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For the transition period from _________________ to _____________________

Commission file number 1-5978

(Exact name of registrant as specified in its charter)

Ohio

34-0553950

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

970 East 64th Street, Cleveland Ohio

44103

(Address of principal executive offices)

(Zip Code)

(216) 881-8600

(Registrant’s telephone number, including area code)

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares

SIF

NYSE American

Yes ☐ No ☒

Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Yes ☒  No ☐  

large accelerated filer ☐ accelerated filer ☐ non-accelerated filer ☒ smaller reporting company ☒ emerging growth company ☐

Yes ☐ No ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐  

Indicate by check mark whether the registrant has filed a report on an attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Documents incorporated by reference: Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on January 31, 2023 (Part III).

Item Number
PART I
1			Business			4
1A.			Risk Factors			8
2			Properties			17
3			Legal Proceedings			17
4A.			Executive Officers			17
PART II
5			Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			18
7			Management's Discussion and Analysis of Financial Condition and Results of Operations			18
8			Financial Statements and Supplemental Data			29
9			Changes in and Disagreements with Accountants on Accounting and Financial Disclosures			66
9A			Controls and Procedures			66
9B			Other Information			67
9C			Disclosure Regarding Foreign Jurisdictions that Prevent Inspections			68
PART III
10			Directors Executive Officers and Corporate Governance			68
11			Executive Compensation			68
12			Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			68
13			Certain Relationships and Related Transactions, and Director Independence			69
14			Principal Accountant Fees and Services			69
PART IV
15			Exhibits and Financial Statement Schedules			69
			Signatures			72

A.The Company

B.Principal Products and Services

SIFCO's long-term plan is to have a balance comprised of military and commercial aerospace revenues, supplemented with energy, commercial space, and adjacent market components. 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 supplies new and spare components to the U.S. military for aircraft, helicopters, vehicles, and munitions. 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. Uncertainty may arise if the government reprioritizes funding as a result of, among other factors, potential changes in the threat environment, defense spending levels, government priorities, political leadership, procurement strategy, military strategy and planning, and broader changes in social, economic or political demands or priorities. 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. 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. 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. 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. While alternative energy markets continue to strengthen, oil and gas prices are expected to rebound given rising gas prices from historic lows. As such, it's currently anticipated that purchases of parts and supplies within the industry will increase. 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 also supplies components to the commercial space industry, which is rapidly evolving. 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.

SIFCO competes with numerous companies, both in and tangential to the A&E industry, of which fifteen are known by SIFCO. SIFCO competes with both U.S. and non-U.S. suppliers of forgings, some of which are significantly larger than SIFCO; however, our competitors range from companies focused on the A&E markets to large diversified corporations that may also have business interests outside of the A&E markets to smaller companies that offer a limited portfolio of products in this market. SIFCO believes that it has an advantage and distinguishes itself in the primary markets it serves due to its: (i) demonstrated A&E expertise; (ii) focus on quality and customer service; (iii) operating initiatives such as SMART (Streamlined Manufacturing Activities to Reduce Time/Cost) and Six Sigma; and (iv) broad range of capabilities and offerings. As customers establish and utilize new facilities throughout the world, SIFCO will continue to encounter non-U.S. competition. 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. See further discussion of the risks relating to competition SIFCO faces in Item 1A. Risk Factors.

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. SIFCO believes that the loss of sales to such customers would result in a material adverse impact on the business. However, SIFCO has maintained a business relationship with these customers for many years and is currently conducting business with them under multi-year agreements. Although there is no assurance that these relationships will continue, as one or more major customers have reduced their purchases, SIFCO has generally been successful in gaining new business, thereby avoiding a material adverse impact on the Company. 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’s total backlog as of September 30, 2022 increased to $81.9 million, compared with $77.2 million as of September 30, 2021. Orders for delivery scheduled in the upcoming fiscal year 2023 increased to $65.5 million compared with $59.3 million scheduled in fiscal 2022. 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 timing of annual awards and SIFCO's customers adjusting orders due to recovery within the commercial airline industry. 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 indicative of future sales.

C.Regulatory Matters

D.Human Capital Management

SIFCO employed approximately 378 full-time employees at the beginning of fiscal 2022, which decreased to approximately 348 employees at the end of fiscal 2022. 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

The Company’s employees include full-time, part-time, and temporary employees. Approximately 67% of our employees were located within the U.S. and 33% of our employees were located in Italy. Approximately 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. 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.

E.Non-U.S. Operations

Financial information about the Company's U.S. and non-U.S. operations is set forth in Note 12, Business Information, of the consolidated financial statements.

F.Available Information

Information relating to our corporate governance at SIFCO, including the Audit Committee, Corporate Governance and Nominating Committee and Compensation Committee Charters, as well as the Corporate Governance Guidelines and Policies and the Code of Conduct & Ethics adopted by our Board of Directors, is available free of charge on or through the “Investor Relations” section of our website at www.sifco.com. 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.

Set forth below are material risks and uncertainties that could negatively affect our business and financial condition and could cause our actual results to differ materially from those expressed in forward-looking statements contained in this report. 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.

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.

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.

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

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;

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.

As of September 30, 2022, we employed approximately 348 people. We face competition for management and employees from other companies and organizations. 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. 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. 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. Additionally, two of our locations are parties to collective bargaining agreements. Although we have not experienced any material labor-related work stoppage and consider our relations with our employees to be good, labor stoppages may occur in the future. If the unionized workers were to engage in a strike or other work stoppage, or if SIFCO is unable to negotiate acceptable collective bargaining agreements with the unions, or if other employees were to become unionized, we could experience a significant disruption of our operations, higher ongoing labor costs and possible loss of customer contracts, which could have an adverse effect on our business and results of operations.

Certain of the Company's employees are covered by its noncontributory defined benefit pension plans (“Plans”). The impact of these Plans on our earnings may be volatile in that the amount of expense we record and may materially change from year to year because those calculations are sensitive to changes in several key economic assumptions, including discount rates, inflation, expected return on plan assets, retirement rates and mortality rates. These pension costs are dependent on significant judgment in the use of various estimates and assumptions, particularly with respect to the discount rate and expected long-term rates of return on plan assets. Changes to these estimates and assumptions could have a material adverse effect on our financial position, results of operations or cash flows. 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. 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).

Goodwill and other intangible assets are a component of our assets. At September 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. Although this write-off would be a non-cash charge, it could reduce our earnings and our financial condition.

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.

•SIFCO operates and manufactures in multiple facilities—(i) an owned 280,000 square foot facility located in Cleveland, Ohio, which is also the site of the Company’s corporate headquarters, (ii) leased facilities aggregating approximately 70,500 square feet located in Orange, California, and (iii) owned facilities aggregating approximately 91,000 square feet located in Maniago, Italy.

In the normal course of business, the Company may be involved in ordinary, routine legal actions. The Company cannot reasonably estimate future costs, if any, related to these matters and does not believe any such matters are material to its financial condition or results of operations. The Company maintains various liability insurance coverages to protect its assets from losses arising out of or involving activities associated with ongoing and normal business operations; however, it is possible that the Company’s future operating results could be affected by future costs of litigation. See Note 11, Commitments and Contingencies, of the consolidated financial statements for more information regarding the legal proceedings in which the Company is involved.

Name			Age						Title and Business Experience
Peter W. Knapper			61						President and Chief Executive Officer since June 2016. Prior to joining SIFCO, Mr. Knapper worked for the TECT Corporation from 2007 to 2016 and was the Director of Strategy and Site Development. TECT offers the aerospace, power-generation, transportation, marine, and medical industries a combination of capabilities unique among metal component manufacturers. Prior to this role, Mr. Knapper served as President of TECT Aerospace and Vice President of Operations of TECT Power. In addition, Mr. Knapper spent five years at Rolls Royce Energy Systems, Inc., a subsidiary of Rolls-Royce Holdings plc, as the Director of Component Manufacturing and Assembly. Mr. Knapper brings his strategic and industry experience to his role in management and to the Board of the Company.
Thomas R. Kubera			63						Chief Financial Officer since August 8, 2018. Prior to his appointment, Mr. Kubera was Interim Chief Financial Officer from July 1, 2017 to August 7, 2018 and Chief Accounting Officer since January 31, 2018. Mr. Kubera was Corporate Controller from May 2014 and had served as Interim Chief Financial Officer from April 2015 to May 2015. Prior to joining SIFCO, Mr. Kubera was previously at Cleveland-Cliffs, Inc. (previously known as Cliffs Natural Resources, Inc.) from April 2005 through 2014, most recently as the Controller of Global Operations Services. He also held several assistant controller positions and was a Senior Manager of External Reporting while at Cleveland-Cliffs, Inc.

The Company did not declare a cash dividend during fiscal 2022 or fiscal 2021. 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. Additionally, 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.

(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, compared with $99.6 million in fiscal 2021. Given the long lead times for certain of the Company's products, the Company has seen a greater impact related to the effects of COVID-19 on orders and deliveries in fiscal 2022 than in fiscal 2021. 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. Rotorcraft sales decreased $11.6 million in fiscal 2022 compared to the same period in fiscal 2021 primarily due to a timing change in requirements after advance ordering from customers in fiscal 2021 to help the

overall supply chain through the effects of the COVID-19 pandemic. The energy components for power generation units decreased $3.0 million compared with the same period last year due to customer order reductions.

Commercial net sales were 47.4% of total net sales and military net sales were 52.6% of total net sales in fiscal 2022, compared with 36.7% and 63.3%, respectively, in the comparable period in fiscal 2021. 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. 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 program volumes, such as H60 and Hellfire missile due to timing.

Cost of goods sold ("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 fiscal 2021. 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. Net sales decreased at a greater rate than COGS, leading COGS as a percent of net sales to be greater in fiscal 2022 than in fiscal 2021. This was primarily a result of the Company recording idle expense of $3.1 million, an inventory write down to NRV of $1.5 million, and experiencing increased outside processing and raw material costs. Prior year results included $2.1 million of idle expense and $0.3 million of inventory write down to NRV.

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. The decrease in selling, general and administrative expenses is due to the continued cost reduction efforts by management, including lower wages, commissions and travel expenses, partially offset by higher legal and professional costs.

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. Prior year results included a gain on insurance recoveries of $2.4 million a gain on debt extinguishment of $0.3 million due to partial loan forgiveness at the Company's Maniago location.

Interest expense was $0.6 million in fiscal 2022 and fiscal 2021. See Note 5, Debt, of the consolidated financial statements for further information.

			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

Net loss was $9.6 million during fiscal 2022, compared with net loss of $0.7 million in fiscal 2021. 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.

•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.

			(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.

(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.

(4)Represents the difference between the insurance proceeds received for the damaged property and the carrying values shown on the Company's books for the assets that were damaged in the fire at the Orange location that occurred in December 2018.

(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.

(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.

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. 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 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 Sixth Amendment, among other things, (i) revises the fixed coverage ratio to exclude the first $1,500 of unfunded capital expenditures through April 20, 2023, (ii) increases the letter of credit sub-limit from $2,000 to $3,000, (iii) modifies the reference rate from the London interbank offered rate ("LIBOR") to the secured overnight financing rate ("SOFR") and (iv) revises the property, plant and equipment component of the borrowing base under the Credit Agreement.

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. 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 $2.2 million in fiscal 2022 and net repayments of $3.9 million in fiscal 2021. Amounts borrowed under the Credit Agreement are secured by substantially all the assets of the Company and its U.S. subsidiaries and a pledge of 66.67% of the stock of its first-tier non-U.S. subsidiaries. Borrowings will bear interest at the lender's established domestic rate or SOFR, plus the applicable margin as set forth in the Credit Agreement. 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 Company also has a commitment fee of 0.25% under the Credit Agreement to be incurred on the unused balance of the revolver.

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. If the availability had fallen short, the Company would be required to meet the fixed charge coverage ratio ("FCCR") covenant, which must not be less than 1.1 to 1.0. In the event of a default, we may not be able to access our revolver, which could impact the ability to fund working capital needs, capital expenditures and invest in new business opportunities. Because the availability was greater than the 10.0% of the Revolving Commitment as of September 30, 2022, the FCCR calculation was not required.

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. Refer to Note 3, Goodwill and Intangible Assets, of the consolidated financial statements for further details.

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. 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.

						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)					$	—

			Years Ended September 30,
			2022						2021
Discount rate for expenses			2.9		%				3.1		%
Expected return on assets			6.4		%				7.0		%

The calculation of the Company's tax liabilities also involves considering uncertainties in the application of complex tax regulations. 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.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" and subsequent updates. ASU 2016-13 changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The new guidance will replace the current incurred loss approach with an expected loss model. The new expected credit loss impairment model will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt instruments, net investments in leases, loan commitments and standby letters of credit. Upon initial recognition of the exposure, the expected credit loss model requires entities to estimate the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses should consider historical information, current information and reasonable and supportable forecasts, including estimates of prepayments. Financial instruments with similar risk characteristics should be grouped together when estimating expected credit losses. ASU 2016-13 does not prescribe a specific method to make the estimate, so its application will require significant judgment. ASU 2016-13 is effective for public companies in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. However, in November 2019, the FASB issued ASU 2019-10, "Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)," which defers the effective date for public filers that qualify as a smaller reporting company ("SRC"), as defined by the Securities and Exchange Commission, to fiscal years after December 15, 2022, including interim periods within those fiscal years. 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.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. This ASU, along with recently issued ASU 2021-01, which further clarifies the scope of Topic 848, is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2022. ASU 2020-04 was effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company has not applied any optional expedients and exceptions to date, and will continue to evaluate the impact of the guidance and whether it will apply the optional expedients and exceptions.

We have audited the accompanying consolidated balance sheets of SIFCO Industries, Inc. (an Ohio corporation) and subsidiaries (the “Company”) as of September 30, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the two years in the period ended September 30, 2022 and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit

matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

•We obtained an understanding of and evaluated the design of controls relating to management’s recoverability of long-lived assets analysis, including controls over the determination of the undiscounted cash flows of the asset group and review controls over the reasonableness of key inputs and assumptions.

•We assessed the reasonableness of the methodologies and significant inputs used to estimate the future cash flows of the asset group, including the revenue and EBITDA growth rates.

•We assessed the reasonableness of the estimated sale value of the asset group at the end of the useful life.

 

						Years Ended September 30,
						2022						2021
Net sales						$	83,902					$	99,591
Cost of goods sold						85,757						88,386
Gross (loss) profit						(1,855)						11,205
Selling, general and administrative expenses						11,909						13,484
Amortization of intangible assets						313						1,011
(Gain) loss on disposal or impairment of operating assets						(7)						209
Gain on insurance recoveries						—						(2,397)
Operating (loss)						(14,070)						(1,102)
Interest expense, net						645						638
Gain on debt extinguishment						(5,106)						(287)
Foreign currency exchange loss, net						15						23
Other expense, net						59						489
(Loss) before income tax benefit						(9,683)						(1,965)
Income tax benefit						(43)						(1,222)
Net (loss)						$	(9,640)					$	(743)
Net (loss) per share:
Basic						$	(1.65)					$	(0.13)
Diluted						$	(1.65)					$	(0.13)
Weighted-average number of common shares (basic)						5,830						5,759
Weighted-average number of common shares (diluted)						5,830						5,759

(Amounts in thousands)

						Years Ended September 30,
						2022						2021
Net (loss)						$	(9,640)					$	(743)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment, net of tax $0 and $0, respectively						(837)						(102)
Retirement plan liability adjustment, net of tax $0 and $0, respectively						1,211						4,491
Interest rate swap agreement adjustment, net of tax $0 and $0, respectively						12						—
Comprehensive (loss) income						$	(9,254)					$	3,646

 

						September 30,
						2022						2021
ASSETS
Current assets:
Cash and cash equivalents						$	1,174					$	346
Receivables, net of allowance for doubtful accounts of $111 and $167, respectively						16,515						19,914
Contract asset						10,172						12,874
Inventories, net						8,969						12,546
Refundable income taxes						97						101
Prepaid expenses and other current assets						1,851						1,792
Total current assets						38,778						47,573
Property, plant and equipment, net						39,272						42,708
Operating lease right-of-use assets, net						15,167						15,943
Intangible assets, net						477						874
Goodwill						3,493						3,493
Other assets						79						77
Total assets						$	97,266					$	110,668
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt						$	4,379					$	9,566
Revolver						11,163						8,930
Short-term operating lease liabilities						792						788
Accounts payable						10,387						9,811
Accrued liabilities						5,868						6,871
Total current liabilities						32,589						35,966
Long-term debt, net of current maturities						3,508						2,669
Long-term operating lease liabilities, net of short-term						14,786						15,439
Deferred income taxes						137						158
Pension liability						4,812						6,073
Other long-term liabilities						744						741
Shareholders’ equity:
Serial preferred shares, no par value, authorized 0 shares						—						—
Common shares, par value $1 per share, authorized 10,000 shares; issued and outstanding shares 6,040 at September 30, 2022 and 5,987 at September 30, 2021						6,040						5,987
Additional paid-in capital						11,387						11,118
Retained earnings						31,956						41,596
Accumulated other comprehensive loss						(8,693)						(9,079)
Total shareholders’ equity						40,690						49,622
Total liabilities and shareholders’ equity						$	97,266					$	110,668

						Years Ended September 30,
						2022						2021
Cash flows from operating activities:
Net (loss)						$	(9,640)					$	(743)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Depreciation and amortization						6,348						7,662
Amortization of debt issuance costs						40						72
(Gain) loss on disposal of operating assets or impairment of operating assets						(7)						209
Gain on insurance proceeds received for damaged property						—						(2,397)
Gain on extinguishment of debt						(5,106)						(287)
Inventory valuation accounts						1,639						92
LIFO effect						729						924
Share transactions under employee stock plan						322						453
Deferred income taxes						(48)						(1,288)
Other long-term liabilities						19						375
Changes in operating assets and liabilities:
Receivables						2,633						3,244
Contract assets						2,702						(877)
Inventories						443						1,952
Refundable income taxes						4						2
Prepaid expenses and other current assets						(138)						157
Other assets						(4)						61
Accounts payable						808						(4,443)
Accrued liabilities						(419)						(1,279)
Accrued income tax and other						(27)						3
Net cash provided by operating activities						298						3,892
Cash flows from investing activities:
Insurance proceeds received for damaged property						—						4,101
Proceeds from disposal of property, plant and equipment						7						—
Capital expenditures						(3,199)						(4,979)
Net cash used for investing activities						(3,192)						(878)
Cash flows from financing activities:
Proceeds from term note						261						1,020
Proceeds from long term debt						2,245						—
Repayments of long-term debt						(1,243)						(405)
Proceeds from revolving credit agreement						79,802						89,264
Repayments of revolving credit agreement						(77,569)						(93,204)
Proceeds from short-term debt borrowings						4,132						3,613
Repayments of short-term debt borrowings						(3,894)						(3,354)
Payments for debt issuance costs						—						(45)
Net cash provided by (used for) financing activities						3,734						(3,111)
Increase (decrease) in cash and cash equivalents						840						(97)
Cash and cash equivalents at beginning of year						346						427
Effects of exchange rate changes on cash and cash equivalents						(12)						16
Cash and cash equivalents at end of year						$	1,174					$	346

						Years Ended September 30,
						2022						2021
Cash paid during the year:
Cash paid for interest						$	(585)					$	(397)
Cash paid for income tax, net						$	(19)					$	(62)
Non-cash investing and financing activities:
Additions to property, plant & equipment - incurred but not yet paid						$	372					$	257

 

						Common Shares						Additional Paid-In Capital						Retained Earnings						Accumulated Other Comprehensive Loss												Total Shareholders’ Equity
Balance - September 30, 2020						$	5,916					$	10,736					$	42,339					$	(13,468)											$	45,523
Comprehensive income (loss)						—						—						(743)						4,389												3,646
Performance and restricted share expense						—						469						—						—												469
Share transactions under employee stock plans						71						(87)						—						—												(16)
Balance - September 30, 2021						5,987						11,118						41,596						(9,079)												49,622
Comprehensive income (loss)						—						—						(9,640)						386												(9,254)
Performance and restricted share expense						—						428						—						—												428
Share transactions under employee stock plans						53						(159)						—						—												(106)
Balance - September 30, 2022						$	6,040					$	11,387					$	31,956					$	(8,693)											$	40,690

						2022						2021
Property, plant and equipment:
Land						$	913					$	994
Buildings						16,553						16,931
Machinery and equipment						93,510						92,871
Total property, plant and equipment						110,976						110,796
Less: Accumulated depreciation						71,704						68,088
Property, plant and equipment, net						$	39,272					$	42,708

Goodwill represents the excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill is subject to impairment testing if triggered in the interim, and if not, on an annual basis. The Company has selected July 31 as the annual impairment testing date. The first step of the goodwill impairment test compares the fair value of a reporting unit (as defined) with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered impaired. However, if the carrying amount exceeds the fair value, the Company should recognize an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill allocated to that reporting unit. See Note 3, Goodwill and Intangibles Assets, of the consolidated financial statements for further discussion of the July 31, 2022 and 2021 annual impairment test results. The Company monitors for triggering events outside of the annual impairment assessment date and no potential triggers were identified through September 30, 2022.

Intangible assets consist of identifiable intangibles acquired or recognized in the accounting for the acquisition of a business and include such items as a trade name, a non-compete agreement, below market lease, customer relationships and order backlog. Intangible assets are amortized over their useful lives ranging from one year to ten years. Identifiable intangible assets assessment for impairment is evaluated when events and circumstances warrant such a review, as noted within Note 1, Summary of Significant Accounting Policies - Asset Impairment, of the consolidated financial statements.

						September 30,
						2022						2021
Net (loss)						$	(9,640)					$	(743)
Weighted-average common shares outstanding (basic and diluted)						5,830						5,759
Net (loss) income per share – basic and diluted:						$	(1.65)					$	(0.13)
Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share						270						412

•Certain military contracts, which relate to the provisions of specialized or unique goods to the U.S. government with no alternative use, include provisions within the contract that are subject to the Federal Acquisition Regulation ("FAR"). The FAR provision allows the customer to unilaterally terminate the contract for convenience and requires the customer to pay the Company for costs incurred plus reasonable profit margin and take control of any work in process.

•For certain commercial contracts involving customer-specific products with no alternative use, the contract may fall under the FAR clause provisions noted above for military contracts or may include certain provisions within their contract that the customer controls the work in process based on contractual termination clauses or restrictions of the Company's use of the product and the Company possesses a right to payment for work performed to date plus reasonable profit margin.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" and subsequent updates. ASU 2016-13 changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The new guidance will replace the current incurred loss approach with an expected loss model. The new expected credit loss impairment model will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt instruments, net investments in leases, loan commitments and standby letters of credit. Upon initial recognition of the exposure, the expected credit loss model requires entities to estimate the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses should consider historical information, current information and reasonable and supportable forecasts, including estimates of prepayments. Financial instruments with similar risk characteristics should be grouped together when estimating expected credit losses. ASU 2016-13 does not prescribe a specific method to make the estimate, so its application will require significant judgment. ASU 2016-13 is effective for public companies in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. However, in November 2019, the FASB issued ASU 2019-10, "Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)," which defers the effective date for public filers that qualify as a smaller reporting company ("SRC"), as defined by the Securities and Exchange Commission, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Because SIFCO is considered a SRC, the Company does not need to implement this standard 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.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. This ASU, along with recently issued ASU 2021-01, which further clarifies the scope of Topic 848, is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2022. ASU 2020-04 was effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company has not applied any optional expedients and exceptions to date, and will continue to evaluate the impact of the guidance and whether it will apply the optional expedients and exceptions.

Q. ACCUMULATED OTHER COMPREHENSIVE LOSS

			2022						2021
Foreign currency translation adjustment, net of income tax benefit of $0 and $0, respectively			$	(6,196)					$	(5,359)
Net retirement plan liability adjustment, net of income tax benefit of $(3,758) and $(3,758), respectively			(2,509)						(3,720)
Interest rate swap agreement, net of income tax benefit of $0 and $0, respectively			12						—
Total accumulated other comprehensive loss			$	(8,693)					$	(9,079)

			Foreign Currency Translation Adjustment						Retirement Plan Liability Adjustment						Interest Rates Swap Adjustment						Accumulated Other Comprehensive Loss
Balance at September 30, 2020			$	(5,257)					$	(8,211)					$	—					$	(13,468)
Other comprehensive income (loss) before reclassifications			(102)						3,371						—						3,269
Amounts reclassified from accumulated other comprehensive loss			—						1,120						—						1,120
Net current-period other comprehensive income (loss)			(102)						4,491						—						4,389
Balance at September 30, 2021			(5,359)						(3,720)						—						(9,079)
Other comprehensive income (loss) before reclassifications			(837)						527						12						(298)
Amounts reclassified from accumulated other comprehensive loss			—						684												684
Net current-period other comprehensive income (loss)			(837)						1,211						12						386
Balance at September 30, 2022			$	(6,196)					$	(2,509)					$	12					$	(8,693)

						Amount reclassified from accumulated other comprehensive loss
Details about accumulated other comprehensive loss components						2022						2021																		Affected line item in the Consolidated Statement of Operations
Amortization of Retirement plan liability:
Net actuarial gain						1,003						4,217																		(1)
Settlements/curtailments						208						274																		(1)
						1,211						4,491																		Total before taxes
						—						—																		Income tax expense
						$	1,211					$	4,491																	Net of taxes

(1) These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. See Note 8, Retirement Benefit Plans, of the consolidated financial statements for further information.

Inventories at September 30 consist of:

			2022						2021
Raw materials and supplies			$	2,968					$	4,111
Work-in-process			3,356						3,560
Finished goods			2,645						4,875
Total inventories			$	8,969					$	12,546

The Company’s intangible assets by major asset class subject to amortization as of:

September 30, 2022			Weighted Average Life at September 30,						Original Cost						Accumulated Amortization						Impairment						Currency Translation						Net Book Value
Intangible assets:
Trade name			8 years						$	1,876					$	1,868					$	—					$	—					$	8
Technology asset			5 years						1,869						1,869						—						—						—
Customer relationships			10 years						13,589						13,036						—						(84)						469
Total intangible assets									$	17,334					$	16,773					$	—					$	(84)					$	477
September 30, 2021
Intangible assets:
Trade name			8 years						$	1,876					$	1,850					$	—					$	—					$	26
Technology asset			5 years						1,869						1,869						—						—						—
Customer relationships			10 years						13,589						12,736						—						(5)						848
Total intangible assets									$	17,334					$	16,455					$	—					$	(5)					$	874