UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


☒			Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~September 28, 2019~~June 27, 2020


☐			Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number 0-7087

ASTRONICS CORPORATION

(Exact name of registrant as specified in its charter)


New York (State or other jurisdiction of incorporation or organization)			16-0959303 (IRS Employer Identification Number)

130 Commerce Way, East Aurora, New York (Address of principal executive offices)			14052 (Zip code)

(716) 805-1599

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $.01 par value per share	ATRO	NASDAQ Stock Market

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

~~Securities registered pursuant to Section 12(g) of the Act:~~

~~$.01 par value Common Stock, $.01 par value Class B Stock~~

~~(Title of Class)~~

Table of Contents

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

☐

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 ~~November 1, 2019, 30,873,090~~July 27, 2020, 30,755,863 shares of common stock were outstanding consisting of ~~23,107,564~~23,586,404 shares of common stock ($.01 par value) and ~~7,765,526~~7,169,459 shares of Class B common stock ($.01 par value).

Table of Contents

TABLE OF CONTENTS

PAGE

PART I

FINANCIAL INFORMATION

Item 1

Financial Statements:

•

Consolidated Condensed Balance Sheets as of ~~September 28~~June 27 , ~~2019~~2020 and December 31, ~~2018~~2019

•

Consolidated Condensed Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September 28~~June 27 , 2020 and June 29 , 2019 ~~and~~ ~~September 29, 2018~~

•

Consolidated Condensed Statements of Comprehensive (Loss) Income for the Three and ~~Nine~~Six Months Ended SJune 27 ~~eptember 28~~, 2020 and June 29 , 2019 ~~and~~ ~~September 29, 2018~~

•

Consolidated Condensed Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September 2~~June 27 8, 2020 and June 29 , 2019 ~~and~~ ~~September 29, 2018~~

•

Consolidated Condensed Statements of Shareholders' Equity for the Three ~~and~~ ~~Nine~~ an d Six Months Ended ~~September 28~~June 27 , 2020 and June 29 , 2019 ~~and~~ ~~September 29, 2018~~

•

Notes to Consolidated Condensed Financial Statements

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2429

Item 3

Quantitative and Qualitative Disclosures about Market Risk

3137

Item 4

Controls and Procedures

PART II

Item 1

Item 1a

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

3339

Item 3

Defaults Upon Senior Securities

3339

Item 4

Mine Safety Disclosures

Item 5

Item 6

Part I – Financial Information

Item 1. Financial Statements

ASTRONICS CORPORATION

Consolidated Condensed Balance Sheets

~~September 28, 2019~~June 27, 2020 with Comparative Figures for December 31, ~~2018~~2019

(Unaudited)

(In thousands)


		September 28, 2019		December 31, 2018			June 27, 2020		December 31, 2019

Current Assets:	Current Assets:					Current Assets:
Cash and Cash Equivalents	Cash and Cash Equivalents	$	22,795	$	16,622	Cash and Cash Equivalents	$	46,639	$	31,906
Accounts Receivable, Net of Allowance for Doubtful Accounts	Accounts Receivable, Net of Allowance for Doubtful Accounts	159,715		182,308		Accounts Receivable, Net of Allowance for Doubtful Accounts	102,659		147,998
Inventories	Inventories	149,621		138,685		Inventories	156,584		145,787
Prepaid Expenses and Other Current Assets	Prepaid Expenses and Other Current Assets	17,576		17,198		Prepaid Expenses and Other Current Assets	20,734		15,853
Assets Held for Sale	Assets Held for Sale	3,186		19,358		Assets Held for Sale	—		1,537
Total Current Assets	Total Current Assets	352,893		374,171		Total Current Assets	326,616		343,081
Property, Plant and Equipment, Net of Accumulated Depreciation	Property, Plant and Equipment, Net of Accumulated Depreciation	113,137		120,862		Property, Plant and Equipment, Net of Accumulated Depreciation	109,381		112,499
Operating Right-of-Use Assets						Operating Right-of-Use Assets	21,782		23,602
Other Assets	Other Assets	45,911		21,272		Other Assets	23,659		31,271
Intangible Assets, Net of Accumulated Amortization	Intangible Assets, Net of Accumulated Amortization	132,433		133,383		Intangible Assets, Net of Accumulated Amortization	118,648		127,293
Goodwill	Goodwill	133,594		124,952		Goodwill	58,440		144,970
Total Assets	Total Assets	$	777,968	$	774,640	Total Assets	$	658,526	$	782,716
Current Liabilities:	Current Liabilities:					Current Liabilities:
Current Maturities of Long-term Debt	Current Maturities of Long-term Debt	$	191	$	1,870	Current Maturities of Long-term Debt	$	224	$	224
Accounts Payable	Accounts Payable	46,046		50,664		Accounts Payable	35,371		35,842
Current Operating Lease Liabilities						Current Operating Lease Liabilities	4,818		4,517
Accrued Expenses and Other Current Liabilities	Accrued Expenses and Other Current Liabilities	49,321		47,772		Accrued Expenses and Other Current Liabilities	44,965		48,697
Customer Advance Payments and Deferred Revenue	Customer Advance Payments and Deferred Revenue	23,525		26,880		Customer Advance Payments and Deferred Revenue	27,120		31,360
Liabilities Held for Sale		—		906

Total Current Liabilities	Total Current Liabilities	119,083		128,092		Total Current Liabilities	112,498		120,640
Long-term Debt	Long-term Debt	180,055		232,112		Long-term Debt	173,000		188,000
Long-term Operating Lease Liabilities						Long-term Operating Lease Liabilities	19,749		21,039
Other Liabilities	Other Liabilities	53,038		27,811		Other Liabilities	60,920		64,180
Total Liabilities	Total Liabilities	352,176		388,015		Total Liabilities	366,167		393,859
Shareholders’ Equity:	Shareholders’ Equity:					Shareholders’ Equity:
Common Stock	Common Stock	344		343		Common Stock	346		345
Accumulated Other Comprehensive Loss	Accumulated Other Comprehensive Loss	(13,610)		(13,329)		Accumulated Other Comprehensive Loss	(16,692)		(15,628)
Other Shareholders’ Equity	Other Shareholders’ Equity	439,058		399,611		Other Shareholders’ Equity	308,705		404,140
Total Shareholders’ Equity	Total Shareholders’ Equity	425,792		386,625		Total Shareholders’ Equity	292,359		388,857
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	777,968	$	774,640	Total Liabilities and Shareholders’ Equity	$	658,526	$	782,716

See notes to consolidated condensed financial statements.

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ASTRONICS CORPORATION

Consolidated Condensed Statements of Operations

Three and ~~Nine~~Six Months Ended ~~September 28, 2019~~June 27, 2020 With Comparative Figures for ~~2018~~2019

(Unaudited)

(In thousands, except per share data)


		Nine Months Ended						Three Months Ended							Six Months Ended				Three Months Ended
		September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018			June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Sales	Sales	$	574,290	$	600,339	$	177,018	$	212,674	Sales	$	281,278	$	397,272	$	123,694	$	189,098
Cost of Products Sold	Cost of Products Sold	445,056		467,315		140,224		166,354		Cost of Products Sold	218,726		304,832		96,861		148,735
Gross Profit	Gross Profit	129,234		133,024		36,794		46,320		Gross Profit	62,552		92,440		26,833		40,363
Selling, General and Administrative Expenses	Selling, General and Administrative Expenses	90,677		87,919		31,691		27,976		Selling, General and Administrative Expenses	61,771		58,986		32,904		29,790
Income from Operations		38,557		45,105		5,103		18,344
Net (Gain) Loss on Sale of Businesses		(78,801)		—		1,332		—
Impairment Loss										Impairment Loss	87,016		—		12,608		—
(Loss) Income from Operations										(Loss) Income from Operations	(86,235)		33,454		(18,679)		10,573
Gain on Sale of Business										Gain on Sale of Business	—		80,133		—		—
Other Expense, Net of Other Income	Other Expense, Net of Other Income	1,197		1,091		464		253		Other Expense, Net of Other Income	4,177		733		3,789		518
Interest Expense, Net of Interest Income	Interest Expense, Net of Interest Income	4,576		7,326		1,547		2,511		Interest Expense, Net of Interest Income	3,316		3,029		1,983		1,225
Income Before Income Taxes		111,585		36,688		1,760		15,580
Provision for (Benefit from) Income Taxes		25,503		2,370		550		(1,419)
Net Income		$	86,082	$	34,318	$	1,210	$	16,999
Earnings Per Share:
(Loss) Income Before Income Taxes										(Loss) Income Before Income Taxes	(93,728)		109,825		(24,451)		8,830
(Benefit from) Provision for Income Taxes										(Benefit from) Provision for Income Taxes	(3,186)		24,953		(872)		2,104
Net (Loss) Income										Net (Loss) Income	$	(90,542)	$	84,872	$	(23,579)	$	6,726
(Loss) Earnings Per Share:										(Loss) Earnings Per Share:
Basic	Basic	$	2.65	$	1.06	$	0.04	$	0.53	Basic	$	(2.94)	$	2.60	$	(0.77)	$	0.21
Diluted	Diluted	$	2.61	$	1.04	$	0.04	$	0.52	Diluted	$	(2.94)	$	2.56	$	(0.77)	$	0.20

See notes to consolidated condensed financial statements.

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ASTRONICS CORPORATION

Consolidated Condensed Statements of Comprehensive (Loss) Income

Three and ~~Nine~~Six Months Ended ~~September 28, 2019~~June 27, 2020 With Comparative Figures for ~~2018~~2019

(Unaudited)

(In thousands)

Nine Months Ended Three Months Ended
September 28, 2019 September 29, 2018 September 28, 2019 September 29, 2018
Net Income $ 86,082 $ 34,318 $ 1,210 $ 16,999
Other Comprehensive Income (Loss):
Foreign Currency Translation Adjustments (722) (1,346) (1,336) 226
Retirement Liability Adjustment – Net of Tax 441 646 147 216
Total Other Comprehensive Income (Loss) (281) (700) (1,189) 442
Comprehensive Income $ 85,801 $ 33,618 $ 21 $ 17,441


	Six Months Ended						Three Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Net (Loss) Income	$	(90,542)	$	84,872	$	(23,579)	$	6,726
Other Comprehensive (Loss) Income:
Foreign Currency Translation Adjustments	(1,494)		614		810		884
Retirement Liability Adjustment – Net of Tax	430		294		215		144
Total Other Comprehensive (Loss) Income	(1,064)		908		1,025		1,028
Comprehensive (Loss) Income	$	(91,606)	$	85,780	$	(22,554)	$	7,754

See notes to consolidated condensed financial statements.

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ASTRONICS CORPORATION

Consolidated Condensed Statements of Cash Flows

~~Nine~~Six Months Ended ~~September 28, 2019~~June 27, 2020 With Comparative Figures for ~~2018~~2019

~~(Unaudited)~~

~~(In thousands)~~


(Unaudited, In thousands)						(Unaudited, In thousands)	Six Months Ended
Cash Flows from Operating Activities:						Cash Flows from Operating Activities:	June 27, 2020		June 29, 2019
		Nine Months Ended
		September 28, 2019		September 29, 2018
Cash Flows From Operating Activities:
Net Income		$	86,082	$	34,318
Adjustments to Reconcile Net Income to Cash Provided By Operating Activities:
Net (Loss) Income						Net (Loss) Income	$	(90,542)	$	84,872
Adjustments to Reconcile Net (Loss) Income to Cash Flows from Operating Activities, Excluding the Effects of Divestitures:						Adjustments to Reconcile Net (Loss) Income to Cash Flows from Operating Activities, Excluding the Effects of Divestitures:
Depreciation and Amortization	Depreciation and Amortization	24,183		26,756		Depreciation and Amortization	16,052		15,980
Provisions for Non-Cash Losses on Inventory and Receivables	Provisions for Non-Cash Losses on Inventory and Receivables	4,613		2,432		Provisions for Non-Cash Losses on Inventory and Receivables	3,297		4,429
Equity-based Compensation Expense	Equity-based Compensation Expense	2,943		2,349		Equity-based Compensation Expense	2,806		2,145
Deferred Tax Benefit		(3,820)		(1,536)
Net Gain on Sale of Businesses, Before Taxes		(78,801)		—
Deferred Tax Expense (Benefit)						Deferred Tax Expense (Benefit)	1,190		(3,371)
Non-cash Severance Expense						Non-cash Severance Expense	4,669		377
Operating Lease Amortization Expense						Operating Lease Amortization Expense	2,236		1,978
Non-cash Litigation Provision						Non-cash Litigation Provision	1,450		—
Gain on Sale of Business, Before Taxes						Gain on Sale of Business, Before Taxes	—		(80,133)
Equity Investment Other Than Temporary Impairment						Equity Investment Other Than Temporary Impairment	3,493		—
Impairment Loss						Impairment Loss	87,016		—
Other	Other	(792)		(507)		Other	4,459		(1,715)
Cash Flows from Changes in Operating Assets and Liabilities, Excluding the Effects of Acquisitions:
Cash Flows from Changes in Operating Assets and Liabilities:						Cash Flows from Changes in Operating Assets and Liabilities:
Accounts Receivable	Accounts Receivable	23,423		(52,890)		Accounts Receivable	43,417		5,266
Inventories	Inventories	(18,963)		(15,768)		Inventories	(12,778)		(11,276)
Accounts Payable	Accounts Payable	(5,494)		571		Accounts Payable	(446)		(7,685)
Accrued Expenses	Accrued Expenses	(5,867)		4,977		Accrued Expenses	(12,473)		(9,518)
Other Current Assets and Liabilities	Other Current Assets and Liabilities	(697)		(1,620)		Other Current Assets and Liabilities	(1,983)		(975)
Customer Advanced Payments and Deferred Revenue	Customer Advanced Payments and Deferred Revenue	(3,266)		19,241		Customer Advanced Payments and Deferred Revenue	(4,221)		(1,234)
Income Taxes	Income Taxes	5,581		(4,315)		Income Taxes	(3,667)		9,181
Operating Lease Liabilities						Operating Lease Liabilities	(2,222)		(1,785)
Supplemental Retirement and Other Liabilities	Supplemental Retirement and Other Liabilities	1,116		1,351		Supplemental Retirement and Other Liabilities	(204)		2,520
Cash Provided By Operating Activities		30,241		15,359
Cash Flows From Investing Activities:
Acquisition of Business, Net of Cash Acquired		(21,785)		—
Proceeds on Sale of Businesses		104,792		—
Cash Flows from Operating Activities						Cash Flows from Operating Activities	41,549		9,056
Cash Flows from Investing Activities:						Cash Flows from Investing Activities:

Proceeds on Sale of Business						Proceeds on Sale of Business	—		103,793
Capital Expenditures	Capital Expenditures	(8,850)		(12,416)		Capital Expenditures	(3,905)		(6,917)
Other Investing Activities		—		(3,376)
Cash Provided By (Used For) Investing Activities		74,157		(15,792)
Cash Flows From Financing Activities:
Proceeds on Sale of Assets						Proceeds on Sale of Assets	1,600		—
Cash Flows from Investing Activities						Cash Flows from Investing Activities	(2,305)		96,876
Cash Flows from Financing Activities:						Cash Flows from Financing Activities:
Proceeds from Long-term Debt	Proceeds from Long-term Debt	99,000		35,015		Proceeds from Long-term Debt	150,000		27,000
Payments for Long-term Debt	Payments for Long-term Debt	(146,080)		(47,116)		Payments for Long-term Debt	(165,000)		(132,053)
Purchase of Outstanding Shares for Treasury	Purchase of Outstanding Shares for Treasury	(50,000)		—		Purchase of Outstanding Shares for Treasury	(7,732)		—
Debt Acquisition Costs		—		(516)
Proceeds from Exercise of Stock Options		423		283

Stock Options Activity						Stock Options Activity	34		416

Other Financing Activities		(1,284)		—
Cash Used For Financing Activities		(97,941)		(12,334)
Finance Lease Principal Payments						Finance Lease Principal Payments	(939)		(834)
Financing Fees						Financing Fees	(360)		—
Cash Flows from Financing Activities						Cash Flows from Financing Activities	(23,997)		(105,471)
Effect of Exchange Rates on Cash	Effect of Exchange Rates on Cash	(284)		(254)		Effect of Exchange Rates on Cash	(514)		23
Increase (Decrease) in Cash and Cash Equivalents		6,173		(13,021)
Increase in Cash and Cash Equivalents						Increase in Cash and Cash Equivalents	14,733		484
Cash and Cash Equivalents at Beginning of Period	Cash and Cash Equivalents at Beginning of Period	16,622		17,914		Cash and Cash Equivalents at Beginning of Period	31,906		16,622
Cash and Cash Equivalents at End of Period	Cash and Cash Equivalents at End of Period	$	22,795	$	4,893	Cash and Cash Equivalents at End of Period	$	46,639	$	17,106

See notes to consolidated condensed financial statements.

Table of Contents

ASTRONICS CORPORATION

Consolidated Condensed Statements of Shareholders' Equity

Three and ~~Nine~~Six Months Ended ~~September 28, 2019~~June 27, 2020 With Comparative Figures for ~~2018~~2019

(Unaudited)

(In thousands)


		Nine Months Ended						Three Months Ended							Six Months Ended				Three Months Ended
		September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018			June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Common Stock	Common Stock									Common Stock
Beginning of Period	Beginning of Period	$	260	$	229	$	264	$	232	Beginning of Period	$	269	$	260	$	271	$	262

Exercise of Stock Options and Equity-based Compensation Expense – Net of Taxes		1		—		—		—
Net Exercise of Stock Options										Net Exercise of Stock Options	—		1		—		1

Class B Stock Converted to Common Stock	Class B Stock Converted to Common Stock	4		4		1		1		Class B Stock Converted to Common Stock	5		3		3		1
End of Period	End of Period	$	265	$	233	$	265	$	233	End of Period	274		264		274		264
Convertible Class B Stock	Convertible Class B Stock									Convertible Class B Stock
Beginning of Period	Beginning of Period	$	83	$	111	$	80	$	109	Beginning of Period	76		83		75		81
Exercise of Stock Options and Equity-based Compensation Expense – Net of Taxes		—		1		—		—
Net Exercise of Stock Options										Net Exercise of Stock Options	1		—		—		—

Class B Stock Converted to Common Stock	Class B Stock Converted to Common Stock	(4)		(4)		(1)		(1)		Class B Stock Converted to Common Stock	(5)		(3)		(3)		(1)
End of Period	End of Period	$	79	$	108	$	79	$	108	End of Period	72		80		72		80
Additional Paid in Capital	Additional Paid in Capital									Additional Paid in Capital
Beginning of Period	Beginning of Period	$	73,044	$	67,748	$	75,604	$	69,665	Beginning of Period	76,340		73,044		78,075		74,396

Exercise of Stock Options and Equity-based Compensation Expense - Net of Taxes		3,365		2,631		805		714
Net Exercise of Stock Options and Equity-based Compensation Expense										Net Exercise of Stock Options and Equity-based Compensation Expense	2,839		2,560		1,104		1,208
End of Period	End of Period	$	76,409	$	70,379	$	76,409	$	70,379	End of Period	79,179		75,604		79,179		75,604
Accumulated Comprehensive Loss	Accumulated Comprehensive Loss									Accumulated Comprehensive Loss
Beginning of Period	Beginning of Period	$	(13,329)	$	(13,352)	$	(12,421)	$	(15,867)	Beginning of Period	(15,628)		(13,329)		(17,717)		(13,449)
Adoption of ASU 2018-02		—		(1,373)		—		—

Foreign Currency Translation Adjustments	Foreign Currency Translation Adjustments	(722)		(1,346)		(1,336)		226		Foreign Currency Translation Adjustments	(1,494)		614		810		884

Retirement Liability Adjustment – Net of Taxes	Retirement Liability Adjustment – Net of Taxes	441		646		147		216		Retirement Liability Adjustment – Net of Taxes	430		294		215		144
End of Period	End of Period	$	(13,610)	$	(15,425)	$	(13,610)	$	(15,425)	End of Period	(16,692)		(12,421)		(16,692)		(12,421)
Retained Earnings	Retained Earnings									Retained Earnings
Beginning of Period	Beginning of Period	$	376,567	$	325,191	$	461,439	$	347,151	Beginning of Period	428,584		376,567		361,621		454,713
Adoption of ASU 2018-02		—		1,373		—		—
Adoption of ASU 2014-09		—		3,268		—		—
Net income		86,082		34,318		1,210		16,999

Net (Loss) Income										Net (Loss) Income	(90,542)		84,872		(23,579)		6,726

End of Period	End of Period	$	462,649	$	364,150	$	462,649	$	364,150	End of Period	338,042		461,439		338,042		461,439
Treasury Stock	Treasury Stock									Treasury Stock
Beginning of Period	Beginning of Period	$	(50,000)	$	(50,000)	$	(50,000)	$	(50,000)	Beginning of Period	(100,784)		(50,000)		(108,516)		(50,000)
Purchase of Shares	Purchase of Shares	(50,000)		—		(50,000)		—		Purchase of Shares	(7,732)		—		—		—

End of Period	End of Period	$	(100,000)	$	(50,000)	$	(100,000)	$	(50,000)	End of Period	(108,516)		(50,000)		(108,516)		(50,000)
Total Shareholders’ Equity	Total Shareholders’ Equity	$	425,792	$	369,445	$	425,792	$	369,445	Total Shareholders’ Equity	$	292,359	$	474,966	$	292,359	$	474,966

See notes to consolidated condensed financial statements.

~~ASTRONICS CORPORATION~~

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ASTRONICS CORPORATION

Consolidated Condensed Statements of Shareholders' Equity, Continued

Three and ~~Nine~~Six Months Ended ~~September 28, 2019~~June 27, 2020 With Comparative Figures for ~~2018~~2019

(Unaudited)

(In thousands)


		Nine Months Ended			Three Months Ended				Six Months Ended		Three Months Ended
		September 28, 2019	September 29, 2018	September 28, 2019	September 29, 2018		June 27, 2020	June 29, 2019	June 27, 2020	June 29, 2019
Common Stock	Common Stock					Common Stock
Beginning of Period	Beginning of Period	25,978	22,861	26,343	23,219	Beginning of Period	26,874	25,978	27,088	26,178

Exercise of Stock Options and Issuances of Restricted Stock		53	25	19	(1)
Net Issuance from Exercise of Stock Options						Net Issuance from Exercise of Stock Options	25	34	—	13
Class B Stock Converted to Common Stock	Class B Stock Converted to Common Stock	444	443	113	111	Class B Stock Converted to Common Stock	456	331	267	152
End of Period	End of Period	26,475	23,329	26,475	23,329	End of Period	27,355	26,343	27,355	26,343
Convertible Class B Stock	Convertible Class B Stock					Convertible Class B Stock
Beginning of Period	Beginning of Period	8,290	11,083	8,007	10,789	Beginning of Period	7,650	8,290	7,476	8,146
Exercise of Stock Options		50	21	2	(17)
Net Issuance from Exercise of Stock Options						Net Issuance from Exercise of Stock Options	15	48	—	13

Class B Stock Converted to Common Stock	Class B Stock Converted to Common Stock	(444)	(443)	(113)	(111)	Class B Stock Converted to Common Stock	(456)	(331)	(267)	(152)
End of Period	End of Period	7,896	10,661	7,896	10,661	End of Period	7,209	8,007	7,209	8,007
Treasury Stock	Treasury Stock					Treasury Stock
Beginning of Period	Beginning of Period	(1,675)	(1,675)	(1,675)	(1,675)	Beginning of Period	3,526	1,675	3,808	1,675
Purchase of Shares	Purchase of Shares	(1,823)	—	(1,823)	—	Purchase of Shares	282	—	—	—
Retirement of Treasury Shares		—	—	—	—

End of Period	End of Period	(3,498)	(1,675)	(3,498)	(1,675)	End of Period	3,808	1,675	3,808	1,675

See notes to consolidated condensed financial statements.

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ASTRONICS CORPORATION

Notes to Consolidated Condensed Financial Statements

~~September 28, 2019~~June 27, 2020

(Unaudited)

1) Basis of Presentation

The accompanying unaudited statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included.

Operating Results

The results of operations for any interim period are not necessarily indicative of results for the full year. In addition, the COVID-19 pandemic has increased the volatility we experience in our financial results in recent periods and this could continue in future interim and annual periods. Operating results for the ~~nine~~six months ended ~~September 28, 2019~~June 27, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019.~~2020.

The balance sheet at December 31, ~~2018~~2019 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements.

For further information, refer to the financial statements and footnotes thereto included in Astronics Corporation’s ~~2018~~2019 annual report on Form 10-K.

Description of the Business

Astronics Corporation (“Astronics” or the “Company”) is a leading ~~supplier~~provider of advanced technologies ~~and products~~ to the global aerospace, defense and ~~defense~~electronics industries. Our products and services include advanced, high-performance electrical power generation, distribution and ~~distribution~~motion systems, ~~seat motion solutions,~~ lighting and safety systems, avionics products, systems and certification, aircraft structures ~~systems certification~~ and automated test systems.

We have principal operations in the United States (“U.S.”), Canada, France and ~~France. We design~~England, as well as engineering offices in the Ukraine and build our products through our wholly owned subsidiaries Astronics Advanced Electronic Systems Corp. (“AES”); Astronics AeroSat Corporation (“AeroSat”); Armstrong Aerospace, Inc. (“Armstrong”); Astronics Test Systems, Inc. (“ATS”); Ballard Technology, Inc. (“Ballard”); Astronics Connectivity Systems and Certification Corp. (“CSC”); Astronics Custom Control Concepts Inc. (“CCC”); Astronics DME LLC (“DME”); Freedom Communication Technologies, Inc. (“FCT”); Luminescent Systems, Inc. (“LSI”); Luminescent Systems Canada, Inc. (“LSI Canada”); Max-Viz, Inc. (“Max-Viz”); Peco, Inc. (“Peco”); and PGA Electronic s.a. (“PGA”). On October 4, 2019, the Company acquired the primary operating subsidiaries of Diagnosys Test Systems Limited (“Diagnosys”).India.

On February 13, 2019, the Company completed a divestiture of its semiconductor test business within the Test Systems segment. The business was not core to the future of the Test Systems segment. The total proceeds of the divestiture amounted to $103.8 ~~million.~~million plus certain contingent purchase consideration (“earn-out”) as described in Note 18. The Company recorded a pre-tax gain on the sale of $80.1 million in the first quarter of 2019. The Company recorded income tax expense relating to the gain ~~is expected to be $21.3~~of $19.7 million.

On July 1, 2019, the Company acquired all of the issued and outstanding capital stock of ~~FCT. FCT,~~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. ~~FCT~~Freedom is included in our Test Systems segment. The total consideration for the transaction was $21.8 million, net of $0.6 million in cash acquired.

On July 12, 2019, the Company sold intellectual property and certain assets associated with its Airfield Lighting product line for $1.0 million in cash. The Airfield Lighting product line, part of the Aerospace segment, was not core to the business and represented less than 1% of ~~2018~~ revenue. The Company recorded a pre-tax loss on the sale of approximately $1.3 ~~million.~~

~~For additional information regarding these acquisitions and divestitures see Note 18.~~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.~~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 ~~next~~ 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. ~~Refer to Note 19 for additional information.~~

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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 $5.1 million and $3.6 million at June 27, 2020 and December 31, 2019, respectively. The Company‘s bad debt expense was $1.6 million in the three and six months ended June 27, 2020 and insignificant in the three and six months ended June 29, 2019. Total writeoffs charged against the allowance and total recoveries collected were insignificant in both the three month and six month ended June 27, 2020.

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 ~~$25.6~~$22.4 million and ~~$31.2~~$27.7 million for the three months ended and ~~$80.0~~$48.6 million and ~~$89.0~~$54.4 million for the ~~nine~~six months ended ~~September 28,~~June 27, 2020 and June 29, 2019, ~~and September 29, 2018,~~ 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~~six months ended ~~September~~June 27, 2020 and June 29, 2019.

Goodwill Impairment

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, ~~2019~~2020, and ~~September 29, 2018.~~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 approximately $12.6 million and $86.3 million within the Impairment Loss line in the Consolidated Condensed Statement of Operations in the three and six months ended June 27, 2020, respectively.

For additional information regarding the quantitative test and the related goodwill impairment see Note 6.

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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 six months ended June 27, 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 at June 27, 2020 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.

Foreign Currency Translation

The aggregate foreign currency transaction gain or loss included in operations was insignificant for the three and ~~nine~~six months ended ~~September 28, 2019~~June 27, 2020 and ~~September~~June 29, ~~2018.~~2019.

Newly Adopted and Recent Accounting Pronouncements

~~During the first quarter of 2018, the Company early-adopted ASU No. 2018-02,~~ ~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~, which allows for a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The Company applied the guidance as of the beginning of the period of adoption and reclassified approximately $1.4 million from accumulated other comprehensive loss to retained earnings due to the change in federal corporate tax rate.Recent Accounting Pronouncements Adopted

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~. ASU 2016-02 required entities to adopt the new standard using a modified retrospective method and initially apply the related guidance at the beginning of the earliest period presented in the financial statements. During July 2018, the FASB issued ASU 2018-11, which allows for an additional and optional transition method under which an entity would record a cumulative-effect adjustment at the beginning of the period of adoption (“cumulative-effect method”).

We have adopted this guidance as of January 1, 2019 using the cumulative-effect method. The standard requires lessees to recognize a lease liability and a right-of-use (“ROU”) asset on the balance sheet for operating leases. Accounting for finance leases is substantially unchanged. Prior year financial statements were not recast under the new method. We elected the package of transition provisions available for expired or existing contracts, which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs.

~~The implementation of this standard did not have a material effect~~


Standard	Description	Financial Statement Effect or Other Significant Matters

ASU No. 2016-13 Financial Instruments - Credit Losses (Topic 326)	The standard replaces the incurred loss model with the current expected credit loss (CECL) model to estimate credit losses for financial assets measured at amortized cost and certain off-balance sheet credit exposures. The CECL model requires a Company to estimate credit losses expected over the life of the financial assets based on historical experience, current conditions and reasonable and supportable forecasts. The provisions of the standard are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The amendment requires a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.	The Company adopted this guidance as of January 1, 2020. The standard changed the way entities recognize impairment of most financial assets. Short-term and long-term financial assets, as defined by the standard, are impacted by immediate recognition of estimated credit losses in the financial statements, reflecting the net amount expected to be collected. The adoption of this standard had an immaterial impact on our condensed consolidated financial statements. As of January 1, 2019, ROU assets of approximately $18.4 million and lease liabilities of approximately $18.5 million were recognized on our balance sheet for our leased office and manufacturing facilities and equipment leases. There was a reclassification to ROU assets of approximately $3.5 million from net property plant and equipment for assets under existing finance leases at the transition date. The standards did not materially impact the Company's consolidated statements of operations or retained earnings. Refer to Note 9 for additional information. ~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments~~. This standard requires that an entity measure impairment of certain financial instruments, including trade receivables, based on expected losses rather than incurred losses. In November 2018, the FASB issued ASU 2018-19 which clarifies the guidance in ASU 2016-13. The provisions of this ASU are effective for years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of this ASU. We do not expect this ASU to have a significant impact on our consolidated financial statements. ~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Changes to the Disclosure Requirements for Fair Value Measurement~~. The new 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. We do not expect this ASU to have a significant impact on our consolidated financial statements, as it only includes changes to disclosure requirements. ~~In August 2018, the FASB issued ASU 2018-14,~~ ~~Changes to the Disclosure Requirements for Defined Benefit Plans.~~ The new 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. We are currently evaluating the impact of this ASU. 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

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Recent Accounting Pronouncements Not Yet Adopted


Standard	Description	Financial Statement Effect or Other Significant Matters
ASU No. 2018-14 Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)	The standard includes updates to the disclosure requirements for defined benefit plans including several additions, deletions and modifications to the disclosure requirements. The provisions of this ASU are effective for years beginning after December 15, 2020, with early adoption permitted.	This ASU does not have a significant impact on our consolidated financial statements, as it only includes changes to disclosure requirements. Planned date of adoption: Q1 2021
ASU No. 2019-12 Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes	The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and improve consistent application by clarifying and amending existing guidance. The amendments of this standard are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued, with the amendments to be applied on a respective, modified retrospective or prospective basis, depending on the specific amendment.	The Company is currently evaluating the requirements of this standard. The standard is not expected to have a material impact on the Company's financial statements. Planned date of adoption: Q1 2021
ASU No. 2020-04 Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting	The amendments in Update 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The new guidance provides the following optional expedients: simplify accounting analyses under current U.S. GAAP for contract modifications, simplify the assessment of hedge effectiveness, allow hedging relationships affected by reference rate reform to continue and allow a one-time election to sell or transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform.	The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of the ASU. An entity may elect to apply the amendments prospectively through December 31, 2022. After 2021, it is unclear whether banks will continue to provide LIBOR submissions to the administrator of LIBOR, and no consensus currently exists as to what benchmark rate or rates may become accepted alternatives to LIBOR. The Company is currently evaluating the impact of adopting this guidance. Planned date of adoption: Before December 31, 2022

We consider the applicability and impact of all ASUs. ASUs not listed above were assessed and determined to be either not applicable, or had or are expected to have minimal impact on our financial statements and related disclosures.

2) Revenue

ASU 2014-09 was adopted on January 1, 2018 using the modified retrospective method, which required the recognition of the cumulative effect of the transition as an adjustment to retained earnings. We recognized a transition adjustment of $3.3 million, net of tax effects, which increased our January 1, 2018 retained earnings.

Revenue is recognized when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration the Company expects to be entitled in exchange for transferring those products or services. Sales shown on the Company's Consolidated Condensed Statements of Operations are from contracts with customers.

Payment terms and conditions vary by contract, although terms generally include a requirement of payment within a range from 30 to 6090 days after the performance obligation has been satisfied; or in certain cases, up-front deposits. In circumstances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that the Company's contracts generally do not include a significant financing component. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from sales.

The Company recognizes an asset for the incremental, material costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year and the costs are expected to be recovered. These incremental costs include, but are not limited to, sales commissions incurred to obtain a contract with a customer. As of ~~September 28, 2019,~~June 27, 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 ~~contracts~~contract that can be specifically identified, generate or enhance resources that will be used in satisfying performance obligations in the future, and are expected to be recovered. Such costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods to which the asset relates. Start-up costs are expensed as incurred. Capitalized fulfillment costs are included in Inventories in the accompanying Consolidated Condensed Balance Sheets. Should future orders not materialize or it is determined the costs are no longer probable of recovery, the capitalized costs are written off. As of ~~September 28, 2019,~~June 27, 2020, the Company does not have material capitalized fulfillment costs.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account. ~~A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.~~ 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

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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 28, 2019,~~June 27, 2020, we had ~~$379.4~~$307.2 million of remaining performance obligations, which we refer to as total backlog. We expect to recognize approximately ~~$175.0~~$178.3 million of our remaining performance obligations as revenue in ~~2019. The Company has not recognized any material amount~~2020.

Table of ~~revenue from performance obligations that were satisfied or partially satisfied in previous periods.~~Contents

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 ~~classified as current liabilities,~~ reported in our Consolidated Condensed Balance Sheet, classified as current liabilities, within Customer Advance Payments and Deferred ~~Revenue.~~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 ~~$5.1~~$10.6 million and ~~$6.3~~$7.8 million during the three months ended ~~September 28, 2019~~ and ~~September 29, 2018, respectively, and $15.7~~$14.5 million and ~~$6.3~~$13.2 million for the ~~nine~~six months ended ~~September 28,~~June 27, 2020 and June 29, 2019, ~~and September 29, 2018,~~ respectively, in revenues that were included in the contract liability balance at the beginning of the period.

The Company's contract assets and contract liabilities consist primarily of costs and profits in excess of billings and billings in excess of cost and profits, respectively. The following table presents the beginning and ending balances of contract assets and contract liabilities during the ~~nine~~six months ended ~~September 28, 2019:~~June 27, 2020:

(In thousands) Contract Assets Contract Liabilities
Beginning Balance, January 1, 2019 $ 33,030 $ 27,347
Ending Balance, September 28, 2019 $ 25,952 $ 23,959


(In thousands)	Contract Assets		Contract Liabilities
Beginning Balance, January 1, 2020	$	19,567	$	38,758
Ending Balance, June 27, 2020	$	18,525	$	31,640

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


	Six Months Ended						Three Months Ended
(In thousands)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Aerospace Segment
Commercial Transport	$	170,323	$	271,509	$	67,548	$	129,731
Military	32,165		40,498		14,052		19,545
Business Jet	30,548		37,123		15,542		17,286
Other	10,607		13,658		5,431		7,725
Aerospace Total	243,643		362,788		102,573		174,287

Test Systems Segment
Semiconductor	2,822		5,596		1,188		2,242
Aerospace & Defense	34,813		28,888		19,933		12,569
Test Systems Total	37,635		34,484		21,121		14,811

Total	$	281,278	$	397,272	$	123,694	$	189,098

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

Nine Months Ended Three Months Ended
(In thousands) September 28, 2019 September 29, 2018 September 28, 2019 September 29, 2018
Aerospace Segment
Commercial Transport $ 393,721 $ 402,539 $ 122,212 $ 136,692
Military 57,753 46,410 17,255 16,125
Business Jet 49,555 30,291 12,432 9,289
Other 19,461 21,143 5,803 7,473
Aerospace Total 520,490 500,383 157,702 169,579
Test Systems Segment
Semiconductor 7,815 72,061 2,219 33,596
Aerospace & Defense 45,985 27,895 17,097 9,499
Test Systems Total 53,800 99,956 19,316 43,095
Total $ 574,290 $ 600,339 $ 177,018 $ 212,674

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


		Nine Months Ended						Three Months Ended							Six Months Ended				Three Months Ended
(In thousands)	(In thousands)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018		(In thousands)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Aerospace Segment	Aerospace Segment									Aerospace Segment
Electrical Power & Motion	Electrical Power & Motion	$	255,007	$	218,931	$	78,428	$	78,610	Electrical Power & Motion	$	116,019	$	176,579	$	46,563	$	84,042
Lighting & Safety	Lighting & Safety	139,502		129,244		44,127		43,481		Lighting & Safety	65,653		95,375		27,731		46,770
Avionics	Avionics	79,414		100,354		19,871		31,059		Avionics	41,277		59,543		19,134		25,682
Systems Certification	Systems Certification	9,050		12,028		3,384		2,373		Systems Certification	4,991		5,666		1,660		4,048
Structures	Structures	18,056		18,683		6,089		6,583		Structures	5,096		11,967		2,054		6,020
Other	Other	19,461		21,143		5,803		7,473		Other	10,607		13,658		5,431		7,725
Aerospace Total	Aerospace Total	520,490		500,383		157,702		169,579		Aerospace Total	243,643		362,788		102,573		174,287

Test Systems	Test Systems	53,800		99,956		19,316		43,095		Test Systems	37,635		34,484		21,121		14,811

Total	Total	$	574,290	$	600,339	$	177,018	$	212,674	Total	$	281,278	$	397,272	$	123,694	$	189,098

3) Inventories

Inventories consisted of the following:


(In thousands)	June 27, 2020		December 31, 2019
Finished Goods	$	29,662	$	33,434
Work in Progress	28,375		25,594
Raw Material	98,547		86,759
	$	156,584	$	145,787

The Company has evaluated the carrying value of existing inventories and believe they are ~~as follows:~~properly reflected at their lower of carrying value or net realizable value. Future changes in demand or other market developments could result in future inventory charges. The Company is actively managing inventories and aligning them to meet known current and future demand.

(In thousands)
September 28, 2019 December 31, 2018
Finished Goods $ 33,275 $ 33,100
Work in Progress 26,611 27,409
Raw Material 89,735 78,176
$ 149,621 $ 138,685

4) Property, Plant and Equipment

Property, Plant and Equipment consisted of the following:


(In thousands)	June 27, 2020		December 31, 2019
Land	$	9,802	$	9,802
Buildings and Improvements	74,892		74,723
Machinery and Equipment	118,311		115,202
Construction in Progress	5,547		5,453
	208,552		205,180
Less Accumulated Depreciation	99,171		92,681
	$	109,381	$	112,499

Additionally, net ~~Inventories~~Property, Plant and Equipment of ~~$14,385~~$1.5 million are classified in Assets Held for Sale at December 31, ~~2018.~~2019. Refer to Note 18.

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~~4) Property, Plant and Equipment~~

~~Property, Plant and Equipment are as follows:~~

(In thousands) September 28, 2019 December 31, 2018
Land $ 9,778 $ 11,191
Buildings and Improvements 73,988 83,812
Machinery and Equipment 114,190 106,327
Construction in Progress 5,676 6,404
203,632 207,734
Less Accumulated Depreciation 90,495 86,872
$ 113,137 $ 120,862

~~Additionally, net Property, Plant and Equipment of $3,186 and $3,521 are classified in Assets Held for Sale at September 28, 2019 and December 31, 2018, respectively. Refer to Note 18.~~

5) Intangible Assets

The following table summarizes acquired intangible assets as follows:

September 28, 2019 December 31, 2018
(In thousands)
Weighted
Average Life
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Patents 11 years $ 2,146 $ 1,782 $ 2,146 $ 1,716
Non-compete Agreement 4 years 10,900 6,925 10,900 4,680
Trade Names 10 years 11,419 5,983 11,454 5,182
Completed and Unpatented Technology 10 years 42,904 17,782 36,406 14,964
Customer Relationships 15 years 142,113 44,577 136,894 37,875
Total Intangible Assets 13 years $ 209,482 $ 77,049 $ 197,800 $ 64,417

~~Additionally, net Intangible Assets of $651 are classified in Assets Held for Sale at December 31, 2018. Refer to Note 18.~~


				June 27, 2020							December 31, 2019
(In thousands)	Weighted Average Life	Gross Carrying Amount			Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Patents	11 years	$	2,146		$	1,847	$	2,146	$	1,804
Non-compete Agreement	4 years	11,091			8,989		11,318		7,696
Trade Names	10 years	11,438			7,043		11,438		6,550
Completed and Unpatented Technology	9 years	48,200			23,450		48,201		21,196
Customer Relationships	15 years	142,439			55,337		142,212		50,776
Total Intangible Assets	12 years	$	215,314		$	96,666	$	215,315	$	88,022

All acquired intangible assets other than goodwill and one trade name are being amortized. Amortization expense for acquired intangibles is summarized as follows:


		Nine Months Ended						Three Months Ended							Six Months Ended				Three Months Ended
(In thousands)	(In thousands)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018		(In thousands)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Amortization Expense	Amortization Expense	$	12,746	$	15,144	$	4,394	$	4,276	Amortization Expense	$	8,642	$	8,352	$	4,377	$	4,128

Amortization expense for acquired intangible assets expected for ~~2019~~2020 and for each of the next five years is summarized as follows:


(In thousands)	(In thousands)			(In thousands)
2019		$	17,131
2020	2020	16,888		2020	$	17,207
2021	2021	14,978		2021	$	15,404
2022	2022	14,554		2022	$	14,973
2023	2023	13,386		2023	$	13,939
2024	2024	11,920		2024	$	12,917
2025				2025	$	10,996

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6) Goodwill

The following table summarizes the changes in the carrying amount of goodwill for the ~~nine~~six months ended ~~September~~June 27, 2020:


(In thousands)	December 31, 2019		Impairment Charges		Foreign Currency Translation		June 27, 2020
Aerospace	$	123,038	$	(86,312)	$	(218)	$	36,508
Test Systems	21,932		—		—		21,932
	$	144,970	$	(86,312)	$	(218)	$	58,440

Goodwill Impairment Testing

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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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, ~~2019:~~2020.

(In thousands) December 31, 2018 Acquisition/Divestiture/Adjustments
Foreign
Currency
Translation
September 28, 2019
Aerospace $ 124,952 $ (262) $ (225) $ 124,465
Test Systems — 9,129 — 9,129
$ 124,952 $ 8,867 $ (225) $ 133,594
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 $12.6 million and $86.3 million within the Impairment Loss line of the Consolidated Condensed Statements of Operations in the three and six months ended June 27, 2020, respectively.

The goodwill remaining in our PECO reporting unit after the impairments is $20.2 million. For the PECO reporting unit, the Company performed sensitivity analyses, utilizing reasonably possible changes in the assumption for the discount rate and revenue growth rates to demonstrate the potential impacts to the estimated fair value. In isolation, a 100 basis point increase to the discount rate or a 100 basis point decrease to the normalized revenue growth rate, would result in incremental impairment charges of $7.6 million or $3.5 million, respectively.

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.

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7) Long-term Debt and Notes Payable

The Company's ~~Fourth~~Fifth Amended and Restated Credit Agreement (the ~~“Original Facility”~~“Agreement”) provided for a ~~$350~~$500 million revolving credit line with the option to increase the line by up to $150 million. The maturity date of the Original Facility was January 13, 2021. On February 16, 2018, the Company modified and extended the Original Facility by entering into the Fifth Amended and Restated Credit Agreement (the “Agreement”), which provides for a $500 million revolving credit line with the option to increase the line by up to $150 million. A new lender was added to the facility as well. The outstanding balance of the Original Facility was rolled into the Agreement on the date of closing. The maturity date of the loans under the Agreement is February 16, 2023. At September 28, 2019, there was $180.0 million outstanding on the revolving credit facility and there remains $318.9 million available, net of outstanding letters of credit. The credit facility allocates up to $20 million of the $500 million revolving credit line for the issuance of letters of credit, including certain existing letters of credit. At September 28, 2019, outstanding letters of credit totaled $1.1 million.

The maximum permitted leverage ratio of funded debt, net of cash to Adjusted EBITDA (as defined in the Agreement) iswas 3.75 to 1, increasing to 4.50 to 1 for up to 4 fiscal quarters following the closing of an acquisition permitted under the Agreement, subject to limitations. The Company ~~is in compliance with its financial covenant at September 28, 2019. The Company will pay~~paid interest on the unpaid principal amount of the facility at a rate equal to one-, three- or six-month LIBOR plus between 1.00% and 1.50% based upon the Company’s leverage ratio. The Company ~~will~~ also ~~pay~~paid a commitment fee to the ~~Lenders~~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 June 27, 2020, there was $173.0 million outstanding on the revolving credit facility and there remained $200.5 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 June 27, 2020, outstanding letters of credit and bank guarantees totaled $1.5 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, and a minimum interest coverage ratio of 1.75x on a quarterly basis, except for the first quarter of 2021, which is set at 1.50x. The Company was in compliance with its financial covenants at June 27, 2020. During the suspension period, the Company will pay interest on the unpaid principal amount of the Amended Facility at a rate equal to one-, three- or six-month LIBOR (which shall be at least 1.00%) plus 2.25%. The Company will also pay a commitment fee to the lenders in an amount equal to 0.35% on the undrawn portion of the Amended Facility. After the suspension period, the Company will pay interest on the unpaid principal amount of the Amended Facility at a rate equal to one-, three- or six-month LIBOR (which shall be at least 1.00%) plus between 1.00% to 2.25% based upon the Company’s leverage ratio. The Company will also pay a commitment fee to the lenders in an amount equal to 0.10% to 0.35% on the undrawn portion of the Amended Facility, based upon the Company’s leverage ratio. The Amended Facility provides for the payment of a consent fee of 15 basis points of the commitment for each consenting lender.

The Amended Facility also temporarily restricts certain activities, including acquisitions and share repurchases, and requires mandatory prepayments during the suspension period when the Company’s cash balance exceeds $100 million. During the three months ended June 27, 2020, subsequent to the execution of the Amended Facility, the Company made prepayments approximating $160 million.

The Company’s obligations under the ~~Credit Agreement as amended~~Amended Facility are jointly and severally guaranteed by each domestic subsidiary of the Company other than a non-material ~~subsidiary.~~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 ~~Credit Agreement~~Amended Facility automatically become due and payable. Other events of default, such as failure to make payments as they become due and breach of financial and other covenants, change of control, judgments over a certain amount, and cross default under other agreements give the ~~Agent~~agent 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 Ended						Three Months Ended							Six Months Ended				Three Months Ended
(In thousands)	(In thousands)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018		(In thousands)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Balance at Beginning of Period	Balance at Beginning of Period	$	5,027	$	5,136	$	4,806	$	5,180	Balance at Beginning of Period	$	7,660	$	5,027	$	7,122	$	4,829
Warranties Divested or Acquired	Warranties Divested or Acquired	(103)		—		20		—		Warranties Divested or Acquired	—		(123)		—		—
Warranties Issued	Warranties Issued	2,014		2,102		769		801		Warranties Issued	1,523		1,245		646		716
Warranties Settled	Warranties Settled	(1,850)		(2,219)		(670)		(934)		Warranties Settled	(1,308)		(1,180)		(617)		(592)
Reassessed Warranty Exposure	Reassessed Warranty Exposure	138		(77)		301		(105)		Reassessed Warranty Exposure	(910)		(163)		(186)		(147)
Balance at End of Period	Balance at End of Period	$	5,226	$	4,942	$	5,226	$	4,942	Balance at End of Period	$	6,965	$	4,806	$	6,965	$	4,806

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9) Leases

The Company has operating and finance leases for leased office and manufacturing facilities and equipment leases. ~~At inception of arrangements with vendors,~~We have concluded that when an agreement grants us the Company determines whether the contract is or contains a lease based on each party’s rights and obligations under the arrangement. At inception, any new additional operating lease liabilities and corresponding ROU assets are based on the present valueright to substantially all of the ~~remaining minimum rental payments. If~~economic benefits associated with an identified asset, and we are able to direct the ~~lease arrangement also contains non-lease components,~~use of that asset throughout the Company elected the practical expedient not to separate any combined lease and non-lease components for all lease contracts. For our real estate leases, the remaining fixed minimum rental payments used in the calculationterm of the ~~new~~agreement, we have a lease. We lease ~~liability,~~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 ~~fixed payments and variable payments (if the variable payments are based on an index), over the remaining lease term. While we do have real estate leases with~~ options to ~~purchase~~extend or terminate the ~~facility at a market value at the date of exercise,~~leases and these ~~are not~~options have been included in the ~~calculation of~~relevant lease term to the ~~lease liability, as these options~~extent that they are ~~not expected~~reasonably certain to be ~~exercised as of the January 1, 2019 transition date.~~

The present value of the Company’s lease liability at transition was calculated using a weighted-average incremental borrowing rate of 3.7%. In determining the incremental borrowing rate, we have considered borrowing data for secured debt obtained from our lending institution as of the transition date. As of September 28, 2019, the Company recognized an operating right-of-use asset and lease liability of approximately $25.1 million and $25.4 million, respectively. The Company's operating lease liability increased approximately $4.1 million and $9.7 million as a result of acquiring right-of-use-assets from new leases entered into during the three and nine months ended September 28, 2019. As of September 28, 2019, the Company recognized a financing right-of-use asset and lease liability of approximately $2.7 million and $5.2 million, respectively. No new financing lease liabilities were entered into during the three and nine months ended September 28, 2019. The right-of-use asset is included within Other assets in the Consolidated Condensed Balance Sheets, while the lease liability is included within Other current liabilities and Other liabilities, as appropriate.

As permitted by ASC 842, leases with expected durations of less than 12 months from inception (i.e. short-term leases) were excluded from the Company’s calculation of its lease liability and right-of-use asset. Furthermore, as permitted by ASC 842, the Company elected to apply the package of practical expedients, which allows companies not to reassess: (a) whether its expired or existing contracts are or contain leases, (b) the lease classification for any expired or existing leases, and (c) initial direct costs for any existing leases.

~~The following is a summary of the Company's total lease costs:~~

Nine months ended Three months ended
(In thousands) September 28, 2019 September 28, 2019
Finance Lease Cost:
Amortization of Right-of-use Assets $ 765 $ 255
Interest on Lease Liabilities 243 76
Total Finance Lease Cost 1,008 331
Operating Lease Cost 3,622 1,216
Variable Lease Cost 958 279
Short-term Lease Cost (excluding month-to-month) 118 33
Less Sublease and Rental (Income) Expense (301) 216
Total Operating Lease Cost $ 4,397 $ 1,744
Total Net Lease Cost $ 5,405 $ 2,075

~~The following is a summary of cash paid for amounts included in the measurement of lease liabilities:~~


	~~Nine months ended~~
~~(In thousands)~~	~~September 28, 2019~~
~~Operating Cash Flows Used for Finance Leases~~	$	~~1,008~~
~~Operating Cash Flows Used for Operating Leases~~	$	~~2,767~~
~~Financing Cash Flows Used for Finance Leases~~	$	~~1,284~~

exercised.

The weighted-average remaining term for the Company's operating and financing leases are approximately 87 years and 32 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)	June 27, 2020		December 31, 2019
Operating Leases:
Operating Right-of-Use Assets, Gross	$	29,784	$	28,788
Less Accumulated Right-of-Use Asset Impairment	1,710		1,019
Less Accumulated Amortization	6,292		4,167
Operating Right-of-Use Assets, Net	$	21,782	$	23,602
Short-term Operating Lease Liabilities	$	4,818	$	4,517
Long-term Operating Lease Liabilities	19,749		21,039
Operating Lease Liabilities	$	24,567	$	25,556

Finance Leases:
Finance Right-of-Use Assets, Gross	$	3,484	$	3,484
Less Accumulated Amortization	1,529		1,020
Finance Right-of-Use Assets, Net — Included in Other Assets	$	1,955	$	2,464
Short-term Finance Lease Liabilities — Included in Accrued Expenses and Other Current Liabilities	$	2,001	$	1,922
Long-term Finance Lease Liabilities — Included in Other Liabilities	1,798		2,815
Finance Lease Liabilities	$	3,799	$	4,737

1619

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The following is a summary of the Company's total lease costs:


	Six Months Ended						Three Months Ended
(In thousands)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Finance Lease Cost:
Amortization of Right-of-Use Assets	$	510	$	510	$	255	$	255
Interest on Lease Liabilities	120		167		57		81
Total Finance Lease Cost	630		677		312		336
Operating Lease Cost	2,643		2,406		1,195		1,201
Right-of-Use Asset Impairment	691		—		—		—
Variable Lease Cost	633		679		361		309
Short-term Lease Cost (excluding month-to-month)	114		85		47		38
Less Sublease and Rental (Income) Expense	(737)		(517)		(406)		(305)
Total Operating Lease Cost	3,344		2,653		1,197		1,243
Total Net Lease Cost	$	3,974	$	3,330	$	1,509	$	1,579

The following is a summary of the Company's maturity of lease liabilities:


(In thousands)	(In thousands)	Operating Leases		Financing Leases		(In thousands)	Operating Leases		Finance Leases
2019		$	1,192	$	522
2020	2020	4,142		2,128		2020	$	2,690	$	1,073
2021	2021	4,121		2,181		2021	5,579		2,181
2022	2022	3,904		743		2022	5,427		743
2023	2023	3,677		—		2023	4,060		—
2024						2024	2,995		—
Thereafter	Thereafter	11,981		—		Thereafter	6,293		—
Total Lease Payments	Total Lease Payments	$	29,017	$	5,574	Total Lease Payments	27,044		3,997
Less: Interest	Less: Interest	3,624		380		Less: Interest	2,477		198
Total Lease Liability	Total Lease Liability	$	25,393	$	5,194	Total Lease Liability	$	24,567	$	3,799

10) Income Taxes

The effective tax rates were approximately ~~22.9%~~3.4% and ~~6.5%~~22.7% for the ~~nine~~six months ended and ~~31.3%~~3.6% and ~~(9.1)%~~23.8% for the three months ended ~~September 28,~~June 27, 2020 and June 29, 2019, ~~and September 29, 2018,~~ respectively. The ~~2019~~2020 tax rate was ~~unfavorably~~ impacted by ~~state~~permanently non-deductible goodwill impairments totaling $60.8 million and a Federal valuation allowance recorded during the six months ended June 27, 2020 of approximately $7.5 million.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the economic uncertainty resulting from the COVID-19 pandemic. The CARES Act includes many measures to assist companies, including temporary changes to income ~~taxes,~~and non-income based laws, some of which ~~was partially~~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 2018, 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 six months ended June 27, 2020, the Company recorded a $0.5 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.

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

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in 2021 and beyond, the Company must rely on future taxable income in 2021 and beyond for purposes of asserting that the Company’s remaining 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 significant uncertainty brought about by the ~~federal research and development~~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 ~~credit.~~assets are realizable on a more-likely-than-not basis. Accordingly, during the six months ended June 27, 2020, the Company determined that a portion of its deferred tax assets are not expected to be realizable in the future. As a result, the Company recorded a partial valuation allowance of approximately $7.5 million during the six months ended June 27, 2020 against its U.S. Federal deferred tax assets.

11) Earnings Per Share

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


		Nine Months Ended			Three Months Ended				Six Months Ended		Three Months Ended
(In thousands)	(In thousands)	September 28, 2019	September 29, 2018	September 28, 2019	September 29, 2018	(In thousands)	June 27, 2020	June 29, 2019	June 27, 2020	June 29, 2019
Weighted Average Shares - Basic	Weighted Average Shares - Basic	32,427	32,304	31,964	32,317	Weighted Average Shares - Basic	30,784	32,640	30,756	32,665
Net Effect of Dilutive Stock Options	Net Effect of Dilutive Stock Options	575	731	619	652	Net Effect of Dilutive Stock Options	—	553	—	510
Weighted Average Shares - Diluted	Weighted Average Shares - Diluted	33,002	33,035	32,583	32,969	Weighted Average Shares - Diluted	30,784	33,193	30,756	33,175

Stock options with exercise prices greater than the average market price of the underlying common shares are excluded from the computation of diluted earnings per share because they are out-of-the-money and the effect of their inclusion would be anti-dilutive. The number of common shares covered by out-of-the-money stock options was approximately ~~279,000~~872,000 shares as of ~~September 28, 2019~~June 27, 2020 and ~~19,000~~18,000 shares as of ~~September~~June 29, ~~2018.~~2019. Further, due to our net loss in the six month period ended June 27, 2020, the assumed exercise of stock compensation had an antidilutive effect and therefore was excluded from the computation of diluted loss per share.

12) Shareholders' Equity

Share Buyback Program

~~On February 24, 2016, the~~The Company’s Board of Directors ~~authorized~~from time to time authorizes the repurchase of ~~up to $50 million of~~ common stock, ~~(the “Buyback Program”). The Buyback Program allowed~~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. The Company has repurchased approximately 1,675,000 shares and has completed that program. On December 12, 2017, the Company’s Board of Directors authorized an additional repurchase of up to $50 million. The Company has repurchased approximately 1,823,000 shares and has completed that program in the third quarter of 2019. OnMost recently, on September 17, 2019, the Company’s Board of Directors authorized ~~an additional~~a repurchase of up to $50 million. ~~NaN amounts have been~~Approximately 282,000 shares were repurchased ~~under~~in the ~~new~~first quarter of 2020 at a cost of $7.7 million before the 10b5-1 plan associated with the share repurchase program ~~as of September 28, 2019.~~

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was terminated on February 3, 2020.

Comprehensive (Loss) Income ~~(Loss)~~ and Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows:


(In thousands)	(In thousands)	September 28, 2019		December 31, 2018		(In thousands)	June 27, 2020		December 31, 2019
Foreign Currency Translation Adjustments	Foreign Currency Translation Adjustments	$	(7,878)	$	(7,156)	Foreign Currency Translation Adjustments	$	(8,536)	$	(7,042)
Retirement Liability Adjustment – Before Tax	Retirement Liability Adjustment – Before Tax	(7,256)		(7,814)		Retirement Liability Adjustment – Before Tax	(10,323)		(10,868)
Tax Benefit of Retirement Liability Adjustment	Tax Benefit of Retirement Liability Adjustment	1,524		1,641		Tax Benefit of Retirement Liability Adjustment	2,167		2,282
Retirement Liability Adjustment – After Tax	Retirement Liability Adjustment – After Tax	(5,732)		(6,173)		Retirement Liability Adjustment – After Tax	(8,156)		(8,586)
Accumulated Other Comprehensive Loss	Accumulated Other Comprehensive Loss	$	(13,610)	$	(13,329)	Accumulated Other Comprehensive Loss	$	(16,692)	$	(15,628)

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


		Nine Months Ended						Three Months Ended							Six Months Ended				Three Months Ended
(In thousands)	(In thousands)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018		(In thousands)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Foreign Currency Translation Adjustments	Foreign Currency Translation Adjustments	$	(722)	$	(1,346)	$	(1,336)	$	226	Foreign Currency Translation Adjustments	$	(1,494)	$	614	$	810	$	884
Retirement Liability Adjustments:	Retirement Liability Adjustments:									Retirement Liability Adjustments:
Reclassifications to General and Administrative Expense:	Reclassifications to General and Administrative Expense:									Reclassifications to General and Administrative Expense:
Amortization of Prior Service Cost	Amortization of Prior Service Cost	302		303		101		101		Amortization of Prior Service Cost	201		201		100		100
Amortization of Net Actuarial Losses	Amortization of Net Actuarial Losses	256		515		85		172		Amortization of Net Actuarial Losses	344		171		173		86
Tax Benefit	Tax Benefit	(117)		(172)		(39)		(57)		Tax Benefit	(115)		(78)		(58)		(42)
Retirement Liability Adjustment	Retirement Liability Adjustment	441		646		147		216		Retirement Liability Adjustment	430		294		215		144
Other Comprehensive Income (Loss)		$	(281)	$	(700)	$	(1,189)	$	442
Other Comprehensive (Loss) Income										Other Comprehensive (Loss) Income	$	(1,064)	$	908	$	1,025	$	1,028

13) Supplemental Retirement Plan and Related Post Retirement Benefits

The Company has 2 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 Ended						Three Months Ended							Six Months Ended				Three Months Ended
(In thousands)	(In thousands)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018		(In thousands)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Service Cost	Service Cost	$	136	$	150	$	45	$	50	Service Cost	$	111	$	91	$	56	$	46
Interest Cost	Interest Cost	687		675		229		225		Interest Cost	418		458		209		229
Amortization of Prior Service Cost	Amortization of Prior Service Cost	290		291		97		97		Amortization of Prior Service Cost	193		193		96		96
Amortization of Net Actuarial Losses	Amortization of Net Actuarial Losses	224		471		74		157		Amortization of Net Actuarial Losses	324		150		162		75
Net Periodic Cost	Net Periodic Cost	$	1,337	$	1,587	$	445	$	529	Net Periodic Cost	$	1,046	$	892	$	523	$	446

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 Ended						Three Months Ended							Six Months Ended				Three Months Ended
(In thousands)	(In thousands)	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018		(In thousands)	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Service Cost	Service Cost	$	10	$	12	$	3	$	4	Service Cost	$	7	$	7	$	3	$	4
Interest Cost	Interest Cost	35		34		12		11		Interest Cost	17		23		8		11
Amortization of Prior Service Cost	Amortization of Prior Service Cost	12		12		4		4		Amortization of Prior Service Cost	8		8		4		4
Amortization of Net Actuarial Losses	Amortization of Net Actuarial Losses	32		44		11		15		Amortization of Net Actuarial Losses	20		21		11		11
Net Periodic Cost	Net Periodic Cost	$	89	$	102	$	30	$	34	Net Periodic Cost	$	52	$	59	$	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.

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14) Sales to Major Customers

The Company has a significant concentration of business with 2 major customers, each 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 2two customers represented 14% and ~~13%~~9% of consolidated sales for the ~~nine~~six months ended and ~~14%~~11% and ~~12%~~8% for the three months ended ~~September 28, 2019.~~June 27, 2020. Sales to these customers were primarily in the Aerospace segment. Accounts receivable from these customers at ~~September 28, 2019~~June 27, 2020 was approximately ~~$39.7~~$19.6 million. Sales to these 2 customers represented ~~15%~~13% and ~~15%~~14% of consolidated sales for the ~~nine~~six months ended and 14% and 13% for the three months ended ~~September~~June 29, ~~2018.~~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 ~~asserts~~asserted that ~~our~~a 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. Lufthansa sought an 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 related to direct sales of the allegedly infringing power supply system in Germany (referred to as “direct sales”). The claim ~~does~~did not specify an estimate of damages and a related damages claim is being pursued by Lufthansa in separate court proceedings in an action filed in July 2017, as further discussed below.

In February 2015, the Regional State Court of Mannheim, Germany rendered its decision that the patent was infringed. The judgment ~~does~~did not require AES to recall products that are already installed in aircraft or ~~have~~had 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.

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 submitted a petition to grant AES leave for appeal to the German Federal Supreme Court. On April 18, 2018, the German Federal Supreme Court granted Astronics’ petition in part, namely with respect to the part concerning the amount 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 in the Regional State Court of Mannheim for payment of damages caused by the ~~alleged~~court’s decision that AES infringed the patent, ~~infringement of AES,~~specifically related to direct sales of the ~~allegedly infringing~~ product ininto Germany (associated with the original December 2010 action discussed above). In this action, which was served onto AES on April 11, 2018, Lufthansa ~~claims~~claimed payment of approximately $6.2 million plus interest. ~~According to AES's assessment, this claim is significantly higher than justified. However, based on the results of the~~An oral hearing was held on September 13,2019, we estimate AES’s potential exposure to be approximately $2.7 million to $6.3 million (including interest). We recorded an incremental reserve of $1.7 million in the three and nine month periods ended September 28, 2019, for a total reserve of $2.7 million associated with this matter.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. Payment of the first instance judgment was made during the three months ended June 27, 2020 of approximately $4.7 million, inclusive of interest. AES has appealed this decision and the appeal is ~~expected~~currently pending before the Higher Regional Court of Karlsruhe. If the first instance judgment is later reversed on ~~November 22, 2019.~~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 ~~seeks an injunction,~~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 ~~will vigorously defend against~~to confirm by an affidavit that the ~~action.~~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 and such amount is not quantifiable at~~Lufthansa.

An oral hearing in this ~~time.~~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 ~~is expected~~was handed down on ~~November 22,~~December 6, 2019. ~~As loss exposure is neither probable nor estimable at this time, the Company has not recorded any liability with respect~~According to this ~~litigation~~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 ~~September 28, 2019.~~

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 requesting an additional finding that AES shall be held liable for all damages that Lufthansa incurred due to an alleged incorrect

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accounting of its past sales. No amount was quantified in Lufthansa's additional motion. The appeal is not likely to be settled in 2020.

If the decision 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 Lufthansa. Inclusive of accrued interest, the reserve for the indirect claim is approximately $16.4 million at June 27, 2020.

Based upon the determination of the damages in the direct sales claim discussed above, in the June 27, 2020 consolidated financial statements, we have reflected a total accrual (inclusive of interest through June 27, 2020) of $16.4 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. Interest accrued for the six months ended June 27, 2020 was approximately $0.3 million 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 before July 3, 2021. Therefore the liability related to this matter, totaling $16.4 million, is classified within Other Liabilities (non-current) in the Consolidated Balance Sheet at June 27, 2020.

In December 2017, Lufthansa filed patent infringement cases in the United Kingdom (“UK”) and in France against AES. The ~~Lufhansa~~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 ~~U.K.~~French matter, there will be a hearing on the validity of the patent on October 8, 2020. In the UK matter, a trial ~~has been scheduled for February~~took place in June 2020 to address the issues of infringement and ~~validity.~~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. 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 commenced. Additionally, AES intends to seek permission to appeal the first instance UK findings. 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 June 27, 2020.

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 will be entitled to reimbursement from AES of a proportion of its legal expenditures in the UK case. An interim reimbursement to Lufthansa will likely be payable in August 2020. Accordingly, we have recorded a liability of approximately $1.5 million in our consolidated balance sheet, within Accrued Expenses and Other Current Liabilities, as of June 27, 2020. The associated expense has been recorded in the Consolidated Condensed Statement of Operations in the three- and six-month periods ended June 27, 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 ~~neither probable nor~~not estimable at this time, ~~in either of these proceedings,~~ the Company has not recorded any liability with respect to ~~these~~either of the matters as of ~~September 28, 2019.~~June 27, 2020, except for the legal fee reimbursement in the UK case discussed above.

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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 did not file a petition for en banc rehearing or petition the U.S. Supreme Court for a writ of certiorari. Therefore, there is no longer a risk of exposure from that lawsuit.

16) Segment Information

Below are the sales and operating profit by segment for the three and ~~nine~~six months ended ~~September 28,~~June 27, 2020 and June 29, 2019 ~~and September 29, 2018~~ 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 Ended									Three Months Ended										Six Months Ended						Three Months Ended
(In thousands)	(In thousands)	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018			(In thousands)	June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
Sales	Sales													Sales
Aerospace	Aerospace	$	520,495		$	500,445		$	157,702		$	169,588		Aerospace	$	243,734		$	362,793		$	102,597		$	174,292
Less Intersegment Sales	Less Intersegment Sales	(5)			(62)			—			(9)			Less Intersegment Sales	(91)			(5)			(24)			(5)
Total Aerospace Sales	Total Aerospace Sales	520,490			500,383			157,702			169,579			Total Aerospace Sales	243,643			362,788			102,573			174,287
Test Systems	Test Systems	53,995			99,956			19,346			43,095			Test Systems	37,985			34,649			21,432			14,925
Less Intersegment Sales	Less Intersegment Sales	(195)			—			(30)			—			Less Intersegment Sales	(350)			(165)			(311)			(114)
Total Test Systems Sales	Total Test Systems Sales	53,800			99,956			19,316			43,095			Total Test Systems Sales	37,635			34,484			21,121			14,811
Total Consolidated Sales	Total Consolidated Sales	$	574,290		$	600,339		$	177,018		$	212,674		Total Consolidated Sales	$	281,278		$	397,272		$	123,694		$	189,098
Operating Profit and Margins
Segment Measure of Operating (Loss) Profit and Margins														Segment Measure of Operating (Loss) Profit and Margins
Aerospace	Aerospace	$	48,949		$	47,525		$	8,789		$	16,210		Aerospace	$	(80,235)		$	40,160		$	(17,090)		$	14,392
		9.4		%	9.5		%	5.6		%	9.6		%		(32.9)		%	11.1		%	(16.7)		%	8.3		%
Test Systems	Test Systems	4,166			10,151			2,075			5,833			Test Systems	3,334			2,091			2,612			(94)
		7.7		%	10.2		%	10.7		%	13.5		%		8.9		%	6.1		%	12.4		%	(0.6)		%
Total Operating Profit		53,115			57,676			10,864			22,043
Total Segment Measure of Operating (Loss) Profit														Total Segment Measure of Operating (Loss) Profit	(76,901)			42,251			(14,478)			14,298
		9.2		%	9.6		%	6.1		%	10.4		%		(27.3)		%	10.6		%	(11.7)		%	7.6		%
Additions/Deductions from Operating Profit
Net (Gain) Loss on Sale of Businesses		(78,801)			—			1,332			—
Additions/Deductions from Segment Measure of Operating (Loss) Profit														Additions/Deductions from Segment Measure of Operating (Loss) Profit
Gain on Sale of Business														Gain on Sale of Business	—			80,133			—			—
Interest Expense, Net of Interest Income	Interest Expense, Net of Interest Income	4,576			7,326			1,547			2,511			Interest Expense, Net of Interest Income	3,316			3,029			1,983			1,225
Corporate Expenses and Other	Corporate Expenses and Other	15,755			13,662			6,225			3,952			Corporate Expenses and Other	13,511			9,530			7,990			4,243
Income Before Income Taxes		$	111,585		$	36,688		$	1,760		$	15,580
(Loss) Income Before Income Taxes														(Loss) Income Before Income Taxes	$	(93,728)		$	109,825		$	(24,451)		$	8,830

Total Assets:


(In thousands)	June 27, 2020		December 31, 2019
Aerospace	$	501,536	$	629,371
Test Systems	104,392		110,994
Corporate	52,598		42,351
Total Assets	$	658,526	$	782,716

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~~Total Assets:~~

(In thousands) September 28, 2019 December 31, 2018
Aerospace $ 657,169 $ 647,870
Test Systems 88,662 97,056
Corporate 32,137 29,714
Total Assets $ 777,968 $ 774,640

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.

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 terms of the Diagnosys acquisition allow for a potential earn-out of up to an additional $13.0 million over the three years post-acquisition based on achievement of new order levels of over $72.0 million during that period. The fair value assigned to the earn-out is determined using the real options method, which requires Level 3 inputs such as new order forecasts, discount rate, volatility factors, and other market variables to assess the probability of Diagnosys achieving certain order levels over the period.

Of the severance charges recorded, $2.1 million and $2.4 million in the three and six months ended June 27, 2020, respectively, qualify as one-time termination benefit arrangements and were initially measured at fair value using level 3 inputs.

There were 0no other financial assets or liabilities carried at fair value measured on a recurring basis at December 31, ~~2018~~2019 or ~~September 28, 2019.~~June 27, 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 estimate~~inputs underlying the ~~fair value of reporting units utilizing unobservable inputs. The~~ fair value measurement of the reporting unit under the step-one analysis of the quantitative goodwill impairment test are classified as Level 3 inputs.

~~Intangible~~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 $12.6 million and $86.3 million within the Impairment Loss line in the Consolidated Condensed Statement of Operations in the three and six months ended June 27, 2020, respectively. 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.

Long-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. ~~For~~In conjunction with the ~~Company’s indefinite-lived intangible asset,~~deteriorating economic conditions associated with the COVID-19 pandemic, we recorded an impairment ~~test consists~~charge to ROU assets of ~~comparing~~approximately $0.7 million incurred in the ~~fair value, determined using~~Aerospace segment within the ~~relief from royalty method, with its carrying amount. An~~Impairment Loss line in the Consolidated Condensed Statement of Operations in the six months ended June 27, 2020.

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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 recognized~~charge 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~~three and six months ended June 27, 2020. This is a level 3 measurement as there were no observable price changes during the year.

The Freedom and Diagnosys intangible assets were valued using a discounted cash flow methodology, as of ~~its fair value.~~their respective acquisitions dates, and are classified as 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 of September 28, 2019, the Company concluded that no indicators of impairment relating to intangible assets or goodwill existed and an interim test was not performed.~~

18) Acquisition and Divestiture Activities

~~Acquisition~~Acquisitions

Diagnosys Inc. and its affiliates

On October 4, 2019, the Company acquired the stock of the primary operating subsidiaries as well as certain other assets from mass transit and defense market test solution provider, Diagnosys Test Systems Limited for $7.0 million in cash, plus an earn-out estimated at a fair value of $2.5 million. 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. 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 purchase price allocation for this acquisition has not yet been finalized. Purchased intangible assets and goodwill are not expected to be 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 ~~FCT. FCT,~~Freedom. Freedom, located in Kilgore, Texas, is a leader in wireless communication testing, primarily for the civil land mobile radio market. ~~FCT~~Freedom is included in our Test

~~Table of Contents~~

Systems segment. 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 ~~not yet~~ been finalized. Purchased intangible assets and goodwill are not ~~expected to be~~ deductible for tax ~~purpose.~~purposes. This transaction was not considered material to the Company’s financial position or results of operations.

Divestitures

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, represented less than 1% of 2018 revenue. The Company recorded a pre-tax loss on the sale of approximately $1.3 million. This amount is reported in the Consolidated Condensed Statement of Operations in Net (Gain) Loss on Sale of Businesses in the three and nine month periods ended September 28, 2019.

As of September 28, 2019, the Company has agreed to sell certain facilities within the Aerospace segment. Accordingly, the property, plant and equipment assets associated with these facilities of $3.2 million have been classified as held for sale in the consolidated Balance Sheet at September 28, 2019.

~~As of December 31, 2018, the Company’s Board of Directors had approved a plan to sell the semiconductor test business within the~~Semiconductor Test Systems segment. Accordingly, the assets and liabilities associated with these operations had been classified as held for sale in the consolidated Balance Sheet at December 31, 2018. The carrying value of the disposal group was lower than its fair value, less costs to sell, and accordingly, 0 impairment loss was required at December 31, 2018.

~~The following is a summary of the assets and liabilities held for sale as of December 31, 2018:~~


~~(In thousands)~~	~~December 31, 2018~~
~~Assets Held for Sale~~
~~Inventories~~	$	~~14,385~~
~~Prepaid Expenses and Other Current Assets~~	87
~~Net Property, Plant and Equipment~~	~~3,521~~
~~Other Assets~~	~~714~~
~~Intangible Assets, Net of Accumulated Amortization~~	~~651~~
~~Total Assets Held for Sale~~	$	~~19,358~~

~~Liabilities Held for Sale~~
~~Deferred Income Taxes~~	$	~~906~~

Business

On February 13, 2019, the Company completed a divestiture of its semiconductor business within the ~~divestiture.~~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 ~~is expected to be $21.3~~was $19.7 million.

The transaction also included ~~two~~2 elements of contingent earnouts. The ~~“First Earnout”~~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”~~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 paid 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.

~~19) Subsequent Events~~

~~On October 4, 2019,~~ No amounts were payable to the Company ~~acquired~~under the ~~stock of~~First Earnout for the primary operating subsidiaries as well as certain other assets from mass transit and defense market test solution provider, Diagnosys for $7.0 million in cash. 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.

year ending December 31, 2019.

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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 ~~terms~~Airfield Lighting product line, part of the ~~acquisition allow for~~Aerospace segment, was not core to the business and represented less than 1% of revenue. The Company recorded a ~~potential earn-out~~pre-tax loss on the sale of ~~up to an additional $13.0 million over the next three years based on achievement of new order levels of over $72.0~~approximately $1.3 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. The Company expects to complete a preliminary allocation during the ~~fourth~~third quarter of 2019. ~~The~~

Other Disposal Activity

As of December 31, 2019, the Company ~~is currently evaluating whether any~~had agreed to sell certain facilities within the Aerospace segment. Accordingly, the property, plant and equipment assets associated with these facilities of ~~the goodwill and purchased intangible assets will be deductible~~$1.5 million was classified as held for ~~tax purposes.~~

~~AeroSat has incurred delays and losses related to certain projects~~sale in the ~~period ended September 28,~~Consolidated Condensed Balance Sheet at December 31, 2019. ~~In our third-quarter earnings release on November 5, 2019, we announced initiatives that~~The sale was completed in the ~~Company is undertaking commencing in~~first quarter of 2020.

19) Restructuring Charges

In the fourth quarter of 2019, in an effort to reduce the significant operating losses ~~and minimize costs~~ at our AeroSat ~~reporting unit, which is a component of our Aerospace segment. As part of these initiatives,~~business, we ~~are evaluating if we should continue with some of those projects. We expect to formulate~~initiated a restructuring plan ~~out~~to reduce costs and minimize losses of ~~these~~our AeroSat antenna business. The plan narrows the initiatives ~~which will result~~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 ~~which may include severance, relocation costs, inventory writedowns, long-lived asset impairment charges, contract cancellation charges and other expenses. The amount and timing~~were recorded in 2019 as a result of ~~these charges will not be determinable until~~ the restructuring ~~plan has been determined, but it is possible they will be material.~~plan.

The ~~CCC reporting unit,~~Company incurred $0.1 million and $0.4 million in additional restructuring charges associated with severance at AeroSat during the three and six months ended June 27, 2020.

In the second quarter of 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 ~~component~~result, the Company executed restructuring activities in the form of ~~our~~workforce reduction to align capacity with expected demand. Additional restructuring charges of $4.8 million and $5.0 million in severance expense associated primarily with the Aerospace segment ~~has also incurred delays and losses related to a significant development project~~was recorded in the ~~period~~three and six months ended ~~September 28, 2019. Contract completion~~June 27, 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 six months ended June 27, 2020
(In thousands)	Accrual as of December 31, 2019		Cost of Products Sold		Selling, General and Administrative		Cash Paid		Accrual as of June 27, 2020
Accrued Expenses and Other Current Liabilities	$	613	$	280	$	5,129	$	(1,236)	$	4,786
Other Liabilities	4,577		—		—		—		4,577
	$	5,190	$	280	$	5,129	$	(1,236)	$	9,363

The charge to Accrued Expenses and Other Current Liabilities is comprised of employee termination benefits expected to ~~occur~~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 ~~fourth quarter. If there are further delays, it~~future which is ~~possible that additional losses may~~not expected to be ~~incurred in future periods.~~

Aspurchased prior to the expiration date of ~~September 28, 2019,~~such agreements as a result of the AeroSat and CCC reporting units had goodwill of $1.6 million and $2.3 million, respectively, and intangible and long-lived assets totaling $8.9 million and $4.9 million, respectively. The percentage by which the AeroSat and CCC reporting units’ fair values exceeded their carrying values in the last annual goodwill impairment test (as of September 30, 2018) was 35% and 43%, respectively. Based on the Company’s evaluation, no significant events occurred or circumstances changed during the period ended September 28, 2019 that would suggest it is more likely than not that the fair values of these reporting unit have declined below their carrying values or that there were indicators of impairment for our long-lived assets in these reporting units, however, as we formulate our restructuring plan and reassess the long-range prospects for these businesses, factors could arise that result in a decline in the fair value of these reporting units and the indicators of impairment and the Company may be required to perform the applicable impairment tests and record impairment charges.

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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, ~~2018.~~2019.)

OVERVIEW

Astronics Corporation (“Astronics” or the “Company”) is a leading supplier of advanced technologies and products to the global aerospace and defense industries. Our products and services include advanced, high-performance electrical power generation and distribution systems, seat motion 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 ~~distribution~~motions systems, ~~seat motion solutions,~~ aircraft structures, avionics products, systems certification, ~~connectivity~~ and other products. Our Aerospace customers are the airframe manufacturers (“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 aerospace and defense, communications and ~~weapons~~mass 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 our 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 business is dependent on developing and procuring new and follow-on 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 and Divestitures

On February 13, 2019, the Company completed a divestiture 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 ~~is expected to be $21.3~~was $19.7 million.

On July 1, 2019, the Company acquired all of the issued and outstanding capital stock of Freedom Communication Technologies, Inc. (“~~FCT”~~Freedom”). ~~FCT,~~Freedom, located in Kilgore, Texas, is a leader in wireless communication testing, primarily for the civil land mobile radio market. ~~FCT~~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 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.~~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 ~~next~~ 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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CONSOLIDATED RESULTS OF OPERATIONS AND OUTLOOK


		Nine Months Ended									Three Months Ended										Six Months Ended						Three Months Ended
(Dollars in thousands)		September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
($ in thousands)														($ in thousands)	June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
Sales	Sales	$	574,290		$	600,339		$	177,018		$	212,674		Sales	$	281,278		$	397,272		$	123,694		$	189,098
Gross Profit (sales less cost of products sold)	Gross Profit (sales less cost of products sold)	$	129,234		$	133,024		$	36,794		$	46,320		Gross Profit (sales less cost of products sold)	$	62,552		$	92,440		$	26,833		$	40,363
Gross Margin	Gross Margin	22.5		%	22.2		%	20.8		%	21.8		%	Gross Margin	22.2		%	23.3		%	21.7		%	21.3		%
Selling, General and Administrative Expenses	Selling, General and Administrative Expenses	$	90,677		$	87,919		$	31,691		$	27,976		Selling, General and Administrative Expenses	$	61,771		$	58,986		$	32,904		$	29,790
SG&A Expenses as a Percentage of Sales	SG&A Expenses as a Percentage of Sales	15.8		%	14.6		%	17.9		%	13.2		%	SG&A Expenses as a Percentage of Sales	22.0		%	14.8		%	26.6		%	15.8		%
Net (Gain) Loss on Sale of Businesses		$	(78,801)		$	—		$	1,332		$	—
Impairment Loss														Impairment Loss	$	87,016		$	—		$	12,608		$	—
Gain on Sale of Business														Gain on Sale of Business	$	—		$	80,133		$	—		$	—
Interest Expense, Net of Interest Income	Interest Expense, Net of Interest Income	$	4,576		$	7,326		$	1,547		$	2,511		Interest Expense, Net of Interest Income	$	3,316		$	3,029		$	1,983		$	1,225
Effective Tax Rate	Effective Tax Rate	22.9		%	6.5		%	31.3		%	(9.1)		%	Effective Tax Rate	3.4		%	22.7		%	3.6		%	23.8		%
Net Income		$	86,082		$	34,318		$	1,210		$	16,999
Net (Loss) Income														Net (Loss) Income	$	(90,542)		$	84,872		$	(23,579)		$	6,726

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~~SECOND QUARTER RESULTS

Consolidated sales were down ~~16.8%, or $35.7~~$65.4 million compared to the ~~prior-year period.~~second quarter of 2019. Aerospace ~~segment~~ sales ~~decreased $11.9~~were down $71.7 million. Test System sales increased $6.3 million. The Acquired Businesses contributed $2.5 million ~~or 7.0%, while Test Systems segment~~in sales ~~decreased $23.8 million due primarily to~~in the ~~divestiture~~second quarter of ~~the semiconductor business.~~2020.

Consolidated cost of products sold in the ~~third~~second quarter of ~~2019 decreased $26.1 million to $140.2~~2020 was $96.9 million, compared with ~~$166.4~~$148.7 million in the prior-year period. The ~~decline~~decrease was primarily due to lower sales ~~primarily due to the divestiture of the semiconductor business, partially offset with $2.4 million in incremental tariff expenses and a $2.2 million program charge related to a CCC long-term contract.~~volume.

Selling, general and administrative (“SG&A”) expenses were ~~$31.7~~$32.9 million ~~or 17.9% of sales,~~ in the ~~third~~second quarter of ~~2019~~2020 compared with ~~$28.0~~$29.8 million ~~or 13.2% of sales,~~ in the ~~same~~prior-year period. The Company incurred $4.9 million in restructuring-related severance charges in the second quarter of 2020, primarily in the Aerospace segment, compared to $2.2 million in the prior-year period, ~~last year. The increase was~~ primarily in the Test Systems segment. Further, non-cash goodwill impairment charges of $12.6 million in the Aerospace segment were recognized in the current quarter due to reduced expectations of future operating results due to further commercial aircraft order reductions, delays and cancellations at a ~~$1.7~~major customer of our PECO reporting unit.

Other Expense, Net of Other Income includes a $3.5 million ~~legal reserve for a long-term patent dispute, coupled with incremental SG&A expense related to FCT, acquired in July 2019.~~

~~The third quarter~~impairment of ~~2019 also included a loss of $1.3 million related to the sale of intellectual property and certain assets associated with the Airfield Lighting product line.~~an equity investment.

The effective tax rate for the quarter was ~~31.3%~~3.6%, compared with ~~a tax benefit recorded~~23.8% in the ~~third~~second quarter of ~~2018.~~2019. The ~~2019 third quarter~~2020 tax rate was ~~unfavorably~~ impacted by ~~the gain on the sale~~permanently non-deductible goodwill impairment of ~~the semiconductor business while the third quarter 2018 tax rate was favorably impacted by a net~~$12.6 million which no tax benefit has been recognized, and a Federal valuation allowance recorded ~~associated with a revised state filing position.~~during the three months ended June 27, 2020 of approximately $0.5 million.

Net ~~income~~loss was ~~$1.2~~$23.6 million, or ~~$0.04~~$(0.77) per diluted share, compared with ~~$17.0~~net income of $6.7 million, or ~~$0.52~~$0.20 per diluted share in the prior year. The impact of the impairment loss was $(0.41) per diluted share.

Bookings were ~~$176.6~~$61.5 million, for a book-to-bill ratio of ~~1.00:~~0.50:1. Backlog at the end of the quarter was ~~$379.4~~$307.2 million. Approximately ~~$175.0~~$178.3 million of backlog is expected to ship in the remainder of ~~2019.~~2020.

CONSOLIDATED YEAR-TO-DATE RESULTS

Consolidated sales were down ~~4.3%, or $26.0~~$116.0 million ~~driven primarily from lower~~compared to the first half of 2019. Aerospace sales were down $119.1 million. Test System sales increased $3.2 million. The Acquired Businesses contributed $6.0 million in sales in the ~~Test systems segment due to the sale~~first half of ~~the semiconductor business in the first quarter of 2019, partially offset by growth in the Aerospace segment.~~2020.

Consolidated cost of products sold in the first half of 2020 was ~~$445.1~~$218.7 million, compared with ~~$467.3~~$304.8 million in the prior-year period. The decrease was primarily due ~~primarily~~ to ~~the cost associated with~~ lower sales volume. ~~Consolidated Cost of Products Sold~~

SG&A expenses were $61.8 million in the first ~~nine months~~half of ~~2019 included tariffs of $6.8~~2020 compared with $59.0 million ~~inventory~~the prior-year period. The Company incurred $5.4 million in restructuring-related severance charges ~~of $3.6 million, and program charges of $3.9 million. Consolidated costs of products sold recorded~~ in the first ~~nine months~~half of 2020, primarily in the ~~prior year included a fair value inventory step-up expense of $1.3 million and $7.5 million of programs charges related~~Aerospace segment, compared to ~~a CCC long-term contract.~~

~~Selling, general and administrative (“SG&A”) expenses were $90.7~~$2.2 million in the ~~third quarter of 2019 compared with $87.9 million~~prior-year period, primarily in the ~~same period last year. The increase was primarily due to increased legal fees~~Test Systems segment. Further, non-cash goodwill and reserves related to a long-term patent dispute, $2.2 million of severance charges and the SG&A expenses of the acquired FCT business, partially offset by the $2.3 million lower amortization expense related to acquired intangible assets.

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lived asset impairment charges of $87.0 million in the 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. The Company 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. Total goodwill impairment losses were $86.3 million in the six months ended June 27, 2020.

The effective tax rate for the first ~~nine months~~half of ~~2019~~ was ~~22.9%~~3.4%, compared with ~~6.5%~~22.7% in the ~~same period~~first half of ~~2018.~~2019. The ~~2019~~2020 tax rate was ~~unfavorably~~ impacted by permanently non-deductible goodwill impairments of $60.8 million and a Federal valuation allowance recorded during the ~~gain on the sale~~six months ended June 27, 2020 of ~~the semiconductor business while the 2018 tax rate was favorably impacted by a net tax benefit recorded associated with a revised state filing position.~~approximately $7.5 million.

Net ~~income~~loss was ~~$86.1~~$90.5 million, or ~~$2.61~~$(2.94) per diluted share, compared with ~~$34.3~~net income of $84.9 million, or ~~$1.04~~$2.56 per diluted share in the prior year. The ~~$80.1~~after tax impact of the goodwill and long-lived asset impairment losses was $81.4 million, ~~gain~~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 ~~sale~~global economy increased significantly as the first half of 2020 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 ~~semiconductor test~~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 continues to monitor demand from three revenue streams to analyze the potential impact of the pandemic to its business. The three revenue streams are (1) new airplane production and OE demand, (2) the aftermarket for commercial transport aircraft, and (3) defense and other government markets.

An estimated 55% of sales in 2019, or about $425 million, was driven by the production of new airplanes in the commercial transport and business jet markets. For Astronics, the commercial transport market is the more significant of the two. Major manufacturers in both markets have revised their production plans downward given the pandemic, typically on the order of 35% to 45%, which is somewhat more than initial reductions announced earlier in the COVID-19 crisis. This number is significantly complicated by the 737 MAX, which was one of the Company’s largest production programs in 2019 and remains grounded.

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Another 25% of sales in 2019, or about $195 million, was to the aftermarket for commercial transport aircraft. These sales were primarily for inflight entertainment/connectivity and passenger power systems (“IFE”) that were sold to airlines and aircraft leasing companies. This market is holding up better than initially anticipated. The current run rate has been about 50% of last year’s demand level.

Approximately 20% of Astronics’ revenue in 2019, or about $145 million, was to the defense or other government markets. This was comprised of the majority of the Test business and certain military aircraft programs. Demand in these end markets has not been affected by the pandemic and instead shows relative strength.

Additionally, Astronics has initiated efforts to develop new revenue streams that are technically attractive and complementary to existing engineering and manufacturing skill sets. These initiatives are expected to contribute ~~$58.8~~up to $20 million in revenue in the second half of 2020.

Evaluating the demand from these revenue streams, and considering first half actual results, Astronics expects a significant decline in 2020 sales, perhaps to the range of $500 million to ~~net income after taxes.~~$525 million.

~~CONSOLIDATED OUTLOOK~~Outlook

~~Consolidated sales are expected to~~As discussed above, the Company believes that, given its assumptions on the economic impacts of COVID-19 on its revenue streams in its Aerospace business, consolidated revenue could be in the range of ~~$750~~$500 million to ~~$770~~$525 million. Given the fluidity of the situation with the pandemic and local, state, and national government responses, other outcomes, both positive and negative, are very possible. Management believes it has structured the Company to be cash positive at this level

Capital expenditures for 2020 are expected to be approximately $8 million, reduced from initial plans of ~~which $680~~$20 million to ~~$690~~$25 million ~~is expected from~~for the ~~Aerospace segment~~year. The reduction reflects the change in tooling and ~~$70 million to $80 million is expected from~~equipment capacity requirements for certain programs that were either postponed or cancelled, as well as the ~~Test segment.~~deferral or cancellation of discretionary investments.

Consolidated backlog at ~~September 28, 2019~~June 27, 2020 was ~~$379.4~~$307.2 million. Approximately ~~46%~~58% of the backlog is expected to ship in ~~2019.~~2020.

The effective tax ~~rate for 2019, excluding the impact of the gain on the sale of the semiconductor business, is expected to be in the range of 21% to 25%.~~

~~Capital equipment spending in 2019 is expected to be between $14 million to $19 million.~~

AeroSat has incurred delays and losses related to certain projects in the period ended September 28, 2019. In our third-quarter earnings release on November 5, 2019, we announced initiatives that the Company is undertaking commencing in the fourth quarter of 2019 to reduce losses and minimize costs at our AeroSat reporting unit, which is a component of our Aerospace segment. As part of these initiatives, we are evaluating if we should continue with some of those projects. We expect to formulate a restructuring plan out of these initiatives which will result in restructuring charges which may include severance, relocation costs, inventory writedowns, long-lived asset impairment charges, contract cancellation charges and other expenses. The amount and timing of these charges will not be determinable until the restructuring plan has been determined, but it is possible they will be material.

The CCC reporting unit, a component of our Aerospace segment, has also incurred delays and losses related to a significant development project in the period ended September 28, 2019. Contract completion is expected to occur in the fourth quarter. If there are further delays, it is possible that additional losses may be incurred in future periods.

As of September 28, 2019, the AeroSat and CCC reporting units had goodwill of $1.6 million and $2.3 million, respectively, and intangible and long-lived assets totaling $8.9 million and $4.9 million, respectively. The percentage by which the AeroSat and CCC reporting units’ fair values exceeded their carrying values in the last annual goodwill impairment test (as of September 30, 2018) was 35% and 43%, respectively. Based on the Company’s evaluation, no significant events occurred or circumstances changed during the period ended September 28, 2019 that would suggest it is more likely than not that the fair values of these reporting unit have declined below their carrying values or that there were indicators of impairment for our long-lived assets in these reporting units, however, as we formulate our restructuring plan and reassess the long-range prospects for these businesses, factors could arise that result in a decline in the fair value of these reporting units and the indicators of impairment and the Company may be required to perform the applicable impairment tests and record impairment charges.

The Company is initiating revenue guidance for 2020, expecting consolidated sales in the range of $770 million to $820 million. The Aerospace segment is expected to generate $690 million to $730 million, and the Test segment is expected to see sales of $80 million to $90 million. The midpoint of revenue guidance for 2020 is $795 million, a 5% increase over the midpoint of revenue guidance for 2019.

~~The effective tax~~benefit rate for 2020 is expected to be in the range of ~~18%~~2% to ~~22%~~6%.

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 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 segment. Operating profit is reconciled to earnings before income taxes in Note 16 of the Notes to Consolidated Condensed Financial Statements included in this report.

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AEROSPACE SEGMENT


		Nine Months Ended									Three Months Ended										Six Months Ended						Three Months Ended
(In thousands)	(In thousands)	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018			(In thousands)	June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
Sales	Sales	$	520,495		$	500,445		$	157,702		$	169,588		Sales	$	243,734		$	362,793		$	102,597		$	174,292
Less Intersegment Sales	Less Intersegment Sales	(5)			(62)			—			(9)			Less Intersegment Sales	(91)			(5)			(24)			(5)
Total Aerospace Sales	Total Aerospace Sales	$	520,490		$	500,383		$	157,702		$	169,579		Total Aerospace Sales	$	243,643		$	362,788		$	102,573		$	174,287
Operating Profit		$	48,949		$	47,525		$	8,789		$	16,210
Operating (Loss) Profit														Operating (Loss) Profit	$	(80,235)		$	40,160		$	(17,090)		$	14,392
Operating Margin	Operating Margin	9.4		%	9.5		%	5.6		%	9.6		%	Operating Margin	(32.9)		%	11.1		%	(16.7)		%	8.3		%

Aerospace Sales by Market	Aerospace Sales by Market													Aerospace Sales by Market
(In thousands)	(In thousands)													(In thousands)
Commercial Transport	Commercial Transport	$	393,721		$	402,539		$	122,212		$	136,692		Commercial Transport	$	170,323		$	271,509		$	67,548		$	129,731
Military	Military	57,753			46,410			17,255			16,125			Military	32,165			40,498			14,052			19,545
Business Jet	Business Jet	49,555			30,291			12,432			9,289			Business Jet	30,548			37,123			15,542			17,286
Other	Other	19,461			21,143			5,803			7,473			Other	10,607			13,658			5,431			7,725
		$	520,490		$	500,383		$	157,702		$	169,579			$	243,643		$	362,788		$	102,573		$	174,287
Aerospace Sales by Product Line	Aerospace Sales by Product Line													Aerospace Sales by Product Line
(In thousands)	(In thousands)													(In thousands)
Electrical Power & Motion	Electrical Power & Motion	$	255,007		$	218,931		$	78,428		$	78,610		Electrical Power & Motion	$	116,019		$	176,579		$	46,563		$	84,042
Lighting & Safety	Lighting & Safety	139,502			129,244			44,127			43,481			Lighting & Safety	65,653			95,375			27,731			46,770
Avionics	Avionics	79,414			100,354			19,871			31,059			Avionics	41,277			59,543			19,134			25,682
Systems Certification	Systems Certification	9,050			12,028			3,384			2,373			Systems Certification	4,991			5,666			1,660			4,048
Structures	Structures	18,056			18,683			6,089			6,583			Structures	5,096			11,967			2,054			6,020
Other	Other	19,461			21,143			5,803			7,473			Other	10,607			13,658			5,431			7,725
		$	520,490		$	500,383		$	157,702		$	169,579			$	243,643		$	362,788		$	102,573		$	174,287


(In thousands)	(In thousands)	September 28, 2019		December 31, 2018		(In thousands)	June 27, 2020		December 31, 2019
Total Assets	Total Assets	$	657,169	$	647,870	Total Assets	$	501,536	$	629,371
Backlog	Backlog	$	308,223	$	326,047	Backlog	$	226,364	$	275,754

AEROSPACE ~~THIRD~~SECOND QUARTER RESULTS

Aerospace segment sales decreased ~~$11.9~~$71.7 million, or ~~7.0%~~41.1%, to ~~$157.7~~$102.6 million. Sales were negatively affected by the continued grounding of the 737 MAX and the OEM’s decision to reduce production rates, along with the spread of the COVID-19 virus throughout the second quarter.

Electrical Power and Motion sales were down $37.5 million ~~when~~compared with the prior-year period. Lighting & Safety sales decreased $19.0 million. Additionally, Avionics sales were down $6.5 million compared with the prior-year period.

~~Avionics sales were down $11.2~~Aerospace segment operating loss was $17.1 million compared with the prior-year period due to a lower demand in the quarter for inflight entertainment and connectivity (“IFEC”) products and lower antenna sales. System Certification sales increased $1.0 million, or 42.6%.

~~Aerospace~~ operating profit ~~was $8.8~~of $14.4 million ~~or 5.6% of sales, compared with $16.2 million, or 9.6% of sales, in~~ the same period last year. Aerospace operating profit was ~~lower~~impacted by goodwill impairment charges of $12.6 million and restructuring-related severance charges of $4.6 million, as previously discussed. Operating leverage lost on ~~lower volume, and included $3.2 million in tariffs. Certain challenged Aerospace businesses had $9.2 million of~~reduced sales also significantly impacted operating ~~losses, including a $2.2 million program charge. Operating losses related to those businesses were $11.2 million in the third quarter of 2018.~~

~~Aerospace bookings in the third quarter of 2019 were $155.3 million, for a book-to-bill ratio of 0.98:1. Backlog was $308.2 million at the end of the third quarter of 2019.~~results.

AEROSPACE YEAR-TO-DATE RESULTS

Aerospace segment sales ~~increased by $20.1~~decreased $119.1 million, or ~~4.0%~~32.8%, to ~~$520.5~~$243.6 million. Sales were negatively affected by the continued grounding of the 737 MAX and the OEM’s decision to reduce production rates, along with the spread of the COVID-19 virus beginning in the later part of the first quarter.

Electrical Power and Motion sales were down $60.6 million ~~when~~ compared with the ~~prior year’s first nine months.~~

prior-year period. Lighting & Safety sales decreased $29.7 million. Additionally, Avionics sales were down $18.3 million compared with the prior-year period.

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Electrical Power & Motion sales increased $36.1 million, or 16.5%, and Lighting & Safety sales increased $10.3 million. Sales of Avionics products were down $20.9 million to $79.4 million for similar reasons as in the quarter. Systems Certification sales decreased $3.0Aerospace segment operating loss was $80.2 million compared with ~~the first nine months of 2018.~~

~~Aerospace~~ operating profit ~~was $48.9~~of $40.2 million ~~or 9.4% of sales, compared with $47.5 million, or 9.5% of sales, in~~ the same period last year. Aerospace operating profit ~~in the first nine months~~was impacted by impairment charges of ~~2019 benefited from higher volume and $2.3~~$87.0 million, ~~lower amortization expense~~of which $86.3 million was related to ~~acquired intangible assets. These benefits were offset by $6.8~~goodwill, as previously discussed. Restructuring-related severance charges of $5.1 million ~~in tariffs~~ and ~~$27.6 million in~~leverage lost on reduced sales also significantly impacted operating losses related to the three challenged Aerospace businesses which include $3.6 million in inventory reserves and $3.9 million in program charges. Operating profit in the first nine months of 2018 was negatively impacted by $28.3 million in operating loss from challenged Aerospace businesses and $1.4 million in acquisition-related inventory step-up expense.results.

AEROSPACE OUTLOOK

~~We expect 2019 sales for our~~ Aerospace ~~segment to be~~bookings in the ~~range~~second quarter of ~~$680~~2020 were $43.3 million, ~~to $690 million.~~for a book-to-bill ratio of 0.42:1. The Aerospace segment’s backlog at the end of the ~~third~~second quarter of ~~2019~~2020 was ~~$308.2~~$226.4 million with approximately ~~$161.5~~$147.9 million expected to be shipped over the remaining part of ~~2019~~2020 and ~~$283.8~~$185.9 million is expected to ship over the next 12 months.

~~We expect 2020 sales for our Aerospace segment to generate $690 million to $730 million.~~

TEST SYSTEMS SEGMENT


		Nine Months Ended									Three Months Ended										Six Months Ended						Three Months Ended
(In thousands)	(In thousands)	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018			(In thousands)	June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
Sales	Sales	$	53,995		$	99,956		$	19,346		$	43,095		Sales	$	37,985		$	34,649		$	21,432		$	14,925
Less Intersegment Sales	Less Intersegment Sales	(195)			—			(30)			—			Less Intersegment Sales	(350)			(165)			(311)			(114)
Net Sales	Net Sales	$	53,800		$	99,956		$	19,316		$	43,095		Net Sales	$	37,635		$	34,484		$	21,121		$	14,811
Operating profit	Operating profit	$	4,166		$	10,151		$	2,075		$	5,833		Operating profit	$	3,334		$	2,091		$	2,612		$	(94)
Operating Margin	Operating Margin	7.7		%	10.2		%	10.7		%	13.5		%	Operating Margin	8.9		%	6.1		%	12.4		%	(0.6)		%

Test Systems Sales by Market	Test Systems Sales by Market													Test Systems Sales by Market
(In thousands)	(In thousands)													(In thousands)
Semiconductor	Semiconductor	$	7,815		$	72,061		$	2,219		$	33,596		Semiconductor	$	2,822		$	5,596		$	1,188		$	2,242
Aerospace & Defense	Aerospace & Defense	45,985			27,895			17,097			9,499			Aerospace & Defense	34,813			28,888			19,933			12,569
		$	53,800		$	99,956		$	19,316		$	43,095			$	37,635		$	34,484		$	21,121		$	14,811


(In thousands)	(In thousands)	September 28, 2019		December 31, 2018		(In thousands)	June 27, 2020		December 31, 2019
Total Assets	Total Assets	$	88,662	$	97,056	Total Assets	$	104,392	$	110,994
Backlog ~~(1)~~	Backlog ~~(1)~~	$	71,137	$	89,470	Backlog ~~(1)~~	$	80,822	$	83,837
(1) - $89.5 million backlog at December 31, 2018 includes $12.2 million related to the divested semiconductor business

TEST SYSTEMS ~~THIRD~~SECOND QUARTER RESULTS

Test Segment sales ~~decreased $23.8~~were $21.1 million, ~~to $19.3~~up $6.3 million compared ~~with~~to the prior-year period. ~~A $7.6~~The Acquired Businesses contributed $2.5 million ~~increase~~ in sales in the second quarter of 2020.

Test Systems operating profit was $2.6 million, or 12.4% of sales, compared with last year’s essentially breakeven second quarter. Operating profit for the second quarter of 2019 was impacted by restructuring-related severance charges of $2.0 million.

TEST SYSTEMS YEAR-TO-DATE RESULTS

Test Segment sales were $37.6 million, up $3.2 million compared to the ~~Aerospace & Defense market was offset by a $31.4~~prior-year period. The Acquired Businesses contributed $6.0 million ~~decrease~~ in sales in the first half of 2020, while Semiconductor sales decreased $2.8 million due to the ~~Semiconductor market as a result of the divestiture~~sales of the semiconductor business ~~partially offset by the acquisition of FCT,~~ which ~~contributed $3.0 million in sales.~~was divested on February 13, 2019.

Test ~~Segment~~Systems operating profit was ~~$2.1~~$3.3 million, or ~~10.7%~~8.9% of sales, compared with operating profit of ~~$5.8~~$2.1 million in ~~last year’s third quarter. The decrease~~the prior-year period. Operating profit in the prior-year period was ~~due to the divestiture~~impacted by restructuring-related severance charges of ~~the semiconductor business and $0.4 million in acquisition-related inventory step-up expense.~~$2.0 million.

TEST SYSTEMS OUTLOOK

Bookings for the Test Systems segment in the quarter were ~~$21.2~~$18.2 million, for a book-to-bill ratio of ~~1.10:~~0.86:1 for the quarter. ~~Backlog was $71.1 million at the end of the third quarter of 2019.~~

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~~TEST SYSTEMS YEAR-TO-DATE RESULTS~~

Test Segment sales decreased $46.2 million to $53.8 million compared with $100.0 million in the prior-year period. An $18.1 million increase in sales to the Aerospace & Defense market was offset by a $64.2 million decrease in sales to the Semiconductor market as a result of the divestiture of the semiconductor business.

Operating profit for the segment was $4.2 million, or 7.7% of sales, compared with operating income of $10.2 million, or 10.2% of sales, in the prior-year period. The decrease is due largely to the sale of the semiconductor business as well as $2.0 million in severance charges in 2019 related to restructuring initiatives, which are expected to provide savings of $5 million to $6 million annually.

~~TEST SYSTEMS OUTLOOK~~

~~We expect sales for the Test Systems segment for 2019 to be in the range of $70 million to $80 million.~~ The Test Systems segment’s backlog at the end of the ~~third~~second quarter of ~~2019~~2020 was ~~$71.1~~$80.8 million, with approximately ~~$13.5~~$30.3 million expected to be shipped over the remaining part of ~~2019~~2020 and approximately ~~$48.6~~$55.3 million scheduled to ship over the next 12 months.

~~We expect 2020 sales for our Aerospace segment to generate $80 million to $90 million.~~

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LIQUIDITY AND CAPITAL RESOURCES

Operating Activities:

Cash provided by operating activities totaled ~~$30.2~~$41.5 million for the first ~~nine~~six months of ~~2019,~~2020, as compared with ~~$15.4~~$9.1 million cash provided by operating activities during the same period in ~~2018.~~2019. Cash flow from operating activities increased compared with the same period of ~~2018~~2019 primarily due to the change in net operating assets ~~increasing less~~compared with the prior period as well as the net non-cash effect on net income of the goodwill impairment loss in the first ~~nine~~six months of ~~2019 when~~2020 compared ~~with~~to the net non-cash effect on net income of the gain from sale of the semiconductor business in the first ~~nine~~six months of ~~2018, partially offset by a decrease in depreciation and amortization.~~2019.

Investing Activities:

Cash ~~provided by~~used for investing activities was ~~$74.2~~$2.3 million for the first ~~nine~~six months of ~~2019~~2020 compared with ~~$15.8~~$96.9 million ~~used~~in cash provided by investing activities in the same period of ~~2018.~~2019. The ~~increase in~~change compared to the ~~current year~~prior-year period was a result of the $103.8 million in proceeds from the divestiture of the semiconductor business ~~coupled~~in 2019, slightly offset with a decrease in capital expenditures ~~partially offset by~~in the ~~purchase~~first half of ~~FCT for $21.8 million.~~2020 compared with 2019. The Company expects capital spending in ~~2019~~2020 to be ~~in the range of $14 million to $19~~approximately $8 million.

Financing Activities:

The primary financing activities in the first ~~nine~~six months of 2019 related to a repurchase of approximately 1,824,000 shares at an aggregate cost of $50.0 million under our share purchase program, coupled with net payments on our senior credit facility of $47.0 million. The primary financing activities in the first nine months of 20182020 related to net payments on our senior credit facility of ~~$10.0~~$15.0 million. The ~~Company’s cash needs for working capital, debt service and capital equipment during~~primary financing activities in the ~~remainder~~first six months of 2019 ~~is expected~~related to ~~be met by cash flows from operations and cash balances and, if necessary, utilization~~net payments on our senior credit facility of ~~the revolving credit facility.~~$105.0 million.

The maximum permitted leverage ratio of funded debt, net of cash to Adjusted EBITDA (as defined in the Agreement) iswas 3.75 to 1, increasing to 4.50 to 1 for up to four fiscal quarters following the closing of an acquisition permitted under the Agreement, subject to limitations. The Company ~~is in compliance with its financial covenant at September 28, 2019. The Company will pay~~paid interest on the unpaid principal amount of the facility at a rate equal to one-, three- or six-month LIBOR plus between 1.00% and 1.50% based upon the Company’s leverage ratio. The Company ~~will~~ also ~~pay~~paid a commitment fee to the ~~Lenders~~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.

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BACKLOG

The Company’s backlog at ~~September 28, 2019~~June 27, 2020 was ~~$379.4~~$307.2 million compared with ~~$415.5~~$359.6 million at December 31, ~~2018 ($403.3 million excluding backlog related to the divested semiconductor business)~~2019 and ~~$398.1~~$379.7 million at ~~September~~June 29, ~~2018.~~2019.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

The following table represents contractual obligations as of ~~September 28, 2019:~~June 27, 2020:


		Payments Due by Period																			Payments Due by Period
(In thousands)	(In thousands)	Total		2019		2020-2021		2022-2023		After 2023		(In thousands)	Total		2020		2021-2022		2023-2024		After 2024
Long-term Debt	Long-term Debt	$	180,246	$	27	$	219	$	180,000	$	—	Long-term Debt	$	173,224	$	224	$	—	$	173,000	$	—
Interest on Long-term Debt	Interest on Long-term Debt	19,489		1,448		11,582		6,459		—		Interest on Long-term Debt	16,554		3,165		12,659		730		—
Purchase Obligations	Purchase Obligations	136,051		83,995		51,700		326		30		Purchase Obligations	104,265		82,230		21,718		171		146
Supplemental Retirement Plan and Post Retirement Obligations	Supplemental Retirement Plan and Post Retirement Obligations	22,793		104		827		798		21,064		Supplemental Retirement Plan and Post Retirement Obligations	27,449		202		753		973		25,521
Lease Obligations	Lease Obligations	36,318		1,755		12,827		8,985		12,751		Lease Obligations	31,041		3,763		13,930		7,056		6,292
Interest on Finance Lease Obligations		380		67		305		8		—
Other Long-term Liabilities		108		3		25		32		48
Other Liabilities												Other Liabilities	5,232		3,445		732		672		383
Total Contractual Obligations	Total Contractual Obligations	$	395,385	$	87,399	$	77,485	$	196,608	$	33,893	Total Contractual Obligations	$	357,765	$	93,029	$	49,792	$	182,602	$	32,342

Notes to Contractual Obligations Table

~~Purchase Obligations~~ ~~— Purchase obligations are comprised of the Company’s commitments for goods and services in the normal course of business.~~

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 June 27, 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.

Lease Obligations — Financing and ~~Operating~~operating lease obligations are primarily related to the Company's facility ~~leases.~~leases and interest.

Other Liabilities — Table excludes the $16.4 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 15, Legal Proceedings, as this will not become a contractual obligation until the appeals process is complete and amount of damages has been finalized.

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 ~~2019~~2020 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, ~~2018.~~2019.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to Note 1 of the Notes to Consolidated Condensed Financial Statements included in this 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,”

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~~“estimates,~~ “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

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of ~~September 28, 2019.~~June 27, 2020. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~September 28, 2019.~~June 27, 2020.

b.Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the most recent fiscal quarter 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 various~~Currently, we are involved in legal proceedings ~~claims,~~relating to an allegation of patent infringement and ~~litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable,~~based on rulings to date 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 ofconcluded 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. Lufthansa sought an 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 damageslosses related to ~~direct sales~~these proceedings are probable. For a discussion of contingencies related to legal proceedings, see Note 15 of the ~~allegedly infringing power supply system in Germany (referred~~Notes to as “direct sales”). The claim does not specify an estimate of damages and a related damages claim is being pursued by Lufthansa in separate court proceedings in an action filed in July 2017, as further discussed below.

In February 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 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.

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 submitted a petition to grant AES leave for appeal to the German Federal Supreme Court. On April 18, 2018, the German Federal Supreme Court granted Astronics’ petition in part, namely with respect to the part concerning the amount of damages. On January 8, 2019 Federal Supreme Court held the hearing on the appeal. By judgment of March 26, 2019 the Federal Supreme Court dismissed AES's appeal. With this decision, the above-mentioned proceedings are complete.

In July 2017, Lufthansa filed an action in the Regional State Court of Mannheim for payment of damages caused by the alleged patent infringement of AES, related to direct sales of the allegedly infringing product in Germany (associated with the original December 2010 action discussed above). In this action, which was served on AES on April 11, 2018, Lufthansa claims payment of approximately $6.2 million plus interest. According to AES's assessment, this claim is significantly higher than justified. However, based on the results of the oral hearing on September 13,2019, we estimate AES’s potential exposure to be approximately $2.7 million to $6.3 million (including interest). We recorded an incremental reserve of $1.7 million in the three and nine month periods ended September 28, 2019, for a total reserve of $2.7 million associated with this matter. A first instance decision in this matter is expected on November 22, 2019.

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 seeks an injunction, an order obliging AES to provide information and accounting and a finding that AES owes damages for the attacked indirect sales. AES will vigorously defend against the action. No amount of claimed damages has been specified by Lufthansa and such amount is not quantifiable at this time. A first instance decision in this matter is expected on November 22, 2019. As loss exposure is neither probable nor estimable at this time, the Company has not recorded any liability with respect to this litigation as of September 28, 2019.

In December 2017, Lufthansa filed patent infringement cases in the United Kingdom and in France against AES. The Lufhansa 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 U.K. matter, a trial has been scheduled for February 2020 to address the issues of infringement and validity. As loss exposure is neither probable nor estimable at this time, in either of these proceedings, the Company has not recorded any liability with respect to these matters as of September 28, 2019.Consolidated Condensed Financial Statements.

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On November 26, 2014, Lufthansa filed a complaint in the United States District for the Western District of Washington. Lufthansa’s complaint in that 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.

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, ~~2018,~~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. ~~Additional~~There 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 ~~uncertainties~~cash 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. In recent weeks, 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 known~~limited 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 deem~~net 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 materially~~disrupted 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/or~~and 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. The following table summarizes our purchases of our common stock for the quarter ended ~~September 28, 2019.~~June 27, 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 30, 2019 - July 27, 2019 — — — $50,000,000
July 28, 2019 - August 24, 2019 (2) 985,564 $27.19 983,994 $23,243,987
August 25, 2019 - September 28, 2019 839,300 $27.69 839,300 $50,000,000


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)
March 29, 2020 - June 27. 2020	—	—	—	$41,483,815

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 December 12, 2017, the Company’s Board of Directors authorized an additional repurchase of up to $50 million in connection with the Buyback Program. The Company repurchased approximately 1,823,000 shares and completed that program in the third quarter of 2019. On September 17, 2019, the Company’s Board of Directors authorized an additional repurchase of up to $50 million. ~~No amounts have been~~Approximately 282,000 shares were repurchased ~~under~~at a cost of $7.7 million before the ~~new program as of September 28, 2019.~~

~~(2) On August 15, 2019, we accepted delivery of 1,570 shares at $26.08 in connection~~10b5-1 plan associated with the ~~exercise of stock options.~~share repurchase program was terminated on February 3, 2020.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

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Item 6. Exhibits


Exhibit 31.1						Section 302 Certification - Chief Executive Officer

Exhibit 31.2						Section 302 Certification - Chief Financial Officer

Exhibit 32						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 7, 2019~~August 4, 2020

By:

/s/ David C. Burney

David C. Burney

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

3540


(In thousands)	December 31, 2018		Acquisition/Divestiture/Adjustments		Foreign Currency Translation		September 28, 2019
Aerospace	$	124,952	$	(262)	$	(225)	$	124,465
Test Systems	—		9,129		—		9,129
	$	124,952	$	8,867	$	(225)	$	133,594