What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-09 · 113 added, 90 removed, 164 unchanged (55% of the section changed)

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Our primary Aerospace customers are the airframe manufacturers (“OEM”) that build aircraft for the commercial, military and general aviation markets, suppliers to those OEM’s, aircraft operators such as airlines, suppliers to the aircraft operators, and branches of the U.S.

Department of Defense.

Department of Defense (“USDOD”).

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.

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Once designed into a new aircraft, the spare parts business is frequently retained by the Company.

Future growth and profitability of the test business is dependent on developing and procuring new and follow-on business.

Future growth and profitability of the Test Systems business is dependent on developing and procuring new and follow-on business.

The nature of our Test Systems business is such that it pursues large, often multi-year, projects.

There can be significant periods of time between orders in this business which may result in large fluctuations of sales and profit levels and backlog from period to period.

Test Systems segment customers include the Department of Defense, prime contractors to the Department of Defense, mass transit operators and prime contractors to mass transit operators.

Test Systems segment customers include the USDOD, prime contractors to the USDOD, mass transit operators and prime contractors to mass transit operators.

In September 2021 the Company also entered into an agreement with the U.S.

Department of Transportation (“USDOT”) under the Aviation Manufacturing Jobs Protection Program (“AMJP”) for a grant of up to $14.7 million.

The Company received the first installment of $7.3 million under the grant in September 2021.

The remaining balance due to be received of $7.4 million has been classified within Prepaid Expenses and Other Current Assets on the Consolidated Condensed Balance Sheets as of October 2, 2021.

The Company expects to receive a second installment in the range of $5 million to $6 million during the fourth quarter of 2021 and a final installment in the second or third quarter of 2022 upon final confirmation from the USDOT of the Company meeting its grant commitments.

The receipt of the full award is primarily conditioned upon the Company committing to not furlough or lay off a defined group of employees during the six-month period of performance between September 2021 and March 2022.

The grant benefit will be recognized over the six-month performance period as a reduction to Cost of Products Sold in proportion to the compensation expense that the award is intended to defray.

During the quarter ended October 2, 2021, the Company recognized $1.1 million of the award.

The unearned portion of the AMJP award of $13.6 million has been reported within Accrued Expenses and Other Current Liabilities in the Consolidated Balance Sheet at October 2, 2021.

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

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The Second Earnout is not capped.

For the Second Earnout, if the applicable sales in an annual period do not exceed the annual threshold, no amounts will be paid relative to such annual period;

For the Second Earnout, if the applicable sales in an annual

period do not exceed the annual threshold, no amounts will be paid relative to such annual period;

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

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The Company and the buyer are currently reviewing the calculations and underlying data and are engaged in negotiations.

The Company expects to record the additional gain for whatever amount is realized on the earnout when that review is complete and agreement is reached.

The Company expects to record the additional gain when that review is complete and agreement is reached.

The timing and amount of any amount realized is uncertain and subject to risks and uncertainties as we continue the review and negotiation process.

CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK

Six Months Ended Three Months Ended

($ in thousands) July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

Nine Months Ended Three Months Ended

($ in thousands) October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020

Sales $ 328,856 $ 387,784 $ 111,841 $ 106,506

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

CONSOLIDATED SECOND QUARTER RESULTS

Consolidated sales were down $12.5 million from the second quarter of 2020.

Aerospace sales were down $13.4 million, and Test System sales increased $0.8 million.

Consolidated cost of products sold in the second quarter of 2021 was $95.8 million, compared with $96.9 million in the prior-year period.

The decrease was primarily due to lower sales volume related to the continued impacts of the COVID-19 pandemic on the global aerospace industry.

Gross margin declined from 21.7% to 13.8% due to leverage lost on lower volumes.

Selling, general and administrative (“SG&A”) expenses were $21.3 million in the second quarter of 2021 compared with $32.9 million in the prior-year period.

The current year period benefited from a $2.2 million non-cash reduction of the fair value of a contingent consideration liability related to the 2019 acquisition of Diagnosys Test Systems.

The Company incurred $4.9 million in restructuring-related severance charges in the second quarter of 2020, primarily in the Aerospace segment.

Further, non-cash goodwill impairment charges of $12.6 million in the Aerospace segment were recognized in the second quarter of 2020 due to reduced expectations of future operating results due to further commercial aircraft order reductions, delays and cancellations at a major customer of our PECO reporting unit.

Other Expense, Net of Other Income in the prior year included a $3.5 million impairment of an equity investment.

The effective tax rate for the quarter was 0.8%, compared with 3.6% in the second quarter of 2020.

CONSOLIDATED THIRD QUARTER RESULTS

Consolidated sales were up $5.3 million from the third quarter of 2020.

Aerospace sales were up $13.2 million, or 16.0%, and Test System sales decreased $7.9 million.

Total sales and volume continued to reflect the ongoing impacts of the COVID-19 pandemic on the global aerospace industry.

Supply chain pressures impacted delivery schedules and costs, limiting the Company’s ability to respond to accelerated or quick-turn delivery requests from customers and delayed shipments that otherwise would have been made during the quarter.

The Company estimates that revenue would have been $8 million to $10 million higher in the third quarter if its supply chain was functioning normally.

Consolidated cost of products sold in the third quarter of 2021 was $94.6 million, compared with $91.3 million in the prior-year period.

The increase was primarily due to higher sales volume driven by improvement in the global aerospace industry, offset by $1.1 million recognized as an offset to cost of products sold from the AMJP program.

The grant is benefiting cost of products sold over the six-month period of performance.

Selling, general and administrative (“SG&A”) expenses were $21.7 million in the third quarter of 2021 compared with $24.2 million in the prior-year period due primarily to lower legal expenses in the current year’s third quarter related to a patent claim.

The effective tax rate for the quarter was (4.9)%, compared with 52.8% in the third quarter of 2020.

The 2021 tax rate was impacted by State and Foreign income taxes.

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

The 2020 tax rate was impacted by a discrete adjustment related to accrued state income tax refunds of approximately $3.1 million.

In addition, the 2020 tax rate was impacted by changes in the forecasted tax rate related to permanently non-deductible goodwill impairments and an expected U.S.

Federal net operating loss carryback.

Consolidated net loss was $7.2 million, or $0.23 per diluted share, compared with net loss of $5.3 million, or $0.17 per diluted share, in the prior year.

The after tax impact of the prior year impairment was $0.41 per diluted share.

Supply chain pressures became increasingly impactful as the quarter progressed, mostly affecting delivery schedules but with some pricing pressure also.

These pressures limited the Company’s ability to respond to accelerated or quick-turn delivery requests from customers.

The Company estimates that revenue would have been $5 million to $10 million higher in the second quarter if its supply chain was performing normally.

The prior-year net loss benefited from a $3.1 million tax adjustment related to a revised state income tax filing position.

Bookings were $153.5 million, for a book-to-bill ratio of 1.37:1.

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Consolidated sales were down $58.9 million.

Aerospace sales were down $73.0 million from the first half of 2020.

Aerospace sales were down $59.8 million from the prior-year period and continued to be negatively affected by the continued impacts of the COVID-19 pandemic, while the prior-year period was inclusive of pre-pandemic levels during the first quarter.

Test System sales increased $0.9 million.

Consolidated cost of products sold in the first half of 2021 was $187.3 million, compared with $218.7 million in the prior-year period.

Consolidated cost of products sold in 2021 was $282.0 million, compared with $310.1 million in the prior-year period.

The decrease was primarily due to lower volume related to the continued impacts of the COVID-19 pandemic on the global aerospace industry.

SG&A expenses were $45.1 million in the first half of 2021 compared with $61.8 million the prior-year period.

The current year period benefited from $1.1 million recognized as an offset to cost of products sold related to the AMJP award.

SG&A expenses were $66.8 million in 2021 compared with $85.9 million the prior-year period.

The decrease was primarily due to the cost control measures implemented at the onset of the pandemic late in the first quarter of 2020 which resulted in lower labor costs and discretionary spending.

Lower legal expenses associated with a patent claim contributed to the decrease.

The current year period benefited from a $2.2 million non-cash reduction of the fair value of a contingent consideration liability.

The Company incurred $5.4 million in restructuring-related severance charges in the first half of 2020, primarily in the Aerospace segment.

The Company incurred $5.6 million in restructuring-related severance charges in the prior-year period, primarily in the Aerospace segment.

Non-cash goodwill and long-lived asset impairment charges of $87.0 million in the Aerospace segment were recognized in 2020 due to reduced expectations of future operating results caused by the COVID-19 pandemic.

Other Expense, Net of Other Income in the prior year included a $3.5 million impairment of an equity investment.

The effective tax rate for the first half of 2021 was (0.2)%, compared with 3.4% in the first half of 2020.

The tax rate in the 2021 period was impacted by State and Foreign income taxes as well as changes in the valuation allowance previously recorded against federal deferred tax assets.

The 2020 tax rate was impacted by permanently non-deductible goodwill impairments of $60.8 million and a Federal valuation allowance recorded of approximately $7.5 million.

The effective tax rate for the first nine months 2021 was (1.4)%, compared with 8.7% in the prior-year period.

The tax rate in the 2021 period was impacted by State and Foreign income taxes as well as changes in the valuation allowance previously recorded against U.S.

Federal and most State deferred tax assets.

The 2020 tax rate was impacted by permanently non-deductible goodwill impairments of $60.8 million, a U.S.

Federal valuation allowance recorded of approximately $7.5 million, and a discrete adjustment related to accrued state income tax refunds of approximately $3.1 million.

Consolidated net loss was $27.2 million, or $0.88 per diluted share, compared with net loss of $95.8 million, or $3.11 per diluted share, in the prior year.

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We believe that our existing financial arrangements are sufficient to meet our operating needs, and have adequate borrowings availability under our Credit Agreement that could provide additional relief if necessary.

See Part II, Item 1A, Risk Factors, for an additional discussion of risk related to supply chain disruptions.

Consolidated sales were $217 million in the first half of 2021 and we are expecting an uptick in the second half to about $240 million, weighted slightly to the fourth quarter.

We are assuming that the world will continue to make steady progress against the pandemic, and that supply chain stresses will not get worse.

We will be watching eagerly for demand signals which will determine our expectations for 2022.

Our expectation for capital expenditures for 2021 remains unchanged at $10 million to $11 million.

Consolidated backlog at July 3, 2021 was $312.7 million.

See Part II, Item 1A, Risk Factors, for an additional discussion of risk related to supply chain disruptions and the recent government vaccine mandates.

We are expecting to close 2021 with a higher shipment level in the final quarter.

Supply chain challenges introduce a level of uncertainty, but we expect fourth quarter revenues of $115 million to $118 million.

We expect shipping volume to continue to strengthen as we move into 2022, but we are not yet comfortable providing guidance for the year.

Based on current estimates, we expect the AMJP to contribute approximately $7.3 million to gross profit as an offset to cost of goods sold in the fourth quarter, with the remaining benefit to gross profit of approximately $6.2 million to be recorded in the

first quarter of 2022.

However, actual benefit between the two quarters may differ from these estimates based on actual payroll attribution for the eligible employee group.

Consolidated backlog at October 2, 2021 was $354.4 million.

Approximately 32% of the backlog is expected to be recognized as revenue in 2021.

Our expectation for capital expenditures for 2021 remains unchanged at $10 million to $11 million.

While core aerospace markets have strengthened as vaccination rates rise and passenger traffic accelerated, 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, virus variants, vaccination rates and efficacy and the related length of impact on the global economy and specifically on the markets we are active in, which is uncertain and cannot be predicted at this time.

Planned capital expenditures for 2021 have been reduced to approximately $8 million to $9 million from previous expectations of $10 million to $11 million.

SEGMENT RESULTS OF OPERATIONS AND OUTLOOK

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

Operating profit is reconciled to earnings before income taxes in Note 16 of the Notes to Consolidated Condensed Financial Statements included in this report.

Operating profit (loss) is reconciled to loss before income taxes in Note 16 of the Notes to Consolidated Condensed Financial Statements included in this report.

AEROSPACE SEGMENT

Six Months Ended Three Months Ended

(In thousands) July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

Nine Months Ended Three Months Ended

(In thousands) October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020

Sales $ 266,425 $ 326,282 $ 95,775 $ 82,548

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$ 266,402 $ 326,191 $ 95,766 $ 82,548

(In thousands) July 3, 2021 December 31, 2020

(In thousands) October 2, 2021 December 31, 2020

$ 474,042 $ 484,885

$ 285,806 $ 191,081

AEROSPACE SECOND QUARTER RESULTS

Aerospace segment sales decreased $13.4 million, or 13.0%, to $89.2 million.

Sales continued to be negatively affected by low commercial aircraft build rates and a weak commercial aircraft aftermarket as airlines have reduced spending and grounded aircraft due to the global COVID-19 pandemic.

Commercial aerospace continues to see depressed sales relative to pre-pandemic levels.

Sales to this market were $47.8 million, or 43.0% of consolidated revenue in the quarter, compared with $67.5 million, or 54.6% of consolidated revenue in the second quarter of 2020.

Demand related to new build and retrofit narrow body aircraft is improving and expected to continue to build through 2021 and into the future.

The improvement has been driven by growing domestic travel supporting increased production rates of the 737 MAX and narrow body aircraft being placed back in service.

The production and utilization rates of widebody aircraft have remained very low as international travel has been slow to recover.

Military Aircraft sales increased $2.7 million, or 19.6%, to $16.8 million.

Improvement year-over-year includes incremental non-recurring engineering revenue associated with new programs under development.

Business Jet sales were down $0.5 million, or 3.5%, to $15.0 million.

Other revenue increased $4.2 million to $9.6 driven by increased contract manufacturing programs.

Aerospace segment operating loss was $2.7 million compared with operating loss of $17.1 million for the same period last year.

Leverage lost on reduced sales significantly impacted operating results.

Aerospace operating profit in the prior-year period was

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

AEROSPACE THIRD QUARTER RESULTS

Aerospace segment sales increased $13.2 million, or 16.0%, to $95.8 million.

Commercial aerospace sales were up 30.6%, or $13.5 million, and drove the improvement even as sales remain below pre-pandemic levels.

Sales to this market were $57.5 million, or 51.5% of consolidated revenue in the quarter, compared with $44.1 million, or 41.4% of consolidated revenue in the third quarter of 2020.

Improving domestic travel, increased production rates including the 737 MAX and higher fleet utilization are driving increased demand for Astronics products.

General Aviation sales were down $2.6 million, or 17.7%, to $12.1 million as higher demand in the business jet market somewhat offset lower VVIP activity.

The Company expects the strong demand being realized in the business jet industry to translate into higher demand for its products as production levels begin to increase in 2022.

Military Aircraft sales decreased $1.1 million, or 6.1%, to $17.1 million.

The prior-year period benefited from incremental non-recurring engineering revenue associated with development of new programs.

Other revenue increased $3.4 million to $9.0 million driven by increased contract manufacturing programs.

Aerospace segment operating profit was $1.9 million compared with operating loss of $6.3 million for the same period last year driven by increased sales, reflecting improvements in commercial aerospace, and the $1.1 million AMJP benefit which helped offset the impacts of supply chain constraints.

Sequentially, compared with the second quarter of 2021, Aerospace revenue grew 7% and operating profit improved $4.6 million to $1.9 million.

AEROSPACE YEAR-TO-DATE RESULTS

Aerospace segment sales decreased $59.8 million, or 18.3%, to $266.4 million.

Sales continued to be negatively affected by reasons stated during the quarter.

Sales continued to be negatively affected by the continued impacts of the COVID-19 pandemic, while the prior-year period was inclusive of pre-pandemic levels during the first quarter of the year.

Aerospace segment operating loss was $6.4 million compared with operating loss of $86.6 million for the same period last year.

Leverage lost on reduced sales significantly impacted operating results.

Aerospace operating profit in the prior-year period was impacted by impairment charges of $87.0 million, of which $86.3 million was related to goodwill, and restructuring-related severance charges of $5.1 million.

Leverage lost on reduced commercial aircraft sales significantly impacted operating results.

Aerospace operating loss in the prior-year period was impacted by impairment charges of $87.0 million, of which $86.3 million was related to goodwill, and restructuring-related severance charges of $5.3 million.

AEROSPACE OUTLOOK

Aerospace bookings in the second quarter of 2021 were $118.2 million, for a book-to-bill ratio of 1.32:1.

The Aerospace segment’s backlog at the end of the second quarter of 2021 was $239.1 million with approximately $155.7 million expected to be recognized as revenue over the remaining part of 2021 and $196.7 million scheduled over the next 12 months.

Aerospace bookings in the third quarter of 2021 were $142.5 million, for a book-to-bill ratio of 1.49:1.

The Aerospace segment’s backlog at the end of the third quarter of 2021 was $285.8 million with approximately $101.1 million expected to be recognized as revenue over the remaining part of 2021 and $231.3 million scheduled over the next 12 months.

TEST SYSTEMS SEGMENT

Six Months Ended Three Months Ended

(In thousands) July 3, 2021 June 27, 2020 July 3, 2021 June 27, 2020

Nine Months Ended Three Months Ended

(In thousands) October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020

Sales $ 62,811 $ 62,391 $ 16,128 $ 24,406

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Total Test Systems Sales $ 62,454 $ 61,593 $ 16,075 $ 23,958

Operating profit (loss) $ 243 $ 3,334 $ (946) $ 2,612

Operating (loss) profit $ (1,958) $ 4,270 $ (2,201) $ 936

Operating Margin (3.1) % 6.9 % (13.7) % 3.9 %

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(In thousands)

July 3, 2021 December 31, 2020

October 2, 2021 December 31, 2020

$ 99,323 $ 105,079

Backlog $ 68,598 $ 92,337

TEST SYSTEMS SECOND QUARTER RESULTS

Test Systems segment sales were $21.9 million, up $0.8 million compared to the prior-year period.

Test Systems operating loss was $0.9 million, or 4.3% of sales, compared with operating profit of $2.6 million, or 12.4% of sales, in the second quarter of 2020.

Operating profit in the second quarter of 2021 was negatively affected by $1.0 million in legal fees related to infringement claims.

TEST SYSTEMS THIRD QUARTER RESULTS

Test Systems segment sales were $16.1 million, down $7.9 million compared with the prior-year period driven by lower defense and transit revenue caused by COVID-related delays.

Test Systems operating loss was $2.2 million, or 13.7% of sales, compared with operating profit of $0.9 million, or 3.9% of sales, in the third quarter of 2020.

Operating loss in the third quarter of 2021 was negatively affected by lower volume and $1.0 million in legal fees related to infringement claims and contractual disputes.

Operating results in 2020 benefited from $0.6 million in semiconductor warranty revenue.

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Test Systems segment sales were $62.5 million, up $0.9 million compared with the prior-year period.

Test Systems operating profit was $0.2 million, or 0.5% of sales, compared with $3.3 million, or 8.9% of sales, in the second quarter of 2020.

Operating profit in the first half of 2021 was negatively affected by $1.9 million in legal fees related to infringement claims.

Aerospace & Defense sales increased $4.3 million.

Sales from the divested semiconductor business contributed $3.4 million in the prior-year period.

Test Systems operating loss was $2.0 million, or 3.1% of sales, compared with operating profit of $4.3 million, or 6.9% of sales, in the third quarter of 2020.

Operating profit in 2021 was negatively affected by low volume and $2.9 million in legal fees related to infringement claims and contractual disputes.

Operating results in 2020 benefited from $3.4 million in semiconductor warranty revenue.

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Bookings for the Test Systems segment in the quarter were $11.1 million, for a book-to-bill ratio of 0.69:1 for the quarter.

The Test Systems segment’s backlog at the end of the second quarter of 2021 was $73.6 million, with approximately $27.9 million expected to be recognized as revenue over the remaining part 2021 and approximately $41.4 million scheduled over the next 12 months.

The Test Systems segment’s backlog at the end of the third quarter of 2021 was $68.6 million, with approximately $12.2 million expected to be recognized as revenue over the remaining part 2021 and approximately $33.8 million scheduled over the next 12 months.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities:

Cash used for operating activities totaled $2.3 million for the first six months of 2021, as compared with $41.5 million cash provided by operating activities during the same period in 2020.

Cash flow from operating activities decreased compared with the same period of 2020 primarily due to lower net income adjusted for non-cash expenses and income in 2021 compared with 2020 due to the impacts of the COVID-19 pandemic on our business, coupled with changes in net operating assets.

Cash used for operating activities totaled $18.5 million for the first nine months of 2021, as compared with $31.5 million cash provided by operating activities during the same period in 2020.

Cash flow from operating activities decreased compared with the same period of 2020 primarily due to changes in net operating assets, primarily increases in accounts receivable and inventory.

Investing Activities:

Cash used for investing activities was $3.6 million for the first six months of 2021 compared with $2.3 million in cash used for investing activities in the same period of 2020 due to a decrease in capital expenditures coupled with proceeds from the sale of assets in the prior year.

Cash used for investing activities was $4.6 million for the first nine months of 2021 compared with $4.0 million in cash used for investing activities in the same period of 2020.

A higher level of capital expenditures in the prior-year period was partially offset by proceeds from the sale of assets in that period.

The Company expects capital spending in 2021 to be in the range of $8 million and $9 million.

Financing Activities:

Cash used for financing activities totaled $0.9 million for the first six months of 2021, as compared with $24.0 million cash used for financing activities during the same period in 2020.

Cash flow used for financing activities decreased compared with the same period of 2020 due to net payments on our senior credit facility of $15.0 million in the first six months of 2020, coupled with $7.7 million of share repurchases before the 10b-5 plan associated with the share repurchase program was terminated.

Cash provided by financing activities totaled $12.3 million for the first nine months of 2021, as compared with $29.5 million cash used for financing activities during the same period in 2020.

Cash flow provided by financing activities increased compared with the same period of 2020 due to net proceeds on our senior credit facility of $10.0 million in the first nine months of 2021 compared with net repayments of $20.0 million in the first nine months of 2020.

Cash used in 2020 also included $7.7 million of share repurchases in the prior year before the 10b-5 plan associated with the share repurchase program was terminated.

The Company's Fifth Amended and Restated Credit Agreement (the “Agreement”) provided for a $500 million revolving credit line with the option to increase the line by up to $150 million.

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The Amended Facility suspended 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 July 3, 2021, there was $173.0 million outstanding on the revolving credit facility and there remained $200.9 million available subject to the minimum liquidity covenant discussed below, net of outstanding letters of credit.

The maximum net leverage ratio is set at 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 returns to 3.75 to 1 for each quarter thereafter.

At October 2, 2021, there was $183.0 million outstanding on the revolving credit facility and there remained $190.9 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 July 3, 2021, outstanding letters of credit totaled $1.1 million.

Through the third quarter of 2021, the Amended Facility requires the Company to maintain minimum liquidity, defined as unrestricted cash plus the unused revolving credit commitments, of $180 million at all times.

At October 2, 2021, outstanding letters of credit totaled $1.1 million.

Through the third quarter of 2021, the Amended Facility required the Company to maintain minimum liquidity, defined as unrestricted cash plus the unused revolving credit commitments, of $180 million at all times.

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

The Company was in compliance with its financial covenants at July 3, 2021.

As noted above, the maximum net leverage ratio was set at 6.00 to 1 for the quarter ended October 2, 2021.

The Company was in compliance with its financial covenants at October 2, 2021.

During the suspension period, the Company paid 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 paid 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.

After the suspension period, the Company pays 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 also pays 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, through the second quarter of 2022.

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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.

Subsequent to October 2, 2021, the Company sold one of its Aerospace facilities for $9.1 million.

Net cash proceeds were approximately $8.8 million.

A gain on sale of approximately $5.0 million will be recorded during the fourth quarter of 2021.

In September, the U.S.

Department of Transportation announced that it had approved for the Company to receive up to $14.7 million under the AMJP program.

The Company received its first installment of approximately $7.3 million in September.

The Company expects to receive a second installment in the range of $5 million to $6 million in the fourth quarter of 2021, and a final installment in the second or third quarter of 2022, upon final confirmation of meeting its award commitments.

The Company expects additional cash inflows over the next several quarters related to an earn-out from the 2019 sale of its semiconductor test business, an approximate $10 million tax refund and improved sales volumes.

OFF BALANCE SHEET ARRANGEMENTS

We do not have any material off balance sheet arrangements that have or are reasonably likely to have a material future effect on our results of operations or financial condition.

The Company’s backlog at July 3, 2021 was $312.7 million compared with $283.4 million at December 31, 2020 and $307.2 million at June 27, 2020.

The Company’s backlog at October 2, 2021 was $354.4 million compared with $283.4 million at December 31, 2020 and $282.2 million at September 26, 2020.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis