What changed in this filing

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Item 1A. Risk Factors

2021-12-10 compared with 2020-12-23 · 68 added, 35 removed, 229 unchanged (31% of the section changed)

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Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and financial condition.

We face risks related to the COVID-19 outbreak and actions in response thereto, which have exacerbated or could further exacerbate conditions in our risk factors noted below.

We face risks related to the COVID-19 pandemic , its affects, and actions in response thereto, which have exacerbated or could further exacerbate conditions in our risk factors noted below.

Risks Related to Our Business and Operations

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and world economies, the ability of aircraft purchasers to obtain required financing and numerous other factors including the effects of terrorism, health and safety concerns and environmental constraints imposed upon aircraft operators.

The commercial aerospace industry has been significantly impacted by the COVID-19 pandemic and may continue to be negatively impacted for a prolonged period of time and the magnitude of the impacts of the COVID-19 pandemic on this industry cannot be fully understood at this time.

We have experienced changes in demands from our customers in this market and the reduction in demand for commercial aircraft will adversely impact our net sales and operating results.

The commercial aerospace industry has been significantly impacted by the COVID-19 pandemic and may continue to be negatively impacted for a

prolonged period of time and the magnitude of the impacts of the COVID-19 pandemic on this industry cannot be fully understood at this time.

We have experienced changes in demand from our customers in this market and the reduction in demand for commercial aircraft will adversely impact our net sales and operating results.

In addition to the near term impact of the COVID-19 pandemic on the commercial aerospace industry, there is risk that the industry implements longer-term strategies involving reduced capacity, shifting route patterns, and mitigation strategies related to impacts from COVID-19 and the risk of future public health crises.

Furthermore, airlines may experience reduced demand due to reluctance by the flying public to travel due to travel restrictions and/or social distancing requirements.

As a result, there is significant uncertainty with respect to when commercial air traffic levels will recover, and whether and at what point capacity will return to and/or exceed pre-COVID-19 levels.

The COVID-19 pandemic also has increased uncertainty with respect to global trade volumes, which could put negative pressure on cargo traffic levels.

Any of these factors would have a significant impact on the demand within the commercial aerospace industry.

In addition, a lengthy period of reduced industry-wide demand for commercial aircraft could put additional pressure on our suppliers, resulting in increased procurement costs and/or additional supply chain disruption.

To the extent that the COVID-19 pandemic or its aftermath further impacts demand for our products and services or impairs the viability of some of our customers and/or suppliers, our financial condition, results of operations, and cash flows could be adversely affected, and those impacts could be material.

The military aerospace cycle is highly dependent on U.S.

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Demand for our new and spare components in this industry is, in turn, driven by the global demand for energy, which is affected by, among other factors, the state of the world economies, the political environments of numerous countries and environmental constraints.

The availability of alternative energy and oil and gas, and related prices, also have a large impact on demand.

The availability of alternative energy to oil and gas, and related prices, also have a large impact on demand.

Reductions in demand for products in this market could have a material adverse effect on our business.

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Any reduction in future U.S.

defense spending levels could adversely impact our sales, operating profit and our cash flow.

defense spending levels could adversely impact our sales, operating profit and cash flow.

Furthermore, business conducted pursuant to U.S.

government contracts is subject to extensive procurement regulations and other unique risks.

New procurement regulations, or changes to existing requirements, could increase compliance costs or otherwise have a material impact on the operating margins of the portion of our business derived from contracts with the U.S.

government contracting party may modify, curtail, or terminate its contracts and subcontracts with the company without prior notice either at its convenience or for default based on performance, and funding pursuant to our U.S.

government contracts may be reduced or withheld as a part of the appropriations process due to fiscal constraints or due to changes in foreign or domestic policy strategy.

Failure to retain existing contracts or win new contracts under competitive bidding processes may adversely affect our sales.

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A substantial portion of SIFCO's business is conducted with a relatively small number of large direct and indirect customers.

In fiscal 2020, three customers accounted for approximately 47% percent of our consolidated net sales and 49% of the Company’s consolidated net sales were from four customers and their direct subcontractors.

In fiscal 2021, two customers accounted for approximately 20% percent of our consolidated net sales and 38% of the Company’s consolidated net sales were from three customers and their direct subcontractors.

A financial hardship experienced by any one of these key customers, the loss of any of them or a reduction in or substantial delay of orders from any of them could have a material adverse effect on our business.

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The costs related to cyber or other security threats or disruptions may not be fully mitigated by insurance or other means.

Further, these risks may be increased to the extent employees work from home as part of our response to the COVID-19 pandemic.

The occurrence of any of these events could adversely affect our internal operations, the services we provide to customers, our competitive advantages, our future financial results, our reputation, our stock price, and lead to early obsolescence of our products and services.

The occurrence of any of these events could also result in civil and/or criminal liabilities.

SIFCO relies on our suppliers to meet the quality or delivery expectations of our customers.

As a result of the COVID-19 pandemic, certain of our employees may work from home as needed due to exposure or symptoms, which may increase our vulnerability to cyber and other information technology risks.

In addition to existing risks, any adoption or deployment of new technologies via acquisitions or internal initiatives may increase our exposure to risks, breaches, or failures, which could materially adversely affect our results of operations or financial condition.

Furthermore, the Company may have access to sensitive, confidential, or personal data or information that may be subject to privacy and security laws, regulations, or other contractually-imposed controls.

Despite our use of reasonable and appropriate controls, material security breaches, theft, misplaced, lost or corrupted data, programming, or employee errors and/or malfeasance could lead to the compromise or improper use of such sensitive, confidential, or personal data or information, resulting in possible negative consequences, such as fines, ransom demands, penalties, loss of reputation, competitiveness or customers, or other negative consequences resulting in adverse impacts to our results of operations or financial condition.

SIFCO relies on our suppliers to meet the quality and delivery expectations of our customers.

The ability to deliver SIFCO's products on schedule is dependent upon a variety of factors, including execution of internal performance plans, availability of raw materials, internal and supplier produced parts and structures, conversion of raw materials into parts and assemblies, and performance of suppliers and others.

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We do not currently have the ability to manufacture these components ourselves.

Consequently, we risk disruptions in our supply of key products and components if our suppliers fail or are unable to perform because of shortages in raw materials, operational problems, strikes, natural disasters,

health crises (such as the COVID-19 pandemic) or other factors.

We have and may continue to experience delays in the delivery of such products as a result of increased demands and pressures on the supply chain, customs, labor issues, geo-political pressures, disruptions associated with the COVID-19 pandemic, changes in political, economic, and social conditions, weather, laws and regulations.

Unfavorable fluctuations in price, international trade policies, quality, delivery, and availability of these products could continue to adversely affect the Company's ability to meet demands of customers and cause negative impacts to the Company's cost structure, profitability and its cash flow.

It is unclear how our supply chain could be further impacted by COVID-19, including the spread of new variants, and there are many unknowns including how long we will be impacted, the severity of the impacts and the probability of a recurrence of COVID-19 or similar regional or global pandemics.

If we were unsuccessful in obtaining those products from other sources or at comparable cost, a disruption in our supply chain could adversely affect our sales, earnings, financial condition, and liquidity.

We may have disputes with our vendors arising from, among other things, the quality of products and services or customer concerns about the vendor.

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As a result, current and potential shareholders could lose confidence in the Company's financial reporting, which would harm the business and the trading price of its common stock.

As further described in Item 9A in our Annual Report on Form 10-K, for the fiscal year ended September 30, 2020, management identified a material weakness in the Company’s internal control over financial reporting and determined that SIFCO’s internal control over financial reporting and its disclosure controls and procedures were not effective.

Management identified a material weaknesses related to insufficient review of specific controls associated with revenue, inventory and income taxes at its Maniago location.

Until remediated, these material weaknesses could result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected on a timely basis.

As with any internal control deficiency, there can be no assurance that our remedial measures will be successful or otherwise sufficient to address the material weakness.

If the Company is unable to remediate the material weaknesses, or is otherwise unable to maintain effective internal control over financial reporting or disclosure controls and procedures, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, the Company’s ability to record, process and report financial information accurately, and to prepare financial statements within required time periods, could be adversely affected, which could subject the Company to litigation or investigations requiring management resources and payment of legal and other expenses, including civil penalties, negatively affect investor confidence in our financial statements and adversely impact our stock price.

Labor disruptions by our employees could adversely affect our business.

The Sarbanes-Oxley Act, among other things, requires that we maintain effective internal controls for financial reporting and disclosure controls and procedures.

In particular, we must perform system and process evaluations and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act.

Compliance with Section 404 may require that we incur substantial accounting expenses and expend significant management efforts.

Our testing has, as described below, and in the future may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses.

In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner, the market price of our stock could decline if investors and others lose confidence in the reliability of our financial statements and we could be subject to sanctions or investigations by the SEC or other applicable regulatory authorities.

As further described in Item 9A in our Annual Report on Form 10-K, for the fiscal year ended September 30, 2021, management determined that SIFCO’s internal control over financial reporting and its disclosure controls and procedures were effective.

If the Company is unable to maintain effective internal control over financial reporting or disclosure controls and procedures, or if any material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, the Company’s ability to record, process and report financial information accurately, and to prepare financial statements within required time periods, could be adversely affected, which could subject the Company to litigation or investigations requiring management resources and payment of legal and other expenses, including civil penalties, negatively affect investor confidence in our financial statements and adversely impact our stock price.

Labor disruptions by our employees or personnel turnover and/or shortage could adversely affect our business.

As of September 30, 2021, we employed approximately 378 people.

Two of our locations are parties to collective bargaining agreements.

We face competition for management and employees from other companies and organizations.

In 2020 and 2021, we furloughed or terminated portions of our workforce as a result of the negative impact the COVID-19 pandemic had on the demand for our products and services.

Although we took measures to maintain good relationships with our workforce, there can be no assurance that the act of furloughing or terminating our employees did not damage employee relations or our ability to attract and retain talent at all levels.

As the demand for employees returns to pre-COVID-19 levels, if we continue to experience increased turnover and/or are unable to quickly hire employees and subsequently retain our workforce, or we experience a significant or prolonged work stoppage in such an environment, we may experience increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees, and our ability to secure new work and our results of operations and financial condition could be adversely affected.

Additionally, two of our locations are parties to collective bargaining agreements.

Although we have not experienced any material labor-related work stoppage and consider our relations with our employees to be good, labor stoppages may occur in the future.

In particular, employees of one of the Company's Cleveland bargaining units have been working under the terms and conditions of a collective bargaining agreement that expired on May 15, 2020.

Work stoppages by the affected workers could occur if the Company is unable to negotiate an acceptable contract with the union.

If the unionized workers were to engage in a strike or other work stoppage, or if SIFCO is unable to negotiate acceptable collective bargaining agreements with the unions, or if other employees were to become unionized, we could experience a significant disruption of our operations, higher ongoing labor costs and possible loss of customer contracts, which could have an adverse effect on our business and results of operations.

Additionally, on September 9, 2021, President Biden issued an executive order requiring all employers with U.S.

government contracts for provisions of services to the U.S.

government require their U.S.-based employees, contractors, and certain subcontractors (who work on or in support of U.S.

government contracts for provisions of services to the U.S.

government) be fully vaccinated, except for any employees with a medical or religious exemption.

In addition, the Department of Labor's Occupational Safety and Health Administration issued an “Emergency Temporary Standard” requiring employers with 100 or more employees to develop, implement and enforce a mandatory COVID-19 vaccination policy, unless they adopt a policy requiring employees to choose to either be vaccinated or undergo regular COVID-19 testing and wear a face covering at work.

These mandates are effective as of January 4, 2022.

While these mandates are currently facing various legal challenges (including an injunction), any ultimate implementation of these or similar requirements may result in employee attrition, which could be material as it may be difficult or very costly in the current competitive labor market to find and recruit replacement employees for employees lost as a result of these requirements, and this could have a material adverse effect on our business, results of operations and financial condition.

It is currently not possible to predict with certainty the impact these mandates will have on our workforce.

Additional vaccine mandates may also be implemented in other jurisdictions in which we operate.

Risks Related to Financial Matters

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Disruption and volatility in global financial markets may lead to increased rates of default and bankruptcy and may negatively impact consumer and business spending levels.

In 2020, the widespread public health crisis caused by the COVID-19 outbreak has adversely impacted the economies and financial markets worldwide, resulting in an economic downturn that has adversely impacted many businesses, including ours.

Since 2020, the widespread public health crisis caused by the COVID-19 outbreak has adversely impacted the economies and financial markets as well as various industries worldwide, resulting in a downturn that has adversely impacted many businesses, including ours.

The pandemic and other events could adversely affect our business, operating results or financial condition.

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These changes could increase our cost of business, limiting our ability to pursue acquisition opportunities, react to market conditions and meet operational and capital needs, thereby placing us at a competitive disadvantage.

Further, the Company's credit agreement matures within the next 12 months.

While it is the intent of the Company's management to refinance its credit facilities with the existing lender, no assurances can be made that such refinancing will be completed or completed on similar terms to the existing credit facilities.

If we do not meet the standards for forgiveness of our PPP Loan, we may be required to repay the loan over a period of two years.

On April 10, 2020, we entered into a promissory note evidencing an unsecured $5.0 million loan under the Paycheck Protection Program (the “PPP Loan”).

On April 10, 2020, we entered into a promissory note evidencing an unsecured $5.0 million loan under the Paycheck Protection Program (the “PPP Loan”), of which $0.3 million was repaid in fiscal 2020.

The Paycheck Protection Program (or “PPP”) was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S.

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The term of the PPP Loan is two years and the interest rate on the PPP Loan is 0.98%.

Although the Company intends to apply for forgiveness of all or a portion of its PPP Loan (with such forgiveness 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), we make no representations that we will qualify for forgiveness of all or part of the PPP Loan.

While we expect to meet the standards for full forgiveness of the PPP Loan, there can be no assurance that we will meet such standards.

Further, as a consequence of post-PPP Loan rule making by the Small Business Administration, shifting regulatory guidance and/or other factors, we may be required to repay the PPP Loan before its expected maturity date.

Although the Company applied for forgiveness of its PPP Loan, we make

no representations that the loan will be forgiven.

While we expect to meet the standards for full forgiveness for the PPP Loan, there can be no assurance that we will meet such standards.

The funding and costs associated with our pension plans and significant changes in key estimates and assumptions, such as discount rates and assumed long-term returns on assets, actual investment returns on our pension plan assets, and legislative and regulatory actions could affect our earnings, equity and contributions to our pension plans in future periods.

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Uncertain factors relating to the COVID-19 pandemic continue to include the duration of the outbreak, the severity of the disease, and the actions taken, or perception of actions that may be taken, to contain or treat its impact, including declarations and/or re-instituting states of emergency, business closures, manufacturing restrictions and a prolonged period of travel, commercial and/or other similar restrictions and limitations.

We have continued to see a prolonged impact on the economy, our industry, and our business, with increased challenges for customers, labor shortages, supply chain disruptions, and increasing inflation, among others.

The pandemic is affecting and is expected to continue to affect certain elements of our operations and business.

We have experienced operational interruptions as a result of COVID-19, including the temporary suspension of operations at our facilities in Maniago, Italy and border closures that have resulted in delayed shipments, as well as temporary interruptions of the Company's other facilities in order to undertake deep cleaning and other preventative measures.

Further or more prolonged operational disruptions in the U.S.

or other locations in which we or our customers operate could have a material impact on our consolidated results of operations.

As a result of the COVID-19 pandemic and its impacts, we are facing increased operational challenges from the need to protect employee health and safety as well as operating in an industry significantly impacted by the effects of the pandemic.

As a result, we have experienced, and may in the future experience, production site shutdowns, and workplace disruptions and restrictions on the movement of people, raw materials and goods, both at our own facilities and at the facilities operated by our customers and

Specifically, we have experienced operational interruptions as a result of COVID-19, including the temporary suspension of operations at our facilities in Maniago, Italy and border closures that have resulted in delayed shipments, as well as temporary interruptions of the Company's other facilities in order to undertake deep cleaning and other preventative measures.

Further or more prolonged suspension of operations or delayed recovery in our operations, and/or any similar suspension of operations or delayed recovery at one or more of our key suppliers, or the failure of any of our key suppliers, would result in further challenges to our business, leading to a further material adverse effect on our business, financial condition, results of operations, and cash flows.

We have experienced and expect to continue to experience unpredictable changes in demand from the markets we serve.

The A&E industries have been negatively impacted by the COVID-19 pandemic as a result of various restrictions on air travel and concern regarding air travel during a pandemic.

These factors have caused reductions in demand for commercial aircraft, which will adversely impact our net sales and operating results and may continue to do so for an extended period of time.

These factors have caused reductions in demand for commercial aircraft, which have adversely impacted our net sales and operating results and may continue to do so for an extended period of time.

Further, an overall reduction in business activity as a result of the disruption has led to a continued softening of the energy market.

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While the potential economic impact brought by and the duration of the coronavirus outbreak may be difficult to assess or predict, the continuation of a widespread pandemic could result in significant or sustained disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.

While the Company believes it has adequate cash/liquidity available to finance its operations, our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, depends on our future performance, which is subject to general economic, financial, competitive and other factors (including

the continued impact of COVID-19) beyond our control.

In addition, while we believe we have taken appropriate steps to maintain a safe workplace to protect our employees from contracting and spreading the coronavirus, we may not be able to prevent the spread of the virus among our employees, face litigation or other proceedings making claims related to unsafe working conditions, inadequate protection of our employees or other claims.

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We have operations located in regions of the world that may be exposed to damaging storms, earthquakes and other natural disasters as well as other events outside of our control, such as fires, floods and other catastrophic events.

Although we maintain standard property casualty insurance covering our properties and may be able to recover costs associated with certain natural disasters through insurance.

Even if covered by insurance, any significant damage or destruction of our facilities due to such events could result in its inability to meet customer delivery schedules and may result in the loss of customers and

significant additional costs to SIFCO.

We maintain standard property casualty insurance coverage for our properties and may be able to recover costs associated with certain natural disasters through insurance;

however, even if covered by insurance, any significant damage or destruction of our facilities due to such events could result in our inability to meet customer delivery schedules and may result in the loss of customers and significant additional costs to SIFCO.

Thus, any significant damage or destruction of our properties could have a material adverse effect on our business, financial condition or results of operations.

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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 1A. Risk Factors