What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-12-10 compared with 2020-12-23 · 97 added, 110 removed, 242 unchanged (46% of the section changed)

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and (iv) other commercial applications.

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

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

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

Restoration of the building structure is nearly complete.

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

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

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

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

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

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

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

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

Any additional recoveries in

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Fire Restoration

The insurance claim related to the fire on December 26, 2018 at the Orange location was finalized with the Company's insurance carrier.

In the third quarter of fiscal 2021, the Company completed the restoration of the final two of the six presses damaged in the fire, and all six presses are currently in operation.

Restoration of the building structure was completed as of September 30, 2021.

Having finalized the claim with its insurance carrier, cash proceeds of $4.5 million were received in fiscal 2021.

A total of $3.0 million was recognized within the consolidated statements of operations.

The Company has business interruption insurance coverage, of which $0.5 million of the amount received was reflected within the cost of goods sold line within the consolidated

statement of operations.

See Note 11, Commitments and Contingencies, of the consolidated financial statements to see how the insurance claim impacted the consolidated statements of operations and balance sheets.

As previously noted, the COVID-19 pandemic continues to impact the United States and other countries in which the Company operates.

During fiscal 2021, the COVID-19 pandemic continued to impact the Company’s results of operations.

Given the long lead times for certain of the Company's products, the Company has seen a greater impact related to the effects of COVID-19 on orders and deliveries in fiscal 2021 than in fiscal 2020.

In response to the uncertain environment created by the COVID-19 pandemic, the Company has, in prior periods, taken measures to reduce costs by furloughing and laying off certain of its employees from one of its plant locations that has experienced reduced sales of commercial aerospace products.

Such employees have since returned to work.

The Company continues to actively monitor and find ways to mitigate the impact of the pandemic on its operations and consider its ability to pivot its operations and the industries served.

Fiscal Year 2021 Compared with Fiscal Year 2020

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Total $ 99.6 $ 113.6 $ (14.0)

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

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

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

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

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

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

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

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

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

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

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

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

Net sales in fiscal 2021 decreased 12.3%, or $14.0 million to $99.6 million, compared with $113.6 million in fiscal 2020.

Given the long lead times for certain of the Company's products, the Company has seen a greater impact related to the effects of COVID-19 on orders and deliveries in fiscal 2021 than in fiscal 2020.

Fixed wing aircraft sales decreased $13.5 million compared with the same period last year due to timing of customer orders and a decrease in build rates in certain commercial programs as the rebound in air travel did not occur as quickly as anticipated, partially offset by increased sales for military programs.

Rotorcraft sales decreased $4.3 million in fiscal 2021 compared to the same period in fiscal 2020 primarily due to revenue recognized over time for certain military applications.

The energy components for power generation units increased $3.7 million compared with the same period last year due to customer order increases as the market saw some recovery.

Commercial net sales were 36.7% of total net sales and military net sales were 63.3% of total net sales in fiscal 2021, compared with 42.6% and 57.4%, respectively, in the comparable period in fiscal 2020.

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

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

Commercial net sales (which includes energy components) decreased $11.7 million to $36.6 million in fiscal 2021, compared to $48.3 million in fiscal 2020 primarily due to the decrease in build rates in the commercial aerospace industry, partially offset by an increase in energy component sales for power generation due to increased customer orders.

Military net sales decreased $2.2 million to $63.0 million in fiscal 2021, compared to $65.2 million in fiscal 2020 primarily due to timing of orders related to certain military programs.

Cost of Goods Sold

Cost of goods sold decreased by $5.2 million, or 5.6%, to $88.4 million, or 88.7% of net sales, during fiscal 2021, compared with $93.6 million or 82.4% of net sales in the comparable period of fiscal 2020.

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

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

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

The decrease was primarily due to lower volume from the commercial aerospace programs, cost controlling measures and the non-recurrence of the one-time pension withdrawal charge of $0.8 million incurred in the prior year.

Prior year results included higher insurance recoveries by $2.5 million related to business interruption and mitigation expense as part of the fire settlement.

Gross profit decreased by $8.8 million, or 43.9%, to $11.2 million during fiscal 2021, compared with $20.0 million in fiscal 2020.

Gross margin percent of sales was 11.3% during fiscal 2021, compared with 17.6% in fiscal 2020, primarily due to lower volume, higher idle expense costs of $1.9 million and lower insurance recoveries of $0.5 million in fiscal 2021 compared with $2.0 million in the prior year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $13.5 million, or 13.5% of net sales, during fiscal 2021, compared with $14.0 million, or 12.4% of net sales, in fiscal 2020.

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

The decrease in selling, general and administrative expenses is due to the continued cost reduction efforts by management in response to COVID-19, such as lower wages related to a furlough at one location and fewer travel expenses, partially offset by higher legal and professional costs and commissions.

Amortization of Intangibles

Amortization of intangibles decreased $0.5 million to $1.0 million during fiscal 2021, compared with $1.5 million in the comparable period of fiscal 2020.

Such decrease was primarily due to certain intangible assets that were fully amortized during fiscal 2020.

Other/General

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

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

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

The Company recorded operating loss of $1.1 million during fiscal 2021, compared with an operating income of $10.1 million in fiscal 2020.

Current period results include a gain on insurance recoveries of $2.4 million in fiscal 2021 compared to $5.9 million in fiscal 2020 as it relates to fire claim at the Orange location.

Interest expense decreased $0.3 million to $0.6 million in fiscal 2021, compared with $0.9 million in the same period in fiscal 2020.

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Other debt 0.9% 0.5% $ 5.7 million $ 6.1 million

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

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

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

The Company believes that inflation did not materially affect its results of operations in either fiscal 2021 or 2020 and does not expect inflation to be a significant factor in fiscal 2022, due to the average duration of our projects.

However, no assurances can be made that the Company will not experience inflationary pressures in the future.

The Company’s effective tax rate in fiscal 2021 was 62.2% compared with (2.3%) in fiscal 2020.

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

The increase in the effective tax rate in fiscal 2021 is primarily attributable to tax benefits from adjusting deferred taxes recorded in Italy applied against a year-to-date loss in fiscal 2021 and changes in jurisdictional mix of income in fiscal 2021 compared with the same period in fiscal 2020.

The effective tax rate differs from the U.S.

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Net Income (Loss)

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

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

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

Net loss was $0.7 million during fiscal 2021, compared with net income of $9.2 million in fiscal 2020.

The decrease in income in the current period was primarily due to lower volume, lower insurance recoveries and higher idle expense, partially offset by continued costs savings activities and the favorable tax benefit recorded in fiscal 2021.

Non-GAAP Financial Measures

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EBITDA 6,335 17,246

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

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

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

Foreign currency exchange loss, net (1) 23 51

Other income, net (2) (72) (13)

Loss on disposal of assets (3) 209 174

Gain on insurance recoveries (4) (2,397) (5,874)

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LIFO impact (7) 924 (10)

Goodwill impairment charge (8) — 8,294

Adjusted EBITDA $ 5,765 $ 12,211

(1) Represents the gain or loss from changes in the exchange rates between the functional currency and the foreign currency in which the transaction is denominated.

(2) Represents miscellaneous non-operating income or expense, such as pension costs and grant income.

(2) Represents miscellaneous non-operating income or expense, such as pension costs, grant income or extinguishment of debt.

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

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

(6) Represents expense incurred by a defined benefit pension plan related to settlement of pension obligations.

(6) Represents expense incurred by its defined benefit pension plans related to settlement of pension obligations.

(7) Represents the change in the reserve for inventories for which cost is determined using the last in, first out ("LIFO") method.

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

Reference to the above activities can found in the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

Reference to the above activities can be found in the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

Liquidity and Capital Resources

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

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

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

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

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

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

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

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

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

Historically, the main sources of liquidity of the Company have been cash flows from operations and borrowings under our Credit Agreement (as defined below under "Financing Activities").

The ongoing impact and magnitude of the COVID-19 pandemic remain uncertain (including the pandemic's continued effects on the global economy and potential for market disruptions) with the commercial aerospace industry.

Along with the global disruption in travel and, further, the pandemic and responses to the various resurgences and continued spread of the pandemic continue to cause interruptions to the business of our customers and suppliers, which in turn is likely to impact our business operations and results as well as our liquidity and capital resources.

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

As the impact of the COVID-19 pandemic on the economy and the Company's operations continues to evolve, the Company management will continue to assess and actively manage liquidity.

See "Results of Operation - COVID-19" for further discussion on the impact of the pandemic.

Cash and cash equivalents decreased to $0.3 million at September 30, 2021 compared with $0.4 million at September 30, 2020.

At September 30, 2021 and 2020, a nominal amount and $0.4 million, respectively, of the Company’s cash and cash equivalents were in the possession of its non-U.S.

subsidiaries.

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The Company’s operating activities provided $3.9 million of cash in fiscal 2021, compared with $0.4 million in fiscal 2020.

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

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

The cash provided by operating activities in fiscal 2021 was primarily due to non-cash items, such as depreciation and amortization of $7.7 million, LIFO effect of $0.9 million, equity based compensation, and source of working capital of $1.1 million, partially offset by a net gain on insurance recovery combined with loss on disposal of assets of $2.2 million and deferred income taxes of $1.3 million and net loss of $0.7 million.

The source of cash from working capital of $1.1 million was primarily due to reductions in receivables due to lower sales and improved collections as well as decreases in inventories, partially offset by payments to suppliers and disbursements related to the fire recovery.

The Company’s operating activities provided $0.4 million of cash in fiscal 2020.

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

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

The cash provided by operating activities in fiscal 2020 was primarily due to non-cash items, such as depreciation and amortization of $7.4 million, equity based compensation, deferred income taxes and LIFO effect, partially offset by a net gain on insurance recovery combined with loss on disposal of asset of $5.7 million and use of working capital of $10.5 million and net income of $9.1 million.

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

Investing Activities

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

Cash used for investing activities was $0.9 million in fiscal 2021, compared with cash used for investing activities of $1.2 million in fiscal 2020.

Fiscal 2021 includes $4.1 million in proceeds received from insurance recovery on the damaged property related to the fire at the Orange location, compared with $7.8 million in proceeds received in the previous year.

Capital expenditures were $5.0 million, mainly funded by insurance proceeds from the fire in fiscal 2021 and $9.0 million in fiscal 2020.

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

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

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

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

These costs are expected to be funded by insurance proceeds.

Expenditures in fiscal 2021 and in 2020 were used primarily for the restoration of the Orange location as a result of the fire, which was completed as of September 30, 2021.

Capital commitments at September 30, 2021 were $0.8 million.

The Company anticipates the total fiscal 2022 capital expenditures will be within the range of $2.5 million to $4.0 million and will relate principally to the further enhancement of production and product offering capabilities and operating cost reductions.

Financing Activities

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

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

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

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

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

Cash used by financing activities was $3.1 million in fiscal 2021 compared to cash provided by financing activities of $0.8 million in fiscal 2020.

As discussed in Note 5, Debt, the Company amended the Credit Agreement and the Export Agreement on February 19, 2021.

The combined maximum borrowings remain unchanged at $35.0 million.

The Fifth Amendment (the "Fifth Amendment") to the Credit Agreement (as amended, the "Credit Agreement") consists of a senior secured revolving credit facility with a maximum borrowing of $28.0 million, previously $30.0 million.

The revolving commitment through the First Amendment (the "First Amendment") of the Export Credit Agreement, which lends amounts to the Company on foreign receivables increased its revolving commitment from $5.0 million to $7.0 million.

The Fifth Amendment, among other things, extends the maturity date from August 6, 2021 to February 19, 2024.

As discussed in Note 5, Debt, the Company's Maniago, Italy location obtained borrowings from two separate lenders during fiscal 2021.

The first loan was for $0.7 million with repayment terms of 78 months, of which $0.3 million was forgiven in the same period and included as a gain in debt extinguishment in the operating activities within the consolidated statements of cash flows.

A second loan with a five year term was obtained in the amount of $0.3 million.

The proceeds of these loans were used for working capital purposes.

The Company repaid $0.4 million of its Company's foreign term loans in 2021.

In the prior year, the Company received cash proceeds of $6.6 million, which $5.0 million relates to the PPP loan and $1.5 million from a new loan related to the Maniago location.

A small portion of the PPP loan was repaid.

A total of $1.3 million in cash was used to repay the Company's foreign term loans.

The Company had net repayments under its revolving credit facility of $3.9 million in fiscal 2021 and $2.7 million in fiscal 2020.

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

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

1.2% at September 30, 2020.

The revolver has a rate based on LIBOR plus a 1.75% spread, which was 1.8% at September 30, 2021 and the Export Credit Agreement, as discussed in Note 5, Debt, of the consolidated financial statements, has a rate based on LIBOR plus a 1.25% spread, which was 1.3% at September 30, 2021.

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

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or excessive aging of the underlying receivables as a result of the impact of the COVID-19 pandemic could materially affect the collateral capacity limitation of the availability under the Credit Agreement and could impact our ability to comply with covenants in our Credit Agreement.

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

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

The availability at September 30, 2021 was $14.6 million.

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

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

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

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

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

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

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

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

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

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

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

The Company was able to defer payments for certain debt obligations at its Maniago location along with obtaining new financing in the current year to provide Maniago with sufficient liquidity.

Additionally, the credit and capital markets saw significant volatility during the course of the pandemic.

the continued impact of COVID-19.

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

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

Specific obsolescence may arise due to a

technological or market change or based on cancellation of an order.

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

Management’s judgment is necessary in determining the realizable value of these products to arrive at the proper allowance for obsolete and excess inventory.

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

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

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

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

• Certain military contracts, which relate to the provisions of specialized or unique goods to the U.S.

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

2019 Interim and Annual Goodwill Impairment Tests

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

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

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

2020 Annual Goodwill Impairment Tests

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

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

No impairment charge was identified in connection with the annual goodwill impairment test with respect to the Cleveland reporting unit.

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

Defined Benefit Pension Plan Expense

31 unchanged sentences

As a result of losses incurred in recent years, the Company entered into a three-year cumulative loss position in the U.S.

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

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

jurisdiction during the fourth quarter of fiscal 2016 and remains in a cumulative loss position at the conclusion of fiscal 2021.

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

deferred tax assets as of the fourth quarter of fiscal year 2021.

14 unchanged sentences

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

However, in November 2019, the FASB issued ASU 2019-10, "Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)," which defers the effective date for public filers that are considered smaller reporting companies ("SRC"), as defined by the Securities and Exchange Commission, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

smaller reporting company ("SRC"), as defined by the Securities and Exchange Commission, to fiscal years after December 15, 2022, including interim periods within those fiscal years.

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

3 unchanged sentences

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

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

The effect of adopting this ASU is not expected to have a material impact to the Company's results within the consolidated statements of operations and financial condition.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which is intended to provide temporary optional expedients and exceptions to the U.S.

GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates.

This ASU, along with recently issued ASU 2021-01, which further clarifies the scope of Topic 848, is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2022.

ASU 2020-04 was effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022.

The Company has not applied any optional expedients and exceptions to date, and will continue to evaluate the impact of the guidance and whether it will apply the optional expedients and exceptions.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis