weighted-average discount rates for the Company's operating and financing leases are approximately 3.3 % and 5.3 %, respectively.

The following is a summary of the Company's ROU assets and liabilities:

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

(In thousands) September 26, 2020 December 31, 2019

Operating Leases:

15 unchanged sentences

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

Six Months Ended Three Months Ended

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

Nine Months Ended Three Months Ended

(In thousands) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Finance Lease Cost:

19 unchanged sentences

10) Income Taxes

The effective tax rates were approximately 3.4 % and 22.7 % for the six months ended and 3.6 % and 23.8 % for the three months ended June 27, 2020 and June 29, 2019, respectively.

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

The effective tax rates were approximately 8.7 % and 22.9 % for the nine months ended and 52.8 % and 31.3 % for the three months ended September 26, 2020 and September 28, 2019, respectively.

The 2020 tax rate was impacted by permanently non-deductible goodwill impairments totaling $ 60.8 million, a Federal valuation allowance of approximately $ 7.5 million, and a tax benefit related to a revised state income tax filing position of approximately $ 3.1 million recorded during the three and nine months ended September 26, 2020.

During the three and nine months ended September 26, 2020, the Company determined that a revised state filing position could be taken which would reduce the taxable income apportioned for certain state income tax purposes.

The Company concluded that amended state income tax returns would be filed for the open tax years of 2015 through 2018 to reflect this revised tax position and claim the associated tax benefits.

In addition, the revised tax position will also be taken on the 2019 state income tax filing.

Accordingly, the Company has recorded a discrete tax benefit of $ 3.1 million related to these items for the three and nine month periods ended September 26, 2020.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the economic uncertainty resulting from the COVID-19 pandemic.

1 unchanged sentence

Some of the key changes include eliminating the 80% of taxable income limitation by allowing corporate entities to fully utilize net operating losses (“NOL”) to offset taxable income in 2018, 2019 and 2020, allowing NOLs originating in 2018, 2019 and 2020 to be carried back five years and retroactively clarifying the immediate recovery of qualified improvement property costs rather than over a 39-year recovery period.

During the six months ended June 27, 2020, the Company recorded a $ 0.5 million benefit relating to the NOL carryback provisions and the technical correction for qualified improvement property provided for in the CARES Act.

During the nine months ended September 26,

2020, the Company recorded a $ 1.5 million benefit relating to the NOL carryback provisions and the technical correction for qualified improvement property provided for in the CARES Act.

The Company will continue to monitor additional guidance issued and assess the impact that various provisions will have on its business.

As a result of the COVID-19 pandemic and its adverse effects on the global economy and aerospace industry that began to take shape in the first quarter of fiscal 2020, the Company is now forecasting to generate a taxable loss in 2020 which can be carried back under the CARES Act to recover previously paid income taxes.

After consideration of deferred tax liabilities that reverse

in 2021 and beyond, the Company must rely on future taxable income in 2021 and beyond for purposes of asserting that the Company’s remaining U.S.

After consideration of deferred tax liabilities that reverse in 2021 and beyond, the Company must rely on future taxable income in 2021 and beyond for purposes of asserting that the Company’s remaining U.S.

Federal deferred tax assets are realizable on a more-likely-than-not basis as required under ASC 740.

Losses in recent periods and projected losses, combined with the significant uncertainty brought about by the COVID-19 pandemic, is collectively considered significant negative evidence under ASC 740 when assessing whether an entity can use projected income as a basis for concluding that deferred tax assets are realizable on a more-likely-than-not basis.

Accordingly, during the six months ended June 27, 2020, the Company determined that a portion of its deferred tax assets are not expected to be realizable in the future.

As a result, the Company recorded a partial valuation allowance of approximately $ 7.5 million during the six months ended June 27, 2020 against its U.S.

Accordingly, during the nine months ended September 26, 2020, the Company determined that a portion of its deferred tax assets are not expected to be realizable in the future.

As a result, the Company recorded a partial valuation allowance of approximately $ 7.5 million during the nine months ended September 26, 2020 against its U.S.

Federal deferred tax assets.

1 unchanged sentence

Basic and diluted weighted-average shares outstanding are as follows:

Six Months Ended Three Months Ended

Nine Months Ended Three Months Ended

(In thousands)

June 27, 2020 June 29, 2019 June 27, 2020 June 29, 2019

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Weighted Average Shares - Basic

4 unchanged sentences

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 covered by out-of-the-money stock options was approximately 872,000 shares as of June 27, 2020 and 18,000 shares as of June 29, 2019.

Further, due to our net loss in the six month period ended June 27, 2020, the assumed exercise of stock compensation had an antidilutive effect and therefore was excluded from the computation of diluted loss per share.

The number of common shares covered by out-of-the-money stock options was approximately 831,000 shares as of September 26, 2020 and 279,000 shares as of September 28, 2019.

Further, due to our net loss in the three and nine month periods ended September 26, 2020, the assumed exercise of stock compensation had an antidilutive effect and therefore was excluded from the computation of diluted loss per share.

12) Shareholders' Equity

5 unchanged sentences

The components of accumulated other comprehensive loss are as follows:

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

(In thousands) September 26, 2020 December 31, 2019

Foreign Currency Translation Adjustments $ ( 7,127 ) $ ( 7,042 )

4 unchanged sentences

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

Six Months Ended Three Months Ended

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

Nine Months Ended Three Months Ended

(In thousands) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Foreign Currency Translation Adjustments $ ( 85 ) $ ( 722 ) $ 1,409 $ ( 1,336 )

11 unchanged sentences

The following table sets forth information regarding the net periodic pension cost for the plans.

Six Months Ended Three Months Ended

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

Nine Months Ended Three Months Ended

(In thousands) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Service Cost $ 167 $ 136 $ 56 $ 45

5 unchanged sentences

The following table sets forth information regarding the net periodic cost recognized for those benefits:

Six Months Ended Three Months Ended

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

Nine Months Ended Three Months Ended

(In thousands) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Service Cost $ 11 $ 10 $ 4 $ 3

5 unchanged sentences

14) Sales to Major Customers

The Company has a significant concentration of business with two major customers, each in excess of 10% of consolidated sales.

The Company has a significant concentration of business with two major customers, each typically in excess of 10% of consolidated sales.

The loss of either of these customers would significantly, negatively impact our sales and earnings.

Sales to these two customers represented 14 % and 9 % of consolidated sales for the six months ended and 11 % and 8 % for the three months ended June 27, 2020.

Sales to these two customers represented 12 % and 9 % of consolidated sales for the nine months ended and 6 % and 10 % for the three months ended September 26, 2020.

Sales to these customers were primarily in the Aerospace segment.

Accounts receivable from these customers at June 27, 2020 was approximately $ 19.6 million.

Sales to these two customers represented 13 % and 14 % of consolidated sales for the six months ended and 14 % and 13 % for the three months ended June 29, 2019.

Accounts receivable from these customers at September 26, 2020 was approximately $ 12.5 million.

Sales to these two customers represented 13 % and 14 % of consolidated sales for the nine months ended and 12 % and 14 % for the three months ended September 28, 2019.

15) Legal Proceedings

13 unchanged sentences

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 July 2017, Lufthansa filed an action before the District 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.

3 unchanged sentences

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 reflected an incremental reserve of $ 3.5 million in its December 31, 2019 financial statements related to this matter.

Payment of the first instance judgment was made during the three months ended June 27, 2020 of approximately $ 4.7 million, inclusive of interest.

As a result of the judgment on direct sales into Germany, the Company reflected an incremental reserve of $ 3.5 million in its December 31, 2019 financial statements related to this matter ($ 1.7 million of which was recorded in the three and nine month periods ended September 28, 2019).

Payment of the first instance judgment was made during the nine months ended September 26, 2020 of approximately $ 4.7 million, inclusive of interest.

AES has appealed this decision and the appeal is currently pending before the Higher Regional Court of Karlsruhe.

14 unchanged sentences

AES and Lufthansa both appealed this decision and the appeal is currently pending before the Higher Regional Court of Karlsruhe.

In its appeal, Lufthansa extended its action by requesting an additional finding that AES shall be held liable for all damages that Lufthansa incurred due to an alleged incorrect

accounting of its past sales.

In its appeal, Lufthansa extended its action by

requesting an additional finding that AES shall be held liable for all damages that Lufthansa incurred due to an alleged incorrect accounting of its past sales.

No amount was quantified in Lufthansa's additional motion.

The appeal is not likely to be settled in 2020.

If the decision is confirmed on appeal, 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.

With letter of April 28, 2020, Lufthansa notified AES of its intention to enforce the first instance decision with respect to the claims for accounting, information and confirmation of the earlier accounting by an affidavit.

Lufthansa asked AES to provide the accounting on indirect sales (as defined above) as well as on the sales of individual parts, and also asked AES to provide the affidavit that the accounting provided in September 2015 was accurate.

In July 2020, Lufthansa filed a request with the Regional State Court of Mannheim that AES be ordered to comply with the enforcement or to otherwise make payment of up to approximately $ 50,000 .

By decision on September 7, 2020, the District Court of Mannheim granted Lufthansa's request in part and ordered AES to make a coercive payment of approximately $ 25,000 , which can be avoided if AES provides the requested accounting and information.

AES has appealed the payment decision and is expecting a decision by the second instance Higher Regional State Court of Karlsruhe in November 2020.

AES is in the process of preparing the requested accounting information.

If the December 6, 2019 decision of the Regional State Court of Mannheim is confirmed on appeal, 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 substantially all of the modified outlet units sold from 2015 do not infringe the patent of Lufthansa.

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Interest will accrue at a rate of 5 % above the European Central Bank rate until final payment to Lufthansa.

Inclusive of accrued interest, the reserve for the indirect claim is approximately $ 16.4 million at June 27, 2020.

Based upon the determination of the damages in the direct sales claim discussed above, in the June 27, 2020 consolidated financial statements, we have reflected a total accrual (inclusive of interest through June 27, 2020) of $ 16.4 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.

Interest accrued for the six months ended June 27, 2020 was approximately $ 0.3 million and is recorded within Selling, General and Administrative Expense in the Company’s Consolidated Statement of Operations.

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 July 3, 2021.

Therefore the liability related to this matter, totaling $ 16.4 million, is classified within Other Liabilities (non-current) in the Consolidated Balance Sheet at June 27, 2020.

Based upon the determination of the damages in the direct sales claim discussed above, in the September 26, 2020 consolidated financial statements, we have reflected a total accrual (inclusive of interest through September 26, 2020) of $ 16.5 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.

Additional interest accrued for the three and nine months ended September 26, 2020 was approximately $ 0.1 million and $ 0.4 million, respectively, and is recorded within Selling, General and Administrative Expense in the Company’s Consolidated Statement of Operations.

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 within the next twelve months.

Therefore the liability related to this matter, totaling $ 16.5 million, is classified within Other Liabilities (non-current) in the Consolidated Balance Sheet at September 26, 2020.

In December 2017, Lufthansa filed patent infringement cases in the United Kingdom (“UK”) and in France against AES.

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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 French matter, there will be a hearing on the validity of the patent on October 8, 2020.

In the French matter, the first instance court decided to bifurcate the issues of validity and infringement.

The issue of alleged invalidity was heard on October 8, 2020.

The court expects to rule on this matter on December 4, 2020.

Such ruling will not involve any financial exposure to AES, as it will not deal with alleged infringement and the court will not order any damages.

If the first instance court confirms the validity of the patent, the proceedings will continue with the issue of alleged infringement.

No judgment on this issue is expected before late 2021.

In the UK matter, a trial took place in June 2020 to address the issues of infringement and validity of the patent.

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The court held the UK patent valid and 3 out of 4 asserted claims infringed.

Although the court has found the patent valid and some claims infringed, Lufthansa has yet to set out its case for monetary relief, which would need to be determined at a separate trial and would require extensive data gathering and analysis which has not yet commenced.

Additionally, AES intends to seek permission to appeal the first instance UK findings.

For this reason, while exposure in the UK matter is reasonably possible and such exposure could be material to the consolidated financial statements, it is not yet estimable, and thus, no liability has been recorded with respect to this matter at June 27, 2020.

Separate from any such damages Lufthansa may seek in connection with the UK infringement decision discussed above, as a result of the first instance judgement in their favor, Lufthansa will be entitled to reimbursement from AES of a proportion of its legal expenditures in the UK case.

An interim reimbursement to Lufthansa will likely be payable in August 2020.

Accordingly, we have recorded a liability of approximately $ 1.5 million in our consolidated balance sheet, within Accrued Expenses and Other Current Liabilities, as of June 27, 2020.

The associated expense has been recorded in the Consolidated Condensed Statement of Operations in the three- and six-month periods ended June 27, 2020 within Selling, General & Administrative Expenses.

In contrast to the decisions in Germany, the UK Court found that the modified components infringed a valid claim of the patent.

If AES is not successful in any appeal phase, then the post-modification outlet units will be included in the calculation of monetary relief.

Additionally, AES has applied to the Court of Appeal for permission to appeal the first instance UK findings.

That application is pending.

If the Court of Appeal rejects the application for permission to appeal made on the papers, AES may request an oral hearing.

If permission to appeal is granted, any appeal on these substantive issues would likely be heard within 18 months of the trial.

Separate from any such damages Lufthansa may seek in connection with the UK infringement decision discussed above, as a result of the first instance judgement in their favor, Lufthansa is entitled to reimbursement from AES of a proportion of its legal expenditures in the UK case.

An interim reimbursement of approximately $ 1.3 million was paid to Lufthansa in August 2020.

The associated expense has been recorded in the Consolidated Condensed Statement of Operations in the nine-month period ended September 26, 2020 within Selling, General & Administrative Expenses.

If the first instance decision is reversed on appeal, AES would be entitled to seek the return of such amounts from Lufthansa, as well as reimbursement of AES’s legal fees.

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However, it is reasonably possible that additional damages and interest could be incurred if the court in France was to rule in favor of Lufthansa, or if any appeal in the UK matter is unsuccessful, but at this time we cannot reasonably estimate the range of loss.

As loss exposure is not estimable at this time, the Company has not recorded any liability with respect to either of the matters as of June 27, 2020, except for the legal fee reimbursement in the UK case discussed above.

As loss exposure is not estimable at this time, the Company has not recorded any liability with respect to either of the matters as of September 26, 2020, except for the legal fee reimbursement in the UK case discussed above, which was paid during the three- and nine- month period ended September 26, 2020.

On November 26, 2014, Lufthansa filed a complaint in the United States District for the Western District of Washington.

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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.

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.

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16) Segment Information

Below are the sales and operating profit by segment for the three and six months ended June 27, 2020 and June 29, 2019 and a reconciliation of segment operating profit to income before income taxes.

Below are the sales and operating profit by segment for the three and nine months ended September 26, 2020 and September 28, 2019 and a reconciliation of segment operating profit to income before income taxes.

Operating profit is net sales less cost of products sold and other operating expenses excluding interest and corporate expenses.

Cost of products sold and other operating expenses are directly identifiable to the respective segment.

Six Months Ended Three Months Ended

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

Nine Months Ended Three Months Ended

(In thousands) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Aerospace $ 326,282 $ 520,495 $ 82,548 $ 157,702

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Additions/Deductions from Segment Measure of Operating (Loss) Profit

Gain on Sale of Business — 80,133 — —

Net (Gain) Loss on Sale of Businesses — ( 78,801 ) — 1,332

Interest Expense, Net of Interest Income

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(In thousands)

June 27, 2020 December 31, 2019

September 26, 2020 December 31, 2019

$ 490,927 $ 629,371

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The fair value assigned to the earn-out is determined using the real options method, which requires Level 3 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.

Of the severance charges recorded, $ 2.1 million and $ 2.4 million in the three and six months ended June 27, 2020, respectively, qualify as one-time termination benefit arrangements and were initially measured at fair value using level 3 inputs.

There were no other financial assets or liabilities carried at fair value measured on a recurring basis at December 31, 2019 or June 27, 2020.

There were no other financial assets or liabilities carried at fair value measured on a recurring basis at December 31, 2019 or September 26, 2020.

On a Non-recurring Basis:

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As further discussed in Note 6, we performed interim quantitative assessments for the reporting units which had goodwill as of March 28, 2020 and an additional interim quantitative assessment for the PECO reporting unit as of June 27, 2020.

Based on our quantitative assessments, the Company recorded non-cash goodwill impairment charges associated with four Aerospace reporting units, totaling approximately $ 12.6 million and $ 86.3 million within the Impairment Loss line in the Consolidated Condensed Statement of Operations in the three and six months ended June 27, 2020, respectively.

Based on our quantitative assessments, the Company recorded non-cash goodwill impairment charges associated with four Aerospace reporting units, totaling approximately $ 86.3 million within the Impairment Loss line in the Consolidated Condensed Statement of Operations in the nine months ended September 26, 2020.

The impairment loss was calculated as the difference between the fair value of the reporting unit (which was calculated using level 3 inputs) and the carrying value of the reporting unit.

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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 deteriorating economic conditions associated with the COVID-19 pandemic, we recorded an impairment charge to ROU assets of approximately $ 0.7 million incurred in the Aerospace segment within the Impairment Loss line in the Consolidated Condensed Statement of Operations in the six months ended June 27, 2020.

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 Condensed Balance Sheets.

One of the investments incurred a full impairment charge which accounts for $ 3.5 million recorded within the Other Expense, Net of Other Income line in the accompanying Consolidated Condensed Statement of Operations for the three and six months ended June 27, 2020.

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.

Of the severance charges recorded, $ 0.2 million and $ 2.6 million in the three and nine months ended September 26, 2020, respectively, qualify as one-time termination benefit arrangements and were initially measured at fair value using 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.

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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.

The purchase price allocation for this acquisition has been finalized.

Purchased intangible assets and goodwill are not deductible for tax purposes.

This transaction was not considered material to the Company’s financial position or results of operations.

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Impairments and restructuring charges were recorded in 2019 as a result of the restructuring plan.

The Company incurred $ 0.1 million and $ 0.4 million in additional restructuring charges associated with severance at AeroSat during the three and six months ended June 27, 2020.

In the second quarter of 2020, the COVID-19 pandemic has significantly impacted the global economy, and particularly the aerospace industry, resulting in reduced expectations of the Company’s future operating results.

As a result, the Company executed restructuring activities in the form of workforce reduction to align capacity with expected demand.

Additional restructuring charges of $ 4.8 million and $ 5.0 million in severance expense associated primarily with the Aerospace segment was recorded in the three and six months ended June 27, 2020.

The Company incurred $ 0.4 million in additional restructuring charges associated with severance at AeroSat during the nine months ended September 26, 2020.

The COVID-19 pandemic has significantly impacted the global economy, and particularly the aerospace industry, resulting in reduced expectations of the Company’s future operating results.

As a result, the Company executed restructuring activities in the form of workforce reduction, primarily in the second quarter of 2020, to align capacity with expected demand.

Additional restructuring charges of $ 0.2 million and $ 5.2 million in severance expense associated primarily with the Aerospace segment was recorded in the three and nine months ended September 26, 2020.

The following table reconciles the beginning and ending liability for restructuring charges relating to the Company’s restructuring plan described above:

Restructuring Charges in the

six months ended June 27, 2020

nine months ended September 26, 2020

(In thousands) Accrual as of December 31, 2019 Cost of Products Sold Selling, General and Administrative Cash Paid Accrual as of

June 27, 2020

September 26, 2020

Accrued Expenses and Other Current Liabilities $ 613 $ 280 $ 5,278 $ ( 3,133 ) $ 3,038

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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 1. Financial Statements