ASTRONICS CORP 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (The following should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Form 10-K for the year ended December 31, 2019.) OVERVIEW Astronics Corporation (“Astronics” or the “Company”) is a leading supplier of advanced technologies and products to the global aerospace and defense industries. Our products and services include advanced, high-performance electrical power generation and distribution systems, seat motion solutions, lighting and safety systems, avionics products, aircraft structures, systems certification, and automated test systems. Our Aerospace segment designs and manufactures products for the global aerospace industry. Product lines include lighting and safety systems, electrical power generation, distribution and motions systems, aircraft structures, avionics products, systems certification, and other products. Our Aerospace customers are the airframe manufacturers (“OEM”) that build aircraft for the commercial, military and general aviation markets, suppliers to those OEM’s, aircraft operators such as airlines, suppliers to the aircraft operators, and branches of the U.S. Department of Defense. Our Test Systems segment designs, develops, manufactures and maintains automated test systems that support the aerospace and defense, communications and mass transit test systems as well as training and simulation devices for both commercial and military applications. In the Test Systems segment, Astronics’ products are sold to a global customer base including OEM's and prime government contractors for both electronics and military products. Our strategy is to increase our value by developing technologies and capabilities, either internally or through acquisition, and using those capabilities to provide innovative solutions to our targeted markets where our technology can be beneficial. Important factors affecting our growth and profitability are the ongoing impacts of the COVID-19 pandemic and the timing and extent of recovery (as discussed more fully below), the rate at which new aircraft are produced, government funding of military programs, our ability to have our products designed into new aircraft and the rates at which aircraft owners, including commercial airlines, refurbish or install upgrades to their aircraft. New aircraft build rates and aircraft owners spending on upgrades and refurbishments is cyclical and dependent on the strength of the global economy. Once designed into a new aircraft, the spare parts business is frequently retained by the Company. Future growth and profitability of the test business is dependent on developing and procuring new and follow-on business. The nature of our Test Systems business is such that it pursues large multi-year projects. There can be significant periods of time between orders in this business which may result in large fluctuations of sales and profit levels and backlog from period to period. Acquisitions and Divestitures On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment. The total proceeds of the divestiture amounted to $103.8 million. The Company recorded a pre-tax gain on the sale of $80.1 million in the first quarter of 2019. The income tax expense relating to the gain was $19.7 million. On July 1, 2019, the Company acquired all of the issued and outstanding capital stock of Freedom Communication Technologies, Inc. (“Freedom”). Freedom, located in Kilgore, Texas, is a leader in wireless communication testing, primarily for the civil land mobile radio market. Freedom is included in our Test Systems segment. The total consideration for the transaction was $21.8 million, net of $0.6 million in cash acquired. On July 12, 2019, the Company sold intellectual property and certain assets associated with its Airfield Lighting product line for $1.0 million in cash. The Airfield Lighting product line, part of the Aerospace segment, was not core to the business and represented less than 1% of revenue. The Company recorded a pre-tax loss on the sale of approximately $1.3 million. On October 4, 2019, the Company acquired the stock of the primary operating subsidiaries as well as certain other assets from mass transit and defense market test solution provider, Diagnosys Test Systems Limited, for $7.0 million in cash, plus earn-outs estimated at a fair value of $2.5 million. Diagnosys Inc. and its affiliates (“Diagnosys”) is included in our Test Systems segment. Diagnosys is a developer and manufacturer of comprehensive automated test equipment providing test, support, and repair of high value electronics, electro-mechanical, pneumatic and printed circuit boards focused on the global mass transit and defense markets. The terms of the acquisition allow for a potential earn-out of up to an additional $13.0 million over the three years post acquisition based on achievement of new order levels of over $72.0 million during that period. The acquired business has operations in Westford, Massachusetts as well as Ferndown, England, and an engineering center of excellence in Bangalore, India. 30 Table of Contents CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK Nine Months Ended Three Months Ended ($ in thousands) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 Sales $ 387,784 $ 574,290 $ 106,506 $ 177,018 Gross Profit (sales less cost of products sold) $ 77,725 $ 129,234 $ 15,173 $ 36,794 Gross Margin 20.0 % 22.5 % 14.2 % 20.8 % Selling, General and Administrative Expenses $ 85,941 $ 90,677 $ 24,170 $ 31,691 SG&A Expenses as a Percentage of Sales 22.2 % 15.8 % 22.7 % 17.9 % Impairment Loss $ 87,016 $ — $ — $ — Net (Gain) Loss on Sale of Businesses $ — $ (78,801) $ — $ 1,332 Interest Expense, Net of Interest Income $ 5,091 $ 4,576 $ 1,775 $ 1,547 Effective Tax Rate 8.7 % 22.9 % 52.8 % 31.3 % Net (Loss) Income $ (95,796) $ 86,082 $ (5,254) $ 1,210 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 THIRD QUARTER RESULTS Consolidated sales were down $70.5 million compared with the third quarter of 2019. Aerospace sales were down $75.2 million. Test System sales increased $4.6 million. Diagnosys contributed $3.1 million in sales in the third quarter of 2020. Consolidated cost of products sold in the third quarter of 2020 was $91.3 million, compared with $140.2 million in the prior-year period. The decrease was primarily due to lower volume resulting from continued delays in the recertification of the 737 MAX and the impacts of the COVID-19 pandemic on the global economy and, particularly, the aerospace industry. Selling, general and administrative (“SG&A”) expenses were $24.2 million in the third quarter of 2020 compared with $31.7 million in the prior-year period. Contributing to the decrease in SG&A in 2020 were workforce reduction activities and cost conservation measures including suspending cash bonus plans and wage adjustments. The third quarter of 2019 included an additional $1.7 million legal reserve for a long-term patent dispute. The effective tax rate for the quarter was 52.8%, compared with 31.3% in the third quarter of 2019. The 2020 tax rate was impacted by a tax benefit related to a revised state income tax filing position that was recorded during the three months ended September 26, 2020 of approximately $3.1 million. The 2019 third quarter tax rate was unfavorably impacted by the gain on the sale of the semiconductor business. Net loss was $5.3 million, or $(0.17) per diluted share, compared with net income of $1.2 million, or $0.04 per diluted share, in the prior year. Bookings were $81.6 million, rebounding somewhat from the second quarter. The book-to-bill ratio was 0.77:1. Backlog at the end of the quarter was $282.2 million. Approximately $115.5 million, or 41%, of backlog is expected to be recognized as revenue over the remainder of 2020. CONSOLIDATED YEAR-TO-DATE RESULTS Consolidated sales were down $186.5 million compared with the prior-year period. Aerospace sales were down $194.3 million. Test System sales increased $7.8 million. The Acquired Businesses contributed an incremental $8.4 million in sales in 2020. Consolidated cost of products sold was $310.1 million, compared with $445.1 million in the prior-year period. The decrease was primarily due to lower sales volume. Consolidated cost of products sold in the first nine months of 2019 included tariffs of $6.8 million, inventory charges of $3.6 million and program charges of $3.5 million. SG&A expenses were $85.9 million compared with $90.7 million the prior-year period. Contributing to the decrease in SG&A in 2020 were workforce reduction activities and cost conservation measures including suspending cash bonus plans and wage adjustments, though these savings were partially offset by associated severance charges of $5.6 million. The prior-year period included an additional $1.7 million legal reserve for a long-term patent dispute. Further, non-cash goodwill and long-lived asset 31 Table of Contents 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. During the first quarter, the Company recognized full impairments of the goodwill of Astronics Connectivity Systems and Certification (“CSC”), PGA and Custom Control Concepts (“CCC”) reporting units, and a partial impairment of the goodwill of the PECO reporting unit. During the second quarter of 2020, an additional partial impairment of the PECO reporting unit was recorded. No impairment charges were recorded in the third quarter. The effective tax rate was 8.7%, compared with 22.9% in the prior-year period. The 2020 tax rate was impacted by permanently non-deductible goodwill impairments of $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 nine months ended September 26, 2020. The 2019 tax rate was unfavorably impacted by the gain on the sale of the semiconductor business. Net loss was $95.8 million, or $(3.11) per diluted share, compared with net income of $86.1 million, or $2.61 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 2020 has progressed. COVID-19 has caused disruption and volatility in the global capital markets, and has authored an economic slowdown. In response to COVID-19, national and local governments around the world have instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. Although our operations have been deemed essential and we follow the COVID-19 guidelines from the Centers for Disease Control (“CDC”) concerning the health and safety of our personnel, these measures have resulted in attenuating activity and, in some cases, required temporary closures of certain of our facilities, among other impacts. The duration of these measures is unknown, may be extended and additional measures may be imposed. In response to the global COVID-19 pandemic, we have implemented actions to maintain the health of our employees as well as our financial health and liquidity. These actions include: • Implementing social distancing measures, the use of masks, restricting visitors and unnecessary travel, and working from home whenever possible; • 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; • Implemented significant cost conservation measures; • Suspending cash bonus plans and wage adjustments; • Amended our revolving credit facility on May 4, 2020, as further described in the “Liquidity and Capital Resources” section below; • Suspending share repurchases; • Reducing capital spending to $8 million from an initial plan of $20 to $25 million; and • 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 million to $60 million for the year, beginning in the second quarter. Analysis of Impact on Demand by Markets The Company has recategorized the three revenue streams it uses to monitor demand and analyze the impact of the pandemic to its business. These are (1) the commercial aircraft market, which includes OEM line fit and airline aftermarket business, (2) the defense and other government markets, and (3) general aviation. In 2019, about 70% of the Company’s business, or $540 million, was generated in the commercial aircraft market. Approximately two-thirds of this came from new aircraft production primarily at Boeing and Airbus, and the remaining one-third came from aftermarket business with airlines and leasing companies. Airframe manufacturers have adjusted to current market conditions by reducing planned production rates for new aircraft by 30% to 50%, excluding the 737 MAX, which is still awaiting recertification. Driven by the production rate reductions, the 32 Table of Contents Company is also experiencing a slow-down in orders related to destocking in the supply chain. Astronics is most affected by the 737 MAX program for which it does not anticipate significant deliveries until the second half of 2021. The aftermarket remains weak with travel restrictions and quarantine rules dampening demand for airline travel. The airlines have adjusted in part by delaying planned fleet upgrades involving the Company’s products, which primarily involve passenger entertainment and connectivity. Though some planning activity is occurring, the Company expects the aftermarket to remain depressed until aircraft utilization and load factors increase, which many expect to occur measurably over current rates in 2021. The second demand stream is Government and Defense. Approximately 20% of Astronics’ revenue in 2019, or $145 million, was to the defense or other government markets. This includes certain military aircraft programs and the majority of the Test business. This demand stream remains stable and has been largely unaffected by the pandemic. An example of strength in this area is the new Test program the Company announced earlier this week for the Metro Atlanta Rapid Transit Authority (MARTA), to help with the operation and maintenance of new rail cars being procured from Stadler Rail A.G. The third revenue stream is General Aviation (“GA”), which accounted for the remaining 10% of Astronics’ business in 2019. Most of GA revenue is line fit, driven by the manufacture of new aircraft, although there is some amount of aftermarket business as well. The outlook for GA is mixed. Most manufacturers reduced production rates as the pandemic took hold, but aircraft utilization has been high, especially in North America. If this utilization drives new orders, production rates could recover in the coming year or two. Additionally, Astronics has pursued business opportunities from other markets, taking advantage of its technical design expertise and manufacturing capabilities, which are currently underutilized. These opportunities can be meaningful, and some are directly related to the fight against COVID-19, such as the Xenex® program announced. Astronics is providing manufacturing support to Xenex for the production of its unique LightStrike robots, which use patented pulsed xenon ultraviolet (UV) light disinfection technology to neutralize SARS-CoV-2, the virus that causes COVID-19. These initiatives are expected to contribute approximately $20 million in revenue in 2020, possibly ramping higher in 2021. Considering the expected demand from these revenue streams, our current backlog and results through the first nine months of 2020, Astronics’ scenario analysis implies full year 2020 sales will be at, or slightly above, $500 million. Outlook As discussed previously, the Company believes that, given its assumptions on the economic impacts of COVID-19 on its revenue streams in its Aerospace business and its current backlog, consolidated revenue should be at, or slightly above, $500 million for 2020. Given the fluidity of the pandemic as well as government responses, other outcomes, both positive and negative, are possible. Management expects the Company to be cash positive for the year at this revenue level with adjusted EBITDA margins for the year of approximately 5% to 7%. The Company plans to use excess free cash flow from operations to reduce outstanding debt. Capital expenditures for 2020 are expected to be approximately $8 million. 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 September 26, 2020 was $282.2 million. Approximately 41% of the backlog is expected to be recognized as revenue in 2020. The effective tax benefit rate for 2020 is expected to be in the range of 6% to 10%. 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. See Part II, Item 1A, Risk Factors, for an additional discussion of risk related to COVID-19. SEGMENT RESULTS OF OPERATIONS AND OUTLOOK Operating profit, as presented below, is sales less cost of products sold and other operating expenses, excluding interest expense and other corporate expenses. Cost of products sold and other operating expenses are directly identifiable to the respective 33 Table of Contents segment. Operating profit is reconciled to earnings before income taxes in Note 16 of the Notes to Consolidated Condensed Financial Statements included in this report. AEROSPACE SEGMENT Nine Months Ended Three Months Ended (In thousands) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 Sales $ 326,282 $ 520,495 $ 82,548 $ 157,702 Less Intersegment Sales (91) (5) — — Total Aerospace Sales $ 326,191 $ 520,490 $ 82,548 $ 157,702 Operating (Loss) Profit $ (86,567) $ 48,949 $ (6,332) $ 8,789 Operating Margin (26.5) % 9.4 % (7.7) % 5.6 % Aerospace Sales by Market (In thousands) Commercial Transport $ 214,390 $ 393,721 $ 44,067 $ 122,212 Military 50,329 57,753 18,164 17,255 Business Jet 45,259 49,555 14,711 12,432 Other 16,213 19,461 5,606 5,803 $ 326,191 $ 520,490 $ 82,548 $ 157,702 Aerospace Sales by Product Line (In thousands) Electrical Power & Motion $ 148,500 $ 255,007 $ 32,481 $ 78,428 Lighting & Safety 90,973 139,502 25,320 44,127 Avionics 57,381 79,414 16,104 19,871 Systems Certification 5,596 9,050 605 3,384 Structures 7,528 18,056 2,432 6,089 Other 16,213 19,461 5,606 5,803 $ 326,191 $ 520,490 $ 82,548 $ 157,702 (In thousands) September 26, 2020 December 31, 2019 Total Assets $ 490,927 $ 629,371 Backlog $ 208,772 $ 275,754 AEROSPACE THIRD QUARTER RESULTS Aerospace segment sales decreased $75.2 million, or 47.7%, to $82.5 million. Sales were negatively affected by the continued grounding of the 737 MAX, overall lower build rates for commercial transport and general aviation aircraft and a weak commercial aircraft aftermarket as the airlines reduced spending due to the global COVID-19 pandemic. Electrical Power and Motion sales were down $45.9 million compared with the prior-year period. Lighting & Safety sales decreased $18.8 million. Additionally, Avionics sales were down $3.8 million compared with the prior-year period. Aerospace segment operating loss was $6.3 million compared with operating profit of $8.8 million for the same period last year. Operating leverage lost on reduced sales drove the operating loss. AEROSPACE YEAR-TO-DATE RESULTS Aerospace segment sales decreased $194.3 million, or 37.3%, to $326.2 million. Sales were negatively affected for the same reasons noted for the quarter. Electrical Power and Motion sales were down $106.5 million compared with the prior-year period. Lighting & Safety sales decreased $48.5 million. Additionally, Avionics sales were down $22.0 million compared with the prior-year period. 34 Table of Contents Aerospace segment operating loss was $86.6 million compared with operating profit of $48.9 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. Restructuring-related severance charges of $5.3 million and leverage lost on reduced sales also significantly impacted operating results. AEROSPACE OUTLOOK Aerospace bookings in the third quarter of 2020 were $65.0 million, for a book-to-bill ratio of 0.79:1. The Aerospace segment’s backlog at the end of the third quarter of 2020 was $208.8 million with approximately $96.8 million expected to be recognized as revenue over the remaining part of 2020 and $175.1 million scheduled over the next 12 months. TEST SYSTEMS SEGMENT Nine Months Ended Three Months Ended (In thousands) September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 Sales $ 62,391 $ 53,995 $ 24,406 $ 19,346 Less Intersegment Sales (798) (195) (448) (30) Net Sales $ 61,593 $ 53,800 $ 23,958 $ 19,316 Operating profit $ 4,270 $ 4,166 $ 936 $ 2,075 Operating Margin 6.9 % 7.7 % 3.9 % 10.7 % Test Systems Sales by Market (In thousands) Semiconductor $ 3,407 $ 7,815 $ 585 $ 2,219 Aerospace & Defense 58,186 45,985 23,373 17,097 $ 61,593 $ 53,800 $ 23,958 $ 19,316 (In thousands) September 26, 2020 December 31, 2019 Total Assets $ 102,087 $ 110,994 Backlog $ 73,466 $ 83,837 TEST SYSTEMS THIRD QUARTER RESULTS Test Systems segment sales were $24.0 million, up $4.6 million compared to the prior-year period. Excluding sales from the divested semiconductor test business, the Test Systems segment achieved its second highest quarterly sales in the segment’s history. Diagnosys contributed $3.1 million in sales in the third quarter of 2020. Test Systems operating profit was $0.9 million, or 3.9% of sales, compared with $2.1 million, or 10.7% of sales, in the third quarter of 2019. Operating profit in the current year was negatively impacted legal expenses and inventory reserves totaling $1.3 million. TEST SYSTEMS YEAR-TO-DATE RESULTS Test Systems segment sales were $61.6 million, up $7.8 million compared with the prior-year period. The Acquired Businesses contributed an incremental $8.4 million in sales. Sales related to the Semiconductor business, which was sold in early 2019, decreased $4.4 million. Test Systems operating profit was $4.3 million, or 6.9% of sales, compared with operating profit of $4.2 million in the prior-year period. Operating profit in the current year was negatively impacted legal expenses and inventory reserves totaling $1.3 million. 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 $16.6 million, for a book-to-bill ratio of 0.69:1 for the quarter. The Test Systems segment’s backlog at the end of the third quarter of 2020 was $73.5 million, with approximately $18.7 million expected to be recognized as revenue over the remaining part 2020 and approximately $55.3 million scheduled over the next 12 months. 35 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Operating Activities: Cash provided by operating activities totaled $31.5 million for the first nine months of 2020, as compared with $30.2 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 nine 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 nine months of 2019. Investing Activities: Cash used for investing activities was $4.0 million for the first nine months of 2020 compared with $74.2 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, coupled with a decrease in capital expenditures in the first nine months of 2020 compared with 2019 partially offset by the purchase of FCT for $21.8 million in the first nine months of 2019. The Company expects capital spending in 2020 to be approximately $8 million. Financing Activities: The primary financing activities in the first nine months of 2020 related to net payments on our senior credit facility of $20.0 million and repurchase of approximately 282,000 shares at an aggregate cost of $7.7 million. The primary financing activities in the first nine months of 2019 related to a repurchase of approximately 1,824,000 shares at an aggregate cost of $50.0 million under our share purchase program, coupled with net payments on our senior credit facility of $47.0 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. 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 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. The Company also paid a commitment fee to the lenders in an amount equal to between 0.10% and 0.20% on the undrawn portion of the credit facility, based upon the Company’s leverage ratio. The 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 was projected to exceed its maximum permitted leverage ratio in the fourth quarter of 2020. Accordingly, on May 4, 2020, the Company executed an amendment to the Agreement (the “Amended Facility”), which reduced the revolving credit line from $500 million to $375 million. There remains the option to increase the line by up to $150 million. The Amended Facility suspends the application of the leverage ratio up through and including the second quarter of 2021 (the “suspension period”). 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 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 September 26, 2020, outstanding letters of credit and bank guarantees totaled $1.3 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. Through the second quarter of 2021, the Company is required to maintain 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 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%. 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 provided for the payment of a consent fee of 15 basis points of the commitment for each consenting lender. 36 Table of Contents 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 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. 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 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. BACKLOG The Company’s backlog at September 26, 2020 was $282.2 million compared with $359.6 million at December 31, 2019 and $379.4 million at September 28, 2019. CONTRACTUAL OBLIGATIONS AND COMMITMENTS The following table represents contractual obligations as of September 26, 2020: Payments Due by Period (In thousands) Total 2020 2021-2022 2023-2024 After 2024 Long-term Debt $ 168,232 $ 232 $ — $ 168,000 $ — Interest on Long-term Debt 14,810 1,727 12,369 714 — Purchase Obligations 92,146 51,949 39,787 30 380 Supplemental Retirement Plan and Post Retirement Obligations 27,348 101 753 973 25,521 Lease Obligations 28,219 2,026 13,359 6,537 6,297 Other Liabilities 3,846 1,901 768 744 433 Total Contractual Obligations $ 334,601 $ 57,936 $ 67,036 $ 176,998 $ 32,631 Notes to Contractual Obligations Table 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 September 26, 2020. Actual future borrowings and rates may differ from these estimates. Purchase Obligations — Purchase obligations are comprised of the Company’s commitments for goods and services in the normal course of business. Lease Obligations — Financing and operating lease obligations are primarily related to the Company's facility leases and interest. Other Liabilities — Table excludes the $16.5 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. MARKET RISK 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. Although the majority of our sales, expenses and cash flows are transacted in U.S. dollars, we have exposure to changes in foreign currency exchange rates related to the Euro and the Canadian dollar. The Company believes that the impact of changes in foreign currency exchange rates in 2020 have not been significant. 37 Table of Contents CRITICAL ACCOUNTING POLICIES Refer to Note 2 of the Notes to Consolidated Condensed Financial Statements included in this report for the Company’s critical accounting policies with respect to revenue recognition. For a complete discussion of the Company’s other critical accounting policies, refer to the Company’s annual report on Form 10-K for the year ended December 31, 2019. RECENT ACCOUNTING PRONOUNCEMENTS Refer to Note 1 of the Notes to Consolidated Condensed Financial Statements included in this report. FORWARD-LOOKING STATEMENTS Information included in this report that does not consist of historical facts, including statements accompanied by or containing words such as “may,” “will,” “should,” “believes,” “expects,” “expected,” “intends,” “plans,” “projects,” “approximate,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume” and “assume,” are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to several factors, risks and uncertainties, the impact or occurrence of which could cause actual results to differ materially from the expected results described in the forward-looking statements. Certain of these factors, risks and uncertainties are discussed in the sections of this report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” New factors, risks and uncertainties may emerge from time to time that may affect the forward-looking statements made herein. Given these factors, risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictive of future results. We disclaim any obligation to update the forward-looking statements made in this report. Item 3. Quantitative and Qualitative Disclosures About Market Risk See Market Risk in Item 2, above.