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What changed in SIFCO INDUSTRIES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of SIFCO INDUSTRIES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+198 added−211 removedSource: 10-K (2024-01-02) vs 10-K (2022-12-23)

Top changes in SIFCO INDUSTRIES INC's 2023 10-K

198 paragraphs added · 211 removed · 148 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

26 edited+4 added−17 removed23 unchanged
Biggest changeApproximately 65% of our workforce within the U.S. is composed of skilled and unskilled labor, and the remaining population includes management, corporate, administrative and support staff. The Company is a party to collective bargaining agreements ("CBA") with certain employees within the Cleveland location.
Biggest changeThe Company’s employees include full-time, part-time, and temporary employees. Approximately 68% of our employees were located within the U.S. and 32% of our employees were located in Italy. Approximately 61% of our workforce within the U.S. is composed of skilled and unskilled labor, and the remaining population includes management, corporate, administrative and support staff.
SIFCO relies on its ability to adapt its services and operations to changing requirements of the market in general and its customers in particular. No material part of SIFCO’s business is seasonal. For additional financial information about geographic areas, refer to Note 12, Business Information, of the consolidated financial statements.
SIFCO relies on its ability to adapt its services and operations to changing requirements of the market in general and its customers in particular. No material part of SIFCO’s business is seasonal. For additional financial information about geographic areas, refer to Note 12, Business Information .
As a result of supply chain disruptions and inflationary pressures, the Company has experienced increases in pricing for raw materials which could effect our customer demand and cost. However, SIFCO believes that its ability to pass through raw material costs on certain contractual agreements and discrete orders limits this exposure.
As a result of supply chain disruptions and inflationary pressures, the Company has experienced increases in pricing for raw materials which could effect our customer demand and cost. 4 Table of Contents However, SIFCO believes that its ability to pass through raw material costs on certain contractual agreements and discrete orders limits this exposure.
The Company's top programs include Blackhawk (H60), V-22, C-130 and F-35. The defense budget in the United States varies from year to year, driven by defense procurement policy and government budget constraints. Coming out of the pandemic, the defense aerospace market has been impacted by COVID overproduction and build rates.
The Company's top programs include Blackhawk (H60), C-130, F-18 and F-35. The defense budget in the United States varies from year to year, driven by defense procurement policy and government budget constraints. Coming out of the pandemic, the defense aerospace market has been impacted by COVID overproduction and build rates.
SIFCO believes it can expand its market share by (i) continuing to increase capacity utilization; (ii) broadening its product lines through investment in equipment that expands its manufacturing capabilities; and (iii) developing new customers in markets where the participants require similar technical competence and service as those in the A&E industries.
SIFCO believes it can expand its market share by (i) continuing to increase capacity utilization; (ii) broadening its product lines through 5 Table of Contents investment in equipment that expands its manufacturing capabilities; and (iii) developing new customers in markets where the participants require similar technical competence and service as those in the A&E industries.
The Company temporarily lost NADCAP Certification at its Orange location in the third quarter of fiscal 2022 and was required to outsource the process that required such certification to a third party. The Company has since regained such NADCAP Certification in Orange in the first quarter of fiscal 2023 and has been able to fully resume operations.
The Company temporarily lost NADCAP Certification at its Orange location in the third quarter of fiscal 2022 and was required to outsource the process that required such certification to a third party. The Company regained such NADCAP Certification in Orange in the first quarter of fiscal 2023 and was able to fully resume operations.
The Company's success is not dependent on patents, trademarks, licenses or franchises. 4 Table of Contents Raw Materials While the effects from the COVID-19 pandemic disrupted the global supply chain and availability of raw materials, SIFCO generally has multiple sources for its raw materials, which consist primarily of high-quality metals essential to its business.
The Company's success is not dependent on patents, trademarks, licenses or franchises. Raw Materials While the residual effects from the COVID-19 pandemic disrupted the global supply chain and availability of raw materials, SIFCO generally has multiple sources for its raw materials, which consist primarily of high-quality metals essential to its business.
References to our website or the SEC’s website do not constitute incorporation by reference of the information contained on such websites, and such information is not part of this Form 10-K. 7 Table of Contents
References to our website or the SEC’s website do not constitute incorporation by reference of the information contained on such websites, and such information is not part of this Form 10-K.
SIFCO has positioned itself to be less dependent on OEM production, but with flexibility to address the demand cycle in this segment as well as continuing to support the aftermarket. 5 Table of Contents • SIFCO also supplies components to the commercial space industry, which is rapidly evolving.
SIFCO has positioned itself to be less dependent on OEM production, but with flexibility to address the demand cycle in this segment as well as continuing to support the aftermarket. • SIFCO supplies components to the commercial space industry, which is rapidly evolving.
In fiscal 2022, commercial and military revenues accounted for 47. 4% and 52.6% of revenues, respectively, compared with 36.7% in commercial revenues and 63.3% in military revenues in fiscal 2021. The Company's capabilities are focused on supplying critical components, consisting primarily of steel, high temperature alloys, nickel alloys, titanium and aluminum. SIFCO operates from multiple locations.
In fiscal 2023, commercial and military revenues accounted for 55.6% and 44.4% of revenues, respectively, compared with 47.4% in commercial revenues and 52.6% in military revenues in fiscal 2022. The Company's capabilities are focused on supplying critical components, consisting primarily of steel, high temperature alloys, nickel alloys, titanium and aluminum. SIFCO operates from multiple locations.
Therefore, build rates, particularly the Boeing 777-9 (formerly 777X), 787, 737 Max and the Airbus A350, declined and partially rebounded in 2022, but not as quickly as previously anticipated. • SIFCO supplies new and spare components to the energy industry, particularly the industrial gas and steam turbine markets.
Build rates, particularly the Boeing 777-9 (formerly 777X), 787, 737 MAX and the Airbus A350, declined and partially rebounded in 2022, but not as quickly as previously anticipated. In fiscal year 2023, build rates on these platforms continued to rebound. • SIFCO supplies new and spare components to the energy industry, particularly the industrial gas and steam turbine markets.
There are several ways in which we attract, develop, and retain highly qualified talent and measure the ongoing effectiveness of our human capital management practices, including by making the safety and health of our employees a top priority.
The skills, experience and industry knowledge of our employees significantly benefit our operations and performance. There are several ways in which we attract, develop, and retain highly qualified talent and measure the ongoing effectiveness of our human capital management practices, including by making the safety and health of our employees a top priority.
Orders may be subject to modification or cancellation by the customer with limited charges. The increase in total backlog as of September 30, 2022 compared with the previous year is primarily due to tim ing of annual awards and SIFCO's customers adjusting orders due to recovery within the commercial airline industry.
Orders may be subject to modification or cancellation by the customer with limited charges. The increase in total backlog as of September 30, 2023 compared with the previous year is primarily due to tim ing of annual awards, SIFCO's customers adjusting orders due to recovery within the commercial airline industry, new content awarded, and extended raw material lead times.
Regulatory Matters The Company is subject to a number of domestic and foreign regulations relating to our operations worldwide and is required to comply with various environmental, health, and employee safety laws and regulations. The Company believes that it is in compliance with these laws and regulations.
Backlog information may not be indic ative of future sales. C. Regulatory Matters The Company is subject to a number of domestic and foreign regulations relating to our operations worldwide and is required to comply with various environmental, health, and employee safety laws and regulations. The Company believes that it is in compliance with these laws and regulations.
Customers During fiscal 2022, SIFCO had one direct customer that accounted for 11% of consolidated net sales; and 23% of the Company's consolidated net sales were from two customers and their direct subcontractors, which individually accounted for 12% and 11% of net sales, respectively.
Customers During fiscal 2023, SIFCO had one direct customer that accounted for 12% of consolidated net sales; and 32% of the Company's consolidated net sales were from three customers and their direct subcontractors, which individually accounted for 12%, 10% and 10% of net sales, respectively.
Nevertheless, the Company cannot guarantee that, in the future, it will not incur additional costs for compliance or that such costs will not be material. D. Human Capital Management SIFCO employed approximat ely 378 ful l-time employees at the beginning of fiscal 2022, which decreased to approximately 348 employees at the end of fiscal 2022.
Nevertheless, the Company cannot guarantee that, in the future, it will not incur additional costs for compliance or that such costs will not be material. D. Human Capital Management SIFCO employed approximat ely 348 f ul l-time employees at the beginning of fiscal 2023, which increased to ap proximatel y 368 employees at the end of fiscal 2023.
Backlog of Orders SIFCO’s total backlog as of September 30, 202 2 increased to $81.9 million, co mpared with $77.2 million as of September 30, 2021. Orders for delivery scheduled in the upcoming fiscal year 2023 increased to $65.5 m illion compared with $59.3 million scheduled in fiscal 2022.
Backlog of Orders SIFCO’s total backlog as of September 30, 2023 increased to $120.1 million, co mpared with $81.9 million as of September 30, 2022. Orders for delivery scheduled in the upcoming fiscal year 2024 increased to $89.6 m illion compared with $65.5 million scheduled in fiscal 2023.
Principal Products and Services Operations SIFCO is a manufacturer of forgings and machined components for the A&E markets. We provide our customers with envelope and precision forgings, rough and finished machined components, as well as sub-assemblies. SIFCO services both original equipment manufacturers ("OEM") and aftermarket customers with products that range in size from approximately 2 to 1,200 pounds.
We provide our customers with envelope and precision forgings, rough and finished machined components, as well as sub-assemblies. SIFCO services both original equipment manufacturers ("OEM"), Tier 1 and Tier 2 suppliers, and aftermarket service providers with products that range in size from approximately 2 to 1,200 pounds.
The Company ratified its CBA with one such bargaining unit in December 2019 and ratified its CBA with the second bargaining unit in December 2021. The Maniago location is party to the National Collective Agreement in Metalworking, which renewed in February 2021. The skills, experience and industry knowledge of our employees significantly benefit our operations and performance.
The Company is a party to collective bargaining agreements ("CBA") with certain employees within the Cleveland location. The Company ratified its CBA with one such bargaining unit in December 2019 and ratified its CBA with the second bargaining unit in December 2021. The Maniago location is party to the National Collective Agreement in Metalworking, which renewed in February 2021.
While demand for travel declined at a rapid pace beginning in the second half of our fiscal 2020 and has remained depressed compared to pre-pandemic levels, commercial air travel has progressively shown signs of recovery in recent months with increasing air traffic, primarily in certain domestic markets.
While demand for travel declined at a rapid pace beginning in the second half of our fiscal 2020, commercial air travel has progressively shown signs of recovery to pre-pandemic levels in fiscal 2023 with increasing air traffic, in both domestic and international markets. • SIFCO supplies new and spare components to the U.S. military for aircraft, helicopters, vehicles, and munitions.
The Company is focused on ensuring the health of our employees through the implementation of standards, controls, and inspections to help ensure that our operations and premises comply with national and local regulations. In addition, the Company conducts annual employee development reviews, identifies growth opportunities, which include employee rotations, and engages employees in continuous improvement activities.
The Company is focused on ensuring the health of our employees through the implementation of standards, controls, and inspections to help ensure that our operations and premises comply with national and local regulations.
Industry The performance of the domestic and international air transport industry, the energy industry, as well as government defense spending, directly and significantly impact the performance of SIFCO. The impact of COVID-19 continues to be assessed by the Company as it has significantly impacted the commercial aerospace industry through the ongoing disruption of global travel, which remains uncertain.
Industry The performance of the domestic and international air transport industry, the energy industry, as well as government defense spending, directly and significantly impact the performance of SIFCO. The residual impacts of COVID-19 continue to be assessed by the Company.
Certain programs in which the Company participates have seen favorable trends, which are expected to continue. • SIFCO supplies new and spare components for commercial aircraft, principally for large aircraft produced by Boeing and Airbus. As the pandemic has continued, the decrease in passenger air travel demand has impacted and continues to impact our customers' orders for new aircraft.
Certain programs in which the Company participates have seen favorable trends, which are expected to continue. • SIFCO supplies components for commercial aircraft, principally for large aircraft produced by Boeing and Airbus, and for general aviation. Domestic and international travel are now at pre-pandemic levels.
An increasing number of commercial companies are participating in the space launch and reentry industry, which brings continuous development, innovation in technologies, and new approaches in this market. We believe there is an opportunity for SIFCO to gain an increased market share as this industry continues to evolve and grow.
An increasing number of companies are participating in the space launch and reentry programs, which brings continuous development, innovation in technologies, and new approaches in this market.
Information relating to the Company's financial results is set forth in the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
Information relating to the Company's financial results is set forth in the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. Cybersecurity Incident As reported on Forms 8-K filed January 6, 2023 and February 10, 2023, the Company became aware of unauthorized access to the Company's systems on December 30, 2022.
Competition SIFCO competes with numerous companies, both in and tangential to the A&E industry, of which fifteen are known by SIFCO.
Our technical expertise has allowed SIFCO to gain customer certifications for a variety of materials in the this application. We believe this market holds growth opportunity for SIFCO. Competition SIFCO competes with numerous companies, both in and tangential to the A&E industry, of which fifteen are known by SIFCO.
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Impact of COVID-19 & Other Factors The lingering impact and residual effects of the coronavirus ("COVID-19") pandemic, along with other factors, such as ongoing geopolitical tensions, have created strains on supply chains, and general economic conditions.
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The Company’s domestic operations were impacted by this Cybersecurity Incident ("Cyber Incident") which resulted in production delays and delayed shipments due to information access limitations. The Company immediately initiated response protocols and an investigation, engaging cyber security experts to assist with the assessment of the incident and to help determine what data was impacted.
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While the exact timing and pace of recovery in our markets continues to be indeterminable, there are indications that commercial air travel is steadily recovering in certain areas. The long-term outlook remains positive given the nature of the industry, there continues to be uncertainty with respect to when commercial air traffic will return to pre-COVID-19 levels.
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The Company has since completed data recovery and restoration from the cyber incident. See Note 11 , Commitments and Contingencies. B. Principal Products and Services Operations SIFCO is a manufacturer of forgings and machined components for the Aerospace and Defense, Energy and Commercial Space markets.
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Given the fluidity of the situation, it is still unclear how lasting and deep the ongoing economic impacts of COVID-19 will last. During fiscal 2022, the effects of COVID-19 continued to have an impact on the Company’s results of operations. The Company has been impacted by delays in receiving orders and obtaining materials required to produce certain products.
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We believe there is an opportunity for SIFCO to gain an increased market share as this industry continues to evolve and grow. • SIFCO supplies components to the semiconductor industry, for use in the manufacture of microchips. These components require very challenging material properties and purity.
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As sales volumes have fluctuated, the Company has taken measures to reduce costs by furloughing certain of its employees from time to time at one of its plant locations. Additionally, our operations are subject to global economic and geopolitical risks.
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In addition, the Company conducts annual employee development reviews, identifies growth opportunities, which include employee rotations, promotes value-based recognition programs and engages employees in continuous improvement activities. 6 Table of Contents E. Non-U.S. Operations The Company's products are distributed in the U.S. as well as non-U.S. markets.
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For example, while the Company does not have a presence in these regions, the ongoing conflict between Russia and Ukraine has impacted economic activity as well as the availability and price of raw materials and energy. The Company continues to actively monitor these factors and find ways to mitigate the impact on its operations. B.
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Therefore, as the effects of the pandemic continue to be fluid and ever changing, the shape and speed of recovery for the commercial aerospace industry remain uncertain.
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The recovery in international commercial air travel has been slower with international travel moderately recovered from COVID-19 pandemic lows.
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The exact pace and timing of the commercial air travel recovery remains uncertain and is expected to continue to be uneven depending on factors such as trends in the number of COVID-19 infections (e.g., impact of new variants of COVID-19 resurfacing), the continued efficacy and public acceptance of vaccines and easing of quarantines and travel restrictions, among other factors. • SIFCO supplies new and spare components to the U.S. military for aircraft, helicopters, vehicles, and munitions.
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Current estimates regarding the return of passenger air traffic to pre-COVID-19 levels is another two to four years as recovery has been extremely uneven.
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Increases in domestic leisure travel has led to some recovery and domestic business travel is expected to pick-up later into 2023, while international travel continues to lag as individual countries and regions have experienced varied recovery from, and resurgences in, the spread of COVID-19.
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The continuing uncertainty regarding the COVID-19 pandemic and its impact on the commercial airline industry is expected and may continue to impact sales order backlog growth in that market into fiscal 2024. Backlog information may not be indic ative of future sales. C.
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In response to the impact of COVID-19 on the commercial aerospace industry (including declines in revenues of our customers), during fiscal 2022, the Company experienced one shutdown at its Orange 6 Table of Contents facility, which primarily manufactures commercial aerospace product.
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While the Company has brought back the workforce subject to the shutdown, the Company has experienced a decrease in the number of employees. The Company’s employees include full-time, part-time, and temporary employees. Approximately 6 7% of our employees were located within the U.S. and 33 % of our employees were located in Italy.
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During fiscal 2022, we experienced increased turnover, along with a shortage of applicants to fill staffing requirements at our U.S. locations due to the current labor shortage affecting most businesses across the United States. While this has adversely affected our operating efficiency, quality and delivery continue to meet or exceed customer standards as reflected in our customer scorecards.
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The steps we have taken to attract and retain labor include attending hiring events, broadening our recruitment platforms, paying retention bonuses, offering enhanced wages and paying sign-on bonuses.
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We continue to implement, maintain, and, to the extent needed, update or modify, procedures and protocols developed in response to the COVID-19 pandemic to minimize the risk to the health and safety of our employees continuing to operate our facilities and provide products to our customers on a timely basis.
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We have consistently been able to meet our customers' demands for our products, while at the same time making the necessary investments to ensure that we prioritize the health, safety and welfare of our employees E. Non-U.S. Operations The Company's products are distributed in the U.S. as well as non-U.S. markets.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

47 edited+10 added−15 removed93 unchanged
Biggest changeFurthermore, airlines may experience reduced demand due to reluctance by the flying public to travel due to travel restrictions and/or social distancing requirements. As a result, there is significant uncertainty with respect to when commercial air traffic levels will fully recover, and whether and at what point capacity will return to and/or exceed pre-COVID-19 levels.
Biggest changeThere is risk that the industry reintroduces mitigation strategies in response to residual impacts from COVID-19, which could include reduced capacity and shifting route patterns. Furthermore, airlines may experience reduced demand due to reluctance by the flying public to travel due to travel restrictions and/or social distancing requirements.
A number of risks inherent in international operations could have a material adverse effect on our results of operations, including: a. fluctuations in U.S. dollar value arising from transactions denominated in foreign currencies and the translation of certain foreign currency subsidiary balances; b. difficulties in staffing and managing multi-national operations; c. general economic and political uncertainties and potential for social unrest in countries in which we or our customers operate; d. other deterioration of economic conditions, including the effect of inflation on our customers and suppliers; e. limitations on our ability to enforce legal rights and remedies; f. restrictions on the repatriation of funds; g. changes in trade policies, laws, regulations, political leadership and environment, and/or security risks; 11 Table of Contents h. tariff regulations; i. difficulties in obtaining export and import licenses and compliance with export/import controls and regulations; j. the risk of government financed competition; k. compliance with a variety of international laws as well as U.S. regulations, rules and practices affecting the activities of companies abroad; and l. difficulties in managing and staffing international operations and the required infrastructure costs, including legal, tax, accounting, and information technology.
A number of risks inherent in international operations could have a material adverse effect on our results of operations, including: a. fluctuations in U.S. dollar value arising from transactions denominated in foreign currencies and the translation of certain foreign currency subsidiary balances; b. difficulties in staffing and managing multi-national operations; c. general economic and political uncertainties and potential for social unrest in countries in which we or our customers operate; d. other deterioration of economic conditions, including the effect of inflation on our customers and suppliers; e. limitations on our ability to enforce legal rights and remedies; f. restrictions on the repatriation of funds; g. changes in trade policies, laws, regulations, political leadership and environment, and/or security risks; h. tariff regulations; i. difficulties in obtaining export and import licenses and compliance with export/import controls and regulations; j. the risk of government financed competition; k. compliance with a variety of international laws as well as U.S. regulations, rules and practices affecting the activities of companies abroad; and l. difficulties in managing and staffing international operations and the required infrastructure costs, including legal, tax, accounting, and information technology.
Additionally, the timing of receipt of orders, if any, on contracts included in our backlog could change. The failure to realize amounts reflected in our backlog could materially adversely affect our business, financial condition and results of operations in future periods. SIFCO business is dependent on a small number of direct and indirect customers.
Additionally, the timing of receipt of orders, if any, on contracts included in our backlog could change. The failure to realize amounts reflected in our backlog could materially adversely affect our business, financial condition and results of operations in future periods. SIFCO business is dependent on a few number of direct and indirect customers.
As further described in Item 9A in our Annual Report on Form 10-K, for the fiscal year ended September 30, 2022, management determined that SIFCO’s internal control over financial reporting and its disclosure controls and procedures were not effective.
As further described in Item 9A in our Annual Report on Form 10-K, for the fiscal year ended September 30, 2023, management determined that SIFCO’s internal control over financial reporting and its disclosure controls and procedures were not effective.
Despite our use of reasonable and appropriate controls, material security breaches, theft, misplaced, lost or corrupted data, programming, or employee errors and/or malfeasance could lead to the compromise or improper use of such sensitive, confidential, or personal data or information, resulting in possible negative consequences, such as fines, ransom demands, penalties, loss of reputation, competitiveness or customers, or other negative consequences resulting in adverse impacts to our results of operations or financial condition.
Despite our use of reasonable and appropriate controls, material security breaches, theft, misplaced, lost or corrupted data, programming, or 9 Table of Contents employee errors and/or malfeasance could lead to the compromise or improper use of such sensitive, confidential, or personal data or information, resulting in possible negative consequences, such as fines, ransom demands, penalties, loss of reputation, competitiveness or customers, or other negative consequences resulting in adverse impacts to our results of operations or financial condition.
We maintain standard property casualty insurance coverage for our properties and may be able to recover costs associated with certain natural disasters through insurance; however, even if covered by insurance, any significant damage or destruction of our facilities due to such events could result in our inability to meet customer delivery schedules and may result in the loss of customers and significant additional costs to SIFCO.
We maintain standard property casualty insurance coverage for our properties and may be able to recover costs associated with certain natural disasters through insurance; however, even if covered by insurance, any significant damage or destruction of our facilities due to such events could result in our inability to meet customer delivery schedules and may result in the loss of customers and 15 Table of Contents significant additional costs to SIFCO.
In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely 12 Table of Contents manner, the market price of our stock could decline if investors and others lose confidence in the reliability of our financial statements and we could be subject to sanctions or investigations by the SEC or other applicable regulatory authorities.
In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner, the market price of our stock could decline if investors and others lose confidence in the reliability of our financial statements and we could be subject to sanctions or investigations by the SEC or other applicable regulatory authorities.
These factors have caused reductions in demand for commercial aircraft, which have adversely impacted our net sales and operating results and may continue to do so for an extended period of time. Further, an overall reduction in business activity as a result of the disruption has led to a continued softening of the energy market.
These factors have caused reductions in demand for commercial aircraft, which have adversely impacted our net sales and operating results and may continue to do so for an extended period of time. Further, an overall reduction in business activity as a result of the disruption previously led to a softening of the energy market.
Changes in underlying assumptions, circumstances or estimates may have a material adverse effect upon the profitability of one or more of the affected contracts, future period financial reporting and performance, as pass through pricing is not always permissible. Our technologies could become obsolete, reducing our revenues and profitability.
Changes in underlying assumptions, circumstances or estimates may have a material adverse effect upon the profitability of one or more of the affected contracts, future period financial reporting and performance, as pass through pricing is not always permissible. 11 Table of Contents Our technologies could become obsolete, reducing our revenues and profitability.
The market price of our common stock could fluctuate significantly for various reasons, which include: 15 Table of Contents a. our quarterly or annual earnings or those of our competitors or our significant customers; b. the public’s reaction to our press releases, our other public announcements and our filings with the Securities and Exchange Commission; c. changes in earnings estimates or recommendations by research analysts who track the stocks of our competitors; d. new laws or regulations or new interpretations of laws or regulations applicable to our business; e. changes in accounting standards, policies, guidance, interpretations or principles; f. changes in general conditions in the domestic and global economies or financial markets, including those resulting from war, incidents of terrorism, health crises (such as the ongoing COVID-19 pandemic) or responses to such events; g. litigation involving our company or investigations or audits by regulators into the operations of our company or our competitors; h. strategic action by our competitors; i. sales of common stock by our directors, executive officers and significant shareholders; and j. our stock being closely held by insider holdings and is thinly traded which impacts price volatility.
The market price of our common stock could fluctuate significantly for various reasons, which include: a. our quarterly or annual earnings or those of our competitors or our significant customers; b. the public’s reaction to our press releases, our other public announcements and our filings with the Securities and Exchange Commission; c. changes in earnings estimates or recommendations by research analysts who track the stocks of our competitors; d. new laws or regulations or new interpretations of laws or regulations applicable to our business; e. changes in accounting standards, policies, guidance, interpretations or principles; f. changes in general conditions in the domestic and global economies or financial markets, including those resulting from war, incidents of terrorism, health crises or responses to such events; g. litigation involving our company or investigations or audits by regulators into the operations of our company or our competitors; h. strategic action by our competitors; i. sales of common stock by our directors, executive officers and significant shareholders; and j. our stock being closely held by insider holdings and is thinly traded which impacts price volatility.
If the pandemic continues and/or conditions worsen, we may experience additional adverse impacts on our operations, costs, customer orders, and collections of accounts receivable, which may be material.
If the residual impact of the pandemic continues and/or conditions worsen, we may experience additional adverse impacts on our operations, costs, customer orders, and collections of accounts receivable, which may be material.
It also is not possible for SIFCO to obtain insurance to protect against all operational risks and liabilities. Substantial claims resulting from an incident in excess of the indemnification we receive and our insurance coverage would harm our financial condition, results of operations and cash flows.
It also is not possible for SIFCO to obtain insurance to protect against all operational risks and liabilities. Substantial claims resulting from an incident in excess of the indemnification we receive and 10 Table of Contents our insurance coverage would harm our financial condition, results of operations and cash flows.
We have continued to see a prolonged impact on the economy, our industry, and our business, with increased challenges for customers, labor shortages, supply chain disruptions, and increasing inflation, among others. The pandemic has affected and is expected to continue to affect certain elements of our operations and business.
We have continued to see a prolonged residual impact of the COVID-19 pandemic on the economy, our industry, and our business, with increased challenges for customers, labor shortages, supply chain disruptions, and increasing inflation, among others. The pandemic has affected and is expected to continue to affect certain elements of our operations and business.
Additionally, the pandemic could lead to an extended disruption of economic activity whereby the impact on our consolidated results of operations, financial position and cash flows could be material.
Additionally, the residual impacts of the pandemic could lead to an extended disruption of economic activity whereby the impact on our consolidated results of operations, financial position and cash flows could be material.
At times when there are perceived threats to national security, U.S. defense spending can increase; at other times, defense spending can decrease. Future levels of defense 8 Table of Contents spending are uncertain and subject to congressional debate. Any reduction in future U.S. defense spending levels could adversely impact our sales, operating profit and cash flow.
At times when there are perceived threats to national security, U.S. defense spending can increase; at other times, defense spending can decrease. Future levels of defense spending are uncertain and subject to congressional debate. Any reduction in future U.S. defense spending levels could adversely impact our sales, operating profit and cash flow.
The COVID-19 pandemic also has increased uncertainty with respect to global trade volumes, which could put negative pressure on cargo traffic levels. Any of these factors would have a significant impact on the demand within the commercial aerospace industry.
The residual impacts from the COVID-19 pandemic also has increased uncertainty with respect to global trade volumes, which could put negative pressure on cargo traffic levels. Any of these factors would have a significant impact on the demand within the commercial aerospace industry.
While the Company believes it has adequate cash/liquidity available to finance its operations, our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, depends on our future performance, which is subject to general economic, financial, competitive and other factors (including the continued impact of COVID-19) beyond our control.
While the Company believes it 14 Table of Contents has adequate cash/liquidity available to finance its operations, our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, depends on our future performance, which is subject to general economic, financial, competitive and other factors (including the continued residual impact of COVID-19) beyond our control.
Although we believe that we are in compliance with these laws and regulations, future changes in these laws, regulations or interpretations of them, or changes in the nature of our operations may require us to make significant capital expenditures to ensure compliance. 16 Table of Contents
Although we believe that we are in compliance with these laws and regulations, future changes in these laws, regulations or interpretations of them, or changes in the nature of our operations may require us to make significant capital expenditures to ensure compliance.
While the potential economic impact brought by and the duration of the coronavirus outbreak may be difficult to assess or predict, the continuation of a widespread pandemic could result in significant or sustained disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.
While the potential economic impact brought by and the duration of the residual impacts of the coronavirus outbreak may be difficult to assess or predict, the resurgence of a widespread pandemic could result in significant or sustained disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.
Goodwill and other intangible assets are a component of our assets. At Septem ber 30, 2022, goodwill was $3.5 million and other intangible assets were $0.5 million of our total assets of $97.3 million. We may have to write off all or part of our goodwill or other intangible assets if their value becomes impaired.
Goodwill and other intangible assets are a component of our assets. At Septem ber 30, 2023, goodwill was $3.5 million and other intangible assets were $0.3 million of our total assets of $96.5 million. We may have to write off all or part of our goodwill or other intangible assets if their value becomes impaired.
As a result of the ongoing impacts of the pandemic, we have experienced, and may in the future experience, production site shutdowns, and workplace disruptions and restrictions on the movement of people, raw materials and goods, both at our own facilities and at the facilities operated by our customers and suppliers.
As a result of the residual impacts of the pandemic, we may in the future experience, production site shutdowns, and workplace disruptions and restrictions on the movement of people, raw materials and goods, both at our own facilities and at the facilities operated by our customers and suppliers.
Competitive bidding presents a number of risks, including: a. the need to compete against companies or teams of companies with more financial and marketing resources and more experience in bidding on and performing major contracts than we have; b. the need to compete against companies or teams of companies that may be long-term, entrenched incumbents for a particular contract for which we are competing and that have, as a result, greater domain expertise and better customer relations; c. the need to compete to retain existing contracts that have in the past been awarded to us on a sole-source basis or that have been incumbent for a long time; d. the award of contracts to providers offering solutions at the “lowest price technically acceptable,” which may lower the profit we may generate under a contract awarded using this pricing method or prevent us from submitting a bid for such work due to us deeming such work to be unprofitable; e. the reduction of margins achievable under any contracts awarded to us; f. the need to bid on some programs in advance of the completion of their specifications, which may result in unforeseen technological difficulties or increased costs that lower our profitability; g. the substantial cost and managerial time and effort, including design, development and marketing activities, necessary to prepare bids and proposals for contracts that may not be awarded to us; h. the need to develop, introduce and implement new and enhanced solutions to our customers’ needs; i. the need to locate and contract with teaming partners and subcontractors; j. the need to accurately estimate the resources and cost structure that will be required to perform any contract that we are awarded; and k. long term agreements - changes in our cost profile over the life of a long-term agreement.
Competitive bidding presents a number of risks, including: a. the need to compete against companies or teams of companies with more financial and marketing resources and more experience in bidding on and performing major contracts than we have; b. the need to compete against companies or teams of companies that may be long-term, entrenched incumbents for a particular contract for which we are competing and that have, as a result, greater domain expertise and better customer relations; c. the need to compete to retain existing contracts that have in the past been awarded to us on a sole-source basis or that have been incumbent for a long time; d. the award of contracts to providers offering solutions at the “lowest price technically acceptable,” which may lower the profit we may generate under a contract awarded using this pricing method or prevent us from submitting a bid for such work due to us deeming such work to be unprofitable; e. the reduction of margins achievable under any contracts awarded to us; f. the need to bid on some programs in advance of the completion of their specifications, which may result in unforeseen technological difficulties or increased costs that lower our profitability; g. the substantial cost and managerial time and effort, including design, development and marketing activities, necessary to prepare bids and proposals for contracts that may not be awarded to us; h. the need to develop, introduce and implement new and enhanced solutions to our customers’ needs; i. the need to locate and contract with teaming partners and subcontractors; j. the need to accurately estimate the resources and cost structure that will be required to perform any contract that we are awarded; and k. long term agreements - changes in our cost profile over the life of a long-term agreement. 8 Table of Contents If SIFCO wins a contract, and upon expiration, the customer requires further services of the type provided by the contract, there is frequently a competitive rebidding process.
Labor disruptions by our employees or personnel turnover and/or shortage could adversely affect our business. As of September 30, 2022, we employed approximately 348 pe ople. We face competition for management and employees from other companies and organizations.
Labor disruptions by our employees or personnel turnover and/or shortage could adversely affect our business. As of September 30, 2023, we employed approximately 378 pe ople. We face competition for management and employees from other companies and organizations.
We have and may continue to experience delays in the delivery of such products as a result of increased demands and pressures on the supply chain, customs, labor issues, geopolitical pressures, disruptions associated with the COVID-19 or other pandemics, changes in political, economic, and social conditions, weather, laws and regulations.
We have and may continue to experience delays in the delivery of such products as a result of increased demands and pressures on the supply chain, customs, labor issues, geopolitical pressures, disruptions associated with changes in political, economic, and social conditions, weather, laws and regulations.
Any of these claims, even if without merit, could result in costly litigation or divert management's attention and resources. Furthermore, we may face a sustained disruption to our operations due to one or more of the factors described above.
Any of these claims, even if without merit, could result in costly litigation or divert management's attention and resources. Furthermore, we may face a sustained disruption to our operations due to one or more of the factors described above. The price of our common stock may fluctuate significantly.
As the demand for employees returns to pre-COVID-19 levels, if we continue to experience increased turnover and/or are unable to quickly hire employees and subsequently retain our workforce, or we experience a significant or prolonged work stoppage in such an environment, we may experience increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees, and our ability to secure new work and our results of operations and financial condition could be adversely affected.
If we continue to experience turnover and/or are unable to quickly hire employees and subsequently retain our workforce, or we experience a significant or prolonged work stoppage in such an environment, we may experience increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees, and our ability to secure new work and our results of operations and financial condition could be adversely affected.
The Company may not receive the full amounts estimated under the contracts in our total backlog, which could reduce our sales in future periods below the levels anticipated, and which makes backlog an uncertain indicator of future operating results. As of September 30, 2022, our total backlog w as $81.9 millio n.
The Company may not receive the full amounts estimated under the contracts in our total backlog, which could reduce our sales in future periods below the levels anticipated, and which makes backlog an uncertain indicator of future operating results. As of September 30, 2023, our total backlog w as $120.1 millio n.
Consequently, we risk disruptions in our supply of key products and components if our suppliers fail or are unable to perform because of shortages in raw materials, operational problems, strikes, natural disasters, health crises (such as the COVID-19 or other pandemics) or other factors.
Consequently, we risk disruptions in our supply of key products and components if our suppliers fail or are unable to perform because of shortages in raw materials, operational problems, strikes, natural disasters, health crises or other factors.
Downturns or reductions in demand could have a material adverse effect on our business. The energy industry is also cyclical in nature.
Downturns or reductions in demand could have a material adverse effect on our business. 7 Table of Contents The energy industry is also cyclical in nature.
While the Company withdrew from this plan to mitigate future costs, the Company may be subject to liability in connection with such withdrawal (see Note 8, Retirement Benefit Plans ).
Additionally, the Company contributed to a multi-employer retirement plan. While the Company withdrew from this plan to mitigate future costs, the Company may be subject to liability in connection with such withdrawal (see Note 8, Retirement Benefit Plans ).
In particular, the recent conflict between Russia and Ukraine has caused shortages in the availability of fuel.
In particular, the recent 12 Table of Contents conflict between Russia and Ukraine has caused shortages in the availability of fuel.
The financial markets can experience high levels of volatility and disruption, reducing the availability of credit for certain issuers and the financial markets have undergone significant volatility in reaction to the COVID-19 pandemic and various economic factors.
The financial markets can experience high levels of volatility and disruption, reducing the availability of credit for certain issuers and the financial markets have undergone significant volatility in reaction to various macroeconomic factors.
We cannot predict changes in worldwide or regional economic conditions and government policies, as such conditions are highly volatile and beyond our control. If these conditions deteriorate for extended periods, however, our business, results of operations and financial condition could be materially adversely affected. Our indebtedness and restrictive covenants under our credit facilities could limit our operational and financial flexibility.
We cannot predict changes in worldwide or regional economic conditions and government policies, as such conditions are highly volatile and beyond our control. If these conditions deteriorate for extended periods, however, our business, results of operations and financial condition could be materially adversely affected.
As a result, we have been operating in industries which have been significantly impacted by the COVID-19 pandemic.
As a result, we have been operating in industries which continue to be impacted by the COVID-19 pandemic.
We have incurred indebtedness, and may incur additional debt in the future. Our ability to make interest and scheduled principal payments and operate within restrictive covenants could be adversely impacted by changes in the availability, terms and cost of capital, changes in interest rates or changes in our credit ratings or our outlook.
Our ability to make interest and scheduled principal payments and operate within restrictive covenants could be adversely impacted by changes in the availability, terms and cost of capital, changes in interest rates or changes in our credit ratings or our outlook.
Differences between actual investment returns and our assumed long-term returns on assets will result in changes in future pension expense and the funded status of our Plans, and could increase future funding of the Plans. Changes in these factors affect our plan funding, cash flows, earnings, and shareholders’ equity. Additionally, the Company contributed to a multi-employer retirement plan.
Differences between actual investment returns and our assumed long-term returns 13 Table of Contents on assets will result in changes in future pension expense and the funded status of our Plans, and could increase future funding of the Plans. Changes in these factors affect our plan funding, cash flows, earnings, and shareholders’ equity.
A substantial portion of SIFCO's business is conducted with a relatively small number of large direct and indirect customers. In fiscal 2022, one direct customer accounted for approximately 11% percent of our consolidated net sales and two direct 9 Table of Contents customers and their direct subcontractors accounted for approximately 23% of the Company’s consolidated net sales.
A substantial portion of SIFCO's business is conducted with a relatively small number of large direct and indirect customers. In fiscal 2023, one direct customer accounted for approximately 12% percent of our consolidated net sales and three direct customers and their direct subcontractors accounted for approximately 32% of the Company’s consolidated net sales.
Although this write-off would be a non-cash charge, it could reduce our earnings and our financial condition. 14 Table of Contents General Risks Our business is subject to risks associated with widespread public health crises, including the current COVID-19 pandemic.
Although this write-off would be a non-cash charge, it could reduce our earnings and our financial condition. General Risks Our business is subject to risks associated with widespread public health crises.
These changes could increase our cost of business, limiting our ability to pursue acquisition opportunities, react to market conditions and meet operational and capital needs, thereby placing us at a competitive disadvantage.
These changes could increase our cost of business, limiting our ability to pursue acquisition opportunities, react to market conditions and meet operational and capital needs, thereby placing us at a competitive disadvantage. Global economic conditions may adversely impact our business, operating results or financial condition.
We have experienced and expect to continue to experience unpredictable changes in demand from the markets we serve. The A&E industries have been negatively impacted by the COVID-19 pandemic and its effects as a result of various restrictions on air travel and concern regarding air travel during a pandemic.
We expect to continue to experience unpredictable changes in demand from the markets we serve. The A&E industries continue to be negatively impacted by the residual impacts of the COVID-19 pandemic and its effects as a result of various restrictions on air travel, supply chain disruptions and labor shortages.
Volatility in the market price of our common stock may prevent you from being able to sell your shares at or above the price you paid for your shares or at all.
An active, liquid and orderly market for our common stock may not be sustained, which could depress the trading price of our common stock. Volatility in the market price of our common stock may prevent you from being able to sell your shares at or above the price you paid for your shares or at all.
Further, we are exposed to fluctuations in inflation, which could negatively affect our business, financial condition and results of operation. The United States and other jurisdictions have recently experienced high levels of inflation.
The inability of current and potential customers to pay SIFCO for its products and services may adversely affect its earnings and cash flows. Further, we are exposed to fluctuations in inflation, which could negatively affect our business, financial condition and results of operation. The United States and other jurisdictions have recently experienced high levels of inflation.
In connection with the COVID-19 pandemic, we provided for remote work for certain of our employees, which may increase our vulnerability to cyber and other information technology risks.
We continue to provide for remote work for certain of our employees, which may increase our vulnerability to cyber and other information technology risks.
Until remediated, this material weakness could result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected on a timely basis. As with any internal control deficiency, there can be no assurance that our remedial measures will be successful or otherwise sufficient to address the material weakness.
As with any internal control deficiency, there can be no assurance that our remedial measures will be successful or otherwise sufficient to address the material weakness.
Risks Related to Financial Matters Global economic conditions may adversely impact our business, operating results or financial condition. Disruption and volatility in global financial markets may lead to increased rates of default and bankruptcy and may negatively impact consumer and business spending levels.
Disruption and volatility in global financial markets may lead to increased rates of default and bankruptcy and may negatively impact consumer and business spending levels. Current or potential customers may delay or decrease spending on our products and services as their business and/or budgets are impacted by economic conditions.
We have experienced changes in demand from our customers in this market and the reduction in demand for commercial aircraft will adversely impact our net sales and operating results.
Residual negative impacts of the COVID-19 pandemic on the commercial aerospace industry may continue for a prolonged period of time. We continue to experience changes in demand from our customers in this market and a reduction in demand for commercial aircraft will adversely impact our net sales and operating results.
Risks Related to Our Business and Operations We are subject to the cyclical nature of the A&E industries and the continuing or further downturn in these industries could adversely impact the demand for our products. The commerc ial aerospace industry is historically driven by the demand from commercial airlines for new aircraft.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and financial condition. Risks Related to Our Business and Operations We are subject to the cyclical nature of the A&E industries and the continuing or further downturn in these industries could adversely impact the demand for our products.
Removed
Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and financial condition. We face risks related to the COVID-19 pandemic , its affects, and actions in response thereto, which have exacerbated or could further exacerbate conditions in our risk factors noted below.
Added
The commerc ial aerospace industry is historically driven by the demand from commercial airlines for new aircraft.
Removed
The commercial aerospace industry has been significantly impacted by the COVID-19 pandemic and may continue to be negatively impacted for a prolonged period of time and the magnitude of the impacts of the COVID-19 pandemic on this industry cannot be fully understood at this time.
Added
Management identified deficiencies in its oversight and backup and recovery controls that represent a material weakness in internal control over financial reporting. Until remediated, this material weakness could result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected on a timely basis.
Removed
In addition to the near term impact of the COVID-19 pandemic on the commercial aerospace industry, there is risk that the industry implements longer-term strategies involving reduced capacity, shifting route patterns, and mitigation strategies related to impacts from COVID-19 and the risk of future public health crises.
Added
Risks Related to Financial Matters A decline in operating results or access to financing may have an adverse impact on our liquidity position.
Removed
If SIFCO wins a contract, and upon expiration, the customer requires further services of the type provided by the contract, there is frequently a competitive rebidding process.
Added
Our ability to make required payments of principal and interest on our debt will depend in part on our future performance, which, to a certain extent, is subject to general economic, financial, competitive, political and other factors, some of which are beyond our control.
Removed
It is unclear how our supply chain could 10 Table of Contents be further impacted by COVID-19, including the spread of new variants, and there are many unknowns including how long we will be impacted, the severity of the impacts and the probability of a recurrence of COVID-19 or similar regional or global pandemics.
Added
Accordingly, conditions could arise that could limit our ability to generate sufficient cash flows or to access borrowings to enable us to fund our liquidity needs, which could further limit our financial flexibility or impair our ability to obtain alternative financing sufficient to repay our debt at maturity.
Removed
Management identified a material weakness related to lack of precise review controls associated with the valuation of inventory at the Orange location and long-lived asset impairment triggering event indicators in the fourth quarter at the Orange location.
Added
We believe that our cash on hand, together with funds generated by our operations and borrowings under our existing credit facilities, will provide us with sufficient liquidity and capital resources to meet our operating needs for the foreseeable future.
Removed
At various points since the start of the COVID-19 pandemic, we furloughed or terminated portions of our workforce as a result of the negative impact the pandemic and its effects had on the demand for our products and services.
Added
Significant assumptions underlie this belief however, including, among other things, assumptions relating to future sales volumes, the successful implementation of our business strategies and that there will be no material adverse developments in our competitive market position, business, liquidity or capital requirements.
Removed
Although we took measures to maintain good relationships with our workforce, there can be no assurance that the act of furloughing or terminating our employees did not damage employee relations or our ability to attract and retain talent at all levels.
Added
In the event that we do not have sufficient liquidity, we may be required to seek additional capital, reduce or cut back our operating activities, capital expenditures or otherwise alter our business strategy. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted.
Removed
Since 2020, the widespread public health crisis caused by the COVID-19 outbreak has adversely impacted the economies and financial markets as well as various industries worldwide, resulting in a 13 Table of Contents downturn that has adversely impacted many businesses, including ours. The ongoing pandemic and other events could adversely affect our business, operating results or financial condition.
Added
If we incur additional debt, the agreements governing that debt may contain significant financial and other covenants that may materially restrict our operations. The Company may not be able to obtain refinancing or additional financing on favorable terms or at all. The Company has identified certain risks related to the Company's ability to continue as a going concern.
Removed
Current or potential customers may delay or decrease spending on our products and services as their business and/or budgets are impacted by economic conditions. The inability of current and potential customers to pay SIFCO for its products and services may adversely affect its earnings and cash flows.
Added
See Note 1, Going Concern for further information. Our indebtedness and restrictive covenants under our credit facilities could limit our operational and financial flexibility. We have incurred indebtedness, and may incur additional debt in the future.
Removed
In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World Health Organization, and the outbreak subsequently became increasingly widespread in the United States and other countries in which we conduct business.
Removed
While we continue to actively monitor the pandemic and take steps to mitigate the risks posed by its spread, there is no guarantee that our efforts will mitigate the adverse impacts of COVID-19 or will be effective.
Removed
Uncertain factors relating to the COVID-19 pandemic continue to include the duration of the outbreak, the severity of the disease, and the actions taken, or perception of actions that may be taken, to contain or treat its impact, including declarations and/or re-instituting states of emergency, business closures, manufacturing restrictions and a prolonged period of travel, commercial and/or other similar restrictions and limitations.
Removed
The impact of the COVID-19 pandemic and its effects may also exacerbate other risks and uncertainties the Company faces or may face. The impact depends on the severity and duration of the current COVID-19 pandemic and actions taken by governmental authorities and other third parties in response, each of which is uncertain, rapidly changing and difficult to predict.
Removed
The price of our common stock may fluctuate significantly. An active, liquid and orderly market for our common stock may not be sustained, which could depress the trading price of our common stock.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed2 unchanged
Biggest changeIn general, the Company’s property, plant and equipment are in good operating condition, are well maintained, and its facilities are in regular use. The Company considers its investment in property, plant and equipment as of September 30, 2022 suitable and adequate given the current product offerings for the respective operations in the current business environment.
Biggest changeIn general, the Company’s property, plant and equipment are in good operating condition, are well maintained, and its facilities are in regular use. The Company considers its investment in property, plant and equipment as of September 30, 2023 suitable and adequate given the current product offerings for the respective operations in the current business environment.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed2 unchanged
Biggest changeSee Note 11, C ommitments and Contingencies , of the consolidated financial statements for more information regarding the legal proceedings in which the Company is involved.
Biggest changeSee Note 11, C ommitments and Contingencies , for more information regarding the legal proceedings in which the Company is involved.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+0 added−0 removed0 unchanged
Biggest changeAdditionally, the Company’s ability to declare or pay cash dividends is limited by its credit agreement. At November 30, 2022, there were approximately 355 shareholders of record of the Company’s Common Shares, as reported by Computershare, Inc., the Company’s Transfer Agent and Registrar, which maintains its U.S. corporate offices at 250 Royall Street, Canton, MA 02021.
Biggest changeAt November 30, 2023, there were approximately 298 shareholders of record of the Company’s Common Shares, as reported by Computershare, Inc., the Company’s Transfer Agent and Registrar, which maintains its U.S. corporate offices at 250 Royall Street, Canton, MA 02021. 17 Table of Contents Reference Part III, Item 12.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s Common Shares are traded on the NYSE American exchange under the symbol “SIF.” Dividends and Shareholders The Company did not declare a cash dividend during fiscal 2022 or fiscal 2021.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s Common Shares are traded on the NYSE American exchange under the symbol “SIF.” Dividends and Shareholders The Company did not declare a cash dividend during fiscal 2023 or fiscal 2022.
Reference Part III, Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information related to the Company’s equity compensation plans.
“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information related to the Company’s equity compensation plans.
The Company will continue to evaluate the payment of dividends annually based on its relative profitability, available resources, and investment strategies. The Company currently intends to retain a significant majority of its earnings for operations, focusing on its long-term plan and mitigating the uncertainty of the continuing impact of the COVID-19 pandemic.
The Company will continue to evaluate the payment of dividends annually based on its relative profitability, available resources, and investment strategies. The Company currently intends to retain a significant majority of its earnings for operations, focusing on its long-term plan and growth. Additionally, the Company’s ability to declare or pay cash dividends is limited by its credit agreement.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

69 edited+36 added−31 removed35 unchanged
Biggest changeSee Note 5, Debt, of the consolidated financial statements for further information. 20 Table of Contents The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s debt agreements in fiscal 2022 and 2021: Weighted Average Interest Rate Years Ended September 30, Weighted Average Outstanding Balance Years Ended September 30, 2022 2021 2022 2021 Revolving credit agreement 2.6% 1.5% $ 10.4 million $ 9.1 million Foreign term debt 2.8% 3.5% $ 6.2 million $ 7.0 million Other debt 0.7% 0.9% $ 1.9 million $ 5.7 million The Company believes that inflation did not materially impact its results of operations in either fiscal 2022 or 2021.
Biggest changeThe following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s debt agreements in fiscal 2023 and 2022: Weighted Average Interest Rate Years Ended September 30, Weighted Average Outstanding Balance Years Ended September 30, 2023 2022 2023 2022 Revolving credit agreement 6.9% 2.6% $ 13.1 million $ 10.4 million Foreign term debt 4.6% 2.8% $ 7.1 million $ 6.2 million Other debt 1.5% 0.7% $ 0.5 million $ 1.9 million The Company believes that inflation did not materially impact its results of operations in either fiscal 2023 or 2022. 19 Table of Contents Income Taxes The Company’s effective tax rate in fiscal 2023 was (1.9%) compared with 0.4% in fiscal 2022.
The cash provided by operating activities in fiscal 2022 was primarily due to non-cash items, such as depreciation and amortization of $6.3 million, inventory write down to NRV $1.5 million, LIFO effect of $0.7 million, equity based compensation of $0.3 million and source of working capital of $6.0 million, partially offset by the forgiveness of the PPP loan of $5.1 million and net loss of $9.6 million.
The cash provided by operating activities in fiscal 2022 was primarily due to non-cash items, such as depreciation and amortization of $6.3 million, inventory write down to NRV of $1.5 million, LIFO effect of $0.7 million, equity based compensation of $0.3 million and source of working capital of $6.0 million, partially offset by the forgiveness of the PPP loan of $5.1 million and net loss of $9.6 million.
Some of these limitations include: • Neither EBITDA nor Adjusted EBITDA reflects the interest expense, or the cash requirements necessary to service interest payments, on indebtedness; • 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; and • Neither EBITDA nor Adjusted EBITDA includes the payment of taxes, which is a necessary element of operations.
Some of these limitations include: • Neither EBITDA nor Adjusted EBITDA reflects the interest expense, or the cash requirements necessary to service interest payments on indebtedness; • 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 amortization expense associated with the Company’s intangible assets further limits the usefulness of EBITDA and Adjusted EBITDA; and • Neither EBITDA nor Adjusted EBITDA includes the payment of taxes, which is a necessary element of operations.
The Company presents EBITDA and Adjusted EBITDA because it believes that they are useful indicators for evaluating operating performance and liquidity, including the Company’s ability to incur and service debt and it uses EBITDA to evaluate prospective acquisitions.
The Company presents EBITDA and Adjusted EBITDA because management believes that they are useful indicators for evaluating operating performance and liquidity, including the Company’s ability to incur and service debt and it uses EBITDA to evaluate prospective acquisitions.
Management compensates for these limitations by not viewing EBITDA or Adjusted EBITDA in isolation and specifically by using other GAAP measures, such as net income (loss), net sales, and operating profit (loss), to measure operating performance.
Management compensates for these limitations by not viewing EBITDA or Adjusted EBITDA in isolation and specifically by using other GAAP measures, such as net income (loss), net sales, and operating income (loss), to measure operating performance.
The results indicated that the long-lived assets, right-of-use assets and definite lived intangible assets were recoverable and did not require further review for impairment. Impairment of Goodwill Goodwill is tested for impairment annually as of July 31.
The results of both indicated that the long-lived assets, right-of-use assets and definite lived intangible assets were recoverable and did not require further review for impairment. Impairment of Goodwill Goodwill is tested for impairment annually as of July 31.
Historically, losses have been within management’s expectations and have not been significant. Inventories Approximately 42% of the Company's inventory is valued using the last-in, first-out (“LIFO”) method with the remaining valued using the first-in, first-out ("FIFO") method stated at the lower of cost or net realizable value.
Historically, losses have been within management’s expectations and have not been significant. Inventories Approximately 19% of the Company's inventory is valued using the last-in, first-out (“LIFO”) method with the remaining valued using the first-in, first-out ("FIFO") method stated at the lower of cost or net realizable value.
References to “EBITDA” mean earnings (losses) from operations before interest, taxes, depreciation and amortization, and references to “Adjusted EBITDA” mean EBITDA plus, as applicable for each relevant period, certain adjustments as set forth in the reconciliations of net income (loss) to EBITDA and Adjusted EBITDA.
References to “EBITDA” mean earnings (losses) from continuing operations before interest, taxes, depreciation and amortization, and references to “Adjusted EBITDA” mean EBITDA plus, as applicable for each relevant period, certain adjustments as set forth in the reconciliations of net income to EBITDA and Adjusted EBITDA.
Accordingly, the Company maintained its valuation allowance on its U.S. deferred tax assets as of the fourth quarter of fiscal year 2022. Uncertain Tax Positions The calculation of the Company's tax liabilities also involves considering uncertainties in the application of complex tax regulations.
Accordingly, the Company maintained its valuation allowance on its U.S. deferred tax assets as of the fourth quarter of fiscal year 2023. Uncertain Tax Positions The calculation of the Company's tax liabilities also involves considering uncertainties in the application of complex tax regulations.
As a result of losses incurred in recent years, the Company entered into a three-year cumulative loss position in the U.S. jurisdiction during the fourth quarter of fiscal 2016 and remains in a cumulative loss position at the conclusion of fiscal 2022.
As a result of losses incurred in recent years, the Company entered into a three-year cumulative loss position in the U.S. jurisdiction during the fourth quarter of fiscal 2016 and remains in a cumulative loss position at the conclusion of fiscal 2023.
When planning and evaluating its business operations, the Company takes into consideration certain factors, including the following: (i) the projected build rate for commercial, business and military aircraft, as well as the engines that power such 18 Table of Contents aircraft; (ii) the projected build rate for industrial steam and gas turbine engines; and (iii) the projected maintenance, repair and overhaul schedules for commercial, business and military aircraft, as well as the engines that power such aircraft.
When planning and evaluating its business operations, the Company takes into consideration certain factors, including the following: (i) the projected build rate for commercial, business and military aircraft, as well as the engines that power such aircraft; (ii) the projected build rate for industrial steam and gas turbine engines; and (iii) the projected maintenance, repair and overhaul schedules for commercial, business and military aircraft, as well as the engines that power such aircraft.
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.
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 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.
The Company anticipates the total fiscal 2023 capital expenditures will be within the range of $3.5 million to $5.5 million and will relate principally to the further enhancement of production and product offering capabilities and operating cost reductions.
The Company anticipates the total fiscal 2024 capital expenditures will be within the range of $3.5 million to $4.5 million and will relate principally to the further enhancement of production and product offering capabilities and operating cost reductions.
The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. It is generally difficult to outweigh objectively verifiable negative evidence of recent financial reporting losses.
The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. It is generally 26 Table of Contents difficult to outweigh objectively verifiable negative evidence of recent financial reporting losses.
(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 value shown on the Company's books or asset impairment of long-lived assets.
(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 value shown on the Company's books.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations SIFCO is engaged in the production of forgings and machined and sub-assembled components primarily for the A&E markets. The processes and services include forging, heat-treating, chemical processing and machining. The Company operates under one business segment.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations SIFCO is engaged in the production of forgings and machined and sub-assembled components primarily for the Aerospace and Defense, Energy and Commercial Space markets. The processes and services include forging, heat-treating, chemical processing and machining. The Company operates under one business segment.
As discussed in Note 5, Debt , the Company's Maniago, Italy location obtained borrowings from two separate lenders during fiscal 2022. The first loan was for $1.2 million with repayment terms of six years. A second loan with a five year term was obtained in the amount of $1.0 million.
In fiscal 2022, the Company's Maniago, Italy location obtained borrowings from two separate lenders. The first loan was for $1.2 million with repayment terms of six years. A second loan with a five year term was obtained in the amount of $1.0 million.
Impact on Fiscal 2022 Benefits Expense Impact on September 30, 2022 Projected Benefit Obligation for Pension Plans Change in Assumptions (In thousands) 25 basis point decrease in discount rate $ 22 $ 553 25 basis point increase in discount rate $ (22) $ (553) 100 basis point decrease in expected long-term rate of return on assets $ 211 $ — 100 basis point increase in expected long-term rate of return on assets $ (211) $ — The discussion that follows provides information on the significant assumptions/elements associated with these defined benefit pension plans.
Impact on Fiscal 2023 Benefits Expense Impact on September 30, 2023 Projected Benefit Obligation for Pension Plans Change in Assumptions (In thousands) 25 basis point decrease in discount rate $ 17 $ 403 25 basis point increase in discount rate $ (17) $ (403) 100 basis point decrease in expected long-term rate of return on assets $ 181 $ — 100 basis point increase in expected long-term rate of return on assets $ (181) $ — The discussion that follows provides information on the significant assumptions/elements associated with these defined benefit pension plans.
Non-GAAP Financial Measures Presented below is certain financial information based on our EBITDA and Adjusted EBITDA.
Non-GAAP Financial Measures Presented below is certain financial information based on the Company's EBITDA and Adjusted EBITDA.
SIFCO recognizes liabilities for uncertain income tax positions based on its estimate of whether it is more likely than not that additional taxes will be required, and it reports related interest and penalties as income taxes. Refer to Note 7, Income Taxes , of the consolidated financial statements. 27 Table of Contents E.
SIFCO recognizes liabilities for uncertain income tax positions based on its estimate of whether it is more likely than not that additional taxes will be required, and it reports related interest and penalties as income taxes. Refer to Note 7, Income Taxes for further discussion. E.
Cost of Goods Sold Cost of goods sol d ("COGS") decreased by $2.6 million, or 3.0%, to $85.8 million, or 102.2% of net sales, during fiscal 2022, compared with $88.4 million or 88.7% of net sales in the comparable period of fisc al 2021.
Cost of Goods Sold Cost of goods sol d ("COGS") decreased by $6.3 million, or 7.3%, to $79.5 million, or 91.3% of net sales, during fiscal 2023, compared with $85.8 million or 102.2% of net sales in the comparable period of fisc al 2022.
Fiscal Year 2022 Compared with Fiscal Year 2021 Net Sales Net sales comparative information for fiscal 2022 and 2021, respectively, is as follows: (Dollars in millions) Years Ended September 30, Increase (Decrease) Net Sales 2022 2021 Aerospace components for: Fixed wing aircraft $ 39.5 $ 38.5 $ 1.0 Rotorcraft 15.6 27.2 (11.6) Energy components for power generation units 17.4 20.4 (3.0) Commercial product and other revenue 11.4 13.5 (2.1) Total $ 83.9 $ 99.6 $ (15.7) Net sales in fiscal 2022 decreased 15.8%, or $15.7 million to $83.9 million, compar ed with $99.6 million in fiscal 2021.
Fiscal Year 2023 Compared with Fiscal Year 2022 Net Sales Net sales comparative information for fiscal 2023 and 2022, respectively, is as follows: (Dollars in millions) Years Ended September 30, Year Over Year Increase (Decrease) Net Sales 2023 2022 Aerospace components for: Fixed wing aircraft $ 40.1 $ 39.5 $ 0.6 Rotorcraft 16.4 15.6 0.8 Energy components for power generation units 23.0 17.4 5.6 Commercial product and other revenue 7.5 11.4 (3.9) Total $ 87.0 $ 83.9 $ 3.1 Net sales in fiscal 2023 increased 3.7%, or $3.1 million to $87.0 million, compar ed with $83.9 million in fiscal 2022.
Refer to Note 3, Goodwill and Intangible Assets, of the consolidated financial statements for further details. 2021 Annual Goodwill Impairment Tests SIFCO performed its annual test as of July 31, 2021. Goodwill existed at one of the Company's reporting units, Cleveland, Ohio as of September 30, 2021.
Refer to Note 3, Goodwill and Intangible Assets . 2022 Annual Goodwill Impairment Tests SIFCO performed its annual test as of July 31, 2022. Goodwill existed at one of the Company's reporting units, Cleveland, Ohio as of July 31, 2022 and September 30, 2022.
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 September 30, 2022, the FCCR calculation was not required.
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 $1.5 million Reserve minimum as of September 30, 2023, the FCCR calculation was not required.
The Company believes that its estimates of future undiscounted cash flows and fair value are reasonable; however, changes in estimates of such undiscounted cash flows and fair value could change the Company’s estimates, which could result in future impairment charges. 2022 Long-Lived Asset Recoverability Tests In the third and fourth quarters, certain qualitative factors, including operating results, at the Orange, California ("Orange") location, triggered recoverability tests.
The Company believes that its estimates of future undiscounted cash flows and fair value are reasonable; however, changes in estimates of such undiscounted cash flows and fair value could change the Company’s estimates, which could result in future impairment charges. 2023 Long-Lived Asset Recoverability Tests In the first, second, third and fourth quarters, the Company evaluated triggering events and did not identify any indicators that the asset groups might be impaired. 2022 Long-Lived Asset Recoverability Tests In the third and fourth quarters, certain qualitative factors, including operating results, at the Orange, California ("Orange") location, triggered recoverability tests.
Selling, General and Administrative Expenses Selling, general and administrative expenses were $11.9 million, or 14.2% of net sales, during fiscal 2022, compared with $13.5 million, or 13.5% of net sales, in fiscal 2021.
Selling, General and Administrative Expenses Selling, general and administrative expenses were $14.0 million, or 16.1% of net sales, during fiscal 2023, compared with $11.9 million, or 14.2% of net sales, in fiscal 2022.
The Sixth Amendment (the "Sixth Amendment") to the Credit Agreement (as amended, the "Credit Agreement") consists of a senior secured revolving credit facility with a maximum borrowing of $28.0 million, previously $30.0 million.
The combined maximum borrowings decreased to $30.0 million from $35.0 million. The Seventh Amendment (the "Seventh Amendment") to the Credit Agreement (as amended, the "Credit Agreement") consists of a senior secured revolving credit facility with a maximum borrowing of $23.0 million, previously $28.0 million.
The proceeds of the first loan is to be used for working capital purposes, the proceeds of the second loan are earmarked for capital investment. The Company repaid $1.2 million of its Company's foreign term loans in 2022.
The proceeds of the first loan is to be used for working capital purposes, the proceeds of the second loan are earmarked for capital investment. The Company repaid $1.2 million of its Company's foreign term loans in 2022. The Company had net borrowings under its revolving credit facility of $5.1 million in fiscal 2023 and $2.2 million in fiscal 2022.
The Company’s calculation of EBITDA and Adjusted EBITDA may not be comparable to the calculation of similarly titled measures reported by other companies. 21 Table of Contents The following table sets forth a reconciliation of net loss to EBITDA and Adjusted EBITDA: (Dollars in thousands) Years Ended September 30, 2022 2021 Net loss $ (9,640) $ (743) Adjustments: Depreciation and amortization expense 6,348 7,662 Interest expense, net 646 638 Income tax benefit (43) (1,222) EBITDA (2,689) 6,335 Adjustments: Foreign currency exchange loss, net (1) 15 23 Other (income) loss, net (2) (149) 215 (Gain) loss on disposal of assets (3) (7) 209 Gain on insurance recoveries (4) — (2,397) Gain on debt extinguishment (5) (5,106) (287) Equity compensation expense (6) 428 469 Pension settlement/curtailment benefit (7) 208 274 LIFO impact (8) 729 924 Adjusted EBITDA $ (6,571) $ 5,765 (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.
The Company’s calculation of EBITDA and Adjusted EBITDA may not be comparable to the calculation of similarly titled measures reported by other companies. 20 Table of Contents The following table sets forth a reconciliation of net loss to EBITDA and Adjusted EBITDA: (Dollars in thousands) Years Ended September 30, 2023 2022 Net loss $ (8,692) $ (9,640) Adjustments: Depreciation and amortization expense 6,404 6,348 Interest expense, net 1,348 646 Income tax expense (benefit) 159 (43) EBITDA (781) (2,689) Adjustments: Foreign currency exchange loss, net (1) 9 15 Other loss (income), net (2) 275 (149) Loss (gain) on disposal of assets (3) 1 (7) Gain on debt extinguishment (4) — (5,106) Equity compensation expense (5) 375 428 Pension settlement/curtailment benefit (6) 108 208 LIFO impact (7) (305) 729 IT incident costs, net (8) 1,275 — Strategic alternative expense (9) 86 — Adjusted EBITDA $ 1,043 $ (6,571) (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.
The source of cash from working capital of $6.0 million was primarily due to reductions in receivables due to lower sales and improved collections as well as decreases in inventories, partially offset by payments to suppliers. The Company’s operating activities provided $3.9 million of cash in fiscal 2021.
The source of cash from working capital of $6.0 million was primarily due to reductions in receivables due to lower sales and improved collections as well as decreases in inventories, partially offset by payments to suppliers. Investing Activities Cash used for investing activities was $2.4 million in fiscal 2023, compared with $3.2 million in fiscal 2022.
The revolving commitment through the Second Amendment (the "Second 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 revolving commitment through the Third Amendment (the "Third Amendment") of the Export Credit Agreement, which lends amounts to the Company on foreign receivables remained unchanged at $7.0 million.
The Company computes a weighted-average discount rate taking into account anticipated plan payments and the associated interest rates from the USI Consulting Group Pension Discount Curve. 26 Table of Contents As of September 30, 2022 and 2021, SIFCO used the following assumptions: Years Ended September 30, 2022 2021 Discount rate for expenses 2.9 % 3.1 % Expected return on assets 6.4 % 7.0 % Deferred Tax Valuation Allowance The Company accounts for deferred taxes in accordance with the provisions of the Accounting Standards Codification guidance related to accounting for income taxes, whereby the Company recognizes an income tax benefit related to income tax credits, loss carryforwards and deductible temporary differences between financial reporting basis and tax reporting basis.
As of September 30, 2023 and 2022, SIFCO used the following weighted-average assumptions: Years Ended September 30, 2023 2022 Discount rate for liabilities 5.6 % 5.2 % Discount rate for expenses 5.1 % 2.9 % Expected return on assets 6.2 % 6.4 % Deferred Tax Valuation Allowance The Company accounts for deferred taxes in accordance with the provisions of the Accounting Standards Codification guidance related to accounting for income taxes, whereby the Company recognizes an income tax benefit related to income tax credits, loss carryforwards and deductible temporary differences between financial reporting basis and tax reporting basis.
The revolver has a rate based on SOFR plus a 2.25% spread, which was 4.86% at September 30, 2022 and the Export Credit Agreement, as discussed in Note 5, Debt, of the consolidated financial statements, has a rate based on SOFR plus a 1.75% spread, which was 4.36% at September 30, 2022.
The revolver has a rate based on SOFR plus a 2.25% spread, which was 7.68% at September 30, 2023 and the Export Credit Agreement, as discussed in Note 5, Debt and Subsequent Event, has a rate based on SOFR plus a 1.75% spread, which was 7.18% at September 30, 2023.
The Company adopted this standard effective March 31, 2017. 2022 Annual Goodwill Impairment Tests SIFCO performed its annual test as of July 31, 2022. Goodwill existed at one of the Company's reporting units, Cleveland, Ohio as of September 30, 2022. No impairment charge was identified in connection with the annual goodwill impairment test with respect to the Cleveland reporting unit.
Goodwill existed at one of the Company's reporting units, Cleveland, Ohio as of July 31, 2023 and September 30, 2023. No impairment charge was identified in connection with the annual goodwill impairment test with respect to the Cleveland reporting unit.
Under the Company's Credit Agreement, the Company is subject to certain customary loan covenants regarding availability as discussed in Note 5, Debt, of the consolidated financial statements. The availability at September 30, 2022 was $9.4 million.
Under the Company's Credit Agreement, the Company is subject to certain customary loan covenants regarding availability as discussed in Note 5, Debt and Subsequent Event . The availability at September 30, 2023 was $2.8 million.
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.
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 Net loss wa s $8.7 million during fiscal 2023, compared with $9.6 million in fisca l 2022.
The revenue standard also requires disclosure sufficient to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments and assets recognized from the cost to obtain or fulfill a contract.
The revenue standard also requires disclosure sufficient to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments and assets recognized from the cost to obtain or fulfill a contract. 24 Table of Contents Contract Balances Contract assets on the consolidated balance sheets are recognized when a good is transferred to the customer and the Company does not have the contractual right to bill for the related performance obligations.
Because SIFCO is considered a SRC, the Company does not need to implement until October 1, 2023. The Company will continue to evaluate the effect of adopting ASU 2016-13 will have on the Company's results within the consolidated statements of operations and financial condition.
Because SIFCO is considered a SRC, this ASU is effective for the Company beginning October 1, 2023. The effect of adopting this ASU is not expected to have a material impact to the Company's results within the consolidated statements of operations and financial condition.
Financing Activities Cash provided by financing activities was $3.7 million in fiscal 2022 compared to cash used by financing activities of $3.1 million in fiscal 2021. As discussed in Note 5, Debt , the Company amended the Credit Agreement and the Export Agreement on March 23, 2022. The combined maximum borrowings remain unchanged at $35.0 million.
Financing Activities Cash provided by financing activities was $2.9 million in fiscal 2023 compared to cash provided by financing activities of $3.7 million in fiscal 2022. As discussed in Note 5, Debt and Subsequent Event , the Company amended the Credit Agreement and the Export Agreement on August 9, 2023.
Payment from customers are received based on the terms established in the contract with the customer. Impairment of Long-Lived Assets The Company reviews the carrying value of its long-lived assets when events and circumstances warrant such a review.
Payment from customers are received based on the terms established in the contract with the customer. Impairment of Long-Lived Assets The Company reviews the carrying value of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset (group) might not be recoverable.
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.
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. 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. C.
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.
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.
Specific obsolescence may arise due to a technological or market change or based on cancellation of an order. 24 Table of Contents Management’s judgment is necessary in determining the net realizable value of these products to arrive at the proper write down for obsolete and excess inventory.
In addition, if the Company learns of specific obsolescence, other than that identified by the aging criteria, an additional write down will be recognized. Specific obsolescence may arise due to a technological or market change or based on cancellation of an order. Management’s judgment is necessary in determining the proper write down for obsolete and excess inventory.
Commercial net sales (which includes energy components) increased $3.2 million to $39.8 million in fiscal 2022, compared to $36.6 million in fiscal 2021 primarily due to the increase in build rates in the commercial aerospace industry.
Commercial net sales increased $8.6 million to $48.4 million in fiscal 2023, compared to $39.8 million in fiscal 2022 primarily due to growth in the energy components for power generation units (steam turbine markets) and the increase in build rates in the commercial aerospace industry.
Included in the current year results, 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 for further discussion.
Other/General The Company recorded an operat ing loss of $6.7 million during fiscal 2023, compared with an operating loss of $14.1 million in fiscal 2022. Prior year results included 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.
Reference to the above activities can be found in the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. B. Liquidity and Capital Resources Historically, the main sources of liquidity of the Company have been cash flows from operations and borrowings under our Credit Agreement (as defined below under "Financing Activities").
Liquidity and Capital Resources Historically, the main sources of liquidity of the Company have been cash flows from operations and borrowings under our Credit Agreement (as defined below under "Financing Activities").
(6) 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. (7) Represents expense incurred by its defined benefit pension plans related to settlement of pension obligations. (8) Represents the change in the reserve for inventories for which cost is determined using the last-in, first-out (“LIFO”) method.
(6) Represents expense incurred by its defined benefit pension plans related to settlement of pension obligations. (7) Represents the change in the reserve for inventories for which cost is determined using the last-in, first-out (“LIFO”) method. (8) Represents incremental information technology costs as it relates to the cybersecurity incident and loss on insurance recovery.
Cash and cash equivale nts increased to $1.2 million at Septemb er 30, 2022 compared with $0.3 million at September 30, 2021. At September 30, 2022 and 2021, cash included financing proceeds for capital investment and a nominal amount, respectively, of the Company’s cash and cash equivalents were in the possession of its non-U.S. subsidiaries.
At September 30, 2023 and 2022, cash included financing proceeds for capital investment and a nominal amount of the Company’s cash and cash equivalents were in the possession of its non-U.S. subsidiaries. Distributions from the Company’s non-U.S. subsidiaries to the Company may be subject to adverse tax consequences.
The cash provided by operating activities in fiscal 2021 was primarily due to non-cash items, such as depreciation and amortization of $7.7 million, LIFO effect of $0.9 million, inventory write down to NRV $0.3 million, equity based compensation, and source of working capital of $1.4 million, partially offset by a net gain on insurance recovery combined with loss on disposal of assets of $2.2 million and deferred income taxes of $1.3 million and net loss of $0.7 million.
The cash used by operating activities in fiscal 2023 was primarily due to net operating loss of $8.7 million, adjusted for non-cash items such as change in NRV reserve $1.1 million, and LIFO benefit of $0.3 million, partially offset by depreciation and amortization of $6.4 million, equity based compensation of $0.3 million and sources of working capital of $1.7 million.
The following table illustrates the sensitivity to change in the assumed discount rate and expected long-rate of return on assets for the Company's pension plans as of September 30, 2022.
The amounts recognized in the consolidated financial statements for pension benefits under these four defined benefit pension plans are determined on an actuarial basis utilizing various assumptions. The following table illustrates the sensitivity to change in the assumed discount rate and expected long-term rate of return on assets for the Company's pension plans as of September 30, 2023.
Critical Accounting Policies and Estimates Allowances for Doubtful Accounts The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of certain customers to make required payments.
The Company believes that the critical accounting estimates employed and the resulting balances are reasonable; however, actual results in these areas could differ from management's estimates under different assumptions or conditions. Allowances for Doubtful Accounts The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of certain customers to make required payments.
The decrease in the effective tax rate in fiscal 2022 is primarily attributable to tax benefits from adjusting deferred taxes recorded in Italy applied against a year-to-date loss in fiscal 2021 which was non-recurring in fiscal 2022 and changes in jurisdictional mix of income in fiscal 2022 compared with the same period in fiscal 2021.
The decrease in the effective tax rate in fiscal 2023 is primarily attributable to changes in jurisdictional mix of income in fiscal 2023 compared with the same period in fiscal 2022.
(5) Represents the gain on extinguishment of debt and interest for the amount forgiven by the SBA as it relates to the PPP loan in fiscal 2022 and term debt forgiveness as is relates to foreign borrowings in fiscal 2021.
(4) Represents the gain on extinguishment of debt and interest for the amount forgiven by the SBA as it relates to the PPP loan in fiscal 2022. (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.
Gross margin percent of sales was (2.2%) during fiscal 2022, compared with 11.3% in fiscal 2021, primarily due to lower volume, inventory write down to NRV o f $1.5 m illion and incremental idle costs of $1.0 million, higher raw material prices, and outside processing costs in fiscal 2022 compared with the prior year, partially offset by lower payroll.
Gross margin percent of sales was 8.7% during fiscal 2023, compared with (2.2%) in fiscal 2022, primarily due to increased volume, ERC benefit of $1.5 million, reduction of NRV reserve and idle expense, and lower outside processing costs compared with the prior year.
Such decrease was primarily due to certain intangible assets that were fully amortized during fiscal 2022. Other/General The Company recorded an operat ing loss of $14.1 million during fiscal 2022, compared with an operating loss of $1.1 million in fiscal 2021.
Amortization of Intangibles Amortization of in tangibles decreased $0.1 million to $0.2 million during fiscal 2023, compared with $0.3 million in the comparable period of fiscal 2022. The decrease was primarily due to certain intangible assets that were fully amortized during fiscal 2023.
Distributions from the Company’s non-U.S. subsidiaries to the Company may be subject to adverse tax consequences. Operating Activities The Company’s operating activi ties provided $0.3 million of cash in f iscal 2022, compared with $3.9 million in fiscal 2021.
Operating Activities The Company’s operating activi ties used $1.4 million of cash in f iscal 2023, compared with $0.3 million provided in fiscal 2022.
Military net sales decreased $18.9 million to $44.1 million in fiscal 2022, compared to $63.0 million in fiscal 2021 primarily due to timing of orders related to certain military programs as a result of advance ordering in fiscal 2021 and lower munition progra m volumes, such as H60 and Hellfire missile due to timing.
Military net sales decreased $5.4 million to $38.7 million in fiscal 2023, compared to $44.1 million in fiscal 2022 primarily due to V22 demand reduction and timing of orders related to a munition progra m.
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. C. Off-Balance Sheet Arrangements In the normal course of business, the Company may be party to certain arrangements that are not reflected in the Consolidated Balance Sheets.
Off-Balance Sheet Arrangements In the normal course of business, the Company may be party to certain arrangements that are not reflected in the Consolidated Balance Sheets.
No impairment charge was identified in connection with the annual goodwill impairment test with respect to the Cleveland reporting unit. Refer to Note 3, Goodwill and Intangible Assets, of the consolidated financial statements for further details.
No impairment charge was identified in connection with the annual goodwill impairment test with respect to the Cleveland reporting unit. Refer to Note 3, Goodwill and Intangible Assets. 25 Table of Contents Defined Benefit Pension Plan Expense The Company maintains four defined benefit pension plans in accordance with the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”).
Commercial net sales wer e 47.4% of total net sales and military net sales wer e 52.6% of to tal net sales in fiscal 2022, compared with 36.7% and 63.3%, respectively, in the comparable period in fiscal 2021.
Commercial products and other revenue decreased $3.9 million in fiscal 2023 compared to the same period in fiscal 2022, primarily due to timing of orders related to a munitions program partially offset by an increase in commercial space. 18 Table of Contents Commercial net sales wer e 55.6% of total net sales and military net sales wer e 44.4% of to tal net sales in fiscal 2023, compared with 47.4% and 52.6%, respectively, in the comparable period in fiscal 2022.
The source of cash from working capital of $1.4 million was primarily due to reductions in receivables due to lower sales and improved collections as well as decreases in inventories, partially offset by payments to suppliers and disbursements related to the fire recovery.
The source of cash from working capital of $1.7 million was primarily due to increase in accounts payable due to timing of payments and lower inventories due to extended lead times, partially offset by higher accounts receivable due to increased sales at the end of the fiscal year.
As permitted, if the reporting unit fails the impairment test, the Financial Accounting Standards Board ("FASB") issued an Accounting Standard Update ("ASU") removing step two from the goodwill impairment test. If a reporting unit fails the 25 Table of Contents quantitative impairment test, impairment expense is immediately recorded as the difference between the reporting unit's fair value and carrying value.
If a reporting unit fails the quantitative impairment test, impairment expense is immediately recorded as the difference between the reporting unit's fair value and carrying value not to exceed the amount of goodwill recorded. 2023 Annual Goodwill Impairment Tests SIFCO performed its annual test as of July 31, 2023.
The energy components for power generation un its decreased $3.0 million compared with the same period last year due to customer order reductions.
Rotorcraft sales increased $0.8 million in fiscal 2023 compared to the same period in fiscal 2022 primarily due to commercial and Blackhawk programs. The energy components for power generation un its increased $5.6 million compared with the same period last year due to growth in the steam turbine markets.
Fixed wing aircraft sales increased $1.0 million compared with the same period last year due to timing of customer orders, an increase in build rates in certain commercial programs and sales for military programs.
The timing of shipments, coupled with increased demand in the steam turbine power generation market, have contributed to the increase in deliveries in fiscal 2023 than in fiscal 2022. Fixed wing aircraft sales increased $0.6 million compared with the same period last year primarily due to F35, 737 and 787 programs.
The decrease in income in the current period was primarily due to lower volume, increased inventory write down to NRV, higher idle expense, raw material prices as a result of supply chain constraints, excess and obsolete costs, and outside processing expenses, partially offset by the gain on debt extinguishment of debt related to the PPP loan and lower payroll and selling, general and administrative expenses.
The decrease in net loss in the current period was primarily due to increased volume, ERC refund benefit, reduction of NRV reserve and idle expense, lower outside processing costs and stabilized raw material pricing partially offset by cybersecurity incident costs. Prior year results included a $5.1 million gain on debt extinguishment previously noted.
Expenditures in fiscal 2021were used primarily for the restoration of the Orange location as a result of the fire, which were completed as of September 30, 2021. Capital commitments at September 30, 2022 were $1.6 million.
Fiscal 2023 and fiscal 2022 expenditures were used primarily for manufacturing enhancement and maintenance capital. Capital commitments at September 30, 2023 were $1.1 million.
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 COVID-19 on the commercial airline industry.
The Company's liquidity could be negatively affected if the Company is unable to restructure existing debt obligations, obtain capital or enter 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, by customers extending payment terms to the Company and/or the decrease in demand for our products.
The decrease was primarily due to lower volume from the military and munitions programs, increased raw material pricing and outside processing costs, inventory write down to net realizable value ("NRV") of $1.5 million and idle expense of $3.1 million partially offset by cost controlling measures including lower payroll costs of $1.8 million .
The decrease was primarily due to increased volume, ERC benefit of $1.5 million and reduction of net realizable value ("NRV") reserve of $0.9 million and lower idle expense of $0.9 million . Current year results include $2.1 million of idle expense and $0.9 million benefit associated with NRV compared with prior year costs of $3.1 million and $1.5 million, respectively.
Prior year results include d $2.1 million of idle expense and $0.3 million of inventory write down to NRV. Gross Profit (Loss) Gross profit (loss) decreased by $13.1 million, or 116.6%, to a loss of $1.9 million during fiscal 2022, compared with $11.2 million profit in fiscal 2021.
Gross Profit (Loss) Gross profit increased by $9.4 million, to $7.5 million during fiscal 2023, compared with a loss of $1.9 million in fiscal 2022.
Removed
Impact of COVID-19 & Other Factors As previously noted, 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.
Added
Cybersecurity Incident As reported on Forms 8-K filed January 6, 2023 and February 10, 2023, the Company became aware of unauthorized access to the Company's systems on December 30, 2022. The Company’s domestic operations were impacted by this Cybersecurity Incident which resulted in production delays and delayed shipments due to information access limitations.
Removed
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.
Added
The Company initiated response protocols and an investigation, engaging cyber security experts to assist with the assessment of the incident and to help determine what data was impacted. The Company has since completed data recovery and restoration from the cyber incident. See Note 11 , Commitments and Contingencies.
Removed
While the exact timing and pace of recovery in our markets continues to be indeterminable, there are indications that commercial air travel is steadily recovering. While the long-term outlook remains positive given the nature of the industry, there continues to be uncertainty with the respect to when commercial air traffic will return to pre-COVID-19 levels.
Added
The increase in selling, general and administrative expenses is primarily due to incremental IT costs related to the cybersecurity incident of $1.3 million and professional fees primarily related to the ERC credit of $0.4 million partially offset by ERC benefit of $0.2 million. See Note 11 , Commitments and Contingencies for further discussion on cyber incident.
Removed
Given the fluidity of the situation, it is still unclear how lasting and deep the ongoing economic impacts of COVID-19 will last.
Added
Net interest expe nse was $1.3 million in fisca l 2023 compared with $0.6 million in fisca l 2022. The increase was due to higher interest rates and higher average borrowings compared with the prior year. See Note 5, Debt and Subsequent Event for further discussion.
Removed
In response to the uncertain environment created by the COVID-19 pandemic and its effects, the Company has, at various points in fiscal 2022 and 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.
Added
Neither EBITDA nor Adjusted EBITDA is a measurement of financial performance under GAAP, and neither should be considered as an alternative to net loss or cash flow from operations determined in accordance with GAAP.
Removed
Such employees have since returned to work. Additionally, our operations are subject to global economic and geopolitical risks. For example, while the Company does not have a presence in these regions, the ongoing conflict between Russia and Ukraine has impacted economic activity as well as the availability and price of raw materials and energy.

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