What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-01 compared with 2020-03-02 · 489 added, 424 removed, 1046 unchanged (47% of the section changed)

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Astronics Corporation (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2)(collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of Astronics Corporation (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive (loss) income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2)(collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S.

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Adoption of New Accounting Standards

As discussed in Note 2 to the consolidated financial statements, the Company changed its method for recognizing revenue as a result of the adoption of Accounting Standards Update (ASU) No.

2014-09, Revenue from Contracts with Customers (Topic 606), and the amendments in ASUs 2015-14, 2016-08, 2016-10 and 2016-12, effective January 1, 2018.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases as a result of the adoption of ASU No.

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Description of the Matter

As of December 31, 2019, the Company’s goodwill balance was $145 million.

As discussed in Notes 1 and 7 of the consolidated financial statements, the Company tests goodwill for impairment at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

For each reporting unit, the Company performed a quantitative test using the discounted cash flow method to estimate fair value.

As of December 31, 2020, the Company’s goodwill balance was $58.3 million and the Company recognized a total of $86.3 million in goodwill impairment charges during the year ended December 31, 2020.

As discussed in Notes 1 and 7 of the consolidated financial statements, in addition to the annual goodwill impairment test performed as of the first day of the Company’s fourth quarter, as a result of qualitative factors related to the COVID-19 pandemic and further commercial aircraft order reductions, delays and cancellations at a major customer of one of the Company’s reporting units, the Company also performed interim goodwill impairment tests as of March 28, 2020 for all eight of its reporting units with goodwill and as of June 27, 2020 for one reporting unit with goodwill.

The Company tests goodwill for impairment at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

For each reporting unit, the Company performed the quantitative tests using the discounted cash flow method to estimate fair value.

The discounted cash flow method incorporates various assumptions, the most significant being projected revenue growth rates and the weighted-average cost of capital.

If the carrying value of the reporting unit exceeds its fair value, goodwill impairment is measured as the amount by which the reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill.

Auditing management’s assumptions was especially subjective due to the estimation required in determining the fair value of the Company’s reporting units.

The fair value estimates for these reporting units were sensitive to the significant assumptions of the revenue growth rate and the weighted-average cost of capital, which are affected by expectations about future market or economic conditions, particularly those in the aerospace industry.

Auditing management’s assumptions was especially subjective due to the estimation required in determining the fair value of certain of the Company’s reporting units with goodwill.

The fair value estimates for these reporting units were sensitive to the significant assumptions of the revenue growth rate and the weighted-average cost of capital, which are affected by expectations about the pace of global economic recovery from the COVID-19 pandemic, which affects future market and economic conditions, particularly those in the aerospace industry.

How We Addressed the Matter in Our Audit

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We compared the significant assumptions used by management to current industry and economic trends, historical trends of the Company, and other relevant factors.

We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions.

We assessed the historical accuracy of management’s estimates, taking into consideration the effects of COVID-19, and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions.

We also involved our valuation professionals to assist in our evaluation of the weighted average cost of capital used in the fair value estimates.

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The majority of the Company’s revenue from contracts with customers is recognized at a point in time when the customer obtains control of the product, which is generally upon delivery and acceptance by the customer.

For contracts with customers in which the Company satisfies its promise to the customer to provide a product that has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company satisfies the performance obligation and recognizes revenue over time, using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying the Company’s performance obligations.

For contracts with customers in which the Company satisfies its promise to the customer to provide a service or a product that has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company satisfies the performance obligation and recognizes revenue over time, using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying the Company’s performance obligations.

Auditing management’s evaluation of contracts with customers was especially challenging due to the effort required to analyze the terms and conditions of the Company’s various customer contracts given that such terms and conditions are nonstandard.

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We also tested management’s centralized monitoring control over completeness of the contract reviews and appropriateness of the accounting conclusions.

We performed procedures to test the identification and determination of the performance obligations and the timing of revenue recognition which included reading a sample of executed contracts and purchase orders to understand the contract, performing an independent assessment of the identification of distinct performance obligations and the appropriate timing of revenue recognition, and comparing our assessment to that of management.

We performed procedures to test the identification and determination of the performance obligations and the timing of revenue recognition which included reading a sample of executed contracts and purchase orders to understand the contract, performing an independent assessment of the identification of distinct performance obligations and the appropriate timing of revenue recognition, testing the mathematical accuracy of revenue recognized based on costs incurred to date relative to total estimated costs at completion and comparing our assessment to that of management.

We tested the completeness and accuracy of the Company’s contract summary documentation, specifically related to the identification and determination of distinct performance obligations and the timing of revenue recognition.

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Based on that evaluation, our management concluded that our internal control over financial reporting is effective as of December 31, 2020.

We completed acquisitions in 2019, which were excluded from our management’s report on internal control over financial reporting as of December 31, 2019.

We acquired Freedom Communication Technologies, Inc.

on July 1, 2019 and the primary operating subsidiaries from Diagnosys Test Systems Limited, on October 4, 2019.

These acquisitions were included in our 2019 consolidated financial statements and constituted $55.8 million and $33.6 million of total and net assets, respectively, as of December 31, 2019 and $12.9 million and ($2.1) million of sales and net income, respectively, for the year then ended.

Ernst & Young LLP, independent registered public accounting firm, has audited our consolidated financial statements included in this Annual Report on Form 10-K and, as part of their audit, has issued their report, included herein, on the effectiveness of our internal control over financial reporting.

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In our opinion, Astronics Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Freedom Communication Technologies, Inc.

(“FCT”) and the primary operating subsidiaries of Diagnosys Test Systems Limited (“Diagnosys”), which are included in the 2019 consolidated financial statements of the Company and constituted approximately 7% and 10% of total and net assets, respectively, as of December 31, 2019 and approximately 2% and (4)% of sales and net income, respectively, for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of FCT and Diagnosys.

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

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive (loss) income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) and our report dated March 1, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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Impairment Loss 87,016 11,083 —

Income from Operations 1,701 63,663 32,101

(Loss) Income from Operations ( 100,701 ) 1,701 63,663

Net Gain on Sale of Businesses — 78,801 —

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Interest Expense, Net of Interest Income 6,741 6,141 9,710

Income Before Income Taxes 68,303 52,282 24,991

(Loss) Income Before Income Taxes ( 112,410 ) 68,303 52,282

Provision for Income Taxes 3,371 16,286 5,479

Net Income $ 52,017 $ 46,803 $ 19,679

Basic Earnings Per Share $ 1.62 $ 1.45 $ 0.60

Diluted Earnings Per Share $ 1.60 $ 1.41 $ 0.58

Net (Loss) Income $ ( 115,781 ) $ 52,017 $ 46,803

Basic (Loss) Earnings Per Share $ ( 3.76 ) $ 1.62 $ 1.45

Diluted (Loss) Earnings Per Share $ ( 3.76 ) $ 1.60 $ 1.41

See notes to consolidated financial statements.

ASTRONICS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Year Ended December 31,

(In thousands) 2020 2019 2018

Net Income $ 52,017 $ 46,803 $ 19,679

Other Comprehensive Income (Loss):

Net (Loss) Income $ ( 115,781 ) $ 52,017 $ 46,803

Other Comprehensive (Loss) Income:

Foreign Currency Translation Adjustments 2,574 114 ( 2,691 )

Retirement Liability Adjustment – Net of Tax ( 3,396 ) ( 2,413 ) 4,087

Other Comprehensive Income (Loss) ( 2,299 ) 1,396 2,142

Comprehensive Income $ 49,718 $ 48,199 $ 21,821

Other Comprehensive (Loss) Income ( 822 ) ( 2,299 ) 1,396

Comprehensive (Loss) Income $ ( 116,603 ) $ 49,718 $ 48,199

See notes to consolidated financial statements.

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Cash and Cash Equivalents $ 40,412 $ 31,906

Accounts Receivable, Net of Allowance for Doubtful Accounts 147,998 182,308

Accounts Receivable, Net of Allowance for Estimated Credit Losses 93,056 147,998

Inventories 157,059 145,787

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Customer Advanced Payments and Deferred Revenue 24,571 31,360

Liabilities Held for Sale — 906

Total Current Liabilities 93,736 120,640

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

(In thousands) 2019 2018 2017

(In thousands) Year Ended December 31,

Cash Flows from Operating Activities 2020 2019 2018

Net Income $ 52,017 $ 46,803 $ 19,679

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

Net (Loss) Income $ ( 115,781 ) $ 52,017 $ 46,803

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

Non-cash Items:

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Equity-based Compensation Expense 5,184 3,843 3,098

Deferred Tax Benefit ( 14,385 ) ( 2,680 ) ( 5,494 )

Operating Lease Expense 4,208 — —

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

Deferred Tax Expense (Benefit) 15,553 ( 14,385 ) ( 2,680 )

Operating Lease Non-cash Expense 4,500 4,208 —

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

Impairment Loss 87,016 11,083 —

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Restructuring Activities 1,173 6,539 —

Deferral of Federal Payroll Taxes 5,877 — —

Other 2,157 1,610 ( 668 )

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

Cash Flows from Changes in Operating Assets and Liabilities:

Accounts Receivable 53,928 34,083 ( 47,291 )

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Accrued Expenses ( 17,667 ) ( 10,737 ) 8,177

Income Taxes Payable 3,371 ( 4,460 ) ( 376 )

Income Taxes Payable/Receivable ( 10,440 ) 3,371 ( 4,460 )

Customer Advanced Payments and Deferred Revenue ( 7,043 ) ( 11,919 ) 15,735

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Interest Paid $ 5,829 $ 5,707 $ 9,710

Income Taxes Paid, Net of Refunds 27,343 12,218 10,777

Income Taxes (Refunded) Paid, Net of Refunds ( 1,536 ) 27,343 12,218

See notes to consolidated financial statements.

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Adoption of ASU 2018-02 — — 1,373

Net income 52,017 46,803 19,679

Net (Loss) Income ( 115,781 ) 52,017 46,803

Cash Paid in Lieu of Fractional Shares from Stock Distribution — — ( 68 )

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Our products and services include advanced, high-performance electrical power generation, distribution and motion systems, lighting and safety systems, avionics products, systems and certification, aircraft structures and automated test systems.

We have principal operations in the United States (“U.S.”), Canada, France and the United Kingdom (“UK”), as well as engineering offices in the Ukraine and India.

We design and build our products through our wholly owned subsidiaries Astronics Advanced Electronic Systems Corp.

Astronics AeroSat Corporation (“AeroSat”);

Armstrong Aerospace, Inc.

(“Armstrong”);

Astronics Test Systems, Inc.

Ballard Technology, Inc.

Astronics Custom Control Concepts Inc.

Astronics Connectivity Systems and Certification Corp.

and subsidiaries (“CSC”);

Diagnosys Inc.

and its affiliates (“Diagnosys”);

Astronics DME LLC (“DME”);

Freedom Communication Technologies, Inc.

Luminescent Systems, Inc.

Luminescent Systems Canada, Inc.

(“LSI Canada”);

Max-Viz, Inc.

and PGA Electronic s.a.

We have principal operations in the United States (“U.S.”), Canada, France and England, as well as engineering offices in the Ukraine and India.

The Company has two reportable segments, Aerospace and Test Systems.

The Aerospace segment designs and manufactures products for the global aerospace and defense industry.

Our Test Systems segment designs, develops, manufactures and maintains automated test systems that support the aerospace and defense, communications and mass transit test systems as well as training and simulation devices for both commercial and military applications.

Our Test Systems segment designs, develops, manufactures and maintains automated test systems that support the aerospace and defense, communications and mass transit industries as well as training and simulation devices for both commercial and military applications.

On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment.

The business was not core to the future of the Test Systems segment.

The total proceeds received for the sale amounted to $ 103.8 million, plus certain contingent earn-outs as described in Note 22.

The Company recorded a pre-tax gain on the sale of approximately $ 80.1 million in the first quarter of 2019.

The total proceeds received for the sale amounted to $ 103.8 million, plus certain contingent earnouts as described in Note 22.

The Company recorded a pre-tax gain on the sale of approximately $ 80.1 million.

The Company recorded income tax expense relating to the gain of $ 19.7 million.

On February 13, 2021, the Company was notified by the purchaser that they have calculated $ 10.7 million as being payable to the Company under the contingent earnouts related to the year ended December 31, 2020.

There is a period by which we and the purchaser will review the earnout calculation, which is underway.

Upon completion of the review and agreement of any adjustments, the Company expects to record the additional gain on the sale in the first quarter of 2021.

On July 1, 2019, the Company acquired all of the issued and outstanding capital stock of Freedom Communication Technologies, Inc.

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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 contingent purchase consideration (“earn-out”) estimated at a fair value of $ 2.5 million.

Diagnosys is included in our Test Systems segment.

Diagnosys is a developer and manufacturer of comprehensive automated test equipment providing test, support, and repair of high value electronics, electro-mechanical, pneumatic and printed circuit boards focused on the global mass transit and defense markets.

The terms of the acquisition allow for a potential earn-out of up to an additional $ 13.0 million over the next three years based on achievement of new order levels of over $ 72.0 million during that period.

On October 4, 2019, the Company acquired the stock of the primary operating subsidiaries as well as certain other assets from mass transit and defense market test solution provider, Diagnosys Test Systems Limited, for $ 7.0 million in cash, plus contingent purchase consideration (“earnout”) estimated at a fair value of $ 2.5 million at acquisition.

No earnout was payable for the period from acquisition through December 31, 2020.

Diagnosys Inc.

and its affiliates (“Diagnosys”) is included in our Test Systems segment.

The acquired business has operations in Westford, Massachusetts as well as Ferndown, England, and an engineering center of excellence in Bangalore, India.

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

Impact of the COVID-19 Pandemic

In December 2019, a novel strain of coronavirus (“COVID-19”) surfaced in Wuhan, China, and has since spread to other countries, including the United States.

On March 11, 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic.

The COVID-19 pandemic has had a sudden and significant impact on the global economy, and particularly in the aerospace industry, resulting in the grounding of the majority of the global commercial transportation fleet and significant cost cutting and cash preservation actions by the global airlines.

This in turn has resulted in a significant reduction in airlines spending for both new aircraft and on upgrading their existing fleet with the Company’s products.

We expect this low level of investment by the airlines will continue at least into 2021, however, 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 the aerospace industry, which are uncertain and cannot be predicted at this time.

In response to the global COVID-19 pandemic, we took immediate and aggressive action to minimize the spread of COVID-19 in our workplaces and reduce costs.

Since the early days of the pandemic, we have been following guidance from the World Health Organization and the U.S.

Center for Disease Control to protect employees and prevent the spread of the virus within all

of our facilities globally.

Some of the actions implemented include:

social distancing;

appropriate personal protective equipment;

facility deep cleaning;

flexible work-from-home scheduling;

pre-shift temperature screenings, where allowed by law;

and restrictions on facility visitors and unnecessary travel.

Material actions to reduce costs included:

(1) reducing our workforce to align operations with customer demand;

(2) suspension of certain benefit programs;

and (3) delaying non-essential capital projects and minimizing discretionary spending.

At the same time, we addressed the ongoing needs of our business to continue to serve our customers.

In addition to these measures, we amended our revolving credit facility on May 4, 2020, as further described in Note 8.

We are also monitoring the impacts of COVID-19 on the fair value of assets.

Refer to Note 7 for a discussion of goodwill impairment charges.

Should future changes in sales, earnings and cash flows differ significantly from our expectations, long-lived assets to be held and used and goodwill could become impaired in the future.

The Company qualified for government subsidies from the Canadian and French government as a result of the COVID-19 pandemic’s impact on our foreign operations.

The Canadian and French subsidies are income-based grants intended to reimburse the Company for certain employee wages.

The grants are recognized as income over the periods in which the Company recognizes as expenses the costs the grants are intended to defray.

The Company recorded $ 2.7 million in COVID-19 related government assistance in the Consolidated Statements of Operations for the year ended December 31, 2020, of which $ 2.4 million and $ 0.3 million was included in Cost of Products Sold and Selling, General and Administrative (“SG&A”) expenses, respectively.

Restructuring Activities

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.

In the fourth quarter of 2019, in an effort to reduce the significant operating losses at our AeroSat business, we initiated a restructuring plan to reduce costs and minimize losses of our AeroSat antenna business.

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The plan has a downsized manufacturing operation remaining in New Hampshire, with significantly reduced personnel and operating expenses.

For more information regarding the restructuring plan see Note 23.

For more information regarding these restructuring plans see Note 23.

Principles of Consolidation

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Research and development, design and related engineering expenses amounted to $ 86.8 million in 2020, $ 108.9 million in 2019 and $ 114.3 million in 2018.

Selling, general and administrative (“SG&A”) expenses include costs primarily related to our sales, marketing and administrative departments.

SG&A expenses include costs primarily related to our sales, marketing and administrative departments.

Interest expense is shown net of interest income.

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The Company accounts for its stock options following Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation (“ASC Topic 718”).

This Topic requires all equity-based payments to employees, including grants of employee stock options and restricted stock units (“RSU's”), to be recognized in the statement of earnings based on the grant date fair value of the award.

date fair value of the award.

For awards with graded vesting, the Company uses a straight-line method of attributing the value of stock-based compensation expense, subject to minimum levels of expense, based on vesting.

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Under ASC Topic 718, stock compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period.

Vesting requirements vary for directors, officers and key employees.

In general, options and RSU's granted to outside directors vest six months from the date of grant and options granted to officers and key employees vest with graded vesting over a five -year period, 20 % each year, from the date of grant.

In general, RSU's granted to officers and key employees cliff vest in three years.

Equity-based compensation expense is included in selling, general and administrative expenses.

Equity-based compensation expense is included in SG&A expenses.

Cash and Cash Equivalents

All highly liquid instruments with a maturity of three months or less at the time of purchase are considered cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts Receivable and Allowance for Estimated Credit Losses

Accounts receivable are composed of trade and contract receivables recorded at either the invoiced amount or costs in excess of billings, are expected to be collected within one year, and do not bear interest.

The Company records a valuation allowance to account for potentially uncollectible accounts receivable.

The allowance is determined based on our knowledge of the business, specific customers, review of the receivables’ aging and a specific identification of accounts where collection is at risk.

Account balances are charged against the allowance after all means of collections have been exhausted and recovery is considered remote.

The Company typically does not require collateral.

The Company records a valuation allowance to account for estimated credit losses.

The estimate for credit losses is based on the Company’s assessment of the collectability of customer accounts.

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.

Balances are written off when determined to be uncollectible.

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.

Although the Company has historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables and contract assets as airlines and other aerospace company’s cash flows are impacted by the COVID-19 pandemic.

We record our inventories at the lower of cost or net realizable value.

We determine the cost basis of our inventory on a first-in, first-out or weighted average basis using a standard cost methodology that approximates actual cost.

The Company records valuation reserves to provide for excess, slow moving or obsolete inventory.

In determining the appropriate reserve, the Company considers the age of inventory on hand, the overall inventory levels in relation to forecasted demands as well as reserving for specifically identified inventory that the Company believes is no longer salable.

The Company records reserves to provide for excess, slow moving or obsolete inventory.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost less accumulated depreciation.

Depreciation of property, plant and equipment (“PP&E”) is computed using the straight-line method for financial reporting purposes and using accelerated methods for income tax purposes.

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Leased buildings and associated leasehold improvements are amortized over the shorter of the terms of the lease or the estimated useful lives of the assets, with the amortization of such assets included within depreciation expense.

Buildings acquired under capital leases amounted to $ 3.4 million ($ 8.2 million, net of $ 4.8 million of accumulated amortization) at December 31, 2018.

The weighted-average interest rate on the building capital lease obligation at December 31, 2018 was 5.3 %.

See Note 10 for additional lease disclosures as required upon adoption of ASC 842.

The cost of properties sold or otherwise disposed of and the accumulated depreciation thereon are eliminated from the accounts and the resulting gain or loss, as well as maintenance and repair expenses, is reflected within operating income.

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The carrying amounts are then reduced to fair value, which is typically determined by using a discounted cash flow model.

See Note 23 for further information regarding the long-lived asset impairment charge in 2019 related to AeroSat.

In conjunction with the deteriorating economic conditions associated with the COVID-19 pandemic, we recorded an impairment charge to right-of-use assets of approximately $ 0.7 million incurred in one reporting unit in the Aerospace segment within the Impairment Loss line in the Consolidated Statements of Operations in 2020.

Additionally, we recorded a long-lived asset impairment charge of approximately $ 9.5 million in 2019 related to one reporting unit in the Aerospace segment.

The charge was comprised of PP&E, intangible assets and right-of-use assets.

See Note 23 for further information regarding the

restructuring and impairment charges.

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

Assets Held for Sale

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These estimates are based upon available market data and operating cash flows of the assets held for sale.

As of December 31, 2019, the Company has agreed to sell certain facilities within the Aerospace segment.

Accordingly, the property, plant and equipment assets associated with these facilities have been classified as held for sale in the consolidated Balance Sheet at December 31, 2019.

As of December 31, 2018, the Company’s Board of Directors had approved a plan to sell the semiconductor test business within the Test Systems segment.

Accordingly, the assets and liabilities associated with these operations have been classified as held for sale in the accompanying consolidated Balance Sheet at December 31, 2018.

The carrying value of the disposal group was lower than its fair value, less costs to sell, and accordingly, no impairment loss was required at December 31, 2018.

As of December 31, 2019, the Company had agreed to sell certain facilities within the Aerospace segment.

Accordingly, the property, plant and equipment assets associated with these facilities have been classified as held for sale in the Consolidated Balance Sheets at December 31, 2019.

These assets were sold during 2020.

See Note 22 for additional information.

The Company tests goodwill at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

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

We may elect to perform a qualitative assessment that considers economic, industry and company-specific factors for all or selected reporting units.

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The discounted cash flow method incorporates various assumptions, the most significant being projected sales growth rates, operating margins and cash flows, the terminal growth rate and the weighted average cost of capital.

If the carrying value of the reporting unit exceeds its fair value, goodwill is considered impaired and any loss must be measured.

Accordingly, goodwill impairment is measured as the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying value of goodwill.

See Note 7 for further information regarding the goodwill impairment charge in 2019 associated to the AeroSat reporting unit.

If the carrying value of the reporting unit exceeds its fair value, the shortfall up to the carrying value of the goodwill represents the amount of goodwill impairment.

See Note 7 for further information regarding the goodwill impairment charges in 2020 and 2019.

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

An impairment charge associated with the Armstrong reporting unit was recorded as result of the 2017 assessment.

Intangible Assets

Acquired intangibles are generally valued based upon future economic benefits such as earnings and cash flows.

The estimated fair values of acquired intangibles are generally determined based upon future economic benefits such as earnings and cash flows.

Acquired identifiable intangible assets are recorded at fair value and are amortized over their estimated useful lives.

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As the undiscounted cash flows of the AeroSat reporting unit were insufficient to recover the carrying value of the long-lived assets, the Company proceeded to determine the fair value of the intangible assets in AeroSat.

The Company concluded that the fair value of the intangible assets was de minimis as a result of their nominal projected future cash flows and the Company recorded a full impairment charge of approximately $ 6.2 million in the December 31, 2019 consolidated statement of operations associated to intangible assets of the AeroSat reporting unit in conjunction with restructuring activities.

The qualitative factors applied under this new provision indicated no impairment to the Company’s indefinite lived intangible assets in 2018 or 2017.

The qualitative factors applied under this provision indicated no impairment to the Company’s indefinite lived intangible assets in 2020 or 2018.

The Company concluded that the fair value of the intangible assets was de minimis as a result of their nominal projected future cash flows and the Company recorded a full impairment charge of approximately $ 6.2 million in the December 31, 2019 Consolidated Statements of Operations associated to intangible assets of the AeroSat reporting unit in conjunction with restructuring activities.

Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, notes payable and long-term debt.

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable and long-term debt.

The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral.

The Company does not hold or issue financial instruments for trading purposes.

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

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

The carrying value of the Company’s variable rate long-term debt instruments also approximates fair value due to the variable rate feature of these instruments.

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These investments as classified within Other Assets in the Consolidated Balance Sheets.

For investments requiring equity method accounting, we recognize our share of the investee’s earnings or losses within Other Expense, Net of Other Income in the Consolidated Statement of Operations.

Such amounts were immaterial in the year ended December 31, 2019 and not applicable in 2018 or 2017.

For investments requiring equity method accounting, we recognize our share of the investee’s earnings or losses within Other Expense, Net of Other

Income in the Consolidated Statements of Operations.

Such amounts were immaterial in 2020 and 2019, and not applicable in 2018.

For investments not requiring equity method accounting, if the investment has no readily determinable fair value, we have elected the practicability exception of ASU 2016-01, under which the investment is measured at cost, less impairment, plus or minus observable price changes from orderly transactions of an identical or similar investment of the same issuer.

The Company determined there were indicators of impairment over one of its investments in 2019 as a result of the investee’s deteriorating operating performance and limited access to capital.

The Company determined there were indicators of impairment over one of its investments as a result of the investee’s deteriorating operating performance and limited access to capital.

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

We determined that the fair value of this investment was de minimis at December 31, 2019 and we recorded an impairment charge of $ 5.0 million recorded within Other Expense, Net of Other Income in the accompanying Consolidated Statement Operations.

We determined that the fair value of this investment was de minimis and a full impairment charge of $ 3.5 million was recorded within Other Expense, Net of Other Income in the accompanying Consolidated Statement Operations for the year ended December 31, 2020.

A full impairment charge of $ 5.0 million for an additional investment was recorded in 2019.

There was no such impairment was recorded in 2018.

Deferred Tax Asset Valuation Allowance

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 generated a significant taxable loss for the year ended December 31, 2020, which can be carried back under the CARES Act to recover previously paid income taxes.

The Company records a valuation allowance against the deferred tax assets if and to the extent it is more likely than not that the Company will not recover the deferred tax assets.

In evaluating the need for a valuation allowance, the Company weights all relevant positive and negative evidence, and considers among other factors, historical financial performance, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, and tax planning strategies.

Losses in recent periods and cumulative pre-tax losses in the three-year period ending with the current year, 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.

For purposes of assessing the recoverability of deferred tax assets, the Company determined that it could not include future projected earnings in the analysis due to recent history of losses and therefore had insufficient objective positive evidence that the Company will generate sufficient future pre-tax income to overcome the negative evidence of cumulative losses.

Accordingly, during the year ended December 31, 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 $ 23.3 million during the year ended December 31, 2020 against its U.S.

federal deferred tax assets.

Use of Estimates

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The Company accounts for its foreign currency translation in accordance with ASC Topic 830, Foreign Currency Translation .

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

The aggregate transaction gain included in operations was insignificant in 2020 and 2018, and the loss included in operations was insignificant in 2019.

The Company has no t paid any cash dividends in the three-year period ended December 31, 2020.

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Standard Description Financial Statement Effect or Other Significant Matters

Financial Instruments - Credit Losses (Topic 326)

The standard replaces the incurred loss model with the current expected credit loss (“CECL”) model to estimate credit losses for financial assets measured at amortized cost and certain off-balance sheet credit exposures.

The CECL model requires a Company to estimate credit losses expected over the life of the financial assets based on historical experience, current conditions and reasonable and supportable forecasts.

The provisions of the standard are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.

Early adoption is permitted.

The amendment requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.

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

Date of adoption:

Fair Value Measurement (Topic 820)

The standard removes the disclosure requirements for the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy.

The provisions of this ASU are effective for years beginning after December 15, 2019, with early adoption permitted.

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

Date of adoption:

Leases (Topic 842)

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Standard Description Financial Statement Effect or Other Significant Matters

Financial Instruments - Credit Losses (Topic 326)

The standard replaces the incurred loss model with the current expected credit loss (CECL) model to estimate credit losses for financial assets measured at amortized cost and certain off-balance sheet credit exposures.

The CECL model requires a Company to estimate credit losses expected over the life of the financial assets based on historical experience, current conditions and reasonable and supportable forecasts.

The provisions of the standard are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.

Early adoption is permitted.

The amendment requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.

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

Planned date of adoption:

Fair Value Measurement (Topic 820)

The standard removes the disclosure requirements for the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy.

The provisions of this ASU are effective for years beginning after December 15, 2019, with early adoption permitted.

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

Planned date of adoption:

Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)

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Planned date of adoption:

Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes

The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and improve consistent application by clarifying and amending existing guidance.

The amendments of this standard are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued, with the amendments to be applied on a respective, modified retrospective or prospective basis, depending on the specific amendment.

This ASU simplifies the accounting for income taxes by, among other things, eliminating certain existing exceptions related to the general approach in ASC 740 relating to franchise taxes, reducing complexity in the interim-period accounting for year-to-date loss limitations and changes in tax laws, and clarifying the accounting for transactions outside of business combination that result in a step-up in the tax basis of goodwill.

As we do not have material activity associated with items such as franchise taxes or the types of transactions described above, we do not expect any significant impact from relevant loss limitations and are not currently addressing enacted tax law changes for which this ASU applies, we do not expect this ASU to have a material impact on its consolidated results of operations and financial condition.

Planned date of adoption:

Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting

The amendments in Update 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

The new guidance provides the following optional expedients:

simplify accounting analyses under current U.S.

GAAP for contract modifications, simplify the assessment of hedge effectiveness, allow hedging relationships affected by reference rate reform to continue and allow a one-time election to sell or transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform.

The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of the ASU.

An entity may elect to apply the amendments prospectively through December 31, 2022.

The administrator of LIBOR has announced it will consult on its intention to cease the publication of the one week and two month USD LIBOR settings immediately following the LIBOR publication on December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR publication on June 30, 2023.

Extending the publication of certain USD LIBOR tenors until June 30, 2023 would allow most legacy USD LIBOR contracts to mature before LIBOR experiences disruptions.

The Company is currently evaluating the impact of adopting this guidance.

Planned date of adoption:

Before December 31, 2022

We consider the applicability and impact of all ASUs.

ASUs not listed above were assessed and determined to be either not applicable, or had or are expected to have minimal impact on our financial statements and related disclosures.

ASUs not listed above were assessed and determined to be either not applicable, or had and are expected to have minimal impact on our financial statements an d related disclosures.

NOTE 2 — REVENUE

Accounting Standards Update (“ASU”) No.

2014-09, Revenue from Contracts with Customers, was adopted on January 1, 2018 using the modified retrospective method, which required the recognition of the cumulative effect of the transition as an adjustment to retained earnings, net of tax effects, of $ 3.3 million.

Revenue is recognized when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration the Company expects to be entitled in exchange for transferring those products or services.

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or in certain cases, up-front deposits.

In circumstances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that the Company's contracts generally do not include a significant financing component.

In circumstances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that the Company's

contracts generally do not include a significant financing component.

Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from sales.

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Start-up costs are expensed as incurred.

Capitalized fulfillment costs are included in Inventories in the accompanying Consolidated Condensed Balance

Capitalized fulfillment costs are included in Inventories in the accompanying Consolidated Balance Sheets.

Should future orders not materialize or it is determined the costs are no longer probable of recovery, the capitalized costs are written off.

As of December 31, 2019, the Company does not have material capitalized fulfillment costs.

Capitalized fulfillment costs were $ 9.6 million as of December 31, 2018.

These costs were associated with a contract that is included in the divestiture of the semiconductor business and as such, the balance is included in Assets Held for Sale in the accompanying consolidated balance sheet at December 31, 2018.

Amortization of fulfillment costs recognized within Cost of Products Sold was approximately $ 1.0 million for the year ended December 31, 2018.

As of December 31, 2020 and 2019, the Company did 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.

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We expect to recognize approximately $ 216.9 million of our remaining performance obligations as revenue in 2021.

Costs in excess of billings includes unbilled amounts resulting from revenues under contracts with customers that are satisfied over time and when the cost-to-cost measurement method of revenue recognition is utilized and revenue recognized exceeds the

amount billed to the customer, and right to payment is not just subject to the passage of time.

Amounts may not exceed their net realizable value.

Costs in excess of billings are classified as current assets, within Accounts Receivable, Net of Allowance for Doubtful Accounts on our Consolidated Balance Sheet.

Costs in excess of billings are classified as current assets, within Accounts Receivable, Net of Allowance for Estimated Credit Losses on our Consolidated Balance Sheets.

Billings in excess of cost includes billings in excess of revenue recognized as well as other elements of deferred revenue, which includes advanced payments, up-front payments, and progress billing payments.

Billings in excess of cost are reported in our Consolidated Balance Sheet classified as current liabilities, within Customer Advance Payments and Deferred Revenue, and non-current liabilities, within Other Liabilities.

Billings in excess of cost are reported in our Consolidated Balance Sheets classified as current liabilities, within Customer Advance Payments and Deferred Revenue, and non-current liabilities, within Other Liabilities.

To determine the revenue recognized in the period from the beginning balance of billings in excess of cost, the contract liability as of the beginning of the period is recognized as revenue on a contract-by-contract basis when the Company satisfies the performance obligation related to the individual contract.

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The Company's contract assets and contract liabilities consist of costs and profits in excess of billings and billings in excess of cost and profits, respectively.

Non-current contract liabilities are reported in our Consolidated Balance Sheet within Other Liabilities.

The following table presents the beginning and ending balances of contract assets and contract liabilities:

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Beginning Balance, January 1, 2020

$ 19,567 $ 38,758

Ending Balance, December 31, 2020

The decrease in contract assets reflects the net impact of revenue recognized in excess of additional unbilled revenues recorded during the period.

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

$ 17,697 $ 28,641

The decrease in contract assets reflects the net impact of the billing of previously unbilled revenue during the period exceeding new revenue recognized in excess of billings.

The decrease in contract liabilities reflects the net impact of revenue recognized in excess of additional customer advances or deferred revenues recorded.

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

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Total Receivables, Gross 96,274 151,557

Less Allowance for Doubtful Accounts ( 3,559 ) ( 1,486 )

Less Allowance for Estimated Credit Losses ( 3,218 ) ( 3,559 )

Total Receivables, Net $ 93,056 $ 147,998

The following table provides a roll-forward of the allowance for estimated credit losses that is deducted from accounts receivable to present the net amount expected to be collected at December 31:

(In thousands)

Balance at December 31, 2018

Bad Debt Expense, Net of Recoveries 2,144

Write-off Charges Against the Allowance and Other Adjustments ( 71 )

Balance at December 31, 2019

Bad Debt Expense, Net of Recoveries 1,913

Write-off Charges Against the Allowance and Other Adjustments ( 2,254 )

Balance at December 31, 2020

NOTE 4 — INVENTORIES

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Total Inventories $ 157,059 $ 145,787

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

Refer to Note 22.

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

At December 31, 2020, the Company’s reserve for inventory valuation was $ 33.4 million, or 17.5 % of gross inventory.

At December 31, 2019, the Company’s reserve for inventory valuation was $ 33.6 million, or 18.7 % of gross inventory.

NOTE 5 — PROPERTY, PLANT AND EQUIPMENT

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Total Property, Plant and Equipment, Net $ 106,678 $ 112,499

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

Net Property, Plant and Equipment of $ 1.5 million is classified in Assets Held for Sale at December 31, 2019.

Refer to Note 22.

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

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

NOTE 6 — INTANGIBLE ASSETS

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Total Intangible Assets 12 years $ 215,261 $ 105,375 $ 215,315 $ 88,022

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

Refer to Note 22.

Amortization is computed on the straight line method for financial reporting purposes.

Amortization expense for intangibles was $ 17.1 million, $ 17.6 million and $ 19.4 million for 2020, 2019 and 2018, respectively.

Additionally, there was a $ 6.2 million impairment of intangible assets as more fully described in Note 23.

The amount is classified within Impairment Loss in the Consolidated Statement of Operations.

During 2019 there was a $ 6.2 million impairment of intangible assets as more fully described in Note 23.

The amount is classified within Impairment Loss in the Consolidated Statements of Operations.

Based upon acquired intangible assets at December 31, 2020, amortization expense for each of the next five years is estimated to be:

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Balance at December 31, 2018

$ 124,952 $ — $ 124,952

Acquisitions and Divestitures ( 262 ) 21,932 21,670

Impairment Charge ( 1,610 ) — ( 1,610 )

Foreign Currency Translations and Other ( 42 ) — ( 42 )

Balance at December 31, 2019

$ 123,038 $ 21,932 $ 144,970

Acquisitions and Divestitures — ( 298 ) ( 298 )

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Balance at December 31, 2020

$ 36,648 $ 21,634 $ 58,282

Goodwill, Gross $ 157,349 $ 21,634 $ 178,983

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Goodwill, Net $ 36,648 $ 21,634 $ 58,282

As discussed in Note 1, goodwill is not amortized but is periodically tested for impairment.

For the nine reporting units with goodwill on the first day of our fourth quarter, the Company performed a quantitative assessment of the goodwill’s carrying value.

Beginning in the first quarter of 2020, the COVID-19 pandemic negatively impacted the global economy and aerospace industry, resulting in an abrupt and significant decrease of airline passenger travel.

In response, the global airlines grounded a significant portion of their fleet and have begun to defer or cancel aircraft scheduled for delivery this year.

Additionally, airlines have announced plans to reduce capital and discretionary spending to conserve cash in the immediate future.

In turn, aircraft manufacturers and tier one suppliers have experienced a disruption in production and demand as their customers defer delivery of new aircraft, resulting in slowed or halted production at facilities throughout the world.

Commercial airlines and manufacturers are focusing on conserving cash to preserve liquidity, which will have a negative impact on airframe and aftermarket sales as compared with pre-pandemic forecasts.

Management considered these qualitative factors and the impact to each reporting unit’s revenue and earnings, and determined that it was more likely than not that the fair value of several reporting units was less than its carrying value.

Therefore, we performed a quantitative test for all eight reporting units with goodwill as of March 28, 2020.

We determined that the estimated fair value of four of the eight reporting units with goodwill significantly exceeded their respective carrying values and therefore, did not result in a goodwill impairment as of March 28, 2020.

For the remaining four reporting units with goodwill, we determined that the estimated fair value was less than their respective carrying values.

We 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 as of March 28, 2020.

During the second quarter of 2020, further commercial aircraft order reductions, delays and cancellations at a major customer of our PECO reporting unit resulted in revisions to PECO’s forecast.

We therefore performed a quantitative test for the PECO reporting unit as of June 27, 2020.

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 of our interim goodwill impairment tests, we recorded non-cash goodwill impairment charges in the Aerospace segment of approximately $ 86.3 million within the Impairment Loss line of the December 31, 2020 Consolidated Statements of Operations.

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

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.

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

Based on our quantitative assessments of our reporting units performed during our annual goodwill impairment test, the Company concluded that no impairment to the carrying value of goodwill in any of the Company’s reporting units was indicated and no additional impairment charge was recognized.

In the year ending December 31, 2019, we performed quantitative assessments for the reporting units which had goodwill as of the first day of the fourth quarter, prior to the initiation of the antenna business restructuring activities.

Based on our quantitative assessment, the Company recorded a full impairment charge of approximately $ 1.6 million in the December 31, 2019 consolidated statement of operations associated with the AeroSat reporting unit.

The impairment loss was incurred in the Aerospace segment and is reported within the Impairment Loss line of the Consolidated Statements of Operations.

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

NOTE 8 — LONG-TERM DEBT AND NOTES PAYABLE

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

Based on our quantitative assessment, the Company recorded a full impairment charge of approximately $ 1.6 million associated with the AeroSat reporting unit.

The impairment loss was incurred in the Aerospace segment and is reported within the Impairment Loss line of the December 31, 2019 Consolidated Statements of Operations.

NOTE 8 — LONG-TERM DEBT

Long-term debt at December 31 is as follows:

(In thousands) 2020 2019

Revolving Credit Line issued under the Fifth Amended and Restated Credit Agreement.

Interest is at LIBOR plus between 1.00 % and 1.50 % ( 2.75 % at December 31, 2019).

Interest is at LIBOR (of at least 1.00 %) plus 2.25 % during the amended suspension period ( 3.25 % at December 31, 2020).

$ 173,000 $ 188,000

Other Bank Debt — 224

Capital Lease Obligations — 6,644

Total Debt 173,000 188,224

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Total Long-term Debt $ 173,000 $ 188,000

In the year ended December 31, 2019, capital lease obligations are included within Other Accrued Expenses and Other Liabilities in the Consolidated Balance Sheets, as appropriate.

Refer to Note 10 for additional detail on lease obligations and the implementation of ASC 842.

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

Principal maturities of long-term debt are approximately:

(In thousands)

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The maturity date of the loans under the Agreement is February 16, 2023.

At December 31, 2019, there was $ 188.0 million outstanding on the revolving credit facility and there remains $ 310.9 million available, net of outstanding letters of credit.

The maximum leverage ratio of funded debt to Adjusted EBITDA (as defined in the Agreement) was 3.75 to 1, increasing to 4.50 to 1 for up to four fiscal quarters following the closing of an acquisition permitted under the Agreement, subject to limitations.

The Company 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.

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.

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 December 31, 2020, there was $ 173.0 million outstanding on the revolving credit facility and there remains $ 200.9 million available subject to the minimum liquidity covenant discussed below, net of outstanding letters of credit.

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 December 31, 2020, outstanding letters of credit totaled $ 1.1 million.

The maximum permitted leverage ratio of funded debt to Adjusted EBITDA (as defined in the Agreement) was 3.75 to 1, increasing to 4.50 to 1 for up to four fiscal quarters following the closing of an acquisition permitted under the Agreement, subject to limitations.

The Company is in compliance with its financial covenant at December 31, 2019.

The Company will pay interest on the unpaid principal amount of the facility at a rate equal to one-, three- or six-month LIBOR plus between 1.00 % and 1.50 % based upon the Company’s leverage ratio.

The Company will also pay a commitment fee to the Lenders in an amount equal to between 0.10 % and 0.20 % on the undrawn portion of the credit facility, based upon the Company’s leverage ratio.

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

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 $ 180.0 million at all times.

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 interest coverage ratio at December 31, 2020 was 6.34 x.

The Company was in compliance with its financial covenants at December 31, 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.

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 year ended December 31, 2020, subsequent to the execution of the Amended Facility, the Company made prepayments approximating $ 165.0 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.

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We have concluded that when an agreement grants us the right to substantially all of the economic benefits associated with an identified asset, and we are able to direct the use of that asset throughout the term of the agreement, we have a lease.

We lease certain facilities and office equipment, finance leases, and we lease certain production facilities, office equipment and vehicles under

operating leases.

We lease certain facilities and office equipment, finance leases, and we lease certain production facilities, office equipment and vehicles under operating leases.

Some of our leases include options to extend or terminate the leases and these options have been included in the relevant lease term to the extent that they are reasonably certain to be exercised.

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For our real estate leases, the remaining fixed minimum rental payments used in the calculation of the new lease liability, include fixed payments and variable payments (if the variable payments are based on an index), over the remaining lease term.

Variable lease payments based on indices have been included in the related right-of-use assets and lease liabilities on our Consolidated Balance Sheet, while variable lease payments based on usage of the underlying asset have been excluded, as they do not represent present rights or obligations.

Variable lease payments based on indices have been included in the related right-of-use assets and lease liabilities on our Consolidated Balance Sheets, while variable lease payments based on usage of the underlying asset have been excluded, as they do not represent present rights or obligations.

Variable lease components for leases relate primarily to common area maintenance charges and other separately billed lessor services, sales and real estate taxes.

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While we do have real estate leases with options to purchase the facility at a market value at the date of exercise, these are not included in the calculation of the lease liability, as these options are not expected to be exercised.

Any new additional operating lease liabilities and corresponding ROU assets are based on the present value of the remaining minimum rental payments.

The present value of the Company’s lease liability at transition was calculated using a weighted-average incremental borrowing rate of 3.7 %.

Any new additional operating lease liabilities and corresponding right-of-use assets are based on the present value of the remaining minimum rental payments.

In determining the incremental borrowing rate, we have considered borrowing data for secured debt obtained from our lending institution.

As of December 31, 2019, the Company recognized an operating ROU asset and lease liability of $ 23.6 million and $ 25.6 million, respectively.

The Company obtained ROU assets of $ 10.4 million in exchange for operating lease liabilities from new leases entered into or acquired, net of modifications, during the year ended December 31, 2019.

As of December 31, 2019, the Company recognized a financing ROU asset of $ 2.5 million included in Other Assets.

As of December 31, 2019, the Company recognized a financing lease liability of $ 4.7 million, of which $ 1.9 million and $ 2.8 million are within Other Accrued Expenses and Other Liabilities, respectively.

The Company’s change in ROU assets in exchange for operating lease liabilities from new leases entered into or acquired, net of modifications, was insignificant during the year ended December 31, 2020.

No new financing lease liabilities were entered into during the year ended December 31, 2020.

As permitted by ASC 842, leases with expected durations of less than 12 months from inception (i.e.

short-term leases) were excluded from the Company’s calculation of its lease liability and right-of-use asset.

Furthermore, as permitted by ASC 842, the Company elected to apply the package of practical expedients, which allows companies not to reassess:

(a) whether its expired or existing contracts are or contain leases, (b) the lease classification for any expired or existing leases, and (c) initial direct costs for any existing leases.

The following is a summary of the Company's ROU assets and liabilities at December 31:

(In thousands) 2020 2019

Operating Leases:

Operating Right-of-Use Assets, Gross $ 28,678 $ 28,788

Less Accumulated Right-of-Use Asset Impairment 1,710 1,019

Less Accumulated Amortization 8,015 4,167

Operating Right-of-Use Assets, Net $ 18,953 $ 23,602

Short-term Operating Lease Liabilities $ 4,998 $ 4,517

Long-term Operating Lease Liabilities 16,637 21,039

Operating Lease Liabilities $ 21,635 $ 25,556

Finance Leases:

Finance Right-of-Use Assets, Gross $ 3,484 $ 3,484

Less Accumulated Amortization 2,039 1,020

Finance Right-of-Use Assets, Net — Included in Other Assets $ 1,445 $ 2,464

Short-term Finance Lease Liabilities — Included in Other Accrued Expenses

$ 2,081 $ 1,922

Long-term Finance Lease Liabilities — Included in Other Liabilities 734 2,815

Finance Lease Liabilities $ 2,815 $ 4,737

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

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(In thousands) 2020 2019

Operating Cash Flows Used for Finance Leases $ 314

Operating Cash Flows Used for Operating Leases $ 4,718

Financing Cash Flows Used for Finance Leases $ 1,746

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

Operating Cash Flow for Finance Leases $ 214 $ 314

Operating Cash Flow for Operating Leases $ 5,334 $ 4,718

Financing Cash Flow for Finance Leases $ 1,922 $ 1,746

As permitted by ASC 842, leases with expected durations of less than 12 months from inception (i.e.

short-term leases) were excluded from the Company’s calculation of its lease liability and right-of-use asset.

Furthermore, as permitted by ASC 842, the Company elected to apply the package of practical expedients, which allows companies not to reassess:

(a) whether its

expired or existing contracts are or contain leases, (b) the lease classification for any expired or existing leases, and (c) initial direct costs for any existing leases.

The weighted-average remaining term for the Company's operating and financing leases are approximately 6 years and 1 year, respectively.

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

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2022 5,167 747

2022 5,152 743

Thereafter 3,430 —

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Stock Compensation Expense ( 0.3 ) % ( 0.5 ) % ( 0.9 ) %

Domestic Production Activity Deduction — % — % ( 4.7 ) %

Non Deductible Goodwill Impairment ( 10.2 ) % — % — %

Other — % 0.5 % 0.4 %

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Change in Valuation Allowance ( 19.2 ) % 1.1 % — %

Net GILTI and FDII Tax Expense (Benefit) ( 1.2 ) % 0.2 % — %

Net GILTI and FDII Tax (Benefit) Expense — % ( 1.2 ) % 0.2 %

Tax Expense (Benefit) on Deemed Repatriation of Foreign Earnings — % — % ( 0.8 ) %

Revaluation of Deferred Taxes for Federal Tax Rate Change — % — % ( 0.1 ) %

Tax Rate Change on 2020 Federal Net Operating Loss (“NOL”) 1.3 % — % — %

Other ( 0.1 ) % 0.1 % 0.3 %

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Net Operating Loss Carryforwards and Other 11,244 8,212

Goodwill and Intangible Assets 2,069 —

ASC 606 Revenue Recognition 2,311 2,612

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Deferred Tax Liabilities 16,786 22,367

Net Deferred Tax Assets (Liabilities) $ 13,614 $ ( 1,634 )

Net Deferred Tax (Liabilities) Assets $ ( 1,650 ) $ 13,614

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

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Other Assets — Long-term $ 1,259 $ 17,536

Assets Held for Sale — ( 1,528 )

Deferred Tax Liabilities — Long-term ( 2,909 ) ( 3,922 )

Liabilities Held for Sale — ( 906 )

Net Deferred Tax Assets (Liabilities) $ 13,614 $ ( 1,634 )

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

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

At December 31, 2019, state net operating loss carryforwards which the Company expects to utilize amounted to approximately $ 6.9 million and expire at various dates between 2027 and 2038 .

Net Deferred Tax (Liabilities) Assets $ ( 1,650 ) $ 13,614

At December 31, 2020, gross federal NOLs, amounted to approximately $ 26.4 million.

In the current year, the Company generated approximately $ 20.1 million, of which approximately $ 6.6 million were capital losses, and expects to carry these back to prior tax years.

The remaining federal NOLs of approximately $ 6.3 million will be carried forward and are subject to annual limitations under Internal Revenue Code Section 382.

Given that the Company has experienced recent losses and is in a three-year cumulative loss position primarily due to the pandemic, a valuation allowance has been recorded on these NOLs.

Of these remaining NOLs, $ 5.9 million will expire at various dates between 2039 and 2040 and the remaining $ 0.4 million will carryforward indefinitely.

At December 31, 2020, gross state net operating loss carryforwards, which the Company expects to utilize, amounted to approximately $ 5.7 million.

Due to the uncertainty as to the Company’s ability to generate sufficient taxable income in certain states in the future and utilize certain of the Company’s state operating loss carryforwards before they expire, the Company has recorded a valuation allowance accordingly.

These state net operating loss carryforwards amount to approximately $ 132.9 million and expire at various dates from 2021 through 2040 .

The Company adopted ASU No.

2016-09, Improvements to Employee Share-Based Payment Accounting during 2017 and beginning with 2017, the excess tax benefits associated with stock option exercises are no longer recorded directly to shareholders’ equity, but rather, are recorded in the provision for income taxes, when realized.

A benefit of approximately $ 0.6 million, $ 0.7 million and $ 0.5 million was recorded in the provision for incomes taxes for the year ended December 31, 2019, 2018 and 2017, respectively.

At December 31, 2019, estimated foreign tax credit carryforwards, which the Company expects to utilize, amounted to approximately $ 0.2 million.

The Company expects to generate general limitation foreign source income in the future and will utilize these foreign tax credits.

Therefore, during 2019 the Company has removed the valuation allowance that was recorded at December 31, 2018.

During 2019, the Company recorded a valuation allowance on a deferred tax asset related to an equity investment impairment, as the Company does not expect to utilize the capital loss in the future.

In addition, the Company also removed the state valuation allowance on the deferred tax assets of one of its subsidiaries, which are now expected to be utilized in the future.

Finally, the Company added a state valuation allowance on the deferred tax assets of one of its subsidiaries, which are now expected not to be utilized in the future.

At December 31, 2020, the estimated federal R&D tax credit for the current year amounted to approximately $ 1.8 million.

The Company expects to carry back these credits to the 2019 tax year.

During the year ended December 31, 2020, the Company determined that a revised state filing position could be taken which would reduce the taxable income apportioned for state income tax purposes and recorded a state income tax receivable of approximately $ 2.9 million as a component of Prepaid Expenses and Other Current Assets.

The company intends to file amended state income tax returns for tax years 2015 through 2019 in order to claim these refunds.

During the year ended December 31, 2018, the Company, determined that a revised state filing position could be taken which would reduce the taxable income apportioned for state income tax purposes.

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The Company is also claiming the benefit of the revised filing position for 2018 and subsequent tax years.

In addition, the revised state tax filing position also resulted in a deferred tax benefit due to the revaluation of deferred tax liabilities.

Accordingly, the Company recognized the tax benefits, and related tax reserves, for the revised state filing position during the year ended December 31, 2019 and 2018.

Absent a state tax audit notice related to the refund claim, the statute of limitations will expire on various dates in 2020 for the amended returns for tax years 2014 and 2015, at which time approximately $ 0.8 million of the unrecognized tax benefits is expected to be recognized.

Absent a state tax audit notice related to the refund claim, the statute of limitations will expire one year from the date the refund checks are issued for the amended returns for tax years 2016 and 2017 and will expire in 2022 and 2023 for tax years 2018 and 2019, respectively.

In addition, the revised state tax filing position resulted in a deferred tax benefit due to the revaluation of deferred tax liabilities.

Accordingly, the Company recognized the tax benefits, and related tax reserves, for the revised state filing position during year ended December 31, 2018 and thereafter.

The statute of limitations expired on various dates in 2020 for the amended returns for tax years 2014 and 2015, and approximately $ 0.8 million of the unrecognized tax benefits were recognized during 2020.

Absent a state tax audit notice related to the refund claims, the statute of limitations will expire in November of 2021 for the amended return for tax year 2016, at which time approximately $ 0.5 million of the unrecognized tax benefit is expected to be recognized.

Absent a state tax audit notice related to the refund claim, the statute of limitations will expire one year from the date the refund check is issued for the amended return for tax year 2017.

The statue of limitations will expire in 2022, 2023, and 2024 for tax years 2018, 2019 and 2020, respectively.

The Company has analyzed its filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions.

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Penalties, if any, would be recorded as operating expenses.

During the year ended December 31, 2019, reserves for uncertain tax positions were recorded in association with revised state income tax filing positions pursuant to ASC Topic 740-10.

No reserves for uncertain income tax positions

were deemed necessary for the year ended December 31, 2017.

During the year ended December 31, 2020, reserves for uncertain tax positions were recorded in association with a revised state income tax filing positions pursuant to ASC Topic 740-10.

A reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties, is as follows:

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Balance at End of the Year $ 1,890 $ 2,565 $ 2,197

The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate amounted to $ 2.6 million and $ 2.2 million at December 31, 2019 and 2018, respectively.

There are no material penalties or interest liabilities accrued as of December 31, 2019 or 2018, nor are any material penalties or interest costs included in expense for each of the years ended December 31, 2019, 2018 and 2017.

The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate amounted to $ 1.9 million, $ 2.6 million and $ 2.2 million at December 31, 2020, 2019, and 2018, respectively.

There are no material penalties or interest liabilities accrued as of December 31, 2020, 2019, or 2018, nor are any material penalties or interest costs included in expense

for each of the years ended December 31, 2020, 2019 and 2018.

The years under which we conducted our evaluation coincided with the tax years currently still subject to examination by major federal and state tax jurisdictions, those being 2017 through 2020 for federal purposes and 2016 through 2020 for state purposes.

Pretax income from the Company’s foreign subsidiaries amounted to $ 12.2 million, $ 7.3 million and $ 1.1 million for 2019, 2018 and 2017, respectively.

The balance of pretax earnings for each of those years were domestic.

Pretax (loss) income from the Company’s foreign subsidiaries amounted to $( 7.0 ) million, $ 12.2 million and $ 7.3 million for 2020, 2019 and 2018, respectively.

The balance of pretax earnings or loss for each of those years were domestic.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “Act”).

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corporate income tax rate from a maximum of 35% to a 21% rate, effective January 1, 2018.

The Company uses the asset and liability method of accounting for income taxes.

Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.

As a result of the reduction in the U.S.

corporate income tax rate from 35% to 21% under the Tax Cuts and Jobs Act, the Company revalued its ending net deferred tax liabilities at December 31, 2017 and recognized a $ 0.1 million tax benefit and a provisional $ 0.9 million tax benefit in the Company’s consolidated statement of income for the years ended December 31, 2018 and 2017 respectively.

The Tax Cuts and Jobs Act provided for a one-time deemed mandatory repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”) through the year ended December 31, 2017.

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The FDII provisions allow for a deduction equal to a percentage of the foreign-derived intangible income of a domestic corporation.

As a result of these provisions, net, the Company recorded a tax benefit of approximately $ 0.8 million during the year ended December 31, 2019 and tax expense of approximately $ 0.2 million during the year ended December 31, 2018.

As a result of these provisions, net, the Company recorded a tax benefit of less than $ 0.1 million during the year ended December 31, 2020 and tax benefit of approximately $ 0.8 million during the year ended December 31, 2019, and tax expense of approximately $ 0.2 million during the year ended December 31, 2018.

The Base Erosion and Anti-Abuse Tax (“BEAT”) provisions in the Tax Cuts and Jobs Act eliminates the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax if greater than regular tax.

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The accounting for these income tax effects of the Tax Cuts and Jobs Act was completed during the fourth quarter of 2018 and the provisional tax impacts were adjusted for the year ended December 31, 2018.

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.

The CARES Act includes many measures to assist companies, including temporary changes to income and non-income based laws, some of which were enacted as part of the Tax Cuts and Jobs Act of 2017 (“TCJA”).

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

During the year ended December 31, 2020, the Company recorded an approximate $ 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.

which can be carried back under the CARES Act to recover previously paid income taxes.

The Company records a valuation allowance against the deferred tax assets if and to the extent it is more likely than not that the Company will not recover the deferred tax assets.

Accordingly, during the year ended December 31, 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 $ 23.3 million during the year ended December 31, 2020 against its U.S.

federal deferred tax assets.

NOTE 12 — PROFIT SHARING/401(k) PLAN

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In addition, employees may contribute a portion of their salary to the plans which is partially matched by the Company.

In response to the impact of the COVID-19 pandemic, both the discretionary company contribution and the match were temporarily suspended beginning in the second quarter of 2020.

The plans may be amended or terminated at any time.

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Interest Cost 836 916

Actuarial Loss (Gain) 3,827 ( 3,922 )

Actuarial Loss 4,472 3,827

Benefits Paid ( 348 ) ( 347 )

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This also is the expected future contribution to the plan, since the plan is unfunded.

The service cost component of net periodic benefit cost is included in SG&A expenses, and all other net periodic benefit costs components (such as interest cost, prior service cost amortization and actuarial gain/loss amortization) are reported outside of operating income, within Other Expense, Net of Other Income in the accompanying Consolidated Statements of Operations.

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

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2.00 % - 3.00 %

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

The Company expects the benefits to be paid in each of the next three years to be $ 0.3 million, $ 0.7 million in 2024, $ 0.6 million in 2025, and $ 6.8 million in the aggregate for the next five years after that.

This also is the expected Company contribution to the plans.

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The measurement date for determining the plan obligation and cost is December 31.

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

(In thousands) 2019 2018

Funded Status

Accumulated Postretirement Benefit Obligation

Beginning of the Year — January 1 $ 1,136 $ 1,307

Service Cost 13 16

Interest Cost 46 46

Actuarial Gain ( 28 ) ( 162 )

Benefits Paid ( 63 ) ( 71 )

End of the Year — December 31 $ 1,104 $ 1,136

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

Discount Rate 3.17 % 4.20 %

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

(In thousands) 2019 2018 2017

Net Periodic Cost

Service Cost — Benefits Earned During Period $ 13 $ 16 $ 7

Interest Cost 46 46 41

Amortization of Prior Service Cost 16 16 16

Amortization of Losses 43 59 31

Net Periodic Cost $ 118 $ 137 $ 95

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

2019 2018 2017

Discount Rate 4.20 % 3.60 % 4.20 %

Future Average Healthcare Benefit Increases 4.98 % 5.38 % 5.50 %

Unrecognized prior service costs of less than $ 0.1 million and unrecognized actuarial losses of $ 0.3 million for medical, dental and long-term care insurance benefits (net of taxes of $ 0.1 million) are included in AOCI at December 31, 2019 and have not been recognized in net periodic cost.

The Company estimates that the prior service costs and net losses in AOCI as of December 31, 2019 that will be recognized as components of net periodic benefit cost during the year ended December 31, 2020 for the Plan will be insignificant.

For measurement purposes, a 5.2 % increase in the cost of health care benefits was assumed for 2020 and a range between 4.2 % and 5.4 % from 2021 through 2070.

A one percentage point increase or decrease in this rate would change the post retirement benefit obligation by approximately $ 0.1 million.

The plan is recognized in the accompanying Consolidated Balance Sheet as a current accrued pension liability of $ 0.1 million and a long-term accrued pension liability of $ 1.0 million.

The Company expects the benefits to be paid in each of the next five years to be less than $ 0.1 million per year and approximately $ 0.3 million in the aggregate for the next five years after that.

This also is the expected Company contribution to the plan, as it is unfunded.

The accumulated postretirement benefit obligation is $ 1.1 million for the years ended December 31, 2020 and 2019.

The plan is recognized in the accompanying Consolidated Balance Sheets as a current accrued pension liability of less than $ 0.1 million and a long-term accrued pension liability of $ 1.1 million.

The net periodic cost for the years ended December 31, 2020, 2019 and 2018 is approximately $ 0.1 million.

The Company is a participating employer in a trustee-managed multiemployer defined benefit pension plan for employees who participate in collective bargaining agreements.

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Contributions are based on the hours worked and are expensed on a current basis.

The Plan is 92.7 % funded as of January 1, 2019.

The Company’s contributions to the plan were $ 1.1 million in each of 2019, 2018 and 2017.

The Plan is 92.0 %

funded as of January 1, 2020.

The Company’s contributions to the plan were $ 0.5 million in 2020, and $ 1.1 million in both 2019 and 2018.

These contributions represent less than 1 % of total contributions to the plan.

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Share Buyback Program

On February 24, 2016, the Company’s Board of Directors authorized the repurchase of up to $ 50 million of common stock (the “Buyback Program”).

The Buyback Program allowed the Company to purchase shares of its common stock in accordance with applicable securities laws on the open market or through privately negotiated transactions.

The Company repurchased approximately 1,675,000 shares and completed that program in 2017.

On December 12, 2017, the Company’s Board of Directors authorized an additional repurchase of up to $ 50 million of common stock.

The Company repurchased approximately 1,823,000 shares and completed that program in the third quarter of 2019.

On September 17, 2019, the Company’s Board of Directors authorized an additional repurchase of up to $ 50 million.

An additional 28,000 shares have been repurchased under the new program as of December 31, 2019 at a cost of $ 0.8 million.

Subsequent to December 31, 2019, approximately 282,000 additional shares have been repurchased at a cost of $ 7.7 million.

The Company’s Board of Directors from time to time authorizes the repurchase of common stock, which allows the Company to purchase shares of its common stock in accordance with applicable securities laws on the open market or through privately negotiated transactions.

In the years ended 2019 and 2020, the Company repurchased 1,851,000 and 282,000 shares, at an aggregate cost of $ 50.8 million and $ 7.7 million, respectively.

The Company has the capacity under the currently authorized program to repurchase an additional $ 41.5 million.

The 10b5-1 plan associated with the program was terminated on February 3, 2020.

Under its current credit agreement, and as described further in Note 8, the Company is currently restricted from further stock repurchases.

Reserved Common Stock

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Class B Stock is identical to Common Stock, except Class B Stock has ten votes per share, is automatically converted to Common Stock on a one -for-one basis when sold or transferred other than via gift, devise or bequest and cannot receive dividends unless an equal or greater amount of dividends is declared on Common Stock.

Comprehensive Income and Accumulated Other Comprehensive Income (Loss)

Comprehensive income consists of net income and the after-tax impact of retirement liability adjustments.

Comprehensive (Loss) Income and Accumulated Other Comprehensive Loss

Comprehensive income or loss consists of net income or loss and the after-tax impact of retirement liability adjustments.

No income tax effect is recorded for currency translation adjustments.

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

The components of accumulated other comprehensive loss are as follows:

(In thousands) 2020 2019

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Retirement Liability Adjustment ( 3,396 ) ( 3,054 ) 5,174

Tax (Expense) Benefit 641 ( 1,087 ) 387

Tax Benefit (Expense) — 641 ( 1,087 )

Retirement Liability Adjustment ( 3,396 ) ( 2,413 ) 4,087

Other Comprehensive (Loss) Income $ ( 822 ) $ ( 2,299 ) $ 1,396

NOTE 15 — EARNINGS PER SHARE

Earnings per share computations are based upon the following table:

NOTE 15 — EARNINGS (LOSS) PER SHARE

Earnings (loss) per share computations are based upon the following table:

(In thousands, except per share data) 2020 2019 2018

Net Income $ 52,017 $ 46,803 $ 19,679

Net (Loss) Income $ ( 115,781 ) $ 52,017 $ 46,803

Basic Earnings Weighted Average Shares 30,795 32,028 32,351

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Diluted Earnings Weighted Average Shares 30,795 32,459 33,136

Basic Earnings Per Share $ 1.62 $ 1.45 $ 0.60

Diluted Earnings Per Share $ 1.60 $ 1.41 $ 0.58

Basic (Loss) Earnings Per Share $ ( 3.76 ) $ 1.62 $ 1.45

Diluted (Loss) Earnings Per Share $ ( 3.76 ) $ 1.60 $ 1.41

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

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Stock Options

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

2020 2019 2018

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Risk-free Interest Rate —

1.67 % – 1.78 %

2.63 % – 2.87 %

Dividend Yield — %

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Expected Life in Years —

5.0 – 8.0 years

To determine expected volatility, the Company uses historical volatility based on weekly closing prices of its Common Stock and considers currently available information to determine if future volatility is expected to differ over the expected terms of the options granted.

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

2019 2018 2017

(Aggregate intrinsic value in

thousands) Options Weighted

Options Weighted

Price Aggregate

Value Options Weighted

Price Aggregate

(Aggregate intrinsic value in thousands) Options Weighted

Outstanding at January 1 1,116,045 $ 23.07 $ —

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The total fair value of options that vested during the year amounted to $ 1.4 million, $ 1.6 million and $ 1.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

At December 31, 2019, total compensation costs related to non-vested awards not yet recognized amounts to $ 5.2 million and will be recognized over a weighted average period of 2.34 years.

At December 31, 2020, total compensation costs related to non-vested option awards not yet recognized amounts to $ 4.3 million and will be recognized over a weighted average period of approximately 2 years.

The following is a summary of weighted average exercise prices and contractual lives for outstanding and exercisable stock options as of December 31, 2020:

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648,296 6.4 $ 30.93 432,874 5.5 $ 30.65

$ 45.89 – $ 45.89

9,127 4.2 $ 45.89 9,127 4.2 $ 45.89

912,923 5.0 $ 25.50 697,501 4.0 $ 23.64

Restricted Stock Units

The fair value of each RSU granted is equal to the fair market value of the Company’s Common Stock on the date of grant.

The RSU’s cliff vest three years from the date of grant.

The RSU’s granted to employees cliff vest three years from the date of grant, while RSU’s granted to directors cliff vest six months from the date of grant.

There were 190,100 RSU’s granted in 2020 at a weighted-average price of $ 19.69 , of which 44,800 awards were vested during 2020.

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A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

There were no financial assets or liabilities carried at fair value measured on a recurring basis at December 31, 2019 or 2018.

The terms of the Diagnosys acquisition allow for a potential earn-out of up to an additional $ 13.0 million over the next three years based on achievement of new order levels of over $ 72.0 million during that period.

The fair value of this contingent consideration is estimated at $ 2.5 million as of December 31, 2019.

The fair value assigned to the earn-out is determined using the real options method, which requires inputs such as new order forecasts, discount rate, volatility factors, and other market variables to assess the probability of Diagnosys achieving certain order levels over the period.

The terms of the Diagnosys acquisition allow for a potential earnout of up to an additional $ 13.0 million over the next three years based on achievement of new order levels of over $ 72.0 million during that period.

The fair value of this contingent consideration was estimated at $ 2.5 million at acquisition.

The fair value assigned to the earnout 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.

Based on actual and forecasted new orders, the fair value was reduced to $ 2.2 million as of December 31, 2020.

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

On a Non-recurring Basis:

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The fair value measurement of the reporting unit under the step-one analysis of the quantitative goodwill impairment test are classified as Level 3 inputs.

As further discussed in Note 7, 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.

The Company recorded non-cash goodwill impairment charges associated with four Aerospace reporting units, totaling approximately $ 86.3 million.

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.

No additional impairment was deemed necessary as a result of our annual test performed as of the first day of the fourth quarter in 2020.

In 2019, we performed quantitative assessments for the reporting units which had goodwill as of the first day of the fourth quarter, prior to the initiation of the AeroSat restructuring activities.

Based on our quantitative assessment, the Company recorded a full impairment charge of approximately $ 1.6 million in the December 31, 2019 Consolidated Statements of Operations associated with the AeroSat reporting unit.

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

As a result of the annual goodwill impairment test for 2017, the Company recorded an impairment charge of $ 16.2 million related to the Armstrong reporting unit.

The goodwill impairment was calculated as the amount by which the reporting unit's carrying value exceeded its fair value, not to exceed the carrying value of goodwill.

Long-lived assets are evaluated for recoverability whenever adverse effects or changes in circumstances indicate that the carrying value may not be recoverable.

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

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

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 Statements of Operations for the year ended December 31, 2020.

In conjunction with the restructuring of AeroSat in 2019, the Company recorded impairment charges to long-lived assets including intangible assets, property, plant and equipment and ROU assets of approximately $ 9.5 million in the Consolidated Statements of Operations for the year ended December 31, 2019.

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

From time to time, the Company makes long-term, strategic equity investments in companies to promote business and strategic objectives.

These investments are included in Other Assets on the Consolidated Balance Sheets.

One of the investments incurred a full impairment charge which accounts for $ 5.0 million recorded within the Other Expense, Net of Other Income line in the accompanying Consolidated Statement of Operations for the year ended December 31, 2019.

This is a Level 3 measurement as there were no observable price changes during the year.

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

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

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 Statements of Operations for the year ended December 31, 2020.

A full impairment charge of $ 5.0 million for an additional investment was recorded in 2019.

No such impairment was recorded in 2018.

These are Level 3 measurements as there were no observable price changes during the year.

The Freedom and Diagnosys intangible assets acquired in 2019 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, $ 2.6 million and $ 2.8 million in 2020 and 2019, 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 and accounts payable approximate fair value.

The carrying value of the Company’s variable rate long-term debt instruments also approximates fair value due to the variable rate feature of these instruments.

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Impairment Loss $ — $ — $ 12,608 $ 74,408 $ 11,083 $ — $ — $ —

Income Before Income Taxes $ ( 43,282 ) $ 1,760 $ 8,830 $ 100,995 $ 15,594 $ 15,580 $ 17,182 $ 3,926

Net Income $ ( 34,065 ) $ 1,210 $ 6,726 $ 78,146 $ 12,485 $ 16,999 $ 14,025 $ 3,294

Basic Earnings Per Share $ ( 1.10 ) $ 0.04 $ 0.21 $ 2.40 $ 0.38 $ 0.53 $ 0.43 $ 0.10

Diluted Earnings Per Share $ ( 1.10 ) $ 0.04 $ 0.20 $ 2.35 $ 0.37 $ 0.52 $ 0.42 $ 0.10

Information for 2019 includes the results of Freedom, acquired on July 1, 2019, and Diagnosys, acquired on October 4, 2019, each from the acquisition date forward.

Information for 2019 reflects the divestiture of the semiconductor business on February 13, 2019.

(Loss) Income Before Income Taxes $ ( 7,541 ) $ ( 11,141 ) $ ( 24,451 ) $ ( 69,277 ) $ ( 43,282 ) $ 1,760 $ 8,830 $ 100,995

Net (Loss) Income $ ( 19,985 ) $ ( 5,254 ) $ ( 23,579 ) $ ( 66,963 ) $ ( 34,065 ) $ 1,210 $ 6,726 $ 78,146

Basic (Loss) Earnings Per Share $ ( 0.65 ) $ ( 0.17 ) $ ( 0.77 ) $ ( 2.17 ) $ ( 1.10 ) $ 0.04 $ 0.21 $ 2.40

Diluted (Loss) Earnings Per Share $ ( 0.65 ) $ ( 0.17 ) $ ( 0.77 ) $ ( 2.17 ) $ ( 1.10 ) $ 0.04 $ 0.20 $ 2.35

The Company recorded a partial valuation allowance of approximately $ 7.0 million and $ 14.1 million against its U.S.

federal deferred tax assets during the first and fourth quarters of 2020, respectively.

The Company recorded goodwill impairment charges in the first and second quarters of 2020 as discussed in Note 7.

Additionally, several events occurred in the fourth quarter of 2019 which impacted the results as presented.

Information included in 2019 is impacted by a significant increase to a legal reserve as well as restructuring, impairment and other charges as discussed in Note 19 and Note 23 in our consolidated financial statements, respectively.

NOTE 19 — COMMITMENTS AND CONTINGENCIES

The Company leases certain facilities and equipment under various lease contracts with terms that meet the accounting definition of operating leases, as well as finance leases.

Refer to Note 10 for additional information.

Legal Proceedings

Information for 2019 includes the results of Freedom, acquired on July 1, 2019, and Diagnosys, acquired on October 4, 2019, each from the acquisition date forward.

Information for 2019 reflects the divestiture of the semiconductor business on February 13, 2019.

NOTE 19 — LEGAL PROCEEDINGS

On December 29, 2010, Lufthansa Technik AG (“Lufthansa”) filed a Statement of Claim in the Regional State Court of Mannheim, Germany.

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The claim did not specify an estimate of damages and a related damages claim is being pursued by Lufthansa in separate court proceedings in an action filed in July 2017, as further discussed below.

In February 2015, the Regional State Court of Mannheim, Germany rendered its decision that the patent was infringed.

In February 2015, the Regional State Court of Mannheim, Germany held that the patent was infringed.

The judgment did not require AES to recall products that are already installed in aircraft or had been sold to other end users.

On July 15, 2015, Lufthansa advised AES of their intention to enforce the accounting provisions of the decision, which required AES to provide certain financial information regarding direct sales of the infringing product in Germany to enable Lufthansa to make an estimate of requested damages.

The decision did not quantify damages but required AES to provide certain financial information regarding its direct sales of the infringing product into Germany to enable Lufthansa to make an estimate of requested damages.

The Company appealed to the Higher Regional Court of Karlsruhe.

On November 15, 2016, the Higher Regional Court of Karlsruhe issued its ruling and upheld the lower court’s decision.

The Company submitted a petition to grant AES leave for appeal to the German Federal Supreme Court.

On April 18, 2018, the German Federal Supreme Court granted Astronics’ petition in part, namely with respect to the part concerning the amount of damages.

On January 8, 2019, the German Federal Supreme Court held the hearing on the appeal.

On November 15, 2016, the Higher Regional Court of Karlsruhe upheld the lower court’s decision.

The Company sought permission to appeal to the German Federal Supreme Court.

By judgment of March 26, 2019, the German Federal Supreme Court dismissed AES's appeal.

With this decision, the above-mentioned proceedings are complete.

In July 2017, Lufthansa filed an action in the Regional State Court of Mannheim for payment of damages caused by the court’s decision that AES infringed the patent, specifically related to direct sales of the product into Germany (associated with the original December 2010 action discussed above).

In this action, which was served to AES on April 11, 2018, Lufthansa claimed payment of approximately $ 6.2 million plus interest.

An oral hearing was held on September 13, 2019.

A first instance decision is in this matter was handed down on December 6, 2019.

In July 2017, Lufthansa filed an action in the Regional State Court of Mannheim for payment of damages caused by the AES’s direct sales of the product into Germany.

A first instance decision in this matter was handed down on December 6, 2019.

According to this ruling, Lufthansa was awarded damages in the amount of approximately $ 3.2 million plus interest.

Inclusive of interest, this equates to approximately $ 4.5 million through December 31, 2019.

Interest will continue to accrue at a statutory rate until final payment to Lufthansa.

In February 2020 we received notice that Lufthansa’s intention is to provide a security and to enforce payment on the first instance judgment.

If Lufthansa provides a security deposit in a sufficient amount, as they have stated is their intention, the Company will be required to remit the payment.

Based on this information, we believe payment for damages and interest on the direct sales claim will be required in 2020.

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

If the first instance judgment is later reversed on appeal, the Company could reclaim any amounts that the court determines to be “excessive”, but there can be no assurances that we will be successful on such appeal.

Prior to 2019, the Company had accrued $ 1.0 million related to this matter.

As a result of the judgment on direct sales into Germany, the Company has reflected an incremental reserve of $ 3.5 million in its December 31, 2019 financial statements related to this matter, for a total reserve of $ 4.5 million.

As a result of the judgment on direct sales into Germany, the Company recognized an incremental reserve of $ 3.5 million in its December 31, 2019 financial statements related to this matter.

In 2020, AES made payment of $ 4.7 million, inclusive of interest, in satisfaction of the first instance judgment.

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

If the first instance judgment is later reversed on appeal, the Company could reclaim any amounts that were previously paid to Lufthansa that are in excess of the amount awarded by the appellate court, but there can be no assurances that we will be successful on such appeal.

On December 29, 2017, Lufthansa filed another infringement action against AES in the Regional State Court of Mannheim claiming that sales by AES to its international customers have infringed Lufthansa's patent if AES's customers later shipped the products to Germany (referred to as “indirect sales”).

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In this action, served on April 11, 2018, Lufthansa sought an order obliging AES to provide information and accounting and a finding that AES owes damages for the attacked indirect sales.

Moreover, Lufthansa sought accounting and a finding that the sale of individual components of the EmPower system – either directly to Germany or to international customers if these customers later shipped products to Germany – constitutes an indirect patent infringement of Lufthansa's patent in Germany.

Moreover, Lufthansa sought accounting and a finding that the sale of individual components of the EmPower system – either directly to Germany or to international customers if these customers later shipped these products to Germany – constitutes an indirect patent infringement of Lufthansa's patent in Germany.

In addition, Lufthansa sought an order obliging AES to confirm by an affidavit that the accounting provided in September 2015 was accurate and a finding that AES is also liable for damages for the sale of modified products if the modification of the products was not communicated to all subsequent buyers of the products.

No amount of claimed damages has been specified by Lufthansa.

An oral hearing in this matter was held on September 13, 2019, as part of the oral hearing for the direct sales damages claim discussed above.

A first instance decision in this matter was handed down on December 6, 2019.

According to this judgment, Lufthansa's claims were granted in part.

The court granted Lufthansa's claims for a finding that indirect sales (as defined above)

by AES to international customers constitute a patent infringement under the conditions specified in the judgment and that the sale of components of the EmPower system to Germany constitutes an indirect patent infringement.

A first instance decision in this matter was issued on December 6, 2019.

The Court found that indirect sales (as defined above) by AES to international customers infringe the patent under the conditions specified in the judgment and that the sale of components of the EmPower system to Germany constitutes an indirect patent infringement.

Moreover, the Court granted Lufthansa's request for an affidavit confirming that the accounting provided in September 2015 was accurate.

The Court rejected Lufthansa's request for a finding that AES is also liable for damages for the sale of modified products as inadmissible.

This is relevant, as it provides that once AES modified the system to remove the infringing feature, any subsequent outlets are deemed not to be infringing outlets for purposes of calculating damages.

The Court rejected Lufthansa's claim that AES is also liable for damages for the sale of modified products.

This means that AES is not liable for damages based on the sale of modified outlet units that removed the infringing feature.

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

The appeal is not likely to be settled in 2020.

If the decision is confirmed on appeal, this would mean that AES would be responsible for payment of damages for indirect sales of patent-infringing EmPower in-seat power supply systems in the period from December 29, 2007 to May 22, 2018.

AES modified the outlet units at the end of 2014 and the modified outlet units sold from 2015 do not infringe the patent of Lufthansa.

Since only sales of systems comprising patent-infringing outlet units trigger damages claims, the period for which AES is liable for damages in connection with indirect sales finished at the end of 2014.

In its appeal, Lufthansa requested an additional finding that AES shall be held liable for all damages (in an unspecified amount) caused by AES’s alleged incorrect accounting of its past sales.

On April 28, 2020, Lufthansa asked AES to provide the accounting on indirect sales (as defined above) and the sale of individual parts and an affidavit confirming the accuracy of the September 2015 accounting of direct sales.

AES completed and delivered the final accounting on January 29, 2021.

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.

As a result, the period for which AES is liable for damages in connection with indirect sales substantially finished at the end of 2014.

After the accounting, Lufthansa is expected to enforce its claim for damages in separate court proceedings.

These proceedings would probably be tried before the Mannheim Court again, which makes it probable that the Mannheim court will determine the damages for the indirect sales on the basis of the same principles as in the direct sales proceedings.

Based on the information available currently, we estimate that the resulting damages would be approximately $ 11.6 million plus approximately $ 4.5 million of accrued interest at the end of 2019, for a total of approximately $ 16.1 million.

Similar to the direct sales claim, interest will accrue at a rate of 5 % above the European Central Bank rate until final payment to Lufthansa.

Based upon the determination of the damages in the direct sales claim discussed above, in the December 31, 2019 consolidated financial statements, we have reflected a total accrual (inclusive of interest through December 31, 2019) of $ 4.5 million related to the direct sales claim, and $ 16.1 million related to the indirect sales claim as management’s best estimate of the total exposure related to these matters that is probable and that can be reasonably estimated at this time.

Expenses recorded in 2019 related to these claims ($ 3.5 million related to the direct sales claim and $ 16.1 million related to the indirect sales claim) have been recorded within Selling, General and Administrative Expense in the Company’s Consolidated Statement of Operations.

We estimate that payment for the damages and related interest of the direct sales claim will be paid before December 31, 2020, therefore the liability related to this matter, totaling $ 4.5 million, is classified within Other Accrued Expenses (current) in the Consolidated Balance Sheet at December 31, 2019.

These proceedings would most likely be tried before the Mannheim Court again, which makes it probable that the Mannheim court will determine the damages for the indirect sales on the basis of the same principles as in the direct sales proceedings (unless the latter ruling of the Mannheim court is reversed on appeal).

Based on the information available and the determination of the damages in the direct sales claim discussed above, we estimated that the Company’s total exposure related to these matters that was probable and that could be reasonably estimated at December 31, 2019 was approximately $ 11.6 million plus approximately $ 4.5 million of accrued interest, for a total of approximately $ 16.1 million which is reflected as a liability in the Consolidated Balance Sheets as of December 31, 2019.

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

Approximately $ 0.6 million, representing additional interest accrued during 2020, was recorded in the year ended December 31, 2020.

These expenses are reflected within Selling, General and Administrative Expenses in the Company’s Consolidated Statements of Operations for the respective periods.

In connection with the indirect sales claims, we currently believe it is unlikely that the appeals process will be completed and the damages and related interest will be paid before December 31, 2021.

Therefore the liability related to this matter, totaling $ 16.1 million, is classified within Other Liabilities (non-current) in the Consolidated Balance Sheet at December 31, 2019.

In December 2017, Lufthansa filed patent infringement cases in the UK and in France against AES.

Therefore, the liability related to this matter, totaling $ 16.7 million, is classified within Other Liabilities (non-current) in the Consolidated Balance Sheets at December 31, 2020.

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

The Lufthansa patent expired in May 2018.

In those cases, Lufthansa accuses AES of having manufactured, used, sold and offered for sale a power supply system, and offered and supplied parts for a power supply system that infringed upon a Lufthansa patent in those respective countries.

In the UK matter, a trial has been scheduled for June 2020 to address the issues of infringement and validity.

The France and UK claims are separate and apart from the claims in Germany and validity and infringement of the Lufthansa patent will first need to be determined by the courts in these countries, whose laws differ from those in Germany.

Also the principles of calculating damages in German patent infringement proceedings differ substantially from the calculation methods in the UK and France.

Therefore the Company has assessed this separate from the German claims.

However, it reasonably possible that additional damages and interest could be incurred if the courts in France and the UK were to rule in favor of Lufthansa, but at this time we cannot reasonably estimate the range of loss.

As loss exposure is neither probable nor estimable at this time, the Company has not recorded any liability with respect to these matters as of December 31, 2019.

In the French matter, there was a hearing on the validity of the patent in October 2020.

On December 4, 2020, the Court held the French patent invalid for all asserted claims.

There can consequently be no finding of infringement on first instance.

LHT has appealed this judgment.

A date for the hearing of the appeal has not yet been set.

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

On June 22, 2020, the Court held the UK patent valid and 3 out of 4 asserted claims infringed.

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.

Lufthansa has yet to file a case for damages, which would need to be determined at a separate trial and would require extensive data gathering and analysis which has not yet been completed.

Additionally, on January 22, 2021, the Court of Appeal granted AES permission to appeal parts of the first instance decision, determining that AES’s appeal has a reasonable prospect of success.

The appeal hearing is scheduled to begin on November 2, 2021.

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

The associated expense was recorded in the Consolidated Statements of Operations in the year ended December 31, 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.

Each of the German, France and UK claims are separate and distinct.

Validity and infringement of the Lufthansa patent in each country is a matter for the courts in each of these countries, whose laws differ from each other.

In addition, the principles of calculating damages in each jurisdiction differ substantially.

Therefore, the Company has assessed each matter separately and cannot apply the same calculation methodology as in the German direct and indirect matters.

However, it is reasonably possible that additional damages and interest could be incurred if the appellate 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 the French or the UK matters as of December 31, 2020.

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

Lufthansa’s complaint in that action alleges that AES manufactures, uses, sells and offers for sale a power supply system that infringes upon a U.S.

Lufthansa’s complaint in that action alleges that AES manufacture, uses, sells and offers for sale a power supply system that infringes upon a U.S.

patent held by Lufthansa.

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On July 20, 2016, the U.S.

District Court granted the motion for summary judgment and issued an order dismissing all claims against AES with prejudice.

District Court granted the motion for summary judgement and issued an order dismissing all claims against AES with prejudice.

Lufthansa appealed the District Court’s decision to the United States Court of Appeals for the Federal Circuit.

On October 19, 2017, the Federal Circuit affirmed the district court’s decision, holding that the sole independent claim of the patent is

indefinite, rending all claims on the patent indefinite.

On October 19, 2017, the Federal Circuit affirmed the district court’s decision, holding that the sole independent claim of the patent is indefinite, rending all claims on the patent indefinite.

Lufthansa did not file a petition for en banc rehearing or petition the U.S.

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Therefore, there is no longer a risk of exposure from that lawsuit.

On March 23, 2020, Teradyne, Inc.

filed a complaint against the Company and its subsidiary, Astronics Test Systems (“ATS”) (together, “the Defendants”) in the United States District Court for the Central District of California alleging patent and copyright infringement, and certain other related claims.

The Defendants moved to dismiss certain claims from the case.

On November 6, 2020, the Court dismissed the Company from the case, and also dismissed a number of claims, though the patent and copyright infringement claims remain.

The case is currently in discovery.

In addition, on December 21, 2020, ATS filed a petition with the US Patent Trial and Appeal Board (“PTAB”), seeking to invalidate the subject patent.

The parties are waiting

to learn whether the PTAB will institute the proceeding.

No amounts have been accrued for this matter in the December 31, 2020 financial statements, as loss exposure is neither probable nor estimable at this time.

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

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Total Consolidated Sales $ 502,587 $ 772,702 $ 803,256

Operating Profit and Margins:

Operating (Loss) Profit and Margins:

Aerospace $ ( 89,833 ) $ 16,657 $ 69,761

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6.6 % 5.6 % 8.4 %

Total Operating Profit $ 21,151 $ 80,479 $ 46,247

Total Operating (Loss) Profit $ ( 84,284 ) $ 21,151 $ 80,479

( 16.8 ) % 2.7 % 10.0 %

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Corporate and Other Expenses, Net ( 21,385 ) ( 25,508 ) ( 18,487 )

Income before Income Taxes $ 68,303 $ 52,282 $ 24,991

(Loss) Income before Income Taxes $ ( 112,410 ) $ 68,303 $ 52,282

Depreciation and Amortization:

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

For the year ended December, 31 2020, there was a goodwill impairment loss of $ 86.3 million recorded in the Aerospace segment.

For the year ended December, 31 2019, there was a goodwill impairment loss of $ 1.6 million and intangible asset impairment of $ 6.2 million recorded in the Aerospace segment.

In 2018, there were no goodwill or purchased intangible asset impairment losses in either the Aerospace or Test System segment.

In 2017, there was a goodwill impairment loss of $ 16.2 million recorded in the Aerospace segment.

In the Aerospace segment, goodwill amounted to $ 36.6 million and $ 123.0 million at December 31, 2020 and 2019, respectively.

In the Test Systems segment, goodwill amounted to $ 21.9 million as of December 31, 2019.

There was no goodwill in the Test Systems segment as of December 31, 2018.

In the Test Systems segment, goodwill amounted to $ 21.6 million and $ 21.9 million as of December 31, 2020 and 2019, respectively.

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

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Sales recorded by the Company’s foreign operations were $ 52.3 million, $ 85.9 million and $ 70.6 million in 2020, 2019 and 2018, respectively.

Net income from these locations was $ 8.6 million, $ 5.5 million and $ 2.2 million in 2019, 2018 and 2017, respectively.

Net loss from these locations in 2020 was $ 6.6 million, and net income of $ 8.6 million and $ 5.5 million in 2019 and 2018, respectively.

Net assets held outside of the U.S.

total $ 63.3 million and $ 66.4 million at December 31, 2020 and 2019, respectively.

The exchange loss included in determining net income was insignificant in 2019 and 2018.

The exchange gain included in determining net income was insignificant in 2020 and 2018, and the exchange loss was insignificant in 2019.

Cumulative translation adjustments amounted to $( 4.5 ) million and $( 7.0 ) million at December 31, 2020 and 2019, respectively.

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and its affiliates

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

The terms of the acquisition allow for a potential earn-out of up to an additional

$ 13.0 million over the next three years based on achievement of new order levels of over $ 72.0 million during that period.

earnout estimated at a fair value of $ 2.5 million at acquisition.

The terms of the acquisition allow for a potential earnout of up to an additional $ 13.0 million over the next three years based on achievement of new order levels of over $ 72.0 million during that period.

No earnout was payable for the period from acquisition through December 31, 2020.

The acquired business has operations in Westford, Massachusetts as well as Ferndown, England, and an engineering center of excellence in Bangalore, India.

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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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The total consideration for the transaction was $ 21.8 million, net of $ 0.6 million in cash acquired.

The purchase price allocation for this acquisition has not yet been finalized.

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

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

Astronics Connectivity Systems and Certification Corp.

On December 1, 2017, Astronics completed the acquisition of substantially all of the assets and liabilities of Telefonix Inc., including 100 % of the stock of a related company, Product Development Technologies, LLC and its subsidiaries.

The combined group designs and manufactures advanced in-flight entertainment and connectivity equipment, and provides industry leading design consultancy services for the global aerospace industry.

The company’s products include wireless access points, file servers, content loaders, passenger control units and cord reels, as well as engineering services for its customers.

We purchased the assets of these companies for $ 103.8 million, net of $ 0.2 million in cash acquired.

All of the goodwill and purchased intangible assets are expected to be deductible for tax purposes over 15 years.

The acquired companies are included in our Aerospace reporting segment.

Adjustments made to the preliminary purchase price valuation during the measurement period were not significant.

The purchase price allocation for this acquisition has been finalized.

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

Sales $ 6,174

Operating Loss $ ( 499 )

The following summary, prepared on a pro forma basis, combines the consolidated results of operations of the Company with those of CSC as if the acquisition took place on January 1, 2017.

The pro forma consolidated results include the impact of certain adjustments, including increased interest expense on acquisition debt, amortization of purchased intangible assets and income taxes.

(In thousands, except earnings per share) 2017

Sales $ 683,541

Net income $ 18,302

Basic earnings per share $ 0.56

Diluted earnings per share $ 0.54

The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been in effect for the year ended December 31, 2017.

In addition, they are not intended to be a projection of future results.

Astronics Custom Control Concepts, Inc.

On April 3, 2017, Astronics Custom Control Concepts Inc., a wholly owned subsidiary of the Company, acquired substantially all the assets and certain liabilities of Custom Control Concepts LLC (“CCC”), located in Kent, Washington.

CCC is a provider of cabin management and in-flight entertainment systems for a range of aircraft.

The total consideration for the transaction was $ 10.2 million, net of $ 0.5 million in cash acquired.

All of the goodwill and purchased intangible assets are expected to be deductible for tax purposes over 15 years.

CCC is included in our Aerospace segment.

The purchase price allocation for this acquisition has been finalized.

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.

NOTE 22 — DIVESTITURE ACTIVITIES

Semiconductor Test Business

As of December 31, 2018, the Company’s Board of Directors approved a plan to sell the semiconductor test business within the Test Systems segment.

Accordingly, the assets and liabilities associated with these operations have been classified as held for sale in the accompanying consolidated Balance Sheet at December 31, 2018.

The carrying value of the disposal group was lower than its fair value, less costs to sell, and accordingly, no impairment loss was required at December 31, 2018.

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

(In thousands) 2018

Assets Held for Sale

Inventories $ 14,385

Prepaid Expenses and Other Current Assets 87

Net Property, Plant and Equipment 3,521

Other Assets 714

Intangible Assets, Net of Accumulated Amortization 651

Total Assets Held for Sale $ 19,358

Liabilities Held for Sale

Deferred Income Taxes $ 906

On February 13, 2019, the Company completed the divestiture.

On February 13, 2019, the Company completed the divestiture of its semiconductor business within the Test Systems segment.

The business was not core to the future of the Test Systems segment.

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the sales in such annual period do not carry over to the next annual period.

Due to the degree of uncertainty associated with estimating the future sales levels of the divested business and its underlying programs, and the lack of reliable predictive market information, the Company will recognize such earnout proceeds, if received, as additional gain on sale when such proceeds are realized or realizable.

No amounts were payable to the Company under the First Earnout.

Due to the degree of uncertainty associated with estimating the future sales levels of the divested business and its underlying programs, and the lack of reliable predictive market information, the Company has elected an accounting policy to recognize such earnout proceeds, if received, as additional gain on sale when such proceeds are realized or realizable.

We consider the proceeds realizable when we have received communication from the purchaser of its calculation of the earnout and the parties reach agreement on the calculation.

No amounts were payable to the Company under either earnout for the year ended December 31, 2019.

On February 13, 2021, the Company was notified by the purchaser that they have calculated $ 10.7 million as being payable to the Company under the First and Second Earnouts for the year ended December 31, 2020.

There is a period by which we and the purchaser will review the earnout calculation, which is underway.

Upon completion of the review and agreement of any adjustments, the Company expects to record the additional gain on the sale in the first quarter of 2021.

Airfield Lighting Product Line

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The Company recorded a pre-tax loss on the sale of approximately $ 1.3 million.

This amount is reported in the Consolidated Condensed Statement of Operations in Net Gain on Sales of Businesses in the year ended December 31, 2019.

As of December 31, 2019, the Company has agreed to sell certain facilities within the Aerospace segment.

Accordingly, the property, plant and equipment assets associated with these facilities of $ 1.5 million have been classified as held for sale in the consolidated Balance Sheet at December 31, 2019.

NOTE 23 — RESTRUCTURING, IMPAIRMENTS AND OTHER CHARGES

Antenna Business Impairment and Restructuring

In 2019, we performed quantitative assessments for the reporting units which had goodwill as of the first day of the fourth quarter, prior to the initiation of the antenna business restructuring activities.

Based on our quantitative assessment, the Company recorded a full goodwill impairment charge of approximately $ 1.6 million in the December 31, 2019 Consolidated Statement of Operations associated with the AeroSat reporting unit.

This amount is reported in the Consolidated Statements of Operations in Net Gain on Sales of Businesses in the year ended December 31, 2019.

Other Disposal Activity

As of December 31, 2019, the Company agreed to sell certain facilities within the Aerospace segment.

Accordingly, the property, plant and equipment assets associated with these facilities of $ 1.5 million have been classified as held for sale in the Consolidated Balance Sheets at December 31, 2019.

These assets were sold in 2020.

NOTE 23 — IMPAIRMENTS, RESTRUCTURING AND OTHER CHARGES

Goodwill Impairment

See Note 7 for discussion of the $ 86.3 million and $ 1.6 million of goodwill impairments charges in 2020 and 2019, respectively, within the Aerospace segment.

Such amounts are reported within the Impairment Loss line of the Consolidated Statements of Operations in the respective year.

Restructuring Activities

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As a result of the restructuring plan, the Company's total impairments and restructuring charges recorded in the fourth quarter of 2019 (including the goodwill impairment described above) amounted to $ 28.8 million, all of which is included in the Aerospace segment.

The Company incurred an impairment charge to ROU assets of approximately $ 0.7 million and $ 0.4 million in additional restructuring charges associated with severance at AeroSat during 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.

Accordingly, restructuring charges of $ 4.9 million in severance expense associated primarily with the Aerospace segment were recorded in 2020.

Any future restructuring actions will depend upon market conditions, customer actions and other factors.

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

Restructuring Charges

(In thousands) Cost of Products Sold Selling, General and Administrative Impairment Loss Amounts

The following table is a summary of the restructuring and impairment charges as of December 31, 2020 and 2019:

(In thousands) Non-cash Asset Write-downs and Impairment Charges Restructuring Charges Total Restructuring and Impairment Charges Non-cash Asset Write-downs and Impairment Charges Restructuring Charges Total Restructuring and Impairment Charges

Accounts Receivable, Net $ — $ — $ — $ 1,785 $ — $ 1,785

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The charge to Prepaid Expenses and Other Current Assets is comprised of prepaid installation fees associated with programs that were either cancelled or are no longer being pursued as a result of the restructuring.

The charge to Other Assets is comprised of the right-of-use asset values for the AeroSat facility lease.

The charge to Accrued Payroll and Employee Benefits is comprised of employee termination benefits expected to be paid in 2020.

The charge to Other Accrued Expenses and Other Liabilities represents the estimated current and non-current portions of payments to be made under non-cancelable inventory purchase commitments in the future for inventory which is not expected to be purchased prior to the expiration date of such agreements as a result of the restructuring plan.

None of the restructuring or impairment charges resulted in the utilization of cash during 2019.

The charges to Other Assets is comprised of the ROU asset values for the AeroSat facility lease.

The charges to Accrued Payroll and Employee Benefits is comprised of employee termination benefits at AeroSat in 2019 and additional reporting units, primarily in the Aerospace segment, in 2020.

The charges to Other Accrued Expenses and Other Liabilities represents the estimated current and non-current portions of payments to be made under non-cancelable inventory purchase commitments in the future for inventory which is not expected to be purchased prior to the expiration date of such agreements as a result of the restructuring plan.

The above restructuring and impairment charges are presented in the Consolidated Statements of Operations for the years ended December 31 as follows:

(In thousands) 2020 2019

Cost of Products Sold $ 280 $ 15,397

Selling, General and Administrative Expenses 5,047 2,356

Impairment Loss 87,016 11,083

Total Restructuring and Impairment Charges $ 92,343 $ 28,836

The following table reconciles the beginning and ending liability for restructuring charges:

(In thousands) 2020 2019

Balance as of January 1 $ 5,190 $ —

Restructuring Charges Recognized 5,327 5,190

Cash Paid ( 4,886 ) —

Balance as of December 31 $ 5,631 $ 5,190

Financial Instrument Impairment

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These investments are included in Other Assets on the Consolidated Balance Sheets.

One of the investments became impaired in 2020 which resulted in an impairment charge of $ 3.5 million recorded within the Other Expense, Net of Other Income line in the accompanying Consolidated Statements of Operations for the year ended December 31, 2020.

A full impairment charge of $ 5.0 million for an additional investment was recorded in 2019.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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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-K

Item 8. Financial Statements and Supplementary Data