What changed in this filing

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Item 1. Business

2021-12-10 compared with 2020-12-23 · 45 added, 38 removed, 101 unchanged (45% of the section changed)

7 unchanged sentences

COVID-19 Pandemic

In March 2020, a 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.

As a result of the pandemic, governments around the world implemented stringent measures to help control the spread of the virus, including quarantines, “stay at home” orders, travel restrictions, and other measures.

During this time, we took proactive measures to ensure the safety of our employees and customers as well as to preserve the Company's financial flexibility.

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

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

While 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, while others, particularly international markets, remain closed or are enforcing renewed or extended quarantines or other restrictions.

Since being recognized by the World Health Organization as a pandemic, the novel coronavirus ("COVID-19") outbreak continues to impact the United States and other countries in which we operate.

The COVID-19 pandemic and its effects continue to evolve, including scope, severity and duration of the COVID-19 pandemic, as well as any worsening of the pandemic, the potential for additional outbreaks of the virus, the impact of new variants of COVID-19, actions to contain the pandemic's spread or treat its impact, the ongoing effectiveness of the vaccine and vaccination rates, and governmental, business and other actions taken in response to the pandemic.

The exact timing and pace of the recovery is currently indeterminable as certain markets have reopened, some of which have since experienced a resurgence of COVID-19 cases, and, throughout the course of the pandemic, new variants of COVID-19 have been identified and spread significantly, resulting in additional restrictions put in place by certain governments around the world.

Capital markets and economies worldwide have been negatively impacted by COVID-19 and given the fluidity of the situation, it is still unclear how lasting and deep the economic impacts will be, specifically in relation to the commercial aerospace and energy industries.

Principal Products and Services

SIFCO is a manufacturer of forgings and machining components for the A&E markets.

We provide our customers with envelope and precision forgings, rough and machined components, as well as sub-assemblies.

SIFCO is a manufacturer of forgings and machined components for the A&E markets.

We provide our customers with envelope and precision forgings, rough and finished machined components, as well as sub-assemblies.

SIFCO services both original equipment manufacturers ("OEM") and aftermarket customers with products that range in size from approximately 2 to 1,200 pounds.

The Company's strategic vision is to build a leading A&E company positioned for long-term, stable growth and profitability.

SIFCO's long-term plan is to have a balance comprised of military and commercial aerospace revenues, supplemented with energy components.

SIFCO's long-term plan is to have a balance comprised of military and commercial aerospace revenues, supplemented with energy, commercial space, and adjacent market components.

In fiscal 2021, commercial and military revenues accounted for 36.7% and 63.3% of revenues, respectively, compared with 42.6% in commercial revenues and 57.4% in military revenues in fiscal 2020.

The Company's capabilities are focused on supplying critical components, consisting primarily of steel, high temperature alloys, titanium and aluminum.

The Company's capabilities are focused on supplying critical components, consisting primarily of steel, high temperature alloys, nickel alloys, titanium and aluminum.

SIFCO operates from multiple locations.

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SIFCO also provides heat-treatment, surface-treatment, non-destructive testing and select machining and sub-assembly of forged components.

The performance of the domestic and international air transport industry, the energy industry, and government defense spending, directly and significantly impacts the performance of SIFCO.

The performance of the domestic and international air transport industry, the energy industry, as well as government defense spending, directly and significantly impact the performance of SIFCO.

The impact of COVID-19 continues to be assessed by the Company.

It has significantly impacted the commercial aerospace industry through the ongoing disruption of global travel, which continues to remain depressed.

Therefore, as the outbreak and responses continue to be fluid and ever changing, the shape and speed of recovery for the commercial aerospace industry remain uncertain.

• SIFCO supplies new and spare components for the U.S.

It has significantly impacted the commercial aerospace industry through the ongoing disruption of global travel, which remains depressed due to the continuing COVID-19 pandemic.

Therefore, as the outbreak of variants and responses continue to be fluid and ever changing, the shape and speed of recovery for the commercial aerospace industry remain uncertain;

however, resurgences in COVID-19 infections and/or new strains of the virus, along with the availability, distribution and efficacy of COVID-19 vaccines will continue to be critical factors in the recovery of passenger travel.

• SIFCO supplies new and spare components to the U.S.

military for aircraft, helicopters, vehicles, and munitions.

The defense budget in the United States varies from year to year, driven by defense procurement policy and government budget constraints.

The defense aerospace market has been impacted by the COVID-19 pandemic less than the commercial aerospace.

Uncertainty may arise if the government reprioritizes funding, such as potentially shifting funds to fight the pandemic or aid in recovery.

To this point, the defense aerospace market has not been significantly impacted by the COVID-19 pandemic.

Uncertainty may arise if the government reprioritizes funding as a result of, among other factors, potential changes in the threat environment, defense spending levels, government priorities, political leadership, procurement strategy, military strategy and planning, and broader changes in social, economic or political demands or priorities.

Certain programs in which the Company participates have been favorable and are expected to continue.

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As the pandemic has continued, the decrease in passenger air travel demand has impacted and continues to impact our customers' orders for new aircraft.

Current estimates regarding the return of passenger air traffic to pre-COVID-19 levels is three to five years.

Build rates, particularly the Boeing 777X, 787, 737 Max and the Airbus A320/A321neo and A350, have declined as a result of the impacts of COVID-19 on commercial air travel.

Current estimates regarding the return of passenger air traffic to pre-COVID-19 levels is another two to four years as recovery has been extremely uneven.

Increases in domestic leisure travel has led to some recovery and domestic business travel is expected to pick-up later into 2022, while international travel continues to lag as individual countries and regions have experienced varied recovery from, and resurgences in, the spread of COVID-19.

Therefore, build rates, particularly the Boeing 777X, 787, 737 Max and the Airbus A320/A321neo and A350, declined and partially rebounded in 2021, but not as quickly as previously anticipated.

• SIFCO supplies new and spare components to the energy industry, particularly the industrial gas and steam turbine markets.

The industrial gas and steam turbine markets have experienced a downturn in demand for new units in the near term.

While alternative energy markets continue to strengthen, oil and gas prices are expected to rebound from historic lows.

While alternative energy markets continue to strengthen, oil and gas prices are expected to rebound given rising gas prices from historic lows.

As such, it's currently anticipated that purchases of parts and supplies within the industry will increase.

SIFCO has positioned itself to support OEM production in a more limited role, but with flexibility to address the demand cycle in this segment as well as continuing to support the aftermarket.

SIFCO has positioned itself to be less dependent on OEM production, but with flexibility to address the demand cycle in this segment as well as continuing to support the aftermarket.

• SIFCO also supplies components to the commercial space industry, which is rapidly evolving.

An increasing number of commercial companies are participating in the space launch and reentry industry, which brings continuous development, innovation in technologies, and new approaches in this market.

We believe there is an opportunity for SIFCO to gain an increased market share as this industry continues to evolve and grow.

SIFCO competes with numerous companies, approximately fifteen of which are known by SIFCO.

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and (iv) broad range of capabilities and offerings.

As customers establish new facilities throughout the world, SIFCO will continue to encounter non-U.S.

As customers establish and utilize new facilities throughout the world, SIFCO will continue to encounter non-U.S.

SIFCO believes it can expand its market share by (i) continuing to increase capacity utilization;

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government to terminate existing contracts.

During fiscal 2020, SIFCO had three customers that accounted for 47% of consolidated net sales;

and 49% of the Company's consolidated net sales were from four customers and their direct subcontractors, which individually accounted for 16%, 13%, 10% and 10% of net sales.

During fiscal 2021, SIFCO had two customers that accounted for 20% of consolidated net sales;

and 38% of the Company's consolidated net sales were from three customers and their direct subcontractors, which individually accounted for 17%, 11%, and 10% of net sales, respectively.

SIFCO believes that the loss of sales to such customers would result in a material adverse impact on the business.

However, SIFCO has maintained a business relationship with these customers for many years and is currently conducting business with them under multi-year agreements.

Although there is no assurance that these relationships will continue, historically, as one or more major customers have reduced their purchases, SIFCO has generally been successful in gaining new business, thereby avoiding a material adverse impact on the Company.

Although there is no assurance that these relationships will continue, as one or more major customers have reduced their purchases, SIFCO has generally been successful in gaining new business, thereby avoiding a material adverse impact on the Company.

SIFCO relies on its ability to adapt its services and operations to changing requirements of the market in general and its customers in particular.

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Orders may be subject to modification or cancellation by the customer with limited charges.

The decrease in total backlog as of September 30, 2020 compared with the previous year is primarily due to timing of annual awards and SIFCO's customers adjusting orders as a result of impacts of COVID-19 on the commercial airline industry.

The decrease in total backlog as of September 30, 2021 compared with the previous year is primarily due to timing of annual awards and SIFCO's customers adjusting orders due to operational and pandemic related challenges within the commercial airline industry.

The continuing uncertainty regarding the COVID-19 pandemic and its duration and impact on the commercial airline industry is expected and may continue to impact sales order backlog growth in that market into fiscal 2022.

5 unchanged sentences

Nevertheless, the Company cannot guarantee that, in the future, it will not incur additional costs for compliance or that such costs will not be material.

The number of SIFCO employees were approximately 434 at the beginning of fiscal 2020 and increased to approximately 446 employees at the end of fiscal 2020.

The increase in employee headcount is a result of increasing production at the Orange location as a result of the progress in the restoration from the fire incident that occurred in fiscal 2019.

Human Capital Management

SIFCO employed approximately 446 full-time employees at the beginning of fiscal 2021, which decreased to approximately 378 employees at the end of fiscal 2021.

In response to the impact of COVID-19 on the commercial aerospace industry (including declines in revenues of our customers and temporary closures in accordance with government health orders), during fiscal 2021, the Company experienced two furloughs at its Orange facility, which primarily manufactures commercial aerospace product.

While the Company has brought back the workforce subject to the furloughs, the Company has experienced a decrease in the number of employees.

The Company’s employees include full-time, part-time, and temporary employees.

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the Company ratified its CBA with one such unit in December 2019.

The second bargaining unit received notice in the second quarter of fiscal 2020 from the International Association of Machinists and Aerospace Workers Union that they were disclaiming all interest in representing such unit.

In the same quarter, the International Brotherhood of Boilermakers Union filed a petition to represent such unit.

In June 2020, the National Labor Relations Board certified the International Brotherhood of Boilermakers as the elected representative of the Company’s second bargaining unit.

Negotiations with this second bargaining group are ongoing and there have been no work disruptions as the Company continues to operate per the terms of the previous contract.

The second bargaining unit, under its new representative the International Brotherhood of Boilermakers, is in ongoing negotiations with the Company.

There continues to be no work disruptions as the Company operates per the terms of the previous contract.

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

The Maniago location is party to the National Collective Agreement in Metalworking, which expired in December 2019.

Negotiations have been ongoing regarding such agreement;

however, until an agreement is reached, Maniago will continue to apply existing terms of its most recent contract.

The Maniago location is party to the National Collective Agreement in Metalworking, which renewed in February 2021.

The skills, experience and industry knowledge of our employees significantly benefit our operations and performance.

There are several ways in which we attract, develop, and retain highly qualified talent, including by making the safety and health of our employees a top priority.

In response to the COVID-19 pandemic, we developed, implemented, and have maintained procedures and protocols to minimize the risk to the health and safety of our employees while allowing us to continue to operate our facilities and provide our products to our customers on a timely basis.

Included among these procedures were providing for remote work where practicable and implementing protocols for social distancing, disinfecting, sanitation and

mask-wearing.

There are several ways in which we attract, develop, and retain highly qualified talent and measure the ongoing effectiveness of our human capital management practices, including by making the safety and health of our employees a top priority.

is focused on ensuring the health of our employees through the implementation of standards, controls, and inspections to help ensure that our operations and premises comply with national and local regulations.

In addition, the Company conducts annual employee development reviews, identifies growth opportunities, which include employee rotations, and engages employees in continuous improvement activities.

During fiscal 2021, we experienced a higher level of turnover, along with a shortage of applicants to fill staffing requirements at our U.S.

locations due to the current labor shortage affecting most businesses across the United States.

This has adversely affected our operating efficiency.

The steps we have taken to attract and retain labor include attending hiring events, broadening our recruitment platforms, paying retention bonuses, offering enhanced wages and paying sign-on bonuses.

In response to the ongoing COVID-19 pandemic, we developed, implemented, and have maintained procedures and protocols to minimize the risk to the health and safety of our employees continuing to operate our facilities and provide our products to our customers on a timely basis.

Included among these procedures were providing for remote work where practical and implementing protocols for social distancing, disinfecting, mask-wearing, symptom monitoring and personal hygiene.

We continue to maintain appropriate health and safety measures for our employees as the pandemic continues.

Throughout the pandemic, we have consistently been able to meet our customers' demands for our products, while at the same time making the necessary investments to ensure that we prioritize the health, safety and welfare of our employees.

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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 1. Business