What changed in this filing

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Item 1. Financial Statements

2022-11-15 compared with 2022-08-11 · 142 added, 118 removed, 453 unchanged (36% of the section changed)

2 unchanged sentences

Consolidated Condensed Balance Sheets

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

October 1, 2022 with Comparative Figures for December 31, 2021

(In thousands)

July 2, 2022 December 31, 2021

October 1, 2022 December 31, 2021

Current Assets:

15 unchanged sentences

Current Liabilities:

Current Maturities of Long-term Debt

Accounts Payable

22 unchanged sentences

Consolidated Condensed Statements of Operations

Three and Six Months Ended July 2, 2022 With Comparative Figures for 2021

Three and Nine Months Ended October 1, 2022 With Comparative Figures for 2021

(In thousands, except per share data)

Six Months Ended Three Months Ended

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Nine Months Ended Three Months Ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Sales $ 376,741 $ 328,856 $ 131,438 $ 111,841

14 unchanged sentences

ASTRONICS CORPORATION

Consolidated Condensed Statements of Comprehensive Income (Loss)

Three and Six Months Ended July 2, 2022 With Comparative Figures for 2021

Consolidated Condensed Statements of Comprehensive Loss

Three and Nine Months Ended October 1, 2022 With Comparative Figures for 2021

(In thousands)

Six Months Ended Three Months Ended

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Nine Months Ended Three Months Ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Net Loss $ ( 28,968 ) $ ( 27,182 ) $ ( 14,857 ) $ ( 7,174 )

Other Comprehensive Income (Loss):

Other Comprehensive (Loss) Income:

Foreign Currency Translation Adjustments

7 unchanged sentences

Consolidated Condensed Statements of Cash Flows

Six Months Ended July 2, 2022 With Comparative Figures for 2021

Nine Months Ended October 1, 2022 With Comparative Figures for 2021

Nine Months Ended

(Unaudited, In thousands)

Six Months Ended

July 2, 2022 July 3, 2021

October 1, 2022 October 2, 2021

Cash Flows from Operating Activities:

6 unchanged sentences

Deferred Tax Benefit — ( 145 )

Non-Cash Severance Expense — 182

Operating Lease Non-Cash Expense 4,568 3,783

Non-cash Litigation Provision 2,000 —

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

27 unchanged sentences

Cash and Cash Equivalents at End of Period $ 2,568 $ 29,091

Supplemental Disclosure of Cash Flow Information

Non-Cash Investing Activities:

Capital Expenditures in Accounts Payable $ 1,392 $ —

See notes to consolidated condensed financial statements.

1 unchanged sentence

Consolidated Condensed Statements of Shareholders' Equity

Three and Six Months Ended July 2, 2022 With Comparative Figures for 2021

Three and Nine Months Ended October 1, 2022 With Comparative Figures for 2021

(In thousands)

Six Months Ended Three Months Ended

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Nine Months Ended Three Months Ended

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Beginning of Period $ 289 $ 278 $ 290 $ 283

11 unchanged sentences

End of Period 97,318 90,515 97,318 90,515

Accumulated Comprehensive Income (Loss)

Accumulated Comprehensive Loss

Beginning of Period ( 14,495 ) ( 16,450 ) ( 15,364 ) ( 15,604 )

15 unchanged sentences

Consolidated Condensed Statements of Shareholders' Equity, Continued

Three and Six Months Ended July 2, 2022 With Comparative Figures for 2021

Three and Nine Months Ended October 1, 2022 With Comparative Figures for 2021

(In thousands)

Six Months Ended Three Months Ended

(Shares) July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

Nine Months Ended Three Months Ended

(Shares) October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Beginning of Period 28,911 27,825 29,047 28,315

15 unchanged sentences

Notes to Consolidated Condensed Financial Statements

October 1, 2022

1) Basis of Presentation

6 unchanged sentences

The results of operations for any interim period are not necessarily indicative of results for the full year.

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

In addition, the COVID-19 pandemic and supply chain disruptions have 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 1, 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.

15 unchanged sentences

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.

Although we saw stable and growing backlog during the first three quarters 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.

3 unchanged sentences

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 amount recognized during the three and six months ended July 2, 2022 was immaterial.

The amount recognized during the three and nine months ended October 1, 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 Company received $ 7.4 million under the grant in 2021, $ 5.2 million in the first quarter of 2022 and $ 2.1 million in the third quarter of 2022.

The grant benefit was 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 six months ended July 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 and six months ended July 2, 2022 and July 3, 2021:

Six Months Ended Three Months Ended

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

Cost of Products Sold $ 6,101 $ 1,478 $ 16 $ 933

Selling, General and Administrative Expenses 18 147 4 78

During the nine months ended October 1, 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 and nine months ended October 1, 2022 and October 2, 2021:

Nine Months Ended Three Months Ended

(In thousands) October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Reduction in Cost of Products Sold $ 6,008 $ 3,185 $ — $ 1,706

Reduction in Selling, General and Administrative Expenses — 190 — 43

Total $ 6,008 $ 3,375 $ — $ 1,749

2 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 $ 3.1 million and $ 3.2 million at July 2, 2022 and December 31, 2021, respectively.

The Company’s bad debt expense were insignificant during the three and six months ended July 2, 2022 and the three and six months ended July 3, 2021.

Total write offs charged against the allowance were insignificant in the three and six months ended July 2, 2022 and the three and six months ended July 3, 2021.

Total recoveries were insignificant in the three and six months ended July 2, 2022 and the three and six months ended July 3, 2021.

The allowance for estimated credit losses balance was $ 3.4 million and $ 3.2 million at October 1, 2022 and December 31, 2021, respectively.

The Company’s bad debt expense was $ 0.3 million and $ 0.4 million during the three and nine months ended October 1, 2022 and insignificant during the three and nine months ended October 2, 2021.

Total write-offs charged against the allowance were insignificant in both the three and nine months ended October 1, 2022 and October 2, 2021.

Total recoveries were insignificant in both the three and nine months ended October 1, 2022 and October 2, 2021.

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.

2 unchanged sentences

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

Research and development expenses amounted to $ 12.6 million and $ 10.3 million for the three months ended and $ 24.8 million and $ 20.6 million for the six months ended July 2, 2022 and July 3, 2021, respectively.

Research and development expenses amounted to $ 12.0 million and $ 11.3 million for the three months ended and $ 36.8 million and $ 31.9 million for the nine months ended October 1, 2022 and October 2, 2021, respectively.

These costs are included in cost of products sold.

1 unchanged sentence

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 of July 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 or six months then ended.

As of October 1, 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 or nine 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.

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

As of October 1, 2022 and for the three and nine month periods 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 six months ended July 2, 2022 and July 3, 2021.

The aggregate foreign currency transaction gain or loss included in operations was insignificant for the three and nine months ended October 1, 2022 and October 2, 2021.

Newly Adopted Accounting Pronouncement

11 unchanged sentences

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.

On July 2, 2022, we had $ 494.4 million of remaining performance obligations, which we refer to as total backlog.

We expect to recognize approximately $ 278.0 million of our remaining performance obligations as revenue in the remainder of 2022.

We recognized $ 8.9 million and $ 11.3 million during the three months ended and $ 11.2 million and $ 14.4 million during the six months ended July 2, 2022 and July 3, 2021, respectively, in revenues that were included in the contract liability balance at the beginning of the period.

On October 1, 2022, we had $ 547.1 million of remaining performance obligations, which we refer to as total backlog.

We expect to recognize approximately $ 426.5 million of our remaining performance obligations as revenue over the next twelve months and the balance thereafter.

We recognized $ 7.3 million and $ 6.5 million during the three months ended and $ 13.3 million and $ 15.1 million during the nine months ended October 1, 2022 and October 2, 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 six months ended July 2, 2022:

The following table presents the beginning and ending balances of contract assets and contract liabilities during the nine months ended October 1, 2022:

(In thousands) Contract Assets Contract Liabilities

1 unchanged sentence

$ 25,941 $ 28,495

Ending Balance, July 2, 2022

Ending Balance, October 1, 2022

$ 31,263 $ 29,838

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 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 1, 2022, the Company has capitalized $ 1.6 million of costs.

As of December 31, 2021, the Company did no t have material capitalized fulfillment costs.

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

Six Months Ended Three Months Ended

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

Nine Months Ended Three Months Ended

(In thousands) October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Aerospace Segment

12 unchanged sentences

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

Six Months Ended Three Months Ended

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

Nine Months Ended Three Months Ended

(In thousands) October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Aerospace Segment

14 unchanged sentences

( In thousands )

July 2, 2022 December 31, 2021

October 1, 2022 December 31, 2021

Finished Goods

10 unchanged sentences

(In thousands)

July 2, 2022 December 31, 2021

October 1, 2022 December 31, 2021

$ 8,501 $ 8,632

10 unchanged sentences

The following table summarizes acquired intangible assets as follows:

July 2, 2022 December 31, 2021

October 1, 2022 December 31, 2021

(In thousands) Weighted

9 unchanged sentences

Amortization expense for acquired intangibles is summarized as follows:

Six Months Ended Three Months Ended

Nine Months Ended Three Months Ended

(In thousands)

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Amortization Expense

6 unchanged sentences

2025 $ 10,935

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

The following table summarizes the changes in the carrying amount of goodwill for the nine months ended October 1, 2022:

(In thousands) December 31, 2021 Foreign

October 1, 2022

Aerospace $ 36,648 $ ( 140 ) $ 36,508

2 unchanged sentences

As of July 2, 2022 and July 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 or six months then ended.

As of October 1, 2022 and 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.

7) Long-term Debt and Notes Payable

2 unchanged sentences

The definition of Adjusted EBITDA was modified to exclude income from earnout payments and asset sales.

On August 9, 2022, the Company executed a further amendment to the Agreement (the “Amended Facility”), which reduced the revolving credit line from $ 225 million to $ 190 million until September 12, 2022 with further reductions to $ 180 million effective September 12, 2022 and $ 170 million effective October 11, 2022.

The Amended Facility extended the maturity date of the loans under the facility from May 30, 2023 to August 31, 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 4.75 % 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.

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

At July 2, 2022, there was $ 136.0 million outstanding on the revolving credit facility and there remained $ 87.9 million available subject to the minimum liquidity covenant discussed below, net of outstanding letters of credit.

On August 9, 2022, the Company executed a further amendment to the Agreement, which reduced the revolving credit line from $ 225 million to $ 190 million until September 12, 2022 with further reductions to $ 180 million effective September 12, 2022 and $ 170 million effective October 11, 2022.

The amendment extended the maturity date of the loans under the facility from May 30, 2023 to August 31, 2023.

On October 21, 2022, the Company executed an additional amendment to the Agreement, under which the lenders waived enforcement of their rights against the Company arising from the Company’s failure to comply with the maximum net leverage ratio and minimum liquidity covenants, each as of September 30, 2022.

The amendment increased the revolving credit line to $ 180 million as of October 21, 2022, with a reduction to $ 170 million effective November 21, 2022.

Under the provisions of this amendment, the inclusion of any “going concern” language in the Company’s financial statements would constitute an event of default.

A further amendment to the Agreement was executed on November 14, 2022 (the “Amended Facility”), which extended the maturity date of the loans under the facility from August 31, 2023 to November 30, 2023.

Under the Amended Facility, the revolving credit line is set at $ 180 million, with a reduction to $ 170 million effective December 21, 2022.

The amendment requires the Company to maintain minimum liquidity, defined as unrestricted cash plus the unused revolving credit commitments, of $ 10 million as of November 30, 2022 and December 31, 2022, and $ 15 million at the end of any month thereafter.

The Amended Facility requires the Company to comply with a minimum Adjusted EBITDA covenant on a trailing twelve month basis, set at $ 15 million as of December 31, 2022 and March 31, 2023, and $ 25 million in each quarter thereafter.

The amendment eliminated the net leverage ratio covenant for the remaining term of the agreement.

At October 1, 2022, there was $ 159.0 million outstanding on the revolving credit facility and there remained $ 19.9 million available subject to the minimum liquidity covenant discussed above, net of outstanding letters of credit.

The credit facility allocates up to $ 20 million of the $ 180 million revolving credit line for the issuance of letters of credit, including certain existing letters of credit.

At July 2, 2022, outstanding letters of credit totaled $ 1.1 million.

The Company is required 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 under the previous facility.

The Amended Facility includes a maximum net leverage ratio of 4.25 to 1 for the third quarter of 2022 and 3.75 to 1 thereafter.

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

The Amended Facility temporarily restricts acquisitions through the third quarter of 2022, as well as dividend payments and share repurchases through the maturity date of the Amended Facility.

At October 1, 2022, outstanding letters of credit totaled $ 1.1 million.

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 5.50 %.

Effective January 17, 2023, interest is payable on the unpaid principal amount of the facility at a rate equal to SOFR (which shall be at least 1.00 %), plus 8.50 %.

The Company also pays a commitment fee to the lenders in an amount equal to 0.40 % on the undrawn portion of the Amended Facility.

Each amendment executed in 2022 required payment of a consent fee of 5 to 10 basis points of the commitment for each consenting lender.

The Amended Facility restricts dividend payments and share repurchases through the maturity date of the Amended Facility.

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.

2 unchanged sentences

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.

We are currently in the process of evaluating terms and conditions for a new long-term financing arrangement, which includes an asset-based lending agreement and separate agreement that would monetize our real estate as collateral.

We are currently in the process of evaluating terms and conditions for a new long-term financing arrangement, which includes an asset-based lending agreement and separate term loan agreement, and expect to complete the process in the coming weeks.

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 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.

1 unchanged sentence

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 third 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.

we are unable to obtain a new long-term financing facility before we file our 2022 Form 10-K 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.

The Company expects its sales growth and improvement in inventory management will provide sufficient cash flows to fund operations.

However, the Company may also evaluate various actions and alternatives to enhance its cash generation from operating activities, which could include manufacturing efficiency initiatives, working with vendors and suppliers to reduce lead times and expedite shipment of critical components, and working with customers to expedite receivable collections.

8) Product Warranties

2 unchanged sentences

Activity in the warranty accrual is summarized as follows:

Six Months Ended Three Months Ended

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

Nine Months Ended Three Months Ended

(In thousands) October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Balance at Beginning of Period $ 8,183 $ 7,018 $ 7,759 $ 6,835

4 unchanged sentences

9) Income Taxes

The effective tax rates were approximately ( 6.4 )% and 0.8 % for the three months ended and ( 165.0 )% and ( 0.2 )% for the six months ended July 2, 2022 and July 3, 2021, respectively.

The effective tax rates were approximately 13.9 % and ( 4.9 )% for the three months ended and ( 28.3 )% and ( 1.4 )% for the nine months ended October 1, 2022 and October 2, 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.

5 unchanged sentences

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 July 2, 2022.

10) Earnings Per Share

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

Six Months Ended Three Months Ended

Nine Months Ended Three Months Ended

(In thousands)

July 2, 2022 July 3, 2021 July 2, 2022 July 3, 2021

October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Weighted Average Shares - Basic 32,085 30,927 32,241 30,954

2 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 1,338,000 shares as of July 2, 2022 and 645,000 shares as of July 3, 2021.

Further, due to our net loss in the three and six month periods ended July 2, 2022 and July 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 July 2, 2022 with treasury stock in lieu of cash.

The earnings per share calculation for the quarter ended July 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 July 2, 2022.

The number of common shares covered by out-of-the-money stock options was approximately 1,106,000 shares as of October 1, 2022 and 647,000 shares as of October 2, 2021.

Further, due to our net loss in the three and nine month periods ended October 1, 2022 and October 2, 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 October 1, 2022 with treasury stock in lieu of cash.

The earnings per share calculation for the quarter ended October 1, 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 October 1, 2022.

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

6 unchanged sentences

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

During the six months ended July 2, 2022, the Company reissued 421,000 treasury shares and recorded the difference between the average cost and the reissuance price, $ 6.8 million, as a reduction to Retained earnings.

Comprehensive (Loss) Income and Accumulated Other Comprehensive Loss

During the nine months ended October 1, 2022, the Company reissued 545,000 treasury shares and recorded the difference between the average cost and the reissuance price, $ 9.2 million, as a reduction to Retained earnings.

Comprehensive Loss and Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows:

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

(In thousands) October 1, 2022 December 31, 2021

Foreign Currency Translation Adjustments $ ( 8,648 ) $ ( 5,407 )

4 unchanged sentences

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

Six Months Ended Three Months Ended

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

Nine Months Ended Three Months Ended

(In thousands) October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Foreign Currency Translation Adjustments $ ( 3,241 ) $ ( 1,165 ) $ ( 1,674 ) $ ( 1,143 )

10 unchanged sentences

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

Six Months Ended Three Months Ended

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

Nine Months Ended Three Months Ended

(In thousands) October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Service Cost $ 103 $ 146 $ 34 $ 49

5 unchanged sentences

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

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

The net periodic cost for both plans for the three and nine months ended October 1, 2022 and October 2, 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 six months ended July 2, 2022, the Company had one customer in excess of 10% of consolidated sales.

Sales to The Boeing Company (“Boeing”) accounted for 11 % and 12 % of sales in the three and six months ended July 2, 2022.

Accounts receivable from Boeing at July 2, 2022 were approximately $ 12.5 million.

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

In the three and nine months ended October 1, 2022 and October 2, 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.

The reserve for the German indirect claim and UK damages and interest was approximately $ 24.4 million at July 2, 2022, which included an additional $ 0.2 million and $ 0.4 million in interest accrued during the three and six 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 July 2, 2022 and December 31, 2021.

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

As previously disclosed, under English law, Lufthansa has the option of pursuing a claim in the UK matter in relation to the defendants’ profits from their infringing activities or pursuing a claim in relation to Lufthansa’s own lost profits.

In September 2022, Lufthansa elected to claim damages based on defendants’ profits.

The reserve for the German indirect claim and UK damages and interest was approximately $ 24.6 million at December 31, 2021 and $ 24.1 million at October 1, 2022, which included an additional $ 0.1 million and $ 0.5 million in interest accrued during the three and nine months ended October 1, 2022.

The Company currently believes 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 October 1, 2022 and December 31, 2021.

There were no other significant developments in any of these matters during the three and nine months ended October 1, 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 six months ended July 2, 2022, $ 0.3 million was paid.

The remaining liability of $ 0.7 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 July 2, 2022.

During the nine months ended October 1, 2022, $ 0.3 million was paid.

On March 23, 2020, Teradyne, Inc.

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

The case is currently in discovery.

The case proceeded to discovery.

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.

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The PTAB issued its decision on July 20, 2022, in which it invalidated all of Teradyne’s patent claims.

The decision is subject to appeal by Teradyne.

It is anticipated that stay of litigation will be lifted with respect to the remaining claims in August 2022.

No amounts have been accrued for this matter in the July 2, 2022 or December 31, 2021 financial statements, as loss exposure was neither probable nor estimable at such times.

The stay of litigation was lifted with respect to the remaining claims in August 2022 and discovery has resumed.

No amounts have been accrued for this matter in the October 1, 2022 or December 31, 2021 financial statements, as loss exposure was neither probable nor estimable at such times.

In 2019, a former customer filed a lawsuit alleging damages associated with defective product.

Mediation of the matter was held in November 2022.

The Company agreed to make a payment of $ 2.0 million to settle the matter, and such amount has been reflected in the Selling, General and Administrative line in the three and nine month periods ended October 1, 2022.

The Company expects to be indemnified by other parties for approximately $ 1.5 million and will record the gain as an offset to Selling, General and Administrative expense when received, likely in the fourth quarter of 2022.

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 (loss) profit by segment for the three and six months ended July 2, 2022 and July 3, 2021 and a reconciliation of segment operating 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.

Below are the sales and operating loss by segment for the three and nine months ended October 1, 2022 and October 2, 2021 and a reconciliation of segment operating loss to loss before income taxes.

Operating loss 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.

Six Months Ended Three Months Ended

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

Nine Months Ended Three Months Ended

(In thousands) October 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Aerospace $ 322,871 $ 266,425 $ 112,177 $ 95,775

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Total Consolidated Sales $ 376,741 $ 328,856 $ 131,438 $ 111,841

Segment Measure of Operating (Loss) Profit and Margins

Segment Measure of Operating Loss and Margins

$ ( 7,085 ) $ ( 6,352 ) $ ( 6,859 ) $ 1,917

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Loss Before Income Taxes $ ( 22,585 ) $ ( 26,809 ) $ ( 17,260 ) $ ( 6,839 )

During the three and nine months ended October 1, 2022, the Company settled a customer accommodation dispute for $ 2.1 million and a litigation for $ 2.0 million, both recorded within Selling, General and Administrative expense and impacting Aerospace segment profitability.

Total Assets:

(In thousands)

July 2, 2022 December 31, 2021

October 1, 2022 December 31, 2021

$ 478,385 $ 458,334

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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 July 2, 2022 and December 31, 2021.

The fair value was reduced to zero as of July 3, 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 Statement of Operations in the three and six months ended July 3, 2021.

There were no other financial assets or liabilities carried at fair value measured on a recurring basis at December 31, 2021 or July 2, 2022.

Based on actual and forecasted new orders, the fair value was zero as of October 1, 2022 and December 31, 2021.

The fair value was reduced to zero during the second quarter of 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 Statement 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 October 1, 2022 or December 31, 2021.

On a Non-recurring Basis:

There were no non-recurring fair value measurements performed in the six months ended July 2, 2022 and July 3, 2021.

There were no non-recurring fair value measurements performed in the nine months ended October 1, 2022 and October 2, 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.

There were $ 0.1 million and $ 0.2 million in restructuring-related severance charges and other charges recorded in the three and six months ended July 2, 2022, respectively.

There were $ 0.2 million in restructuring-related non-severance charges recorded in the three and six months ended July 3, 2021.

Restructuring-related severance charges and other charges were insignificant in the three and nine months ended October 1, 2022.

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

The following table reconciles the beginning and ending liability for restructuring charges:

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Cash Paid ( 2,554 )

Balance as of July 2 $ 443

Balance as of October 1 $ 45

The liability is recorded within Accrued Expenses and Other Current Liabilities and is comprised of employee termination benefits expected to be paid within the next 12 months.

The cash paid in the six month period ended July 2, 2022 primarily consists of payments under non-cancelable purchase commitments for inventory which was not expected to be purchased prior to the expiration date of such agreements as a result of the restructuring plan.

The cash paid in the nine months ended October 1, 2022 primarily consists of severance payments of $ 0.4 million and payments under non-cancelable purchase commitments for inventory which was not expected to be purchased prior to the expiration date of such agreements as a result of the restructuring plan of $ 2.1 million.

18) Subsequent Events

On October 21, 2022 and November 14, 2022, the Company executed amendments to its Fifth Amended and Restated Credit Agreement.

For more information, see Note 7, Debt.

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