ASTRONICS CORP 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (The following should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Form 10-K for the year ended December 31, 2020.) OVERVIEW Astronics Corporation (“Astronics” or the “Company”) is a leading supplier of advanced technologies and products to the global aerospace and defense industries. Our products and services include advanced, high-performance electrical power generation and distribution systems, seat motion solutions, lighting and safety systems, avionics products, aircraft structures, systems certification, and automated test systems. Our Aerospace segment designs and manufactures products for the global aerospace industry. Product lines include lighting and safety systems, electrical power generation, distribution and seat motions systems, aircraft structures, avionics products, systems certification, and other products. 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 (“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. In the Test Systems segment, Astronics’ products are sold to a global customer base including OEM's and prime government contractors for both electronics and military products. Our strategy is to increase our value by developing technologies and capabilities, either internally or through acquisition, and using those capabilities to provide innovative solutions to our targeted markets where our technology can be beneficial. Important factors affecting our growth and profitability are the ongoing impacts of the COVID-19 pandemic and the timing and extent of recovery (as discussed more fully below), the rate at which new aircraft are produced, government funding of military programs, our ability to have our products designed into new aircraft and the rates at which aircraft owners, including commercial airlines, refurbish or install upgrades to their aircraft. New aircraft build rates and aircraft owners spending on upgrades and refurbishments is cyclical and dependent on the strength of the global economy. Once designed into a new aircraft, the spare parts business is frequently retained by the Company. Future growth and profitability of the Test 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 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. The total proceeds of the divestiture amounted to $103.8 million plus certain contingent purchase consideration (“earn-out”). The transaction included two elements of contingent earnouts. The First Earnout is calculated based on a multiple of all future sales of existing and certain future derivative products to existing and future customers in each annual period from 2019 through 2022. The First Earnout may not exceed $35.0 million in total. The Second Earnout is calculated based on a multiple of future sales related to an existing product and program with an existing customer exceeding an annual threshold for each annual period from 2019 through 2022. The Second Earnout is not capped. For the Second Earnout, if the applicable sales in an annual 25 Table of Contents 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. 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 for the year ended December 31, 2019. In February 2021, the Company was notified by the buyer 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. In April 2021, the buyer provided a revised calculation, indicating, rather, that $7.1 million is payable to the Company for the 2020 earnout. The Company and the buyer are currently reviewing the calculations and underlying data and are engaged in negotiations. The Company expects to record the additional gain when that review is complete and agreement is reached. The timing and amount of any amount realized is uncertain and subject to risks and uncertainties as we continue the review and negotiation process. CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK Nine Months Ended Three Months Ended ($ in thousands) October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020 Sales $ 328,856 $ 387,784 $ 111,841 $ 106,506 Gross Profit (sales less cost of products sold) $ 46,899 $ 77,725 $ 17,231 $ 15,173 Gross Margin 14.3 % 20.0 % 15.4 % 14.2 % Selling, General and Administrative Expenses $ 66,829 $ 85,941 $ 21,729 $ 24,170 SG&A Expenses as a Percentage of Sales 20.3 % 22.2 % 19.4 % 22.7 % Impairment Loss $ — $ 87,016 $ — $ — Interest Expense, Net of Interest Income $ 5,252 $ 5,091 $ 1,795 $ 1,775 Effective Tax Rate (1.4) % 8.7 % (4.9) % 52.8 % Net Loss $ (27,182) $ (95,796) $ (7,174) $ (5,254) A discussion by segment can be found at “Segment Results of Operations and Outlook” in this MD&A. CONSOLIDATED THIRD QUARTER RESULTS Consolidated sales were 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 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 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. Backlog at the end of the quarter was $354.4 million. Approximately $113.3 million, or 32%, of backlog is expected to ship in the remainder of 2021. 26 Table of Contents CONSOLIDATED YEAR-TO-DATE RESULTS Consolidated sales were down $58.9 million. 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 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. 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 $5.6 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 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. The after-tax impact of the prior year impairment was $2.64 per diluted share. COVID-19 Impacts on Our Business The spread of the COVID-19 outbreak has disrupted businesses on a global scale. On March 11, 2020, the World Health Organization classified the outbreak as a pandemic. COVID-19 has caused disruption and volatility in the global capital markets, and has authored an economic slowdown in the Aerospace industry in particular. As we entered this crisis, the Company established two clear priorities: first and foremost the health and safety of our employees and their families, and second, continuing to meet the needs of our customers and secure the financial well-being of the Company. Substantially all of our operations and production activities have, to-date, remained operational. In response to the COVID-19 crisis, we implemented changes in our work practices to maintain a safe working environment for production employees at our facilities, while enabling other employees to productively work from home. As we commence bringing employees back to the workplace and return to in-person meetings with customers and suppliers, we are adopting a flexible work approach. This will allow for a smooth transition from COVID-19 conditions to a future that better meets the needs of the business and the interests of our employees. In terms of maintaining our financial health and liquidity, in early 2020, we implemented workforce reduction activities to align capacity with expected demand. We also implemented significant cost conservation measures, and we continue to closely monitor spending priorities. As economic activity recovers, we continue to monitor the situation, to assess further possible implications on our operations, supply chain, liquidity, cash flow and customer orders, and to take actions in an effort to mitigate adverse consequences. 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 and the recent government vaccine mandates. Outlook 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 27 Table of Contents 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. Planned capital expenditures for 2021 have been reduced to approximately $8 million to $9 million from previous expectations of $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 are uncertain and cannot be predicted at this time. SEGMENT RESULTS OF OPERATIONS AND OUTLOOK Operating profit, as presented below, is sales less cost of products sold and other operating expenses, excluding interest expense and other corporate expenses. Cost of products sold and other operating expenses are directly identifiable to the respective segment. 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 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 Less Inter-segment Sales (23) (91) (9) — Total Aerospace Sales $ 266,402 $ 326,191 $ 95,766 $ 82,548 Operating Loss $ (6,352) $ (86,567) $ 1,917 $ (6,332) Operating Margin (2.4) % (26.5) % 2.0 % (7.7) % Aerospace Sales by Market (In thousands) Commercial Transport $ 143,550 $ 214,390 $ 57,549 $ 44,067 Military 54,847 50,329 17,064 18,164 Business Jet 41,131 45,259 12,109 14,711 Other 26,874 16,213 9,044 5,606 $ 266,402 $ 326,191 $ 95,766 $ 82,548 Aerospace Sales by Product Line (In thousands) Electrical Power & Motion $ 102,742 $ 148,500 $ 38,650 $ 32,481 Lighting & Safety 76,929 90,973 25,461 25,320 Avionics 47,355 57,381 14,491 16,104 Systems Certification 7,937 5,596 6,099 605 Structures 4,565 7,528 2,021 2,432 Other 26,874 16,213 9,044 5,606 $ 266,402 $ 326,191 $ 95,766 $ 82,548 (In thousands) October 2, 2021 December 31, 2020 Total Assets $ 474,042 $ 484,885 Backlog $ 285,806 $ 191,081 28 Table of Contents 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 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 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 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. 29 Table of Contents TEST SYSTEMS SEGMENT 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 Less Inter-segment Sales (357) (798) (53) (448) Total Test Systems Sales $ 62,454 $ 61,593 $ 16,075 $ 23,958 Operating (loss) profit $ (1,958) $ 4,270 $ (2,201) $ 936 Operating Margin (3.1) % 6.9 % (13.7) % 3.9 % Test Systems Sales by Market (In thousands) Semiconductor $ — $ 3,407 $ — $ 585 Aerospace & Defense 62,454 58,186 16,075 23,373 $ 62,454 $ 61,593 $ 16,075 $ 23,958 (In thousands) October 2, 2021 December 31, 2020 Total Assets $ 99,323 $ 105,079 Backlog $ 68,598 $ 92,337 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. TEST SYSTEMS YEAR-TO-DATE RESULTS Test Systems segment sales were $62.5 million, up $0.9 million compared with the prior-year period. 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. TEST SYSTEMS OUTLOOK 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 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 $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. 30 Table of Contents Investing Activities: 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 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. The maturity date of the loans under the Agreement is February 16, 2023. The maximum leverage ratio of funded debt, net of cash to Adjusted EBITDA (as defined in the Agreement) was 3.75 to 1, increasing to 4.50 to 1 for up to four fiscal quarters following the closing of an acquisition permitted under the Agreement, subject to limitations. The Company paid interest on the unpaid principal amount of the facility at a rate equal to one-, three- or six-month LIBOR plus between 1.00% and 1.50% based upon the Company’s leverage ratio. The Company also paid a commitment fee to the lenders in an amount equal to between 0.10% and 0.20% on the undrawn portion of the credit facility, based upon the Company’s leverage ratio. In May 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 suspended the application of the leverage ratio up through and including the second quarter of 2021 (the “suspension period”). 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 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. 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 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. The Company’s obligations under the Amended Facility are jointly and severally guaranteed by each domestic subsidiary of the Company other than non-material subsidiaries. The obligations are secured by a first priority lien on substantially all of the Company’s and the guarantors’ assets. In the event of voluntary or involuntary bankruptcy of the Company or any subsidiary, all unpaid principal and other amounts owing under the Amended Facility automatically become due and payable. Other events of default, such as failure to make payments as they become due and breach of financial and other covenants, change of control, judgments over a certain amount, and cross default under other agreements give the agent the option to declare all such amounts immediately due and payable. 31 Table of Contents Other 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. BACKLOG 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 Our contractual obligations and commitments have not changed materially from the disclosures in our 2020 Annual Report on Form 10-K. MARKET RISK The Company believes that there have been no material changes in the current year regarding the market risk information for its exposure to interest rate fluctuations. Although the majority of our sales, expenses and cash flows are transacted in U.S. dollars, we have exposure to changes in foreign currency exchange rates related primarily to the Euro and the Canadian dollar. The Company believes that the impact of changes in foreign currency exchange rates in 2021 have not been significant. CRITICAL ACCOUNTING POLICIES Refer to Note 2 of the Notes to Consolidated Condensed Financial Statements included in this report for the Company’s critical accounting policies with respect to revenue recognition. For a complete discussion of the Company’s other critical accounting policies, refer to the Company’s annual report on Form 10-K for the year ended December 31, 2020. RECENT ACCOUNTING PRONOUNCEMENTS Refer to Note 1 of the Notes to Consolidated Condensed Financial Statements included in this report. FORWARD-LOOKING STATEMENTS Information included in this report that does not consist of historical facts, including statements accompanied by or containing words such as “may,” “will,” “should,” “believes,” “expects,” “expected,” “intends,” “plans,” “projects,” “approximate,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume” and “assume,” are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to several factors, risks and uncertainties, the impact or occurrence of which could cause actual results to differ materially from the expected results described in the forward-looking statements. Certain of these factors, risks and uncertainties are discussed in the sections of this report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” New factors, risks and uncertainties may emerge from time to time that may affect the forward-looking statements made herein. Given these factors, risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictive of future results. We disclaim any obligation to update the forward-looking statements made in this report. Item 3. Quantitative and Qualitative Disclosures About Market Risk See Market Risk in Item 2, above. 32 Table of Contents