What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-06 compared with 2021-02-05 · 144 added, 76 removed, 138 unchanged (61% of the section changed)

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(7) continued reliance on military spending, in general, and/or several major customers, in particular, for revenues;

(8) the impact on future contributions to the Company’s defined benefit pension plans due to changes in actuarial assumptions, government regulations and the market value of plan assets;

impact on future contributions to the Company’s defined benefit pension plans due to changes in actuarial assumptions, government regulations and the market value of plan assets;

(9) stable governments, business conditions, laws, regulations and taxes in economies where business is conducted;

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Fire Restoration

In the first quarter of fiscal 2021, the insurance claim related to the fire on December 26, 2018 at the Orange location was finalized with the Company's insurance carrier.

The Company continues to work diligently to restore the final two of the six presses damaged in the fire, which both continue to be on track to be completed by the end of the second quarter of fiscal 2021;

The insurance claim related to the fire on December 26, 2018 at the Orange location was finalized with the Company's insurance carrier.

The Company continues to work diligently to restore the final two of the six presses damaged in the fire.

Certain vendor delays and the certification processes have extended the restoration of these presses.

They continue to be on track to be completed by the end of the third quarter of fiscal 2021;

however, no assurances can be made that the restoration will be completed within such timeframe.

Restoration of the building structure is nearly complete.

Having finalized the claim with its insurance carrier, proceeds in the amount of $3.1 million was received in December 2020.

The $3.1 million was recognized within the consolidated condensed statements of operations and the balance was separately designated to the landlord for the continued restoration of the damaged building as prescribed under the lease arrangement.

Having finalized the claim with its insurance carrier, proceeds in the amount of $3.1 million were received in December 2020 and a remaining receivable balance from the landlord was received in January 2021 in the amount of $0.6 million, resulting in the Company having received cash proceeds of $4.6 million in fiscal 2021.

A total of $3.1 million was recognized within the consolidated condensed statements of operations and the balance was separately designated as payable to the landlord for the continued restoration of the damaged building as prescribed under the lease arrangement.

The Company has business interruption insurance coverage, of which $0.5 million of the amount received was reflected within the cost of goods sold line within the consolidated condensed statement of operations.

For further detail of how the consolidated condensed statements of operations and balance sheets were impacted for the three months ended, refer to Note 10, Commitments and Contingencies.

Since being recognized by the World Health Organization as a pandemic, the novel coronavirus ("COVID-19") outbreak continues to be widespread in the United States and other countries in which we operate.

Capital markets and economies worldwide have been negatively impacted by COVID-19 and it is still unclear how lasting and deep the economic impacts will be, specifically with the commercial aerospace industry.

During the three months ended December 31, 2020, the COVID-19 pandemic had mixed effects on the Company’s results of operations.

The Company continues to actively take measures to reduce costs by furloughing and laying off certain employees from one of its plant locations where reduced sales of commercial aerospace products have occurred, and it may continue to have adverse effects.

As such, the Company continues to actively monitor and find ways to mitigate the impact of the pandemic on its operations and consider its ability to pivot its operations and the industries served.

For further detail of how the consolidated condensed statements of operations and balance sheets were impacted for the six months ended, refer to Note 10, Commitments and Contingencies.

Since being recognized by the World Health Organization as a pandemic, the novel coronavirus ("COVID-19") outbreak continues to impact the United States and other countries in which we operate.

The COVID-19 pandemic and its effects continue to evolve, including scope, severity and duration of the COVID-19 pandemic, as well as any worsening of the pandemic, the potential for additional outbreaks of the pandemic, the impact of new variants of COVID-19, actions to contain the pandemic's spread or treat its impact, the rollout and effectiveness of the vaccine, and governmental, business and other actions taken in response to the pandemic.

The exact timing and pace of the recovery is indeterminable as certain markets have

reopened, some of which have since experienced a resurgence of COVID-19 cases, and in recent months new variants of COVID-19 have been identified, resulting in additional restrictions put in place by certain governments around the world.

Capital markets and economies worldwide have been negatively impacted by COVID-19 and, given the fluidity of the situation, it is still unclear how lasting and deep the economic impacts will be, specifically in relation to the commercial aerospace industry.

During fiscal 2021, the COVID-19 pandemic continues to have mixed effects on the Company’s results of operations.

Given the long lead times for certain of the Company's products, the Company has seen a greater impact related to the effects of COVID-19 on orders and deliveries in fiscal 2021 than in fiscal 2020.

In response to the uncertain environment created by the COVID-19 pandemic, the Company has, in prior periods, taken measures to reduce costs by furloughing and laying off certain of its employees from one of its plant locations that has experienced reduced sales of commercial aerospace products.

Such employees have since returned to work and the Company continues to actively monitor and find ways to mitigate the impact of the pandemic on its operations and consider its ability to pivot its operations and the industries served.

Backlog of Orders

SIFCO’s total backlog at December 31, 2020 was $81.5 million, compared with $119.5 million as of December 31, 2019.

SIFCO’s total backlog at March 31, 2021 was $82.3 million, compared with $107.0 million as of March 31, 2020.

Orders may be subject to modification or cancellation by the customer with limited charges.

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Backlog information may not be indicative of future sales.

Three Months Ended December 31, 2020 compared with Three Months Ended December 31, 2019

Net sales comparative information for the first three months of fiscal 2021 and 2020 is as follows:

(Dollars in millions) Three Months Ended

December 31, Increase/ (Decrease)

Six Months Ended March 31, 2021 compared with Six Months Ended March 31, 2020

Net sales comparative information for the first six months of fiscal 2021 and 2020 is as follows:

(Dollars in millions) Six Months Ended

March 31, Increase/ (Decrease)

Net Sales 2021 2020

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Total $ 49.9 $ 56.7 $ (6.8)

Net sales for the first three months of fiscal 2021 decreased $1.1 million to $25.1 million, compared with $26.2 million in the comparable period of fiscal 2020.

Commercial products and other revenue decreased $4.3 million in the first three months of fiscal 2021 compared to the same period in fiscal 2020, primarily due to timing of orders for the Hellfire II missile program.

The energy components for power generation units increased by $3.8 million primarily due to customer order increases.

Net sales for the first six months of fiscal 2021 decreased $6.8 million to $49.9 million, compared with $56.7 million in the comparable period of fiscal 2020.

Given the long lead times for certain of the Company's products, the Company has seen a greater impact related to the effects of COVID-19 on orders and deliveries in fiscal 2021 than in fiscal 2020.

Commercial products and other revenue decreased $8.8 million in the first six months of fiscal 2021 compared to the same period in fiscal 2020, primarily due to timing of orders related to a munitions program.

The energy components for power generation units increased by $5.4 million primarily due to customer order increases as the market saw some recovery.

Fixed wing aircraft sales decreased $5.4 million due to timing of customer orders and a decrease in build rates in certain commercial programs, partially offset by increased military programs.

The increase in rotorcraft sales is primarily due to increased shipments relating to certain military programs.

Commercial net sales were 42.9% of total net sales and military net sales were 57.1% of total net sales in the first three months of fiscal 2021, compared with 38.9% and 61.1%, respectively, in the comparable period in fiscal 2020.

Military net sales decreased by $1.7 million to $14.3 million in the first three months of fiscal 2021, compared with $16.0 million in the comparable period of fiscal 2020, primarily due to the timing of orders for the Hellfire II missile program.

Commercial net sales increased $0.6 million to $10.8 million in the first three months of fiscal 2021, compared with $10.2 million in the comparable period of fiscal 2020 primarily due to an increase in energy components sales for power generation due to increased customer orders partially offset by decreased build rates in certain commercial programs.

The Company experienced an increase in rotorcraft sales primarily due to increased shipments relating to certain military programs.

Commercial net sales were 40.0% of total net sales and military net sales were 60.0% of total net sales in the first six months of fiscal 2021 and fiscal 2020, respectively.

Military net sales decreased by $4.1 million to $29.9 million in the first six months of fiscal 2021, compared with $34.0 million in the comparable period of fiscal 2020, primarily due to the timing of orders related to a munitions program.

Commercial net sales decreased $2.7 million to $20.0 million in the first six months of fiscal 2021, compared with $22.7 million in the comparable period of fiscal 2020 primarily due to decreased build rates in certain commercial programs, partially offset by an increase in energy components sales for power generation due to increased customer orders.

Cost of Goods Sold

Cost of goods sold decreased by $1.7 million, or 7.6%, to $21.2 million, or 84.4% of net sales, during the first three months of fiscal 2021, compared with $22.9 million or 87.3% of net sales, in the comparable period of fiscal 2020.

The decrease was due primarily to cost controlling measures and the non-recurrence of the one-time pension withdrawal liability charge of $0.8 million incurred in the prior year.

Another contributing factor to the decrease was the Company received insurance recoveries related to business interruption of $0.5 million, which partially mitigated the $0.4 million of unabsorbed costs incurred from its Orange location due to reduced production.

Gross profit increased $0.6 million to $3.9 million during the first three months of fiscal 2021, compared with $3.3 million in the comparable period of fiscal 2020.

Gross margin percent of sales was 15.6% during the first three months of fiscal 2021, compared with 12.7% in the comparable period in fiscal 2020.

The increase in gross profit was primarily due to the reduced cost of goods sold as outlined above.

Cost of goods sold decreased by $3.9 million, or 8.2%, to $43.3 million, or 86.7% of net sales, during the first six months of fiscal 2021, compared with $47.1 million or 83.1% of net sales, in the comparable period of fiscal 2020.

The decrease was due primarily to decreased volume, cost controlling measures and the non-recurrence of the one-time pension withdrawal liability charge of $0.8 million incurred in the prior year, which partially offset $1.3 million of idle costs incurred from its Orange

location due to reduced production and mitigated by insurance recoveries related to business interruption losses of $0.5 million as part of fire settlement.

Gross profit decreased $2.9 million to $6.7 million during the first six months of fiscal 2021, compared with $9.6 million in the comparable period of fiscal 2020.

Gross margin percent of sales was 13.3% during the first six months of fiscal 2021, compared with 16.9% in the comparable period in fiscal 2020.

The decrease in gross profit was primarily due to decreased volume and the increased idle costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $3.8 million, or 15.3% of net sales during the first three months of fiscal 2021, compared with $4.2 million, or 16.1% of net sales in the comparable period of fiscal 2020.

Selling, general and administrative expenses were $7.4 million, or 14.9% of net sales during the first six months of fiscal 2021, compared with $7.5 million, or 13.3% of net sales in the comparable period of fiscal 2020.

The decrease in selling, general and administrative expenses is due to the continued cost reduction efforts by management in response to COVID-19 and other effects of the COVID-19 pandemic and its impact on operations such as lower wages related to a first quarter furlough at one location and less travel expense, partially offset by higher legal and professional costs and commissions.

Amortization of Intangibles

Amortization of intangibles was $0.3 million in the first three months of fiscal 2021, compared with $0.4 million in the comparable period of fiscal 2020.

Amortization of intangibles was $0.5 million in the first six months of fiscal 2021, compared with $0.8 million in the comparable period of fiscal 2020.

Such decrease was primarily due to certain intangible assets that were fully amortized during fiscal 2020.

Other/General

The Company recorded income before taxes of $2.1 million in the first three months of fiscal 2021, compared with a loss before taxes of $1.4 million in the first three months of fiscal 2020.

In the first three months ended December 31, 2020, results included a $2.5 million gain on insurance recoveries, compared to none in the comparable period.

Interest expense was $0.2 million in the first three months of fiscal 2021, compared to $0.3 million in the first three months of fiscal 2020.

The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s debt agreement in the first three months of both fiscal 2021 and 2020:

The Company recorded income before taxes of $0.8 million in the first six months of fiscal 2021, compared with $1.8 million in the first six months of fiscal 2020.

In the first six months of fiscal 2021, results included a $2.5 million gain on insurance recoveries, compared to $1.0 million in the comparable period.

Interest expense was $0.3 million in the first six months of fiscal 2021, compared to $0.5 million in the first six months of fiscal 2020.

The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s debt agreement in the first six months of both fiscal 2021 and 2020:

Weighted Average

Interest Rate

Six Months Ended

March 31, Weighted Average

Outstanding Balance

Six Months Ended

2021 2020 2021 2020

Revolving credit agreement 1.4 % 3.8 % $ 9.2 million $ 15.9 million

Foreign term debt 3.6 % 4.0 % $ 7.1 million $ 5.7 million

Other debt 1.0 % 0.9 % $ 5.7 million $ 1.0 million

The Company’s effective tax rate through the first six months of fiscal 2021 was (97)%, compared with (8%) for the same period of fiscal 2020.

The decrease in the effective rate was primarily attributable to tax benefits from adjusting deferred taxes recorded in Italy recognized on a discrete basis, partially offset by changes in jurisdictional mix of income in fiscal 2021 compared to the same period of fiscal 2020.

The effective tax rate differs from the U.S.

federal statutory rate due primarily to the valuation allowance against the Company’s U.S.

deferred tax assets and income in foreign jurisdictions that are taxed at different rates than the U.S.

statutory tax rate

Net Income (Loss)

Net income was $1.5 million during the first six months of fiscal 2021, compared with $1.9 million in fiscal 2020.

The decrease in income is primarily due to lower sales, increased idle costs, partially offset by continued cost saving activities, insurance recoveries received and the favorable tax benefit in the first six months of fiscal 2021.

Three Months Ended March 31, 2021 compared with Three Months Ended March 31, 2020

Net sales for the second quarter of fiscal 2021 decreased 18.6% to $24.9 million, compared with $30.5 million in the comparable period of fiscal 2020.

Net sales comparative information for the second quarter of fiscal 2021 and 2020 is as follows:

(Dollars in millions) Three Months Ended

March 31, Increase (Decrease)

Net Sales 2021 2020

Aerospace components for:

Fixed wing aircraft $ 10.2 $ 14.1 $ (3.9)

Rotorcraft 7.9 6.8 1.1

Energy components for power generation units 5.1 3.4 1.7

Commercial product and other revenue 1.7 6.2 (4.5)

Total $ 24.9 $ 30.5 $ (5.6)

The decrease was attributed to a $4.5 million decrease in commercial product and other revenues due to timing of orders for a munitions program and a decrease of $3.9 million in fixed wing aircraft revenues due to timing of customer orders and a decrease in build rates in certain commercial programs.

The decrease in revenues in the second quarter of fiscal 2021 was partially offset by an increase in sales in the energy components for power generation units of $1.7 million primarily due to customer order increases as the market saw some recovery and a $1.1 million increase in rotorcraft sales primarily due to increased shipments relating to certain military programs.

Commercial net sales were 37.2% of total net sales and military net sales were 62.8% of total net sales in the second quarter of fiscal 2021, compared with 40.9% and 59.1%, respectively, in the comparable period of fiscal 2020.

Military net sales decreased by $2.4 million to $15.6 million in the second quarter of fiscal 2021, compared with $18.0 million in the comparable period of fiscal 2020, primarily due to the timing of orders for a munitions program.

Commercial net sales decreased $3.2 million to $9.2 million in the second quarter of fiscal 2021, compared with $12.5 million in the comparable period of fiscal 2020 primarily due to decreased build rates in certain commercial programs partially offset by increased sales in the energy market.

Cost of Goods Sold

Cost of goods sold was $22.1 million, or 89.0% of net sales, during the second quarter of fiscal 2021, compared with $24.3 million or 79.4% of net sales, in the comparable period of fiscal 2020, primarily due to lower volume and idle costs of $0.8 million incurred at the Orange location.

Gross profit decreased $3.5 million to $2.7 million during the second quarter of fiscal 2021, compared with $6.3 million in the comparable period of fiscal 2020.

Gross margin was 11.0% during the second quarter of fiscal 2021, compared with 20.6% in the comparable period in fiscal 2020.

The decrease in gross margin was primarily due to lower sales volume and idle costs associated with reduced production at the Orange location.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $3.6 million, or 14.5% of net sales, during the second quarter of fiscal 2021, compared with $3.3 million, or 10.9% of net sales, in the comparable period of fiscal 2020.

The increase is primarily due to an increase in legal and professional costs and IT related costs partially offset by lower salary and benefits in the second quarter of fiscal 2021.

Amortization of Intangibles

Amortization of intangibles was $0.3 million in the second quarter of fiscal 2021 compared with $0.4 million in the second quarter of fiscal 2020.

Other/General

The Company recorded loss before income taxes of $1.3 million in the second quarter of fiscal 2021, compared to income before income taxes of $3.2 million in the second quarter of fiscal 2020.

Prior period results include a $1.0 million gain in insurance proceeds related to the insurance recovery from the damage that occurred related to the fire at the Orange location.

Interest expense was $0.2 million in the second quarter of fiscal 2021, compared to $0.3 million in the second quarter of fiscal 2020.

The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s Credit Agreement in the second quarter of both fiscal 2021 and 2020:

Weighted Average

Interest Rate

Three Months Ended

December 31, Weighted Average

March 31, Weighted Average

Outstanding Balance

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Other debt 1.0 % 0.9 % $ 5.7 million $ 0.9 million

The Company’s effective tax rate through the first three months of fiscal 2021 was (43)%, compared with 7% for the same period of fiscal 2020.

The decrease in the effective rate was primarily attributable to a discrete tax benefit recorded during the first three months of fiscal 2021 to adjust deferred taxes recorded in Italy, applied against year-to-date income.

Additionally, the effective tax rate decreased as a result of changes in jurisdictional mix of income in fiscal 2021 compared with the same period of fiscal 2020.

The Company's effective tax rate in the second quarter of fiscal 2021 was (12.4)%, compared with (1)% for the same period of fiscal 2020.

The decrease in the effective rate was primarily attributable to changes in jurisdictional mix of income during the three months ended March 31, 2021 compared to the same period of fiscal 2020.

The effective tax rate differs from the U.S.

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Net Income (Loss)

Net income was $2.9 million during the first three months of fiscal 2021, compared with a net loss of $1.3 million in fiscal 2020, respectively.

The increase in income is primarily due to higher gross profit, attributed to continued cost saving activities, insurance recoveries received in the first three months of fiscal 2021, the favorable tax benefit as described above, and lower selling, general and administrative expenses.

Net loss was $1.5 million during the second quarter of fiscal 2021, compared with net income of $3.3 million in the comparable period of fiscal 2020.

The decrease is primarily due to lower sales, increase in idle costs, and higher selling, general and administrative expenses.

Prior period includes a non-recurring gain of insurance recoveries in the amount of $1.0 million as the Company continued to work through the restoration of the Orange location.

Non-GAAP Financial Measures

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The Company’s calculation of EBITDA and Adjusted EBITDA may not be comparable to the calculation of similarly titled measures reported by other companies.

The following table sets forth a reconciliation of net loss to EBITDA and Adjusted EBITDA:

Dollars in thousands Three Months Ended

The following table sets forth a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA:

Dollars in thousands Three Months Ended Six Months Ended

March 31, March 31,

2021 2020 2021 2020

Net income (loss) $ (1,491) $ 3,260 $ 1,502 $ 1,919

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Interest expense, net 169 262 335 513

Income tax benefit (905) (95)

Income tax expense (benefit) 165 (39) (740) (134)

EBITDA 748 5,358 4,827 6,029

Foreign currency exchange loss, net (1) 7 1

Other income, net (2) 62 (108)

Foreign currency exchange loss (income), net (1) 14 (1) 21 —

Other loss (income), net (2) 42 25 103 (84)

Loss on disposal of assets (3) — 41 — 41

Gain on insurance recoveries (4) — (1,000) (2,495) (1,000)

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(2) Represents miscellaneous non-operating income or expense, such as pension costs or grant income.

(3) Represents the difference between the proceeds from the sale of operating equipment and the carrying values shown on the Company's books.

(4) Represents the difference between the insurance proceeds received for the damaged property and the carrying values shown on the Company's books for the assets that were damaged in the fire at the Orange location.

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Historically, the main sources of liquidity have been cash flows from operations and borrowings under our Credit Agreement.

However, the ongoing impact of the COVID-19 pandemic (and the rapidly changing U.S.

and global market and economic conditions due to the COVID-19 outbreak) remain uncertain, with the commercial aerospace market continuing to be impacted by the global disruption in travel and, further, the pandemic and responses to the continued spread of the pandemic causing continued interruptions to the business of our customers and suppliers, which in turn is likely to impact our business, operations and results as well as our liquidity and capital resources.

The ongoing impact and magnitude of the COVID-19 pandemic remain uncertain (including the pandemic's effects on the global economy and potential for market disruptions), with the commercial aerospace market continuing to be impacted by the global disruption in travel and, further, the pandemic and responses to the continued spread of the pandemic causing continued interruptions to the business of our customers and suppliers, which in turn is likely to impact our business, operations and results as well as our liquidity and capital resources.

The Company's liquidity could be negatively affected by customers extending payment terms to the Company and/or the decrease in demand for our products as a result of the impact of the COVID-19 on the commercial airline industry.

As the impact of the COVID-19 pandemic on the economy and the Company's operations continues to evolve, the Company and management will continue to assess liquidity needs.

Cash and cash equivalents was $1.2 million at December 31, 2020 and $0.4 million at September 30, 2020.

At December 31, 2020, $0.8 million of the Company’s cash and cash equivalents were in the possession of its non-U.S.

As the impact of the COVID-19 pandemic on the economy and the Company's operations continues to evolve, the Company and management will continue to assess and actively manage liquidity needs.

Cash and cash equivalents was $0.3 million at March 31, 2021 and $0.4 million at September 30, 2020.

At March 31, 2021, the majority of the Company’s cash and cash equivalents were in the possession of its non-U.S.

subsidiaries.

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Operating Activities

The Company’s operating activities provided $3.1 million of cash in the first three months of fiscal 2021, compared with usage of cash of $1.0 million in the first three months of fiscal 2020.

The cash provided in fiscal 2021 was primarily due to net income of $2.9 million and $1.4 million decrease in working capital, partially offset by $1.2 million in non-cash items, such as gain on insurance recovery and deferred income taxes, depreciation and amortization, equity based compensation, and LIFO effect.

The cash provided from working capital was primarily due to decrease in receivables due to customer collections and decreased accrued liabilities.

The Company’s operating activities used $1.0 million of cash in the first three months of fiscal 2020.

The cash used by operating activities in the first three months of fiscal 2020 was primarily due to an increase in working capital of $1.4 million and net loss of $1.3 million, partially offset by $1.8 million of non-cash items such as depreciation and amortization of $1.9 million, and other non-cash items, such as equity based compensation, deferred income taxes and LIFO effect.

The use of cash

from working capital was primarily due to increase in inventories and payments to suppliers, partially offset by decreased receivables resulting from collections.

The Company’s operating activities provided $5.8 million of cash in the first six months of fiscal 2021, compared with usage of cash of $0.4 million in the first six months of fiscal 2020.

The cash provided in fiscal 2021 was primarily due to net income of $1.5 million and a $3.2 million decrease in working capital, and by $1.1 million in non-cash items, such as gain on insurance recovery and deferred income taxes, depreciation and amortization, equity based compensation, and LIFO effect.

The cash provided from working capital was primarily due to decrease in receivables due to customer collections and decreased sales.

The Company’s operating activities used $0.4 million of cash in the first six months of fiscal 2020.

The cash used by operating activities in the first six months of fiscal 2020 was primarily due to the use in working capital of $5.1 million (increase in inventory of $2.9 million, $2.2 million in contract assets, net accruals of $1.2 million partially offset by a $1.5 million decrease in receivables) partially offset by net income of $1.9 million and by $2.8 million of non-cash items such as depreciation and amortization of $3.8 million, offset by $1.0 million of other noncash items, such as gain on insurance recovery.

The use of cash from working capital was primarily due to increase in inventories to support orders in the second half of fiscal 2020 and payments to suppliers and disbursements related to the fire recovery, partially offset by decreased receivables resulting from improved collections.

Investing Activities

Cash used for investing activities was $0.3 million in the first three months of fiscal 2021, which includes $3.5 million of insurance recovery on the damaged property related to the fire at the Orange location, compared with cash provided for investing activities of $1.2 million in the first three months of fiscal 2020.

Cash used for investing activities was $1.3 million in the first six months of fiscal 2021, which includes $4.1 million of insurance recovery on the damaged property related to the fire at the Orange location, compared with $0.1 million in the first six months of fiscal 2020.

Capital expenditures were $5.4 million, of which $3.6 million related to the continued restoration of the Orange location as a result of the fire.

In addition to the $3.7 million spent for capital expenditures during the first three months of fiscal 2021, $1.6 million was committed for future capital expenditures as of December 31, 2020.

The Company anticipates that the total fiscal 2021 capital expenditures will be within the range of $2.5 million to $4.5 million (exclusive of fire related expenditures) and will relate principally to the further enhancement of production and product offering capabilities and operating cost reductions.

In addition to the $5.4 million spent for capital expenditures during the first six months of fiscal 2021, $1.6 million was committed for future capital expenditures as of March 31, 2021.

The Company anticipates that the remaining total fiscal 2021 capital expenditures will be within the range of $1.5 million to $2.0 million (exclusive of fire related expenditures) and will relate principally to the further enhancement of production and product offering capabilities and operating cost reductions.

Separate from the amounts given above, the Company anticipates incurring additional costs in fiscal 2021 of approximately $1.0 million to $1.5 million in capital expenditures at the Orange location as the result of the fire and resulting damage that took place.

These costs are expected to be offset by the insurance proceeds received.

These costs are expected to be offset by the insurance proceeds previously received.

Financing Activities

Cash used by financing activities was $2.1 million in the first three months of fiscal 2021, compared with cash used by financing activities of $0.2 million in the first three months of fiscal 2020.

The Company had net repayments from the revolver under the Credit Agreement of $3.7 million in the first three months of fiscal 2021 and net borrowings of $1.1 million in the first three months of fiscal 2020.

Cash used by financing activities was $4.6 million in the first six months of fiscal 2021, compared with cash provided by financing activities of $0.5 million in the first six months of fiscal 2020.

As discussed in Note 5, Debt, the Company amended the Credit Agreement and the Export Agreement on February 19, 2021.

The combined maximum borrowings remain unchanged at $35.0 million.

The Fifth Amendment (the "Fifth Amendment") to the Credit Agreement (as amended, the "Credit Agreement") consists of a senior secured revolving credit facility with a maximum borrowing $28.0 million, previously $30.0 million.

The revolving commitment through the First Amendment (the "First Amendment") of the Export Credit Agreement, which lends amounts to the Company on foreign receivables increases its revolving commitment from $5.0 million to $7.0 million.

The Fifth Amendment, among other things, extends the maturity date from August 6, 2021 to February 19, 2024.

The Company had net repayments to the revolver under the Credit Agreement of $5.1 million in the first six months of fiscal 2021 compared with net borrowings of $1.6 million in the first six months of fiscal 2020.

Under the Company's Credit Agreement, the Company is subject to certain customary loan covenants regarding availability as discussed in Note 5, Debt.

The availability at December 31, 2020 was $16.8 million.

The availability at March 31, 2021 was $18.1 million.

If availability had fallen short, the Company would be required to meet the fixed charge coverage ratio ("FCCR") covenant, which must not be less than 1.1 to 1.0.

In the event of a default, we may not be able to access our revolver, which could impact the ability to fund working capital needs, capital expenditures and invest in new business opportunities.

Because the availability was greater than the 12.5% of the Revolving Commitment as of December 31, 2020, the FCCR calculation was not required.

Because the availability was greater than the 10.0% of the Revolving Commitment as of March 31, 2021, the FCCR calculation was not required.

As the Company’s Credit Agreement is asset-based, a sustained significant decrease in revenue in the U.S.

or excessive aging of the underlying receivables as a result of the impact of the COVID-19 pandemic could materially affect the collateral capacity limitation of the availability under the Credit Agreement and could impact our ability to comply with covenants in our Credit Agreement.

or excessive aging of the underlying receivables and inventory as a result of the impact of the COVID-19 pandemic could materially affect the collateral capacity limitation of the availability under the Credit Agreement and could impact our ability to comply with covenants in our Credit Agreement.

Future cash flows from the Company’s operations may be used to pay down amounts outstanding under the Credit Agreement and its foreign related debts.

The Company believes it has adequate cash/liquidity available to finance its operations from the combination of (i) the Company’s expected cash flows from operations and (ii) funds available under the Credit Agreement for its domestic locations.

The Company was able to defer payments for certain debt obligations at its Maniago location to provide Maniago with sufficient liquidity.

The Company's current Credit Agreement is set to mature within the next twelve months.

As such, the Company’s plan is to refinance.

However, there are no guarantees that the refinance will be with similar terms to the current Credit Agreement, and if the refinance does not occur, the Company would not be able to meet its debt obligations.

Additionally, the credit and capital markets has seen significant volatility.

Tightening of the credit market and standards, as well as capital market volatility, could negatively impact our ability to obtain additional debt financing on terms equivalent to our existing Credit Agreement, in the event the Company seeks additional liquidity sources as a result of the continued impact of COVID-19.

The Company was previously able to defer payments for certain debt obligations at its Maniago location to provide Maniago with liquidity.

Additionally, the credit and capital markets has seen significant volatility during the course of the pandemic.

a result of the continued impact of COVID-19.

Capital market uncertainty and volatility, together with the Company’s market capitalization and status as a smaller reporting company could also negatively impact our ability to obtain equity financing.

6 unchanged sentences

Upon initial recognition of the exposure, the expected credit loss model requires entities to estimate the credit losses expected over the life of an exposure (or pool of exposures).

The estimate of expected credit losses should consider historical

information, current information and reasonable and supportable forecasts, including estimates of prepayments.

The estimate of expected credit losses should consider historical information, current information and reasonable and supportable forecasts, including estimates of prepayments.

Financial instruments with similar risk characteristics should be grouped together when estimating expected credit losses.

4 unchanged sentences

The Company will continue to evaluate the effect of adopting ASU 2016-13 will have on the Company's results within the consolidated condensed statements of operations and financial condition.

In December 2019, ASU 2019-12, " Income Taxes (Topic 740):

In December 2019, the FASB issued ASU 2019-12, " Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes" was issued to (i) reduce the complexity of the standard by removing certain exceptions to the general principles in Topic 740 and (ii) improve consistency and simplify other areas of Topic 740 by clarifying and amending existing guidance.

1 unchanged sentence

The Company is currently in the process of evaluating the impact of adoption of the rules on the Company's financial condition, results of operations and disclosure.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which is intended to provide temporary optional expedients and exceptions to the U.S.

GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates.

This ASU, along with recently issued ASU 2021-01, which further clarifies the scope of Topic 848, is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2022.

The Company is currently evaluating these standards to determine whether it will apply the optional expedients and exceptions.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis