What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-04 compared with 2021-03-01 · 330 added, 417 removed, 1118 unchanged (40% of the section changed)

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 4, 2022 expressed an unqualified opinion thereon.

Adoption of New Accounting Standards

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.

2016-02, Leases (Topic 842), as amended, effective January 1, 2019 .

Basis for Opinion

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Valuation of Goodwill

Description of the Matter

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.

Description of the Matter As of December 31, 2021, the Company’s goodwill balance was $58.3 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.

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 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

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment test process, including the determination of the underlying significant assumptions described above, and the completeness and accuracy of the impairment analysis.

Auditing management’s assumptions was especially challenging 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 certain reporting units were sensitive to the significant assumptions of the revenue growth rate and the weighted-average cost of capital.

These assumptions 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 We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment testing process.

This included the determination of the underlying significant assumptions described above, and the completeness and accuracy of the impairment analysis.

To test the estimated fair value of the Company’s reporting units, we performed audit procedures with the assistance of our valuation professionals that included, among others, assessing the methodology used, testing the significant assumptions discussed above and testing the underlying data used in the impairment analysis.

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In addition, we tested the reconciliation of the fair value of the Company’s reporting units to the market capitalization of the Company as of the annual impairment testing date.

We also assessed the appropriateness of the disclosures in the consolidated financial statements.

Revenue Recognition

Description of the Matter

For the year ended December 31, 2020, the Company’s revenues totaled $502.6 million.

Description of the Matter For the year ended December 31, 2021, the Company’s revenues totaled $444.9 million.

As discussed in Note 2 to the consolidated financial statements, some of the Company’s contracts with customers contain multiple performance obligations.

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 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.

The Company uses costs incurred to date relative to total estimated costs at completion to measure progress.

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.

This included the identification and determination of the performance obligations and the timing of revenue recognition.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s revenue recognition process.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s revenue recognition process.

For example, we tested controls over management’s review of the terms and conditions of contracts with customers which included an analysis of the distinct performance obligations and a review of the conclusion as to whether revenue from such performance obligations should be recognized over time or at a point in time.

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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.

We also assessed the appropriateness of the disclosures in the consolidated financial statements.

/s/ Ernst & Young LLP

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Selling, General and Administrative Expenses 99,051 110,528 143,358

Net Gain on Sale of Facility 5,014 — —

Impairment Loss — 87,016 11,083

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(Loss) Income Before Income Taxes ( 26,960 ) ( 112,410 ) 68,303

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

(Benefit from) Provision for Income Taxes ( 1,382 ) 3,371 16,286

Net (Loss) Income $ ( 25,578 ) $ ( 115,781 ) $ 52,017

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Net (Loss) Income $ ( 25,578 ) $ ( 115,781 ) $ 52,017

Other Comprehensive (Loss) Income:

Other Comprehensive Income (Loss):

Foreign Currency Translation Adjustments ( 939 ) 2,574 114

Retirement Liability Adjustment – Net of Tax 2,894 ( 3,396 ) ( 2,413 )

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

Other Comprehensive Income (Loss) 1,955 ( 822 ) ( 2,299 )

Comprehensive (Loss) Income $ ( 23,623 ) $ ( 116,603 ) $ 49,718

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Prepaid Expenses and Other Current Assets 45,089 26,420

Assets Held for Sale — 1,537

Total Current Assets 339,861 316,947

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Current Liabilities:

Current Maturities of Long-term Debt $ — $ 224

Accounts Payable $ 34,860 $ 26,446

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Retained Earnings 287,225 312,803

Treasury Stock;

3,808,060 Shares at December 31, 2020, 3,526,018 Shares at December 31, 2019

Treasury Stock, 3,808,060 Shares at December 31, 2021 and 2020

( 108,516 ) ( 108,516 )

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Equity-based Compensation Expense 6,460 5,184 3,843

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

Deferred Tax (Benefit) Expense ( 441 ) 15,553 ( 14,385 )

Operating Lease Non-cash Expense 5,198 4,500 4,208

Net Gain on Sales of Assets ( 5,083 ) — —

Contingent Consideration Liability Fair Value Adjustment ( 2,200 ) — —

Non-cash 401K Contribution 4,199 — —

Net Gain on Sale of Businesses, Before Taxes ( 10,677 ) — ( 78,801 )

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Acquisitions of Businesses, Net of Cash Acquired — — ( 28,907 )

Proceeds from Sale of Businesses — 104,877 —

Proceeds from Sale of Businesses and Assets 9,213 — 106,946

Capital Expenditures ( 6,034 ) ( 7,459 ) ( 12,083 )

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Cash Flows from Investing Activities $ 3,179 $ ( 5,797 ) $ 64,630

A STRONICS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(In thousands) Year Ended December 31,

Cash Flows from Financing Activities 2021 2020 2019

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Debt Acquisition Costs — ( 360 ) —

Stock Options Activity 666 ( 545 ) 2,201

Stock Award and Employee Stock Purchase Plan (“ESPP”) activity 3,396 666 ( 545 )

Finance Lease Principal Payments ( 901 ) ( 1,922 ) ( 1,746 )

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Effect of Exchange Rates on Cash ( 799 ) 1,544 147

Increase (Decrease) in Cash and Cash Equivalents 8,506 15,284 ( 1,292 )

(Decrease) Increase in Cash and Cash Equivalents ( 10,655 ) 8,506 15,284

Cash and Cash Equivalents at Beginning of Year 40,412 31,906 16,622

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Beginning of Year $ 278 $ 269 $ 260

Net Exercise of Stock Options 1 1 1

Net Exercise of Stock Options, including ESPP 5 1 1

Net Issuance of Common Stock for Restricted Stock Units (“RSU’s”) 1 — —

Class B Stock Converted to Common Stock 5 8 8

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Beginning of Year $ 82,187 $ 76,340 $ 73,044

Net Exercise of Stock Options and Equity-based Compensation Expense 5,847 3,296 5,296

Net Exercise of Stock Options, including ESPP, and Equity-based Compensation Expense 10,029 5,847 3,296

Tax Withholding Related to Issuance of RSU’s ( 179 ) — —

End of Year $ 92,037 $ 82,187 $ 76,340

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Beginning of Year $ ( 16,450 ) $ ( 15,628 ) $ ( 13,329 )

Adoption of ASU 2018-02 — — ( 1,373 )

Foreign Currency Translation Adjustments ( 939 ) 2,574 114

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Beginning of Year $ 312,803 $ 428,584 $ 376,567

Adoption of ASU 2014-09 — — 3,268

Adoption of ASU 2018-02 — — 1,373

Net (Loss) Income ( 25,578 ) ( 115,781 ) 52,017

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

End of Year $ 287,225 $ 312,803 $ 428,584

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Beginning of Year 27,825 26,874 25,978

Issuance of Restricted Stock 45 18 —

Net Issuance from Exercise of Stock Options 48 63 166

Net Issuance of Common Stock for RSU’s 70 45 18

Net Issuance from Exercise of Stock Options, including ESPP

Class B Stock Converted to Common Stock 531 858 815

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Beginning of Year 6,877 7,650 8,290

Net Issuance of Restricted Stock 4 — —

Net Issuance from Exercise of Stock Options 25 85 175

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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 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.

Freedom, located in Kilgore, Texas, is a leader in wireless communication testing, primarily for the civil land mobile radio market.

Freedom is included in our Test Systems segment.

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

On July 12, 2019, the Company sold intellectual property and certain assets associated with its Airfield Lighting product line for $ 1.0 million in cash.

The Airfield Lighting product line, part of the Aerospace segment, was not core to the business and represented less than 1 % of revenue.

The Company recorded a pre-tax loss on the sale of approximately $ 1.3 million.

On October 4, 2019, the Company acquired the stock of the primary operating subsidiaries as well as certain other assets from mass transit and defense market test solution provider, Diagnosys Test Systems Limited, for $ 7.0 million in cash, plus 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.

See Notes 21 and 22 for details of our acquisition and divestiture activities in 2021, 2020 and 2019.

Impact of the COVID-19 Pandemic

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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.

The COVID-19 pandemic 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.

This low level of investment by the airlines has continued through 2021, and while the industry is seeing some improvement on rising vaccination rates and easing travel restrictions, 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, vaccination rates and efficacy and the related length of 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 early in 2020 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.

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:

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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.

In addition to these measures, we amended our revolving credit facility in May 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.

Refer to Note 7 for a discussion of goodwill impairment charges recorded in 2020.

No goodwill impairment charges were required in 2021.

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 Company qualified for government subsidies from the Canadian and French governments 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.

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 $ 7.4 million in cash under the grant in 2021.

The remaining balance due to be received of $ 7.3 million has been classified within Prepaid Expenses and Other Current Assets on the Consolidated Condensed Balance Sheets as of December 31, 2021.

The Company expects to receive a second installment of approximately $ 5.2 million in the first quarter of 2022, 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, lay off or

reduce the compensation levels of a defined group of employees during the six-month period of performance between September 2021 and March 2022.

We account for the proceeds from the grant by analogy to International Accounting Standard (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance and its principles surrounding the recognition of grants related to income.

The grant benefit will be recognized ratably 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 year ended December 31, 2021, the Company recognized $ 8.7 million of the award.

The unearned portion of the AMJP award of $ 6.0 million has been reported within Accrued Expenses and Other Current Liabilities in the Consolidated Balance Sheet at December 31, 2021.

The following table presents the COVID-19 related government assistance, including AMJP, recorded during the years ended December 31, 2021 and 2020:

Year Ended December 31,

(In thousands) 2021 2020

Cost of Products Sold $ 10,682 $ 2,383

Selling, General and Administrative Expenses 228 278

Total $ 10,910 $ 2,661

Restructuring Activities

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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.

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.

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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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

Additionally, we recorded a long-lived asset impairment charge of approximately $ 9.5 million in 2019 related to PP&E, intangible assets and right-of-use assets in

conjunction with the AeroSat restructuring.

See Note 23 for further information regarding the restructuring and impairment charges.

Assets held for sale are to be reported at lower of its carrying amount or fair value less cost to sell.

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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 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.

During the fourth quarter of 2021, we sold a facility resulting in a gain of $ 5.0 million.

Refer to Note 22.

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.

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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 2021 assessment indicated no impairment to the carrying value of goodwill in any of the Company’s reporting units and no impairment charge was recognized.

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

Intangible Assets

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Impairment is tested under ASC Topic 350, Intangibles - Goodwill and Other, as amended by Accounting Standards Update (“ASU”) 2012-2.

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 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.

In 2019, the undiscounted cash flows of the AeroSat reporting unit were determined to be insufficient to recover the carrying value of the long-lived assets.

The Company recorded a full impairment charge of approximately $ 6.2 million in the December 31, 2019 Consolidated Statements of Operations associated with intangible assets of the AeroSat reporting unit in conjunction with restructuring activities.

Financial 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 Statements of Operations.

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

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 2021, 2020 and 2019.

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 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 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.

In 2020, 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.

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

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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.

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 taxable income to overcome the negative evidence of cumulative losses.

Accordingly, during the years ended December 31, 2021 and 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 valuation allowance against its U.S.

federal deferred tax assets of approximately $ 6.0 million and $ 23.3 million during the years ended December 31, 2021 and 2020 respectively.

In addition, during the year ended December 31, 2021, the Company recorded a valuation allowance against certain foreign deferred tax assets of approximately $ 1.3 million.

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

The aggregate transaction gains and losses included in operations were insignificant in 2021, 2020, and 2019.

The Company has no t paid any cash dividends in the three-year period ended December 31, 2021.

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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)

The standard requires lessees to recognize most leases as assets and liabilities on the balance sheet, but record expenses on the statement of operations in a manner similar to current accounting.

For lessors, the guidance modifies the classification criteria and accounting for sales-type and direct financing leases.

The standard also requires additional disclosures about leasing arrangements and requires a modified retrospective transition approach for existing leases, whereby the standard will be applied to the earliest year presented.

The provisions of the standard are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

Early adoption is permitted.

The Company adopted this guidance as of January 1, 2019 using the cumulative-effect method.

The standard requires lessees to recognize a lease liability and a right-of-use (“ROU”) asset on the balance sheet for operating leases.

Accounting for finance leases is substantially unchanged.

Prior year financial statements were not recast under the new method.

We elected the package of transition provisions available for expired or existing contracts, which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs.

As of January 1, 2019, operating lease ROU assets of approximately $ 18.4 million and lease liabilities of approximately $ 18.5 million were recognized on our balance sheet for our leased office and manufacturing facilities and equipment leases.

There was a reclassification to ROU assets of $ 3.5 million from net PP&E for assets under existing finance leases at the transition date and a reclassification of existing lease liabilities of $ 6.5 million on our balance sheet for a leased facilities and equipment.

The standard did not materially impact the Company's consolidated statements of operations or retained earnings.

Refer to Note 19 for additional information.

Date of adoption:

Recent Accounting Pronouncements Not Yet Adopted

Standard Description Financial Statement Effect or Other Significant Matters

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

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The provisions of this ASU are effective for years beginning after December 15, 2020, 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:

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

Date of adoption:

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

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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.

This ASU simplified 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 did not have any significant impact from relevant loss limitations and are not currently addressing enacted tax law changes for which this ASU applies.

This ASU did not have a material impact on its consolidated results of operations and financial condition.

Date of adoption:

Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance

This ASU is a new topic issued to increase the transparency for government assistance transactions and disclosures due to a lack of specific authoritative guidance in GAAP.

This ASU requires disclosures about government assistance in the notes to the financial statements that will provide comparable and transparent information to investors and other financial statement users to enable them to understand an entity’s financial results and prospects of future cash flows.

This ASU is effective for annual periods beginning after December 15, 2021, 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:

Recent Accounting Pronouncements Not Yet Adopted

Standard Description Financial Statement Effect or Other Significant Matters

2021-08 Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

This amendment requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Topic 606, Revenue from Contracts with Customers , as if it had originated the contracts.

Under the current business combinations guidance, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date.

The standard will not impact acquired contract assets or liabilities from business combinations occurring prior to the adoption date.

This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The impact of adoption on the Company's consolidated financial statements will be prospective only and depend on the magnitude of future business acquisitions.

Planned date of adoption:

Before December 31, 2022

We consider the applicability and impact of all ASUs.

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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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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.

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

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

(In thousands) Contract Assets Contract Liabilities

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$ 25,941 $ 28,495

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

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

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Total Property, Plant and Equipment, Net $ 95,236 $ 106,678

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 Statements of Operations, as more fully disclosed in Note 23.

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 discussed in Note 23.

NOTE 6 — INTANGIBLE ASSETS

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Amortization expense for intangibles was $ 15.4 million, $ 17.1 million and $ 17.6 million for 2021, 2020 and 2019, respectively.

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

During 2019 there was a $ 6.2 million impairment of intangible assets in conjunction with the AeroSat restructuring.

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

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2025 $ 10,935

2025 $ 10,929

NOTE 7 — GOODWILL

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

Acquisitions and Divestitures — ( 298 ) ( 298 )

Impairment Charge ( 86,312 ) — ( 86,312 )

Foreign Currency Translations and Other — — —

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

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.

The Company’s four reporting units with goodwill as of the first day of our fourth quarter of 2021 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 impairment charge was recognized.

Beginning in the first quarter of 2020, the COVID-19 pandemic negatively impacted the global economy and aerospace industry.

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.

We determined that the estimated fair value of four of the eight reporting units with goodwill significantly exceeded their respective carrying values and did not result in a goodwill impairment for these four reporting units 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.

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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.

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.

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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 (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

Total Debt 173,000 188,224

Less Current Maturities — 224

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

Principal maturities of long-term debt are approximately:

(In thousands)

2024 and thereafter —

Total Debt $ 173,000

The Company's Fifth Amended and Restated Credit Agreement (the “Agreement”) provides 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 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's long-term debt at December 31, 2021 and 2020 consists of borrowings under its Fifth Amended and Restated Credit Agreement (the “Agreement”), which provides for a $ 500 million revolving credit line with the option to increase the line by up to $ 150 million.

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.

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.

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 return to 3.75 to 1 for each quarter thereafter.

At December 31, 2020, there was $ 173.0 million outstanding under the revolving credit facility, none of which is due prior to the expiration date.

At December 31, 2021, there was $ 163.0 million outstanding on the revolving credit facility and there remained $ 210.9 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, 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 $ 180.0 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.

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 $ 180.0 million at all times.

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

The Company was in compliance with its financial covenants at December 31, 2021.

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.

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’s interest rate under the Amended Facility is 3.25 % at December 31, 2021.

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, and requires mandatory prepayments during the suspension period when the Company’s cash balance exceeds $ 100 million.

The Amended Facility required mandatory prepayments during the suspension period when the Company’s cash balance exceeded $ 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.

On March 1, 2022, the Company executed an amendment to the Amended Facility, which reduced the revolving credit line from $ 375 million to $ 225 million and extended the maturity date of the loans under the facility from February 16, 2023 to May 30, 2023.

Interest will be payable on the unpaid principal amount of the facility at a rate equal to the Secured Overnight Financing Rate (“SOFR”, which shall be at least 1.00 %), plus between 1.50 % to 3.25 % 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 0.40 % on the undrawn portion of the Amended Facility, based upon the Company’s leverage ratio.

The amendment provided for the payment of a consent fee of 10 basis points of the commitment for each consenting lender.

The amendment will require the Company to maintain minimum liquidity, defined as unrestricted cash plus the unused revolving credit commitments, of $ 35 million.

The maximum net leverage ratio is set at 4.75 to 1 for the first and second quarters of 2022 and 3.75 to 1 thereafter, and the definition of Adjusted EBITDA has been modified to exclude income from earnout payments and asset sales.

The Amended Facility also temporarily restricts certain activities, including dividend payments, acquisitions and share repurchases, through the third 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.

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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.

While we expect to be able to refinance, replace or extend the maturity date of our credit facility before it matures, we cannot be sure that we will be able to obtain such debt refinancing on commercially reasonable terms or at all.

The extent to which we will be able to effect such refinancing, replacement or maturity extension on terms that are favorable to us or at all is dependent on a number of highly uncertain factors, including then-prevailing credit and other market conditions, economic conditions, particularly in the aerospace and defense markets, disruptions or volatility caused by factors such as COVID-19, regional conflicts, inflation, and supply chain disruptions.

In addition, rising interest rates could limit our ability to refinance our existing credit facility when it matures or cause us to pay higher interest rates upon refinancing.

As the Company’s long-term debt approaches maturity, if the Company is unable to refinance, replace or extend the maturity on its credit facility, the Company’s liquidity, results of operations, and financial condition could be materially adversely impacted.

NOTE 9 — WARRANTY

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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 office equipment under 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.

If the lease arrangement also contains non-lease components, the Company elected the practical expedient not to separate any combined lease and non-lease components for all lease contracts.

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.

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 Sheets, while variable lease payments based on usage of the underlying asset have been excluded, as they do not represent present rights or obligations.

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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 right-of-use assets are based on the present value of the remaining minimum rental payments.

Any new additional operating and financing lease liabilities and corresponding right-of-use (“ROU”) 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.

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.

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

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

$ 2,081 $ 1,922

Long-term Finance Lease Liabilities — Included in Other Liabilities — 734

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Short-term Lease Cost (excluding month-to-month) 271 175

Less Sublease and Rental (Income) Expense ( 1,437 ) ( 630 )

Less Sublease and Rental Income ( 1,265 ) ( 1,437 )

Total Operating Lease Cost 6,433 6,079

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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.

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

(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 5 years and less than 1 year, respectively.

The weighted-average discount rates for the Company's operating and financing leases are approximately 3.3 % and 1.3 %, respectively.

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2022 $ 7,296 $ 72

2022 5,167 747

Thereafter 2,151 —

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Total Lease Liability $ 18,796 $ 72

These amounts exclude annual operating lease payments of $ 1.5 million per year through 2031, which represents legal binding lease payments for leases signed, but not yet commenced.

NOTE 11 — INCOME TAXES

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities.

Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of tax benefits which are not expected to be realized.

Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of tax benefits which are not more likely than not to be realized.

Investment tax credits are recognized on the flow through method.

The provision (benefit) for income taxes at December 31 consists of the following:

The provision for (benefit from) income taxes at December 31 consists of the following:

(In thousands) 2021 2020 2019

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

Contingent Consideration Liability Fair Value Adjustment 1.7 % — % — %

Other ( 0.7 ) % — % 0.5 %

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State Income Tax, Net of Federal Income Tax Effect 2.2 % 3.3 % 6.0 %

Revised State Filing Tax Benefit, Net of Federal Income Tax Effect, Net of Reserve — % — % ( 6.7 ) %

Research and Development Tax Credits 12.8 % 2.2 % ( 4.6 ) %

Change in Valuation Allowance ( 29.8 ) % ( 19.2 ) % 1.1 %

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 % — % — %

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

Foreign Tax Credit for Dividend Withholding 1.7 % — % — %

Tax Rate Change on 2020 Federal Net Operating Loss Carryback 0.9 % 1.3 % — %

Other 0.1 % ( 0.1 ) % 0.1 %

Effective Tax Rate 5.1 % ( 3.0 ) % 23.8 %

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax assets and liabilities at December 31, are as follows:

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Deferred Compensation 7,424 7,564

Section 163(j) - Interest Expense Limitation 891 —

State Investment and Research and Development Tax Credit Carryforwards, Net of Federal Tax 4,674 866

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Total Gross Deferred Tax Assets 59,986 52,304

Valuation Allowance for Foreign Tax Credit, State Deferred Tax Assets and Tax Credit Carryforwards, Net of Federal Tax ( 37,168 ) ( 13,303 )

Valuation Allowance for Federal and State Deferred Tax Assets and Tax Credit Carryforwards, Net of Federal Tax ( 43,519 ) ( 37,168 )

Deferred Tax Assets 16,467 15,136

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Depreciation 9,393 10,166

Goodwill and Intangible Assets — 4,683

ASC 606 Revenue Recognition - Section 481(a) Adjustment 1,030 928

Lease Assets 3,539 4,506

Earnout Income Accrual 2,603 —

Other 1,050 1,186

Deferred Tax Liabilities 17,615 16,786

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

Net Deferred Tax Liabilities $ ( 1,148 ) $ ( 1,650 )

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

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Deferred Tax Liabilities — Long-term ( 1,421 ) ( 2,909 )

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 .

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.

Net Deferred Tax Liabilities $ ( 1,148 ) $ ( 1,650 )

At December 31, 2021, gross federal net operating losses, amounted to approximately $ 22.1 million.

In the current year, the Company generated approximately $ 15.8 million of net operating losses, which can be carried forward indefinitely, limited annually to 80% of taxable income.

The remaining prior year carry forward net operating losses of approximately $ 6.3 million can be carried forward and are subject to annual limitations under Internal Revenue Code Section 382.

Of these net operating losses, $ 5.9 million expire in 2037 and 2038 and the remaining $ 0.4 million will carryforward indefinitely.

Given that the Company does not have a source of future taxable income to realize these net operating losses, a valuation allowance has been recorded on them.

At December 31, 2021, gross state net operating loss carryforwards amounted to approximately $ 137.2 million.

These state net operating loss carryforwards begin to expire at various dates from 2021 through 2041 .

Due to the uncertainty as to the Company’s ability to generate sufficient taxable income in certain states in the future and to utilize certain of the Company’s state operating loss carryforwards before they expire, the Company has recorded a valuation allowance on $ 134.6 million of them.

The remaining $ 2.6 million of net operating loss carryforwards are more likely than not to be realized.

At December 31, 2021, state income tax credit carryforwards amounted to approximately $ 1.8 million and begin to expire at various dates from 2021 to 2036.

Due to the uncertainty as to the Company’s ability to generate sufficient taxable income in certain states in the future, the Company has recorded a valuation allowance on these credits.

At December 31, 2021, the estimated federal R&D tax credit for the current year amounted to approximately $ 2.6 million which the Company can carry forward through 2041.

In addition, the Company has approximately $ 0.7 million of foreign tax

credits that it can carry forward through 2031.

Given that the Company does not have a source of future taxable income to realize these tax attributes, a valuation allowance has been recorded on these credits.

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 $ 3.0 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.

Based on the assessment performed, the Company concluded that amended state income tax returns would be filed for the open tax years of 2014 through 2017 to reflect this revised tax position and claim the associated tax benefits.

The Company has filed amended state income tax returns for tax years 2015 and 2016 and intends to file amended state income tax returns for tax years 2017 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 and amended state income tax returns were filed for the open tax years of 2014 through 2017 to reflect this revised tax position.

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 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 statute of limitations expired on various dates in 2020 and 2021 for the amended returns for tax years 2014 through 2016, and approximately $ 0.8 million and approximately $ 0.5 million of the unrecognized tax benefit was recognized during 2020 and 2021, respectively.

Absent a state tax audit notice related to the refund claim, the statute of limitations will expire in December 2022 for the amended return for tax year 2017, at which time approximately $ 0.5 million of the unrecognized tax benefit is expected to be recognized.

The statute of limitations will expire in years 2022 through 2025 for tax years 2018 through 2021, 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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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:

A reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties that, if recognized, would impact the effective tax rate, is as follows:

(in thousands) 2021 2020 2019

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Balance at End of the Year $ 1,412 $ 1,890 $ 2,565

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.

There are no material penalties or interest liabilities accrued as of December 31, 2021, 2020, or 2019, nor are any material penalties or interest costs included in expense for each of the years ended December 31, 2021, 2020 and 2019.

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 2021 for federal purposes and 2017 through 2021 for state purposes.

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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”).

The legislation significantly changed U.S.

tax law by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries.

The Act permanently reduced the U.S.

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

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.

The Company had an estimated $ 10.3 million of undistributed foreign E&P subject to the deemed mandatory repatriation and recognized a provisional $ 1.4 million of income tax expense in the Company’s consolidated statement of income for the year ended December 31, 2017.

The Company made an adjustment to its provisional amounts included in its consolidated financial statements for the year ended December 31, 2017 resulting in a benefit of approximately $ 0.4 million recorded during the year ended December 31, 2018.

On December 29, 2021, Luminescent Systems Canada, Inc.

(“LSI Canada”) declared a one-time dividend in the amount of $ 16.5 million to its U.S.

LSI Canada remitted non-resident Canadian withholding tax on this dividend in the amount of approximately $ 0.8 million.

No additional provision for U.S.

federal or foreign taxes has been made as the foreign subsidiaries’ undistributed earnings (approximately $ 23.2 million at December 31, 2020) are considered to be permanently reinvested.

federal or foreign taxes has been made as the remaining foreign subsidiaries’ undistributed earnings (approximately $ 3.0 million at December 31, 2021) are considered to be permanently reinvested.

It is not practicable to determine the amount of outside basis differences related to the investment in foreign subsidiaries and other taxes that would be payable if these amounts were repatriated to the U.S.

While the Tax Cuts and Jobs Act provides for a territorial tax system, beginning in 2018, it includes the foreign-derived intangible income (“FDII”) and global intangible low taxed income (“GILTI”) provisions.

The Company elected to account for GILTI tax in the period in which it is incurred.

The GILTI provisions require the Company to include in its U.S.

The Company elected to account for GILTI tax in the period in which it is incurred, and includes in its U.S.

income tax return foreign subsidiary earnings from its Controlled Foreign Corporations (“CFCs”) in excess of an allowable return on the foreign subsidiary’s tangible assets.

The GILTI tax expense resulted from excess net tested income over net deemed tangible income return from the CFCs.

The GILTI expense would have been completely offset by a foreign tax credit absent the required allocations of interest expense to the GILTI income, which created a U.S.

foreign tax credit limitation.

The Company does not expect to incur any GILTI tax expense during the year ended December, 31, 2021 as the Company is in a net tested loss position.

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 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.

The Company does not expect it will be subject to this tax and therefore has not included any tax impacts of BEAT in its consolidated financial statements for the year ended December 31, 2020, 2019, and 2018.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No.

118 (“SAB 118”) to address the application of U.S.

GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act.

The Company had recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017.

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.

As a result of these provisions, net, the Company recorded no tax benefit during the year ended December 31, 2021, a tax benefit of less than $ 0.1 million during the year ended December 31, 2020, and a tax benefit of approximately $ 0.8 million during the year ended December 31, 2019.

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”).

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.

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 tax loss for the year ended December 31, 2020,

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

During the years ended December 31, 2021 and 2020, the Company recorded a tax benefit relating to the NOL carryback provisions and the technical correction for qualified improvement property provided for in the CARES Act of approximately $ 0.3 million and $ 1.5 million respectively.

As a result of the on-going COVID-19 pandemic, the Company generated a significant tax loss for the year ended December 31, 2020, which was 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.

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.

Losses in recent periods and cumulative pre-tax losses in the three years 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 taxable income to overcome the negative evidence of cumulative losses.

Accordingly, during the years ended December 31, 2021 and 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 provision for valuation allowances against its U.S.

federal deferred tax assets of approximately $ 6.0 million and $ 23.3 million during the years ended December 31, 2021 and 2020 respectively.

In addition, during the year ended December 31, 2021, the Company recorded a valuation allowance against certain foreign deferred tax assets of approximately $ 1.3 million.

NOTE 12 — PROFIT SHARING/401K PLAN

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The plans provide for a discretionary annual company contribution.

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

In addition, employees may contribute a portion of their salary to the plans which, under certain of the profit sharing/401K plans, 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 discretionary Company contribution and, where applicable, the matching contribution, were reinstated in the fourth quarter of 2021.

The plans may be amended or terminated at any time.

Total charges to income before income taxes for these plans were approximately $ 4.3 million, $ 3.3 million and $ 10.0 million in 2021, 2020 and 2019, respectively.

The Company expects to fund substantially all of the 2021 401K contributions with treasury stock in lieu of cash in the first quarter of 2022.

NOTE 13 — RETIREMENT PLANS AND RELATED POST RETIREMENT BENEFITS

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Unrecognized prior service costs of $ 1.4 million ($ 2.0 million net of $ 0.6 million in taxes) and unrecognized actuarial losses of $ 6.7 million ($ 8.3 million net of $ 1.6 million in taxes) are included in AOCI at December 31, 2021 and have not yet been recognized in net periodic pension cost.

The prior service cost included in AOCI that is expected to be recognized in net periodic pension cost during the fiscal year-ended December 31, 2021 is $ 0.3 million ($ 0.4 million net of $ 0.1 million in taxes).

The actuarial loss included in AOCI expected to be recognized in net periodic pension cost during the fiscal year-ended December 31, 2021 is $ 1.0 million ($ 1.3 million net of $ 0.3 million in taxes).

The reconciliation of the beginning and ending balances of the projected benefit obligation of the plans for the years ended December 31 is as follows:

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Interest Cost 764 836

Actuarial Loss 4,472 3,827

Actuarial (Gain) Loss ( 1,838 ) 4,472

Benefits Paid ( 348 ) ( 348 )

End of the Year — December 31 $ 30,503 $ 31,730

In 2021, the net actuarial gain of $ 1.8 million is due principally to the increase of 33 basis points in the discount rate used to measure the benefit obligation as of December 31, 2021 compared to the prior year.

The assumptions used to calculate the projected benefit obligation as of December 31 are as follows:

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Future Average Compensation Increases 2.00 % - 3.00 %

0.00 % - 2.00 %

The plans are unfunded at December 31, 2021 and are recognized in the accompanying Consolidated Balance Sheets as a current accrued pension liability of $ 0.3 million and a long-term accrued pension liability of $ 30.2 million.

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Future Average Compensation Increases 2.00 % - 3.00 %

2.00 % - 3.00 %

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.

The Company expects the benefits to be paid in each of the next two years to be $ 0.3 million, $ 0.6 million in each of the following three years, and $ 7.9 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 accumulated postretirement benefit obligation is $ 1.1 million for the years ended December 31, 2021 and 2020.

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

The net periodic cost for the years ended December 31, 2021, 2020 and 2019 is immaterial.

The Company also has a defined benefit plan related to its subsidiary in France.

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

The unfunded liability is $ 0.3 million for the years ended December 31, 2021 and 2020.

The plan is recognized in the accompanying Consolidated Balance Sheets as a long-term liability.

The net periodic cost for the years ended December 31, 2021, 2020 and 2019 is immaterial.

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 92.0 %

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.

The Plan is 93.7 % funded as of January 1, 2021.

The Company’s contributions to the plan were $ 0.4 million in 2021, $ 0.5 million in 2020 and $ 1.1 million in 2019.

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

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Accumulated Other Comprehensive Loss $ ( 14,495 ) $ ( 16,450 )

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

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

(In thousands) 2021 2020 2019

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Retirement Liability Adjustment 2,894 ( 3,396 ) ( 3,054 )

Tax Benefit (Expense) — 641 ( 1,087 )

Tax Benefit — — 641

Retirement Liability Adjustment 2,894 ( 3,396 ) ( 2,413 )

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

Other Comprehensive Income (Loss) $ 1,955 $ ( 822 ) $ ( 2,299 )

In 2021 and 2020, no tax benefit was recognized as the Company had recorded a full valuation allowance.

NOTE 15 — EARNINGS (LOSS) PER SHARE

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Diluted (Loss) Earnings Per Share $ ( 0.82 ) $ ( 3.76 ) $ 1.60

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.

Stock options with exercise prices greater than the average market price of the underlying common shares are excluded from the computation of diluted earnings per share because they are out-of-the-money and the effect of their inclusion would be anti-dilutive.

The number of common shares excluded from the computation was approximately 1.2 million for the year ended December 31, 2021, 0.8 million for the year ended December 31, 2020, and 0.5 million for the year ended December 31, 2019.

The Company expects to fund substantially all of the 2021 401K contributions with treasury stock in lieu of cash in the first quarter of 2022.

The earnings per share computation for the year ended December 31, 2021 is inclusive of approximately 0.4 million in shares outstanding for the equivalent shares needed to fulfill the 401K obligation using the closing share price as of December 31, 2021.

Actual shares issued may differ based on the share price on the settlement date.

NOTE 16 — EQUITY COMPENSATION

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Equity-based compensation is designed to reward long-term contributions to the Company and provide incentives for recipients to join and to remain with the Company.

The exercise price of stock options, determined by a committee of the Board of Directors, may not be less than the fair market value of the Common Stock on the grant date.

Options become exercisable over periods not exceeding ten years .

The exercise price of stock options, determined by a committee of the Board of Directors, is equal to the fair market value of the Common Stock on the grant date.

Options become exercisable over periods not exceeding ten years , and must be exercised within 10 years from the grant date.

The Company’s practice has been to issue new shares upon the exercise of the options.

The Company established Incentive Stock Option Plans for the purpose of attracting and retaining executive officers and key employees, and to align management’s interest with those of the shareholders.

Generally, the options must be exercised within 10 years from the grant date and vest ratably over a five-year period.

The exercise price for the options is equal to the share price at the date of grant.

At December 31, 2021, the Company had options outstanding for 390,466 shares under the plans.

The Company established the Directors Stock Option Plans for the purpose of attracting and retaining the services of experienced and knowledgeable outside directors, and to align their interest with those of the shareholders.

The options must be exercised within ten years from the grant date.

The exercise price for the option is equal to the share price at the date of grant and vests six months from the grant date.

At December 31, 2021, the Company had options outstanding for 78,261 shares under the plans.

During 2017, the Company established the Long Term Incentive Plan for the purpose of attracting and retaining directors, executive officers and key employees, and to align management's interest with those of the shareholders.

The Plan contemplates the use of a mix of equity award types, and contains, with certain exceptions, a three-year pro-rata vesting schedule for time-based awards.

The Long Term Incentive Plan was amended on December 14, 2018 to provide a six-month pro-rata vesting schedule for directors.

The Plan contemplates the use of a mix of equity award types.

For stock options, the exercise price is equal to the share price on the date of grant.

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Vesting requirements vary for directors, officers and key employees.

In general, options granted to outside directors vest six months from the date of grant and options granted to officers and key employees straight line vest over a five-year period from the date of grant.

RSUs granted to officers and key employees cliff vest three years from the date of grant.

In general, options or RSU’s granted to outside directors vest six months from the date of grant and options granted to officers and key employees straight line vest over a three - to five-year period from the date of grant.

RSU’s granted to officers and key employees generally cliff vest three years from the date of grant.

The following table provides compensation expense information based on the fair value of stock options and RSU's for the years ended December 31 as follows:

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Equity-based Compensation Expense, Net of Tax $ 5,536 $ 4,475 $ 3,391

Tax benefit excludes the impact of valuation allowances recorded against deferred tax assets.

Stock Options

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Weighted Average Fair Value of the Options Granted $ 7.05 $ — $ 11.93

The weighted average fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

The weighted average fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:

2021 2020 2019

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1.67 % – 1.78 %

2.63 % – 2.87 %

Dividend Yield — %

Volatility Factor 0.58

Expected Life in Years —

5.0 – 8.0 years

Expected Life in Years 5 – 10 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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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 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.

Forfeitures during the year were insignificant.

The RSU’s granted to employees generally 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 292,091 RSU’s granted in 2021 at a weighted-average price of $ 16.30 , of which 82,813 awards were vested and issued during 2021.

Forfeitures during the year were 30,797 .

Included in total equity-based compensation expense for the year ended December 31, 2021 was $ 3.3 million related to RSU’s.

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Employees indicate the number of shares they wish to obtain through the program and their intention to pay for the shares through payroll deductions over the annual cycle of October 1 through September 30.

Employees can withdraw anytime during the annual cycle, and all money withheld from the employees pay is returned with interest.

Employees can withdraw anytime during the annual cycle, and all money withheld from the employees’ pay is returned.

If an employee remains enrolled in the program, enough money will have been withheld from the employees’ pay during the year to pay for all the shares that the employee opted for under the program.

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The weighted average fair value of the options was approximately $ 5.00 , $ 3.43 and $ 8.26 for options granted during the year ended December 31, 2021, 2020 and 2019, respectively.

The fair value for the options granted under the Employee Stock Purchase Plan was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

The fair value for the options granted under the Employee Stock Purchase Plan was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions:

2021 2020 2019

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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.

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.

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

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

The fair value of this contingent consideration was estimated at $ 2.2 million at December 31, 2020.

The fair value assigned to the earnout was 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 zero as of December 31, 2021, with the contingent consideration liability fair value adjustment of $ 2.2 million recorded within the Selling, General and Administrative line in the Consolidated Condensed Statements of Operations in the year ended December 31, 2021.

There were no other financial assets or liabilities carried at fair value measured on a recurring basis at December 31, 2021 or 2020.

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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.

There were no impairment charges to goodwill in any of the Company’s reporting units in 2021.

As further discussed in Note 7, we performed interim quantitative assessments for the reporting units which had goodwill as of March 28, 2020.

Based on our quantitative assessments, the Company recorded non-cash goodwill impairment charges associated with four Aerospace reporting units, totaling approximately $ 86.3 million within the Impairment Loss line in the Consolidated Statements of Operations in the year ended December 31, 2020.

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

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.

Based on our quantitative assessment, the Company recorded a full impairment charge of approximately $ 1.6 million within the Impairment Loss line in the Consolidated Statements of Operations in the year ended December 31, 2019.

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

The recoverability test consists of comparing the undiscounted projected cash flows with the carrying amount.

The recoverability test consists of comparing the undiscounted projected cash flows of the asset or asset group (which are Level 3 inputs) with the asset of asset group’s carrying amount.

Should the carrying amount exceed undiscounted projected cash flows, an impairment loss would be recognized to the extent the carrying amount exceeds fair value.

As of December 31, 2021, the Company concluded that no indicators of impairment relating to long-lived assets existed.

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.

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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.

Of the severance charges recorded, $ 0.6 million, $ 2.6 million and $ 2.8 million in 2021, 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.

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Quarter Ended

(Unaudited) Dec.

26, June 27, March 28, Dec.

28, June 29, March 30,

(Unaudited) December 31, December 31,

(In thousands, except for per share data) 2021 2020

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Gross Profit (Sales Less Cost of Products Sold) $ 18,464 $ 19,118

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

(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.

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.

Net Gain on Sale of Facility $ 5,014 $ —

Earnout on Previous Sale of Business $ 10,677 $ —

Loss Before Income Taxes $ ( 151 ) $ ( 7,541 )

Net Income (Loss) $ 1,604 $ ( 19,985 )

Basic Earnings (Loss) Per Share $ 0.05 $ ( 0.65 )

Diluted Earnings (Loss) Per Share $ 0.05 $ ( 0.65 )

In the fourth quarter of 2021, a portion of the AMJP grant received of $ 7.6 million was recognized as an offset to cost of products sold.

This benefit was offset by a legal accrual recorded of $ 8.4 million relating to an adverse ruling of an on-going patent infringement case.

In addition, the Company agreed to an earnout, shown above, with the buyer of the former semiconductor test business as more fully described in Note 22 and sold one of its Aerospace facilities, resulting in $ 5.0 million gain on sale discussed in Note 23.

The Company also reinstituted its 401K employer contribution in the fourth quarter of 2021, and recorded expense of $ 4.3 million in that period.

In the fourth quarter of 2021, after completion of the tax returns for the year ended December 31, 2020, the Company recorded a current federal tax benefit of approximately $ 1.7 million related to additional net operating loss and R&D tax credits that will be carried back to prior tax years in order to claim a refund.

In the fourth quarter of 2020, the Company recorded a partial valuation allowance of $ 14.1 million against its U.S.

federal deferred tax assets .

NOTE 19 — LEGAL PROCEEDINGS

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Lufthansa sought an order requiring AES to stop selling and marketing the allegedly infringing power supply system, a recall of allegedly infringing products sold to commercial customers in Germany since November 26, 2003, and compensation for damages related to direct sales of the allegedly infringing power supply system in Germany (referred to as “direct sales”).

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 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.

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.

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This action, therefore, addresses sales other than those covered by the action filed on December 29, 2010, discussed above.

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 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.

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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 claim that AES is also liable for damages for the sale of modified products.

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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.

As a result, the period for which AES is liable for damages in connection with indirect sales into Germany 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 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.

Approximately $ 0.6 million was recorded within Selling, General and

Administrative Expenses in the Company’s Consolidated Statements of Operations in both 2020 and 2021 for additional interest accrued during such 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, 2022.

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.

Therefore, the liability related to this matter, totaling $ 17.3 million and $ 16.7 million, is classified within Other Liabilities (non-current) in the Consolidated Balance Sheets at December 31, 2021 and 2020, respectively.

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

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 those cases, Lufthansa accuses AES and certain of its customers 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 normal course of its supply arrangements, AES has indemnified its customers from liability arising from such matters, and as such will bear responsibility for any monetary damages arising from such claims.

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

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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.

Lufthansa has appealed this judgment.

The appeal hearing is scheduled for December 8, 2022.

As loss exposure is not probable and estimable at this time, the Company has not recorded any liability with respect to the French matter as of December 31, 2021 or 2020.

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.

In contrast to the decisions in Germany, the UK Court found that the modified components infringed a valid claim of the patent, and accordingly, the period for which AES or its customers would be liable for damages in connection with direct sales into the UK extends until the expiration of the patent in May 2018.

AES appealed the ruling, and the appeal hearing took place on November 2, 2021.

On January 14, 2022, the Court dismissed the appeal on all grounds.

Lufthansa has yet to plead its case for monetary compensation, which would be determined at a separate trial, expected to be held in the latter half of 2023.

The case for damages will require extensive data gathering and analysis which has not yet been completed.

This analysis will include evaluating whether any units sold into the UK were subsequently shipped into Germany, where they would be subject to the indirect sales claim discussed above.

If this is the case, damages may be assessed in either the UK, or in the indirect sales matter in Germany, but not in both matters.

Under English law, Lufthansa has the option of pursuing a claim in relation to the defendants’ profits from their infringing activities or pursuing a claim in relation to Lufthansa's own lost profits.

That election has not yet been made by Lufthansa and there is currently no date set for it to make this election.

However, as we have concluded a loss is probable and reasonably estimable based upon the information currently available to AES, we have estimated damages of approximately $ 6.2 million, plus accrued interest of approximately $ 1.1 million, for AES and its indemnified customers.

Interest will accrue until final payment to Lufthansa.

Approximately $ 7.3 million is reflected for this matter as a liability in the Consolidated Balance Sheet as of December 31, 2021, and has been recorded within Selling, General & Administrative Expenses in the accompanying Consolidated Statement of Operations for the year then ended.

This amount is subject to change as additional data is received and evaluated, and as additional information regarding the damages methodology is claimed by Lufthansa in advance of the damages trial.

We currently believe it is unlikely that the UK damages claim will be completed and the damages and related interest will be paid before December 31, 2022.

Therefore, the liability related to this matter, totaling $ 7.3 million, is classified within Other Liabilities (non-current) in the Consolidated Balance Sheets at December 31, 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 was 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.

As a result of the appeal decision, Lufthansa will be entitled to reimbursement from AES of a larger proportion of its first instance legal expenditures, as well as a portion of its legal expenditures associated with the appeal.

We have recorded an estimated liability of approximately $ 1.0 million in our Consolidated Balance Sheet at December 31, 2021.

The associated expense is recorded within Selling, General & Administrative Expenses in the Consolidated Statement of Operations for the year then ended.

It is likely that such amount will be payable within the next twelve months, and as such, the liability has been classified as a current liability in the accompanying Consolidated Balance Sheets within Other Accrued Expenses at December 31, 2021.

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

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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 manufacture, uses, sells and offers for sale a power supply system that infringes upon a U.S.

patent held by Lufthansa.

The patent at issue in the U.S.

action is based on technology similar to that involved in the German action.

On April 25, 2016, the Court issued its ruling on claim construction, holding that the sole independent claim in the patent is indefinite, rendering all claims in the patent indefinite.

Based on this ruling, AES filed a motion for summary judgment on the grounds that the Court’s ruling that the patent is indefinite renders the patent invalid and unenforceable.

On July 20, 2016, the U.S.

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.

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

Supreme Court for a writ of certiorari.

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

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 damages in the UK matter are calculated on a different basis than our estimate or using information not currently available.

On March 23, 2020, Teradyne, Inc.

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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.

In addition, on December 21, 2020, ATS filed a petition for inter partes review (“IPR”) with the US Patent Trial and Appeal Board (“PTAB”), seeking to invalidate the subject patent, and on July 21, 2021, the PTAB instituted IPR.

ATS requested and, on August 26, 2021, the District Court granted, a stay of litigation during the IPR proceeding.

The parties are currently engaged in IPR briefing before the PTAB and oral argument before the PTAB is scheduled for April 21, 2022.

A decision on the IPR is expected in July 2022.

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, 2021 or 2020 financial statements, as loss exposure was neither probable nor estimable at such times.

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 Capital Expenditures $ 6,034 $ 7,459 $ 12,083

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

Operating (loss) profit 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.

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 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 $ 21.6 million and $ 21.9 million as of December 31, 2020 and 2019, respectively.

Operating (loss) profit in the Aerospace segment in 2020 and 2019 included goodwill impairment and restructuring charges, discussed in Note 7 and Note 23, 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 $ 36.6 million, $ 52.3 million and $ 85.9 million in 2021, 2020 and 2019, 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 loss from these locations was $ 3.8 million and $ 6.6 million in 2021 and 2020, respectively, and net income was $ 8.6 million in 2019.

Net assets held outside of the U.S.

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Cumulative translation adjustments amounted to $ 5.4 million and $ 4.5 million at December 31, 2021 and 2020, respectively.

The Company has a significant concentration of business with two major customers;

The Boeing Company (“Boeing”) and Panasonic Aviation Corporation (“Panasonic”).

The Company had a significant concentration of business in 2021 with The Boeing Company (“Boeing”), and had a significant concentration with both Boeing and Panasonic Aviation Corporation (“Panasonic”) in prior years.

Sales to Boeing and Panasonic are primarily in the Aerospace segment.

The following is information relating to the activity with those customers:

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Boeing $ 14,545 $ 6,490

Panasonic $ 4,083 $ 15,831

Sales to Boeing and Panasonic are primarily in the Aerospace segment.

* Sales to Panasonic represented less than 10% of total consolidated sales in 2021.

NOTE 21 — ACQUISITIONS

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and its affiliates

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

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 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.

No earnout is expected to be payable based on actual and expected order levels.

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

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.

Diagnosys is a developer and manufacturer of comprehensive automated test

equipment providing test, support, and repair of high value electronics, electro-mechanical, pneumatic and printed circuit boards focused on the global mass transit and defense markets.

The purchase price allocation for this acquisition has been finalized.

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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.

No amounts were payable to the Company under either earnout for the calendar 2019 earnout.

The Company agreed to an earnout payment of $ 10.7 million for the calendar 2020 earnout, which was recorded in the fourth quarter of 2021 as Other Income and was paid to the Company in early January 2022.

On February 14, 2022, the Company was notified by the purchaser that they have calculated $ 11.2 million as being payable for the calendar 2021 earnout.

We are in the process of reviewing the calculation, and expect to record the additional gain on the sale, and receive the payment, in the first quarter of 2022.

Airfield Lighting Product Line

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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.

On October 6, 2021, as part of a planned consolidation effort, the Company sold one of its Aerospace facilities for $ 9.2 million.

Net cash proceeds were approximately $ 8.8 million.

A gain on sale of approximately $ 5.0 million was recorded in the Consolidated Statements of Operations in Net Gain on Sale of Facility in the year ended December 31, 2021.

In 2020 the Company sold certain facilities within the Aerospace segment for $ 1.5 million in cash.

The net gain on the sale was insignificant.

NOTE 23 — IMPAIRMENTS, RESTRUCTURING AND OTHER CHARGES

Goodwill Impairment

The 2021 goodwill impairment test resulted in no impairment to the carrying value of goodwill in any of the Company’s reporting units and no impairment charge was recognized in 2021.

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.

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

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 of the restructuring plan, the Company’s total non-cash asset write-downs and impairment charges recorded in the fourth quarter of 2019 (including the goodwill impairment described above and a $ 9.5 million impairment of long-lived assets) amounted to $ 23.6 million.

Restructuring charges of $ 5.2 million comprised of employee termination benefits and 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 were also recorded in 2019.

The Company incurred an impairment charge to ROU assets of approximately $ 0.7 million during 2020.

Additional charges of $ 0.2 million and $ 0.4 million associated with restructuring at AeroSat were recorded during 2021 and 2020, respectively.

All such charges were included in the Aerospace segment.

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

Additional restructuring charges of $ 0.6 million occurred during 2021 to align the workforce to expected activities and to consolidate certain facilities.

$ 0.3 million of current year severance expense was related with the Aerospace segment and $ 0.3 million was related with the Test Systems segment.

Any future restructuring actions will depend upon market conditions, customer actions and other factors.

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

Inventories — — — 9,429 — 9,429

Prepaid Expenses and Other Current Assets — — — 1,227 — 1,227

Property, Plant and Equipment, Net — — — 2,268 — 2,268

Other Assets 691 — 691 1,141 — 1,141

Intangible Assets, Net — — — 6,186 — 6,186

Goodwill 86,325 — 86,325 1,610 — 1,610

Accrued Payroll and Employee Benefits — 5,327 5,327 — 449 449

Other Accrued Expenses — — — — 164 164

Other Liabilities — — — — 4,577 4,577

$ 87,016 $ 5,327 $ 92,343 $ 23,646 $ 5,190 $ 28,836

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 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:

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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