What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-07-06 · 136 added, 66 removed, 134 unchanged (60% of the section changed)

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(17) investigations, claims, disputes, enforcement actions, litigation and/or other legal proceedings;

(18) extraordinary or force majeure events affecting the business or operations of our business;

and (19) the continued long term impact of the COVID-19 pandemic and related residual negative impact on the global economy, which may exacerbate the above factors and/or impact our results of operations and financial condition;

(20) in connection with its entry into the Forbearance Agreement, the Company is evaluating available financial alternatives, including obtaining acceptable alternative financing as well as seeking additional waivers, forbearances or amendments to the covenants or other provisions of the Credit Agreement to address any existing or future defaults and has engaged financial advisors to assist the Company.

If the Company is unable to reach an agreement with its lender to waive the defaults, extend the forbearance period or find alternative financing prior to the expiration of the forbearance period, the lender of the Credit Agreement may choose to accelerate repayment.

The Company cannot provide assurances that it will be successful in negotiating such a waiver or extension of the forbearance period, restructuring of existing debt obligations, obtaining capital or entering into a strategic alternative transaction which provides sufficient funding for the refinancing of its outstanding indebtedness prior to the expiration of the forbearance period or prior to the maturity date of its obligations under the Credit Agreements.

The Company is engaged in the production of forgings and machined components primarily for the A&E markets.

(18) extraordinary or force majeure events affecting the business or operations of our business (19) the continued long term impact of the COVID-19 pandemic and related residual negative impact on the global economy, which may exacerbate the above factors and/or impact our results of operations and financial condition;

and (20) in connection with its entry into the Seventh

Amendment to its Credit Agreement and Third Amendment to its Export Credit Agreement, the Company is evaluating available financial alternatives, including obtaining acceptable alternative financing.

The Company has obtained lender waiver on Existing Defaults and concluded the forbearance period as described under the Forbearance Agreement dated April 28, 2023.

If the Company is unable to find alternative financing as contemplated by the terms of the Seventh Amendment, the lender under the Credit Agreement may choose to accelerate repayment.

The Company cannot provide assurances that it will be able to provide the post closing deliverables as established under the Seventh Amendment of the Credit Agreement or be successful in restructuring of existing debt obligations, obtaining capital or entering into a strategic alternative transaction which provides sufficient funding for the refinancing of its outstanding indebtedness prior to the maturity date of its obligations under the Credit Agreements.

The Company engages in the production of forgings and machined components primarily for the A&E and commercial space markets.

The processes and services provided by the Company include forging, heat-treating, machining, subassembly, and test.

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(ii) the projected maintenance, repair and overhaul schedules for commercial, business and military aircraft, as well as the engines that power such aircraft;

and (iii) the projected build rate and repair for industrial turbines.

(iii) the projected build rate and repair for industrial turbines;

and (iv) commercial space.

The Company operates within a cost structure that includes a significant fixed component.

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Impact of COVID-19 & Other Factors

The lingering impact and residual effects of the COVID-19 pandemic, along with other factors such as ongoing geopolitical tensions, continue to impact the United States and other countries in which the Company operates, including strains on supply chains and inflationary impacts.

The lingering impact and residual effects of the COVID-19 pandemic, along with other factors such as ongoing geopolitical tensions, strains on supply chains and inflationary impacts continue to impact the United States and other countries in which the Company operates.

During fiscal 2022, the ongoing impact of the COVID-19 pandemic continued to effect the Company’s results of operations.

Given the long lead times for certain of the Company's products, the Company has continued to see an impact related to the effects of COVID-19 on orders and deliveries in fiscal 2022.

Given the long lead times for certain of the Company's products, the Company has continued to see an impact related to the effects of COVID-19 on orders and deliveries in the first six months of fiscal 2023.

While the exact timing and pace of recovery in our markets continues to be indeterminable, commercial air travel is steadily recovering.

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Backlog of Orders

SIFCO’s total backlog at December 31, 2022 was $84.2 million, compared with $75.7 million as of December 31, 2021.

SIFCO’s total backlog at March 31, 2023 was $96.7 million, compared with $72.0 million as of March 31, 2022.

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, 2022 compared with Three Months Ended December 31, 2021

Net sales comparative information for the first three months of fiscal 2023 and 2022 is as follows:

(Dollars in millions) Three Months Ended

December 31, Increase/ (Decrease)

Six Months Ended March 31, 2023 compared with Six Months Ended March 31, 2022

Net sales comparative information for the first six months of fiscal 2023 and 2022 is as follows:

(Dollars in millions) Six Months Ended

March 31, Increase/ (Decrease)

Net Sales 2023 2022

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Total $ 40.5 $ 43.8 $ (3.3)

Net sales for the first three months of fiscal 2023 increased $2.1 million to $21.3 million, compared with $19.2 million in the comparable period of fiscal 2022.

Net sales for the first six months of fiscal 2023 decreased $3.3 million to $40.5 million, compared with $43.8 million in the comparable period of fiscal 2022.

In general, the production of the Company's products have lead times of varying lengths.

The timing of shipments, coupled with increased demand in the steam turbine power generation market, have contributed to the increase of sales year over year.

Fixed wing sales increased $0.8 million compared with the same period last year primarily due to F35 and F18 programs.

Rotorcraft sales increased $0.9 million compared with the same period last year primarily due to commercial and Blackhawk programs.

The energy components for power generation units increased by $1.0 million due to growth in the steam turbine markets that we serve.

Commercial products and other revenue decreased $0.6 million in the first three months of fiscal 2023 compared to the same period in fiscal 2022, primarily due to the timing of orders related to a munitions program.

Commercial net sales were 47.8% of total net sales and military net sales were 52.2% of total net sales in the first three months of fiscal 2023, compared with 43.4% and 56.6%, respectively, in the comparable period in fiscal 2022.

Military net sales increased by $0.2 million to $11.1 million in the first three months of fiscal 2023, compared with $10.9 million in the comparable period of fiscal 2022, primarily due to timing in order placement.

Co mmercial net sales increased $1.8 million to $10.2 million in the first three months of fiscal 2023, compared with $8.3 million in the comparable period of fiscal 2022 primarily due to an increase in the power generation steam turbine market.

The cybersecurity incident, due to information access limitations and system constraints, impacted domestic operations and the timing of shipments in the second quarter of fiscal 2023.

Year over year, the cybersecurity incident and extended raw material lead times largely drove the decrease in sales.

The Company's foreign operations were not impacted by the cybersecurity incident and is reflected in the sales to the power generation market that it primarily serves.

Fixed wing sales decreased $0.4 million compared with the same period last year primarily due to 767 and 737 programs.

Rotorcraft sales were flat compared with the same period last year.

The energy components for power generation units increased by $1.7 million due to growth in the steam turbine markets.

Commercial products and other revenue decreased $4.6 million in the first six months of fiscal 2023 compared to the same period in fiscal 2022, primarily due to the cybersecurity incident impact to domestic operations and timing of shipments, raw material lead times and the timing of orders related to a munitions program.

Commercial net sales were 53.1% of total net sales and military net sales were 46.9% of total net sales in the first six months of fiscal 2023, compared with 40.8% and 59.2%, respectively, in the comparable period in fiscal 2022.

Military net sales decreased by $6.9 million to $19.0 million in the first six months of fiscal 2023, compared with $25.9 million in the comparable period of fiscal 2022, primarily due to timing in order placement related to a munitions program and information access limitations and system constraints as a result of the cybersecurity incident.

Co mmercial net sales increased $3.7 million to $21.5 million in the first six months of fiscal 2023, compared with $17.9 million in the comparable period of fiscal 2022, primarily due to an increase in the power generation steam turbine market and commercial space.

Cost of Goods Sold

Cost of goods sold increased by $0.8 million, or 4.2%, to $20.0 million, or 94.1% of net sales, during the first three months of fiscal 2023, compared with $19.2 million or 99.9% of net sales, in the comparable period of fiscal 2022.

The increase is

primarily due to higher volume and $0.4 million idle expense partially offset by $0.5 million in lower payroll costs and NRV release of $0.8 million.

Gross profit increased $1.3 million to $1.3 million in the first three months of fiscal 2023, compared with nearly breakeven gross profit in the comparable period of fiscal 2022.

Gross margin percent of sales was 5.9% during the first three months of fiscal 2023, compared with nominal in the comparable period in fiscal 2022.

The increase in gross profit compared to prior fiscal year was primarily due to increased volume, lower payroll costs, release of NRV reserve $0.8 million and lower idle expense $0.9 million.

Cost of goods sold decreased by $4.8 million, or 11.3%, to $37.6 million, or 92.7% of net sales, during the first six months of fiscal 2023, compared with $42.3 million or 96.7% of net sales, in the comparable period of fiscal 2022.

The decrease is primarily due to lower volume, reduction of NRV reserve of $1.2 million and lower labor and idle expense of $0.6 million and $0.4 million, respectively partially offset by higher utility costs of $0.3 million.

Gross profit increased $1.5 million to $3.0 million in the first six months of fiscal 2023, compared with $1.5 million gross profit in the comparable period of fiscal 2022.

Gross profit percent of sales was 7.3% during the first six months of fiscal 2023, compared with 3.3% in the comparable period in fiscal 2022.

The increase in gross profit compared to prior fiscal year was primarily due to product mix, reduction of NRV reserve $1.2 million and lower labor and idle expense of $0.6 million and $0.4 million, respectively partially offset by higher utility costs of $0.3 million.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $3.3 million, or 15.4%, of net sales during the first three months of fiscal 2023, compared with $3.5 million, or 18.4%, of net sales in the comparable period of fiscal 2022.

The decrease in selling, general and administrative expenses is primarily due lower payroll costs $0.1 million and incentive compensation $0.2 million and $0.2 million lower commission.

Selling, general and administrative expenses were $7.1 million, or 17.6%, of net sales during the first six months of fiscal 2023, compared with $6.2 million, or 14.2%, of net sales in the comparable period of fiscal 2022.

The increase in selling, general and administrative expenses is primarily due to incremental IT costs related to the cybersecurity incident of $1.0 million.

See Note 12, Commitments and Contingencies for further discussion.

Amortization of Intangibles

Amortization of intangibles was $0.1 million in the first three months of fiscal 2023 and fiscal 2022.

Amortization of intangibles was $0.1 million in the first six months of fiscal 2023, compared with $0.2 million in the comparable period of fiscal 2022.

Other/General

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 2023 and 2022:

In the first six months of fiscal 2022, the Company recognized a gain on extinguishment of debt related to the PPP loan that was forgiven by the SBA for $5.1 million.

See Note 5, Debt and Subsequent Event for further discussion.

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 2023 and 2022:

Weighted Average

Interest Rate

Six Months Ended

March 31, Weighted Average

Outstanding Balance

Six Months Ended

2023 2022 2023 2022

Revolving credit agreement 6.3 % 1.8 % $ 11.8 million $ 9.9 million

Foreign term debt 4.2 % 3.2 % $ 7.2 million $ 6.3 million

Other debt 1.5 % 0.5 % $ 0.5 million $ 3.2 million

The Company’s effective tax rate through the first six months of fiscal 2023 was (1.9)%, compared with 33% for the same period of fiscal 2022.

The decrease in the effective rate was primarily attributable to changes in jurisdictional mix of income in fiscal 2023 compared with the same period of fiscal 2022.

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 loss was $5.0 million during the first six months of fiscal 2023, compared with net loss of $0.1 million in the comparable period of fiscal 2022.

The decrease compared with prior year is primarily due to PPP forgiveness, lower volume and higher selling, general and administrative expenses.

Three Months Ended March 31, 2023 compared with Three Months Ended March 31, 2022

Net sales for the second quarter of fiscal 2023 decreased 21.7% to $19.2 million, compared with $24.6 million in the comparable period of fiscal 2022.

The cybersecurity incident, due to information access limitations and system constraints, impacted domestic operations and the timing of shipments in the second quarter of fiscal 2023.

Extended raw material lead times in fiscal 2023 also contributed to the decrease in sales.

Net sales comparative information for the second quarter of fiscal 2023 and 2022 is as follows:

(Dollars in millions) Three Months Ended

March 31, Increase (Decrease)

Net Sales 2023 2022

Aerospace components for:

Fixed wing aircraft $ 8.8 $ 10.1 $ (1.3)

Rotorcraft 3.5 4.4 (0.9)

Energy components for power generation units 5.1 4.3 0.8

Commercial product and other revenue 1.8 5.8 (4.0)

Total $ 19.2 $ 24.6 $ (5.4)

The reduction in commercial product and other revenues of $4.0 million was due to information access limitations and system constraints as a result of the cybersecurity impact to domestic operations and shipments, extended raw material lead times and timing of orders for a munitions program partially offset by an increase in sales related to the commercial space industry.

Fixed wing sales decreased $1.3 million compared with the same period last year primarily due to F18 and 737 programs.

Rotorcraft sales decreased $0.9 million compared with the same period last year primarily due to V22 and H60 programs and procurement delays caused by prolonged long term agreement negotiations with certain customers.

This was partially offset by an increase of $0.8 million in power generation sales driven by growth in the steam turbine market.

Commercial net sales were 59.0% of total net sales and military net sales were 41.0% of total net sales in the second quarter of fiscal 2023, compared with 38.7% and 61.3%, respectively, in the comparable period of fiscal 2022.

Military net sales

decreased by $7.2 million to $7.9 million in the second quarter of fiscal 2023, compared with $15.1 million in the comparable period of fiscal 2022, primarily due to the timing of orders for a munitions program and F18 and H60 programs.

Commercial net sales increased $1.9 million to $11.4 million in the second quarter of fiscal 2023, compared with $9.5 million in the comparable period of fiscal 2022 primarily due to increase in sales related the commercial space, 737, 767 and 787 programs.

Cost of Goods Sold

Cost of goods sold was $17.5 million, or 91.1% of net sales, during the second quarter of fiscal 2023, compared with $23.1 million or 94.1% of net sales, in the comparable period of fiscal 2022, primarily due to lower volume, reduction of NRV reserve of $0.4 million partially offset by higher idle expense and utility costs of $0.5 million and $0.2 million, respectively.

Gross profit increased $0.2 million to $1.7 million during the second quarter of fiscal 2023, compared with $1.5 million in the comparable period of fiscal 2022.

Gross margin was 8.9% during the second quarter of fiscal 2023, compared with 5.9% in the comparable period in fiscal 2022.

The increase in gross margin was primarily due to lower costs incurred as noted above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $3.8 million, or 20.0% of net sales, during the second quarter of fiscal 2023, compared with $2.7 million, or 10.9% of net sales, in the comparable period of fiscal 2022.

The increase is primarily due to IT incident costs of $1.0 million and higher salary and benefit costs of $0.1 million.

Amortization of Intangibles

Amortization of intangibles was $0.1 million in the second quarter of fiscal 2023 compared with $0.1 million in the second quarter of fiscal 2022.

Other/General

Included in other income, net, in the second quarter of fiscal 2022 is the PPP loan for forgiveness of $5.1 million.

See Note 5, Debt and Subsequent Event for further discussion.

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 2023 and 2022:

Weighted Average

Interest Rate

Three Months Ended

December 31, Weighted Average

March 31, Weighted Average

Outstanding Balance

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Other debt 1.4 % 1.8 % $ 0.5 million $ 0.8 million

The Company’s effective tax rate through the first three months of fiscal 2023 was (2.6%), compared with 1.3% for the same period of fiscal 2022.

The decrease in the effective rate was primarily attributable to changes in jurisdictional mix of income in fiscal 2023 compared with the same period of fiscal 2022.

The Company's effective tax rate in the second quarter of fiscal 2023 was (1.2)%, compared with 1% for the same period of fiscal 2022.

The decrease in the effective rate was primarily attributable to changes in jurisdictional mix of income during the three months ended March 31, 2023 compared to the same period of fiscal 2022.

The effective tax rate differs from the U.S.

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statutory tax rate.

Net loss was $2.6 million during the first three months of fiscal 2023, compared with net loss of $3.7 million in the comparable period of fiscal 2022.

The improvement compared with prior year is primarily due to higher volume and lower selling, general and administrative expenses.

Net (Loss) Income

Net loss was $2.4 million during the second quarter of fiscal 2023, compared with net income of $3.6 million in the comparable period of fiscal 2022.

The net income in fiscal 2022 is primarily attributed to the gain on loan extinguishment related to the PPP loan noted above, partially offset by the higher costs noted above.

Non-GAAP Financial Measures

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Although the Company uses EBITDA and Adjusted EBITDA for the reasons noted above, the use of these non-GAAP financial measures as analytical tools has limitations.

Therefore, reviewers of the Company’s financial information should not consider them in isolation, or as a

substitute for analysis of the Company's results of operations as reported in accordance with GAAP.

Therefore, reviewers of the Company’s financial information should not consider them in isolation, or as a substitute for analysis of the Company's results of operations as reported in accordance with GAAP.

Some of these limitations include:

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• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and neither EBITDA nor Adjusted EBITDA reflects any cash requirements for such replacements;

• The omission of the substantial amortization expense associated with the Company’s intangible assets further limits the usefulness of EBITDA and Adjusted EBITDA;

• The omission of the amortization expense associated with the Company’s intangible assets further limits the usefulness of EBITDA and Adjusted EBITDA;

• Neither EBITDA nor Adjusted EBITDA includes the payment of taxes, which is a necessary element of operations.

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

Dollars in thousands Three Months Ended

Net loss $ (2,589) $ (3,691)

Dollars in thousands Three Months Ended Six Months Ended

March 31, March 31,

2023 2022 2023 2022

Net (loss) income $ (2,367) $ 3,639 $ (4,956) $ (52)

Depreciation and amortization expense 1,626 1,596 3,198 3,210

Interest expense, net 339 193 614 307

Income tax benefit 66 (49)

Income tax expense (benefit) 28 23 93 (26)

EBITDA (374) 5,451 (1,051) 3,439

Foreign currency exchange (gain) loss, net (1) 12 3 9 9

Other (income) loss, net (2) 182 (32)

Gain on disposal of assets (3) (11) —

Other (income), net (2) (328) (36) (146) (68)

Loss (gain) on disposal of assets (3) 14 (2) 3 (2)

Gain on extinguishment of debt (4) — (5,106) — (5,106)

Equity compensation (5) 85 145 207 306

LIFO impact (6) (461) 207 (199) 383

IT incident costs (7) 1,086 — 1,087 —

Adjusted EBITDA $ 34 $ 662 $ (90) $ (1,039)

(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, grant income and loss on insurance recovery.

(2) Represents miscellaneous non-operating income or expense, such as pension costs and foreign energy tax credits.

(3) Represents the difference between the proceeds from the sale of operating equipment and the carrying value shown on the Company's books or asset impairment of long-lived assets.

(4) Represents the gain on extinguishment of debt and interest for the amount forgiven by the SBA as it relates to the PPP loan.

(5) Represents the equity-based compensation expense recognized by the Company under the 2016 Plan due to granting of awards, awards not vesting and/or forfeitures.

(6) Represents the change in the reserve for inventories for which cost is determined using the last-in, first-out (“LIFO”) method.

(7) Represents incremental information technology costs as it relates to the cybersecurity incident and loss on insurance recovery.

Liquidity and Capital Resources

The main sources of liquidity for the Company have been cash flows from operations and borrowings under our Credit Agreement.

We anticipate that cash provided by the cash flows from operations and borrowing capacity under our Credit Agreement will be sufficient to meet our anticipated cash requirements for the next twelve months, which primarily include

operating expenses, including salaries, working capital requirements and certain capital expenditures (see "Investing Activities," below).

The Company's liquidity could be negatively affected if the Company is unable to reach an agreement with its lender to waive the defaults, extend the forbearance period or find alternative financing prior to the expiration of the forbearance period, if customers extending payment terms to the Company, or if there is a general decrease in demand for our products.

The Company's liquidity could be negatively affected if the Company is unable to find alternative financing prior to the expiration of the Credit Agreement, by customers extending payment terms to the Company and/or the decrease in demand for our products.

The Company and management will continue to assess and actively manage liquidity needs.

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See Note 7, Debt and Subsequent Event .

Cash and cash equivalents was $1.2 million at December 31, 2022 and $1.2 million at September 30, 2022.

At December 31, 2022, the majority of the Company’s cash and cash equivalents were in the possession of its non-U.S.

Cash and cash equivalents was $0.3 million at March 31, 2023 and $1.2 million at September 30, 2022.

At March 31, 2023, 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 for the first three months of fiscal 2023 provided $0.3 million of cash, generated primarily by decreases in accounts receivable of $1.6 million and inventory reserves $0.8 million, partially offset by an increase in inventory $1.5 million compared with September 30, 2022.

The Company’s operating activities for the first three months of fiscal 2022 provided $1.2 million of cash, generated primarily by accounts receivable collections, an increase in accounts payable due to increased raw material purchases and other non-cash items, such as depreciation and amortization compared with September 30, 2021.

Cash generation activities were partially offset by the net loss of $3.7 million and a $2.7 million increase in inventory to support sales in fiscal 2022.

The Company’s operating activities used $0.4 million of cash in the first six months of fiscal 2023, primarily due to operating results and an increase in accounts payable of $3.9 million.

The Company’s operating activities used $3.2 million of cash in the first six months of fiscal 2022, primarily due to operating results, an increase in inventory of $2.4 million, and a reduction of accrued liabilities of $1.2 million, partially offset by accounts receivable collections and a slight increase in accounts payable.

Investing Activities

Cash used for investing activities was $0.5 million in the first three months of fiscal 2023 and the first three months of fiscal 2022 for capital expenditures.

Capital commitments as of December 31, 2022 were $1.0 m illion.

Cash used for investing activities was $1.4 million in the first six months of fiscal 2023, compared with $1.5 million in the first six months of fiscal 2022.

Capital commitments as of March 31, 2023 were $0.5 million.

The Company anticipates that the remaining total fiscal 2023 capital expenditures will be within the range of $0.5 million to $1.0 million and will relate principally to the further enhancement of production and product offering capabilities and drive operating cost reductions.

Financing Activities

Cash provided by financing activities was $0.1 million in the first three months of fiscal 2023, compared with cash used for financing activities of $0.4 million in the first three months of fiscal 2022.

As discussed in Note 7, Debt and Subsequent Event, the Company's Maniago location obtained new borrowings from a lender during the first three months of fiscal 2022 for approximately $1.1 million with a six year term.

The proceeds of this loan are to be used for working capital purposes.

The Company had nominal net short-term debt repayments in the first three months of fiscal 2023 compared with net short-term debt repayments of $1.5 million in the first three months of fiscal 2022.

The Company had net borrowings to the revolver under the Credit Agreement of $0.3 million in the first three months of fiscal 2023 compared with net borrowings of $0.3 million in the first three months of fiscal 2022.

Cash provided by financing activities was $0.8 million in the first six months of fiscal 2023, compared with $4.5 million in the first six months of fiscal 2022.

As discussed in Note 7, Debt and Subsequent Event, the Company's Maniago location obtained borrowings from a lender during the first six months of fiscal 2022 for approximately $1.1 million with a six year term.

The proceeds of this loan were to be used for working capital purposes.

The Company had $0.5 million of net short-term debt repayments in the first six months of fiscal 2023 compared with net short-term debt repayments of $0.1 million in the first six months of fiscal 2022.

The Company had net borrowings to the revolver under the Credit Agreement of $1.8 million in the first six months of fiscal 2023 compared with net borrowings of $3.9 million in the first six months of fiscal 2022.

Under the Company's Credit Agreement, the Company is subject to certain customary loan covenants regarding availability as discussed in Note 7, Debt and Subsequent Event.

The availability at December 31, 2023 was $8.1 million, which was greater than the 10.0% of the Revolving Commitment as of December 31, 2023.

The availability at March 31, 2023 was $2.5 million, which was greater than the 10.0% of the Revolving Commitment as of March 31, 2023.

If availability falls below the 10% level or an event of default occurs, the Company is required to meet the fixed charge coverage ratio covenant, which must not be less than 1.1 to 1.0.

As noted in Note 7, Debt and Subsequent Event, on March 23, 2022, the Company entered its Sixth Amendment which amends the Credit Agreement to, among other things, (i) revise the fixed coverage ratio to exclude the first $1.5 million of unfunded capital expenditures through April 20, 2023, (ii) increase the letter of credit sub-limit from $2.0 million to $3.0 million, (iii)

modify the reference rate from the London interbank offered rate ("LIBOR") to the secured overnight financing rate ("SOFR") under the Credit Agreement, and (iv) revise the property, plant and equipment component of the borrowing base under the Credit Agreement.

Additionally, the Export Credit Agreement was amended by the Second Amendment, which replaces the reference rate from LIBOR to SOFR in the Export Credit Agreement.

As noted in Note 7, Debt and Subsequent Event on February 6, 2023, the Company received a Notice from its Lender, with respect to (i) that certain Credit Agreement dated as of August 8, 2018;

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(ii) the aggregate outstanding principal balance of the Revolving Exposure under the ABL Credit Agreement and Export Revolving Loan may not at any time exceed the lesser of $19.0 million and the Borrowing Base.

As noted in Note 7, Debt and Subsequent Event, the Company entered its Sixth Amendment which amends the Credit Agreement to, among other things, (i) revise the fixed coverage ratio to exclude the first $1.5 million of unfunded capital expenditures through April 20, 2023, (ii) increase the letter of credit sub-limit from $2.0 million to $3.0 million, (iii) modify the reference rate from the London interbank offered rate ("LIBOR") to the secured overnight financing rate ("SOFR") under the Credit Agreement, and (iv) revise the property, plant and equipment component of the borrowing base under the Credit Agreement.

Additionally, the Export Credit Agreement was amended by the Second Amendment, which replaces the reference rate from LIBOR to SOFR in the Export Credit Agreement.

As noted in Note 7, Debt and Subsequent Event, on August 9, 2023, the Company entered into the Seventh Amendment to the Credit Agreement and the Third Amendment to the Export Credit Agreement with its lender.

The Seventh Amendment amends the Credit Agreement to, among other things, (i) reduce the Revolving Credit Agreement to $23.0 million, thereby reducing the total revolving commitment to $30.0 million;

(ii) modifies the loan maturity date to December 31, 2023;

(iii) provides waiver of Existing Defaults and concludes the forbearance period as described under the Forbearance Agreement dated April 28, 2023;

(iv) the aggregate outstanding principal balance of the Revolving Exposure under the ABL Credit Agreement and Export Revolving Loan may not at any time exceed the lesser of Revolving Commitment, less the Availability Block, if applicable, the Borrowing Base, and in combination with the Export Revolving Loan under the Export Credit Agreement $19.0 million.

The Second Amendment amends the Export Credit Agreement to (i) modify the loan maturity date to December 31, 2023 and (ii) provides waiver of Existing Defaults and concludes the forbearance period as described under the Forbearance Agreement dated April 28, 2023.

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 obtain new financing at its Maniago location to provide Maniago with sufficient liquidity.

In fiscal year 2022, the Company was able to obtain new financing at its Maniago location to provide Maniago with sufficient liquidity.

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

5 unchanged sentences

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