What changed in this filing

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Item 1. Financial Statements

2023-05-10 compared with 2022-11-15 · 197 added, 232 removed, 363 unchanged (54% of the section changed)

2 unchanged sentences

Consolidated Condensed Balance Sheets

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

April 1, 2023 with Comparative Figures for December 31, 2022

(In thousands)

October 1, 2022 December 31, 2021

April 1, 2023 December 31, 2022

Current Assets:

1 unchanged sentence

$ 4,220 $ 13,778

Restricted Cash 1,497 —

Accounts Receivable, Net of Allowance for Estimated Credit Losses

12 unchanged sentences

Current Liabilities:

Current Maturities of Long-term Debt

$ 6,750 $ 4,500

Accounts Payable

13 unchanged sentences

Accumulated Other Comprehensive Loss ( 9,117 ) ( 9,526 )

( 16,690 ) ( 14,495 )

Other Shareholders’ Equity

6 unchanged sentences

Consolidated Condensed Statements of Operations

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

Three Months Ended April 1, 2023 With Comparative Figures for 2022

(In thousands, except per share data)

Nine Months Ended Three Months Ended

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

Three Months Ended

April 1, 2023 April 2, 2022

Sales $ 156,538 $ 116,176

4 unchanged sentences

Net Gain on Sale of Business ( 3,427 ) ( 11,284 )

Other Expense, Net of Other Income 1,180 1,627 427 546

Other (Income), Net of Other Expense ( 1,288 ) 462

Interest Expense, Net of Interest Income 5,470 1,631

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

Provision for (Benefit from) Income Taxes 6,383 373 ( 2,403 ) 335

(Loss) Income Before Income Taxes ( 3,125 ) 5,024

Provision for Income Taxes 1,290 8,125

Net Loss $ ( 4,415 ) $ ( 3,101 )

5 unchanged sentences

Consolidated Condensed Statements of Comprehensive Loss

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

Three Months Ended April 1, 2023 With Comparative Figures for 2022

(In thousands)

Nine Months Ended Three Months Ended

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

Three Months Ended

April 1, 2023 April 2, 2022

Net Loss $ ( 4,415 ) $ ( 3,101 )

Other Comprehensive (Loss) Income:

Other Comprehensive Income:

Foreign Currency Translation Adjustments

( 3,241 ) ( 1,165 ) ( 1,674 ) ( 1,143 )

Retirement Liability Adjustment – Net of Tax

1,046 1,302 348 434

Total Other Comprehensive (Loss) Income ( 2,195 ) 137 ( 1,326 ) ( 709 )

Total Other Comprehensive Income 409 170

Comprehensive Loss $ ( 4,006 ) $ ( 2,931 )

2 unchanged sentences

Consolidated Condensed Statements of Cash Flows

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

Nine Months Ended

Three Months Ended April 1, 2023 With Comparative Figures for 2022

Three Months Ended

(Unaudited, In thousands)

October 1, 2022 October 2, 2021

April 1, 2023 April 2, 2022

Cash Flows from Operating Activities:

2 unchanged sentences

Depreciation and Amortization 6,662 7,088

Amortization of Deferred Financing Fees 616 —

Provisions for Non-Cash Losses on Inventory and Receivables 627 175

Equity-based Compensation Expense 2,399 2,101

Non-Cash Accrued 401K Contribution 3,300 —

Deferred Tax Benefit — ( 145 )

Non-Cash Severance Expense — 182

Operating Lease Non-Cash Expense 1,186 1,424

Non-cash Litigation Provision 2,000 —

Non-Cash Accrued 401K Contribution 1,208 1,011

Net Gain on Sale of Business, Before Taxes ( 3,427 ) ( 11,284 )

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

Non-cash deferred liability recovery ( 5,824 ) —

Other ( 525 ) 513

Cash Flows from Changes in Operating Assets and Liabilities:

Changes in Operating Assets and Liabilities Providing (Using) Cash:

Accounts Receivable ( 4,170 ) ( 10,024 )

7 unchanged sentences

Supplemental Retirement Plan and Other Liabilities ( 100 ) ( 109 )

Cash Flows from Operating Activities ( 39,141 ) ( 18,500 )

Cash Flows (Used) Provided by Operating Activities ( 19,181 ) 316

Cash Flows from Investing Activities:

Proceeds from Sale of Business and Assets 21,981 30

Proceeds from Sale of Business 3,437 21,961

Capital Expenditures ( 1,573 ) ( 1,160 )

Cash Flows from Investing Activities 17,698 ( 4,609 )

Cash Flows Provided by Investing Activities 1,864 20,801

Cash Flows from Financing Activities:

4 unchanged sentences

Debt Acquisition Costs ( 4,347 ) ( 771 )

Cash Flows from Financing Activities ( 4,949 ) 12,309

Cash Flows Provided (Used) by Financing Activities 9,176 ( 26,686 )

Effect of Exchange Rates on Cash 80 ( 173 )

Decrease in Cash and Cash Equivalents ( 27,189 ) ( 11,321 )

Cash and Cash Equivalents at Beginning of Period 29,757 40,412

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 $ —

Decrease in Cash and Cash Equivalents and Restricted Cash ( 8,061 ) ( 5,742 )

Cash and Cash Equivalents and Restricted Cash at Beginning of Period 13,778 29,757

Cash and Cash Equivalents and Restricted Cash at End of Period $ 5,717 $ 24,015

See notes to consolidated condensed financial statements.

1 unchanged sentence

Consolidated Condensed Statements of Shareholders’ Equity

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

Three Months Ended April 1, 2023 With Comparative Figures for 2022

(In thousands)

Nine Months Ended Three Months Ended

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

Three Months Ended

April 1, 2023 April 2, 2022

Beginning of Period $ 291 $ 289

29 unchanged sentences

Consolidated Condensed Statements of Shareholders’ Equity, Continued

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

Three Months Ended April 1, 2023 With Comparative Figures for 2022

(In thousands)

Nine Months Ended Three Months Ended

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

Three Months Ended

(Shares) April 1, 2023 April 2, 2022

Beginning of Period 29,122 28,911

15 unchanged sentences

Notes to Consolidated Condensed Financial Statements

October 1, 2022

April 1, 2023

1) Basis of Presentation

7 unchanged sentences

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.

Operating results for the three months ended April 1, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

The balance sheet at December 31, 2022 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.

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.

In March 2023, the Company agreed with the final earnout calculation for the calendar 2022 earnout in the amount of $ 3.4 million.

The Company recorded the gain and received the payment in the first quarter of 2023.

Impact of the COVID-19 Pandemic

1 unchanged sentence

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 three quarters of 2022 in our aerospace business, COVID-19 related disruptions are ongoing and continue to adversely challenge our commercial transport market.

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 2022 and into 2023 in our aerospace business, COVID-19 related disruptions are ongoing and continue to adversely challenge our markets.

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.

The Canadian and French subsidies are income-based grants intended to reimburse the Company for certain employee wages.

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

The 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, $ 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 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

The Company received $ 5.2 million in the first quarter of 2022.

The grant benefit was recognized ratably over the 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 three months ended April 2, 2022, the Company recognized $ 6.0 million of the award.

Restricted Cash

Under the provisions of the ABL Revolving Credit Facility (see Note 7), the Company has a lockbox arrangement with the banking institution for its accounts within the United States whereby daily lockbox receipts are contractually utilized to pay down outstanding balances on the Revolving Credit Facility debt.

Lockbox balances that have not yet been applied to the Revolving Credit Facility are classified as restricted cash in the accompanying Consolidated Condensed Balance Sheets.

The following table provides a reconciliation of cash and restricted cash included in Consolidated Condensed Balance Sheets to the amounts included in the Consolidated Condensed Statements of Cash Flows.

(In thousands) April 1, 2023 April 2, 2022

Cash and Cash Equivalents $ 4,220 $ 24,015

Restricted cash 1,497 —

Total Cash and Restricted Cash Shown in Statements of Cash Flows $ 5,717 $ 24,015

Trade Accounts Receivable and Contract Assets

1 unchanged sentence

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 $ 3.4 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.

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.

The allowance for estimated credit losses balance was $ 2.3 million and $ 2.6 million at April 1, 2023 and December 31, 2022, respectively.

The Company’s bad debt expense was insignificant during the three months ended April 1, 2023 and April 2, 2022.

Total write-offs charged against the allowance were insignificant the three months ended April 1, 2023 and April 2, 2022.

Total recoveries were $ 0.3 million in the three months ended April 1, 2023 and $ 0.2 million in the three months ended April 2, 2022.

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

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 $ 12.0 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.

Research and development expenses amounted to $ 12.7 million and $ 12.2 million for the three months ended April 1, 2023 and April 2, 2022, respectively.

These costs are included in cost of products sold.

Goodwill Impairment

Valuation of Goodwill and Long-Lived Assets

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 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

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

1 unchanged sentence

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 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.

As of April 1, 2023 and 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 month periods then ended.

Foreign Currency Translation

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.

The aggregate foreign currency transaction gain or loss included in operations was insignificant for the three months ended April 1, 2023 and April 2, 2022.

Newly Adopted Accounting Pronouncement

Recent Accounting Pronouncement Adopted

Standard Description Financial Statement Effect or Other Significant Matters

2021-08 Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

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

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

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

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

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.

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

Recent ASUs 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 April 1, 2023, we had $ 578.5 million of remaining performance obligations, which we refer to as total backlog.

We expect to recognize approximately $ 498.7 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.

We recognized $ 14.1 million and $ 6.0 million during the three months ended April 1, 2023 and April 2, 2022, 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 1, 2022:

The following table presents the beginning and ending balances of contract assets and contract liabilities during the three months ended April 1, 2023:

(In thousands) Contract Assets Contract Liabilities

1 unchanged sentence

$ 27,349 $ 33,209

Ending Balance, October 1, 2022

Ending Balance, April 1, 2023

$ 30,299 $ 28,570

2 unchanged sentences

Start-up costs are expensed as incurred.

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

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 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.

As of April 1, 2023 and December 31, 2022, the Company capitalized $ 3.0 million and $ 2.5 million of costs, respectively.

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

Nine Months Ended Three Months Ended

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

Three Months Ended

(In thousands) April 1, 2023 April 2, 2022

Aerospace Segment

1 unchanged sentence

$ 94,213 $ 64,089

Military Aircraft

14,064 14,976

1 unchanged sentence

19,448 15,867

21,056 26,874 6,574 9,044

Aerospace Total 135,597 101,394

Test Systems Segment

Aerospace & Defense

Government & Defense

20,941 14,782

2 unchanged sentences

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

Nine Months Ended Three Months Ended

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

Three Months Ended

(In thousands) April 1, 2023 April 2, 2022

Aerospace Segment

5 unchanged sentences

Systems Certification

6,656 7,937 3,985 6,099

4,600 4,565 1,551 2,021

21,056 26,874 6,574 9,044

Aerospace Total 135,597 101,394

4 unchanged sentences

( In thousands )

October 1, 2022 December 31, 2021

April 1, 2023 December 31, 2022

Finished Goods

10 unchanged sentences

(In thousands)

October 1, 2022 December 31, 2021

April 1, 2023 December 31, 2022

$ 8,590 $ 8,578

10 unchanged sentences

The following table summarizes acquired intangible assets as follows:

October 1, 2022 December 31, 2021

April 1, 2023 December 31, 2022

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

April 1, 2023 April 2, 2022

Amortization Expense

5 unchanged sentences

2025 $ 10,935

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

The following table summarizes the changes in the carrying amount of goodwill for the three months ended April 1, 2023:

(In thousands) December 31, 2022 Foreign

October 1, 2022

April 1, 2023

Aerospace $ 36,534 $ — $ 36,534

1 unchanged sentence

$ 58,169 $ — $ 58,169

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

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.

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, 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 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.

The obligations are secured by a first priority lien on substantially all of the Company’s and the guarantors’ assets.

In the event of voluntary or involuntary bankruptcy of the Company or any subsidiary, all unpaid principal and other amounts owing under the Amended Facility automatically become due and payable.

Other events of default, such as failure to make payments as they become due and breach of financial and other covenants, change of control, judgments over a certain amount, and cross default under other agreements give the agent the option to declare all such amounts immediately due and payable.

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.

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.

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.

The Company's long-term debt at December 31, 2022 consisted of borrowings under its Fifth Amended and Restated Credit Agreement (the “Agreement”).

The maturity date of the loans under the Agreement was November 30, 2023.

At December 31, 2022, there was $ 164.0 million outstanding on the Agreement and there remained $ 6.0 million available.

The Company amended the Agreement on January 19, 2023 by entering into the Sixth Amended and Restated Credit Agreement (the “ABL Revolving Credit Facility”).

The ABL Revolving Credit Facility set the maximum aggregate amount that the Company can borrow under the revolving credit line at $ 115 million, with borrowings subject to a borrowing base determined primarily by certain domestic inventory and accounts receivable.

The maturity date of borrowings under the ABL Revolving Credit Facility is January 19, 2026.

Under the terms of the ABL Revolving Credit Facility, the Company will now pay interest on the unpaid principal amount of the facility at a rate equal to SOFR (which is required to be at least 1.00 %) plus 2.25 % to 2.75 %.

The Company will pay a quarterly commitment fee under the ABL Revolving Credit Facility in an amount equal to 0.25 % or 0.375 % based on the Company’s average excess availability.

Under the provisions of the ABL Revolving Credit Facility, the Company has a cash dominion arrangement with the lead banking institution whereby eligible daily cash

receipts are contractually utilized to pay down outstanding borrowings.

Eligible cash receipts that have not yet been applied to outstanding debt balance are classified as restricted cash in the accompanying consolidated balance sheets.

At April 1, 2023, there was $ 88.1 million outstanding on the ABL Revolving Credit Facility and there remained $ 26.9 million available.

The Company is also required to maintain minimum liquidity of $ 20 million through the date of delivery of the compliance certificate for the quarter ended March 31, 2024, and $ 10 million thereafter.

The Company also entered into a $ 90 million asset-based Term Loan Facility on January 19, 2023.

The Term Loan Facility is secured primarily by fixed assets, real estate and intellectual property.

The maturity date of the Term Loan Facility is the earlier of the stated maturity date of the ABL Revolving Credit Facility or January 19, 2027, provided the ABL Revolving Credit Facility is extended beyond that date.

The Company pays interest under the Term Loan Facility at a rate equal to SOFR (which is required to be at least 2.50 %) plus 8.75 %.

The Company will pay a commitment fee under the Term Loan Facility of 5 % of the total aggregate commitment, or $ 4.5 million, $ 1.8 million which was paid on the closing date, $ 1.8 million of which will be paid on June 19, 2023 and $ 0.9 million of which will be paid on the date that the financial statements and compliance certificate for the fiscal quarter of the Company ending on or about March 31, 2024 are required to be delivered under the Term Loan Facility.

Amortization of the principal under the Term Loan Facility will begin in April with a monthly amortization rate of 0.292 % of the outstanding term loan principal balance for the period April 1, 2023 through June 1, 2023, increasing to 0.542 % per month for the period July 1, 2023 through September 1, 2023 then increasing to 0.833 % thereafter.

Total scheduled principal payments of $ 6.8 million are payable over the next twelve months and as such, have been classified as current in the accompanying consolidated condensed balance sheet as of April 1, 2023.

The weighted-average interest rate on current maturities of long-debt is 13.60 %.

The remaining balance $ 83.2 million is recorded as long-term in the accompanying consolidated condensed balance sheet.

Pursuant to the ABL Revolving Credit Facility and the Term Loan Facility, the Company is required to comply with a minimum trailing four quarter EBITDA of $ 14.7 million for the Company’s first quarter of 2023, $ 23.3 million in the second quarter, $ 39.2 million in the third quarter, $ 51.7 million in the fourth quarter, $ 57.6 million in the first quarter of 2024, $ 65.2 million in the second quarter of 2024 and $ 70 million thereafter.

In addition, mandatory prepayment of a portion of excess cash flow, as defined by the Term Loan Facility, is payable towards the principal amount outstanding on an annual basis.

Any voluntary prepayments made are subject to a prepayment fee, as defined by the Term Loan Facility.

Beginning with the first quarter of 2024, the Company is subject to a minimum fixed charge coverage ratio of 1.10 to 1.00.

Further, the Company is subject to restrictions on additional indebtedness, share repurchases and dividend payments, and a limitation on capital expenditures.

The Company is in compliance with all covenant requirements as of April 1, 2023.

The Company incurred $ 8.5 million in incremental debt issuance costs related to the new facilities, allocated between the ABL Revolving Credit Facility and the Term Loan Facility.

All costs are amortized to interest expense over the term of the respective agreement.

Deferred debt issuance costs associated with the ABL Revolving Credit Facility ($ 2.6 million as of April 1, 2023) are recorded within other assets and those associated with the Term Loan Facility ($ 5.8 million as of April 1, 2023) are recorded as a reduction of the carrying value of the debt on the Consolidated Condensed Balance Sheet.

Certain of the Company’s subsidiaries are borrowers or guarantors under the ABL Revolving Credit Facility and the Term Loan Facility.

In the event of voluntary or involuntary bankruptcy of the Company or any subsidiary, all unpaid principal and other amounts owing under the credit facilities automatically become due and payable.

Other events of default, such as failure to make payments as they become due and breach of financial and other covenants, change of control, cross default under other material debt agreements, and a going concern qualification for any reason other than loan maturity date give the agent the option to declare all such amounts immediately due and payable.

The Company expects its sales growth and reductions in working capital will provide sufficient cash flows to fund operations.

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

Our ability to maintain sufficient liquidity and comply with financial debt covenants is highly dependent upon achieving expected operating results.

Failure to achieve expected operating results could have a material adverse effect on our liquidity, our ability to obtain financing or access our existing financing, and our operations in the future and could allow our debt holders to demand payment of all outstanding amounts.

8) Product Warranties

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Activity in the warranty accrual is summarized as follows:

Nine Months Ended Three Months Ended

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

Three Months Ended

(In thousands) April 1, 2023 April 2, 2022

Balance at Beginning of Period $ 8,009 $ 8,183

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9) Income Taxes

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.

The effective tax rates were approximately ( 41.3 )% and 161.7 % for the three months ended April 1, 2023 and April 2, 2022, 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 tax rate in the 2023 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 and certain timing differences that are expected to reverse during 2023.

In addition, the tax rate in the 2023 period was also impacted by state income taxes and the federal research and development credit expected for 2023.

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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 October 1, 2022.

Accordingly, during the years ended December 31, 2022 and 2021, the Company determined that a portion of its deferred tax assets were 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 1, 2023.

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

April 1, 2023 April 2, 2022

Weighted Average Shares - Basic 32,505 31,933

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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 1,106,000 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.

The number of common shares covered by out-of-the-money stock options was approximately 826,000 shares as of April 1, 2023 and 848,000 shares as of April 2, 2022.

Further, due to our net loss in the three month periods ended April 1, 2023 and April 2, 2022, 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 1, 2023 with treasury stock in lieu of cash.

The earnings per share calculation for the quarter ended April 1, 2023 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 1, 2023.

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

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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.

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

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

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 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

During the three month periods ended April 1, 2023 and April 2, 2022, the Company reissued 95,000 and 325,000 treasury shares, respectively, associated with the funding of employer 401K contributions and recorded the difference between the average cost and the reissuance price, $ 1.5 million and $ 5.1 million, respectively, as a reduction to Retained earnings.

Comprehensive Income and Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows:

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

(In thousands) April 1, 2023 December 31, 2022

Foreign Currency Translation Adjustments $ ( 7,111 ) $ ( 7,335 )

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Accumulated Other Comprehensive Loss $ ( 9,117 ) $ ( 9,526 )

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

Nine Months Ended Three Months Ended

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

The components of other comprehensive income are as follows:

Three Months Ended

(In thousands) April 1, 2023 April 2, 2022

Foreign Currency Translation Adjustments $ 224 $ ( 181 )

Retirement Liability Adjustments:

Reclassifications to General and Administrative Expense:

Reclassifications to Selling, General and Administrative Expense:

Amortization of Prior Service Cost

302 302 101 101

Amortization of Net Actuarial Losses

744 1,000 247 333

Retirement Liability Adjustment 185 351

Other Comprehensive (Loss) Income $ ( 2,195 ) $ 137 $ ( 1,326 ) $ ( 709 )

Other Comprehensive Income $ 409 $ 170

12) Supplemental Retirement Plan and Related Post Retirement Benefits

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

Nine Months Ended Three Months Ended

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

Three Months Ended

(In thousands) April 1, 2023 April 2, 2022

Service Cost $ 26 $ 34

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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 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.

The net periodic cost for both plans for the three months ended April 1, 2023 and April 2, 2022 is immaterial.

13) Sales to Major Customers

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 1, 2022 and October 2, 2021, the Company had no customers in excess of 10% of consolidated sales.

In the three months ended April 1, 2023 and April 2, 2022, the Company had one customer in excess of 10% of consolidated sales.

Sales to The Boeing Company (“Boeing”) accounted for 10.2 % and 13.4 % of sales in the three months ended April 1, 2023 and April 2, 2022, respectively.

Accounts receivable from Boeing at April 1, 2023 were approximately $ 18.3 million.

14) Legal Proceedings

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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, 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 reserve for the German indirect claim and interest was approximately $ 18.0 million at April 1, 2023, which included an additional $ 0.2 million in interest accrued during the three months ended April 1, 2023, and $ 17.8 million at December 31, 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 nine months ended October 1, 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 October 1, 2022.

Therefore, the liability related to these matters is classified within Other Liabilities (non-current) in the Consolidated Condensed Balance Sheets at April 1, 2023 and December 31, 2022.

There were no significant developments in the German indirect claim during the quarter ended April 1, 2023.

In the UK matter, as previously disclosed, Lufthansa has pleaded its case for monetary compensation, which will be determined at a separate trial, which is now set to take place in October 2024.

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

Lufthansa has now elected for the infringers’ profits as the measure of compensation.

We have estimated damages and accrued interest for AES and its indemnified customers of approximately $ 7.2 million and $ 7.0 million at April 1, 2023 and December 31, 2022, respectively.

This variance is due to currency fluctuation.

Interest will accrue until final payment to Lufthansa.

This amount is subject to change as additional data is received and evaluated, and as additional information regarding the nature of its claim is put forward by Lufthansa in advance of the damages trial.

The damages trial is scheduled to be heard starting in October 2024, with payment likely due in late 2024 or early 2025.

Therefore, the liability related to these matters is classified within Other Liabilities (non-current) in the Consolidated Condensed Balance Sheets at April 1, 2023 and December 31, 2022.

As previously disclosed, in 2020, the Court held the French patent invalid for all asserted claims.

There can consequently be no finding of infringement on first instance.

Lufthansa has appealed this judgment.

The appeal hearing took place on December 8, 2022, and on February 24, 2023, the court upheld the first instance judgment in favor of AES.

On March 20, 2023, Lufthansa lodged an appeal before the French Supreme Court.

The merits of this Supreme Court challenge remain to be filed and assessed.

As loss exposure is not probable and estimable at this time, the Company has not recorded any liability with respect to the French matter as of April 2, 2023 or December 31, 2022.

There were no other significant developments in any of these matters during the three months ended April 1, 2023.

A liability for reimbursement of Lufthansa’s legal expenses associated with the UK matter was approximately $ 0.7 million at December 31, 2022 and $ 0.8 million at April 1, 2023 which 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 1, 2023 and December 31, 2022.

On March 23, 2020, Teradyne, Inc.

filed a complaint against the Company and its subsidiary, Astronics Test Systems (“ATS”) (together, “the Defendants”) in the United States District Court for the Central District of California alleging patent and copyright infringement, and certain other related claims.

The Defendants moved to dismiss certain claims from the case.

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.

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 remained.

The case proceeded to discovery.

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

Teradyne will not appeal the decision.

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.

Trial is scheduled for December 5, 2023.

No amounts have been accrued for this matter in the April 1, 2023 or December 31, 2022 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 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.

Below are the sales and operating profit by segment for the three months ended April 1, 2023 and April 2, 2022 and a reconciliation of segment operating profit to (loss) 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 1, 2022 October 2, 2021 October 1, 2022 October 2, 2021

Three Months Ended

(In thousands) April 1, 2023 April 2, 2022

Aerospace $ 135,715 $ 101,394

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Total Consolidated Sales $ 156,538 $ 116,176

Segment Measure of Operating Loss and Margins

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

( 2.2 ) % ( 2.4 ) % ( 6.1 ) % 2.0 %

Segment Measure of Operating Profit and Margins

$ 4,087 $ 3,050

( 597 ) ( 1,787 )

Total Segment Measure of Operating Loss ( 11,210 ) ( 8,310 ) ( 9,171 ) ( 284 )

( 2.9 ) % ( 12.1 ) %

Deductions from Segment Measure of Operating Loss

Total Segment Measure of Operating Profit 3,490 1,263

Deductions from Segment Measure of Operating Profit:

Net Gain on Sale of Business ( 3,427 ) ( 11,284 )

Interest Expense, Net of Interest Income

5,812 5,252 2,519 1,795

Corporate Expenses and Other

16,847 13,247 5,570 4,760

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.

(Loss) Income Before Income Taxes $ ( 3,125 ) $ 5,024

During the three months ended April 1, 2023, $ 5.8 million was recognized in sales related to the reversal of a deferred revenue liability assumed with an acquisition and associated with a customer program within our Test Systems Segment which is no longer expected to occur, which also benefits operating loss for the period.

Absent that benefit, Test Systems’ operating loss was $ 6.4 million.

In the quarter ended April 2, 2022, $ 6.0 million of the AMJP grant was recognized as an offset to the cost of products sold in the Aerospace segment.

Corporate expenses and other for the quarter ended April 1, 2023 includes income of $ 1.8 million associated with the reversal of a liability related to an equity investment, as we will no longer be required to make

the associated payment.

This amount is included in Other Income, Net of Other Expense in the Consolidated Condensed Statement of Operations.

Total Assets:

(In thousands)

October 1, 2022 December 31, 2021

April 1, 2023 December 31, 2022

$ 498,348 $ 481,416

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16) Fair Value

A fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability.

Fair value is based upon an exit price model.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and involves consideration of factors specific to the asset or liability.

The Company follows a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value.

This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.

On a Recurring Basis:

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

On October 4, 2019, the Company acquired the stock of the primary operating subsidiaries as well as certain other assets from mass transit and defense market test solution provider, Diagnosys Test Systems Limited for $ 7.0 million in cash, plus an earn-out estimated at a fair value of $ 2.5 million at the time of acquisition.

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 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 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 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.

There were no financial assets or liabilities carried at fair value measured on a recurring basis at April 1, 2023 or December 31, 2022.

There were no non-recurring fair value measurements performed in the three months ended April 1, 2023 and April 2, 2022.

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

The carrying value of the Company’s variable rate long-term debt instruments also approximates fair value due to the variable rate feature of these instruments.

17) Restructuring Charges

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

As a result, the Company executed restructuring activities in the form of workforce reduction, primarily in the second quarter of 2020, to align capacity with expected demand.

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

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:

(In thousands) 2022

Balance as of January 1 $ 2,400

Restructuring Charges 199

Cash Paid ( 2,554 )

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 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.

17) 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.

Shortly after the quarter ended the Test Systems segment implemented restructuring initiatives to align the workforce and management structure with near-term revenue expectations and operational needs.

These initiatives are expected to provide savings of approximately $ 4 million to $ 5 million annually, beginning with the third quarter.

The Company will incur $ 0.6 million in severance charges during the second quarter of 2023.

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