What changed in this filing

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Item 1. Financial Statements

2022-05-09 compared with 2021-11-09 · 171 added, 369 removed, 383 unchanged (59% of the section changed)

2 unchanged sentences

Consolidated Condensed Balance Sheets

October 2, 2021 with Comparative Figures for December 31, 2020

April 2, 2022 with Comparative Figures for December 31, 2021

(In thousands)

October 2, 2021 December 31, 2020

April 2, 2022 December 31, 2021

Current Assets:

6 unchanged sentences

18,331 45,089

Assets Held for Sale 3,760 —

Total Current Assets

31 unchanged sentences

Consolidated Condensed Statements of Operations

Three and Nine Months Ended October 2, 2021 With Comparative Figures for 2020

Three Months Ended April 2, 2022 With Comparative Figures for 2021

(In thousands, except per share data)

Nine Months Ended Three Months Ended

October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020

Three Months Ended

April 2, 2022 April 3, 2021

Sales $ 116,176 $ 105,857

2 unchanged sentences

Selling, General and Administrative Expenses 24,100 23,785

Impairment Loss — 87,016 — —

Loss from Operations ( 4,167 ) ( 9,512 )

Net Gain on Sale of Business ( 11,284 ) —

Other Expense, Net of Other Income 462 534

Interest Expense, Net of Interest Income 1,631 1,758

Loss Before Income Taxes ( 26,809 ) ( 104,869 ) ( 6,839 ) ( 11,141 )

Provision for (Benefit from) Income Taxes 373 ( 9,073 ) 335 ( 5,887 )

Income (Loss) Before Income Taxes 5,024 ( 11,804 )

Provision for Income Taxes 8,125 105

Net Loss $ ( 3,101 ) $ ( 11,909 )

4 unchanged sentences

ASTRONICS CORPORATION

Consolidated Condensed Statements of Comprehensive (Loss) Income

Three and Nine Months Ended October 2, 2021 With Comparative Figures for 2020

Consolidated Condensed Statements of Comprehensive Loss

Three Months Ended April 2, 2022 With Comparative Figures for 2021

(In thousands)

Nine Months Ended Three Months Ended

October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020

Three Months Ended

April 2, 2022 April 3, 2021

Net Loss $ ( 3,101 ) $ ( 11,909 )

3 unchanged sentences

Retirement Liability Adjustment – Net of Tax

1,302 645 434 215

Total Other Comprehensive Income (Loss) 170 ( 203 )

3 unchanged sentences

Consolidated Condensed Statements of Cash Flows

Nine Months Ended October 2, 2021 With Comparative Figures for 2020

Three Months Ended April 2, 2022 With Comparative Figures for 2021

(Unaudited, In thousands)

Nine Months Ended

Three Months Ended

April 2, 2022 April 3, 2021

Cash Flows from Operating Activities:

October 2, 2021 September 26, 2020

Net Loss $ ( 3,101 ) $ ( 11,909 )

3 unchanged sentences

Equity-based Compensation Expense 2,101 2,097

Deferred Tax (Benefit) Expense ( 145 ) 1,127

Non-cash Severance Expense 182 3,007

Non-Cash Accrued 401K Contribution 1,011 —

Deferred Tax Benefit — ( 51 )

Operating Lease Non-Cash Expense 1,424 1,185

Equity Investment Other Than Temporary Impairment — 3,493

Impairment Loss — 87,016

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

Net Gain on Sale of Business, Before Taxes ( 11,284 ) —

Other 513 1,315

8 unchanged sentences

Operating Lease Liabilities ( 1,724 ) ( 1,307 )

Supplemental Retirement and Other Liabilities ( 304 ) ( 304 )

Supplemental Retirement Plan and Other Liabilities ( 109 ) ( 109 )

Cash Flows from Operating Activities 316 ( 6,863 )

Cash Flows from Investing Activities:

Proceeds from Sale of Businesses 21,961 —

Capital Expenditures ( 1,160 ) ( 1,905 )

Proceeds on Sale of Assets 30 1,600

Cash Flows from Investing Activities 20,801 ( 1,905 )

1 unchanged sentence

Proceeds from Long-term Debt 17,925 —

Payments for Long-term Debt ( 10,000 ) ( 170,000 )

Purchase of Outstanding Shares for Treasury — ( 7,732 )

Financing Fees — ( 360 )

Stock Options Activity 3,187 33

Principal Payments on Long-term Debt ( 43,925 ) —

Stock Award Activity 108 ( 52 )

Finance Lease Principal Payments ( 23 ) ( 501 )

Debt Acquisition Costs ( 771 ) —

Cash Flows from Financing Activities ( 26,686 ) ( 553 )

6 unchanged sentences

Consolidated Condensed Statements of Shareholders' Equity

Three and Nine Months Ended October 2, 2021 With Comparative Figures for 2020

Three Months Ended April 2, 2022 With Comparative Figures for 2021

(In thousands)

Nine Months Ended Three Months Ended

October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020

Three Months Ended

April 2, 2022 April 3, 2021

Beginning of Period $ 289 $ 278

Net Exercise of Stock Options 6 — 6 —

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

Class B Stock Converted to Common Stock — 1

2 unchanged sentences

Beginning of Period 64 69

Net Exercise of Stock Options — 1 — —

Class B Stock Converted to Common Stock — ( 1 )

3 unchanged sentences

Net Exercise of Stock Options and Equity-based Compensation Expense 2,501 2,045

Tax Withholding Related to Issuance of RSU’s ( 293 ) —

End of Period 94,245 84,232

7 unchanged sentences

Net Loss ( 3,101 ) ( 11,909 )

Reissuance of Treasury Shares for 401K Contribution ( 5,077 ) —

End of Period 279,047 300,894

1 unchanged sentence

Beginning of Period ( 108,516 ) ( 108,516 )

Purchase of Shares — ( 7,732 ) — —

Shares Issued to Fund 401K Obligation 9,277 —

End of Period ( 99,239 ) ( 108,516 )

3 unchanged sentences

Consolidated Condensed Statements of Shareholders' Equity, Continued

Three and Nine Months Ended October 2, 2021 With Comparative Figures for 2020

Three Months Ended April 2, 2022 With Comparative Figures for 2021

(In thousands)

Nine Months Ended Three Months Ended

(Shares) October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020

Three Months Ended

(Shares) April 2, 2022 April 3, 2021

Beginning of Period 28,911 27,825

Net Issuance from Exercise of Stock Options 20 19

Net Issuance of Common Stock for RSU’s 42 —

Class B Stock Converted to Common Stock 36 53

7 unchanged sentences

Beginning of Period 3,808 3,808

Purchase of Shares — 282 — —

Shares Issued to Fund 401K Obligation ( 325 ) —

End of Period 3,483 3,808

2 unchanged sentences

Notes to Consolidated Condensed Financial Statements

October 2, 2021

April 2, 2022

1) Basis of Presentation

7 unchanged sentences

In addition, the COVID-19 pandemic has increased the volatility we experience in our financial results in recent periods and this could continue in future interim and annual periods.

Operating results for the nine months ended October 2, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Operating results for the three months ended April 2, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The balance sheet at December 31, 2021 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S.

7 unchanged sentences

The transaction included two elements of contingent earnouts.

The First Earnout is calculated based on a multiple of all future sales of existing and certain future derivative products to existing and future customers in each annual period from 2019 through 2022.

The First Earnout may not exceed $ 35.0 million in total.

The Second Earnout is calculated based on a multiple of future sales related to an existing product and program with an existing customer exceeding an annual threshold for each annual period from 2019 through 2022.

The Second Earnout is not capped.

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

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

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

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

In April 2021, the buyer provided a revised calculation, indicating, rather, that $ 7.1 million is payable to the Company for the 2020 earnout.

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

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

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

In December 2021, the Company agreed to a payment of $ 10.7 million for the calendar 2020 earnout, which was recorded in the fourth quarter of 2021 and was received by the Company in early January 2022.

In March 2022, the Company agreed with the earnout calculation for the calendar 2021 earnout in the amount of $ 11.3 million.

The Company recorded the gain and received the payment in the first quarter of 2022.

Impact of the COVID-19 Pandemic

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

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

The COVID-19 pandemic 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.

This low level of investment by the airlines has continued into 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.

Some of the actions implemented include:

social distancing;

appropriate personal protective equipment;

facility deep cleaning;

flexible work-from-home scheduling;

pre-shift temperature screenings, where allowed by law;

and restrictions on facility visitors and unnecessary travel.

Material actions to reduce costs included:

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

(2) suspension of certain benefit programs;

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

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

In addition to these measures, we amended our revolving credit facility in May 2020, as further described in Note 7.

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

Refer to Note 6 for a discussion of goodwill impairment charges recorded in 2020.

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 spread of the COVID-19 pandemic disrupted businesses on a global scale, led to significant volatility in financial markets and affected the aviation and industrial industries.

Substantially all of our operations and production activities have, to-date, remained operational.

However, the impacts of the pandemic have placed labor and supply chain pressures on our business and we have been impacted by customer demand variability.

Although we saw stable and growing backlog during the first half of 2022 in our aerospace business, COVID-19 related disruptions are ongoing and continue to adversely challenge our commercial transport market.

While we remain bullish about the aerospace business, we believe the recovery to pre-pandemic activity, particularly in the widebody market, will take longer than originally anticipated at the outset of the pandemic.

As economic activity continues to recover, we will continue to monitor the situation, assessing further possible implications on our operations, supply chain, liquidity, cash flow and customer orders.

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.

1 unchanged sentence

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

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

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

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

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

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

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

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

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

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

The following table presents the COVID-19 related government assistance, including AMJP, recorded during the three and nine months ended October 2, 2021:

Nine Months Ended Three Months Ended

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

The amount recognized in the first quarter of 2022 was immaterial.

In September 2021 the Company was awarded a grant of up to $ 14.7 million from the U.S.

Department of Transportation (“USDOT”) under the Aviation Manufacturing Jobs Protection Program (“AMJP”).

The Company received $ 7.4 million under the grant in 2021 and $ 5.2 million in the first quarter of 2022.

The Company expects to receive the remainder in 2022.

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.

The grant benefit is being 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 quarter ended April 2, 2022, the Company recognized $ 6.0 million of the award.

The following table presents the COVID-19 related government assistance, including AMJP, recorded during the three months ended April 2, 2022:

Three Months Ended

(In thousands) April 2, 2022 April 3, 2021

Cost of Products Sold $ 6,085 $ 545

4 unchanged sentences

The Company regularly reviews the allowance by considering factors such as the age of the receivable balances, historical experience, credit quality, current economic conditions, and reasonable and supportable forecasts of future economic conditions that may affect a customer’s ability to pay.

The allowance for estimated credit losses balance was $ 3.3 million and $ 3.2 million at October 2, 2021 and December 31, 2020, respectively.

The Company’s bad debt expense was insignificant during the three and nine months ended October 2, 2021, and insignificant and $ 1.7 million in the three and nine months ended September 26, 2020, respectively.

Total writeoffs charged against the allowance were insignificant in the three and nine months ended October 2, 2021, and $ 1.1 million and $ 1.2 million in the three and nine months ended September 26, 2020.

Total recoveries were insignificant in both the three and nine months ended October 2, 2021 and September 26, 2020.

The allowance for estimated credit losses balance was $ 2.9 million and $ 3.2 million at April 2, 2022 and December 31, 2021, respectively.

The Company’s bad debt included insignificant expense during the three months ended April 2, 2022, and expense of $ 0.3 million in the three months ended April 3, 2021.

Total write offs charged against the allowance were $ 0.1 million in the three months ended April 2, 2022, and insignificant in the three months ended April 3, 2021.

Total recoveries were $ 0.2 million and insignificant in the three months ended April 2, 2022 and April 3, 2021, respectively.

The Company's exposure to credit losses may increase if its customers are adversely affected by global economic recessions, disruption associated with the current COVID-19 pandemic, industry conditions, or other customer-specific factors.

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

Assets of Business Held for Sale

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

Judgment is required in estimating the sales price of assets held for sale and the time required to sell the assets.

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

As of October 2, 2021, the Company has agreed to sell one of its facilities within the Aerospace segment as a result of consolidating certain facilities.

Accordingly, the property, plant and equipment assets associated with this facility of $ 3.8 million have been classified as held for sale in the Consolidated Condensed Balance Sheets at October 2, 2021.

The facility was sold subsequent to quarter-end.

See note 19 for further information.

Cost of Products Sold, Engineering and Development, Interest, and Selling, General and Administrative Expenses

Cost of products sold includes the costs to manufacture products such as direct materials and labor and manufacturing overhead as well as all engineering and development costs.

The Company is engaged in a variety of engineering and design activities as well as basic research and development activities directed to the substantial improvement or new application of the Company’s existing technologies.

These costs are expensed when incurred and included in cost of products sold.

Research and development, design and related engineering amounted to $ 21.8 million and $ 16.4 million for the three months ended and $ 64.7 million and $ 65.0 million for the nine months ended October 2, 2021 and September 26, 2020, respectively.

Selling, general and administrative expenses include costs primarily related to our sales and marketing departments and administrative departments.

Interest expense is shown net of interest income.

Interest income was insignificant for the three and nine months ended October 2, 2021 and September 26, 2020.

Research and Development Expenses

Research and development costs are expensed as incurred and include salaries, benefits, consulting, material costs and depreciation.

Research and development expenses amounted to $ 12.2 million and $ 10.3 million for the three-month periods ended April 2, 2022 and April 3, 2021, respectively.

These costs are included in Cost of products sold.

Goodwill Impairment

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.

As a result of the qualitative factors related to the COVID-19 pandemic, as discussed above, we performed interim quantitative assessments for the reporting units which had goodwill as of March 28, 2020, and an additional assessment of our PECO reporting unit as of June 27, 2020.

Based on our quantitative assessments, the Company recorded goodwill impairment charges associated with four Aerospace reporting units, totaling $ 86.3 million within the Impairment Loss line in the Consolidated Condensed Statements of Operations in the nine months ended September 26, 2020.

As of October 2, 2021, the Company concluded that no indicators of impairment relating to intangible assets or goodwill existed and an interim test was not performed in the three or nine months then ended.

For additional information regarding the quantitative test and the related goodwill impairment see Note 6.

As of April 2, 2022, the Company concluded that no indicators of impairment relating to intangible assets or goodwill existed and an interim test was not performed in the three months then ended.

Valuation of Long-Lived Assets

2 unchanged sentences

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

In conjunction with the deteriorating economic conditions associated with the COVID-19 pandemic, we recorded an impairment charge to right-of-use (“ROU”) assets of approximately $ 0.7 million incurred in one reporting unit in the Aerospace segment within the Impairment Loss line in the Consolidated Condensed Statements of Operations in the nine months ended September 26, 2020.

As of October 2, 2021 and for the three and nine month periods then ended, the Company concluded that no indicators of additional impairment relating to long-lived assets existed.

As of April 2, 2022 and for the three month period then ended, the Company concluded that no indicators of impairment relating to long-lived assets existed.

Foreign Currency Translation

The aggregate foreign currency transaction gain or loss included in operations was insignificant for the three and nine months ended October 2, 2021 and September 26, 2020.

Newly Adopted and Recent Accounting Pronouncements

Recent Accounting Pronouncements Adopted

The aggregate foreign currency transaction gain or loss included in operations was insignificant for the three months ended April 2, 2022 and April 3, 2021.

Recent Accounting Pronouncement

Recent Accounting Pronouncement Adopted

Standard Description Financial Statement Effect or Other Significant Matters

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

The standard includes updates to the disclosure requirements for defined benefit plans including several additions, deletions and modifications to the disclosure requirements.

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

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

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

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

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

As we do not have any significant activity associated with these items, this ASU did not have a material impact on consolidated results or operations and financial condition.

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, with early adoption permitted.

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

Date of adoption:

Recent Accounting Pronouncements Not Yet Adopted

Standard Description Financial Statement Effect or Other Significant Matters

Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting The amendments in Update 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform.

The new guidance provides the following optional expedients:

simplify accounting analyses under current U.S.

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

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

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

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

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

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

Planned date of adoption:

Before December 31, 2022

We consider the applicability and impact of all ASUs.

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

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

Sales shown on the Company's Consolidated Condensed Statements of Operations are from contracts with customers.

Payment terms and conditions vary by contract, although terms generally include a requirement of payment within a range from 30 to 90 days after the performance obligation has been satisfied;

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.

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

The Company recognizes an asset for the incremental, material costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year and the costs are expected to be recovered.

These incremental costs include, but are not limited to, sales commissions incurred to obtain a contract with a customer.

As of October 2, 2021, the Company does not have material incremental costs on any open contracts with an original expected duration of greater than one year.

The Company recognizes an asset for certain, material costs to fulfill a contract if it is determined that the costs relate directly to a contract or an anticipated contract that can be specifically identified, generate or enhance resources that will be used in satisfying performance obligations in the future, and are expected to be recovered.

Such costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods to which the asset relates.

Start-up costs are expensed as incurred.

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

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

As of October 2, 2021, the Company does not have material capitalized fulfillment costs.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account.

The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts which are, therefore, not distinct.

Thus, the contract's transaction price is the revenue recognized when or as that performance obligation is satisfied.

Promised goods or services that are immaterial in the context of the contract are not separately assessed as performance obligations.

Some of our contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the product lifecycle (development, production, maintenance and support).

For contracts with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.

The primary method used to estimate standalone selling price is the expected cost plus margin approach, under which expected costs are forecast to satisfy a performance obligation and then an appropriate margin is added for that distinct good or service.

Shipping and handling activities that occur after the customer has obtained control of the good are considered fulfillment activities, not performance obligations.

Some of our contracts offer price discounts or free units after a specified volume has been purchased.

The Company evaluates these options to determine whether they provide a material right to the customer, representing a separate performance obligation.

If the option provides a material right to the customer, revenue is allocated to these rights and recognized when those future goods or services are transferred, or when the option expires.

Contract modifications are routine in the performance of our contracts.

Contracts are often modified to account for changes in contract specifications or requirements.

In most instances, contract modifications are for goods or services that are distinct, and, therefore, are accounted for as new contracts.

The effect of modifications has been reflected when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price.

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 promised product, which is generally upon delivery and acceptance by the customer.

These contracts may provide credits or incentives, which may be accounted for as variable consideration.

Variable consideration is estimated at the most likely amount to predict the consideration to which the Company will be entitled, and only to the extent it is probable that a subsequent change in estimate will not result in a significant revenue reversal when estimating the amount of revenue to recognize.

Variable consideration is treated as a change to the sales transaction price and based on an assessment of all information (i.e., historical, current and forecasted) that is reasonably available to the Company, and estimated at contract inception and updated at the end of each reporting period as additional information becomes available.

Most of our contracts do not contain rights to return product;

where this right does exist, it is evaluated as possible variable consideration.

For contracts that are subject to the requirement to accrue anticipated losses, the Company recognizes the entire anticipated loss in the period that the loss becomes probable.

For contracts with customers in which the Company promises to provide a product to the customer 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 our performance obligations.

Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer.

Contract costs include labor, material and overhead.

The Company also recognizes revenue from service contracts (including service-type warranties) over time.

The Company recognizes revenue over time during the term of the agreement as the customer is simultaneously receiving and consuming the

benefits provided throughout the Company’s performance.

The Company typically recognizes revenue on a straight-line basis throughout the contract period.

On October 2, 2021, we had $ 354.4 million of remaining performance obligations, which we refer to as total backlog.

On April 2, 2022, we had $ 475.1 million of remaining performance obligations, which we refer to as total backlog.

We expect to recognize approximately $ 364.3 million of our remaining performance obligations as revenue in the remainder of 2022.

Costs in excess of billings includes unbilled amounts resulting from revenues under contracts with customers that are satisfied over time and when the cost-to-cost measurement method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time.

Amounts may not exceed their net realizable value.

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

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

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

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

Once the beginning contract liability balance for an individual contract has been fully recognized as revenue, any additional payments received in the period are recognized as revenue once the related costs have been incurred.

We recognized $ 6.5 million and $ 8.5 million during the three months ended and $ 15.1 million and $ 20.1 million during the nine months ended October 2, 2021 and September 26, 2020, respectively, in revenues that were included in the contract liability balance at the beginning of the period.

We recognized $ 6.0 million and $ 8.3 million during the three months ended April 2, 2022 and April 3, 2021, respectively, in revenues that were included in the contract liability balance at the beginning of the period.

The Company's contract assets and contract liabilities consist primarily 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 during the nine months ended October 2, 2021:

The following table presents the beginning and ending balances of contract assets and contract liabilities during the three months ended April 2, 2022:

(In thousands) Contract Assets Contract Liabilities

Beginning Balance, January 1, 2022

Ending Balance, October 2, 2021

$ 25,941 $ 28,495

Ending Balance, April 2, 2022

$ 29,841 $ 28,214

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

Nine Months Ended Three Months Ended

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

Three Months Ended

(In thousands) April 2, 2022 April 3, 2021

Aerospace Segment

3 unchanged sentences

15,867 14,028

26,874 16,213 9,044 5,606

Aerospace Total 101,394 81,416

Test Systems Segment

Semiconductor

— 3,407 — 585

Aerospace & Defense

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The following table presents our revenue disaggregated by Product Lines as follows:

Nine Months Ended Three Months Ended

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

Three Months Ended

(In thousands) April 2, 2022 April 3, 2021

Aerospace Segment

5 unchanged sentences

Systems Certification

7,937 5,596 6,099 605

4,565 7,528 2,021 2,432

26,874 16,213 9,044 5,606

Aerospace Total 101,394 81,416

4 unchanged sentences

( In thousands )

October 2, 2021 December 31, 2020

April 2, 2022 December 31, 2021

Finished Goods

10 unchanged sentences

(In thousands)

October 2, 2021 December 31, 2020

April 2, 2022 December 31, 2021

$ 8,608 $ 8,632

8 unchanged sentences

$ 93,028 $ 95,236

Additionally, net Property, Plant and Equipment of $ 3.8 million is classified in Assets Held for Sale at October 2, 2021.

5) Intangible Assets

The following table summarizes acquired intangible assets as follows:

October 2, 2021 December 31, 2020

April 2, 2022 December 31, 2021

(In thousands) Weighted

9 unchanged sentences

Amortization expense for acquired intangibles is summarized as follows:

Nine Months Ended Three Months Ended

Three Months Ended

(In thousands)

October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020

April 2, 2022 April 3, 2021

Amortization Expense

6 unchanged sentences

2025 $ 10,935

The following table summarizes the changes in the carrying amount of goodwill for the nine months ended October 2, 2021:

The following table summarizes the changes in the carrying amount of goodwill for the three months ended April 2, 2022:

(In thousands) December 31, 2021 Foreign

October 2, 2021

April 2, 2022

Aerospace $ 36,648 $ 31 $ 36,679

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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 was less than their respective carrying values.

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

We therefore performed a quantitative test for the PECO reporting unit as of June 27, 2020 and we determined that the estimated fair value was less than the respective carrying value.

Based on our quantitative assessments, the Company recorded non-cash goodwill impairment charges associated with four Aerospace reporting units, totaling $ 86.3 million within the Impairment Loss line in the Consolidated Condensed Statements of Operations in the nine months ended September 26, 2020.

As of October 2, 2021, the Company concluded that no indicators of additional impairment relating to intangible assets or goodwill existed and an interim test was not performed in the three or nine months then ended.

As of April 2, 2022 and April 3, 2021, the Company concluded that no indicators of impairment relating to intangible assets or goodwill existed and an interim test was not performed in the three months then ended.

7) Long-term Debt and Notes Payable

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

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

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

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

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

In May 2020, the Company executed an amendment to the Agreement (the “Amended Facility”), which reduced the revolving credit line from $ 500 million to $ 375 million.

The Amended Facility suspended the application of the leverage ratio up through and including the second quarter of 2021 (the “suspension period”).

The maximum net leverage ratio is set at 6.00 to 1 for the third quarter of 2021, 5.50 to 1 for the fourth quarter of 2021, 4.50 to 1 for the first quarter of 2022, and returns to 3.75 to 1 for each quarter thereafter.

At October 2, 2021, there was $ 183.0 million outstanding on the revolving credit facility and there remained $ 190.9 million available subject to the minimum liquidity covenant discussed below, net of outstanding letters of credit.

The credit facility allocates up to $ 20 million of the $ 375 million revolving credit line for the issuance of letters of credit, including certain existing letters of credit.

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

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

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

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

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

During the suspension period, the Company paid interest on the unpaid principal amount of the Amended Facility at a rate equal to one-, three- or six-month LIBOR (which shall be at least 1.00 %) plus 2.25 %.

The Company paid a commitment fee to the lenders in an amount equal to 0.35 % on the undrawn portion of the Amended Facility.

After the suspension period, the Company pays interest on the unpaid principal amount of the Amended Facility at a rate equal to one-, three- or six-month LIBOR (which shall be at least 1.00 %) plus between 1.00 % to 2.25 % based upon the Company’s leverage ratio.

The Company's long-term debt consists of borrowings under its Fifth Amended and Restated Credit Agreement (the “Agreement”).

On March 1, 2022, the Company executed an amendment to the Agreement, 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 is 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 also pays 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 Amended Facility provided for the payment of a consent fee of 15 basis points of the commitment for each consenting lender.

The Amended Facility also temporarily restricts certain activities, including acquisitions and share repurchases, through the second quarter of 2022.

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

At April 2, 2022, there was $ 137.0 million outstanding on the revolving credit facility and there remained $ 86.9 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 April 2, 2022, outstanding letters of credit totaled $ 1.1 million.

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 Company was in compliance with its financial covenants at April 2, 2022 .

The Amended Facility 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.

We are currently in the process of evaluating terms and conditions for a new long-term financing arrangement.

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.

If we are unable to obtain a new long-term financing facility before we file our second quarter 2022 Form 10-Q to replace our existing debt facility, borrowings outstanding under our existing credit facility will come due within 12 months of that filing date and could result in substantial doubt about our ability to continue as a going concern in the event that we are not reasonably assured to have sufficient cash balances to repay the remaining obligations at maturity.

8) Product Warranties

2 unchanged sentences

Activity in the warranty accrual is summarized as follows:

Nine Months Ended Three Months Ended

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

Three Months Ended

(In thousands) April 2, 2022 April 3, 2021

Balance at Beginning of Period $ 8,183 $ 7,018

3 unchanged sentences

Balance at End of Period $ 8,049 $ 6,842

The Company has operating and finance leases for leased office and manufacturing facilities and equipment leases.

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, the agreement contains a lease.

We lease certain facilities and 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.

The weighted-average remaining term for the Company's operating and financing leases are approximately 5 and 1 years, respectively.

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

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

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

Operating Leases:

Operating Right-of-Use Assets, Gross $ 30,324 $ 28,678

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

Less Accumulated Amortization 11,029 8,015

Operating Right-of-Use Assets, Net $ 17,585 $ 18,953

Short-term Operating Lease Liabilities $ 7,124 $ 4,998

Long-term Operating Lease Liabilities 13,314 16,637

Operating Lease Liabilities $ 20,438 $ 21,635

Finance Leases:

Finance Right-of-Use Assets, Gross $ 177 $ 3,484

Less Accumulated Amortization 83 2,039

Finance Right-of-Use Assets, Net — Included in Other Assets $ 94 $ 1,445

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

Long-term Finance Lease Liabilities — Included in Other Liabilities

Finance Lease Liabilities $ 96 $ 2,815

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

Nine Months Ended Three Months Ended

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

Finance Lease Cost:

Amortization of Right-of-Use Assets $ 550 $ 765 $ 23 $ 255

Interest on Lease Liabilities 78 170 10 50

Total Finance Lease Cost 628 935 33 305

Operating Lease Cost 4,297 3,957 1,614 1,314

Right-of-Use Asset Impairment — 691 — —

Variable Lease Cost 1,135 1,010 390 377

Short-term Lease Cost (excluding month-to-month) 104 155 28 41

Less Sublease and Rental (Income) Expense ( 943 ) ( 1,085 ) ( 321 ) ( 348 )

Total Operating Lease Cost 4,593 4,728 1,711 1,384

Total Net Lease Cost $ 5,221 $ 5,663 $ 1,744 $ 1,689

The following is a summary of the Company's maturity of lease liabilities:

(In thousands) Operating Leases Finance Leases

Remainder of 2021

Thereafter 3,360 —

Total Lease Payments 22,041 97

Interest 1,603 1

Total Lease Liability $ 20,438 $ 96

9) Income Taxes

The effective tax rates were approximately ( 4.9 )% and 52.8 % for the three months ended and ( 1.4 )% and 8.7 % for the nine months ended October 2, 2021 and September 26, 2020, respectively.

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

Federal deferred tax assets.

As discussed below, the tax rate in the 2020 period was impacted primarily by the initial recording of a valuation allowance against U.S.

Federal deferred tax assets and permanently nondeductible goodwill impairments.

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, through October 2, 2021 the Company is continuing to forecast that it will generate a taxable loss in 2021.

The effective tax rates were approximately 161.7 % and ( 0.9 )% for the three months ended April 2, 2022 and April 3, 2021, respectively.

Beginning with the 2022 tax year, certain research and development costs are required to be capitalized and amortized over sixty months for income tax purposes.

The tax rate in the 2022 period was impacted by a valuation allowance applied against the deferred tax asset associated with the research and development costs that are expected to be capitalized and was partially offset by the removal of valuation allowances related to net operating losses, tax credit carryovers, and certain timing differences that are expected to reverse during 2022.

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.

1 unchanged sentence

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, in the first quarter of 2020 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.

As a result, the Company recorded a valuation allowance against its U.S.

federal deferred tax assets in the first quarter of 2020 and continues to maintain the valuation allowance against its U.S.

Federal deferred tax assets as of October 2, 2021.

On March 11, 2021, the American Rescue Plan Act, or ARPA, was signed into law.

The ARPA enacted certain provisions that are relevant to corporate income tax.

These provisions did not have a material impact on our income tax provision for the three or nine months ended October 2, 2021.

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 and the Company continues to maintain the valuation allowance against its deferred tax assets as of April 2, 2022.

10) Earnings Per Share

Basic and diluted weighted-average shares outstanding are as follows:

Nine Months Ended Three Months Ended

Three Months Ended

(In thousands)

October 2, 2021 September 26, 2020 October 2, 2021 September 26, 2020

April 2, 2022 April 3, 2021

Weighted Average Shares - Basic

4 unchanged sentences

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 covered by out-of-the-money stock options was approximately 647,000 shares as of October 2, 2021 and 831,000 shares as of September 26, 2020.

Further, due to our net loss in the three and nine month periods ended October 2, 2021 and September 26, 2020, the assumed exercise of stock compensation had an antidilutive effect and therefore was excluded from the computation of diluted loss per share.

The number of common shares covered by out-of-the-money stock options was approximately 848,000 shares as of April 2, 2022 and 652,000 shares as of April 3, 2021.

Further, due to our net loss in the three month periods ended April 2, 2022 and April 3, 2021, the assumed exercise of stock compensation had an antidilutive effect and therefore was excluded from the computation of diluted loss per share.

Currently, the Company expects to fund the 401K contribution for the quarter ended April 2, 2022 with treasury stock in lieu of cash.

The earnings per share calculation for the quarter ended April 2, 2022 is inclusive of the approximately 0.1 million in shares outstanding for the equivalent shares needed to fulfill the obligation using the closing share price as of April 2, 2022.

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

11) Shareholders' Equity

Share Buyback Program

Share Buyback and Reissuance

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

Most recently, on September 17, 2019, the Company’s Board of Directors authorized a repurchase of up to $ 50 million.

Approximately 282,000 shares were repurchased in the first quarter of 2020 at a cost of $ 7.7 million before the 10b5-1 plan associated with the share repurchase program was terminated on February 3, 2020.

Common shares repurchased by the Company are recorded at cost as treasury shares and result in a reduction of equity.

Under its current credit agreement, and as described further in Note 7, the Company is currently restricted from further stock repurchases.

Comprehensive Loss and Accumulated Other Comprehensive Loss

When treasury shares are reissued, the Company determines the cost using an average cost method.

The difference between the cost of the treasury shares and reissuance price is included in Additional paid-in capital or Retained earnings.

During the three months ended April 2, 2022, the Company reissued 325,000 treasury shares and recorded the difference between the cost and the reissuance price, $ 5.1 million, as a reduction to Retained earnings.

Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive loss are as follows:

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

(In thousands) April 2, 2022 December 31, 2021

Foreign Currency Translation Adjustments $ ( 5,588 ) $ ( 5,407 )

4 unchanged sentences

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

Nine Months Ended Three Months Ended

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

Three Months Ended

(In thousands) April 2, 2022 April 3, 2021

Foreign Currency Translation Adjustments $ ( 181 ) $ ( 637 )

2 unchanged sentences

Amortization of Prior Service Cost

302 302 101 101

Amortization of Net Actuarial Losses

1,000 515 333 171

— ( 172 ) — ( 57 )

Retirement Liability Adjustment 351 434

1 unchanged sentence

12) Supplemental Retirement Plan and Related Post Retirement Benefits

The Company has two non-qualified supplemental retirement defined benefit plans (“SERP” and “SERP II”) for certain executive officers.

The Company has two non-qualified supplemental retirement defined benefit plans (“SERP” and “SERP II”) for certain current and retired executive officers.

The following table sets forth information regarding the net periodic pension cost for the plans.

Nine Months Ended Three Months Ended

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

Three Months Ended

(In thousands) April 2, 2022 April 3, 2021

Service Cost $ 34 $ 49

4 unchanged sentences

Participants in the SERP are entitled to paid medical, dental and long-term care insurance benefits upon retirement under the plan.

The net periodic cost was insignificant for the three and nine months ended October 2, 2021 and September 26, 2020.

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

The net periodic cost for both plans for the three months ended April 2, 2022 and April 3, 2021 is immaterial.

The service cost component of net periodic benefit costs above is recorded in Selling, General and Administrative Expenses within the Consolidated Condensed Statements of Operations, while the remaining components are recorded in Other Expense, Net of Other Income.

1 unchanged sentence

The loss of major customers or a significant reduction in business with a major customer would significantly, negatively impact our sales and earnings.

In the three and nine months ended October 2, 2021, the Company had no customer in excess of 10 % of consolidated sales.

Sales to two customers in the Aerospace segment represented 6 % and 10 % of consolidated sales for the three months ended and 12 % and 9 % for the nine months ended September 26, 2020, respectively.

In the three months ended April 2, 2022, the Company had one customer in excess of 10% of consolidated sales.

Sales to The Boeing Company (“Boeing”) accounted for 13.4 % of sales in the three months ended April 2, 2022.

Accounts receivable from Boeing at April 2, 2022 were approximately $ 13.3 million.

In the three months ended April 3, 2021, the Company had no customers in excess of 10% of consolidated sales.

14) Legal Proceedings

2 unchanged sentences

Additional information about these legal proceedings can be found in Note 19 “Legal Proceedings” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

There were no significant developments in any of these matters during the three and nine months ended October 2, 2021.

The reserve for the German indirect claim was approximately $ 17.1 million at October 2, 2021, which included an additional $ 0.1 million and $ 0.4 million in interest accrued during the three and nine months then ended.

We currently believe it is unlikely that the appeals process will be completed and the damages and related interest will be paid within the next twelve months.

Therefore, the liability related to this matter is classified within Other Liabilities (non-current) in the Consolidated Condensed Balance Sheets at October 2, 2021 and December 31, 2020.

The reserve for the German indirect claim and UK damages and interest was approximately $ 24.8 million at April 2, 2022, which included an additional $ 0.2 million in interest accrued during the three months then ended.

We currently believe it is unlikely that the appeals process will be completed or the damages and related interest will be paid within the next twelve months.

Therefore, the liability related to these matters is classified within Other Liabilities (non-current) in the Consolidated Condensed Balance Sheets at April 2, 2022 and December 31, 2021.

There were no other significant developments in any of these matters during the three months ended April 2, 2022.

At December 31, 2021, we had recorded a liability of $ 1.0 million for reimbursement of Lufthansa’s legal expenses associated with the UK matter.

During the quarter ended April 2, 2022, $ 0.2 million was paid.

The remaining liability of $ 0.8 million is expected to be paid within the next twelve months and, as such, is classified in Accrued Expenses and Other Current Liabilities in the accompanying Consolidated Condensed Balance Sheet as of April 2, 2022.

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 U.S.

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.

Fact discovery has begun on both the patent and copyright claims and is not scheduled to be completed until February 2022.

A summary judgment hearing is scheduled for May 19, 2022 and the jury trial is scheduled to begin on July 12, 2022.

No amounts have been accrued for this matter in the October 2, 2021 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.

Oral arguments on the IPR were held on April 21, 2022 and a final written decision is expected by July 2022.

No amounts have been accrued for this matter in the April 2, 2022 or December 31, 2021 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.

15) Segment Information

Below are the sales and operating profit (loss) by segment for the three and nine months ended October 2, 2021 and September 26, 2020 and a reconciliation of segment operating profit (loss) to income before income taxes.

Below are the sales and operating profit (loss) by segment for the three months ended April 2, 2022 and April 3, 2021 and a reconciliation of segment operating profit (loss) to income before income taxes.

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

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

Nine Months Ended Three Months Ended

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

Three Months Ended

(In thousands) April 2, 2022 April 3, 2021

Aerospace $ 101,394 $ 81,430

5 unchanged sentences

Total Consolidated Sales $ 116,176 $ 105,857

Segment Measure of Operating (Loss) Profit and Margins

Segment Measure of Operating Profit (Loss) and Margins

$ 3,050 $ ( 5,563 )

2 unchanged sentences

( 12.1 ) % 4.9 %

Total Segment Measure of Operating Loss ( 8,310 ) ( 82,297 ) ( 284 ) ( 5,396 )

Total Segment Measure of Operating Profit (Loss) 1,263 ( 4,374 )

1.1 % ( 4.1 ) %

Deductions from Segment Measure of Operating Loss

Deductions from Segment Measure of Operating Profit (Loss)

Net Gain on Sale of Business ( 11,284 ) —

Interest Expense, Net of Interest Income

5,252 5,091 1,795 1,775

Corporate Expenses and Other

13,247 17,481 4,760 3,970

Loss Before Income Taxes $ ( 26,809 ) $ ( 104,869 ) $ ( 6,839 ) $ ( 11,141 )

Profit (Loss) Before Income Taxes $ 5,024 $ ( 11,804 )

Total Assets:

(In thousands)

October 2, 2021 December 31, 2020

April 2, 2022 December 31, 2021

$ 465,611 $ 458,334

15 unchanged sentences

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

The fair value of this contingent consideration was estimated at $ 2.2 million as of 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 October 2, 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 nine months ended October 2, 2021.

There were no other financial assets or liabilities carried at fair value measured on a recurring basis at December 31, 2020 or October 2, 2021.

Based on actual and forecasted new orders, the fair value was zero as of April 2, 2022 and 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 April 2, 2022.

On a Non-recurring Basis:

In accordance with the provisions of ASC Topic 350, I ntangibles – Goodwill and Other , the Company estimates the fair value of reporting units, utilizing unobservable Level 3 inputs.

Level 3 inputs require significant management judgment due to the absence of quoted market prices or observable inputs for assets of a similar nature.

The inputs underlying 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 6, 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 Condensed Statements of Operations in the nine months ended September 26, 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.

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 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.

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 Condensed Statements of Operations in the nine months ended September 26, 2020.

As of October 2, 2021, the Company concluded that no indicators of additional impairment relating to long-lived assets existed.

There were no non-recurring fair value measurements performed in the quarters ending April 2, 2022 and April 3, 2021.

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

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Additional restructuring activities occurred during 2021 to align the workforce to expected activities and to consolidate certain facilities.

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

There were $ 0.5 million and $ 0.7 million in restructuring-related severance charges and other charges recorded in the three and nine months ended October 2, 2021.

The Company incurred $ 0.2 million and $ 5.6 million in restructuring charges during the three and nine months ended September 26, 2020.

There were $ 0.1 million and in restructuring-related severance charges and other charges recorded in the three months ended April 2, 2022.

There were no restructuring charges recorded in the three months ended April 3, 2021.

The following tables reconcile the beginning and ending liability for restructuring charges:

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Cash Paid ( 1,275 )

Balance as of October 2 $ 3,543

The liability is within Accrued Expenses and Other Current Liabilities and is comprised of employee termination benefits expected to be paid within the next 12 months as well as payments to be made under AeroSat’s non-cancelable inventory purchase commitments.

The non-cancelable purchase commitments are for inventory in the future which was not expected to be purchased prior to the expiration date of such agreements as a result of the restructuring plan.

19) Subsequent Events

As of October 2, 2021, the Company has agreed to sell one of its facilities within the Aerospace segment as a result of consolidating certain facilities.

Accordingly, the property, plant and equipment assets associated with these facilities of $ 3.8 million have been classified as held for sale in the Consolidated Condensed Balance Sheets at October 2, 2021.

On October 6, 2021, the transaction closed and control of the assets transferred to the buyer.

The net cash proceeds from the sale totaled approximately $ 8.8 million.

The net gain on sale of approximately $ 5.0 million will be recognized in the fourth quarter of 2021.

Balance as of April 2 $ 1,209

The liability is recorded within Accounts Payable ($ 0.9 million) and Accrued Expenses and Other Current Liabilities ($ 0.3 million) and is comprised of payments to be made under AeroSat’s non-cancelable inventory purchase commitments as well as employee termination benefits expected to be paid within the next 12 months.

The non-cancelable purchase commitments are for inventory which was not expected to be purchased prior to the expiration date of such agreements as a result of the restructuring plan.

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

What changed 10-Q

Item 1. Financial Statements