What changed in this filing

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Item 1. Financial Statements

2023-08-07 compared with 2023-05-10 · 163 added, 143 removed, 417 unchanged (42% of the section changed)

2 unchanged sentences

Consolidated Condensed Balance Sheets

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

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

(In thousands)

April 1, 2023 December 31, 2022

July 1, 2023 December 31, 2022

Current Assets:

41 unchanged sentences

Consolidated Condensed Statements of Operations

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

Three and Six Months Ended July 1, 2023 With Comparative Figures for 2022

(In thousands, except per share data)

Three Months Ended

April 1, 2023 April 2, 2022

Six Months Ended Three Months Ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Sales $ 330,992 $ 245,303 $ 174,454 $ 129,127

2 unchanged sentences

Selling, General and Administrative Expenses 60,179 48,205 30,299 24,105

Loss from Operations ( 2,370 ) ( 4,167 )

Income (Loss) from Operations 26 ( 12,563 ) 2,396 ( 8,396 )

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

1 unchanged sentence

Interest Expense, Net of Interest Income 11,390 3,293 5,920 1,662

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

Loss Before Income Taxes ( 7,027 ) ( 5,325 ) ( 3,902 ) ( 10,349 )

Provision for Income Taxes 9,387 8,786 8,097 661

6 unchanged sentences

Consolidated Condensed Statements of Comprehensive Loss

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

Three and Six Months Ended July 1, 2023 With Comparative Figures for 2022

(In thousands)

Three Months Ended

April 1, 2023 April 2, 2022

Six Months Ended Three Months Ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Net Loss $ ( 16,414 ) $ ( 14,111 ) $ ( 11,999 ) $ ( 11,010 )

Other Comprehensive Income:

Other Comprehensive Income (Loss):

Foreign Currency Translation Adjustments

711 ( 1,567 ) 487 ( 1,386 )

Retirement Liability Adjustment – Net of Tax

Total Other Comprehensive Income 409 170

372 698 187 347

Total Other Comprehensive Income (Loss) 1,083 ( 869 ) 674 ( 1,039 )

Comprehensive Loss $ ( 15,331 ) $ ( 14,980 ) $ ( 11,325 ) $ ( 12,049 )

2 unchanged sentences

Consolidated Condensed Statements of Cash Flows

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

Three Months Ended

Six Months Ended July 1, 2023 With Comparative Figures for 2022

Six Months Ended

(Unaudited, In thousands)

April 1, 2023 April 2, 2022

July 1, 2023 July 2, 2022

Cash Flows from Operating Activities:

20 unchanged sentences

Supplemental Retirement Plan and Other Liabilities ( 206 ) ( 215 )

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

Net Cash Used by Operating Activities ( 21,151 ) ( 10,330 )

Cash Flows from Investing Activities:

Proceeds from Sale of Business 3,437 21,961

Proceeds from Sale of Business and Assets 3,427 21,977

Capital Expenditures ( 3,806 ) ( 2,493 )

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

Net Cash (Used) Provided by Investing Activities ( 379 ) 19,484

Cash Flows from Financing Activities:

4 unchanged sentences

Debt Acquisition Costs ( 6,388 ) ( 771 )

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

Net Cash Provided (Used) by Financing Activities 11,945 ( 27,722 )

Effect of Exchange Rates on Cash 101 ( 505 )

5 unchanged sentences

Consolidated Condensed Statements of Shareholders’ Equity

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

Three and Six Months Ended July 1, 2023 With Comparative Figures for 2022

(In thousands)

Three Months Ended

April 1, 2023 April 2, 2022

Six Months Ended Three Months Ended

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Beginning of Period $ 291 $ 289 $ 293 $ 290

29 unchanged sentences

Consolidated Condensed Statements of Shareholders’ Equity, Continued

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

Three and Six Months Ended July 1, 2023 With Comparative Figures for 2022

(In thousands)

Three Months Ended

(Shares) April 1, 2023 April 2, 2022

Six Months Ended Three Months Ended

(Shares) July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Beginning of Period 29,122 28,911 29,273 29,009

15 unchanged sentences

Notes to Consolidated Condensed Financial Statements

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

Operating results for the six months ended July 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.

4 unchanged sentences

Our products and services include advanced, high-performance electrical power generation, distribution and motion systems, lighting and safety systems, avionics products, systems and certification, aircraft structures and automated test systems.

We have principal operations in the United States (“U.S.”), Canada, France and England, as well as engineering offices in the Ukraine and India.

We have principal operations in the United States (“U.S.”), Canada, France and England, as well as engineering offices in Ukraine and India.

On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment.

4 unchanged sentences

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

In April 2023, the Test Systems segment implemented restructuring initiatives to align the workforce and management structure with near-term revenue expectations and operational needs.

The Company incurred $ 0.6 million in severance charges during the second quarter of 2023 recorded as selling, general and administrative expenses, of which $ 0.3 million remain unpaid as of July 1, 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.

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.

The impacts of the pandemic continue to place 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, supply chain-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.

2 unchanged sentences

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

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.

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 was intended to defray.

During the six months ended July 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.

Under the provisions of the ABL Revolving Credit Facility (as defined and discussed below in 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 ABL Revolving Credit Facility debt.

Lockbox balances that have not yet been applied to the ABL 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

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

Cash and Cash Equivalents $ 3,472 $ 10,684

4 unchanged sentences

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

The allowance for estimated credit losses balance was $ 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 allowance for estimated credit losses balance was $ 1.7 million and $ 2.6 million at July 1, 2023 and December 31, 2022, respectively.

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

Total write-offs charged against the allowance were $ 0.7 million and $ 0.8 million in the three and six months ended July 1, 2023 and insignificant in the three and six months ended July 2, 2022.

Total recoveries were insignificant in the three and six months ended July 1, 2023 and July 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.

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 $ 12.7 million and $ 12.2 million for the three months ended April 1, 2023 and April 2, 2022, respectively.

Research and development expenses amounted to $ 12.7 million and $ 12.6 million for three months ended and $ 25.4 million and $ 24.8 million for the six months ended July 1, 2023 and July 2, 2022, respectively.

These costs are included in cost of products sold.

4 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 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.

As of July 1, 2023 and 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 six month periods then ended.

Foreign Currency Translation

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.

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

Newly Adopted Accounting Pronouncement

1 unchanged sentence

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.

On July 1, 2023, we had $ 611.1 million of remaining performance obligations, which we refer to as total backlog.

We expect to recognize approximately $ 502.0 million of our remaining performance obligations as revenue over the next twelve months and the balance thereafter.

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.

We recognized $ 10.6 million and $ 8.9 million during the three months ended and $ 19.5 million and $ 11.2 million during the six months ended July 1, 2023 and July 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 three months ended April 1, 2023:

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

(In thousands) Contract Assets Contract Liabilities

1 unchanged sentence

$ 27,349 $ 33,209

Ending Balance, April 1, 2023

Ending Balance, July 1, 2023

$ 34,573 $ 28,260

2 unchanged sentences

Start-up costs are expensed as incurred.

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

Capitalized fulfillment costs are included in Work in Progress within 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 April 1, 2023 and December 31, 2022, the Company capitalized $ 3.0 million and $ 2.5 million of costs, respectively.

As of July 1, 2023 and December 31, 2022, the Company capitalized $ 3.4 million and $ 2.5 million of costs, respectively.

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

Three Months Ended

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

Six Months Ended Three Months Ended

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

Aerospace Segment

5 unchanged sentences

44,463 33,997 25,015 18,130

15,576 14,482 7,704 8,020

Aerospace Total 293,979 210,684 158,382 109,290

5 unchanged sentences

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

Three Months Ended

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

Six Months Ended Three Months Ended

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

Aerospace Segment

5 unchanged sentences

Systems Certification

13,297 2,671 7,620 1,669

4,571 3,049 2,271 1,672

15,576 14,482 7,704 8,020

Aerospace Total 293,979 210,684 158,382 109,290

4 unchanged sentences

( In thousands )

April 1, 2023 December 31, 2022

July 1, 2023 December 31, 2022

Finished Goods

4 unchanged sentences

$ 207,446 $ 187,983

The Company has evaluated the carrying value of existing inventories and believe they are properly reflected at their lower of carrying value or net realizable value.

Future changes in demand or other market developments could result in future inventory charges.

The Company is actively managing inventories and aligning them to meet known current and future demand.

4) Property, Plant and Equipment

1 unchanged sentence

(In thousands)

April 1, 2023 December 31, 2022

July 1, 2023 December 31, 2022

$ 8,595 $ 8,578

10 unchanged sentences

The following table summarizes acquired intangible assets as follows:

April 1, 2023 December 31, 2022

July 1, 2023 December 31, 2022

(In thousands) Weighted

9 unchanged sentences

Amortization expense for acquired intangibles is summarized as follows:

Three Months Ended

Six Months Ended Three Months Ended

(In thousands)

April 1, 2023 April 2, 2022

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Amortization Expense

5 unchanged sentences

2025 $ 10,935

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

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

(In thousands) December 31, 2022 Foreign

April 1, 2023

Aerospace $ 36,534 $ 41 $ 36,575

8 unchanged sentences

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 %.

Under the terms of the ABL Revolving Credit Facility, the Company pays 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.

On June 28, 2023, the Company amended the ABL Revolving Credit Facility, temporarily increasing the maximum aggregate amount that the Company can borrow under the revolving credit line by $ 5 million from $ 115 million to $ 120 million until October 31, 2023, at which time the limit returns to $ 115 million.

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.

At July 1, 2023, there was $ 93.7 million outstanding on the ABL Revolving Credit Facility and there remained $ 26.3 million available.

The Company also entered into a $ 90 million asset-based credit agreement (the “Term Loan Facility”) on January 19, 2023.

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

1 unchanged sentence

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.

Amortization of the principal under the Term Loan Facility began 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 approximately $ 9.0 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 July 1, 2023.

The weighted-average interest rate on current maturities of long-debt is 13.1 %.

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.

The remaining balance of $ 80.3 million at July 1, 2023 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 $ 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.

2 unchanged sentences

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 is in compliance with all covenant requirements as of July 1, 2023.

The Company incurred $ 9.0 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.

Unamortized deferred debt issuance costs associated with the ABL Revolving Credit Facility ($ 2.4 million as of July 1, 2023) are recorded within other assets and those associated with the Term Loan Facility ($ 5.3 million as of July 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.

2 unchanged sentences

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.

4 unchanged sentences

Activity in the warranty accrual is summarized as follows:

Three Months Ended

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

Six Months Ended Three Months Ended

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

Balance at Beginning of Period $ 8,009 $ 8,183 $ 7,401 $ 8,049

3 unchanged sentences

Balance at End of Period $ 7,705 $ 7,759 $ 7,705 $ 7,759

During the three months ended July 1, 2023, the Company entered into an operating lease and recorded a right-of-use asset and corresponding liabilities of $ 12.7 million.

The lease will require annual payments between $ 1.6 million and $ 1.9 million into 2033.

Associated lease costs are $ 1.7 million per year.

Other leasing activity during the quarter was insignificant.

10) Income Taxes

The effective tax rates were approximately ( 41.3 )% and 161.7 % for the three months ended April 1, 2023 and April 2, 2022, respectively.

The effective tax rates were approximately ( 207.5 )% and ( 6.4 )% for the three months ended and ( 133.6 )% and ( 165.0 )% for the six months ended July 1, 2023 and July 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.

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, 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.

11) Earnings Per Share

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

Three Months Ended

Six Months Ended Three Months Ended

(In thousands)

April 1, 2023 April 2, 2022

July 1, 2023 July 2, 2022 July 1, 2023 July 2, 2022

Weighted Average Shares - Basic 32,560 32,007 32,614 32,082

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 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.

The number of common shares covered by out-of-the-money stock options was approximately 594,000 shares as of July 1, 2023 and 1,338,000 shares as of July 2, 2022.

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

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

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

3 unchanged sentences

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

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

Under its current credit agreements, 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 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 difference between the average cost of the treasury shares and reissuance price is included in Retained earnings.

During the six month periods ended July 1, 2023 and July 2, 2022, the Company reissued 164,000 and 421,000 treasury shares, respectively, associated with the funding of employer 401K contributions and recorded the difference between the average cost and the reissuance price, $ 2.2 million and $ 6.8 million, respectively, as a reduction to Retained earnings.

Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows:

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

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

Foreign Currency Translation Adjustments $ ( 6,624 ) $ ( 7,335 )

3 unchanged sentences

Accumulated Other Comprehensive Loss $ ( 8,443 ) $ ( 9,526 )

The components of other comprehensive income are as follows:

Three Months Ended

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

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

Six Months Ended Three Months Ended

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

Foreign Currency Translation Adjustments $ 711 $ ( 1,567 ) $ 487 $ ( 1,386 )

2 unchanged sentences

Amortization of Prior Service Cost

193 201 98 100

Amortization of Net Actuarial Losses

179 497 89 247

Retirement Liability Adjustment 372 698 187 347

Other Comprehensive Income $ 409 $ 170

Other Comprehensive Income (Loss) $ 1,083 $ ( 869 ) $ 674 $ ( 1,039 )

13) Supplemental Retirement Plan and Related Post Retirement Benefits

1 unchanged sentence

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

Three Months Ended

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

Six Months Ended Three Months Ended

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

Service Cost $ 53 $ 69 $ 27 $ 35

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 months ended April 1, 2023 and April 2, 2022 is immaterial.

The net periodic cost for both plans for the three and six months ended July 1, 2023 and July 2, 2022 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 Income, Net of Other Expense.

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 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.

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

Sales to The Boeing Company (“Boeing”) accounted for 11.5 % and 10.9 % of sales in the three and six months ended July 1, 2023 and 10.6 % and 11.9 % in the three and six months ended July 2, 2022, respectively.

Accounts receivable from Boeing at July 1, 2023 were approximately $ 21.8 million.

15) Legal Proceedings

One of the Company’s subsidiaries is involved in numerous patent infringement actions brought by Lufthansa Technik AG (“Lufthansa”) in Germany, UK and France.

One of the Company’s subsidiaries is involved in numerous patent infringement actions brought by Lufthansa Technik AG (“Lufthansa”) in Germany, the United Kingdom (“UK”) and France.

The Company is vigorously defending all such litigation and proceedings.

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.

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 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.

On July 12, 2023, the Higher Regional Court of Karlsruhe in Germany (the “German Court”) reduced the Company’s liability for direct damages.

Additionally, accrued interest on direct damages had previously been assessed at 5 %.

As part of the July 12, 2023 ruling, the German Court reduced that interest rate to 4 %.

Accordingly, the Company can reclaim overpaid damages and interest from Lufthansa in the amount of approximately $ 1.2 million.

We will record this gain in the third quarter of 2023 as an offset to Selling, General and Administrative Expenses.

The reserve for the German indirect claim and interest was approximately $ 17.8 million at December 31, 2022 and $ 16.8 million at July 1, 2023.

Accrued interest on the indirect damages reserve was estimated using the same interest rate as the

direct damages.

Given the reduction in the direct damages interest rate as discussed above, we recorded a reduction to the indirect damages reserve of $ 1.3 million in the quarter ended July 1, 2023, which was recorded as an offset to Selling, General and Administrative Expenses.

The Company currently believes it is unlikely that the damages in the indirect proceedings 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 1, 2023 and December 31, 2022.

In the matter before the UK High Court of Justice, 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.

Lufthansa has elected to pursue a claim in relation to the defendants’ profits from their infringing activities.

We have estimated damages and accrued interest for AES and its indemnified customers of approximately $ 7.3 million and $ 7.0 million at July 1, 2023 and December 31, 2022, respectively.

This variance is due to currency fluctuation and interest accrued.

Interest will accrue until final payment to Lufthansa.

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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.

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 July 1, 2023 and December 31, 2022.

As previously disclosed, in 2020, Lufthansa filed a patent infringement action on December 29, 2017 before the Paris Court of First Instance.

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.

The appeal hearing took place on December 8, 2022, and on February 24, 2023, the Paris Court of Appeal 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.

The merits of this French 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 July 1, 2023 or December 31, 2022.

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

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 infringement of its digital instruments providing over-voltage detection and protection and copyright infringement of test equipment software, specifically emulating software using Teradyne’s declarations, and certain other related claims.

The Defendants moved to dismiss certain claims from the case.

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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.

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.

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

Discovery has been completed.

On June 5, 2023, the parties attended a court-ordered mediation, but did not reach a settlement.

After the mediation, Teradyne dropped its remaining state law claims, leaving only its copyright claim.

The parties are currently engaged in summary judgment briefing with a hearing on the motions scheduled for September 14, 2023.

If the case is not disposed of on summary judgment, a trial will be held.

Trial is currently scheduled for December 5, 2023.

No amounts have been accrued for this matter in the July 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.

16) Segment Information

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.

Below are the sales and operating profit (loss) by segment for the three and six months ended July 1, 2023 and July 2, 2022 and a reconciliation of segment operating profit (loss) to loss before income taxes.

Operating profit (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.

Three Months Ended

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

Six Months Ended Three Months Ended

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

Aerospace $ 294,101 $ 210,694 $ 158,386 $ 109,300

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Total Consolidated Sales $ 330,992 $ 245,303 $ 174,454 $ 129,127

Segment Measure of Operating Profit and Margins

Segment Measure of Operating Profit (Loss) and Margins

$ 17,806 $ ( 226 ) $ 13,719 $ ( 3,276 )

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( 6,740 ) ( 1,813 ) ( 6,143 ) ( 26 )

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

Deductions from Segment Measure of Operating Profit:

( 18.2 ) % ( 5.2 ) % ( 38.2 ) % ( 0.1 ) %

Total Segment Measure of Operating Profit (Loss) 11,066 ( 2,039 ) 7,576 ( 3,302 )

3.3 % ( 0.8 ) % 4.3 % ( 2.6 ) %

Deductions from Segment Measure of Operating Profit (Loss):

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

Interest Expense, Net of Interest Income

11,390 3,293 5,920 1,662

Corporate Expenses and Other

(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.

10,130 11,277 5,558 5,385

Loss Before Income Taxes $ ( 7,027 ) $ ( 5,325 ) $ ( 3,902 ) $ ( 10,349 )

During the six months ended July 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 $ 12.6 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.

Corporate expenses and other for the six months ended July 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.

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

Total Assets:

(In thousands)

April 1, 2023 December 31, 2022

July 1, 2023 December 31, 2022

$ 520,564 $ 481,416

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17) 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.

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

There were no non-recurring fair value measurements performed in the six months ended July 1, 2023 and July 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) Subsequent Events

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