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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
ý☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 201726, 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 classTrading SymbolName of each exchange on which registered
Common Stock, $.01 par value per shareATRONASDAQ Stock Market
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(g) of the Act:
$.01 par value Common Stock, $.01 par value Class B Stock
(Title of Class)


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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):
Large accelerated filer☒Accelerated filer☐Emerging growth company☐
Large accelerated filerýAccelerated 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 September 30, 2017, 28,002,226October 28, 2020, 30,800,663 shares of common stock were outstanding consisting of 21,075,59223,927,431 shares of common stock ($.01 par value) and 6,926,6346,873,232 shares of Class B common stock ($.01 par value).



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Part I – Financial Information
Item 1. Financial Statements
\ASTRONICS CORPORATION
Consolidated Condensed Balance Sheets
September 30, 201726, 2020 with Comparative Figures for December 31, 20162019
(Unaudited)
(In thousands)
 
September 30,
2017		 December 31,
2016		September 26, 2020December 31, 2019
(Unaudited)  
Current Assets:   Current Assets:
Cash and Cash Equivalents$15,377
 $17,901
Cash and Cash Equivalents$29,897 $31,906 
Accounts Receivable, Net of Allowance for Doubtful Accounts114,985
 109,415
Accounts Receivable, Net of Allowance for Doubtful Accounts92,947 147,998 
Inventories139,265
 116,597
Inventories163,451 145,787 
Prepaid Expenses and Other Current Assets16,044
 11,160
Prepaid Expenses and Other Current Assets27,375 15,853 
Assets Held for SaleAssets Held for Sale0 1,537 
Total Current Assets285,671
 255,073
Total Current Assets313,670 343,081 
Property, Plant and Equipment, Net of Accumulated Depreciation124,281
 122,812
Property, Plant and Equipment, Net of Accumulated Depreciation108,111 112,499 
Operating Right-of-Use AssetsOperating Right-of-Use Assets19,802 23,602 
Other Assets16,503
 13,149
Other Assets23,341 31,271 
Intangible Assets, Net of Accumulated Amortization95,055
 98,103
Intangible Assets, Net of Accumulated Amortization114,355 127,293 
Goodwill119,118
 115,207
Goodwill58,182 144,970 
Total Assets$640,628
 $604,344
Total Assets$637,461 $782,716 
Current Liabilities:   Current Liabilities:
Current Maturities of Long-term Debt$2,695
 $2,636
Current Maturities of Long-term Debt$232 $224 
Accounts Payable35,876
 25,070
Accounts Payable26,320 35,842 
Current Operating Lease LiabilitiesCurrent Operating Lease Liabilities4,969 4,517 
Accrued Expenses and Other Current Liabilities32,533
 35,686
Accrued Expenses and Other Current Liabilities42,831 48,697 
Customer Advance Payments and Deferred Revenue21,988
 23,168
Customer Advance Payments and Deferred Revenue24,916 31,360 
Total Current Liabilities93,092
 86,560
Total Current Liabilities99,268 120,640 
Long-term Debt174,652
 145,484
Long-term Debt168,000 188,000 
Long-term Operating Lease LiabilitiesLong-term Operating Lease Liabilities17,582 21,039 
Other Liabilities35,554
 34,851
Other Liabilities62,765 64,180 
Total Liabilities303,298
 266,895
Total Liabilities347,615 393,859 
Shareholders’ Equity:   Shareholders’ Equity:
Common Stock297
 297
Common Stock346 345 
Accumulated Other Comprehensive Loss(11,115) (15,494)Accumulated Other Comprehensive Loss(15,068)(15,628)
Other Shareholders’ Equity348,148
 352,646
Other Shareholders’ Equity304,568 404,140 
Total Shareholders’ Equity337,330
 337,449
Total Shareholders’ Equity289,846 388,857 
Total Liabilities and Shareholders’ Equity$640,628
 $604,344
Total Liabilities and Shareholders’ Equity$637,461 $782,716 
See notes to consolidated condensed financial statements.

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ASTRONICS CORPORATION
Consolidated Condensed Statements of Operations
Three and Nine Months Ended September 30, 201726, 2020 With Comparative Figures for 20162019
(Unaudited)
(In thousands, except per share data)
 
Nine Months Ended Three Months EndedNine Months EndedThree Months Ended
September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016		September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Sales$453,146
 $479,055
 $149,636
 $155,099
Sales$387,784 $574,290 $106,506 $177,018 
Cost of Products Sold348,186
 356,074
 117,143
 116,436
Cost of Products Sold310,059 445,056 91,333 140,224 
Gross Profit104,960
 122,981
 32,493
 38,663
Gross Profit77,725 129,234 15,173 36,794 
Selling, General and Administrative Expenses66,504
 65,246
 22,410
 21,138
Selling, General and Administrative Expenses85,941 90,677 24,170 31,691 
Income from Operations38,456
 57,735
 10,083
 17,525
Impairment LossImpairment Loss87,016 0 0 0 
(Loss) Income from Operations(Loss) Income from Operations(95,232)38,557 (8,997)5,103 
Net (Gain) Loss on Sale of BusinessesNet (Gain) Loss on Sale of Businesses0 (78,801)0 1,332 
Other Expense, Net of Other IncomeOther Expense, Net of Other Income4,546 1,197 369 464 
Interest Expense, Net of Interest Income3,750
 3,246
 1,437
 1,103
Interest Expense, Net of Interest Income5,091 4,576 1,775 1,547 
Income Before Income Taxes34,706
 54,489
 8,646
 16,422
Provision for Income Taxes9,374
 15,950
 2,586
 4,348
Net Income$25,332
 $38,539
 $6,060
 $12,074
Earnings Per Share:       
(Loss) Income Before Income Taxes(Loss) Income Before Income Taxes(104,869)111,585 (11,141)1,760 
(Benefit from) Provision for Income Taxes(Benefit from) Provision for Income Taxes(9,073)25,503 (5,887)550 
Net (Loss) IncomeNet (Loss) Income$(95,796)$86,082 $(5,254)$1,210 
(Loss) Earnings Per Share:(Loss) Earnings Per Share:
Basic$0.88
 $1.32
 $0.21
 $0.42
Basic$(3.11)$2.65 $(0.17)$0.04 
Diluted$0.85
 $1.28
 $0.21
 $0.41
Diluted$(3.11)$2.61 $(0.17)$0.04 
See notes to consolidated condensed financial statements.

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ASTRONICS CORPORATION
Consolidated Condensed Statements of Comprehensive (Loss) Income
Three and Nine Months Ended September 30, 201726, 2020 With Comparative Figures for 20162019
(Unaudited)
(In thousands)
 
 Nine Months Ended Three Months Ended
 September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016
Net Income$25,332
 $38,539
 $6,060
 $12,074
Other Comprehensive Income:       
Foreign Currency Translation Adjustments3,987
 1,354
 1,496
 49
Retirement Liability Adjustment – Net of Tax392
 392
 130
 130
Other Comprehensive Income4,379
 1,746
 1,626
 179
Comprehensive Income$29,711
 $40,285
 $7,686
 $12,253
Nine Months EndedThree Months Ended
September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Net (Loss) Income$(95,796)$86,082 $(5,254)$1,210 
Other Comprehensive (Loss) Income:
Foreign Currency Translation Adjustments(85)(722)1,409 (1,336)
Retirement Liability Adjustment – Net of Tax645 441 215 147 
Total Other Comprehensive (Loss) Income560 (281)1,624 (1,189)
Comprehensive (Loss) Income$(95,236)$85,801 $(3,630)$21 
See notes to consolidated condensed financial statements.

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ASTRONICS CORPORATION
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 30, 2017
26, 2020 With Comparative Figures for 20162019
(Unaudited)
(In thousands)
(Unaudited, In thousands)(Unaudited, In thousands)Nine Months Ended
Cash Flows from Operating Activities:Cash Flows from Operating Activities:September 26, 2020September 28, 2019
Nine Months Ended
September 30,
2017		 October 1,
2016
Cash Flows From Operating Activities:   
Net Income$25,332
 $38,539
Adjustments to Reconcile Net Income to Cash Provided By Operating Activities:   
Net (Loss) IncomeNet (Loss) Income$(95,796)$86,082 
Adjustments to Reconcile Net (Loss) Income to Cash Flows from Operating Activities, Excluding the Effects of Acquisitions/Divestitures:Adjustments to Reconcile Net (Loss) Income to Cash Flows from Operating Activities, Excluding the Effects of Acquisitions/Divestitures:
Depreciation and Amortization19,269
 19,457
Depreciation and Amortization24,095 24,183 
Provisions for Non-Cash Losses on Inventory and Receivables943
 1,554
Provisions for Non-Cash Losses on Inventory and Receivables4,535 4,613 
Stock Compensation Expense2,203
 1,876
Deferred Tax Benefit(920) (3,527)
Equity-based Compensation ExpenseEquity-based Compensation Expense3,924 2,943 
Deferred Tax Expense (Benefit)Deferred Tax Expense (Benefit)1,127 (3,820)
Non-cash Severance ExpenseNon-cash Severance Expense3,007 0 
Operating Lease Amortization ExpenseOperating Lease Amortization Expense3,352 2,993 
Non-cash Litigation ProvisionNon-cash Litigation Provision0 1,700 
Net Gain on Sale of Businesses, Before TaxesNet Gain on Sale of Businesses, Before Taxes0 (78,801)
Equity Investment Other Than Temporary ImpairmentEquity Investment Other Than Temporary Impairment3,493 0 
Impairment LossImpairment Loss87,016 0 
Other(657) 401
Other6,622 (5,485)
Cash Flows from Changes in Operating Assets and Liabilities:   Cash Flows from Changes in Operating Assets and Liabilities:
Accounts Receivable(1,515) (23,707)Accounts Receivable53,604 23,423 
Inventories(18,480) (5,113)Inventories(19,807)(18,963)
Accounts Payable8,267
 211
Accounts Payable(9,589)(5,494)
Accrued Expenses(5,483) (786)Accrued Expenses(11,340)(5,867)
Other Current Assets and Liabilities(4,556) (460)Other Current Assets and Liabilities(224)(697)
Customer Advanced Payments and Deferred Revenue(2,336) (11,281)Customer Advanced Payments and Deferred Revenue(6,474)(3,266)
Income Taxes(883) 6,860
Income Taxes(12,316)5,581 
Operating Lease LiabilitiesOperating Lease Liabilities(3,412)(2,824)
Supplemental Retirement and Other Liabilities1,129
 1,126
Supplemental Retirement and Other Liabilities(304)3,940 
Cash Provided By Operating Activities22,313
 25,150
Cash Flows From Investing Activities:   
Cash Flows from Operating ActivitiesCash Flows from Operating Activities31,513 30,241 
Cash Flows from Investing Activities:Cash Flows from Investing Activities:
Acquisition of Business, Net of Cash Acquired(10,199) —
Acquisition of Business, Net of Cash Acquired0 (21,785)
Proceeds on Sale of BusinessProceeds on Sale of Business0 104,792 
Capital Expenditures(9,715) (9,869)Capital Expenditures(5,575)(8,850)
Other Investing Activities(2,070) (1,585)
Cash Used For Investing Activities(21,984) (11,454)
Cash Flows From Financing Activities:   
Proceeds on Sale of AssetsProceeds on Sale of Assets1,600 0 
Cash Flows from Investing ActivitiesCash Flows from Investing Activities(3,975)74,157 
Cash Flows from Financing Activities:Cash Flows from Financing Activities:
Proceeds from Long-term Debt42,000
 20,000
Proceeds from Long-term Debt150,000 99,000 
Payments for Long-term Debt(13,031) (25,909)Payments for Long-term Debt(170,000)(146,080)
Purchase of Outstanding Shares for Treasury(32,382) (17,446)Purchase of Outstanding Shares for Treasury(7,732)(50,000)
Debt Acquisition Costs—
 (164)
Proceeds from Exercise of Stock Options349
 3,902
Income Tax Benefit from Exercise of Stock Options—
 529
Cash Used For Financing Activities(3,064) (19,088)
Stock Options ActivityStock Options Activity33 423 
Finance Lease Principal PaymentsFinance Lease Principal Payments(1,425)(1,284)
Financing FeesFinancing Fees(360)0 
Cash Flows from Financing ActivitiesCash Flows from Financing Activities(29,484)(97,941)
Effect of Exchange Rates on Cash211
 109
Effect of Exchange Rates on Cash(63)(284)
Decrease in Cash and Cash Equivalents(2,524) (5,283)
(Decrease) Increase in Cash and Cash Equivalents(Decrease) Increase in Cash and Cash Equivalents(2,009)6,173 
Cash and Cash Equivalents at Beginning of Period17,901
 18,561
Cash and Cash Equivalents at Beginning of Period31,906 16,622 
Cash and Cash Equivalents at End of Period$15,377
 $13,278
Cash and Cash Equivalents at End of Period$29,897 $22,795 
See notes to consolidated condensed financial statements.

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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 EndedThree Months Ended
September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Common Stock
Beginning of Period$269 $260 $274 $264 
Net Exercise of Stock Options— 1 — 0 
Class B Stock Converted to Common Stock8 4 3 1 
End of Period277 265 277 265 
Convertible Class B Stock
Beginning of Period76 83 72 80 
Net Exercise of Stock Options1 — — — 
Class B Stock Converted to Common Stock(8)(4)(3)(1)
End of Period69 79 69 79 
Additional Paid in Capital
Beginning of Period76,340 73,044 79,179 75,604 
Net Exercise of Stock Options and Equity-based Compensation Expense3,956 3,365 1,117 805 
End of Period80,296 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 Taxes645 441 215 147 
End of Period(15,068)(13,610)(15,068)(13,610)
Retained Earnings
Beginning of Period428,584 376,567 338,042 461,439 
Net (Loss) Income(95,796)86,082 (5,254)1,210 
End of Period332,788 462,649 332,788 462,649 
Treasury Stock
Beginning of Period(100,784)(50,000)(108,516)(50,000)
Purchase of Shares(7,732)(50,000)0 (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.





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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 EndedThree Months Ended
September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Common Stock
Beginning of Period26,874 25,978 27,355 26,343 
Net Issuance from Exercise of Stock Options69 53 44 19 
Class B Stock Converted to Common Stock790 444 334 113 
End of Period27,733 26,475 27,733 26,475 
Convertible Class B Stock
Beginning of Period7,650 8,290 7,209 8,007 
Net Issuance from Exercise of Stock Options16 50 1 2 
Class B Stock Converted to Common Stock(790)(444)(334)(113)
End of Period6,876 7,896 6,876 7,896 
Treasury Stock
Beginning of Period3,526 1,675 3,808 1,675 
Purchase of Shares282 1,823 — 1,823 
End of Period3,808 3,498 3,808 3,498 
See notes to consolidated condensed financial statements.

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ASTRONICS CORPORATION
Notes to Consolidated Condensed Financial Statements
September 30, 201726, 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.
All 2016 share quantities and per share data reported have been restated to reflect the impact of the three-for-twenty Class B stock distribution to shareholders of record on October 11, 2016.
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 30, 201726, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2020.
The balance sheet at December 31, 20162019 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 20162019 annual report on Form 10-K.
Description of the Business
Astronics Corporation (“Astronics” or the “Company”) is a leading supplierprovider of productsadvanced technologies to the global aerospace, defense electronics and semiconductorelectronics 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 systems certification,and automated test systems and other products.systems.
We have principal operations in the United States (“U.S.”), Canada, France and France. We designEngland, as well as engineering offices in the Ukraine and build our products through our wholly owned subsidiaries Armstrong Aerospace, Inc. (“Armstrong”); Astronics Advanced Electronic Systems Corp. (“AES”); Astronics AeroSat Corporation (“AeroSat”); Ballard Technology, Inc. (“Ballard”); Astronics DME LLC (“DME”); Luminescent Systems, Inc. (“LSI”); Luminescent Systems Canada, Inc. (“LSI Canada”); Max-Viz, Inc. (“Max-Viz”); Peco, Inc. (“Peco”); PGA Electronic s.a. (“PGA”) and AstronicsIndia.
On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems Inc.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 (“ATS”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 April 3, 2017, Astronics Custom Control Concepts Inc. ("CCC")July 1, 2019, the Company acquired all of the assetsissued 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 liabilitiesassets associated with its Airfield Lighting product line for $1.0 million in cash. The Airfield Lighting product line, part of Custom Control Concepts LLC.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.
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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 $23.7$16.4 million and $21.6$25.6 million for the three months ended and $69.5$65.0 million and $66.2$80.0 million for the nine months ended September 30, 201726, 2020 and October 1, 2016,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 30, 201726, 2020 and October 1, 2016.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 4 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
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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 30, 201726, 2020 and October 1, 2016.September 28, 2019.

Newly Adopted and Recent Accounting Pronouncements
Recent Accounting Pronouncements Adopted in 2017

StandardDescriptionFinancial 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
On January 1, 2017,
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Recent Accounting Pronouncements Not Yet Adopted
StandardDescriptionFinancial 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 adopted Accounting Standards Update (“ASU”) No. 2016-09, Improvementstransfers control of promised products or services to Employee Share-Based 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 Accounting. Prospectively, beginning January 1, 2017, excess tax benefits/deficienciesterms 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 reflected as income tax benefit/expensesubsequently 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.
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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 statementfuture, and are expected to be recovered. Such costs are amortized on a systematic basis that is consistent with the transfer to the customer of income, resultingthe 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 $0.3contract 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 tax benefitof 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.
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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 30, 2017. The extent of excess tax benefits/deficiencies is subject to variation26, 2020 and September 28, 2019, respectively, in revenues that were included in the Company’s stock price and timing/extent of employee stock option exercises. Under previous accounting guidance, when a share-based payment award such as a stock option was granted to an employee,contract liability balance at the fair valuebeginning of the award was generally recognized overperiod.
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 vesting period. However,beginning and ending balances of contract assets and contract liabilities during the related deduction from taxes payable was based onnine months ended September 26, 2020:
(In thousands)Contract AssetsContract 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 EndedThree Months Ended
(In thousands)September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Aerospace Segment
Commercial Transport$214,390 $393,721 $44,067 $122,212 
Military50,329 57,753 18,164 17,255 
Business Jet45,259 49,555 14,711 12,432 
Other16,213 19,461 5,606 5,803 
Aerospace Total326,191 520,490 82,548 157,702 
Test Systems Segment
Semiconductor3,407 7,815 585 2,219 
Aerospace & Defense58,186 45,985 23,373 17,097 
Test Systems Total61,593 53,800 23,958 19,316 
Total$387,784 $574,290 $106,506 $177,018 
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The following table presents our revenue disaggregated by Product Lines as follows:
Nine Months EndedThree Months Ended
(In thousands)September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Aerospace Segment
Electrical Power & Motion$148,500 $255,007 $32,481 $78,428 
Lighting & Safety90,973 139,502 25,320 44,127 
Avionics57,381 79,414 16,104 19,871 
Systems Certification5,596 9,050 605 3,384 
Structures7,528 18,056 2,432 6,089 
Other16,213 19,461 5,606 5,803 
Aerospace Total326,191 520,490 82,548 157,702 
Test Systems61,593 53,800 23,958 19,316 
Total$387,784 $574,290 $106,506 $177,018 

3) Inventories
Inventories consisted of the award’s intrinsic value at the time of exercise, which could be either greater (creating an excess tax benefit) or less (creating a tax deficiency) than the compensation cost recognized in the financial statements. Excess tax benefits were recognized in additional paid-in capital (“APIC”) within equity, while deficiencies were first recorded to APIC to the extent previously recognized excess tax benefits existed, after which time deficiencies were recorded to income tax expense. following:
(In thousands)
September 26, 2020December 31, 2019
Finished Goods$29,257 $33,434 
Work in Progress26,911 25,594 
Raw Material107,283 86,759 
$163,451 $145,787 
The Company’s adoption of this ASU also resulted in associated excess tax benefits being classified as an operating activity in the same manner as other cash flows related to income taxes in the statement of cash flows prospectively beginning January 1, 2017. Based on the adoption methodology applied, the statement of cash flows classification of prior periods has not changed.  As permitted by the ASU, the Company has elected to account for forfeitures as they occur.  None of the other provisions in this amended guidance had a significant impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. Under the new standard, goodwill impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceedevaluated the carrying value of goodwill. This ASU eliminates existing guidance that requires an entityinventories 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 determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assetsmeet known current and liabilities as if that reporting unit had been acquired in a business combination. This ASU is effective prospectively to annual and interim impairment tests beginning after December 15, 2019, with early adoption permitted. The adoption of ASU 2017-04 on January 1, 2017 had no impact on the financial statements as of or for the three or nine months ended September 30, 2017, as there was no impairment analysis performed during the period.future demand.

2) Inventories
Inventories are as follows:
(In thousands)September 30,
2017		 December 31,
2016
Finished Goods$36,850
 $28,792
Work in Progress32,997
 20,790
Raw Material69,418
 67,015
 $139,265
 $116,597
3)4) Property, Plant and Equipment
The following table summarizes Property, Plant and Equipment as follows:consisted of the following:
(In thousands)September 26, 2020December 31, 2019
Land$9,837 $9,802 
Buildings and Improvements75,188 74,723 
Machinery and Equipment119,688 115,202 
Construction in Progress6,030 5,453 
210,743 205,180 
Less Accumulated Depreciation102,632 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.
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(In thousands)September 30,
2017		 December 31,
2016
Land$11,223
 $11,112
Buildings and Improvements81,361
 79,191
Machinery and Equipment102,386
 93,683
Construction in Progress9,334
 8,182
 204,304
 192,168
Less Accumulated Depreciation80,023
 69,356
 $124,281
 $122,812
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4)5) Intangible Assets
The following table summarizes acquired intangible assets as follows:
September 26, 2020December 31, 2019
(In thousands)
Weighted
Average Life
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Patents11 years$2,146 $1,869 $2,146 $1,804 
Non-compete Agreement4 years11,091 9,627 11,318 7,696 
Trade Names10 years11,467 7,290 11,438 6,550 
Completed and Unpatented Technology9 years48,250 24,633 48,201 21,196 
Customer Relationships15 years142,528 57,708 142,212 50,776 
Total Intangible Assets12 years$215,482 $101,127 $215,315 $88,022 
  September 30, 2017 December 31, 2016
(In thousands)
Weighted
Average Life
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Gross Carrying
Amount
 
Accumulated
Amortization
Patents4 Years $2,146
 $1,590
 $2,146
 $1,450
Non-compete Agreement3 Years 2,500
 1,354
 2,500
 979
Trade Names7 Years 10,480
 3,866
 10,189
 3,153
Completed and Unpatented Technology5 Years 26,094
 11,147
 24,118
 9,221
BacklogLess than 1 Year 11,524
 11,424
 11,224
 11,224
Customer Relationships11 Years 99,831
 28,139
 97,046
 23,093
Total Intangible Assets5 Years $152,575
 $57,520
 $147,223
 $49,120
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 EndedNine Months EndedThree Months Ended
(In thousands)September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016		(In thousands)September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Amortization Expense$8,269
 $8,202
 $2,929
 $2,595
Amortization Expense$13,024 $12,746 $4,382 $4,394 
Amortization expense for acquired intangible assets expected for 20172020 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 

(In thousands) 
2017$11,089
201810,593
201910,214
20209,658
20219,612
20229,216
5)6) Goodwill
The following table summarizes the changes in the carrying amount of goodwill for the nine months ended September 30, 2017:26, 2020:
(In thousands)December 31, 2019Acquisition AdjustmentsImpairment Charges
Foreign
Currency
Translation
September 26, 2020
Aerospace$123,038 $0 $(86,312)$(178)$36,548 
Test Systems21,932 (298)0 0 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
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(In thousands)December 31,
2016		 Acquisition 
Foreign
Currency
Translation
 September 30,
2017
Aerospace$115,207
 $3,067
 $844
 $119,118
Test Systems—
 —
 —
 —
 $115,207
 $3,067
 $844
 $119,118
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 8 reporting units with goodwill as of March 28, 2020.
6)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 4 of the 8 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 4 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.
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7) Long-term Debt and Notes Payable
The Company’s obligations under theCompany's Fifth Amended and Restated Credit Agreement as amended are jointly and severally guaranteed by each domestic subsidiary of the Company other than(the “Agreement”) provided for a non-material subsidiary. The obligations are secured by a first priority lien on substantially all of the Company’s and the guarantors’ assets.
The Company's Credit Agreement consists of a $350$500 million revolving credit line with the option to increase the line by up to $150 million. he Credit Agreement expires on January 13, 2021. At September 30, 2017, there was $167.0 million outstanding

on the revolving credit facility and there remains $181.9 million available, net of outstanding letters of credit. The credit facility allocates up to $20 millionmaturity date of the $350 million revolving credit line forloans under the issuance of letters of credit, including certain existing letters of credit. At September 30, 2017, outstanding letters of credit totaled $1.1 million.
Agreement is February 16, 2023. The maximum permitted leverage ratio of funded debt, net of cash to Adjusted EBITDA (as defined in the Agreement) is 3.5was 3.75 to 1, increasing to 4.04.50 to 1 for up to two4 fiscal quarters following the closing of an acquisition permitted under the Agreement. The Company’s leverage ratio was 2.12Agreement, subject to 1 at September 30, 2017.limitations. The Company will paypaid interest on the unpaid principal amount of the facility at a rate equal to one-, three- or six-month LIBOR plus between 137.51.00% 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, points and 225 basis pointsexcept 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 between 17.5 basis points and 35 basis points0.10% to 0.35% on the undrawn portion of the credit facility,Amended Facility, based upon the Company’s leverage ratio. The Company must also maintain a minimum interest coverage ratio (Adjusted EBITDA to interest expense) of 3.0 to 1Amended Facility provided for the termpayment of a consent fee of 15 basis points of the Agreement. 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 interest coverage ratio was 20.2 to 1 at September 30, 2017.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 AgreementAmended 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 Agentagent the option to declare all such amounts immediately due and payable.
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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 12twelve to 60sixty 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 EndedThree Months Ended
(In thousands)September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Balance at Beginning of Period$7,660 $5,027 $6,965 $4,806 
Warranties Divested or Acquired0 (103)0 20 
Warranties Issued1,618 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, 2020December 31, 2019
Operating Leases:
Operating Right-of-Use Assets, Gross$28,549 $28,788 
Less Accumulated Right-of-Use Asset Impairment1,710 1,019 
Less Accumulated Amortization7,037 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 Liabilities17,582 21,039 
Operating Lease Liabilities$22,551 $25,556 
Finance Leases:
Finance Right-of-Use Assets, Gross$3,484 $3,484 
Less Accumulated Amortization1,784 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 $4,737 
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 Nine Months Ended Three Months Ended
(In thousands)September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016
Balance at Beginning of Period$4,675
 $5,741
 $4,637
 $5,361
Acquisitions359
 —
 —
 —
Warranties Issued1,315
 1,806
 483
 600
Warranties Settled(1,832) (1,906) (608) (616)
Reassessed Warranty Exposure101
 (313) 106
 (17)
Balance at End of Period$4,618
 $5,328
 $4,618
 $5,328
The following is a summary of the Company's total lease costs:
Nine Months EndedThree Months Ended
(In thousands)September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Finance Lease Cost:
Amortization of Right-of-Use Assets$765 $765 $255 $255 
Interest on Lease Liabilities170 243 5076
Total Finance Lease Cost935 1,008 305 331 
Operating Lease Cost3,957 3,622 1,3141,216 
Right-of-Use Asset Impairment691 0 0 0 
Variable Lease Cost1,010 958 377279
Short-term Lease Cost (excluding month-to-month)155 118 4133
Less Sublease and Rental (Income) Expense(1,085)(301)(348)216 
Total Operating Lease Cost4,728 4,397 1,384 1,744 
Total Net Lease Cost$5,663 $5,405 $1,689 $2,075 
8)
The following is a summary of the Company's maturity of lease liabilities:
(In thousands)Operating LeasesFinance Leases
2020$1,490 $537 
20215,373 2,181 
20225,062 743 
20233,692 0 
20242,844 0 
Thereafter6,297 0 
Total Lease Payments24,758 3,461 
Less: Interest2,207 148 
Total Lease Liability$22,551 $3,313 

10) Income Taxes
The effective tax rates were approximately 27.0%8.7% and 29.3%22.9% for the nine months ended and 29.9%52.8% and 26.5%31.3% for the three months ended September 30, 201726, 2020 and October 1, 2016,September 28, 2019, respectively. The 20172020 tax rates were favorablyrate was impacted relativeby permanently non-deductible goodwill impairments totaling $60.8 million, a Federal valuation allowance of approximately $7.5 million, and a tax benefit related to a revised state income tax filing position of approximately $3.1 million recorded during the three and nine months ended September 26, 2020.
During the three and nine months ended September 26, 2020, the Company determined that a revised state filing position could be taken which would reduce the taxable income apportioned for certain state income tax purposes. The Company concluded that amended state income tax returns would be filed for the open tax years of 2015 through 2018 to reflect this revised tax position and claim the associated tax benefits. In addition, the revised tax position will also be taken on the 2019 state income tax filing. Accordingly, the Company has recorded a discrete tax benefit of $3.1 million related to these items for the three and nine month periods ended September 26, 2020.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the statutory rate by excess tax benefits associated with the exercise of stock options, decreases in foreign tax rates, andeconomic uncertainty resulting from the federal researchCOVID-19 pandemic. The CARES Act includes many measures to assist companies, including temporary changes to income and development tax credit.

9) Shareholders’ Equity
Thenon-income based laws, some of which were enacted as part of the Tax Cuts and Jobs Act of 2017 (“TCJA”). Some of the key changes include eliminating the 80% of taxable income limitation by allowing corporate entities to fully utilize net operating losses (“NOL”) to offset taxable income in shareholders’ equity for2018, 2019 and 2020, allowing NOLs originating in 2018, 2019 and 2020 to be carried back five years and retroactively clarifying the immediate recovery of qualified improvement property costs rather than over a 39-year recovery period. During the nine months ended September 30, 2017 are summarized as follows:26,
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   Number of Shares
(Dollars and Shares in thousands)Amount 
Common
Stock
 
Convertible
Class B Stock
Shares Authorized  40,000
 15,000
Share Par Value  $0.01
 $0.01
COMMON STOCK     
Beginning of Period$297
 21,955
 7,665
Conversion of Class B Shares to Common Shares—
 777
 (777)
Exercise of Stock Options—
 18
 39
End of Period$297
 22,750
 6,927
ADDITIONAL PAID IN CAPITAL     
Beginning of Period$64,752
    
Stock Compensation Expense2,203
    
Exercise of Stock Options349
    
End of Period$67,304
    
ACCUMULATED OTHER COMPREHENSIVE LOSS     
Beginning of Period$(15,494)    
Foreign Currency Translation Adjustment3,987
    
Retirement Liability Adjustment – Net of Tax392
    
End of Period$(11,115)    
RETAINED EARNINGS     
Beginning of Period$305,512
    
Net Income25,332
    
End of Period$330,844
    
TREASURY STOCK     
Beginning of Period$(17,618) (523)  
Purchase(32,382) (1,152)  
End of Period$(50,000) (1,675)  
TOTAL SHAREHOLDERS’ EQUITY     
Beginning of Period$337,449
    
      
End of Period$337,330
 21,075
 6,927
2020, the Company recorded a $1.5 million benefit relating to the NOL carryback provisions and the technical correction for qualified improvement property provided for in the CARES Act. The Company will continue to monitor additional guidance issued and assess the impact that various provisions will have on its business.

On February 24, 2016,As a result of the COVID-19 pandemic and its adverse effects on the global economy and aerospace industry that began to take shape in the first quarter of fiscal 2020, the Company is now forecasting to generate a taxable loss in 2020 which can be carried back under the CARES Act to recover previously paid income taxes. After consideration of deferred tax liabilities that reverse in 2021 and beyond, the Company must rely on future taxable income in 2021 and beyond for purposes of asserting that the Company’s Board of Directors authorizedremaining U.S. Federal deferred tax assets are realizable on a more-likely-than-not basis as required under ASC 740. Losses in recent periods and projected losses, combined with the repurchase of up to $50 million of common stock (the “Buyback Program”). The Buyback Program allowedsignificant uncertainty brought about by the COVID-19 pandemic, is collectively considered significant negative evidence under ASC 740 when assessing whether an entity can use projected income as a basis for concluding that deferred tax assets are realizable on a more-likely-than-not basis. Accordingly, during the nine months ended September 26, 2020, the Company to purchase sharesdetermined that a portion of its common stockdeferred tax assets are not expected to be realizable in accordance with applicable securities laws on the open market or through privately negotiated transactions. Thefuture. As a result, the Company has repurchasedrecorded a partial valuation allowance of approximately 1,675,000 shares and has completed$7.5 million during the program, which authorized repurchases up to $50.0 million.nine months ended September 26, 2020 against its U.S. Federal deferred tax assets.


10)11) Earnings Per Share
Basic and diluted weighted-average shares outstanding are as follows:
 Nine Months Ended Three Months Ended
(In thousands)September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016
Weighted Average Shares - Basic28,779
 29,199
 28,322
 28,925
Net Effect of Dilutive Stock Options978
 937
 678
 883
Weighted Average Shares - Diluted29,757
 30,136
 29,000
 29,808
The 2016 information above has been adjusted to reflect the impact of the three-for-twenty Class B stock distribution to shareholders of record on October 11, 2016.
Nine Months EndedThree Months Ended
(In thousands)September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Weighted Average Shares - Basic30,780 32,427 30,770 31,964 
Net Effect of Dilutive Stock Options0 575 0 619 
Weighted Average Shares - Diluted30,780 33,002 30,770 32,583 
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 at September 30, 2017 was approximately 356,000 shares.831,000 shares as of September 26, 2020 and 279,000 shares as of September 28, 2019. Further, due to our net loss in the three and nine month periods ended September 26, 2020, the assumed exercise of stock compensation had an antidilutive effect and therefore was excluded from the computation of diluted loss per share.
11)12) Shareholders' Equity
Share Buyback Program
The Company’s Board of Directors from time to time authorizes the repurchase of common stock, which allows the Company to purchase shares of its common stock in accordance with applicable securities laws on the open market or through privately negotiated transactions. Most recently, on September 17, 2019, the Company’s Board of Directors authorized a repurchase of up to $50 million. Approximately 282,000 shares were repurchased in the first quarter of 2020 at a cost of $7.7 million before the 10b5-1 plan associated with the share repurchase program was terminated on February 3, 2020.
Comprehensive (Loss) Income and Accumulated Other Comprehensive Loss and Other Comprehensive Income
The components of accumulated other comprehensive loss are as follows:
(In thousands)September 26, 2020December 31, 2019
Foreign Currency Translation Adjustments$(7,127)$(7,042)
Retirement Liability Adjustment – Before Tax(10,051)(10,868)
Tax Benefit of Retirement Liability Adjustment2,110 2,282 
Retirement Liability Adjustment – After Tax(7,941)(8,586)
Accumulated Other Comprehensive Loss$(15,068)$(15,628)
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(In thousands)September 30,
2017		 December 31,
2016
Foreign Currency Translation Adjustments$(4,610) $(8,597)
Retirement Liability Adjustment – Before Tax(10,008) (10,611)
Tax Benefit3,503
 3,714
Retirement Liability Adjustment – After Tax(6,505) (6,897)
Accumulated Other Comprehensive Loss$(11,115) $(15,494)
The components of other comprehensive (loss) income are as follows:
Nine Months EndedThree Months Ended
(In thousands)September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Foreign Currency Translation Adjustments$(85)$(722)$1,409 $(1,336)
Retirement Liability Adjustments:
Reclassifications to General and Administrative Expense:
Amortization of Prior Service Cost302 302 101 101 
Amortization of Net Actuarial Losses515 256 171 85 
Tax Benefit(172)(117)(57)(39)
Retirement Liability Adjustment645 441 215 147 
Other Comprehensive (Loss) Income$560 $(281)$1,624 $(1,189)

 Nine Months Ended Three Months Ended
(In thousands)September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016
Foreign Currency Translation Adjustments$3,987
 $1,354
 $1,496
 $49
Retirement Liability Adjustments:       
Reclassifications to General and Administrative Expense:       
Amortization of Prior Service Cost303
 329
 101
 110
Amortization of Net Actuarial Losses300
 273
 100
 90
Tax Benefit(211) (210) (71) (70)
Retirement Liability Adjustment392
 392
 130
 130
Other Comprehensive Income$4,379
 $1,746
 $1,626
 $179

12)13) Supplemental Retirement Plan and Related Post Retirement Benefits
The Company has two2 non-qualified supplemental retirement defined benefit plans (“SERP” and “SERP II”) for certain executive officers. The following table sets forth information regarding the net periodic pension cost for the plans.
Nine Months EndedThree Months Ended
(In thousands)September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Service Cost$167 $136 $56 $45 
Interest Cost627 687 209 229 
Amortization of Prior Service Cost290 290 97 97 
Amortization of Net Actuarial Losses486 224 162 74 
Net Periodic Cost$1,570 $1,337 $524 $445 
 Nine Months Ended Three Months Ended
(In thousands)September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016
Service Cost$138
 $130
 $46
 $43
Interest Cost672
 675
 224
 225
Amortization of Prior Service Cost291
 310
 97
 103
Amortization of Net Actuarial Losses279
 257
 93
 86
Net Periodic Cost$1,380
 $1,372
 $460
 $457
Participants in the SERP are entitled to paid medical, dental and long-term care insurance benefits upon retirement under the plan. The following table sets forth information regarding the net periodic cost recognized for those benefits:
Nine Months EndedThree Months Ended
(In thousands)September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Service Cost$11 $10 $4 $3 
Interest Cost26 35 9 12 
Amortization of Prior Service Cost12 12 4 4 
Amortization of Net Actuarial Losses29 32 9 11 
Net Periodic Cost$78 $89 $26 $30 
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 to Other Expense, Net of Other Income.
 Nine Months Ended Three Months Ended
(In thousands)September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016
Service Cost$6
 $4
 $2
 $1
Interest Cost30
 30
 10
 10
Amortization of Prior Service Cost12
 19
 4
 7
Amortization of Net Actuarial Losses21
 16
 7
 4
Net Periodic Cost$69
 $69
 $23
 $22
13)14) Sales to Major Customers
The Company has a significant concentration of business with two2 major customers, each typically in excess of 10% of consolidated sales. The loss of either of these customers would significantly, negatively impact our sales and earnings.
Sales to these two2 customers represented 20%12% and 17%9% of consolidated sales for the nine months ended and 20%6% and 17%10% for the three months ended September 30, 2017.26, 2020. Sales to these customers were primarily in the Aerospace segment. Accounts receivable from these customers at September 30, 201726, 2020 was approximately $29.9$12.5 million. Sales to these two2 customers represented 21%13% and 15%14% of consolidated sales for the nine months ended and 21%12% and 15%14% for the three months ended October 1, 2016.September 28, 2019.
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15) Legal Proceedings

The Company is subject to various legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, we do not expect these matters will have a material adverse effect on our business, financial position, results of operations, or cash flows. However, the results of these matters cannot be predicted with certainty. Should the Company fail to prevail in any legal matter or should several legal matters be resolved against the Company in the same reporting period, then the financial results of that particular reporting period could be materially adversely affected.

On December 29, 2010, Lufthansa Technik AG (“Lufthansa”) filed a Statement of Claim in the Regional State Court of Mannheim, Germany. Lufthansa’s claim assertsasserted that oura subsidiary of the Company, AES, sold, marketed, and brought into use in Germany a power supply system that infringes upon a German patent held by Lufthansa. The reliefLufthansa sought by Lufthansa includesan order requiring AES to stop selling and marketing the allegedly infringing power supply system, a recall of allegedly infringing products sold to commercial customers in Germany since November 26, 2003, and compensation for damages.damages related to direct sales of the allegedly infringing power supply system in Germany (referred to as “direct sales”). The claim doesdid not specify an estimate of damages and a related damages claim would beis being pursued by Lufthansa in separate court proceedings.proceedings in an action filed in July 2017, as further discussed below.

OnIn February 6, 2015, the Regional State Court of Mannheim, Germany rendered its decision that the patent was infringed. The judgment doesdid not require AES to recall products that are already installed in aircraft or havehad been sold to other end users. On July 15, 2015, Lufthansa advised AES of their intention to enforce the accounting provisions of the decision, which required AES to provide certain financial information regarding direct sales of the infringing product in Germany to enable Lufthansa to make an estimate

of requested damages. Additionally, if Lufthansa provides the required bank guarantee specified in the decision, the Company may be required to offer a recall of products that are in the distribution channels in Germany. No such bank guarantee has been issued to date. As of September 30, 2017, there are no products in the distribution channels in Germany.

The Company appealed to the Higher Regional Court of Karlsruhe. On November 15, 2016, the Higher Regional Court of Karlsruhe issued its ruling and upheld the lower court’s decision. The Company has submitted a petition to grant AES leave for appeal to the German Federal Supreme Court. The Company believes it has valid defenses to refuteOn April 18, 2018, the decision.  Should theGerman Federal Supreme Court decidegranted Astronics’ petition in part, namely with respect to hear the case,part concerning the appeal process is estimatedamount of damages. On January 8, 2019, the German Federal Supreme Court held the hearing on the appeal. By judgment of March 26, 2019, the German Federal Supreme Court dismissed AES's appeal. With this decision, the above-mentioned proceedings are complete.
In July 2017, Lufthansa filed an action before the District Court of Mannheim for payment of damages caused by the court’s decision that AES infringed the patent, specifically related to extend updirect sales of the product into Germany (associated with the original December 2010 action discussed above). In this action, which was served to two years. We estimate AES’s potential exposureAES on April 11, 2018, Lufthansa claimed payment of approximately $6.2 million plus interest. An oral hearing was held on September 13, 2019. A first instance decision in this matter was handed down on December 6, 2019. According to this ruling, Lufthansa was awarded damages in the amount of approximately $3.2 million plus interest. Prior to 2019, the Company had accrued $1.0 million related to this matter. As a result of the judgment on direct sales into Germany, the Company reflected an incremental reserve of $3.5 million in its December 31, 2019 financial statements related to this matter ($1.7 million of which was recorded in the three and nine month periods ended September 28, 2019). Payment of the first instance judgment was made during the nine months ended September 26, 2020 of approximately $4.7 million, inclusive of interest. AES has appealed this decision and the appeal is currently pending before the Higher Regional Court of Karlsruhe. If the first instance judgment is later reversed on appeal, the Company could reclaim any amounts that were previously paid to Lufthansa as far as the payments exceed the amount awarded by the appellate court, but there can be no assurances that we will be successful on such appeal.
On December 29, 2017, Lufthansa filed another infringement action against AES in the Regional State Court of Mannheim claiming that sales by AES to its international customers have infringed Lufthansa's patent if AES's customers later shipped the products to Germany (referred to as “indirect sales”). This action, therefore, addresses sales other than those covered by the action filed on December 29, 2010, discussed above. In this action, served on April 11, 2018, Lufthansa sought an order obliging AES to provide information and accounting and a finding that AES owes damages for the attacked indirect sales. Moreover, Lufthansa sought accounting and a finding that the sale of individual components of the EmPower system – either directly to Germany or to international customers if these customers later shipped these products to Germany – constitutes an indirect patent infringement of Lufthansa's patent in Germany. In addition, Lufthansa sought an order obliging AES to confirm by an affidavit that the accounting provided in September 2015 was accurate and a finding that AES is also liable for damages for the sale of modified products if the modification of the products was not communicated to all subsequent buyers of the products. No amount of claimed damages has been specified by Lufthansa.
An oral hearing in this matter was held on September 13, 2019, as part of the oral hearing for the direct sales damages claim discussed above. A first instance decision in this matter was handed down on December 6, 2019. According to this judgment, Lufthansa's claims were granted in part. The court granted Lufthansa's claims for a finding that indirect sales (as defined above) by AES to international customers constitute a patent infringement under the conditions specified in the judgment and that the sale of components of the EmPower system to Germany constitutes an indirect patent infringement. Moreover, the Court granted Lufthansa's request for an affidavit confirming that the accounting provided in September 2015 was accurate. The Court rejected Lufthansa's request for a finding that AES is also liable for damages for the sale of modified products as inadmissible. This is relevant, as it provides that once AES modified the system to remove the infringing feature, any subsequent outlets are deemed not to be infringing outlets for purposes of calculating damages. AES and Lufthansa both appealed this decision and the appeal is currently pending before the Higher Regional Court of Karlsruhe. In its appeal, Lufthansa extended its action by
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requesting an additional finding that AES shall be held liable for all damages that Lufthansa incurred due to an alleged incorrect accounting of its past sales. No amount was quantified in Lufthansa's additional motion. The appeal is not likely to be settled in 2020.
With letter of April 28, 2020, Lufthansa notified AES of its intention to enforce the first instance decision with respect to the claims for accounting, information and confirmation of the earlier accounting by an affidavit. Lufthansa asked AES to provide the accounting on indirect sales (as defined above) as well as on the sales of individual parts, and also asked AES to provide the affidavit that the accounting provided in September 2015 was accurate. In July 2020, Lufthansa filed a request with the Regional State Court of Mannheim that AES be ordered to comply with the enforcement or to otherwise make payment of up to approximately $1$50,000. By decision on September 7, 2020, the District Court of Mannheim granted Lufthansa's request in part and ordered AES to make a coercive payment of approximately $25,000, which can be avoided if AES provides the requested accounting and information. AES has appealed the payment decision and is expecting a decision by the second instance Higher Regional State Court of Karlsruhe in November 2020. AES is in the process of preparing the requested accounting information.
If the December 6, 2019 decision of the Regional State Court of Mannheim is confirmed on appeal, AES would be responsible for payment of damages for indirect sales of patent-infringing EmPower in-seat power supply systems in the period from December 29, 2007 to May 22, 2018. AES modified the outlet units at the end of 2014 and substantially all of the modified outlet units sold from 2015 do not infringe the patent of Lufthansa. Since only sales of systems comprising patent-infringing outlet units trigger damages claims, the period for which AES is liable for damages in connection with indirect sales substantially finished at the end of 2014.
After the accounting, Lufthansa is expected to enforce its claim for damages in separate court proceedings. These proceedings would probably be tried before the Mannheim Court again, which makes it probable that the Mannheim court will determine the damages for the indirect sales on the basis of the same principles as in the direct sales proceedings (unless the latter ruling of the Mannheim court is reversed on appeal). Based on the information available currently, we estimate that the resulting damages would be approximately $11.6 million plus approximately $4.5 million of accrued interest at the end of 2019, for a total of approximately $16.1 million at December 31, 2019. Interest will accrue at a rate of 5% above the European Central Bank rate until final payment to $3 million.Lufthansa.
Based upon the determination of the damages in the direct sales claim discussed above, in the September 26, 2020 consolidated financial statements, we have reflected a total accrual (inclusive of interest through September 26, 2020) of $16.5 million related to the indirect sales claim as management’s best estimate of the total exposure related to these matters that is probable and that can be reasonably estimated at this time. Additional interest accrued for the three and nine months ended September 26, 2020 was approximately $0.1 million and $0.4 million, respectively, and is recorded within Selling, General and Administrative Expense in the Company’s Consolidated Statement of Operations. In connection with the indirect sales claims, we currently believe it is unlikely that the appeals process will be completed and the damages and related interest will be paid within the next twelve months. Therefore the liability related to this matter, totaling $16.5 million, is classified within Other Liabilities (non-current) in the Consolidated Balance Sheet at September 26, 2020.
In December 2017, Lufthansa filed patent infringement cases in the United Kingdom (“UK”) and in France against AES. The Lufthansa patent expired in May 2018. In those cases, Lufthansa accuses AES of having manufactured, used, sold and offered for sale a power supply system, and offered and supplied parts for a power supply system that infringed upon a Lufthansa patent in those respective countries. In the French matter, the first instance court decided to bifurcate the issues of validity and infringement. The issue of alleged invalidity was heard on October 8, 2020. The court expects to rule on this matter on December 4, 2020. Such ruling will not involve any financial exposure to AES, as it will not deal with alleged infringement and the court will not order any damages. If the first instance court confirms the validity of the patent, the proceedings will continue with the issue of alleged infringement. No judgment on this issue is expected before late 2021.
In the UK matter, a trial took place in June 2020 to address the issues of infringement and validity of the patent. Judgment on those issues was rendered on June 22, 2020. The court held the UK patent valid and 3 out of 4 asserted claims infringed. In contrast to the decisions in Germany, the UK Court found that the modified components infringed a valid claim of the patent. If AES is not successful in any appeal phase, then the post-modification outlet units will be included in the calculation of monetary relief. Although the court has found the patent valid and some claims infringed, Lufthansa has yet to set out its case for monetary relief, which would need to be determined at a separate trial and would require extensive data gathering and analysis which has not yet been completed. Additionally, AES has applied to the Court of Appeal for permission to appeal the first instance UK findings. That application is pending. If the Court of Appeal rejects the application for permission to appeal made on the papers, AES may request an oral hearing. If permission to appeal is granted, any appeal on these substantive issues would likely be heard within 18 months of the trial. For this reason, while exposure in the UK matter is reasonably possible and such exposure could be material to the consolidated financial statements, it is not yet estimable, and thus, no liability has been recorded with respect to this matter at September 26, 2020.
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Separate from any such damages Lufthansa may seek in connection with the UK infringement decision discussed above, as a result of the first instance judgement in their favor, Lufthansa is entitled to reimbursement from AES of a proportion of its legal expenditures in the UK case. An interim reimbursement of approximately $1.3 million was paid to Lufthansa in August 2020. The associated expense has been recorded in the Consolidated Condensed Statement of Operations in the nine-month period ended September 26, 2020 within Selling, General & Administrative Expenses. If the first instance decision is reversed on appeal, AES would be entitled to seek the return of such amounts from Lufthansa, as well as reimbursement of AES’s legal fees.
Each of the German, France and UK claims are separate and distinct. Validity and infringement of the Lufthansa patent in each country is a matter for the courts in each of these countries, whose laws differ from each other. In addition, the principles of calculating damages in each jurisdiction differ substantially. Therefore, the Company has assessed each matter separately and cannot apply the same calculation methodology as in the German direct and indirect matters. However, it is reasonably possible that additional damages and interest could be incurred if the court in France was to rule in favor of Lufthansa, or if any appeal in the UK matter is unsuccessful, but at this time we cannot reasonably estimate the range of loss. As loss exposure is not probableestimable at this time, the Company has not recorded any liability with respect to this litigationeither of the matters as of September 30, 2017.

26, 2020, except for the legal fee reimbursement in the UK case discussed above, which was paid during the three- and nine- month period ended September 26, 2020.
On November 26, 2014, Lufthansa filed a complaint in the United States District for the Western District of Washington. Lufthansa’s complaint in thisthat action alleges that AES manufactures, uses, sells and offers for sale a power supply system that infringes upon a U.S. patent held by Lufthansa. The patent at issue in the U.S. action is based on technology similar to that involved in the German action. On April 25, 2016, the Court issued its ruling on claim construction, holding that the sole independent claim in the patent is indefinite, rendering all claims in the patent indefinite. Based on this ruling, AES filed a motion for summary judgment on the grounds that the Court’s ruling that the patent is indefinite renders the patent invalid and unenforceable. On July 20, 2016, the U.S. District Court granted the motion for summary judgment and issued an order dismissing all claims against AES with prejudice.

Lufthansa appealed the District Court's decision to the United States Court of Appeals for the Federal Circuit. On October 19, 2017, the Federal Circuit affirmed the district court’s decision, holding that the sole independent claim of the patent is indefinite, rending all claims on the patent indefinite. Lufthansa has until November 20, 2017, to ask for rehearing or rehearing en banc. If it doesdid not file such a petition, it has until January 18, 2018, to file a petition for writ of certiorari withen banc rehearing or petition the U.S. Supreme Court. As lossCourt for a writ of certiorari. Therefore, there is no longer a risk of exposure is neither probable nor estimable at this time, the Companyhas not recorded any liability with respect to this litigation asfrom that lawsuit.
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Table of September 30, 2017.Contents
15)16) Segment Information
Below are the sales and operating profit by segment for the three and nine months ended September 30, 201726, 2020 and October 1, 2016September 28, 2019 and a reconciliation of segment operating profit to income before income taxes. Operating profit is net sales less cost of products sold and other operating expenses excluding interest and corporate expenses. Cost of products sold and other operating expenses are directly identifiable to the respective segment.
Nine Months EndedThree Months Ended
(In thousands)September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Sales
Aerospace$326,282 $520,495 $82,548 $157,702 
Less Intersegment Sales(91)(5)0 0 
Total Aerospace Sales326,191 520,490 82,548 157,702 
Test Systems62,391 53,995 24,406 19,346 
Less Intersegment Sales(798)(195)(448)(30)
Total Test Systems Sales61,593 53,800 23,958 19,316 
Total Consolidated Sales$387,784 $574,290 $106,506 $177,018 
Segment Measure of Operating (Loss) Profit and Margins
Aerospace$(86,567)$48,949 $(6,332)$8,789 
(26.5)%9.4 %(7.7)%5.6 %
Test Systems4,270 4,166 936 2,075 
6.9 %7.7 %3.9 %10.7 %
Total Segment Measure of Operating (Loss) Profit(82,297)53,115 (5,396)10,864 
(21.2)%9.2 %(5.1)%6.1 %
Additions/Deductions from Segment Measure of Operating (Loss) Profit
Net (Gain) Loss on Sale of Businesses0 (78,801)0 1,332 
Interest Expense, Net of Interest Income5,091 4,576 1,775 1,547 
Corporate Expenses and Other17,481 15,755 3,970 6,225 
(Loss) Income Before Income Taxes$(104,869)$111,585 $(11,141)$1,760 
 Nine Months Ended Three Months Ended
(Dollars in thousands)September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016
Sales       
Aerospace$395,037
 $406,356
 $128,663
 $125,179
Less Intersegment Sales—
 (367) —
 —
Total Aerospace Sales395,037
 405,989
 128,663
 125,179
Total Test Systems Sales58,109
 73,066
 20,973
 29,920
Total Consolidated Sales$453,146
 $479,055
 $149,636
 $155,099
Operating Profit and Margins       
Aerospace$46,753
 $61,099
 $13,015
 $17,557
 11.8% 15.0% 10.1% 14.0%
Test Systems2,843
 6,524
 1,093
 3,240
 4.9% 8.9% 5.2% 10.8%
Total Operating Profit49,596
 67,623
 14,108
 20,797
 10.9% 14.1% 9.4% 13.4%
Deductions from Operating Profit       
Interest Expense, Net of Interest Income3,750
 3,246
 1,437
 1,103
Corporate Expenses and Other11,140
 9,888
 4,025
 3,272
Income Before Income Taxes$34,706
 $54,489
 $8,646
 $16,422

Total Assets:
(In thousands)September 26, 2020December 31, 2019
Aerospace$490,927 $629,371 
Test Systems102,087 110,994 
Corporate44,447 42,351 
Total Assets$637,461 $782,716 

(In thousands)September 30,
2017		 December 31,
2016
Aerospace$523,563
 $500,892
Test Systems85,848
 76,575
Corporate31,217
 26,877
Total Assets$640,628
 $604,344
16)17) Fair Value
A fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Fair value is based upon an exit price model. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and involves consideration of factors specific to the asset or liability.
The Company follows a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
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Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.

On a Recurring Basis:
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The financial liabilities carried atterms of the Diagnosys acquisition allow for a potential earn-out of up to an additional $13.0 million over the three years post-acquisition based on achievement of new order levels of over $72.0 million during that period. The fair value measured on a recurring basis consisted of contingent consideration relatedassigned to a prior acquisition, valued at zero at December 31, 2016,the earn-out is determined using the real options method, which requires Level 3 inputs. This arrangement has expiredinputs such as new order forecasts, discount rate, volatility factors, and asother market variables to assess the probability of September 30, 2017 there are no financial liabilities carried at fair value measured on a recurring basis. Diagnosys achieving certain order levels over the period.
There were no other financial assets or liabilities carried at fair value measured on a recurring basis at December 31, 20162019 or September 30, 2017.

26, 2020.
On a Non-recurring Basis:
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 accordance with the provisions of ASC Topic 350, Intangibles – Goodwill and Other, the Company estimates the fair value of reporting units, utilizing unobservable Level 3 inputs. Level 3 inputs require significant management judgment due to the absence of quoted market prices or observable inputs for assets of a similar nature. The Company utilizes a discounted cash flow analysis to estimateinputs underlying the fair value of reporting units utilizing unobservable inputs. The fair value measurement of the reporting unit under the step-one and step-two analysis of the quantitative goodwill impairment test are classified as Level 3 inputs.

As further discussed in Note 6, we performed interim quantitative assessments for the reporting units which had goodwill as of March 28, 2020 and an additional interim quantitative assessment for the PECO reporting unit as of June 27, 2020. Based on our quantitative assessments, the Company recorded non-cash goodwill impairment charges associated with 4 Aerospace reporting units, totaling approximately $86.3 million within the Impairment Loss line in the Consolidated Condensed Statement of Operations in the nine months ended September 26, 2020. The impairment loss was calculated as the difference between the fair value of the reporting unit (which was calculated using level 3 inputs) and the carrying value of the reporting unit.
IntangibleLong-lived assets that are amortized are evaluated for recoverability whenever adverse effects or changes in circumstances indicate that the carrying value may not be recoverable. The recoverability test consists of comparing the undiscounted projected cash flows of the asset or asset group (which are Level 3 inputs) with the asset of asset group’s carrying amount. Should the carrying amount exceed undiscounted projected cash flows, an impairment loss would be recognized to the extent the carrying amount exceeds fair value. ForIn conjunction with the Company’s indefinite-lived intangible asset,deteriorating economic conditions associated with the COVID-19 pandemic, we recorded an impairment test consistscharge to ROU assets of comparingapproximately $0.7 million incurred in the fair value, determined usingAerospace segment within the relief from royalty method, with its carrying amount. AnImpairment Loss line in the Consolidated Condensed Statement of Operations in the nine months ended September 26, 2020.
From time to time, the Company makes long-term, strategic equity investments in companies to promote business and strategic objectives. These investments are included in Other Assets on the Consolidated Condensed Balance Sheets. One of the investments incurred a full impairment loss would be recognizedcharge which accounts for $3.5 million recorded within the Other Expense, Net of Other Income line in the accompanying Consolidated Condensed Statement of Operations for the carrying amount in excess of its fair value.nine months ended September 26, 2020. This is a level 3 measurement as there were no observable price changes during the year.

At September 30, 2017, the fair value of goodwillThe Freedom and Diagnosys intangible assets classifiedwere valued using Level 3 inputs are comprised of the CCC goodwill and intangible assets acquired on April 3, 2017, which are currently valued based on management’s best estimates. When the accounting for the acquisition is finalized, these intangible assets will be valued usinga discounted cash flow methodology.methodology, as of their respective acquisitions dates, and are classified as Level 3 inputs.

Of the severance charges recorded, $0.2 million and $2.6 million in the three and nine months ended September 26, 2020, respectively, qualify as one-time termination benefit arrangements and were initially measured at fair value using level 3 inputs.
Due to their short-term nature, the carrying value of cash and equivalents, accounts receivable, accounts payable, and notes 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. As
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Table of September 30, 2017,Contents
18) Acquisition and Divestiture Activities
Acquisitions
Diagnosys Inc. and its affiliates
On October 4, 2019, the Company concluded that no indicators of impairment relating to intangible assets or goodwill existed and an interim test was not performed.

17) Recent Accounting Pronouncements

In May 2014,acquired the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-9, Revenue from Contracts with Customers. This new standard is effective for reporting periods beginning after December 15, 2017, pursuant to the issuance of ASU 2015-14, Revenue from Contracts with Customers: Deferral of Effective Date issued in August 2015. The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. Adoptionstock of the new rules could affect the timing of revenue recognitionprimary operating subsidiaries as well as certain other assets from mass transit and defense market test solution provider, Diagnosys Test Systems Limited for certain transactions. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. The Company will adopt the new standard on January 1, 2018, using the modified retrospective transition method.

The adoption of this amendment may require us to accelerate the recognition of revenue as compared to current standards, for certain customers,$7.0 million in cases where we produce products unique to those customers; and for which we would havecash, plus an enforceable right of payment for production completed to date. The Company has identified its revenue streams, reviewed the initial impacts of adopting the new standard on those revenue streams, and appointedearn-out estimated at a project management leader. The Company continues to evaluate the quantitative and qualitative impacts of the standard.

In February 2016, the FASB issued ASU No. 2016 - 02, Leases. The new standard is effective for reporting periods beginning after December 15, 2018. Early adoption is permitted. The standard will require lessees to report most leases as assets and liabilities on the balance sheet, while lessor accounting will remain substantially unchanged. The standard requires a modified retrospective transition approach for existing leases, whereby the new rules will be applied to the earliest year presented.  The adoption of the standard is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice in how certain cash receipts and payments are presented and classified in the statement of cash flows. The standard provides guidance in a number of situations including, among others, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. The ASU also provides guidance for classifying cash receipts and payments that have aspects of more than one class of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The standard requires application using a retrospective transition method. This ASU is not expected to have a material impact on the Company’s consolidated results of operations and financial condition.

In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which narrows the existing definition of a business and provides a framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business. The ASU requires an entity to evaluate if substantially all of the fair value of $2.5 million. The terms of the gross assetsacquisition 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 is concentratedbusiness has operations in a single identifiable asset or a groupWestford, Massachusetts as well as Ferndown, England, and an engineering center of similar identifiable assets; if so, the set of transferred assets and activities (collectively, the set)excellence in Bangalore, India. Diagnosys is not a business. To be considered a business, the set would need to include an input and a substantive process that together significantly contribute to the ability to create outputs. The standard also narrows the definition of outputs. The definition of a business affects areas of accounting such as acquisitions, disposals and goodwill. Under the new guidance, fewer acquired sets are expected to be considered businesses. This ASU is effective for fiscal years beginning after December 15, 2017 on a prospective basis with early adoption permitted. The Company would apply this guidance to applicable transactions after the adoption date.

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits(Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires employers to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses. The other components of net benefit cost, including amortization of prior service cost/credit and net actuarial gains/losses, and settlement and curtailment effects, are to be included in non-operating expenses. The ASU also stipulates that only the service cost componentour Test Systems segment. Diagnosys is a developer and manufacturer of net benefit cost is eligible for capitalization. The effective date for adoptioncomprehensive automated test equipment providing test, support, and repair of this guidance begins on January 1, 2018, with early adoption permitted. The Company is currently evaluating the effect that this standard will havehigh value electronics, electro-mechanical, pneumatic and printed circuit boards focused on the consolidated financial statements.global mass transit and defense markets.

18) Acquisitions
Custom Control Concepts LLC
On April 3, 2017, Astronics Custom Control Concepts Inc., a wholly owned subsidiary of the Company acquired substantially all the assets and certain liabilities of Custom Control Concepts LLC (“CCC”), located in Kent, Washington. CCC is a provider of cabin management and in-flight entertainment systems for a range of aircraft. The total consideration for the transaction was approximately $10.2 million, net of $0.5 million in cash acquired. All of the goodwill and purchased intangible assets are expected to be deductible for tax purposes over 15 years. The purchase price allocation for this acquisition has not been finalized. CCCPurchased intangible assets and goodwill are not deductible for tax purposes. This transaction was not considered material to the Company’s financial position or results of operations.
Freedom Communication Technologies, Inc.
On July 1, 2019, the Company acquired all of the issued and outstanding capital stock of 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 AerospaceTest Systems segment.

Telefonix, Incorporated
Subsequent to the end of the third quarter, on October 26, 2017, the Company, through a wholly owned acquisition subsidiary, entered into an agreement to purchase substantially all of the assets of Telefonix, Incorporated and a related company, Product Development Technologies, LLC. Under the terms of the Agreement, the The total consideration for the transaction was $21.8 million, net of $0.6 million in cash acquired. The purchase price allocation for this acquisition has been finalized. Purchased intangible assets and goodwill are not deductible for tax purposes. This transaction was not considered material to the Company’s financial position or results of operations.
Divestitures
Semiconductor Test Business
On February 13, 2019, the Company completed a divestiture of its semiconductor 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. The Company recorded a pre-tax gain on the sale of $80.1 million in the first quarter of 2019. The income tax expense relating to the gain was $19.7 million.
The transaction also included 2 elements of contingent earnouts. The First Earnout is calculated based on a multiple of all future sales of existing and certain future derivative products to existing and future customers in each annual period from 2019 through 2022. The First Earnout may not exceed $35.0 million in total. The Second Earnout is calculated based on a multiple of future sales related to an existing product and program with an existing customer exceeding an annual threshold for each annual period from 2019 through 2022. The Second Earnout is not capped. For the Second Earnout, if the applicable sales in an annual period do not exceed the annual threshold, 0 amounts will be approximately $104.0paid relative to such annual period; the sales in such annual period do not carry over to the next annual period. Due to the degree of uncertainty associated with estimating the future sales levels of the divested business and its underlying programs, and the lack of reliable predictive market information, the Company will recognize such earnout proceeds, if received, as additional gain on sale when such proceeds are realized or realizable. No amounts were payable to the Company under the First Earnout for the year ending December 31, 2019.
Airfield Lighting Product Line
On July 12, 2019, the Company sold intellectual property and certain assets 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 during the third quarter of 2019.

Other Disposal Activity


As of December 31, 2019, the Company had agreed to sell certain facilities within the Aerospace segment. Accordingly, the property, plant and equipment assets associated with these facilities of $1.5 million was classified as held for sale in the Consolidated Condensed Balance Sheet at December 31, 2019. The sale was completed in the first quarter of 2020.
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19) Restructuring Charges
In the fourth quarter of 2019, in an effort to reduce the significant operating losses at our AeroSat business, we initiated a restructuring plan to reduce costs and minimize losses of our AeroSat antenna business. The plan narrows the initiatives for the AeroSat business to focus primarily on near-term opportunities pertaining to business jet connectivity. The plan has a downsized manufacturing operation remaining in New Hampshire, with significantly reduced personnel and operating expenses. Impairments and restructuring charges were recorded in 2019 as a result of the restructuring plan.
The Company incurred $0.4 million in additional restructuring charges associated with severance at AeroSat during the nine months ended September 26, 2020.
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 executed restructuring activities in the form of workforce reduction, primarily in the second quarter of 2020, to align capacity with expected demand. Additional restructuring charges of $0.2 million and $5.2 million in severance expense associated primarily with the Aerospace segment was recorded in the three and nine months ended September 26, 2020.
The following table reconciles the beginning and ending liability for restructuring charges relating to the Company’s restructuring plan described above:
Restructuring Charges in the
nine months ended September 26, 2020
(In thousands)Accrual as of December 31, 2019Cost of Products SoldSelling, General and AdministrativeCash PaidAccrual as of
September 26, 2020
Accrued Expenses and Other Current Liabilities$613 $280 $5,278 $(3,133)$3,038 
Other Liabilities4,577 0 0 0 4,577 
$5,190 $280 $5,278 $(3,133)$7,615 
The charge to Accrued Expenses and Other Current Liabilities is comprised of employee termination benefits expected to be paid within the next 12 months as well as the current portions of payments to be made under AeroSat’s non-cancelable inventory purchase commitments. The charge to Other Liabilities represents the non-current portions of payments to be made under AeroSat’s non-cancelable inventory purchase commitments. The non-cancelable purchase commitments are for inventory in the future which is not expected to be purchased prior to the expiration date of such agreements as a result of the restructuring plan.
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Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(The following should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Form 10-K for the year ended December 31, 2016.2019.)
OVERVIEW
Astronics Corporation (“Astronics” or the “Company”) is a leading supplier of advanced technologies and products to the global aerospace defense, electronics and semiconductordefense industries. Our products and services include advanced, high-performance electrical power generation and distribution andsystems, seat motion systems,solutions, lighting &and safety systems, avionics products, aircraft structures, systems certification, and automated test systems.
Our Aerospace segment designs and manufactures products for the global aerospace industry. Product lines include lighting &and safety systems, electrical power generation, distribution and motionmotions systems, aircraft structures, avionics products, systems certification, and other products. Our Aerospace customers are the airframe manufacturers ("OEM"(“OEM”) that build aircraft for the commercial, military and general aviation markets, suppliers to those OEM’s, aircraft operators such as airlines, suppliers to the aircraft operators, and branches of the U.S. Department of Defense as well as the Federal Aviation Administration and airport operators.Defense. Our Test Systems segment designs, develops, manufactures and maintains automated test systems that support the semiconductor, aerospace and defense, communications and weaponsmass transit test systems as well as training and simulation devices for both commercial and military applications. In the Test Systems segment, Astronics’ products are sold to a global customer base including OEM's and prime government contractors for both electronics and military products.
Our strategy is to increase our value by developing technologies and capabilities, either internally or through acquisition, and using those capabilities to provide innovative solutions to the aerospace and defense, semiconductor and otherour targeted markets where our technology can be beneficial.
Important factors affecting our growth and profitability are the ongoing impacts of the COVID-19 pandemic and the timing and extent of recovery (as discussed more fully below), the rate at which new aircraft are produced, government funding of military programs, our ability to have our products designed into new aircraft and the rates at which aircraft owners, including commercial airlines, refurbish or install upgrades to their aircraft. New aircraft build rates and aircraft owners spending on upgrades and refurbishments is cyclical and dependent on the strength of the global economy. Once designed into a new aircraft, the spare parts business is frequently retained by the Company. Future growth and profitability of the Test Systemstest business is dependent on developing and procuring new and follow-on business in commercial electronics and semiconductor markets as well as with the military.business. The nature of our Test Systems business is such that it pursues large multi-year projects. There can be significant periods of time between orders in this business which may result in large fluctuations of sales and profit levels and backlog from period to period.
ACQUISITIONS
Custom Control Concepts LLCAcquisitions and Divestitures
On April 3, 2017, Astronics Custom Control Concepts Inc.,February 13, 2019, the Company completed a wholly owned subsidiarydivestiture of its semiconductor test business within the Test Systems segment. The total proceeds of the divestiture amounted to $103.8 million. The Company recorded a pre-tax gain on the sale of $80.1 million in the first quarter of 2019. The income tax expense relating to the gain was $19.7 million.
On July 1, 2019, the Company acquired substantially all of the assetsissued and certain liabilitiesoutstanding capital stock of Custom Control Concepts LLCFreedom Communication Technologies, Inc. (“CCC”Freedom”),. Freedom, located in Kent, Washington. CCCKilgore, Texas, is a provider of cabin management and in-flight entertainment (IFE) systemsleader in wireless communication testing, primarily for a range of aircraft.the civil land mobile radio market. Freedom is included in our Test Systems segment. The total consideration for the transaction was approximately $10.2$21.8 million, net of $0.5$0.6 million in cash acquired. CCC
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.
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 AerospaceTest Systems segment.

Telefonix, Incorporated
Subsequent to 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 end of the third quarter, on October 26, 2017, the Company, through a wholly owned acquisition subsidiary, entered into an agreement to purchase substantially all of the assets of Telefonix, Incorporatedglobal mass transit and a related company, Product Development Technologies, LLC. Under thedefense markets. The terms of the Agreement,acquisition allow for a potential earn-out of up to an additional $13.0 million over the total consideration for the transaction will be approximately $104.0three years post acquisition based on achievement of new order levels of over $72.0 million during that period. The acquired business has operations in cash.Westford, Massachusetts as well as Ferndown, England, and an engineering center of excellence in Bangalore, India.

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CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK
Nine Months EndedThree Months Ended
($ in thousands)September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Sales$387,784 $574,290 $106,506 $177,018 
Gross Profit (sales less cost of products sold)$77,725 $129,234 $15,173 $36,794 
Gross Margin20.0 %22.5 %14.2 %20.8 %
Selling, General and Administrative Expenses$85,941 $90,677 $24,170 $31,691 
SG&A Expenses as a Percentage of Sales22.2 %15.8 %22.7 %17.9 %
Impairment Loss$87,016 $— $— $— 
Net (Gain) Loss on Sale of Businesses$— $(78,801)$— $1,332 
Interest Expense, Net of Interest Income$5,091 $4,576 $1,775 $1,547 
Effective Tax Rate8.7 %22.9 %52.8 %31.3 %
Net (Loss) Income$(95,796)$86,082 $(5,254)$1,210 
 Nine Months Ended Three Months Ended
(Dollars in thousands)September 30,
2017		 October 1,
2016		 September 30,
2017		 October 1,
2016
Sales$453,146
 $479,055
 $149,636
 $155,099
Gross Profit (sales less cost of products sold)$104,960
 $122,981
 $32,493
 $38,663
Gross Margin23.2% 25.7% 21.7% 24.9%
Selling, General and Administrative Expenses$66,504
 $65,246
 $22,410
 $21,138
SG&A Expenses as a Percentage of Sales14.7% 13.6% 15.0% 13.6%
Interest Expense, Net of Interest Income$3,750
 $3,246
 $1,437
 $1,103
Effective Tax Rate27.0% 29.3% 29.9% 26.5%
Net Income$25,332
 $38,539
 $6,060
 $12,074
Financial results reflect the divestiture of the Test Systems’ semiconductor business on February 13, 2019, and the acquisitions of Freedom acquired in July 2019, and Diagnosys acquired in October 2019 (collectively, the “Acquired Businesses”).
A discussion by segment can be found at “Segment Results of Operations and Outlook” in this MD&A.
CONSOLIDATED THIRD QUARTER RESULTS
Consolidated sales were down $5.5$70.5 million fromcompared with the same period last year.third quarter of 2019. Aerospace segment sales of $128.7 million were up $3.5 million and Test Systems segment sales of $21.0 million were down $9.0$75.2 million. Test System sales increased $4.6 million. Diagnosys contributed $3.1 million in sales in the third quarter of 2020.
Consolidated cost of products sold in the third quarter of 2017 increased $0.7 million to $117.12020 was $91.3 million, compared with $116.4$140.2 million in the third quarter of 2016.prior-year period. The increasedecrease was primarily due to lower volume resulting from continued delays in the resultrecertification of the additional cost737 MAX and the impacts of products sold by Custom Control Concepts ("CCC") offset by lower organic sales volumes. Organic Engineeringthe COVID-19 pandemic on the global economy and, Development ("E&D") costs were $22.2 million inparticularly, the quarter, compared with $21.6 million in last year’s third quarter. As a percent of sales, organic E&D costs were 14.8% and 13.9% in the third quarters of 2017 and 2016, respectively. CCC incurred E&D costs of $1.5 million in the third quarter.aerospace industry.
Selling, general and administrative (“SG&A”) expenses were $22.4$24.2 million or 15.0% of sales, in the third quarter of 20172020 compared with $21.1$31.7 million or 13.6% of sales, in the same period last year.prior-year period. Contributing to the decrease in SG&A in 2020 were workforce reduction activities and cost conservation measures including suspending cash bonus plans and wage adjustments. The third quarter of 2019 included an additional $1.7 million legal reserve for a long-term patent dispute.
The effective tax rate for the quarter was 29.9%52.8%, compared with 26.5%31.3% in the third quarter of 2016.2019. The 20172020 tax rate was impacted by a tax benefit related to a revised state income tax filing position that was recorded during the three months ended September 26, 2020 of approximately $3.1 million. The 2019 third quarter tax rate was unfavorably impacted by additional state income tax expense when compared with the third quartergain on the sale of 2016.the semiconductor business.
Net incomeloss was $6.1$5.3 million, or $0.21$(0.17) per diluted share, compared with $12.1net income of $1.2 million, or $0.41$0.04 per diluted share, in the prior year.
Bookings were $81.6 million, rebounding somewhat from the second quarter. The book-to-bill ratio was 0.77:1. Backlog at the end of the quarter was $282.2 million. Approximately $115.5 million, or 41%, of backlog is expected to be recognized as revenue over the remainder of 2020.
CONSOLIDATED YEAR-TO-DATE RESULTS
Consolidated sales forwere down $186.5 million compared with the first nine months of 2017 decreased by $25.9 million, or 5.4%, to $453.1 million.prior-year period. Aerospace segment sales were down $11.0$194.3 million. Test System sales increased $7.8 million. The Acquired Businesses contributed an incremental $8.4 million or 2.7%, year-over-year to $395.0 million, while Test Systems segmentin sales were down $15.0 million, or 20.5%, to $58.1 million.in 2020.
Consolidated cost of products sold in nine months ended 2017 decreased $7.9 million to $348.2was $310.1 million, compared with $356.1$445.1 million in the same period of 2016.prior-year period. The decrease was a result ofprimarily due to lower organic sales volumes offset by CCC's additional costsvolume. Consolidated cost of products sold. Organic E&D costs were 14.7% of sales, or $66.8 million, compared with $66.2 million, or 13.8% of sales, in the prior year’s first nine months. SG&A expenses were $66.5 million, or 14.7% of sales,sold in the first nine months of 20172019 included tariffs of $6.8 million, inventory charges of $3.6 million and program charges of $3.5 million.
SG&A expenses were $85.9 million compared with $65.2$90.7 million or 13.6%the prior-year period. Contributing to the decrease in SG&A in 2020 were workforce reduction activities and cost conservation measures including suspending cash bonus plans and wage adjustments, though these savings were partially offset by associated severance charges of sales,$5.6 million. The prior-year period included an additional $1.7 million legal reserve for a long-term patent dispute. Further, non-cash goodwill and long-lived asset
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impairment charges of $87.0 million in the same period last year.Aerospace segment were recognized in the current year due to reduced expectations of future operating results due to the COVID-19 pandemic, which has significantly impacted the global economy, and particularly the aerospace industry. During the first quarter, the Company recognized full impairments of the goodwill of Astronics Connectivity Systems and Certification (“CSC”), PGA and Custom Control Concepts (“CCC”) reporting units, and a partial impairment of the goodwill of the PECO reporting unit. During the second quarter of 2020, an additional partial impairment of the PECO reporting unit was recorded. No impairment charges were recorded in the third quarter.
The effective tax rate was 8.7%, compared with 22.9% in the prior-year period. The 2020 tax rate was impacted by permanently non-deductible goodwill impairments of $60.8 million, a Federal valuation allowance of approximately $7.5 million, and a tax benefit related to a revised state income tax filing position of approximately $3.1 million recorded during the nine months ended September 26, 2020. The 2019 tax rate was unfavorably impacted by the gain on the sale of the semiconductor business.
Net loss was $95.8 million, or $(3.11) per diluted share, compared with net income of $86.1 million, or $2.61 per diluted share, in the prior year. The after tax impact of the goodwill and long-lived asset impairment losses was $81.4 million, or $(2.64) per diluted share.
Impact of COVID-19 and Operational Adjustments
As previously disclosed, we face risks related to outbreaks of infectious diseases, including the ongoing COVID-19 pandemic. The challenges posed by the COVID-19 pandemic on the global economy increased significantly as 2020 has progressed. COVID-19 has caused disruption and volatility in the global capital markets, and has authored an economic slowdown. In response to COVID-19, national and local governments around the world have instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. Although our operations have been deemed essential and we follow the COVID-19 guidelines from the Centers for Disease Control (“CDC”) concerning the health and safety of our personnel, these measures have resulted in attenuating activity and, in some cases, required temporary closures of certain of our facilities, among other impacts. The duration of these measures is unknown, may be extended and additional measures may be imposed.
In response to the global COVID-19 pandemic, we have implemented actions to maintain the health of our employees as well as our financial health and liquidity.These actions include:
•Implementing social distancing measures, the use of masks, restricting visitors and unnecessary travel, and working from home whenever possible;
•Workforce reduction activities to align capacity with expected demand, reducing headcount by approximately 20% to approximately 2,300 employees currently;
•Eliminated consultants and temporary labor where possible;
•Implemented significant cost conservation measures;
•Suspending cash bonus plans and wage adjustments;
•Amended our revolving credit facility on May 4, 2020, as further described in the “Liquidity and Capital Resources” section below;
•Suspending share repurchases;
•Reducing capital spending to $8 million from an initial plan of $20 to $25 million; and
•Restrictions on marketing, trade shows, travel and discretionary spending for the remainder of the year.

These reductions collectively are substantial, lowering our cost structure by an estimated $55 million to $60 million for the year, beginning in the second quarter.
Analysis of Impact on Demand by Markets
The Company has recategorized the three revenue streams it uses to monitor demand and analyze the impact of the pandemic to its business. These are (1) the commercial aircraft market, which includes OEM line fit and airline aftermarket business, (2) the defense and other government markets, and (3) general aviation.
In 2019, about 70% of the Company’s business, or $540 million, was generated in the commercial aircraft market. Approximately two-thirds of this came from new aircraft production primarily at Boeing and Airbus, and the remaining one-third came from aftermarket business with airlines and leasing companies.
Airframe manufacturers have adjusted to current market conditions by reducing planned production rates for new aircraft by 30% to 50%, excluding the 737 MAX, which is still awaiting recertification. Driven by the production rate reductions, the
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Company is also experiencing a slow-down in orders related to destocking in the supply chain. Astronics is most affected by the 737 MAX program for which it does not anticipate significant deliveries until the second half of 2021.
The aftermarket remains weak with travel restrictions and quarantine rules dampening demand for airline travel. The airlines have adjusted in part by delaying planned fleet upgrades involving the Company’s products, which primarily involve passenger entertainment and connectivity. Though some planning activity is occurring, the Company expects the aftermarket to remain depressed until aircraft utilization and load factors increase, which many expect to occur measurably over current rates in 2021.
The second demand stream is Government and Defense. Approximately 20% of Astronics’ revenue in 2019, or $145 million, was to the defense or other government markets. This includes certain military aircraft programs and the majority of the Test business. This demand stream remains stable and has been largely unaffected by the pandemic.
An example of strength in this area is the new Test program the Company announced earlier this week for the Metro Atlanta Rapid Transit Authority (MARTA), to help with the operation and maintenance of new rail cars being procured from Stadler Rail A.G.
The third revenue stream is General Aviation (“GA”), which accounted for the remaining 10% of Astronics’ business in 2019. Most of GA revenue is line fit, driven by the manufacture of new aircraft, although there is some amount of aftermarket business as well.
The outlook for GA is mixed. Most manufacturers reduced production rates as the pandemic took hold, but aircraft utilization has been high, especially in North America. If this utilization drives new orders, production rates could recover in the coming year or two.
Additionally, Astronics has pursued business opportunities from other markets, taking advantage of its technical design expertise and manufacturing capabilities, which are currently underutilized. These opportunities can be meaningful, and some are directly related to the fight against COVID-19, such as the Xenex® program announced. Astronics is providing manufacturing support to Xenex for the production of its unique LightStrike robots, which use patented pulsed xenon ultraviolet (UV) light disinfection technology to neutralize SARS-CoV-2, the virus that causes COVID-19. These initiatives are expected to contribute approximately $20 million in revenue in 2020, possibly ramping higher in 2021.
Considering the expected demand from these revenue streams, our current backlog and results through the first nine months of 2017 was 27.0%, compared with 29.3%2020, Astronics’ scenario analysis implies full year 2020 sales will be at, or slightly above, $500 million.
Outlook
As discussed previously, the Company believes that, given its assumptions on the economic impacts of COVID-19 on its revenue streams in its Aerospace business and its current backlog, consolidated revenue should be at, or slightly above, $500 million for 2020. Given the first nine monthsfluidity of 2016. The tax rate in the first nine months of 2017 was favorably impacted by excess tax benefitspandemic as a result of a new U.S. GAAP accounting standard impactingwell as government responses, other outcomes, both positive and negative, are possible. Management expects the tax accounting treatment of employee share-based compensation, decreases in foreign tax rates, and the federal research and development tax credit.
Net incomeCompany to be cash positive for the first halfyear at this revenue level with adjusted EBITDA margins for the year of 2017 totaled $25.3 million, or $0.85 per diluted share.approximately 5% to 7%. The Company plans to use excess free cash flow from operations to reduce outstanding debt.

During the third quarter, the Company repurchased approximately 702,000 shares at an aggregate cost of $18.9 million under its share repurchase program. Since the inception of the program in February 2016, the Company has repurchased approximately 1,675,000 shares and has completed the program, which authorized repurchases up to $50.0 million.
CONSOLIDATED OUTLOOK
Fourth quarter salesCapital expenditures for 2020 are forecastedexpected to be in the range of $169 million to $183 million, with $139 million to $150 million expected from the Aerospace segment and $30 million to $33 million from the Test segment.
Consolidated annual sales in 2017 are forecasted to be in the range of $622 million to $636 million. Approximately $534 million to $545 million of revenue is expected from the Aerospace segment and $88 million to $91 million from the Test Systems segment. The Company issued its initial revenue outlook for 2018 of $675 million to $750approximately $8 million. The Aerospace segment is expected to have 2018 revenuereduction reflects the change in tooling and equipment capacity requirements for certain programs that were either postponed or cancelled, as well as the deferral or cancellation of $570 million to $630 million. The Test segment is expected to generate $105 million to $120 million in revenue in 2018. These estimates are without effect of the new revenue recognition rules that will be effective January 1, 2018.discretionary investments.
Consolidated backlog at September 30, 201726, 2020 was $302.3 million,$282.2 million. Approximately 41% of which approximately $148.5 millionthe backlog is expected to shipbe recognized as revenue in 2017.2020.
The effective tax benefit rate for 20172020 is expected to be in the range of 28%6% to 30%10%.
Capital equipment spending in 2017The ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows is expected to be in the range of $17 million to $19 million.
E&D costs are expected to be in the range of $96 million to $97 milliondependent on future developments, including the engineering costs from CCC.duration of the pandemic and the related length of its impact on the global economy and specifically on the markets we are active in, which is uncertain and cannot be predicted at this time. See Part II, Item 1A, Risk Factors, for an additional discussion of risk related to COVID-19.
SEGMENT RESULTS OF OPERATIONS AND OUTLOOK
Operating profit, as presented below, is sales less cost of products sold and other operating expenses, excluding interest expense and other corporate expenses. Cost of products sold and other operating expenses are directly identifiable to the respective
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segment. Operating profit is reconciled to earnings before income taxes in Note 1516 of the Notes to Consolidated Condensed Financial Statements included in this report.

AEROSPACE SEGMENT
Nine Months EndedThree Months Ended
(In thousands)September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Sales$326,282 $520,495 $82,548 $157,702 
Less Intersegment Sales(91)(5)— — 
Total Aerospace Sales$326,191 $520,490 $82,548 $157,702 
Operating (Loss) Profit$(86,567)$48,949 $(6,332)$8,789 
Operating Margin(26.5)%9.4 %(7.7)%5.6 %
Aerospace Sales by Market
(In thousands)
Commercial Transport$214,390 $393,721 $44,067 $122,212 
Military50,329 57,753 18,164 17,255 
Business Jet45,259 49,555 14,711 12,432 
Other16,213 19,461 5,606 5,803 
$326,191 $520,490 $82,548 $157,702 
Aerospace Sales by Product Line
(In thousands)
Electrical Power & Motion$148,500 $255,007 $32,481 $78,428 
Lighting & Safety90,973 139,502 25,320 44,127 
Avionics57,381 79,414 16,104 19,871 
Systems Certification5,596 9,050 605 3,384 
Structures7,528 18,056 2,432 6,089 
Other16,213 19,461 5,606 5,803 
$326,191 $520,490 $82,548 $157,702 
 Nine Months Ended Three Months Ended
(In thousands)September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
Sales       
Aerospace$395,037
 $406,356
 $128,663
 $125,179
Less Intersegment Sales—
 (367) —
 —
Total Aerospace Sales$395,037
 $405,989
 $128,663
 $125,179
Operating Profit$46,753
 $61,099
 $13,015
 $17,557
Operating Margin11.8% 15.0% 10.1% 14.0%
        
Aerospace Sales by Market       
(In thousands)       
Commercial Transport$306,898
 $331,174
 $98,821
 $101,355
Military46,297
 39,932
 15,365
 13,679
Business Jet28,844
 20,365
 10,592
 6,133
Other12,998
 14,518
 3,885
 4,012
 $395,037
 $405,989
 $128,663
 $125,179
Aerospace Sales by Product Line       
(In thousands)       
Electrical Power & Motion$199,014
 $219,215
 $63,972
 $68,259
Lighting & Safety122,317
 121,520
 37,001
 38,975
Avionics31,424
 22,684
 11,348
 5,866
Systems Certification9,405
 12,577
 4,454
 2,580
Structures19,879
 15,475
 8,003
 5,487
Other12,998
 14,518
 3,885
 4,012
 $395,037
 $405,989
 $128,663
 $125,179

(In thousands)September 30, 2017 December 31, 2016(In thousands)September 26, 2020December 31, 2019
Total Assets$523,563
 $500,892
Total Assets$490,927 $629,371 
Backlog$233,162
 $219,146
Backlog$208,772 $275,754 
AEROSPACE THIRD QUARTER RESULTS
Aerospace segment sales increased by $3.5decreased $75.2 million, or 2.8%47.7%, whento $82.5 million. Sales were negatively affected by the continued grounding of the 737 MAX, overall lower build rates for commercial transport and general aviation aircraft and a weak commercial aircraft aftermarket as the airlines reduced spending due to the global COVID-19 pandemic.
Electrical Power and Motion sales were down $45.9 million compared with the prior year’s third quarter to $128.7 million. CCC contributed $3.5 million in sales in the 2017 third quarter.
Electrical Power & Motion sales decreased $4.3 million, or 6.3%, due to lower sales of in-seat and cabin power products due to a combination of lower volume and pricing.prior-year period. Lighting & Safety sales decreased by $2.0 million primarily due to lower passenger service unit sales.$18.8 million. Additionally, Avionics sales were up $5.5down $3.8 million as a result of $2.0 million increase in antennae and other avionics sales combinedcompared with the CCC acquisition. Structuresprior-year period.
Aerospace segment operating loss was $6.3 million compared with operating profit of $8.8 million for the same period last year. Operating leverage lost on reduced sales increased by $2.5 million and Systems Certification sales increased by $1.9 million on higher project activity.drove the operating loss.
AEROSPACE YEAR-TO-DATE RESULTS
Aerospace segment sales decreased $194.3 million, or 37.3%, to $326.2 million. Sales were negatively affected for the same reasons noted for the quarter.
Electrical Power and Motion sales were down $106.5 million compared with the prior-year period. Lighting & Safety sales decreased $48.5 million. Additionally, Avionics sales were down $22.0 million compared with the prior-year period.
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Aerospace segment operating loss was $86.6 million compared with operating profit for the third quarter of 2017 was $13.0$48.9 million or 10.1% of sales, compared with $17.6 million, or 14.0% of sales, in the same period last year. Aerospace operating profit was negatively impacted by market pricing pressures primarily relatingimpairment charges of $87.0 million, of which $86.3 million was related to cabin power products, a $1.8goodwill, as previously discussed. Restructuring-related severance charges of $5.3 million and leverage lost on reduced sales also significantly impacted operating loss from the CCC acquisition and slightly higher E&D costs. Organic Aerospace E&D costs were $19.6 million compared with $18.9 million in the same period last year. CCC incurred E&D costs of $1.5 million during the quarter.results.
AEROSPACE OUTLOOK
Aerospace ordersbookings in the third quarter of 20172020 were $146.2$65.0 million, for a book-to-bill ratio of 1.14:1 for the quarter. Backlog was $233.2 million at the end of the third quarter of 2017.


AEROSPACE YEAR-TO-DATE RESULTS
Aerospace segment sales decreased by $11.0 million, or 2.7%, to $395.0 million, when compared with the prior year’s first nine months.
Electrical Power & Motion sales decreased $20.2 million, or 9.2%, for similar reasons as discussed in the quarter and Systems Certifications sales decreased $3.2 million from lower project activity earlier in the year. These declines were partially offset by increased Avionics sales, up $8.7 million of which $7.0 million was from the CCC acquisition and $1.7 million from other avionics products. Structures sales increased by $4.4 million.
Aerospace operating profit for the first nine months of 2017 was $46.8 million, or 11.8% of sales, compared with $61.1 million, or 15.0% of sales, in the same period last year. Aerospace operating profit was negatively impacted by lower sales volumes and market pricing pressures, coupled with the operating loss from the acquired CCC business. E&D costs for Aerospace were $62.5 million (inclusive of $2.7 million related to the acquired CCC business) and $58.3 million in the first nine months of 2017 and 2016, respectively. Aerospace SG&A expense was $46.9 million in the first nine months of 2017 as compared with $45.5 million in the same period in 2016.
AEROSPACE OUTLOOK
We expect 2017 sales for our Aerospace segment to be in the range of $534 million to $545 million.0.79:1. The Aerospace segment’s backlog at the end of the third quarter of 20172020 was $233.2$208.8 million with approximately $124.8$96.8 million expected to be shippedrecognized as revenue over the remaining part of 20172020 and $212.1$175.1 million is expected to shipscheduled over the next 12 months.
TEST SYSTEMS SEGMENT
Nine Months EndedThree Months Ended
(In thousands)September 26, 2020September 28, 2019September 26, 2020September 28, 2019
Sales$62,391 $53,995 $24,406 $19,346 
Less Intersegment Sales(798)(195)(448)(30)
Net Sales$61,593 $53,800 $23,958 $19,316 
Operating profit$4,270 $4,166 $936 $2,075 
Operating Margin6.9 %7.7 %3.9 %10.7 %
Test Systems Sales by Market
(In thousands)
Semiconductor$3,407 $7,815 $585 $2,219 
Aerospace & Defense58,186 45,985 23,373 17,097 
$61,593 $53,800 $23,958 $19,316 
 Nine Months Ended Three Months Ended
(In thousands)September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
Sales$58,109
 $73,066
 $20,973
 $29,920
Operating profit (loss)$2,843
 $6,524
 $1,093
 $3,240
Operating Margin4.9% 8.9% 5.2% 10.8%
        
Test Systems Sales by Market       
(In thousands)       
Semiconductor$18,343
 $33,863
 $6,632
 $16,878
Aerospace & Defense39,766
 39,203
 14,341
 13,042
 $58,109
 $73,066
 $20,973
 $29,920

(In thousands)September 30, 2017 December 31, 2016(In thousands)September 26, 2020December 31, 2019
Total Assets$85,848
 $76,575
Total Assets$102,087 $110,994 
Backlog$69,119
 $38,887
Backlog$73,466 $83,837 
TEST SYSTEMS THIRD QUARTER RESULTS
SalesTest Systems segment sales were $24.0 million, up $4.6 million compared to the prior-year period. Excluding sales from the divested semiconductor test business, the Test Systems segment achieved its second highest quarterly sales in the segment’s history. Diagnosys contributed $3.1 million in sales in the third quarter of 2017 decreased approximately $9.0 million to $21.0 million compared with the same period in 2016, a decrease of 29.9%. The $10.2 million decline in sales to the Semiconductor market were somewhat offset by a $1.3 million increase in sales to the Aerospace & Defense market when compared with the prior-year period.2020.
OperatingTest Systems operating profit was $1.1$0.9 million, or 5.2%3.9% of sales, compared with $3.2$2.1 million, or 10.8%10.7% of sales, in last year’s third quarter. E&D costs were $2.6 million, down slightly from $2.7 million in the third quarter of 2016. 2019. Operating profit in the current year was negatively impacted legal expenses and inventory reserves totaling $1.3 million.
TEST SYSTEMS YEAR-TO-DATE RESULTS
Test Systems SG&A expensesegment sales were $61.6 million, up $7.8 million compared with the prior-year period. The Acquired Businesses contributed an incremental $8.4 million in sales. Sales related to the Semiconductor business, which was sold in early 2019, decreased to $2.6$4.4 million.
Test Systems operating profit was $4.3 million, or 6.9% of sales, compared with operating profit of $4.2 million in the third quarter of 2017 compared with $3.4 millionprior-year period. Operating profit in the samecurrent year was negatively impacted legal expenses and inventory reserves totaling $1.3 million. Operating profit in the prior-year period last year.was impacted by restructuring-related severance charges of $2.0 million.
OrdersTEST SYSTEMS OUTLOOK
Bookings for the Test Systems segment in the quarter were $40.2$16.6 million, for a book-to-bill ratio of 1.91:0.69:1 for the quarter. Backlog was $69.1 million at the end of the third quarter of 2017.

TEST SYSTEMS YEAR-TO-DATE RESULTS
Sales in the first nine months of 2017 decreased 20.5% to $58.1 million compared with sales of $73.1 million for the same period in 2016, due to lower sales to the Semiconductor market. Sales to the Semiconductor market decreased $15.5 million compared with the same period in 2016.
Operating profit was $2.8 million, or 4.9% of sales, compared with $6.5 million, or 8.9% of sales, in the first nine months of 2016. E&D costs were $7.0 million in the first nine months of 2017 compared with $7.9 million in the same period in the prior year. SG&A costs declined to $8.4 million in the first nine months of 2017 compared with $9.8 million in the same period in 2016.
TEST SYSTEMS OUTLOOK
We expect sales for the Test Systems segment for 2017 to be in the range of $88 million to $91 million. The Test Systems segment’s backlog at the end of the third quarter of 20172020 was $69.1$73.5 million, with approximately $23.7$18.7 million expected to be shippedrecognized as revenue over the remaining part of 20172020 and approximately $58.1$55.3 million scheduled to ship over the next 12 months.
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LIQUIDITY AND CAPITAL RESOURCES
Operating Activities:
Cash provided by operating activities totaled $22.3$31.5 million for the first nine months of 2017,2020, as compared with $25.2$30.2 million cash provided by operating activities during the same period in 2016.2019. Cash flow from operating activities decreasedincreased compared with the same period of 20162019 primarily due to the impact of lower net income and lower increaseschange in net operating assets forcompared with the prior period as well as the net non-cash effect on net income of the goodwill impairment loss in the first nine months of 2017 when2020 compared withto the net non-cash effect on net income of the gain from sale of the semiconductor business in the first nine months of 2016.2019.
Investing Activities:
Cash used for investing activities included $10.2 million for the acquisition of CCC, as well as capital expenditures, which were $9.7was $4.0 million for the first nine months of 20172020 compared with $9.9$74.2 million usedin cash provided by investing activities in the same period of 2016.2019. The change compared to the prior-year period was a result of the $103.8 million in proceeds from the divestiture of the semiconductor business in 2019, coupled with a decrease in capital expenditures in the first nine months of 2020 compared with 2019 partially offset by the purchase of FCT for $21.8 million in the first nine months of 2019. The Company expects capital spending in 20172020 to be in the range of $17 million to $19approximately $8 million.
Financing Activities:
The primary financing activities in 2017 relatethe first nine months of 2020 related to net borrowingspayments on our senior credit facility of $20.0 million and repurchase of approximately 282,000 shares at an aggregate cost of $7.7 million. The primary financing activities in the first nine months of 2019 related to fund the acquisitiona repurchase of CCC and purchasesapproximately 1,824,000 shares at an aggregate cost of treasury stock as part$50.0 million under our share purchase program, coupled with net payments on our senior credit facility of the buyback program.
The Company’s obligations under the Credit Agreement as amended are jointly and severally guaranteed by each domestic subsidiary of the Company other than a non-material subsidiary. The obligations are secured by a first priority lien on substantially all of the Company’s and the guarantors’ assets.$47.0 million.
The Company's Fifth Amended and Restated Credit Agreement consists of(the “Agreement”) provided for a $350$500 million revolving credit line with the option to increase the line by up to $150 million. The Credit Agreement expires January 13, 2021. On January 13, 2016, At September 30, 2017 there was $167.0 million outstanding on the revolving credit facility and there remains $181.9 million available, net of outstanding letters of credit. The credit facility allocates up to $20 millionmaturity date of the $350 million revolving credit line forloans under the issuance of letters of credit, including certain existing letters of credit. At September 30, 2017, outstanding letters of credit totaled $1.1 million.
Agreement is February 16, 2023. The maximum permitted leverage ratio of funded debt, net of cash to Adjusted EBITDA (as defined in the Agreement) is 3.5was 3.75 to 1, increasing to 4.04.50 to 1 for up to twofour fiscal quarters following the closing of an acquisition permitted under the Agreement. The Company’s leverage ratio was 2.12Agreement, subject to 1 at September 30, 2017.limitations. The Company will paypaid interest on the unpaid principal amount of the facility at a rate equal to one-, three- or six-month LIBOR plus between 137.51.00% 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, points and 225 basis pointsexcept 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 between 17.5 basis points and 35 basis points0.10% to 0.35% on the undrawn portion of the credit facility,Amended Facility, based upon the Company’s leverage ratio. The Company must also maintain a minimum interest coverage ratio (Adjusted EBITDA to interest expense) of 3.0 to 1Amended Facility provided for the termpayment of a consent fee of 15 basis points of the Agreement. commitment for each consenting lender.
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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 interest coverage ratio was 20.2 to 1 at September 30, 2017.

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 AgreementAmended 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 Agentagent the option to declare all such amounts immediately due and payable.
BACKLOG
The Company’s backlog at September 30, 201726, 2020 was $302.3$282.2 million compared with $258.0$359.6 million at December 31, 20162019 and $275.2$379.4 million at October 1, 2016.September 28, 2019.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table represents contractual obligations as of September 30, 2017:26, 2020:
Payments Due by PeriodPayments Due by Period
(In thousands)Total 2017 2018-2019 2019-2020 After 2020(In thousands)Total20202021-20222023-2024After 2024
Long-term Debt$177,345
 $682
 $4,595
 $171,172
 $896
Long-term Debt$168,232 $232 $— $168,000 $— 
Interest on Long-term DebtInterest on Long-term Debt14,810 1,727 12,369 714 — 
Purchase Obligations118,478
 67,634
 50,427
 417
 —
Purchase Obligations92,146 51,949 39,787 30 380 
Interest on Long-term Debt16,212
 1,267
 9,868
 5,065
 12
Supplemental Retirement Plan and Post Retirement Obligations22,243
 104
 826
 811
 20,502
Supplemental Retirement Plan and Post Retirement Obligations27,348 101 753 973 25,521 
Operating Leases6,083
 864
 4,829
 371
—
19
Other Long-term Liabilities203
 17
 95
 29
 62
Lease ObligationsLease Obligations28,219 2,026 13,359 6,537 6,297 
Other LiabilitiesOther Liabilities3,846 1,901 768 744 433 
Total Contractual Obligations$340,564
 $70,568
 $70,640
 $177,865
 $21,491
Total Contractual Obligations$334,601 $57,936 $67,036 $176,998 $32,631 
Notes to Contractual Obligations Table
Long-Term Debt — See Part 1 Financial Information, Item 1 Financial Statements, Note 7, Long-Term Debt and Notes Payable included in this report.
Interest on Long-term Debt — Future interest payments have been calculated using the applicable interest rate of each debt facility based on actual borrowings as of September 26, 2020. Actual future borrowings and rates may differ from these estimates.
Purchase Obligations — Purchase obligations are comprised of the Company’s commitments for goods and services in the normal course of business.
Long-Term DebtLease Obligations — SeeFinancing and operating lease obligations are primarily related to the Company's facility leases and interest.
Other Liabilities — Table excludes the $16.5 million accrual recorded as management's best estimate of damages related to Lufthansa’s indirect sales claim in Germany, as discussed in Part 1 Financial Information, Item 1 Financial Statements, Note 6, Long-Term Debt15, Legal Proceedings, as this will not become a contractual obligation until the appeals process is complete and Notes Payable included in this report.amount of damages has been finalized.
Operating Leases — Operating lease obligations are primarily related to the Company's facility leases.
On October 26, 2017, we entered into an agreement to purchase substantially all of the assets of Telefonix, Incorporated and a related company, Product Development Technologies, LLC, for approximately $104 million in cash. The table above excludes any obligations or commitments related to this pending acquisition.
MARKET RISK
The Company believes that there have been no material changes in the current year regarding the market risk information for its exposure to interest rate fluctuations. Although the majority of our sales, expenses and cash flows are transacted in U.S. dollars, we have exposure to changes in foreign currency exchange rates related to the Euro and the Canadian dollar. The Company believes that the impact of changes in foreign currency exchange rates in 20172020 have not been significant.
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CRITICAL ACCOUNTING POLICIES
Refer to Note 2 of the Notes to Consolidated Condensed Financial Statements included in this report for the Company’s critical accounting policies with respect to revenue recognition. For a complete discussion of the Company’s other critical accounting policies, refer to the Company’s annual report on Form 10-K for the year ended December 31, 2016 for a complete discussion of the Company’s critical accounting policies.2019.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-9, Revenue from Contracts with Customers. This new standard is effective for reporting periods beginning after December 15, 2017, pursuantRefer to the issuance of ASU 2015-14, Revenue from Contracts with Customers: Deferral of Effective Date issued in August 2015. The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. AdoptionNote 1 of the new rules could affect the timing of revenue recognition for certain transactions. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. The Company will adopt the new standard on January 1, 2018, using the modified retrospective transition method.

The adoption of this amendment may require usNotes to accelerate the recognition of revenue as compared to current standards, for certain customers, in cases where we produce products unique to those customers; and for which we would have an enforceable right of payment for production completed to date. The Company has identified its revenue streams, reviewed the initial impacts of adopting the new standard on those revenue streams, and appointed a project management leader. The Company continues to evaluate the quantitative and qualitative impacts of the standard.

In February 2016, the FASB issued ASU No. 2016 - 02, Leases. The new standard is effective for reporting periods beginning after December 15, 2018. Early adoption is permitted. The standard will require lessees to report most leases as assets and liabilities on the balance sheet, while lessor accounting will remain substantially unchanged. The standard requires a modified retrospective transition approach for existing leases, whereby the new rules will be applied to the earliest year presented.  The adoption of the standard is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice in how certain cash receipts and payments are presented and classified in the statement of cash flows. The standard provides guidance in a number of situations including, among others, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. The ASU also provides guidance for classifying cash receipts and payments that have aspects of more than one class of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The standard requires application using a retrospective transition method. This ASU is not expected to have a material impact on the Company’s consolidated results of operations and financial condition.

In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which narrows the existing definition of a business and provides a framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business. The ASU requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities (collectively, the set) is not a business. To be considered a business, the set would need to include an input and a substantive process that together significantly contribute to the ability to create outputs. The standard also narrows the definition of outputs. The definition of a business affects areas of accounting such as acquisitions, disposals and goodwill. Under the new guidance, fewer acquired sets are expected to be considered businesses. This ASU is effective for


fiscal years beginning after December 15, 2017 on a prospective basis with early adoption permitted. The Company would apply this guidance to applicable transactions after the adoption date.

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires employers to include only the service cost component of net periodic pension cost and net periodic postretirement benefit cost in operating expenses. The other components of net benefit cost, including amortization of prior service cost/credit and net actuarial gains/losses, and settlement and curtailment effects, are to beConsolidated Condensed Financial Statements included in non-operating expenses. The ASU also stipulates that only the service cost component of net benefit cost is eligible for capitalization. The effective date for adoption of this guidance begins on January 1, 2018, with early adoption permitted. The Company is currently evaluating the effect that this standard will have on the consolidated financial statements.report.


FORWARD-LOOKING STATEMENTS
Information included in this report that does not consist of historical facts, including statements accompanied by or containing words such as “may,” “will,” “should,” “believes,” “expects,” “expected,” “intends,” “plans,” “projects,” “approximate,” “estimates,” “predicts,” “potential,” “outlook,” “forecast,” “anticipates,” “presume” and “assume,” are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to several factors, risks and uncertainties, the impact or occurrence of which could cause actual results to differ materially from the expected results described in the forward-looking statements. Certain of these factors, risks and uncertainties are discussed in the sections of this report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” New factors, risks and uncertainties may emerge from time to time that may affect the forward-looking statements made herein. Given these factors, risks and uncertainties, investors should not place undue reliance on forward-looking statements as predictive of future results. We disclaim any obligation to update the forward-looking statements made in this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Market Risk in Item 2, above.

Item 4. Controls and Procedures
a)Evaluation of Disclosure Controls and Procedures

a.Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures that are designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) by others within our organization to allow timely decisions regarding required disclosure. Under the supervision andThe Company’s management, with the participation of our management, including ourthe Company’s Chief Executive Officer and Chief Financial Officer, we conducted an evaluation ofhas evaluated the effectiveness of ourthe Company’s disclosure controls and procedures as of September 30, 2017.26, 2020. Based on thisthat evaluation, as a result of the material weakness in our internal control over financial reporting described below, ourCompany’s Chief Executive Officer and Chief Financial Officer concluded that ourthe Company’s disclosure controls and procedures were not effective as of September 30, 2017.26, 2020.

Notwithstanding the material weakness discussed below, our management, including our Chief Executive Officer and Chiefb.Changes in Internal Control over Financial Officer, has concluded that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

During the quarter ended July 1, 2017, management discovered a material weakness in the design of information technology change controls over a report writing application. Additionally, management identified deficiencies in certain review controls over the financial statement consolidation process, which when aggregated along with the information technology change controls matter described above, aggregated to a material weakness over the financial statement close process as of December 31, 2016. Management does not expect adjustments to any previously issued financial statements as a result of these deficiencies.

The Company is implementing changes to the design and application of new controls and is making significant changes to the design of existing controls over information technology as well as controls related to the financial statement consolidation process. The Company has made progress towards remediation of the material weakness as of the date of this filing and expects to complete remediation by December 31, 2017. We will continue the process of enhancing our controls as well as continue to test their effectiveness over the remainder of 2017.

b)Changes in Internal Control over Financial Reporting

Reporting
There werehave been no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings

The Company is subject to variousCurrently, we are involved in legal proceedings claims,relating to an allegation of patent infringement and litigation arising in the ordinary coursebased on rulings to date we have concluded that losses related to these proceedings are probable. For a discussion of business. While the outcome of these matters is currently not determinable, we do not expect these matters will have a material adverse effect on our business, financial position, results of operations, or cash flows. However, the results of these matters cannot be predicted with certainty. Should the Company failcontingencies related to prevail in any legal matter or should several legal matters be resolved against the Company in the same reporting period, then the financial results of that particular reporting period could be materially adversely affected.

On December 29, 2010, Lufthansa Technik AG (“Lufthansa”) filed a Statement of Claim in the Regional State Court of Mannheim, Germany. Lufthansa’s claim asserts that our subsidiary, AES sold, marketed and brought into use in Germany a power supply system that infringes upon a German patent held by Lufthansa. The relief sought by Lufthansa includes requiring AES to stop selling and marketing the allegedly infringing power supply system, a recall of allegedly infringing products sold to commercial customers since November 26, 2003 and compensation for damages. The claim does not specify an estimate of damages and a damages claim would be pursued by Lufthansa in separate court proceedings.

On February 6, 2015, the Regional State Court of Mannheim, Germany rendered its decision that the patent was infringed. The judgment does not require AES to recall products that are already installed in aircraft or have been sold to other end users.  On Julyproceedings, see Note 15 2015, Lufthansa advised AES of their intention to enforce the accounting provisions of the decision, which required AESNotes to provide certain financial information regarding sales of the infringing product to enable Lufthansa to make an estimate of requested damages. Additionally, if Lufthansa provides the required bank guarantee specified in the decision, the Company may be required to offer a recall of products that are in the distribution channels in Germany. No such bank guarantee has been issued to date. As of September 30, 2017, there are no products in the distribution channels in Germany.Consolidated Condensed Financial Statements.

The Company appealed to the Higher Regional Court of Karlsruhe.  On November 15, 2016, the Court issued its ruling and upheld the lower court’s decision.  The Company has submitted a petition to grant AES leave for appeal to the Federal Supreme Court. The Company believes it has valid defenses to refute the decision.  Should the Federal Supreme Court decide to hear the case, the appeal process is estimated to extend up to two years. We estimate AES’s potential exposure related to this matter to be approximately $1 million to $3 million. As loss exposure is not probable at this time, the Company has not recorded any liability with respect to this litigation as of September 30, 2017.

On November 26, 2014, Lufthansa filed a complaint in the United States District for the Western District of Washington. Lufthansa’s complaint in this action alleges that AES manufactures, uses, sells and offers for sale a power supply system that infringes upon a U.S. patent held by Lufthansa. The patent at issue in the U.S. action is based on technology similar to that involved in the German action. On April 25, 2016, the Court issued its ruling on claim construction, holding that the sole independent claim in the patent is indefinite, rendering all claims in the patent indefinite. Based on this ruling, AES filed a motion for summary judgment on the grounds that the Court’s ruling that the patent is indefinite renders the patent invalid and unenforceable. On July 20, 2016, the U.S. District Court granted the motion for summary judgment and issued an order dismissing all claims against AES with prejudice.

Lufthansa appealed the District Court's decision to the United States Court of Appeals for the Federal Circuit. On October 19, 2017, the Federal Circuit affirmed the district court’s decision, holding that the sole independent claim of the patent is indefinite, rending all claims on the patent indefinite. Lufthansa has until November 20, 2017, to ask for rehearing or rehearing en banc. If it does not file such a petition, it has until January 18, 2018, to file a petition for writ of certiorari with the U.S. Supreme Court. As loss exposure is neither probable nor estimable at this time, the Companyhas not recorded any liability with respect to this litigation as of September 30, 2017.
Other than this proceeding, we are not party to any significant pending legal proceedings that management believes will result in material adverse effect on our financial condition or results of operations.
Item 1a. Risk Factors
In addition to other information set forth in this report, you should carefully consider the factors discussed in Part 1, Item 1A. “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2016,2019, which could materially affect our business, financial condition or results of operations. The risks described in our Annual Report on Form 10-K are not the only risks facing us. AdditionalThere have been no material changes to the Risk Factors except as set forth below:
The COVID-19 pandemic has adversely affected, and is expected to continue to pose risks to our business, results of operations, financial condition and uncertaintiescash flows, and other epidemics or outbreaks of infectious diseases may have a similar impact. As previously disclosed, we face risks related to outbreaks of infectious diseases, including the ongoing COVID-19 pandemic. The COVID-19 coronavirus pandemic has caused significant volatility in financial markets, including the market price of our stock, and the commercial aerospace industry, which has raised the prospect of an extended global recession. In response to COVID-19, national and local governments around the world have instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. Our operations have been deemed essential under applicable law, but there is no guarantee this will continue. We follow the COVID-19 guidelines from the CDC concerning the health and safety of our personnel, these measures have resulted in attenuating activity and, in some cases, required temporary closures of certain of our facilities, among other impacts. The duration of these measures is unknown, may be extended and additional measures, including facility closures, may be imposed.
Among the potential effects of COVID-19 and other similar outbreaks on the company include, but are not currently knownlimited to, us the following:
•Reduced consumer and investor confidence, instability in the credit and financial markets, volatile corporate profits, and reduced business and consumer spending, which may adversely affect our results of operations by reducing our sales, margins and/or that we currently deemnet income as a result of a slowdown in customer orders or order cancellations. In addition, volatility in the financial markets could increase the cost of capital and/or limit its availability.
•Economic uncertainty as a result of COVID-19 is expected to make it difficult for our customers, suppliers and the company to accurately forecast and plan future business activities.
•Aircraft manufacturers have experienced a disruption in production and demand as customers defer delivery of new aircraft, resulting in slowed or halted production at facilities throughout the world. Commercial airlines have experienced a significant reduction in air traffic. Commercial airlines and other manufacturers have begun to focus on conserving cash to preserve liquidity, which will have a negative impact on airframe and aftermarket sales.
•The potential to weaken the financial position of some of our customers. If circumstances surrounding our customers’ financial capabilities were to deteriorate, asset write-downs or write-offs could negatively affect our operating results and, if large, could have a material adverse effect on our business, financial condition, results of operations and cash flow.
•Disruption of our supply chain. Our third-party manufacturers, suppliers, third-party distributors, sub-contractors and customers have been and will be immaterial also may materiallydisrupted by worker absenteeism, quarantines and restrictions on their employees’ ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, or other travel or health-related restrictions. Depending on the magnitude of such effects on our manufacturing or the operations of our suppliers, third-party distributors, or sub-contractors, our supply chain, manufacturing and product shipments could be delayed, which could adversely affect our business, operations, and customer relationships.
•The need to incur additional restructuring charges to optimize our cost structure.
To the extent the COVID-19 pandemic adversely affects our business, results of operations, financial condition and/orand cash flows, it may also heighten many of the other risks described in this section and in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The ultimate impact of COVID-19 on our business, results of operations.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, which are uncertain and cannot be predicted at this time.

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Item 2. Unregistered sales of equity securities and use of proceeds
(c)c. The following table summarizes our purchases of our common stock for the quarter ended September 30, 2017.26, 2020.

Period(a) Total Number of Shares Purchased(b) Average Price Paid Per Share(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(d) Maximum Dollar Value of Shares that may yet be Purchased Under the Program (1)
June 28, 2020 -
September 26, 2020		———$41,483,815
Period(a) Total Number of Shares Purchased(b) Average Price Paid Per Share(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(d) Maximum Dollar Value of Shares that may yet be Purchased Under the Program (1)
July 2, 2017 -
July 29, 2017
90,135$30.2990,135$16,128,000
July 30, 2017 -
August 26, 2017
588,402$26.38588,402$606,000
August 27, 2017 -
September 30, 2017 (2)
23,229$26.0923,229$—

In connection with the exercise of stock options, we accept, from time to time, delivery of shares to pay the exercise price of stock options.
(1) On February 24, 2016,September 17, 2019, the Company’s Board of Directors authorized thean additional repurchase of up to $50 million. Approximately 310,000 shares were repurchased at a cost of $8.5 million of common stock.before the 10b5-1 plan associated with the share repurchase program was terminated on February 3, 2020.

(2) The Company has repurchased approximately 1,675,000 shares and has completed the program.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
Section 302 Certification - Chief Executive Officer
Section 302 Certification - Chief Financial Officer
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101.1*Instance Document
Exhibit 101.2*Schema Document
Exhibit 101.3*Calculation Linkbase Document
Exhibit 101.4*Labels Linkbase Document
Exhibit 101.5*Presentation Linkbase Document
Exhibit 101.6*Definition Linkbase Document

*Submitted electronically herewith.


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
ASTRONICS CORPORATION
(Registrant)
Date:November 9, 2017October 30, 2020By:/s/ David C. Burney
David C. Burney
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)


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