What changed in this filing

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Item 7. Management’s Discussion and Analysis

2020-12-23 compared with 2019-12-16 · 177 added, 194 removed, 175 unchanged (68% of the section changed)

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and (iv) other commercial applications.

In the first quarter of fiscal 2019, SIFCO completed the sale of the building and land at its Alliance location.

As a result of the sale, the Company realized a gain on sales of $0.3 million and generated cash proceeds of $0.3 million, net of cost to sell.

On December 26, 2018, the Orange location experienced a fire at its manufacturing facility, causing damage to one of three manufacturing buildings.

The building that was damaged housed six of the eight presses on site.

The Company is fully insured and actively working with its insurance carrier to restore the site to full service as safely and quickly as possible.

Since the fire, SIFCO has taken a 2500 ton press out of storage and placed it into service in June 2019 at the Orange facility and purchased another press located in Michigan in order to continue production while the damaged presses are assessed and restored.

Refurbishment of two more presses with capacities of 2500 tons and 2000 tons, are progressing and are forecasted to return to service by the end of the calendar year 2019.

That leaves two remaining presses to be refurbished.

SIFCO has begun the process of getting these last two presses inspected and is outlining the work requirements needed to return presses to service.

Restoration of the damaged building began in mid-June and is on schedule to be completed by the end of the calendar year.

As of September 30, 2019, the Company has recorded insurance proceeds of $12.0 million, of which $8.5 million has been received.

These proceeds are being used to restore the damaged building and equipment.

The building that was damaged in the fire was leased by the Company, which, in accordance with its lease agreement, the Company is responsible to restore the property to full replacement value.

With SIFCO being fully insured, the restoration of the property is covered and the insurance carrier has separately funded a partial payment of $2.9 million in insurance proceeds as of September 30, 2019 to the landlord for the restoration of the damaged building as prescribed under the lease arrangement.

The following table reflects the receipt of proceeds and how they were expended as of September 30, 2019.

Any additional recoveries in excess of recognized losses are treated as gain contingencies and will be recognized when the gain is realized or realizable.

The Company also maintains business interruption insurance

coverage and continues to work with the insurance company to reach an agreement on the recoverable amounts of business interruption expenses.

As noted within the following table, payments totaling $1.2 million were made towards this coverage as of September 30, 2019 and are reflected within the cost of goods sold line within the consolidated financial statements as of September 30, 2019.

Balance sheet (Other receivable - dollars in millions):

September 30, 2018

Cash received

Capital expenditures

Other expenses

Business interruption

September 30, 2019

The following table reflects how the proceeds received impacted the consolidated statements of operations as of September 30, 2019.

(Dollars in millions)

Year Ended September 30, 2019

Balance without insurance proceeds

Insurance recoveries

Balance with insurance proceeds

Cost of goods sold

Loss (gain) on insurance proceeds received

For the long-lived assets that were not damaged as a result of the fire, the Company performed a separate evaluation for these assets.

In accordance to Accounting Standard Codification 360 ("Topic 360"), the fire resulted in a triggering event, requiring an interim assessment to determine if the carrying amount of long-lived assets are recoverable.

As noted within Topic 360, an impairment loss shall be recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value.

The results of management's analysis indicated that the remaining long-lived assets as of December 31, 2018 are recoverable and continue to be as of September 30, 2019.

In fiscal 2019, SIFCO adopted Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers (Topic 606)" as discussed in Note 1, Summary of Significant Accounting Policies - Accounting Policies, Revenue, to the consolidated statements which demonstrates the impact Topic 606 had to the Company.

As such, the comparability in sales and cost of goods sold are impacted due to the new ASU.

Additionally, the Company has continued to experience lower energy component sales due to challenges with the energy market.

As discussed within Note 3, Goodwill and Intangible Assets, of the consolidated statements, the Company performed an interim assessment of its goodwill at its Maniago reporting unit.

Certain qualitative factors were triggered as of the assessment date, resulting in an interim review prior to its annual assessment date.

Upon the completion of the Maniago reporting unit interim assessment, goodwill of $8.3 million (non-cash charge) was written down to $0 as of the third quarter of fiscal 2019.

In fiscal 2020, the Company continued to make significant progress in the restoration of its operations at the manufacturing facility at the Company’s Orange location, which was damaged by a fire that occurred in fiscal 2019.

As part of these efforts, the Company continued to actively work with its insurance carrier to obtain insurance proceeds in order to restore its Orange location to full service as safely and quickly as possible following the fire.

SIFCO relocated a press to Orange from a temporary Michigan location in November 2019, which was placed into service in March 2020, and two other presses were brought into service at the Orange location, one in December 2019 and the second at the end of July 2020.

Restoration of the building structure is nearly complete.

As of September 30, 2020, Orange had six out of eight presses in production.

Two of the six presses damaged in the fire are still in the restoration process.

The Company currently anticipates having those restored within the first half of fiscal 2021;

however, no assurances can be made that the restoration will be completed within such time-frame.

In fiscal 2020, the Company realized insurance recoveries of $9.0 million ($7.4 million has been received) and in fiscal 2019 realized $12.0 million ($8.5 million was received) in connection with the Orange fire.

As the fire damaged a building leased by the Company, pursuant to the terms of the lease agreement, the Company was responsible for restoring the property to full replacement value.

With the Company being fully insured, the restoration of the property was covered by insurance and the insurance carrier has separately funded payments of insurance proceeds as of September 30, 2020 and 2019, respectively, directly to the landlord for the restoration of the building as prescribed under the lease arrangement in the amount of $0.7 million and $2.9 million, respectively.

See Note 11, Commitment and Contingencies, of the consolidated financial statements, for further information on how the insurance proceeds are reflected within the financial results.

Any additional recoveries in

excess of recognized losses are treated as gain contingencies and will be recognized when the gain is realized or realizable.

The Company maintains business interruption insurance coverage and continues to work with the insurance company to reach an agreement on the recoverable amounts of business interruption expenses.

The Company recognized business interruption proceeds of $1.2 million in each of fiscal year 2020 and 2019, which is reflected within the cost of goods sold line within the consolidated financial statements.

As previously noted, the COVID-19 pandemic became increasingly widespread in the United States and other countries in which the Company operates.

The impact of the COVID-19 outbreak on the Company continues to evolve and the full extent the pandemic will have on the Company's financial condition, liquidity and future results is uncertain.

Also uncertain is the timing, duration, shape and magnitude of recovery.

A number of the markets in which the Company operates have reopened, other markets, while open, have since experienced a resurgence of COVID-19 cases.

Other markets, particularly international markets, remain closed or are enforcing renewed or extended quarantines or other restrictions.

As such, the Company continues to actively monitor the impact of the pandemic on its operations and the industries served.

The resurgence of COVID-19 cases, renewed or extended quarantines and other restrictions, the continued disruptions to travel, and the accompanying impact that the pandemic has had on businesses worldwide.

Our ability to meet customer demands for products may be impaired or, similarly, our customers have experienced and may continue to experience adverse business consequences.

Reduced demand for products or impaired ability to meet customer demand (including as a result of disruptions at our facilities, in the transportation of products, and/or in the operations of our vendors) could have a material adverse effect on our business, operations and financial performance.

There continues to be significant uncertainty regarding the duration of the pandemic as well as the timing and scope of recovery in the commercial aerospace industry, with a return to pre-COVID-19 levels of activity not expected in commercial aerospace industry for several years.

The Company expects to continue to assess the potential implications of these conditions on its operations and take actions to preserve liquidity, including certain cost reduction measures it has taken subsequent to the end of fiscal year 2020, including a furlough of employees at one of its locations, starting in late November 2020 and continuing through the balance of the calendar year, in response to market conditions and its impact on customers’ ordering schedules.

Fiscal Year 2020 Compared with Fiscal Year 2019

The Company produces forged components for (i) turbine engines that power commercial, business and regional aircraft as well as military aircraft and armored military vehicles;

(ii) airframe applications for a variety of aircraft;

(iii) industrial gas and steam turbine engines for power generation units;

and (iv) other commercial applications.

Net sales comparative information for fiscal 2020 and 2019, respectively, is as follows:

(Dollars in millions)

September 30,

(Dollars in millions) Years Ended

September 30, Increase

Net Sales 2020 2019

Aerospace components for:

Fixed wing aircraft $ 52.0 $ 52.9 $ (0.9)

Rotorcraft 31.5 23.6 7.9

Energy components for power generation units 16.7 17.6 (0.9)

Commercial product and other revenue 13.4 18.3 (4.9)

¹ Prior period amounts have not been adjusted under Topic 606 as the Company adopted the modified retrospective adoption method.

Total $ 113.6 $ 112.4 $ 1.2

While COVID-19 has had an unprecedented impact on the global market, interruptions to SIFCO's operations have not been significant thus far as we have remained operational and in production working to fulfill customer orders.

SIFCO was deemed an essential business, as such, received exemptions or was otherwise exempt from government "stay at home" restrictions based on the nature of our operations both domestically and in the Maniago location.

We took precautionary measures in the second quarter of fiscal 2020 and performed deep cleaning of the Maniago location, which resulted in a temporary five day shutdown.

Additionally, we experienced some further disruptions at our Maniago facility as a result of the closure of borders between countries.

While the Maniago location experienced product shipment delays in the second and third quarters, most of the shipments were completed prior to the end of the fiscal year.

During fiscal 2020, the Company experienced a shift in customer orders for commercial aircraft, including the Boeing 737 Max, which was not cleared for re-entry into service until late 2020.

Net sales in fiscal 2020 increased 1.0%, or $1.2 million to $113.6 million, compared with $112.4 million in fiscal 2019.

Commercial products and other revenue increased $6.9 million primarily due to increased market share and timing of the Hellfire II missile program.

The decrease in fixed wing aircraft sales of $4.1 million is primarily attributed to delays in production/delivery from the Orange location due the fire experienced in fiscal 2019 and reduction in production of the Airbus A320 older models and market share realignment in the C-130J program.

The energy components for power generation units decreased by $3.2 million compared with the same period last year mainly due to the continued softening of the energy market.

Rotorcraft sales increased $1.6 million in fiscal 2019 to $23.6 million due to the introduction of new product for the V-22 program.

The Company's aerospace components have both military and commercial applications.

The increase of $7.9 million in rotorcraft sales in fiscal 2020 compared to the same period in fiscal 2019 is primarily due to the increased shipments relating to certain military programs, such as the Black Hawk, V-22 and CH53.

Commercial products and other revenue decreased $4.9 million, primarily due to timing of shipments for the Hellfire II missile program.

The decrease in fixed wing aircraft sales of $0.9 million is primarily attributed to shift in build rates in certain commercial programs, partially offset by increased military programs.

The energy components for power generation units decreased $0.9 million compared with the same period last year as the location continues to experience market softening;

however, the Company experienced positive results in its energy components sales in the fourth quarter of fiscal 2020.

Commercial net sales were 42.6% of total net sales and military net sales were 57.4% of total net sales in fiscal 2020, compared with 48.9% and 51.1%, respectively, in the comparable period in fiscal 2019.

Commercial net sales (which includes energy components) decreased $3.7 million to $55.0 million in fiscal 2019, compared to $58.7 million in fiscal 2018 primarily due to the business interruption experienced at the Orange location caused by the fire and the continued soft energy market.

Military net sales increased $4.9 million to $57.4 million in fiscal 2019, compared to $52.5 million in fiscal 2018 primarily due to timing of the Hellfire II missile program.

Commercial net sales (which includes energy components) decreased $6.7 million to $48.3 million in fiscal 2020, compared to $55.0 million in fiscal 2019 primarily due to shift in build rates in the commercial aerospace industry.

Military net sales increased $7.8 million to $65.2 million in fiscal 2020, compared to $57.4 million in fiscal 2019 primarily due to increase in demand for certain military programs.

Cost of Goods Sold

Cost of goods sold increased by $0.7 million, or 0.7%, to $101.8 million, or 90.5% of net sales, during fiscal 2019, compared with $101.1 million or 90.9% of net sales in the comparable period of fiscal 2018.

The increase was due primarily to unabsorbed costs related to the Orange location due to the fire, net of approximately $1.2 million in business interruption recovery offset partially by product mix.

Cost of goods sold decreased by $8.2 million, or 8.1%, to $93.6 million, or 82.4% of net sales, during fiscal 2020, compared with $101.8 million or 90.5% of net sales in the comparable period of fiscal 2019.

The decrease was due primarily to improved productivity at its Orange location, as more presses were operational, as well as improved operating margins at its remaining locations, partially offset by a one-time pension withdrawal charge of $0.8 million for exiting its multi-employer plan as further explained in Note 8, Retirement Benefit Plans, of the consolidated financial statements.

Gross profit increased by $9.3 million, or 87.7%, to $20.0 million during fiscal 2020, compared with $10.6 million in fiscal 2019.

Gross margin percent of sales was 9.5% during fiscal 2019, compared with 9.1% in fiscal 2018.

Gross margin percent of sales was 17.6% during fiscal 2020, compared with 9.5% in fiscal 2019, primarily due to improved productivity across all Company sites and product mix.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $14.0 million, or 12.4% of net sales, during fiscal 2020, compared with $15.3 million, or 13.6% of net sales, in fiscal 2019.

The Company benefited from lower bad debt expense of $0.4 million and a $0.3 million reduction of outside services/hiring costs and lower one-time costs of $0.4 million not incurred in fiscal 2019 related to the Alliance closure and executive relocation costs, partially offset by higher legal and professional costs, including IT consulting, of $0.6 million and $0.3 million in commissions.

The decrease in selling, general and administrative expenses is due to the continued cost reduction efforts by management such as less travel expense, as well as reduced bank fees, lower legal and professional costs (prior year included arbitration costs), lower equity compensation and commissions, partially offset by a higher incentive compensation accrual of $0.6 million.

Amortization of Intangibles

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Other/General

The Company recorded an operating loss before taxes of $8.2 million during fiscal 2019, compared with $7.5 million in fiscal 2018.

Current period results include a gain which relates to the sale of the Alliance building for $0.3 million and $7.2 million related to a net gain on insurance proceeds related to the fire at the Orange location (which includes $1.1 million impairment of assets impaired by the fire), compared with the prior year net gain of $0.9 million primarily related to a $1.5 million gain on the sale of the Company's Cork, Ireland ("Irish building") building, partially offset by a $0.5 million loss of the Alliance assets sold in the fourth quarter of fiscal 2018.

Operating results include an $8.3 million non-cash goodwill impairment charge related to the Maniago

reporting unit that was recorded in the third quarter, discussed further in Note 3, Goodwill and Intangible Assets, of the consolidated financial statements.

Interest expense decreased $1.1 million to $1.0 million in fiscal 2019, compared with $2.1 million (includes $0.5 million loss on extinguishment of debt) in the same period in fiscal 2018.

After excluding the loss on extinguishment in prior year, the decrease is primarily due to the reduction of interest rates and lower average borrowings.

The Company recorded operating income of $10.1 million during fiscal 2020, compared with an operating loss of $7.0 million in fiscal 2019.

Current period results include a gain on insurance recoveries of $5.9 million in fiscal 2020 compared to fiscal 2019, a net $7.3 million gain on insurance recoveries from the fire at the Orange location was recorded, which includes $1.1 million impairment of assets damaged by the fire.

Prior year results include an $8.3 million non-cash goodwill impairment charge related to the Maniago reporting unit that was recorded in the third quarter of fiscal 2019, discussed further in Note 3, Goodwill and Intangible Assets, of the consolidated financial statements.

Interest expense decreased $0.2 million to $0.9 million in fiscal 2020, compared with $1.1 million in the same period in fiscal 2019.

The decrease is primarily due to the reduction of interest rates and lower average borrowings.

See Note 5, Debt, of the consolidated financial statements for further information.

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Interest Rate

Years Ended September 30,

Weighted Average

Years Ended September 30, Weighted Average

Outstanding Balance

Years Ended September 30,

Revolving credit agreement

$ 16.9 million

$ 18.6 million

$ 0.0 million

$ 2.8 million

Foreign term debt

$ 6.9 million

$ 7.7 million

$ 0.6 million

$ 0.0 million

Other expense (income), net amount includes pension cost related to other components of net periodic benefit costs that are presented outside of operating income.

Also included in fiscal 2019 is approximately $0.2 million in pension settlement expense that was accelerated in the current period, primarily due to lump sums from our qualified pension plans exceeding a threshold of service and interest cost for the period, compared with $0.4 million of income in fiscal 2018 that consists of rental income earned from the lease of the Irish building and grant income realized due to the sale of the Irish building.

No further rental income is expected to be received because the sale of the building was finalized in the first quarter of fiscal 2018.

2020 2019 2020 2019

Revolving credit agreement 2.9% 4.1% $ 13.8 million $ 16.9 million

Foreign term debt 4.4% 2.7% $ 5.5 million $ 6.9 million

Other debt 0.5% 0.9% $ 6.1 million $ 0.6 million

Other expense, net amount includes pension cost related to other components of net periodic benefit costs that are presented outside of operating income.

Also included in both fiscal 2020 and 2019 is approximately $0.2 million in pension settlement expense that was accelerated in the current period, primarily due to lump sum distributions from our qualified pension plans exceeding a threshold of service and interest cost for the period.

The Company believes that inflation did not materially affect its results of operations in either fiscal 2020 or 2019 and does not expect inflation to be a significant factor in fiscal 2021.

The Company’s effective tax rate in fiscal 2020 was (2.3%) compared with 8.5% in fiscal 2019.

This change is primarily attributed to jurisdictional mix of income with an increase in U.S.

income in fiscal 2019 compared with fiscal 2018 with no associated tax due to the valuation allowance, offset by a non-recurring net tax benefit in fiscal 2018, of which $0.6 million related to tax legislation enacted during fiscal 2018.

The effective tax rate differences between years is primarily attributable to changes in jurisdictional mix of income in fiscal 2020 compared with fiscal 2019 with no associated tax expense, given the effects of the valuation allowance.

The effective tax rate differs from the U.S.

federal statutory rate in fiscal 2019 due primarily to current year income in the U.S.

with no associated tax due to the valuation allowance and income in foreign jurisdictions that are taxed at different rates than the U.S.

statutory tax rate.

In fiscal 2018, the effective tax rate differed from the U.S.

federal statutory rate due primarily to current year losses incurred in the U.S.

where no associated tax benefit can be realized due to the valuation allowance and income in foreign jurisdictions that are taxed at different rates than the U.S.

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

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

statutory tax rate.

Net loss was $7.5 million during fiscal 2019, compared with net loss of $7.2 million in fiscal 2018.

Net loss in the current period increased primarily due to the non-cash charge of $8.3 million due to full write-down of goodwill at the Company's Maniago reporting unit, partially offset by the gain on disposal and impairment of assets that includes the insurance recoveries received and from decreased interest expense as noted above.

Net Income (Loss)

Net income was $9.2 million during fiscal 2020, compared with net loss of $7.5 million in fiscal 2019.

Net income in the current period increased primarily due to higher gross profit attributable to improved productivity and insurance proceeds received, and lower selling, general and administrative expenses.

Additionally, the current period did not include the non-cash impairment charge described in Other/General.

Non-GAAP Financial Measures

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

(Dollars in thousands)

Years Ended September 30,

(Dollars in thousands) Years Ended

September 30,

Net income (loss) $ 9,191 $ (7,506)

Depreciation and amortization expense 7,380 7,525

1 unchanged sentence

Income tax benefit (211) (701)

Foreign currency exchange gain, net (1)

EBITDA 17,246 371

Foreign currency exchange loss (gain), net (1) 51 (7)

Other expense (income), net (2) (13) 117

Gain on disposal and impairment of assets (3)

Gain on insurance proceeds received (4)

Loss (gain) on disposal and impairment of assets (3) 174 (282)

Gain on insurance recoveries (4) (5,874) (7,253)

Equity compensation expense (5) 398 511

Pension settlement/curtailment benefit (6) 239 —

LIFO impact (7) (10) (75)

CEO relocation (7)

Goodwill impairment charge (8) — 8,294

1 unchanged sentence

(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.

Represents miscellaneous non-operating income or expense, which previously consisted of rental income from the Company's Irish subsidiary (through first quarter 2018 when the building was sold).

Included in fiscal 2018 was grant income that was realized that relates to the Company's Irish subsidiary.

Represents the difference between the proceeds from the sale of assets 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 and grant income.

Pension settlement costs was reclassed from this line to Pension settlement/curtailment benefit.

See Footnote 6.

(3) Represents the difference between the proceeds from the sale of operating equipment and the carrying values 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.

Represents the equity-based compensation expense recognized by the Company under its 2016 Long-Term Incentive Plan (as the amendment and restatement of, and successor to, the 2007 Long-Term Incentive Plan) due to granting of awards.

(5) Represents the equity-based compensation expense recognized by the Company under its 2016 Long-Term Incentive Plan (as the amendment and restatement of, and successor to, the 2007 Long-Term Incentive Plan, and referred to as the "2016 Plan") due to granting of awards, awards not vesting and/or forfeitures.

(6) Represents expense incurred by a defined benefit pension plan 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.

Represents costs related to executive relocation costs.

(8) Represents non-cash charge of goodwill impairment experienced at its reporting unit level.

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Liquidity and Capital Resources

Cash and cash equivalents decreased to $0.3 million at September 30, 2019 compared with $1.3 million at September 30, 2018.

The decrease in cash from fiscal 2018 was related to prior year as the balance on hand was higher than normal as the Company transitioned lenders and cash receipts with previous lender were no longer swept to the revolver automatically.

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

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

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

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

Since the start of the pandemic, management has continuously evaluated the Company’s liquidity and capital resources and has taken a number of steps to help preserve financial flexibility in light of uncertainty resulting from the COVID-19 pandemic by deferring wage increases to non-union employees, increased oversight of all capital expenditure approval, working with

vendors to reduce costs and obtaining a Paycheck Protection Program Loan as referenced in Note 5, Debt and for the reasons described below.

As the impact of the COVID-19 pandemic on the economy and the Company's operations continues to evolve, the Company expects to continue to focus on preserving cash and managing costs.

Cash and cash equivalents increased to $0.4 million at September 30, 2020 compared with $0.3 million at September 30, 2019.

At September 30, 2020 and 2019, approximately $0.4 million and $0.3 million, respectively, of the Company’s cash and cash equivalents were in the possession of its non-U.S.

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The Company’s operating activities provided $0.4 million of cash in fiscal 2020, compared with $5.7 million in fiscal 2019.

The cash provided by operating activities in fiscal 2020 was primarily due to non-cash items, such as depreciation and amortization of $7.6 million, equity based compensation, deferred income taxes and LIFO effect, partially offset by a gain on insurance recovery combined with gain on disposal of assets of $5.7 million and an increase in working capital of $10.5 million and net income of $9.1 million.

The decrease in cash from operating activities was primarily due to increased inventories and payments to suppliers and disbursements related to the fire recovery.

The Company’s operating activities provided $5.7 million of cash in fiscal 2019.

The cash provided by operating activities in fiscal 2019 was primarily due to reduction in working capital of $4.8 million, and non-cash items, such as $8.3 million related to the goodwill impairment charge, depreciation and amortization of $7.5 million and equity based compensation, deferred income taxes and LIFO effect, partially offset by a gain on insurance recovery combined with gain on disposal of asset of $7.5 million and a net loss of $7.5 million.

The increase in cash from working capital was primarily due to decreased receivables due to improved collections and decreased inventories, and by timing of payments to suppliers, partially offset by insurance receivables.

The Company’s operating activities provided $1.3 million of cash in fiscal 2018.

The cash provided by operating activities in fiscal 2018 was due to $8.4 million of non-cash items such as depreciation and amortization expense, gain on disposal of operating assets, amortization and write-offs of debt issuance costs, loss on extinguishment of debt and equity compensation and break even on cash generated through working capital management, partially offset by the Company’s net loss of $7.2 million.

Cash provided by working capital was generated by a $1.5 million decrease in inventories as the Company focused on increasing inventory turns, along with a $2.7 million increase in accounts payable, partially offset by a $2.2 million increase in accounts receivable due to higher sales in the fourth quarter of fiscal 2018.

Investing Activities

Cash used for investing activities was $0.8 million in fiscal 2019, which includes $8.4 million in proceeds from insurance recovery on the damaged property related to the Orange fire, partially offset by the dollars spent towards the replacement of the damaged property, compared with investing activities generating $0.7 million in fiscal 2018, which includes cash proceeds of $3.5 million from the sale of the Company's Irish building and the Alliance machinery and equipment.

Cash used for investing activities was $1.2 million in fiscal 2020, which includes $7.8 million in proceeds from insurance recovery on the damaged property related to the fire at the Orange location, compared with investing activities used of $0.8 million in fiscal 2019, which includes cash proceeds of $8.4 million from insurance proceeds received in the prior year related to the Orange location.

Capital expenditures were $9.0 million, mainly funded by insurance proceeds from the fire in fiscal 2020 and $9.4 million in fiscal 2019.

Expenditures in fiscal 2019 were used primarily for the restoration of the Orange location as a result of the fire.

Capital commitments at September 30, 2019 were $6.5 million, including $5.5 million in capital commitments for the Orange facility related to the fire.

The Company anticipates the total fiscal 2020 capital expenditures will be within the range of $5.0 million to $7.0 million (exclusive of fire related expenditures) and will relate principally to the further enhancement of production and product offering capabilities and operating cost reductions.

Expenditures in fiscal 2020 and in 2019 were used primarily for the restoration of the Orange location as a result of the fire.

Capital commitments at September 30, 2020 were $2.1 million, including $1.4 million in capital commitments for the continued restoration of equipment and the building at the Orange facility related to the fire.

The Company anticipates the total fiscal 2021 capital expenditures will be within the range of $4.0 million to $6.0 million (excluding fire related expenditures) and will relate principally to the further enhancement of production and product offering capabilities and operating cost reductions.

Separate from the range provided, SIFCO anticipates incurring additional costs in fiscal 2021 of approximately $2.0 million to $3.5 million for capital expenditures related to the Orange location in order to finalize the restoration as a result of the fire.

1 unchanged sentence

Financing Activities

Cash used for financing activities was $5.9 million in fiscal 2019, compared with $2.1 million of cash used for financing activities in fiscal 2018.

The Company had proceeds from long-term debt of $1.5 million, of which $1.2 million resulted from multiple borrowings from its Cleveland location to facilitate certain capital projects and $0.3 million of additional long-term debt at the foreign location to assist in repayment of obligations.

Additionally, the Company made repayments of $1.4 million of long-term debt, which were from the Company's foreign long-term loans, compared to $5.5 million in repayments in the comparable prior period, of which $4.1 million of repayments related to the term loan under the Amended and Restated Credit and Security Agreement ("2016 Credit Agreement") and $1.4 million of repayments were to its foreign long-term loan in fiscal 2018.

The principal reason for the term

loan repayment in fiscal 2018 was due to the extinguishment of its debt structure and modification of the previous debt structure, as discussed in Note 5, Debt, of the consolidated financial statements.

In August 2018, the Company extinguished its 2016 Credit Agreement and entered into an asset-based Credit Agreement ("Credit Agreement") and Security Agreement ("Security Agreement") with a lender.

See Note 5, Debt, of the consolidated financial statements for further discussion related to the Credit Agreement and the First, Second, Third and Fourth Amendment to the Credit Agreement.

The Company had net repayments under its revolving credit facility of $5.7 million in fiscal 2019, compared with $2.6 million in net borrowings in fiscal 2018.

The greater net repayments in fiscal 2019 were due to increased collection in account receivables used to repay the revolver and in fiscal 2018 the net borrowings were used to fund operations.

Cash provided by financing activities was $0.8 million in fiscal 2020, compared with $5.9 million of cash used for financing activities in fiscal 2019.

As discussed in Note 5, Debt , of the consolidated statements the Company received cash proceeds of $6.6 million, which $5.0 million relates to the PPP loan and $1.5 million from a non-U.S.

bank at its Maniago location and have made repayments of $1.6 million of long-term debt, of which $1.3 million were from the Company's foreign term loan, compared with repayments of $1.4 million in the comparable period.

In August 2018, the Company entered into an asset-based Credit Agreement ("Credit Agreement") and Security Agreement ("Security Agreement") with a lender.

See Note 5, Debt , of the consolidated statements for further discussion related to the Credit Agreement and the First, Second, Third and Fourth Amendment to the Credit Agreement.

The Company had net repayments under its revolving credit facility of $2.7 million in fiscal 2020 and $5.7 million in fiscal 2019.

Amounts borrowed under the Credit Agreement are secured by substantially all the assets of the Company and its U.S.

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Borrowings will bear interest at the lender's established domestic rate or LIBOR, plus the applicable margin as set forth in the Credit Agreement.

The revolver has a rate based on LIBOR plus a 1.50% spread, which was 3.6% at September 30, 2019 and the Export Credit Agreement as discussed in Note 5, Debt, of the consolidated financial statements has a rate based on LIBOR plus a 1.25% spread, which was 3.35% at September 30, 2019.

The revolver has a rate based on LIBOR plus a 1.50% spread, which was 1.7% at September 30, 2020 and the Export Credit Agreement as discussed in Note 5, Debt, of the consolidated financial statements has a rate based on LIBOR plus a 1.00% spread, which was

1.2% at September 30, 2020.

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 if availability is less than or equal to 12.5% of the revolving commitment for three or more business days in any consecutive 30 day period;

however, the Fourth Amendment to the Credit Agreement resulted in the reduction of its availability from 12.5% of revolving commitment to the 10% of the lesser of collateral or revolving commitment, with a $2.0 million floor through June 30, 2020.

In determining the availability, the lender looks at the total collateral.

If the total collateral is less than $20.0 million, then the $2.0 million floor will apply;

however, if the total collateral is greater than or equal to $20.0 million, but less than the $35.0 million (revolving commitment);

then 10% of the total collateral is used, but if the collateral exceeds $35.0 million, then 10% of the total commitment is used as lending will not exceed the $35.0 million revolving commitment unless the accordion feature is enacted.

This will reset back to previous requirements prior to the Fourth Amendment, commencing July 1, 2020.

As of September 30, 2019, the total collateral was $24.0 million, and the revolving commitment was $35.0 million.

The measurement at 10% were $2.4 million and $3.5 million, respectively.

Total availability at September 30, 2019 was $7.7 million, which exceed both the collateral and revolving commitment thresholds.

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

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.

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

The availability at September 30, 2020 was $13.3 million.

The Credit Agreement provides for testing of a fixed charge coverage ratio ("FCCR") in the event (a) of a default or if availability under the Credit Agreement or (b) the Company does not meet certain availability requirements under the Credit Agreement.

If the occurrence of such event occurs and the Company is required to test its FCCR, such ratio must not be less than 1.1 to 1.0.

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

Because the availability was greater than the 12.5% of the Revolving Commitment as of September 30, 2020, the FCCR calculation was not required.

The Company incurred debt issuance costs related to the above Credit Agreements and amendments in fiscal 2019 and 2018.

The Company incurred debt issuance costs related to the above Credit Agreements and amendments in fiscal 2019.

See Note 5, Debt , of the consolidated financial statements for further discussion.

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

The Company is currently in negotiations with its lenders and other potential partners to refinance certain debt obligations at its Maniago location to provide Maniago with sufficient future liquidity.

If Maniago is unsuccessful in obtaining additional financing, it may experience certain challenges in meeting certain obligations.

This foreign debt is collateralized by Maniago’s assets.

The Company has not pledged any assets as collateral or guaranteed Maniago’s debt.

The consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of the Maniago assets or the amounts and classifications of the Maniago liabilities that may result from the outcome of this uncertainty.

Management believes that the actions presently being taken to obtain additional funding and implement its strategic plan will provide adequate liquidity to finance Maniago operations.

In fiscal 2020, the Company was able to obtain financing with a lender and was able to defer payments for certain debt obligations at its Maniago location to provide Maniago with sufficient liquidity.

The Company's current Credit Agreement is set to mature within the next twelve months, and as such, if the Company is not successful in refinancing, it may experience certain challenges in meeting its obligations.

While no assurances can be made that such refinancing will be completed or occur on terms similar to the terms of the existing Credit Agreement or otherwise satisfactory to management, management intends to refinance the Credit Agreement with its Lender.

Such refinancing is deemed probable to be implemented based on previous experience and recent communications with the Lender, which would mitigate any adverse consequences of the Credit Agreement maturing.

Additionally, the credit and capital markets saw significant volatility in 2020.

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

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

Off-Balance Sheet Arrangements

In the normal course of business, the Company is party to certain arrangements that are not reflected in the Consolidated Balance Sheets.

These include operating and capital leases as described more fully in Note 10, Commitments and Contingencies , of the consolidated financial statements, which primarily relate to facilities and machinery and equipment.

In the normal course of business, the Company may be party to certain arrangements that are not reflected in the Consolidated Balance Sheets.

The Company does not have obligations that meet the definition of an off-balance sheet arrangement that have had, or are reasonably likely to have, a material effect on the Company’s financial condition or results of operations.

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The Company maintains a formal policy, which requires at a minimum, that a reserve be established based on an analysis of the age of the inventory.

In addition, if the Company learns of specific obsolescence, other than that identified by the aging criteria, an additional reserve will be recognized as well.

Specific obsolescence may arise due to a technological or market change or based on cancellation of an order.

In addition, if the Company learns of specific obsolescence, other than that identified by the aging criteria, an additional reserve 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 realizable value of these products to arrive at the proper allowance for obsolete and excess inventory.

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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.

For further discussion, see Note 1, Summary of Significant Accounting Policies and Note 6, Revenue, of the consolidated financial statements.

The recently effective revenue standard and related amendments was adopted by the Company using the modified retrospective method and applied those provisions to all open contracts on October 1, 2018.

The Company recognized the cumulative effect by initially applying the revenue standard as an adjustment to the opening balance of retained earnings.

The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

The cumulative effect of changes made to the balance sheet as of October 1, 2018 for the adoption of the revenue standard

was as follows:

(Dollars in millions)

Balance at September 30, 2018

Effect of Accounting Change

Balance at October 1, 2018

Contract asset

Inventory, net

Liabilities & Shareholders' Equity

Retained earnings

As part of the cumulative effect of the accounting change made as it pertains to the inventory, net line, the impact includes a reduction to the Company's last-in, first-out (“LIFO”) reserve in the amount of $0.5 million and excess and obsolete reserve of $0.4 million.

As noted in Note 2, Inventories , of the consolidated financial statements, a portion of the Company's inventory is on LIFO.

The Company recognizes revenue in the following manner using the five-step revenue recognition model.

A contract exists when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

Revenue is recognized when performance obligations under the terms of the contract with a customer of the Company are satisfied.

A portion of the Company's contracts are from purchase orders ("PO's"), which continue to be recognized as of a point in time when products are shipped from the Company's manufacturing facilities or at a later time when control of the products transfers to the customer.

Revenue was previously recognized for certain long-term agreements ("LTA's"), firm fixed pricing agreements, and PO's at the point in time when the shipping terms were satisfied.

Under the revenue standard, the Company now recognizes certain revenue over time as it satisfies the performance obligations because the conditions of transfer of control to the applicable customer are as follows:

• 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.

As a result of control transferring over time for these products, revenue is recognized based on progress toward completion of the performance obligation.

The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products to be provided.

The Company elected to use the cost to cost input method of progress based on costs incurred for these contracts because it best depicts the transfer of goods to the customer based on incurring costs on the contracts.

Under this method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.

Revenues are recorded proportionally as costs are incurred.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods.

An accounting policy election to exclude from transaction price was made for sales, value add, and other taxes the Company collects concurrent with revenue-producing activities when applicable.

The Company has elected to recognize incremental costs incurred to obtain contracts, which primarily represent commissions paid to third party sales agents where the amortization period would be less than one year, as selling, general and administrative expenses in the consolidated statements of operations as incurred.

The Company elected a practical expedient under Accounting Standard Codification ("ASC") 606 ("Topic 606") to not adjust the promised amount of consideration for the effects of any significant financing component where the Company expects, at contract inception, that the period between when the Company transfers a promised good to a customer and when the customer pays for that good will be one year or less.

Finally, the Company's policy is to exclude performance obligations resulting from contracts with a duration of one year or less from its disclosures related to remaining performance obligations.

The amount of consideration to which the Company expects to be entitled in exchange for the goods is not generally subject to significant variations.

The Company elected to recognize the cost of freight and shipping when control of the products has transferred to the customer as an expense in cost of goods sold on the consolidated statements of operations, because those are costs incurred to fulfill the promise recognized, not a separate performance obligation.

To the extent certain freight and shipping fees are charged to customers, the Company recognizes the amounts charged to customers as revenues and the related costs as an expense in cost of goods sold when control of the related products has transferred to the customer.

Contracts are occasionally modified to account for changes in contract specifications, requirements, and pricing.

The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations.

Substantially all of the Company's contract modifications are for goods that are distinct from the existing contract.

Therefore, the effect of a contract modification on the transaction price and the Company's measure of progress for the performance obligation to which it relates is generally recognized on a prospective basis.

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.

In these instances, revenue recognized exceeds the amount billed to the customer and the right to payment is not solely subject to the passage of time.

Amounts do not exceed their net realizable value.

Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract.

Payment from customers are received based on the terms established in the contract with the customer.

Impairment of Long-Lived Assets

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This review involves judgment and is performed using estimates of future undiscounted cash flows, which include proceeds from disposal of assets and which the Company considers a critical accounting estimate.

If the carrying value of a long-lived asset is greater than the estimated undiscounted future cash flows, then the long-lived asset is considered impaired and an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value.

If the carrying value of a long-lived asset is greater than the estimated undiscounted future cash flows, then the long-lived asset is evaluated for impairment.

The Company would assess the fair value of the asset group and compare it to its carrying value.

The long-lived assets are considered impaired if the carrying value of the long-lived assets exceeds its fair value, in which case an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value.

In projecting future undiscounted cash flows, the Company relies on internal budgets and forecasts, and projected proceeds upon disposal of long-lived assets.

The Company’s budgets and forecasts are based on historical results and anticipated future market

conditions, such as the general business climate and the effectiveness of competition.

The Company’s budgets and forecasts are based on historical results and anticipated future market conditions, such as the general business climate and the effectiveness of competition.

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 of fair value, which could result in future impairment charges.

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.

Impairment of Goodwill

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The Company adopted this standard effective March 31, 2017.

2019 Interim and Annual Goodwill Impairment Tests

SIFCO performed an interim assessment of goodwill for its Maniago location as of May 31, 2019 and performed its annual test as of July 31, 2019.

2020 Annual Goodwill Impairment Tests

SIFCO performed its annual test as of July 31, 2020.

Goodwill existed at one of the Company's reporting units, Cleveland, Ohio as of September 30, 2020.

The Maniago reporting unit's goodwill was impaired when the interim assessment was completed.

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.

2018 Annual Goodwill Impairment Test

As of July 31, 2018, the annual goodwill impairment test date for fiscal 2018, goodwill existed at two of the Company's reporting units, Cleveland, Ohio and Maniago, Italy.

In fiscal 2018, no impairment charges were identified in connection with the annual goodwill impairment test with respect to any of the identified reporting units.

The fair values of the reporting units were in excess of our carrying values.

2019 Interim and Annual Goodwill Impairment Tests

SIFCO performed an interim assessment of goodwill for its Maniago location as of May 31, 2019 and performed its annual test as of July 31, 2019.

The Maniago reporting unit's goodwill was fully impaired based on the interim assessment.

Goodwill existed at one of the Company's reporting units, Cleveland, Ohio as of September 30, 2019 and no impairment charge was identified in connection with the annual goodwill impairment test.

Defined Benefit Pension Plan Expense

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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, 2020.

Impact on Fiscal 2019 Benefits Expense

Impact on September 30, 2019 Projected Benefit Obligation for Pension Plans

Impact on Fiscal 2020 Benefits Expense Impact on September 30, 2020 Projected Benefit Obligation for Pension Plans

Change in Assumptions

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The Company determines the expected return on plan assets principally based on (i) the expected return for the various asset classes in the respective plans’ investment portfolios and (ii) the targeted allocation of the respective plans’ assets.

return on plan assets is developed using historical asset return performance as well as current and anticipated market conditions such as inflation, interest rates and market performance.

The expected return on plan assets is developed using historical asset return performance as well as current and anticipated market conditions such as inflation, interest rates and market performance.

Should the actual rate of return differ materially from the assumed/expected rate, the Company could experience a material adverse effect on the funded status of its plans and, accordingly, on its related future net pension expense.

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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 year 2019.

Accordingly, the Company maintained its valuation allowance on its U.S.

jurisdiction during the fourth quarter of fiscal 2016 and in fiscal 2020, the Company entered into a three-year cumulative income position.

Based on the Company’s assessment of all available evidence, the Company maintained its valuation allowance on its U.S.

deferred tax assets as of the fourth quarter of fiscal year 2020.

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Impact of Newly Issued Accounting Standards

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2016-02, “ Leases (Topic 842).

” In July 2018, the FASB issued ASU 2018-11, "Leases (Topic 842) Targeted Improvements," (collectively with ASU 2016-02, "Topic 842"), which amends ASU 2016-02 and provides new and (optional) transition method permitting the recognition of a cumulative effect adjustment to retained earnings on the date of adoption, rather than requiring retrospective restatement of prior periods.

Topic 842's objective is to increase transparency and comparability among entities by recognizing lease right-of-use assets ("ROU") and lease liabilities except for short-term leases on the consolidated balance sheet and provide additional disclosure information about leasing arrangements.

Topic 842 modifies the definition of a lease to clarify that an arrangement contains a lease when such arrangement conveys the right to control the use of an identified asset.

This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within the year of adoption.

The Company adopted this new guidance on October 1, 2019 and has elected to apply a modified retrospective transition approach as permitted, which includes a number of optional practical expedients that can be applied.

This approach applies to all leases that exist at or commence after the date of our initial application.

The Company will not adjust comparative periods or make the new required lease disclosure prior to the effective date.

SIFCO will elect the package of practical expedients permitted under the transition guidance within the new standard, which among other things, permits companies not to reassess prior conclusions about lease identification, lease classification and initial direct costs.

SIFCO did not elect the hindsight practical expedient.

The Company is in process of finalizing the design and implementation of internal controls, policies and processes to comply w ith the new standard .

The adoption of Topic 842 will result in the recognition of ROU assets and lease liabilities of approximately $16.1 million and $20.2 million, based on the lease portfolio as of October 1, 2019.

The lease liability and the corresponding ROU asset primarily relate to one of its leased manufacturing buildings at its Orange location.

The prospective impact on the consolidated statements of comprehensive loss under the new standard is substantially the same compared to the current lease accounting model and the impact to retained earnings will be minimal.

The accounting for capital leases related to equipment, which are referred to as financing leases under the new standard, is substantially unchanged under the new standard and is not expected to have a material impact on our liquidity or consolidated statements of cash flows.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326):

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ASU 2016-13 is effective for public companies in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

Subsequent to September 30, 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 are considered small reporting companies ("SRC") as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Since SIFCO is a SRC, the Company does not need to implement until October 1, 2023.

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 are considered smaller reporting companies ("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 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 December 2019, ASU 2019-12, "Income Taxes (Topic 740):

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

This ASU is effective for the Company beginning October 1, 2021.

The Company continues to evaluate the effect adopting this ASU will have on the Company's results within the consolidated statements of operations and financial condition.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis