What changed in this filing

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Item 1. Financial Statements

2021-02-05 compared with 2020-08-06 · 160 added, 241 removed, 334 unchanged (55% of the section changed)

5 unchanged sentences

Three Months Ended

Nine Months Ended

Net sales $ 25,078 $ 26,207

Cost of goods sold 21,155 22,883

Gross profit 3,923 3,324

Selling, general and administrative expenses 3,827 4,208

Goodwill impairment

Amortization of intangible assets 269 409

Loss (gain) on disposal or impairment of operating assets

Gain on insurance proceeds received

Gain on insurance recoveries ( 2,495 ) —

Operating income (loss) 2,322 ( 1,293 )

Interest income

Interest expense 165 251

Foreign currency exchange gain (loss), net

Foreign currency exchange loss, net 7 1

Other loss (income), net 62 ( 108 )

Income (loss) before income tax (benefit) expense

Income tax (benefit) expense

Income (loss) before income tax benefit 2,088 ( 1,437 )

Income tax benefit ( 905 ) ( 95 )

Net income (loss) $ 2,993 $ ( 1,342 )

Net income (loss) per share

Basic $ 0.53 $ ( 0.24 )

Diluted $ 0.51 $ ( 0.24 )

Weighted-average number of common shares (basic) 5,691 5,612

6 unchanged sentences

Three Months Ended

Nine Months Ended

Net income (loss) $ 2,993 $ ( 1,342 )

Other comprehensive income (loss):

Foreign currency translation adjustment

Retirement plan liability adjustment

Other comprehensive income:

Foreign currency translation adjustment, net of tax $ 0 and $ 0 , respectively

Retirement plan liability adjustment, net of tax $ 0 and $ 0 , respectively

Comprehensive income (loss) $ 3,491 $ ( 961 )

8 unchanged sentences

Receivables, net of allowance for doubtful accounts of $ 275 and $ 249 , respectively

20,982 23,225

Other receivables 648 1,547

7 unchanged sentences

Intangible assets, net 1,656 1,890

Goodwill 3,493 3,493

Other assets 59 137

Total assets $ 120,118 $ 121,948

LIABILITIES AND SHAREHOLDERS’ EQUITY

1 unchanged sentence

Current maturities of long-term debt $ 10,152 $ 7,144

Revolver 9,147 12,870

Short-term operating lease liabilities 900 991

10 unchanged sentences

Common shares, par value $ 1 per share, authorized 10,000 shares;

issued and outstanding shares 5,916 at June 30, 2020 and 5,777 at September 30, 2019

issued and outstanding shares 5,959 at December 31, 2020 and 5,916 at September 30, 2020

Additional paid-in capital 10,820 10,736

8 unchanged sentences

(Unaudited, Amounts in thousands)

Nine Months Ended

Three Months Ended

Cash flows from operating activities:

3 unchanged sentences

Amortization of debt issuance cost 26 26

Loss (gain) on disposal of operating assets or impairment of operating assets

Gain on insurance proceeds received ( 2,495 ) —

Goodwill impairment

LIFO effect 128 22

Share transactions under company stock plan 127 150

2 unchanged sentences

Changes in operating assets and liabilities:

Receivables 2,529 2,664

Contract assets 71 ( 152 )

Inventories ( 877 ) ( 1,624 )

Refundable income taxes — 10

Prepaid expenses and other current assets 144 ( 284 )

Other assets 77 ( 351 )

Accounts payable 982 ( 3,314 )

1 unchanged sentence

Accrued income and other taxes 150 ( 9 )

Net cash provided by operating activities

Net cash provided by (used for) operating activities 3,123 ( 965 )

Cash flows from investing activities:

Insurance proceeds received 3,452 3,500

Proceeds from disposal of operating assets

Capital expenditures ( 3,710 ) ( 2,303 )

Net cash used for investing activities

Net cash provided by (used for) investing activities ( 258 ) 1,197

Cash flows from financing activities:

Proceeds from long-term debt

Payments on long-term debt ( 238 ) ( 336 )

1 unchanged sentence

Repayments of revolving credit agreement ( 27,694 ) ( 30,714 )

Payment of debt issue costs

Short-term debt borrowings 2,431 981

Short-term debt repayments ( 606 ) ( 1,891 )

Share retirement

Net cash used for financing activities ( 2,137 ) ( 151 )

Decrease in cash and cash equivalents

Increase in cash and cash equivalents 728 81

Cash and cash equivalents at the beginning of the period 427 341

4 unchanged sentences

Cash paid for income taxes, net $ ( 11 ) $ ( 10 )

Non-cash investing activities:

Additions to property, plant & equipment - incurred but not yet paid

See notes to unaudited consolidated condensed financial statements.

3 unchanged sentences

(Unaudited, Amounts in thousands )

Nine Months Ended

June 30, 2020

Three Months Ended

December 31, 2020

Common Additional

Capital Retained

Earnings Accumulated

Comprehensive

Shareholders’

Shares Amount

Balance - September 30, 2020 5,916 $ 5,916 $ 10,736 $ 42,339 $ ( 13,468 ) $ 45,523

2 unchanged sentences

Share transactions under equity based plans 43 43 ( 59 ) — — ( 16 )

Balance - June 30, 2020

Balance - December 31, 2020 5,959 $ 5,959 $ 10,820 $ 45,332 $ ( 12,970 ) $ 49,141

Three Months Ended

June 30, 2020

Comprehensive

Shareholders’

Balance - March 31, 2020

Comprehensive income

Performance and restricted share expense

Balance - June 30, 2020

Nine Months Ended

June 30, 2019

December 31, 2019

Common Additional

Capital Retained

Earnings Accumulated

Comprehensive

Shareholders’

Shares Amount

Balance - September 30, 2019 5,777 $ 5,777 $ 10,438 $ 33,148 $ ( 13,309 ) $ 36,054

Cumulative effect for the adoption of ASC 606

Comprehensive loss — — — ( 1,342 ) 381 ( 961 )

Share retirement

Performance and restricted share expense — — 155 — — 155

Share transactions under equity based plans 86 86 ( 90 ) — — ( 4 )

Balance - June 30, 2019

Three Months Ended

June 30, 2019

Comprehensive

Shareholders’

Balance - March 31, 2019

Comprehensive loss

Performance and restricted share expense

Balance - June 30, 2019

Balance - December 31, 2019 5,863 $ 5,863 $ 10,503 $ 31,806 $ ( 12,928 ) $ 35,244

See notes to unaudited consolidated condensed financial statements.

19 unchanged sentences

The results of operations for any interim period are not necessarily indicative of the results to be expected for other interim periods or the full year.

In March 2020, the novel strain of coronavirus ("COVID-19") was recognized as a pandemic by the World Health Organization, and the outbreak subsequently became increasingly widespread in the United States and other countries in which the Company operates.

The Company has taken proactive steps to ensure the safety of its employees and customers as well as to preserve the Company’s financial flexibility.

The Company continues to monitor the development of and responses to the COVID-19 pandemic and the impact of COVID-19 on its business and respond accordingly.

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

As the pandemic continues to impact operations of businesses across the world, 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.

Given the continuing evolution of the COVID-19 pandemic and the varied global responses to curb its spread, the Company is not presently able to estimate the effects of the COVID-19 outbreak on its future results of operations, financial condition or liquidity for fiscal year 2020.

Accounting Policies

A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company's fiscal 2020 Annual Report on Form 10-K.

Since the Annual Report, the Company has implemented Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)" and ASU 2018-11, "Leases (Topic 842) Targeted Improvements," (collectively with ASU 2016-02, "Topic 842"), which was adopted by the Company on October 1, 2019 using the cumulative-effect adjustment transition method.

Significant changes to the Company's accounting policies as a result of adopting Topic 842 are referenced below within section E.

Recently Adopted Accounting Standards and in Note 4, Leases.

Net Income/(Loss) per Share

1 unchanged sentence

Net income in the current period, per diluted share reflects the effect of the Company's outstanding restricted shares and performance shares under the treasury method.

In the prior period, due to the net loss for each reporting period, zero restricted shares are included in the calculation of diluted earnings per share because the effect would be anti-dilutive.

In the prior period, due to the net loss, zero restricted shares are included in the calculation of diluted earnings per share because the effect would be anti-dilutive.

The dilutive effect is as follows:

Three Months Ended

Nine Months Ended

Net Income (loss)

$ 2,993 $ ( 1,342 )

Weighted-average common shares outstanding (basic and diluted) 5,691 5,612

4 unchanged sentences

Net income (loss) per share – basic:

$ 0.53 $ ( 0.24 )

Net income (loss) per share – diluted:

$ 0.51 $ ( 0.24 )

Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share 219 194

15 unchanged sentences

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 fiscal years and interim periods within those fiscal years, beginning after December 15, 2020.

This ASU is effective beginning October 1, 2021.

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

Recently Adopted Accounting Standards

The Company adopted Topic 842 as of October 1, 2019, using the cumulative effective method.

Under the transition method selected by the Company, leases that are not short-term in nature existing at, or entered on October 1, 2019 were required to be recognized and measured.

Prior period amounts were not adjusted and continue to be reflected with the Company's historical accounting.

The adoption of Topic 842 resulted in the Company recording right-of-use ("ROU") assets and operating lease liabilities of approximately $18,059 to the consolidated condensed balance sheet as of October 1, 2019, with no related impact on the Company's consolidated condensed statement of comprehensive income (loss) or consolidated condensed statement of cash flows.

Inventories consist of:

5 unchanged sentences

For a portion of the Company's inventory, cost is determined using the last-in, first-out ("LIFO") method.

Approximately 41% and 27% of the Company’s inventories at June 30, 2020 and September 30, 2019, respectively, use the LIFO method.

Approximately 48 % and 47 % of the Company’s inventories at December 31, 2020 and September 30, 2020, respectively, use the LIFO method.

An actual valuation of inventory under the LIFO method is made at the end of each fiscal year based on the inventory levels and costs existing at that time.

2 unchanged sentences

The first-in, first-out (“FIFO”) method is used for the remainder of the inventories, which are stated at the lower of cost or net realizable value.

If the FIFO method had been used for the inventories for which cost is determined using the LIFO method, inventories would have been $8,280 and $8,296 higher than reported at June 30, 2020 and September 30, 2019 , respectively.

If the FIFO method had been used for the inventories for which cost is determined using the LIFO method, inventories would have been $ 8,414 and $ 8,286 higher than reported at December 31, 2020 and September 30, 2020, respectively.

Accumulated Other Comprehensive Loss

4 unchanged sentences

Total accumulated other comprehensive loss $ ( 12,970 ) $ ( 13,468 )

The adoption of Topic 842 requires lessees to recognize a ROU asset and a lease liability on the consolidated condensed balance sheet, with the exception of short-term leases.

The Company primarily leases its manufacturing buildings, specifically at its Orange location, machinery and office equipment.

The Company determines if a contract contains a lease based on whether the contract conveys the right to control the use of identified assets for a period in exchange for consideration.

Upon identification and commencement of a lease, the Company establishes a ROU asset and a lease liability.

Operating leases are included in ROU assets, short-term operating lease liabilities, and long-term operating lease liabilities on the consolidated condensed balance sheets.

Finance leases are included in property, plant, and equipment, current maturities of long-term debt and long-term debt on the consolidated condensed balance sheets.

The Company has remaining lease terms ranging from one to 17 years , some of which include options to renew the lease.

The total lease term is determined by considering the initial lease term per the lease agreement, which is adjusted to include any renewal options that the Company is reasonably certain to exercise as well as any period that the Company has control before the stated initial term of the agreement.

If the Company determines there exists a reasonable certainty of exercising termination or early buyout options, then the lease terms are adjusted to account for these facts.

A portion of our real estate leases include rents that are generally subject to annual changes in the Consumer Price Index ("CPI").

Such changes to the CPI are treated as variable lease payments.

The Company elected the package of practical expedients permitted under the transition guidance within the new standard which, among other things, allowed the Company to carry forward the historical lease classification.

The Company has made an accounting policy election to not separate non-lease components from lease components when allocating consideration for the buildings and machinery and equipment ROU asset classes.

The election was made to reduce the administrative burden that would be imposed on the Company.

ROU assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

As most of the leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date and duration of the lease term in determining the present value of the future payments.

Lease expense for operating leases is recognized on a straight-line basis over the lease term, while the expense for finance leases is recognized as depreciation expense and interest expense using the accelerated interest method of recognition.

A lease asset and lease liability are not recorded for leases with an initial term of 12 months or less and the lease expense related to these leases is recognized as incurred over the lease term.

The components of lease expense were as follows:

Three Months Ended

June 30, 2020

Nine Months Ended

June 30, 2020

Lease expense

December 31, 2020 Three Months Ended

December 31, 2019

Finance lease expense:

5 unchanged sentences

The following table presents the impact of leasing on the consolidated condensed balance sheet.

Classification to the consolidated condensed balance sheets

Finance lease assets

Property, plant and equipment, net

Operating lease assets

Operating lease right-of-use assets, net

Classification to the consolidated condensed balance sheets December 31,

2020 September 30,

Finance lease assets Property, plant and equipment, net $ 75 $ 89

Operating lease assets Operating lease right-of-use assets, net 16,709 17,021

Total lease assets $ 16,784 $ 17,110

Current liabilities:

Finance lease liabilities

Current maturities of long-term debt

Operating lease liabilities

Short-term operating lease liabilities

Finance lease liabilities Current maturities of long-term debt $ 56 $ 58

Operating lease liabilities Short-term operating lease liabilities 900 991

Non-current liabilities:

Finance lease liabilities

Long-term debt, net of current maturities

Operating lease liabilities

Long-term operating lease liabilities, net of short-term

Finance lease liabilities Long-term debt, net of current maturities 14 22

Operating lease liabilities Long-term operating lease liabilities, net of short-term 16,003 16,188

Total lease liabilities $ 16,973 $ 17,259

Supplemental cash flow and other information related to leases were as follows:

2020 December 31,

Other Information

5 unchanged sentences

Operating leases — —

2020 September 30,

Weighted-average remaining lease term (years):

4 unchanged sentences

Operating leases 5.9 % 5.9 %

Future minimum lease under non-cancellable leases at June 30, 2020 were as follows:

Finance Leases

Operating Leases

Future minimum lease under non-cancellable leases at December 31, 2020 were as follows:

Finance Leases Operating Leases

Year ending September 30,

2020 (excluding the nine months ended June 30, 2020)

2021 (excluding the three months ended December 31, 2020) 46 1,392

2022 21 1,690

Thereafter — 17,540

Total lease payments $ 71 $ 25,521

1 unchanged sentence

Present value of lease liabilities $ 70 $ 16,903

As previously disclosed in the Company's 2019 Annual Report on Form 10-K and under the previous lease accounting standard, future minimum lease payments under initial or remaining non-cancellable lease terms in excess of one year would have been as follows:

Finance Leases

Operating Leases

Year ending September 30,

Total lease payments

Present value of lease liabilities

Debt consists of:

4 unchanged sentences

Other, net of unamortized debt issuance costs $( 18 ) and $( 20 ), respectively

Total debt 22,785 24,620

Less – current maturities ( 19,299 ) ( 20,014 )

1 unchanged sentence

Credit Agreement and Security Agreement of 2018

On August 8, 2018, the Company entered into an asset-based Credit Agreement ("Credit Agreement") and a Security Agreement (“Security Agreement”) with its current lender (the "Lender").

The Credit Agreement matures on August 6, 2021 and is comprised of a senior secured revolving credit facility with a maximum borrowing of $30,000 .

The Credit Agreement also has an accordion feature, which allows the Company to increase maximum borrowings by up to $10,000 upon consent of the Lender or upon additional lenders joining the Credit Agreement.

The terms of the Credit Agreement contain both a lock box arrangement and subjective acceleration clause.

As a result, the amount outstanding on the revolving credit facility is classified as a short-term

The proceeds from the Credit Agreement were used to pay fees and expenses incurred in connection with the Credit Agreement and continue to be used for working capital purposes and general corporate purposes.

The Company's asset-based Credit Agreement ("Credit Agreement"), Security Agreement (“Security Agreement”) and Export Credit Agreement (the "Export 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.

The $ 35,000 Credit Agreement consists of (i) a senior secured revolving credit facility with a maximum borrowing of $ 30,000 , and (ii) a revolving commitment through the Export Credit Agreement of $ 5,000 which lends amounts to the Company on foreign receivables.

The Credit Agreement also has an accordion feature, which allows the Company to increase maximum borrowings by up to $ 10,000 upon consent of the lender under the Credit Agreement (the "Lender") or upon additional lenders joining the Credit Agreement.

The Credit Agreement matures on August 6, 2021.

The Credit Agreement contains affirmative and negative covenants and events of defaults.

1 unchanged sentence

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

See discussion below under the Fourth Amendment to the Credit Agreement and Security Agreement, which revises the provision related to availability and FCCR.

On November 5, 2018, the Company entered into the First Amendment (the "First Amendment") to the Credit Agreement and Security Agreement with its Lender.

The First Amendment retroactively amended certain definitions and provisions effective as of the original closing date to clarify the parties' original understanding.

On December 17, 2018, the Company entered into an Export Credit Agreement (the “Export Credit Agreement”) with its Lender.

Pursuant to the terms of the Export Credit Agreement, the Lender will lend amounts to the Company on foreign receivables that are guaranteed by the Export-Import Bank of the United States of America.

The Export Credit Agreement provides for a revolving commitment of $5,000 , therefore increasing the maximum borrowing of the revolver to $35,000 .

The borrowings under the Export Credit Agreement will bear interest at (depending on the type of borrowing) the Prime or LIBOR Rate, plus the applicable margin as set forth in the Export Credit Agreement.

The maturity date under the Export Credit Agreement is August 6, 2021 (or such earlier date as the revolving commitments under the Export Credit Agreement are reduced to zero or otherwise terminated).

The Export Credit Agreement contains customary representations, warranties, covenants and events of default, including, without limitation, the affirmative covenants under the Company’s Credit Agreement dated August 8, 2018, as amended with the Lender.

In connection with entering into the Export Credit Agreement, the Company also entered into the Second Amendment (the “Second Amendment”) to its Credit Agreement.

The Second Amendment amends certain definitions and provisions to provide for the Company’s entrance into the Export Credit Agreement.

On March 29, 2019, the Company entered into a Third Amendment with its Lender.

This amendment extended the time frame for when certain post-closing requirements would be satisfied by March 31, 2019 to June 30, 2019.

These post-closing requirements were completed by June 30, 2019.

On September 20, 2019, the Company entered into a Fourth Amendment with its Lender.

As previously stated, 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 the revolving commitment to 10% of the lesser of collateral or total revolving commitment, with a $2,000 floor through June 30, 2020.

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

If the total collateral is less than $ 20,000 , then the $2,000 floor will apply;

however, if the total collateral is greater than or equal to $20,000 , but less than the $35,000 (revolving commitment);

then 10% of the total collateral is used, but if the collateral exceeds $35,000 , then 10% of the total commitment is used as lending will not exceed the $35,000 revolving commitment unless the accordion feature is enacted.

Commencing July 1, 2020, the terms reverted back to the requirements in place prior to the Fourth Amendment.

The total collateral at June 30, 2020 and September 30, 2019 was $25,603 and $24,000 , respectively and the revolving commitment was $35,000 for both periods.

The measurement at 10% was $2,560 and $2,400 , respectively.

Total availability at June 30, 2020 and September 30, 2019 was $13,492 and $7,709 , respectively, which exceed both the collateral and total commitment threshold.

If availability had fallen short, the Company would be required to meet the FCCR covenant, which must not be less than 1.1 to 1.0.

Because the availability was greater than the 10.0% of the revolving commitment as of June 30, 2020 and September 30, 2019, the FCCR calculation was not required.

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.

The total collateral at December 31, 2020 and September 30, 2020 was $ 26,724 and $ 26,964 , respectively and the revolving commitment was $ 35,000 for both periods.

Total availability at December 31, 2020 and September 30, 2020 was $ 16,767 and $ 13,284 , respectively, which exceed both the collateral and total commitment threshold.

Since the availability was greater than the 12.5 % of the revolving commitment as of December 31, 2020 and September 30, 2020, the FCCR calculation was not required.

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 1.50% , which was 1.7% at June 30, 2020 and 3.6% at September 30, 2019, and the Export Credit Agreement has a rate based on LIBOR plus 1.00% spread at June 30, 2020 and 1.25% spread at September 30, 2019, which was 1.2% and 3.4% at June 30, 2020 and September 30, 2019, respectively.

The revolver has a rate based on LIBOR plus 1.5 %, which was 1.7 % at December 31, 2020 and September 30, 2020, respectively, and the Export Credit Agreement has a rate based on LIBOR plus 1.00 % spread, which was 1.2 % at December 31, 2020 and September 30, 2020, respectively.

The Company also has a commitment fee of 0.25 % under the Credit Agreement to be incurred on the unused balance of the revolver.

The Company's Credit Agreement is set to mature in less than twelve months.

As such, the Company’s plan is to refinance.

However, there are no guarantees that the refinance will be with similar terms to the current Credit Agreement, and if the refinance does not occur, the Company would not be able to meet its debt obligations.

Foreign subsidiary borrowings

1 unchanged sentence

2020 September 30,

Term loan $ 2,783 $ 2,670

Short-term borrowings 3,018 2,620

Factor 2,082 469

Total debt $ 7,883 $ 5,759

Less – current maturities $ ( 5,892 ) ( 3,544 )

2 unchanged sentences

Interest rates on foreign borrowings are based on Euribor rates which range from 1.0 % to 4.2 %.

In December 2018, the Company entered into a six month short-term debt arrangement of $1,137 to be used for working capital purposes at Maniago, which was subsequently repaid in fiscal 2019.

In September 2019, Maniago modified its repayment schedule for one tranche of its existing term debt by reducing its next two payments by approximately $96 and extending the loan for an additional six months in which the final payment will be made at that time (to be paid by October 2020).

The Company continues to have discussions 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 challenges in meeting certain current loan 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 condensed 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 its Maniago operations.

The Company factors receivables from one of its customers.

The factoring programs are uncommitted, whereby the Company offers receivables for sale to an unaffiliated financial institution, which are then subject to acceptance by the unaffiliated financial institution.

Following the sale and transfer of the receivables to the unaffiliated financial institution, the receivables are not isolated from the Company, and effective control of the receivables is not passed to the unaffiliated financial institution, which does not have the right to pledge or sell the receivables.

The Company accounts for the pledge of receivables under this agreement as short-term debt and continues to carry the receivables on its consolidated condensed balance sheets.

Debt issuance costs

The Company incurred debt issuance costs as it pertains to the Credit Agreement in the amount of $212 , and incurred additional costs in fiscal 2019 of $75 related to the First and Second Amendments, which is included in the consolidated condensed balance sheets as a deferred charge in other current assets, net of amortization of $180 and $106 at June 30, 2020 and September 30, 2019, respectively.

In response to the economic uncertainty created by the COVID-19 pandemic, as described above in Note 1, Summary of Significant Accounting Policies , and taking into consideration the Company’s market capitalization, status as a smaller reporting company, and uncertainties and volatility in, and disruptions to, the capital markets, as well as the terms of the Company’s Credit Agreement, the Company applied for and received funds under Paycheck Protection Program (or "PPP") of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").

The Company incurred debt issuance costs as it pertains to the Credit Agreement in the amount of $ 212 , and incurred additional costs in fiscal 2019 of $ 75 related to the First and Second Amendments, which is included in the consolidated condensed balance sheets as a deferred charge in other current assets, net of amortization of $ 229 and $ 205 at December 31, 2020 and September 30, 2020, respectively.

On April 10, 2020, the Company entered into an unsecured promissory note under the Paycheck Protection Program (the “PPP Loan”).

The PPP Loan to the Company was made through JPMorgan Chase Bank, N.A., a national banking association and the Company’s existing lender.

The note has an aggregate principal amount of approximately $ 5,025 and a two year term.

The interest rate on the PPP Loan is 0.98% , which shall be deferred for the first six months of the term of the loan.

The promissory note evidencing the PPP Loan contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or provisions of the promissory note.

The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, and/or filing suit and obtaining judgment against the Company.

The note has an aggregate principal amount of approximately $ 5,025 , of which $ 261 was repaid in fiscal 2020 and has a two year term.

The interest rate on the PPP Loan is 0.98 %, which was deferred for the first six months of the term of the loan.

The promissory note evidencing the PPP Loan contains customary events of default.

The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owed from the Company, and/or filing suit and obtaining judgment against the Company.

The loan proceeds were received on April 10, 2020 and were used for payroll, interest on mortgage obligations, rents on leases and utility payments.

As of June, 30, 2020, the Company

repaid $ 261 proceeds back to its lender, leaving a remaining balance of $4,764 , of which $ 2,382 will be paid in the next twelve months and the remaining $ 2,382 in the following twelve months after.

Under the terms of the CARES Act, PPP Loan recipients can apply for and potentially be granted forgiveness for all or a portion of loans granted under the PPP.

As of December 31, 2020 and September 30, 2020, the PPP loan balance was $ 4,764 .

PPP Loan recipients can apply for and potentially be granted forgiveness for all or a portion of loans granted under the Paycheck Protection Program.

Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payroll costs and mortgage interest, rent or utility costs and the maintenance of employee and compensation levels.

Although the Company intends to file for forgiveness, no assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.

As of June 30, 2020, the Company is waiting for further guidance regarding how to apply for the forgiveness for all or a portion of the PPP loan.

As of December 31, 2020, the Company continues to wait for further guidance regarding application for the forgiveness for all or a portion of the PPP loan.

On December 27, 2020, the Consolidated Appropriations Act, 2021 (the "Appropriations Act") was enacted in response to the COVID-19 pandemic.

The Appropriations Act, among other things temporarily extends through December 31, 2025, certain expiring tax provisions.

Additionally, the Appropriations Act enacts new provisions and extends certain provisions originated within the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), enacted on March 27, 2020.

The CARES Act included provisions relating to refundable payroll tax credits, deferral of certain payment requirements for the employer portion of Social Security taxes, net operating loss carryback periods and temporarily increasing the amount of net operating losses that corporations can use to offset income, alternative minimum tax ("AMT") credit refunds, modifications to the net

interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property.

The Appropriations Act and CARES Act did not materially affect the Company’s first quarter of fiscal 2021 income tax provision, deferred tax assets and liabilities, or related taxes payable.

The Company will continue to assess the implications of these and any new relief provisions on its consolidated condensed financial statements but does not expect the impact to be material.

For each interim reporting period, the Company makes an estimate of the effective tax rate it expects to be applicable for the full fiscal year for its operations.

This estimated effective rate is used in providing for income taxes on a year-to-date basis.

The Company’s effective tax rate through the first nine months of fiscal 2020 was (2)% , compared with 8% for the same period of fiscal 2019.

The decrease in the effective rate was primarily attributable to changes in jurisdictional mix of income in fiscal 2020 compared with the same period of fiscal 2019.

The Company’s effective tax rate through the first three months of fiscal 2021 was ( 43 )%, compared with 7 % for the same period of fiscal 2020.

The decrease in the effective rate was primarily attributable to a discrete tax benefit recorded during the first three months of fiscal 2021 to adjust deferred taxes recorded in Italy, applied against year-to-date income.

Additionally, the effective tax rate decreased as a result of changes in jurisdictional mix of income in fiscal 2021 compared to the same period of fiscal 2020.

The effective tax rate differs from the U.S.

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statutory tax rate.

As previously mentioned, the CARES Act was enacted and signed into law, which includes provisions relating to refundable payroll tax credits, deferral of certain payment requirements for the employer portion of Social Security taxes, net operating loss carryback periods and temporarily increasing the amount of net operating losses that corporations can use to offset income, alternative minimum tax ("AMT") credit refunds, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property.

The CARES Act did not materially affect the Company’s third quarter of fiscal 2020 income tax provision, deferred tax assets and liabilities, or related taxes payable.

The Company continues to assess the future implications of these provisions within the CARES Act on its consolidated condensed financial statements but does not expect the impact to be material.

Recent positive evidence related to the potential or partial release of the Company's valuation allowance includes profitable U.S.

results, however, there continues to be uncertainty as a result of the ongoing COVID-19 pandemic.

As such, the Company has maintained a full valuation allowance on its U.S.

net deferred tax assets in the first quarter of fiscal 2021.

It is reasonably possible that sufficient positive evidence required to release all, or a portion of the valuation allowance in the U.S.

will exist within the next 12 months.

The Company is subject to income taxes in the U.S.

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Three Months Ended

Nine Months Ended

Service cost $ 26 $ 85

Interest cost 175 208

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Net periodic cost $ 57 $ 105

During the nine months ended June 30, 2020 and 2019, the Company made $604 and $48 in contributions, respectively, to its defined benefit pension plans.

The Company does no t anticipate making additional cash contributions to fund its defined benefit pension plans for the balance of fiscal 2020 and will use carryover balances from previous periods that have been available for use as a credit to reduce the amount of cash contributions that the Company is required to make to certain defined benefit plans in fiscal 2020.

During the three months ended December 31, 2020 and 2019, the Company made $ 0 and $ 188 in contributions, respectively, to its defined benefit pension plans.

The Company anticipates making $ 296 additional cash contributions to fund its defined benefit pension plans for the balance of fiscal 2021 and will use carryover balances from previous periods that have been available for use as a credit to reduce the amount of cash contributions that the Company is required to make to certain defined benefit plans in fiscal 2021.

The Company's ability to elect to use such carryover balance will be determined based on the actual funded status of each defined benefit pension plan relative to the plan's minimum regulatory funding requirements.

The Company does not anticipate making cash contributions above the minimum funding requirement to fund its defined benefit pension plans during the balance of fiscal 2021.

On November 26, 2019, the Company ratified a new collective bargaining agreement with one of its bargaining units.

Included within the agreement was a provision to withdraw from its existing multi-employer plan resulting in the imposition of a withdrawal liability.

The withdrawal liability of $739 was recorded within the cost of goods sold line of the consolidated condensed statement of operations and is included in other long-term liabilities and the current portion (next four quarterly installments) in accrued liabilities of the consolidated condensed balance sheets, payable in quarterly installments over the next 20 years .

Stock-Based Compensation

The Company has awarded performance and restricted shares under its shareholder-approved amended and restated 2007 Long-Term Incentive Plan ("2007 Plan"), which was further amended and restated under the SIFCO Industries, Inc.

2007 Long-Term Incentive Plan (Amended and Restated as of November 16, 2016) (the "2016 Plan").

At the Annual Meeting of Shareholders held on January 30, 2020, the shareholders of the Company approved the first amendment (the “Amendment”) to the 2016 Plan.

The Amendment increased the number of shares available for award under the 2016 Plan by 550 shares.

The aggregate number of shares that may be awarded by the Company was increased to 1,196 shares, less any shares previously awarded and subject to an adjustment for the forfeiture of any unvested shares, pursuant to the 2016 Plan.

The Company has awarded performance and restricted shares under the Company's 2007 Long-Term Incentive Plan ("2007 Plan") and the Company's 2007 Long-Term Incentive Plan (Amended and Restated as of November 16, 2016) (as further amended, the "2016 Plan").

The aggregate number of shares that may be awarded by the Company under the 2016 Plan is 1,196 shares, less any shares previously awarded and subject to an adjustment for the forfeiture of any unvested shares.

In addition, shares that may be awarded are subject to individual recipient award limitations.

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The performance shares that have been awarded under both plans generally provide for the vesting of the Company’s common shares upon the Company achieving certain defined financial performance objectives during a period up to three years following the making of such award.

The ultimate number of common shares of the Company that may be earned pursuant to an award ranges from a minimum of no shares to a maximum of 200% (for awards granted in fiscal 2020, the maximum is 150% ) of the initial target number of performance shares awarded, depending on the level of the Company’s achievement of its financial performance objectives.

The ultimate number of common shares of the Company that may be earned pursuant to an award ranges from a minimum of no shares to a maximum of 200 % of the initial target number of performance shares awarded, depending on the level of the Company’s achievement of its financial performance objectives.

Beginning in fiscal 2020, the maximum share that may be achieved was reduced to 150 % of target.

With respect to such performance shares, compensation expense is being accrued based on the probability of meeting the performance target.

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The vesting of such shares is determined at the end of the performance period.

During the first nine months of fiscal 2020, the Company granted 134 shares under the 2016 Plan to certain key employees.

The awards were split into two tranches, 47 performance shares and 87 shares of time-based restricted shares, with a grant date fair value of $2.50 per share.

The awards vest over three years .

The Company has awarded restricted shares to its directors, officers, and other employees of the Company.

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The unearned compensation is being amortized ratably over the restricted stock vesting period of one year or three years .

During the first nine months of fiscal 2020, the Company granted its non-employee directors 57 restricted shares under the 2016 Plan, with a grant date fair value of $4.39 , which vest over one year.

One award for 61 restricted shares vested.

If all outstanding share awards are ultimately earned and vest at the target number of shares, there are approximately 524 shares that remain available for award at June 30, 2020 .

If any of the outstanding share awards are ultimately earned and vest at greater than the target number of shares, up to a maximum of 200% (decreased to 150% for awards starting in fiscal 2020) of such target, then a fewer number of shares would be available for award.

Stock-based compensation under the 2016 Plan was $262 and $367 during the first nine months of fiscal 2020 and 2019, respectively and $37 expense and $59 benefit during the third quarter of fiscal 2020 and 2019, respectively.

As of June 30, 2020 , there was $495 of total unrecognized compensation cost related to the performance shares and restricted shares awarded under the 2016 Plan.

In fiscal 2021, the Company granted 120 shares under the 2016 Plan to certain key employees.

The awards were split into two tranches, 71 performance shares and 49 shares of time-based restricted shares, with a grant date fair value of $ 3.74 per share.

The awards vest over three years .

If all outstanding share awards are ultimately earned and vest at the target number of shares, there are approximately 572 shares that remain available for award at December 31, 2020.

If any of the outstanding share awards are ultimately earned and vest at greater than the target number of shares, up to a maximum of 200 % or 150 % of such target, then a fewer number of shares would be available for award.

Stock-based compensation under the 2016 Plan was $ 143 and $ 155 during the first three months of fiscal 2021 and 2020, respectively.

As of December 31, 2020, there was $ 656 of total unrecognized compensation cost related to the performance shares and restricted shares awarded under the 2016 Plan.

The Company expects to recognize this cost over the next 1.6 years.

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Three Months Ended

Nine Months Ended

Commercial revenue $ 10,753 $ 10,191

Military revenue 14,325 16,016

Total $ 25,078 $ 26,207

The following table represents revenue by the various components:

Three Months Ended

Nine Months Ended

Net Sales 2020 2019

Aerospace components for:

Fixed wing aircraft $ 9,790 $ 11,335

Rotorcraft 7,731 6,848

Energy components for power generation units 6,462 2,658

Commercial product and other revenue 1,095 5,366

Total $ 25,078 $ 26,207

The following table represents revenue by geographic region based on the Company's selling operation locations:

Three Months Ended

Nine Months Ended

Net Sales 2020 2019

North America 19,766 23,776

In addition to the disaggregating revenue information provided above, approximately 60% of total net sales as of June 30, 2020 are recognized on an over-time basis because of the continuous transfer of control to the customer, with the remainder recognized at a point in time.

Europe 5,312 2,431

Total $ 25,078 $ 26,207

In addition to the disaggregated revenue information provided above, approximately 58 % and 61 % of total net sales as of December 31, 2020 and 2019, respectively, was recognized on an over-time basis because of the continuous transfer of control to the customer, with the remainder recognized at a point in time.

Contract Balances

Generally, payment is due shortly after the shipment of goods.

For performance obligations recognized at a point in time, a contract asset is not established as the billing and revenue recognition occur at the same time.

For performance obligations recognized over-time, a contract asset is established as revenue is recognized prior to billing and shipment.

Upon shipment and billing, the value of the contract asset is reversed and accounts receivable is recorded.

In circumstances where prepayments are required and payment is made prior to satisfaction of performance obligations, a contract liability is established.

If the performance obligation occurs over-time, the contract liability is reversed over the course of production.

If the performance obligation is point in time, the contract liability reverses upon shipment.

The following table contains a roll forward of contract assets and contract liabilities for the period ended June 30, 2020:

The following table contains a roll forward of contract assets and contract liabilities for the period ended December 31, 2020:

Contract assets - Beginning balance, October 1, 2020 $ 11,997

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Less amounts billed to the customers ( 14,591 )

Contract assets - Ending balance, June 30, 2020

Contract assets - Ending balance, December 31, 2020 $ 11,926

Contract liabilities (included within Accrued liabilities) - Beginning balance, October 1, 2020 $ ( 636 )

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Performance obligations satisfied 66

Contract liabilities (included within Accrued liabilities) - Ending balance, June 30, 2020

There were no impairment losses recorded on contract assets as of June 30, 2020.

Contract liabilities (included within Accrued liabilities) - Ending balance, December 31, 2020 $ ( 725 )

There were no impairment losses recorded on contract assets as of December 31, 2020 and September 30, 2020.

Remaining performance obligations

As of June 30, 2020, the Company has $100,880 of remaining performance obligations, the majority of which are anticipated to be completed within the next twelve months.

As of December 31, 2020, the Company has $ 81,533 of remaining performance obligations, the majority of which are anticipated to be completed within the next twelve months.

Commitments and Contingencies

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No specific amount of damages was claimed by Avco and discovery has only recently begun.

Orange disagrees with the allegations made by Avco and has made cross claims against Arconic.

Orange disputes the allegations made by Avco and has made cross claims against Arconic.

Previously, Orange was a defendant with respect to the same action in the United States District Court for the District of Rhode Island, which action was dismissed in connection with the movement of the matter to Pennsylvania State Court.

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Actual results may differ significantly from current estimates.

Given the current status of this matter, the Company has not recorded a charge, as the Company does not have a reasonable basis on which to establish an estimate.

Given the current status of this matter, the Company has not recorded a charge, as the Company has not deemed it probable and does not have a reasonable basis on which to establish an estimate.

The Company is a defendant in a purported class action lawsuit filed in the Superior Court of California, County of Orange, which was filed in August 2017, arising from employee wage-and-hour claims under California law for alleged meal period, rest break, hourly and overtime wage calculation, timely wage payment and necessary expenditure indemnification violations;

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and unfair competition.

A settlement has been reached and the Company received preliminary court approval on July 13, 2020, following a brief COVID-19 delay.

The Company previously recorded adequate reserves to cover the settlement.

During the quarter, the Company received notice from the International Association of Machinists and Aerospace Workers Union that they were disclaiming all interest in representing certain hourly employees at the Company’s Cleveland facility.

Also, during the quarter, the International Brotherhood of Boilermakers Union filed a petition to represent this same group of hourly employees.

A mail ballot election took place in June and the National Labor Relations Board has certified the International Brotherhood of Boilermakers as the elected representative of the Company’s hourly production employees.

A settlement has been reached and the Company received preliminary court approval on July 13, 2020, following a brief delay caused by COVID-19 closures and restrictions.

Class action notices were sent at the end of September and there were no objections to the settlement.

On February 4, 2021, the court issued a tentative ruling to grant final approval.

The final approval hearing is scheduled for April 16, 2021.

The Company previously recorded an estimated loss of $ 315 , which was determined to be an adequate reserve to cover the settlement.

During fiscal 2020, the Company received notice from the International Association of Machinists and Aerospace Workers Union that they were disclaiming all interest in representing certain hourly employees at the Company’s Cleveland facility.

Subsequently, the International Brotherhood of Boilermakers Union filed a petition to represent this same group of hourly employees.

A mail ballot election took place in June 2020 and the National Labor Relations Board certified the International Brotherhood of Boilermakers as the elected representative of the Company’s hourly production employees.

The Company’s obligations will be more fully understood following the ratification of a collective bargaining agreement.

Recovery on the insurance claim related to the fire on December 26, 2018 at the Orange location continues in fiscal 2020.

The Company continues to work diligently to restore the site back to full service as safely and quickly as possible.

The 2500 ton press from storage that was placed in service in fiscal 2019 continues to run and the press located in Michigan was taken off-line at the end of November 2019, relocated to Orange and was placed into service in March 2020.

Restoration is nearly complete for the structure of the manufacturing building and the presses damaged in the fire.

The Company began running one restored press at the end of December 2019, while another restored press began running at the end of July 2020, allowing Orange to have 6 out of 8 presses in production going into the fourth quarter.

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

The Company anticipates having those restored at the end of fourth quarter of fiscal 2020.

During the first nine months of fiscal 2020, the Company received cash proceeds from insurance of $8,787 and, separately, the insurance carrier provided $713 of proceeds directly to the landlord for the continued restoration of the damaged building as prescribed under the lease arrangement.

The table below reflects the receipt of proceeds and how they were expended as of June

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, of which $915 was realized in the first nine months of fiscal 2020.

In the first quarter of fiscal 2021, the insurance claim related to the fire on December 26, 2018 at the Orange location was finalized with the Company's insurance carrier.

The Company continues to work diligently to restore the final two of the six presses damaged in the fire, which both continue to be on track to be completed by the end of the second quarter of fiscal 2021;

however, no assurances can be made that the restoration will be completed within such timeframe.

Restoration of the building structure is nearly complete.

Having finalized the claim with its insurance carrier, proceeds in the amount of $ 3,148 was received in December 2020.

As noted in the table below, $ 3,099 was recognized within the consolidated condensed statements of operations and the balance was separately designated to the landlord for the continued restoration of the damaged building as prescribed under the lease arrangement.

The Company has business interruption insurance coverage, of which $ 546 of the amount received was reflected within the cost of goods sold line within the consolidated condensed statement of operations.

Balance sheet (Other receivables):

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Business interruption 546

June 30, 2020

The tables below reflect how the proceeds received impacted the consolidated condensed statements of operations for the nine months ended and three months ended June 30,2020.

Nine Months Ended June 30, 2020

Balance without insurance proceeds

Insurance recoveries

Balance with insurance proceeds

December 31, 2020 $ 648

The tables below reflect how the proceeds received impacted the consolidated condensed statements of operations for the three months ended December 31, 2020 and 2019, respectively.

Three Months Ended

December 31, 2020

Balance without insurance proceeds Insurance recoveries Balance with insurance proceeds

Cost of goods sold $ 21,759 ( 604 ) $ 21,155

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Income (loss) before income tax (benefit) expense $ ( 1,011 ) ( 3,099 ) $ 2,088

Three Months Ended June 30, 2020

Balance without insurance proceeds

Insurance recoveries

Balance with insurance proceeds

Three Months Ended

December 31, 2019

Balance without insurance proceeds Insurance recoveries Balance with insurance proceeds

Cost of goods sold $ 24,053 ( 1,170 ) $ 22,883

Gain on insurance proceeds received

Income (loss) before income tax (benefit) expense $ ( 2,607 ) ( 1,170 ) $ ( 1,437 )

The following table demonstrates the total settlement amount since December 26, 2018:

Property & damage ** $ 20,364

Extra expense & mitigation expense 4,404

Business interruption 2,932

**$ 3,640 of total was directed to Landlord for the restoration of the building as prescribed by the lease arrangement .

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

What changed 10-Q

Item 1. Financial Statements