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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| | | | | |
☒ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 26, 2020
or
| | | | | |
☐ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number 0-7087
ASTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
| | | | | |
New York (State or other jurisdiction of incorporation or organization) | 16-0959303 (IRS Employer Identification Number) |
| |
130 Commerce Way, East Aurora, New York (Address of principal executive offices) | 14052 (Zip code) |
(716) 805-1599
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, $.01 par value per share | ATRO | NASDAQ Stock Market |
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “large accelerated filer”, an “accelerated filer”, a “non-accelerated filer” and a “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer | ☒ | Accelerated filer | ☐ | Emerging growth company | ☐ |
| | | | | |
Non-accelerated filer | ☐ | Smaller Reporting Company | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
As of October 28, 2020, 30,800,663 shares of common stock were outstanding consisting of 23,927,431 shares of common stock ($.01 par value) and 6,873,232 shares of Class B common stock ($.01 par value).
TABLE OF CONTENTS
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PART II | | | |
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| | Item 1 | | | |
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| | Item 1a | | | |
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Part I – Financial Information
Item 1. Financial Statements
ASTRONICS CORPORATION
Consolidated Condensed Balance Sheets
September 26, 2020 with Comparative Figures for December 31, 2019
(Unaudited)
(In thousands)
| | | | | | | | | | | |
| September 26, 2020 | | December 31, 2019 |
| | | |
Current Assets: | | | |
Cash and Cash Equivalents | $ | 29,897 | | | $ | 31,906 | |
Accounts Receivable, Net of Allowance for Doubtful Accounts | 92,947 | | | 147,998 | |
Inventories | 163,451 | | | 145,787 | |
Prepaid Expenses and Other Current Assets | 27,375 | | | 15,853 | |
Assets Held for Sale | — | | | 1,537 | |
Total Current Assets | 313,670 | | | 343,081 | |
Property, Plant and Equipment, Net of Accumulated Depreciation | 108,111 | | | 112,499 | |
Operating Right-of-Use Assets | 19,802 | | | 23,602 | |
Other Assets | 23,341 | | | 31,271 | |
Intangible Assets, Net of Accumulated Amortization | 114,355 | | | 127,293 | |
Goodwill | 58,182 | | | 144,970 | |
Total Assets | $ | 637,461 | | | $ | 782,716 | |
Current Liabilities: | | | |
Current Maturities of Long-term Debt | $ | 232 | | | $ | 224 | |
Accounts Payable | 26,320 | | | 35,842 | |
Current Operating Lease Liabilities | 4,969 | | | 4,517 | |
Accrued Expenses and Other Current Liabilities | 42,831 | | | 48,697 | |
Customer Advance Payments and Deferred Revenue | 24,916 | | | 31,360 | |
| | | |
Total Current Liabilities | 99,268 | | | 120,640 | |
Long-term Debt | 168,000 | | | 188,000 | |
Long-term Operating Lease Liabilities | 17,582 | | | 21,039 | |
Other Liabilities | 62,765 | | | 64,180 | |
Total Liabilities | 347,615 | | | 393,859 | |
Shareholders’ Equity: | | | |
Common Stock | 346 | | | 345 | |
Accumulated Other Comprehensive Loss | (15,068) | | | (15,628) | |
Other Shareholders’ Equity | 304,568 | | | 404,140 | |
Total Shareholders’ Equity | 289,846 | | | 388,857 | |
Total Liabilities and Shareholders’ Equity | $ | 637,461 | | | $ | 782,716 | |
See notes to consolidated condensed financial statements.
ASTRONICS CORPORATION
Consolidated Condensed Statements of Operations
Three and Nine Months Ended September 26, 2020 With Comparative Figures for 2019
(Unaudited)
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | Three Months Ended |
| September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Sales | $ | 387,784 | | | $ | 574,290 | | | $ | 106,506 | | | $ | 177,018 | |
Cost of Products Sold | 310,059 | | | 445,056 | | | 91,333 | | | 140,224 | |
Gross Profit | 77,725 | | | 129,234 | | | 15,173 | | | 36,794 | |
Selling, General and Administrative Expenses | 85,941 | | | 90,677 | | | 24,170 | | | 31,691 | |
Impairment Loss | 87,016 | | | — | | | — | | | — | |
(Loss) Income from Operations | (95,232) | | | 38,557 | | | (8,997) | | | 5,103 | |
Net (Gain) Loss on Sale of Businesses | — | | | (78,801) | | | — | | | 1,332 | |
Other Expense, Net of Other Income | 4,546 | | | 1,197 | | | 369 | | | 464 | |
Interest Expense, Net of Interest Income | 5,091 | | | 4,576 | | | 1,775 | | | 1,547 | |
(Loss) Income Before Income Taxes | (104,869) | | | 111,585 | | | (11,141) | | | 1,760 | |
(Benefit from) Provision for Income Taxes | (9,073) | | | 25,503 | | | (5,887) | | | 550 | |
Net (Loss) Income | $ | (95,796) | | | $ | 86,082 | | | $ | (5,254) | | | $ | 1,210 | |
(Loss) Earnings Per Share: | | | | | | | |
Basic | $ | (3.11) | | | $ | 2.65 | | | $ | (0.17) | | | $ | 0.04 | |
Diluted | $ | (3.11) | | | $ | 2.61 | | | $ | (0.17) | | | $ | 0.04 | |
See notes to consolidated condensed financial statements.
ASTRONICS CORPORATION
Consolidated Condensed Statements of Comprehensive (Loss) Income
Three and Nine Months Ended September 26, 2020 With Comparative Figures for 2019
(Unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | Three Months Ended |
| September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Net (Loss) Income | $ | (95,796) | | | $ | 86,082 | | | $ | (5,254) | | | $ | 1,210 | |
Other Comprehensive (Loss) Income: | | | | | | | |
Foreign Currency Translation Adjustments | (85) | | | (722) | | | 1,409 | | | (1,336) | |
Retirement Liability Adjustment – Net of Tax | 645 | | | 441 | | | 215 | | | 147 | |
Total Other Comprehensive (Loss) Income | 560 | | | (281) | | | 1,624 | | | (1,189) | |
Comprehensive (Loss) Income | $ | (95,236) | | | $ | 85,801 | | | $ | (3,630) | | | $ | 21 | |
See notes to consolidated condensed financial statements.
ASTRONICS CORPORATION
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 26, 2020 With Comparative Figures for 2019
| | | | | | | | | | | |
(Unaudited, In thousands) | Nine Months Ended |
Cash Flows from Operating Activities: | September 26, 2020 | | September 28, 2019 |
| | | |
Net (Loss) Income | $ | (95,796) | | | $ | 86,082 | |
Adjustments to Reconcile Net (Loss) Income to Cash Flows from Operating Activities, Excluding the Effects of Acquisitions/Divestitures: | | | |
Depreciation and Amortization | 24,095 | | | 24,183 | |
Provisions for Non-Cash Losses on Inventory and Receivables | 4,535 | | | 4,613 | |
Equity-based Compensation Expense | 3,924 | | | 2,943 | |
Deferred Tax Expense (Benefit) | 1,127 | | | (3,820) | |
Non-cash Severance Expense | 3,007 | | | — | |
Operating Lease Amortization Expense | 3,352 | | | 2,993 | |
Non-cash Litigation Provision | — | | | 1,700 | |
Net Gain on Sale of Businesses, Before Taxes | — | | | (78,801) | |
Equity Investment Other Than Temporary Impairment | 3,493 | | | — | |
Impairment Loss | 87,016 | | | — | |
Other | 6,622 | | | (5,485) | |
Cash Flows from Changes in Operating Assets and Liabilities: | | | |
Accounts Receivable | 53,604 | | | 23,423 | |
Inventories | (19,807) | | | (18,963) | |
Accounts Payable | (9,589) | | | (5,494) | |
Accrued Expenses | (11,340) | | | (5,867) | |
Other Current Assets and Liabilities | (224) | | | (697) | |
Customer Advanced Payments and Deferred Revenue | (6,474) | | | (3,266) | |
Income Taxes | (12,316) | | | 5,581 | |
Operating Lease Liabilities | (3,412) | | | (2,824) | |
Supplemental Retirement and Other Liabilities | (304) | | | 3,940 | |
Cash Flows from Operating Activities | 31,513 | | | 30,241 | |
Cash Flows from Investing Activities: | | | |
Acquisition of Business, Net of Cash Acquired | — | | | (21,785) | |
Proceeds on Sale of Business | — | | | 104,792 | |
Capital Expenditures | (5,575) | | | (8,850) | |
Proceeds on Sale of Assets | 1,600 | | | — | |
Cash Flows from Investing Activities | (3,975) | | | 74,157 | |
Cash Flows from Financing Activities: | | | |
Proceeds from Long-term Debt | 150,000 | | | 99,000 | |
Payments for Long-term Debt | (170,000) | | | (146,080) | |
Purchase of Outstanding Shares for Treasury | (7,732) | | | (50,000) | |
| | | |
Stock Options Activity | 33 | | | 423 | |
| | | |
| | | |
Finance Lease Principal Payments | (1,425) | | | (1,284) | |
Financing Fees | (360) | | | — | |
Cash Flows from Financing Activities | (29,484) | | | (97,941) | |
Effect of Exchange Rates on Cash | (63) | | | (284) | |
(Decrease) Increase in Cash and Cash Equivalents | (2,009) | | | 6,173 | |
Cash and Cash Equivalents at Beginning of Period | 31,906 | | | 16,622 | |
Cash and Cash Equivalents at End of Period | $ | 29,897 | | | $ | 22,795 | |
| | | |
| | | |
See notes to consolidated condensed financial statements.
ASTRONICS CORPORATION
Consolidated Condensed Statements of Shareholders' Equity
Three and Nine Months Ended September 26, 2020 With Comparative Figures for 2019
(Unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | Three Months Ended |
| September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Common Stock | | | | | | | |
Beginning of Period | $ | 269 | | | $ | 260 | | | $ | 274 | | | $ | 264 | |
| | | | | | | |
Net Exercise of Stock Options | — | | | 1 | | | — | | | — | |
| | | | | | | |
Class B Stock Converted to Common Stock | 8 | | | 4 | | | 3 | | | 1 | |
End of Period | 277 | | | 265 | | | 277 | | | 265 | |
Convertible Class B Stock | | | | | | | |
Beginning of Period | 76 | | | 83 | | | 72 | | | 80 | |
Net Exercise of Stock Options | 1 | | | — | | | — | | | — | |
| | | | | | | |
Class B Stock Converted to Common Stock | (8) | | | (4) | | | (3) | | | (1) | |
End of Period | 69 | | | 79 | | | 69 | | | 79 | |
Additional Paid in Capital | | | | | | | |
Beginning of Period | 76,340 | | | 73,044 | | | 79,179 | | | 75,604 | |
| | | | | | | |
| | | | | | | |
Net Exercise of Stock Options and Equity-based Compensation Expense | 3,956 | | | 3,365 | | | 1,117 | | | 805 | |
End of Period | 80,296 | | | 76,409 | | | 80,296 | | | 76,409 | |
Accumulated Comprehensive Loss | | | | | | | |
Beginning of Period | (15,628) | | | (13,329) | | | (16,692) | | | (12,421) | |
| | | | | | | |
Foreign Currency Translation Adjustments | (85) | | | (722) | | | 1,409 | | | (1,336) | |
| | | | | | | |
Retirement Liability Adjustment – Net of Taxes | 645 | | | 441 | | | 215 | | | 147 | |
End of Period | (15,068) | | | (13,610) | | | (15,068) | | | (13,610) | |
Retained Earnings | | | | | | | |
Beginning of Period | 428,584 | | | 376,567 | | | 338,042 | | | 461,439 | |
| | | | | | | |
| | | | | | | |
Net (Loss) Income | (95,796) | | | 86,082 | | | (5,254) | | | 1,210 | |
| | | | | | | |
| | | | | | | |
End of Period | 332,788 | | | 462,649 | | | 332,788 | | | 462,649 | |
Treasury Stock | | | | | | | |
Beginning of Period | (100,784) | | | (50,000) | | | (108,516) | | | (50,000) | |
Purchase of Shares | (7,732) | | | (50,000) | | | — | | | (50,000) | |
| | | | | | | |
End of Period | (108,516) | | | (100,000) | | | (108,516) | | | (100,000) | |
Total Shareholders’ Equity | $ | 289,846 | | | $ | 425,792 | | | $ | 289,846 | | | $ | 425,792 | |
See notes to consolidated condensed financial statements.
ASTRONICS CORPORATION
Consolidated Condensed Statements of Shareholders' Equity, Continued
Three and Nine Months Ended September 26, 2020 With Comparative Figures for 2019
(Unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | Three Months Ended |
| September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Common Stock | | | | | | | |
Beginning of Period | 26,874 | | | 25,978 | | | 27,355 | | | 26,343 | |
| | | | | | | |
Net Issuance from Exercise of Stock Options | 69 | | | 53 | | | 44 | | | 19 | |
Class B Stock Converted to Common Stock | 790 | | | 444 | | | 334 | | | 113 | |
End of Period | 27,733 | | | 26,475 | | | 27,733 | | | 26,475 | |
Convertible Class B Stock | | | | | | | |
Beginning of Period | 7,650 | | | 8,290 | | | 7,209 | | | 8,007 | |
Net Issuance from Exercise of Stock Options | 16 | | | 50 | | | 1 | | | 2 | |
| | | | | | | |
Class B Stock Converted to Common Stock | (790) | | | (444) | | | (334) | | | (113) | |
End of Period | 6,876 | | | 7,896 | | | 6,876 | | | 7,896 | |
Treasury Stock | | | | | | | |
Beginning of Period | 3,526 | | | 1,675 | | | 3,808 | | | 1,675 | |
Purchase of Shares | 282 | | | 1,823 | | | — | | | 1,823 | |
| | | | | | | |
End of Period | 3,808 | | | 3,498 | | | 3,808 | | | 3,498 | |
See notes to consolidated condensed financial statements.
ASTRONICS CORPORATION
Notes to Consolidated Condensed Financial Statements
September 26, 2020
(Unaudited)
1) Basis of Presentation
The accompanying unaudited statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included.
Operating Results
The results of operations for any interim period are not necessarily indicative of results for the full year. In addition, the COVID-19 pandemic has increased the volatility we experience in our financial results in recent periods and this could continue in future interim and annual periods. Operating results for the nine months ended September 26, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
The balance sheet at December 31, 2019 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. generally accepted accounting principles (“GAAP”) for complete financial statements.
For further information, refer to the financial statements and footnotes thereto included in Astronics Corporation’s 2019 annual report on Form 10-K.
Description of the Business
Astronics Corporation (“Astronics” or the “Company”) is a leading provider of advanced technologies to the global aerospace, defense and electronics industries. 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.
On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment. The business was not core to the future of the Test Systems segment. The total proceeds of the divestiture amounted to $103.8 million plus certain contingent purchase consideration (“earn-out”) as described in Note 18. The Company recorded a pre-tax gain on the sale of $80.1 million in the first quarter of 2019. The Company recorded income tax expense relating to the gain of $19.7 million.
On July 1, 2019, the Company acquired all of the issued and outstanding capital stock of Freedom Communication Technologies, Inc. (“Freedom”). Freedom, located in Kilgore, Texas, is a leader in wireless communication testing, primarily for the civil land mobile radio market. Freedom is included in our Test Systems segment. The total consideration for the transaction was $21.8 million, net of $0.6 million in cash acquired.
On July 12, 2019, the Company sold intellectual property and certain assets associated with its Airfield Lighting product line for $1.0 million in cash. The Airfield Lighting product line, part of the Aerospace segment, was not core to the business and represented less than 1% of revenue. The Company recorded a pre-tax loss on the sale of approximately $1.3 million in the third quarter of 2019.
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 earn-outs estimated at a fair value of $2.5 million. Diagnosys Inc. and its affiliates (“Diagnosys”) is included in our Test Systems segment. Diagnosys is a developer and manufacturer of comprehensive automated test equipment providing test, support, and repair of high value electronics, electro-mechanical, pneumatic and printed circuit boards focused on the global mass transit and defense markets. The terms of the 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 acquired business has operations in Westford, Massachusetts as well as Ferndown, England, and an engineering center of excellence in Bangalore, India.
For additional information regarding these acquisitions and divestitures see Note 18.
Impact of the COVID-19 Pandemic
On March 11, 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic. The COVID-19 pandemic has had a sudden and significant impact on the global economy, and particularly in the aerospace industry, resulting in the grounding of the majority of the global commercial transportation fleet and significant cost cutting and cash preservation actions by the global airlines. This in turn has resulted in a significant reduction in airlines spending for both new aircraft and on upgrading their existing fleet with the Company’s products. We expect this low level of investment by the airlines will continue at least into 2021, however, the ultimate impact of COVID-19 on our business results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy and the aerospace industry, which are uncertain and cannot be predicted at this time.
In response to the global COVID-19 pandemic, we have implemented actions to maintain our financial health and liquidity, as discussed in detail in our Form 8-K’s filed on March 31, 2020, May 6, 2020 and July 31, 2020. In addition to these measures, we amended our revolving credit facility on May 4, 2020, as further described in Note 7. We are also monitoring the impacts of COVID-19 on the fair value of assets. Refer to Note 6 for a discussion of goodwill impairment charges. Should future changes in sales, earnings and cash flows differ significantly from our expectations, long-lived assets to be held and used and goodwill could become impaired in the future.
Trade Accounts Receivable and Contract Assets
The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. 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 doubtful accounts balance was $3.9 million and $3.6 million at September 26, 2020 and December 31, 2019, respectively. The Company’s bad debt expense was insignificant and $1.7 million in the three and nine months ended September 26, 2020, respectively, and insignificant in the three and nine months ended September 28, 2019. Total writeoffs charged against the allowance were $1.1 million and $1.2 million in the three month and nine months ended September 26, 2020, and insignificant in the three and nine months ended September 28, 2019. Total recoveries collected were insignificant in both the three and nine months ended September 26, 2020 and September 28, 2019.
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 company’s cash flows are impacted by the COVID-19 pandemic.
Cost of Products Sold, Engineering and Development, Interest, and Selling, General and Administrative Expenses
Cost of products sold includes the costs to manufacture products such as direct materials and labor and manufacturing overhead as well as all engineering and development costs. The Company is engaged in a variety of engineering and design activities as well as basic research and development activities directed to the substantial improvement or new application of the Company’s existing technologies. These costs are expensed when incurred and included in cost of products sold. Research and development, design and related engineering amounted to $16.4 million and $25.6 million for the three months ended and $65.0 million and $80.0 million for the nine months ended September 26, 2020 and September 28, 2019, respectively. Selling, general and administrative expenses include costs primarily related to our sales and marketing departments and administrative departments. Interest expense is shown net of interest income. Interest income was insignificant for the three and nine months ended September 26, 2020 and September 28, 2019.
Goodwill Impairment
The Company tests goodwill at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
As a result of the qualitative factors related to the COVID-19 pandemic, as discussed above, we performed interim quantitative assessments for the reporting units which had goodwill as of March 28, 2020, and an additional quantitative assessment for our PECO reporting unit as of June 27, 2020. Based on our quantitative assessments, the Company recorded goodwill impairment charges associated with four Aerospace reporting units, totaling $86.3 million within the Impairment Loss line in the Consolidated Condensed Statement of Operations in the nine months ended September 26, 2020. As of September 26, 2020, the
Company concluded that no indicators of additional impairment relating to intangible assets or goodwill existed and an interim test was not performed in the three months then ended.
For additional information regarding the quantitative test and the related goodwill impairment see Note 6.
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. The recoverability test consists of comparing the undiscounted projected cash flows with the carrying amount. Should the carrying amount exceed undiscounted projected cash flows, an impairment loss would be recognized to the extent the carrying amount exceeds fair value. In conjunction with the deteriorating economic conditions associated with the COVID-19 pandemic, we recorded an impairment charge to right-of-use (“ROU”) assets of approximately $0.7 million incurred in one reporting unit in the Aerospace segment within the Impairment Loss line in the Consolidated Condensed Statement of Operations in the nine months ended September 26, 2020. No other long-lived asset impairments were warranted based on the quantitative analysis performed.
Financial Instruments
The Company determined there were indicators of impairment over one of its investments in the second quarter of 2020 as a result of declining revenues and cash flows of the investee as well as significant uncertainties over the investee’s ability to raise additional capital or to finance its own activities. There were no observable price changes for this investment during 2020. We determined that the fair value of this investment was de minimus and we recorded an impairment charge of $3.5 million recorded within Other Expense, Net of Other Income in the accompanying Consolidated Condensed Statement Operations in the nine months ended September 26, 2020.
Foreign Currency Translation
The aggregate foreign currency transaction gain or loss included in operations was insignificant for the three and nine months ended September 26, 2020 and September 28, 2019.
Newly Adopted and Recent Accounting Pronouncements
Recent Accounting Pronouncements Adopted
| | | | | | | | |
Standard | Description | Financial Statement Effect or Other Significant Matters |
| | |
ASU No. 2016-13 Financial Instruments - Credit Losses (Topic 326) | The standard replaces the incurred loss model with the current expected credit loss (CECL) model to estimate credit losses for financial assets measured at amortized cost and certain off-balance sheet credit exposures. The CECL model requires a Company to estimate credit losses expected over the life of the financial assets based on historical experience, current conditions and reasonable and supportable forecasts. The provisions of the standard are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The amendment requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. | The Company adopted this guidance as of January 1, 2020. The standard changed the way entities recognize impairment of most financial assets. Short-term and long-term financial assets, as defined by the standard, are impacted by immediate recognition of estimated credit losses in the financial statements, reflecting the net amount expected to be collected. The adoption of this standard had an immaterial impact on our condensed consolidated financial statements.
Date of adoption: Q1 2020 |
ASU No. 2018-13 Fair Value Measurement (Topic 820) | The standard removes the disclosure requirements for the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. The provisions of this ASU are effective for years beginning after December 15, 2019, with early adoption permitted. | This ASU did not have a significant impact on our consolidated financial statements, as it only includes changes to disclosure requirements. Date of adoption: Q1 2020 |
Recent Accounting Pronouncements Not Yet Adopted
| | | | | | | | |
Standard | Description | Financial Statement Effect or Other Significant Matters |
ASU No. 2018-14 Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20) | The standard includes updates to the disclosure requirements for defined benefit plans including several additions, deletions and modifications to the disclosure requirements. The provisions of this ASU are effective for years beginning after December 15, 2020, with early adoption permitted. | This ASU does not have a significant impact on our consolidated financial statements, as it only includes changes to disclosure requirements. Planned date of adoption: Q1 2021 |
ASU No. 2019-12 Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes | The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and improve consistent application by clarifying and amending existing guidance. The amendments of this standard are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued, with the amendments to be applied on a respective, modified retrospective or prospective basis, depending on the specific amendment. | The Company is currently evaluating the requirements of this standard. The standard is not expected to have a material impact on the Company's financial statements.
Planned date of adoption: Q1 2021 |
ASU No. 2020-04 Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting | The amendments in Update 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The new guidance provides the following optional expedients: simplify accounting analyses under current U.S. GAAP for contract modifications, simplify the assessment of hedge effectiveness, allow hedging relationships affected by reference rate reform to continue and allow a one-time election to sell or transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform. | The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of the ASU. An entity may elect to apply the amendments prospectively through December 31, 2022. After 2021, it is unclear whether banks will continue to provide LIBOR submissions to the administrator of LIBOR, and no consensus currently exists as to what benchmark rate or rates may become accepted alternatives to LIBOR. The Company is currently evaluating the impact of adopting this guidance.
Planned date of adoption: Before December 31, 2022 |
We consider the applicability and impact of all ASUs. ASUs not listed above were assessed and determined to be either not applicable, or had or are expected to have minimal impact on our financial statements and related disclosures.
2) Revenue
Revenue is recognized when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration the Company expects to be entitled in exchange for transferring those products or services. Sales shown on the Company's Consolidated Condensed Statements of Operations are from contracts with customers.
Payment terms and conditions vary by contract, although terms generally include a requirement of payment within a range from 30 to 90 days after the performance obligation has been satisfied; or in certain cases, up-front deposits. In circumstances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that the Company's contracts generally do not include a significant financing component. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from sales.
The Company recognizes an asset for the incremental, material costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year and the costs are expected to be recovered. These incremental costs include, but are not limited to, sales commissions incurred to obtain a contract with a customer. As of September 26, 2020, the Company does not have material incremental costs on any open contracts with an original expected duration of greater than one year.
The Company recognizes an asset for certain, material costs to fulfill a contract if it is determined that the costs relate directly to a contract or an anticipated contract that can be specifically identified, generate or enhance resources that will be used in satisfying performance obligations in the future, and are expected to be recovered. Such costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods to which the asset relates. Start-up costs are expensed as incurred. Capitalized fulfillment costs are included in Inventories in the accompanying Consolidated Condensed Balance Sheets. Should future orders not materialize or it is determined the costs are no longer probable of recovery, the capitalized costs are written off. As of September 26, 2020, the Company does not have material capitalized fulfillment costs.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts which are, therefore, not distinct. Thus, the contract's transaction price is the revenue recognized when or as that performance obligation is satisfied. Promised goods or services that are immaterial in the context of the contract are not separately assessed as performance obligations.
Some of our contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the product lifecycle (development, production, maintenance and support). For contracts with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus margin approach, under which expected costs are forecast to satisfy a performance obligation and then an appropriate margin is added for that distinct good or service. Shipping and handling activities that occur after the customer has obtained control of the good are considered fulfillment activities, not performance obligations.
Some of our contracts offer price discounts or free units after a specified volume has been purchased. The Company evaluates these options to determine whether they provide a material right to the customer, representing a separate performance obligation. If the option provides a material right to the customer, revenue is allocated to these rights and recognized when those future goods or services are transferred, or when the option expires.
Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for goods or services that are distinct, and, therefore, are accounted for as new contracts. The effect of modifications has been reflected when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price.
The majority of the Company’s revenue from contracts with customers is recognized at a point in time, when the customer obtains control of the promised product, which is generally upon delivery and acceptance by the customer. These contracts may provide credits or incentives, which may be accounted for as variable consideration. Variable consideration is estimated at the most likely amount to predict the consideration to which the Company will be entitled, and only to the extent it is probable that a subsequent change in estimate will not result in a significant revenue reversal when estimating the amount of revenue to recognize. Variable consideration is treated as a change to the sales transaction price and based on an assessment of all information (i.e., historical, current and forecasted) that is reasonably available to the Company, and estimated at contract inception and updated at the end of each reporting period as additional information becomes available. Most of our contracts do not contain rights to return product; where this right does exist, it is evaluated as possible variable consideration.
For contracts that are subject to the requirement to accrue anticipated losses, the Company recognizes the entire anticipated loss in the period that the loss becomes probable.
For contracts with customers in which the Company promises to provide a product to the customer that has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company satisfies the performance obligation and recognizes revenue over time, using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material and overhead.
The Company also recognizes revenue from service contracts (including service-type warranties) over time. The Company recognizes revenue over time during the term of the agreement as the customer is simultaneously receiving and consuming the benefits provided throughout the Company’s performance. The Company typically recognizes revenue on a straight-line basis throughout the contract period.
On September 26, 2020, we had $282.2 million of remaining performance obligations, which we refer to as total backlog. We expect to recognize approximately $115.5 million of our remaining performance obligations as revenue in 2020.
Costs in excess of billings includes unbilled amounts resulting from revenues under contracts with customers that are satisfied over time and when the cost-to-cost measurement method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. Amounts may not exceed their net realizable value. Costs in excess of billings are classified as current assets, within Accounts Receivable, Net of Allowance for Doubtful Accounts on our Consolidated Condensed Balance Sheet.
Billings in excess of cost includes billings in excess of revenue recognized as well as other elements of deferred revenue, which includes advanced payments, up-front payments, and progress billing payments. Billings in excess of cost are reported in our Consolidated Condensed Balance Sheet, classified as current liabilities, within Customer Advance Payments and Deferred Revenue, and non-current liabilities, within Other Liabilities. To determine the revenue recognized in the period from the beginning balance of billings in excess of cost, the contract liability as of the beginning of the period is recognized as revenue on a contract-by-contract basis when the Company satisfies the performance obligation related to the individual contract. Once the beginning contract liability balance for an individual contract has been fully recognized as revenue, any additional payments received in the period are recognized as revenue once the related costs have been incurred.
We recognized $8.5 million and $5.1 million during the three months ended and $20.1 million and $15.7 million for the nine months ended September 26, 2020 and September 28, 2019, 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 September 26, 2020:
| | | | | | | | | | | |
(In thousands) | | Contract Assets | Contract Liabilities |
Beginning Balance, January 1, 2020 | | $ | 19,567 | | $ | 38,758 | |
Ending Balance, September 26, 2020 | | $ | 19,460 | | $ | 29,392 | |
The following table presents our revenue disaggregated by Market Segments as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | | Three Months Ended |
(In thousands) | | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Aerospace Segment | | | | | | | | |
Commercial Transport | | $ | 214,390 | | | $ | 393,721 | | | $ | 44,067 | | | $ | 122,212 | |
Military | | 50,329 | | | 57,753 | | | 18,164 | | | 17,255 | |
Business Jet | | 45,259 | | | 49,555 | | | 14,711 | | | 12,432 | |
Other | | 16,213 | | | 19,461 | | | 5,606 | | | 5,803 | |
Aerospace Total | | 326,191 | | | 520,490 | | | 82,548 | | | 157,702 | |
| | | | | | | | |
Test Systems Segment | | | | | | | | |
Semiconductor | | 3,407 | | | 7,815 | | | 585 | | | 2,219 | |
Aerospace & Defense | | 58,186 | | | 45,985 | | | 23,373 | | | 17,097 | |
Test Systems Total | | 61,593 | | | 53,800 | | | 23,958 | | | 19,316 | |
| | | | | | | | |
Total | | $ | 387,784 | | | $ | 574,290 | | | $ | 106,506 | | | $ | 177,018 | |
The following table presents our revenue disaggregated by Product Lines as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | | Three Months Ended |
(In thousands) | | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Aerospace Segment | | | | | | | | |
Electrical Power & Motion | | $ | 148,500 | | | $ | 255,007 | | | $ | 32,481 | | | $ | 78,428 | |
Lighting & Safety | | 90,973 | | | 139,502 | | | 25,320 | | | 44,127 | |
Avionics | | 57,381 | | | 79,414 | | | 16,104 | | | 19,871 | |
Systems Certification | | 5,596 | | | 9,050 | | | 605 | | | 3,384 | |
Structures | | 7,528 | | | 18,056 | | | 2,432 | | | 6,089 | |
Other | | 16,213 | | | 19,461 | | | 5,606 | | | 5,803 | |
Aerospace Total | | 326,191 | | | 520,490 | | | 82,548 | | | 157,702 | |
| | | | | | | | |
Test Systems | | 61,593 | | | 53,800 | | | 23,958 | | | 19,316 | |
| | | | | | | | |
Total | | $ | 387,784 | | | $ | 574,290 | | | $ | 106,506 | | | $ | 177,018 | |
3) Inventories
Inventories consisted of the following:
| | | | | | | | | | | |
(In thousands) | September 26, 2020 | | December 31, 2019 |
Finished Goods | $ | 29,257 | | | $ | 33,434 | |
Work in Progress | 26,911 | | | 25,594 | |
Raw Material | 107,283 | | | 86,759 | |
| $ | 163,451 | | | $ | 145,787 | |
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
Property, Plant and Equipment consisted of the following:
| | | | | | | | | | | |
(In thousands) | September 26, 2020 | | December 31, 2019 |
Land | $ | 9,837 | | | $ | 9,802 | |
Buildings and Improvements | 75,188 | | | 74,723 | |
Machinery and Equipment | 119,688 | | | 115,202 | |
Construction in Progress | 6,030 | | | 5,453 | |
| 210,743 | | | 205,180 | |
Less Accumulated Depreciation | 102,632 | | | 92,681 | |
| $ | 108,111 | | | $ | 112,499 | |
Additionally, net Property, Plant and Equipment of $1.5 million are classified in Assets Held for Sale at December 31, 2019. Refer to Note 18.
5) Intangible Assets
The following table summarizes acquired intangible assets as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 26, 2020 | | December 31, 2019 |
(In thousands) | Weighted Average Life | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Patents | 11 years | | $ | 2,146 | | | $ | 1,869 | | | $ | 2,146 | | | $ | 1,804 | |
Non-compete Agreement | 4 years | | 11,091 | | | 9,627 | | | 11,318 | | | 7,696 | |
Trade Names | 10 years | | 11,467 | | | 7,290 | | | 11,438 | | | 6,550 | |
Completed and Unpatented Technology | 9 years | | 48,250 | | | 24,633 | | | 48,201 | | | 21,196 | |
Customer Relationships | 15 years | | 142,528 | | | 57,708 | | | 142,212 | | | 50,776 | |
Total Intangible Assets | 12 years | | $ | 215,482 | | | $ | 101,127 | | | $ | 215,315 | | | $ | 88,022 | |
All acquired intangible assets other than goodwill and one trade name are being amortized. Amortization expense for acquired intangibles is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | | Three Months Ended |
(In thousands) | | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Amortization Expense | | $ | 13,024 | | | $ | 12,746 | | | $ | 4,382 | | | $ | 4,394 | |
Amortization expense for acquired intangible assets expected for 2020 and for each of the next five years is summarized as follows:
| | | | | |
(In thousands) | |
2020 | $ | 17,220 | |
2021 | $ | 15,404 | |
2022 | $ | 14,973 | |
2023 | $ | 13,939 | |
2024 | $ | 12,917 | |
2025 | $ | 10,996 | |
6) Goodwill
The following table summarizes the changes in the carrying amount of goodwill for the nine months ended September 26, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | December 31, 2019 | | Acquisition Adjustments | | Impairment Charges | | Foreign Currency Translation | | September 26, 2020 |
Aerospace | $ | 123,038 | | | $ | — | | | $ | (86,312) | | | $ | (178) | | | $ | 36,548 | |
Test Systems | 21,932 | | | (298) | | | — | | | — | | | 21,634 | |
| $ | 144,970 | | | $ | (298) | | | $ | (86,312) | | | $ | (178) | | | $ | 58,182 | |
Goodwill Impairment Testing
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.
In the first quarter of 2020, the World Health Organization characterized COVID-19 a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The United States, France, Canada and many other countries have issued formal stay-at-home orders to combat the pandemic, which require residents to stay home and non-essential businesses to temporarily close.
Beginning in the first quarter of 2020, the pandemic negatively impacted the global economy and aerospace industry, resulting in an abrupt and significant decrease of airline passenger travel. In response, the global airlines grounded a significant portion
of their fleet and have begun to defer or cancel aircraft scheduled for delivery this year. Additionally, airlines have announced plans to reduce capital and discretionary spending to conserve cash in the immediate future. In turn, aircraft manufacturers and tier one suppliers have experienced a disruption in production and demand as their customers defer delivery of new aircraft, resulting in slowed or halted production at facilities throughout the world. Commercial airlines and manufacturers are focusing on conserving cash to preserve liquidity, which will have a negative impact on airframe and aftermarket sales as compared with pre-pandemic forecasts.
Management considered these qualitative factors and the impact to each reporting unit’s revenue and earnings, and determined that it was more likely than not that the fair value of several reporting units was less than its carrying value. Therefore, we performed a quantitative test for all eight reporting units with goodwill as of March 28, 2020.
Quantitative testing requires a comparison of the fair value of each reporting unit to its carrying value. We use the discounted cash flow method to estimate the fair value of our reporting units. The discounted cash flow method incorporates various assumptions, the most significant being projected sales growth rates, operating margins and cash flows, the terminal growth rate and the weighted average cost of capital. If the carrying value of the reporting unit exceeds its fair value, goodwill is considered impaired and any loss must be measured. Accordingly, goodwill impairment is measured as the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying value of goodwill.
We determined that the estimated fair value of four of the eight reporting units with goodwill significantly exceeded their respective carrying values and therefore, did not result in a goodwill impairment as of March 28, 2020.
For the remaining four reporting units with goodwill, we determined that the estimated fair value was less than their respective carrying values. We recognized full impairments of the goodwill of our Astronics Connectivity Systems and Certification (“ACSC”), PGA and Custom Control Concepts (“CCC”) reporting units, and a partial impairment of the goodwill of our PECO reporting unit as of March 28, 2020.
During the second quarter of 2020, further commercial aircraft order reductions, delays and cancellations at a major customer of our PECO reporting unit resulted in revisions to PECO’s forecast. We therefore performed a quantitative test for the PECO reporting unit as of June 27, 2020. As a result of this quantitative test, we determined that the estimated fair value was less than the respective carrying value as of June 27, 2020.
As a result, we recorded non-cash goodwill impairment charges in the Aerospace segment of approximately $86.3 million within the Impairment Loss line of the Consolidated Condensed Statements of Operations in the nine months ended September 26, 2020.
The goodwill remaining in our PECO reporting unit after the impairments is $20.2 million. There is greater risk of future impairments in the PECO reporting unit as any further deterioration in its performance compared to forecast, changes in order volumes or delivery schedules at its major customer, as well as any changes in economic forecasts and expected recovery in the aerospace industry, may require the Company to complete additional interim impairment tests in future quarters and could result in the reporting unit’s fair value again falling below carrying value in subsequent quarters. Further, if the composition of the reporting unit’s assets and liabilities were to change and result in an increase in the reporting unit’s carrying value, it could lead to additional impairment testing and further impairment losses.
As of September 26, 2020, the Company concluded that no indicators of additional impairment relating to intangible assets or goodwill existed and an interim test was not performed in the three months then ended.
7) Long-term Debt and Notes Payable
The Company's Fifth Amended and Restated Credit Agreement (the “Agreement”) provided for a $500 million revolving credit line with the option to increase the line by up to $150 million. The maturity date of the loans under the Agreement is February 16, 2023. The maximum permitted leverage ratio of funded debt, net of cash to Adjusted EBITDA (as defined in the Agreement) was 3.75 to 1, increasing to 4.50 to 1 for up to four fiscal quarters following the closing of an acquisition permitted under the Agreement, subject to limitations. The Company paid interest on the unpaid principal amount of the facility at a rate equal to one-, three- or six-month LIBOR plus between 1.00% and 1.50% based upon the Company’s leverage ratio. The Company also paid a commitment fee to the lenders in an amount equal to between 0.10% and 0.20% on the undrawn portion of the credit facility, based upon the Company’s leverage ratio.
The COVID-19 pandemic has significantly impacted the global economy, and particularly the aerospace industry, resulting in reduced expectations of the Company’s future operating results. As a result, the Company was projected to exceed its maximum permitted leverage ratio in the fourth quarter of 2020. Accordingly, on May 4, 2020, the Company executed an amendment to the Agreement (the “Amended Facility”), which reduced the revolving credit line from $500 million to $375 million. There remains the option to increase the line by up to $150 million. The Amended Facility suspends the application of the leverage ratio up through and including the second quarter of 2021 (the “suspension period”). The maximum net leverage ratio will be 6.00 to 1 for the third quarter of 2021, 5.50 to 1 for the fourth quarter of 2021, 4.50 to 1 for the first quarter of 2022, and return to 3.75 to 1 for each quarter thereafter.
At September 26, 2020, there was $168.0 million outstanding on the revolving credit facility and there remained $205.7 million available subject to the minimum liquidity covenant discussed below, net of outstanding letters of credit and bank guarantees. The credit facility allocates up to $20 million of the $375 million revolving credit line for the issuance of letters of credit, including certain existing letters of credit. At September 26, 2020, outstanding letters of credit and bank guarantees totaled $1.3 million.
Through the third quarter of 2021, the Amended Facility requires the Company to maintain minimum liquidity, defined as unrestricted cash plus the unused revolving credit commitments, of $180 million at all times. Through the second quarter of 2021, the Company is required to maintain a minimum interest coverage ratio of 1.75x on a quarterly basis, except for the first quarter of 2021, which is set at 1.50x. The Company was in compliance with its financial covenants at September 26, 2020. During the suspension period, the Company will pay interest on the unpaid principal amount of the Amended Facility at a rate equal to one-, three- or six-month LIBOR (which shall be at least 1.00%) plus 2.25%. The Company will also pay a commitment fee to the lenders in an amount equal to 0.35% on the undrawn portion of the Amended Facility. After the suspension period, the Company will pay interest on the unpaid principal amount of the Amended Facility at a rate equal to one-, three- or six-month LIBOR (which shall be at least 1.00%) plus between 1.00% to 2.25% based upon the Company’s leverage ratio. The Company will also pay a commitment fee to the lenders in an amount equal to 0.10% to 0.35% on the undrawn portion of the Amended Facility, based upon the Company’s leverage ratio. The Amended Facility provided for the payment of a consent fee of 15 basis points of the commitment for each consenting lender.
The Amended Facility also temporarily restricts certain activities, including acquisitions and share repurchases, and requires mandatory prepayments during the suspension period when the Company’s cash balance exceeds $100 million. During the nine months ended September 26, 2020, subsequent to the execution of the Amended Facility, the Company made prepayments approximating $165 million.
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.
8) Product Warranties
In the ordinary course of business, the Company warrants its products against defects in design, materials and workmanship typically over periods ranging from twelve to sixty months. The Company determines warranty reserves needed by product line based on experience and current facts and circumstances. Activity in the warranty accrual is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | | Three Months Ended |
(In thousands) | | September 26, 2020 | | September 28, 2019 | | September 26, 2020 | | September 28, 2019 |
Balance at Beginning of Period | | $ | 7,660 | | | $ | 5,027 | | | $ | 6,965 | | | $ | 4,806 | |
Warranties Divested or Acquired | | — | | | (103) | | | — | | | 20 | |
Warranties Issued | | 1,618 | | | 2,014 | | | 95 | | | 769 | |
Warranties Settled | | (1,324) | | | (1,850) | | | (16) | | | (670) | |
Reassessed Warranty Exposure | | (596) | | | 138 | | | 314 | | | 301 | |
Balance at End of Period | | $ | 7,358 | | | $ | 5,226 | | | $ | 7,358 | | | $ | 5,226 | |
9) Leases
The Company has operating and finance leases for leased office and manufacturing facilities and equipment leases. We have concluded that when an agreement grants us the right to substantially all of the economic benefits associated with an identified asset, and we are able to direct the use of that asset throughout the term of the agreement, we have a lease. We lease certain facilities and office equipment under finance leases, and we lease certain production facilities, office equipment and vehicles under operating leases. Some of our leases include options to extend or terminate the leases and these options have been included in the relevant lease term to the extent that they are reasonably certain to be exercised.
The weighted-average remaining term for the Company's operating and financing leases are approximately 6 and 2 years, respectively. The weighted-average discount rates for the Company's operating and financing leases are approximately 3.3% and 5.3%, respectively.
The following is a summary of the Company's ROU assets and liabilities:
| | | | | | | | | | | | | |
(In thousands) | September 26, 2020 | | December 31, 2019 | | |
Operating Leases: | | | | | |
Operating Right-of-Use Assets, Gross | $ | 28,549 | | | $ | 28,788 | | | |
Less Accumulated Right-of-Use Asset Impairment | 1,710 | | | 1,019 | | | |
Less Accumulated Amortization | 7,037 | | | 4,167 | | | |
Operating Right-of-Use Assets, Net | $ | 19,802 | | | $ | 23,602 | | | |
Short-term Operating Lease Liabilities | $ | 4,969 | | | $ | 4,517 | | | |
Long-term Operating Lease Liabilities | 17,582 | | | 21,039 | | | |
Operating Lease Liabilities | $ | 22,551 | | | $ | 25,556 | | | |
| | | | | |
Finance Leases: | | | | | |
Finance Right-of-Use Assets, Gross | $ | 3,484 | | | $ | 3,484 | | | |
Less Accumulated Amortization | 1,784 | | | 1,020 | | | |
Finance Right-of-Use Assets, Net — Included in Other Assets | $ | 1,700 | | | $ | 2,464 | | | |
Short-term Finance Lease Liabilities — Included in Accrued Expenses and Other Current Liabilities | $ | 2,041 | | | $ | 1,922 | | | |
Long-term Finance Lease Liabilities — Included in Other Liabilities | 1,272 | | | 2,815 | | | |
Finance Lease Liabilities | $ | 3,313 | | | $ | |