What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-06 · 105 added, 94 removed, 188 unchanged (51% of the section changed)

11 unchanged sentences

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

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;

(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;

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

26 unchanged sentences

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.

In the third quarter of fiscal 2021, the Company completed the restoration of the final two of the six presses damaged in the fire.

Restoration of the building structure is nearly complete.

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.

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

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 six months ended, refer to Note 10, Commitments and Contingencies.

For further detail of how the consolidated condensed statements of operations and balance sheets were impacted for the nine 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.

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, throughout the course of the pandemic, new variants of COVID-19 have been identified and spread significantly, 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.

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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.

Such employees have since returned to work;

however, the Company implemented a second furlough in July 2021.

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 March 31, 2021 was $82.3 million, compared with $107.0 million as of March 31, 2020.

SIFCO’s total backlog at June 30, 2021 was $78.1 million, compared with $100.9 million as of June 30, 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.

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)

Nine Months Ended June 30, 2021 compared with Nine Months Ended June 30, 2020

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

(Dollars in millions) Nine Months Ended

June 30, Increase/ (Decrease)

Net Sales 2021 2020

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Total $ 75.3 $ 84.5 $ (9.2)

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.

Net sales for the first nine months of fiscal 2021 decreased $9.2 million to $75.3 million, compared with $84.5 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.

Fixed wing aircraft sales decreased $10.2 million compared with the same period last year due to timing of customer orders and a decrease in build rates in certain commercial programs, partially offset by increased sales for military programs.

Commercial products and other revenue decreased $3.3 million in the first nine 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 $4.9 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 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.

Commercial net sales were 35.1% of total net sales and military net sales were 64.9% of total net sales in the first nine months of fiscal 2021, compared with 41.4% and 58.6%, respectively, in the comparable period in fiscal 2020.

Military net sales decreased by $0.7 million to $48.8 million in the first nine months of fiscal 2021, compared with $49.6 million in the comparable period of fiscal 2020, primarily due to the timing of orders related to a munitions program.

Commercial net sales decreased $8.5 million to $26.5 million in the first nine months of fiscal 2021, compared with $35.0 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 $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.

Cost of goods sold decreased by $5.5 million, or 7.7%, to $65.3 million, or 86.8% of net sales, during the first nine months of fiscal 2021, compared with $70.8 million or 83.7% of net sales, in the comparable period of fiscal 2020.

Prior year results include higher insurance recoveries of $2.0 million related to business interruption and mitigation expense as part of the fire settlement.

Once excluded from the results, the decrease is primarily due 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.

Gross profit decreased $3.8 million to $10.0 million during the first nine months of fiscal 2021, compared with $13.8 million in the comparable period of fiscal 2020.

Gross margin percent of sales was 13.2% during the first nine months of fiscal 2021, compared with 16.3% in the comparable period in fiscal 2020.

The decrease in gross profit was primarily due to decreased volume and lower insurance recoveries.

Selling, General and Administrative Expenses

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.

Selling, general and administrative expenses were $10.3 million, or 13.7% of net sales during the first nine months of fiscal 2021, compared with $10.4 million, or 12.3% 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 $0.5 million in the first six months of fiscal 2021, compared with $0.8 million in the comparable period of fiscal 2020.

Amortization of intangibles was $0.8 million in the first nine months of fiscal 2021, compared with $1.2 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 $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:

The Company recorded income before taxes of $1.0 million in the first nine months of fiscal 2021, compared with $4.1 million in the first nine months of fiscal 2020.

In the first nine months of fiscal 2021, results included a $2.5 million gain on insurance recoveries, compared to $2.7 million in the comparable period.

Interest expense was $0.5 million in the first nine months of fiscal 2021, compared to $0.7 million in the first nine 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 nine months of both fiscal 2021 and 2020:

Weighted Average

Interest Rate

Six Months Ended

March 31, Weighted Average

Nine Months Ended

June 30, Weighted Average

Outstanding Balance

Six Months Ended

Nine Months Ended

2021 2020 2021 2020

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Other debt 0.9 % 0.4 % $ 5.7 million $ 6.1 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 Company’s effective tax rate through the first nine months of fiscal 2021 was (79)%, compared with (2)% 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.

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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:

Net income was $1.8 million during the first nine months of fiscal 2021, compared with $4.2 million in fiscal 2020.

The decrease in income is primarily due to lower sales and lower insurance recoveries since the claim was settled in the first quarter of 2021, partially offset by continued cost saving activities and the favorable tax benefit recorded in the first nine months of fiscal 2021.

Three Months Ended June 30, 2021 compared with Three Months Ended June 30, 2020

Net sales for the third quarter of fiscal 2021 decreased 8.8% to $25.3 million, compared with $27.8 million in the comparable period of fiscal 2020.

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

(Dollars in millions) Three Months Ended

March 31, Increase (Decrease)

June 30, Increase (Decrease)

Net Sales 2021 2020

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Total $ 25.3 $ 27.8 $ (2.5)

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.

The increase in commercial product and other revenues was attributed to timing of orders for a munitions program.

There was a decrease of $4.8 million in fixed wing aircraft revenues due to timing of customer orders and a decrease in build rates in certain commercial programs.

The decrease of $2.6 million in rotorcraft sales is primarily due to timing of shipments related to certain military programs.

Commercial net sales were 25.5% of total net sales and military net sales were 74.5% of total net sales in the third quarter of fiscal 2021, compared with 44.2% and 55.8%, respectively, in the comparable period of fiscal 2020.

Military net sales increased by $3.4 million to $18.9 million in the third quarter of fiscal 2021, compared with $15.5 million in the comparable period of fiscal 2020, primarily due to the timing of orders for a munitions program.

Commercial net sales decreased $5.8 million to $6.5 million in the third quarter of fiscal 2021, compared with $12.3 million in the comparable period of fiscal 2020 primarily due to decreased build rates in certain commercial programs.

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.

Cost of goods sold was $22.0 million, or 87.0% of net sales, during the third quarter of fiscal 2021, compared with $23.6 million or 85.1% of net sales, in the comparable period of fiscal 2020, primarily due to lower volume from commercial aerospace programs.

Gross profit decreased $0.9 million to $3.3 million during the third quarter of fiscal 2021, compared with $4.1 million in the comparable period of fiscal 2020.

Gross margin was 13.0% during the third quarter of fiscal 2021, compared with 14.9% in the comparable period in fiscal 2020.

The decrease in gross margin was primarily due to lower sales volume.

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.

Selling, general and administrative expenses were $2.9 million, or 11.5% of net sales, during the third quarter of fiscal 2021, compared with $2.9 million, or 10.3% 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 third 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.

Amortization of intangibles was $0.2 million in the third quarter of fiscal 2021 compared with $0.4 million in the third quarter of fiscal 2020.

The decrease was due to certain intangible assets that became fully amortized during the prior fiscal year.

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.

The Company recorded income before income taxes of $0.2 million in the third quarter of fiscal 2021, compared to income before income taxes of $2.3 million in the third quarter of fiscal 2020.

Prior period results include a $1.7 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:

Interest expense was $0.1 million in the third quarter of fiscal 2021, compared to $0.2 million in the third 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 third quarter of both fiscal 2021 and 2020:

Weighted Average

1 unchanged sentence

Three Months Ended

March 31, Weighted Average

June 30, Weighted Average

Outstanding Balance

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Other debt 0.9 % 0.9 % $ 5.6 million $ 6.1 million

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 Company's effective tax rate in the third quarter of fiscal 2021 was (16)%, compared with 2% 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 June 30, 2021 compared to the same period of fiscal 2020.

The effective tax rate differs from the U.S.

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statutory tax rate.

Net Income (Loss)

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.

Net income was $0.3 million during the third quarter of fiscal 2021, compared with net income of $2.3 million in the comparable period of fiscal 2020.

Prior year results benefited from a $1.7 million insurance recovery gain 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 income (loss) to EBITDA and Adjusted EBITDA:

Dollars in thousands Three Months Ended Six Months Ended

March 31, March 31,

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

Dollars in thousands Three Months Ended Nine Months Ended

June 30, June 30,

2021 2020 2021 2020

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

Net income $ 254 $ 2,250 $ 1,756 $ 4,168

Depreciation and amortization expense 1,980 1,845 5,710 5,576

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EBITDA 2,341 4,311 7,168 10,340

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

Foreign currency exchange loss, net (1) 1 12 22 12

Other loss (income), net (2) (232) 27 (129) (58)

5 unchanged sentences

(1) Represents the gain or loss from changes in the exchange rates between the functional currency and the foreign currency in which the transaction is denominated.

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

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

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

4 unchanged sentences

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

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 ongoing impact and magnitude of the COVID-19 pandemic remain uncertain (including the pandemic's continued 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 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.

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.

See "Results of Operation - COVID - 19" for further discussion of the impact of the pandemic.

Cash and cash equivalents was $0.2 million at June 30, 2021 and $0.4 million at September 30, 2020.

At June 30, 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 $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 Company’s operating activities provided $3.5 million of cash in the first nine months of fiscal 2021, compared with $2.3 million in the first nine months of fiscal 2020.

The cash provided in fiscal 2021 was primarily due to net income of $1.8 million, a $1.4 million decrease in working capital, and $3.1 million in non-cash items, such as gain on insurance recovery and changes in 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.

The Company’s operating activities provided $2.3 million of cash in the first nine months of fiscal 2020.

The cash provided by operating activities in the first nine months of fiscal 2020 was primarily due to net income of $4.2 million and $2.9 million in non-cash items, such as depreciation and amortization, equity based compensation, deferred income taxes and LIFO effect, partially offset by the use of working capital of $4.8 million (increase in inventory of $4.6 million, $2.8 million in contract assets, net accruals of $1.7 million offset by $4.3 million decrease in receivables).

The use of cash from working capital was primarily due to increase in inventories to support orders and customer adjustments for the remaining 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 $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.

Cash used for investing activities was $1.8 million in the first nine 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 $1.3 million in the first nine months of fiscal 2020.

Capital expenditures were $5.9 million, of which $3.7 million related to the continued restoration of the Orange location as a result of the fire.

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.

In addition to the $5.9 million spent for capital expenditures during the first nine months of fiscal 2021, $1.3 million was committed for future capital expenditures as of June 30, 2021.

The Company anticipates that the remaining total fiscal 2021 capital expenditures will be within the range of $0.5 million to $1.1 million (exclusive of fire related expenditures) and will relate principally to the further enhancement of production and product offering capabilities and operating cost reductions.

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Financing Activities

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.

Cash used for financing activities was $1.9 million in the first nine months of fiscal 2021, compared with cash used for financing activities of $1.1 million in the first nine months of fiscal 2020.

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

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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 revolving commitment through the First Amendment (the "First Amendment") of the Export Credit Agreement, which lends amounts to the Company on foreign receivables increased 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.

As discussed in Note 5, Debt, the Company's Maniago, Italy location obtained borrowings from two separate lenders during the third quarter of fiscal 2021.

The first loan was for $0.7 million with repayment terms of 78 months, of which $0.3 million was forgiven in the same period and included as a gain in debt extinguishment in the operating activities within the consolidated condensed statements of cash flows.

A second loan with a five year term was obtained in the amount of $0.3 million.

The proceeds of these loans were to be used for working capital purposes.

The Company had net repayments to the revolver under the Credit Agreement of $3.0 million in the first nine months of fiscal 2021 compared with net repayments of $4.2 million in the first nine 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 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.

The availability at June 30, 2021 was $17.5 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 10.0% of the Revolving Commitment as of March 31, 2021, the FCCR calculation was not required.

Because the availability was greater than the 10.0% of the Revolving Commitment as of June 30, 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.

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

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.

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.

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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.

ASU 2020-04 was effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022.

The Company has not applied any optional expedients and exceptions to date, and will continue to evaluate the impact of the guidance and whether it will apply the optional expedients and exceptions.

In August 2018, the FASB issued ASU 2018-14, " Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20), " which adds the following disclosure requirements:

(1) the weighted-average interest crediting rates used in the Company's cash balance pension plans and other similar plans;

(2) a narrative description of the reasons for significant gains and losses affecting the benefit obligation for the period;

and (3) an explanation of any other significant changes in the benefit obligation or plan assets that are not otherwise apparent in the other disclosures required by Accounting Standards Codification ("ASC") Topic 715, " Compensation - Retirement Benefits.

" The ASU also clarifies the guidance included in ASC 715-20-50-3 on defined benefit plans disclosure requirements.

This ASU will be effective October 1, 2021 and the Company is currently assessing the impact that this standard will have on our consolidated condensed financial statements.

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