What changed in this filing

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Item 1. Financial Statements

2022-02-04 compared with 2021-08-06 · 83 added, 264 removed, 295 unchanged (54% of the section changed)

5 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2021 2020 2021 2020

Net sales $ 19,247 $ 25,078

3 unchanged sentences

Amortization of intangible assets 125 269

Loss on disposal of operating assets — 55 — 98

Gain on insurance recoveries — ( 2,495 )

Operating income 130 2,505 1,351 4,718

Operating (loss) income ( 3,652 ) 2,322

Interest expense 115 165

1 unchanged sentence

Other loss (income), net ( 32 ) 62

Income before income tax expense (benefit) 218 2,283 980 4,067

Income tax expense (benefit) ( 36 ) 33 ( 776 ) ( 101 )

Net income $ 254 $ 2,250 $ 1,756 $ 4,168

Net income per share

(Loss) income before income tax benefit ( 3,740 ) 2,088

Income tax benefit ( 49 ) ( 905 )

Net (loss) income $ ( 3,691 ) $ 2,993

Net (loss) income per share

Basic $ ( 0.64 ) $ 0.53

5 unchanged sentences

and Subsidiaries

Consolidated Condensed Statements of Comprehensive Income (Loss)

Consolidated Condensed Statements of Comprehensive (Loss) Income

(Amounts in thousands)

Three Months Ended

June 30, Nine Months Ended

2021 2020 2021 2020

Net income $ 254 $ 2,250 $ 1,756 $ 4,168

Other comprehensive income:

Foreign currency translation adjustment, net of tax $ 0 and $ 0 for the three months ended and net of tax $ 0 and $ 0 for the nine months ended, respectively

79 113 62 175

Retirement plan liability adjustment, net of tax $ 0 and $ 0 for the three months end and net of tax $ 0 and $ 0 for the nine month ended, respectively

211 188 634 626

Comprehensive income $ 544 $ 2,551 $ 2,452 $ 4,969

Net (loss) income $ ( 3,691 ) $ 2,993

Other comprehensive (loss) income:

Foreign currency translation adjustment, net of tax $ 0 and $ 0 for the three months ended, respectively

Retirement plan liability adjustment, net of tax $ 0 and $ 0 for the three months ended, respectively

Other ( 6 ) —

Comprehensive (loss) income $ ( 3,695 ) $ 3,491

See notes to unaudited consolidated condensed financial statements.

8 unchanged sentences

14,933 19,914

Other receivables — 1,547

Contract assets 13,307 12,874

25 unchanged sentences

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

issued and outstanding shares 5,989 at June 30, 2021 and 5,916 at September 30, 2020

issued and outstanding shares 6,003 at December 31, 2021 and 5,987 at September 30, 2021

Additional paid-in capital 11,156 11,118

8 unchanged sentences

(Unaudited, Amounts in thousands)

Nine Months Ended

Three Months Ended

Cash flows from operating activities:

Net income $ 1,756 $ 4,168

Adjustments to reconcile net income to net cash provided by operating activities:

Net (loss) income $ ( 3,691 ) $ 2,993

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization 1,614 1,825

Amortization of debt issuance costs 10 26

Loss on disposal of operating assets — 98

Gain on insurance proceeds received ( 2,495 ) ( 2,683 )

Gain on insurance proceeds received for damaged property — ( 2,495 )

LIFO effect 176 128

Share transactions under company stock plan 54 127

Gain on extinguishment of debt ( 287 ) —

Other long-term liabilities ( 55 ) 13

4 unchanged sentences

Inventories ( 2,692 ) ( 877 )

Refundable income taxes — 10

Prepaid expenses and other current assets 521 144

5 unchanged sentences

Cash flows from investing activities:

Insurance proceeds received 4,101 6,183

Insurance proceeds received for damaged property — 3,452

Capital expenditures ( 466 ) ( 3,710 )

5 unchanged sentences

Repayments of revolving credit agreement ( 19,041 ) ( 27,694 )

Payment of debt issuance costs ( 45 ) —

Short-term debt borrowings — 2,431

1 unchanged sentence

Net cash used for financing activities ( 358 ) ( 2,137 )

Decrease in cash and cash equivalents ( 198 ) ( 63 )

Increase in cash and cash equivalents 415 728

Cash and cash equivalents at the beginning of the period 346 427

9 unchanged sentences

(Unaudited, Amounts in thousands )

Nine Months Ended

June 30, 2021

Three Months Ended

December 31, 2021

Common Additional

5 unchanged sentences

Balance - September 30, 2021 5,987 $ 5,987 $ 11,118 $ 41,596 $ ( 9,079 ) $ 49,622

Comprehensive income — — — 1,756 696 2,452

Comprehensive loss — — — ( 3,691 ) ( 4 ) ( 3,695 )

Performance and restricted share expense — — 161 — — 161

Share transactions under equity based plans 16 16 ( 123 ) — — ( 107 )

Balance - June 30, 2021 5,989 $ 5,989 $ 11,025 $ 44,095 $ ( 12,772 ) $ 48,337

Balance - December 31, 2021 6,003 $ 6,003 $ 11,156 $ 37,905 $ ( 9,083 ) $ 45,981

Three Months Ended

June 30, 2021

Common Additional

Capital Retained

Earnings Accumulated

Comprehensive

Shareholders’

Shares Amount

Balance - March 31, 2021 5,989 $ 5,989 $ 10,940 $ 43,841 $ ( 13,062 ) $ 47,708

Comprehensive loss — — — 254 290 544

Performance and restricted share expense — — 85 — — 85

Balance - June 30, 2021 5,989 $ 5,989 $ 11,025 $ 44,095 $ ( 12,772 ) $ 48,337

Nine Months Ended

June 30, 2020

December 31, 2020

Common Additional

6 unchanged sentences

Comprehensive income — — — 2,993 498 3,491

Other — 46 — — 46

Performance and restricted share expense — — 143 — — 143

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

Balance - June 30, 2020 5,916 $ 5,916 $ 10,599 $ 37,316 $ ( 12,508 ) $ 41,323

Three Months Ended

June 30, 2020

Common Additional

Capital Retained

Earnings Accumulated

Comprehensive

Shareholders’

Shares Amount

Balance - March 31, 2020 5,916 $ 5,916 $ 10,516 $ 35,066 $ ( 12,809 ) $ 38,689

Comprehensive loss — — — 2,250 301 2,551

Performance and restricted share expense — — 46 — — 46

Share transactions under equity based plans — — 37 — — 37

Balance - June 30, 2020 5,916 $ 5,916 $ 10,599 $ 37,316 $ ( 12,508 ) $ 41,323

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

See notes to unaudited consolidated condensed financial statements.

8 unchanged sentences

All significant intercompany accounts and transactions have been eliminated in consolidation.

dollar is the functional currency for all of the Company’s U.S.

operations and its non-operating subsidiaries.

dollar is the functional currency for all of the Company’s operations in the United States ("U.S.") and its non-operating subsidiaries.

For these operations, all gains and losses from completed currency transactions are included in income.

5 unchanged sentences

These unaudited consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s fiscal 2021 Annual Report on Form 10-K.

The year-end consolidated balance sheet data was derived from the audited financial statements and disclosures required by accounting principles generally accepted in the United States ("U.S.").

The year-end consolidated balance sheet data was derived from the audited financial statements and disclosures required by accounting principles generally accepted in the U.S.

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.

1 unchanged sentence

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 2021 Annual Report on Form 10-K.

Net Income per Share

The Company’s net income per basic share has been computed based on the weighted-average number of common shares outstanding.

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

Net (Loss)/Income per Share

The Company’s net loss and net income per basic share has been computed based on the weighted-average number of common shares outstanding.

Due to the net loss in the current period, zero restricted and performance shares are included in the calculation of diluted earnings per share because the effect would be anti-dilutive.

In the prior period, net income per diluted share reflects the effect of the Company's outstanding restricted shares and performance shares under the treasury method.

The dilutive effect is as follows:

Three Months Ended

June 30, Nine Months Ended

2021 2020 2021 2020

Net Income $ 254 $ 2,250 $ 1,756 $ 4,168

Weighted-average common shares outstanding (basic and diluted) 5,779 5,676 5,753 5,656

Net (loss) income $ ( 3,691 ) $ 2,993

Weighted-average common shares outstanding (basic) 5,800 5,691

Effect of dilutive securities:

1 unchanged sentence

Performance shares — 38

Weighted-average common shares outstanding (basic and diluted) 6,006 5,807 5,960 5,768

Net income per share – basic:

Weighted-average common shares outstanding (diluted) 5,800 5,890

Net (loss) income per share – basic:

$ ( 0.64 ) $ 0.53

Net income per share – diluted:

Net (loss) income per share – diluted:

$ ( 0.64 ) $ 0.51

Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share 297 219

Impact of Recently Issued Accounting Standards

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

Measurement of Credit Losses on Financial Instruments " and subsequent updates.

ASU 2016-13 changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

The new guidance will replace the current incurred loss approach with an expected loss model.

The new expected credit loss impairment model will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt instruments, net investments in leases, loan commitments and standby letters of credit.

Upon initial recognition of the exposure, the expected credit loss model requires entities to estimate the credit losses expected over the life of an exposure (or pool of exposures).

The estimate of expected credit losses should consider historical information, current information and reasonable and supportable forecasts, including estimates of prepayments.

Financial instruments with similar risk characteristics should be grouped together when estimating expected credit losses.

ASU 2016-13 does not prescribe a specific method to make the estimate, so its application will require significant judgment.

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

Because SIFCO is considered a SRC, the Company does not need to implement ASU 2016-13 until October 1, 2023.

The Company will continue to evaluate the effect of adopting ASU 2016-13 will have on the Company's results within the consolidated condensed statements of operations and financial condition.

In December 2019, the FASB issued ASU 2019-12, " Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes" , which 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 beginning October 1, 2021.

The Company continues to evaluate the effect that adopting this ASU will have on the Company's results within the consolidated condensed 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.

In August 2018, the FASB issued ASU 2018-14, " Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20), " which adds the following disclosure requirements:

(1) the weighted-average interest crediting rates used in the Company's cash balance pension plans and other similar plans;

(2) a narrative description of the reasons for significant gains and losses affecting the benefit obligation for the period;

and (3) an explanation of any other significant changes in the benefit obligation or plan assets that are not otherwise apparent in the other disclosures required by Accounting Standards Codification ("ASC") Topic 715, " Compensation - Retirement Benefits.

" The ASU also clarifies the guidance included in ASC 715-20-50-3 on defined benefit plans disclosure requirements.

This ASU will be effective October 1, 2021 and the Company is currently assessing the impact that this standard will have on our consolidated condensed financial statements.

Recently Adopted Accounting Standards

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, " Income Taxes (ASC 740) – Simplifying the Accounting for Income Taxes ," which is intended to reduce complexity in the accounting for income taxes while maintaining or improving the usefulness of information provided to financial statement users.

The guidance amends certain existing provisions under ASC 740 to address a number of distinct items.

The Company adopted ASU 2019-12 effective October 1, 2021.

Adoption of the amendments in this ASU did not have an impact to the Company's results of operations and financial condition.

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 37 % and 47 % of the Company’s inventories at June 30, 2021 and September 30, 2020, respectively, use the LIFO method.

Approximately 44 % and 39 % of the Company’s inventories at December 31, 2021 and September 30, 2021, 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 $ 8,868 and $ 8,286 higher than reported at June 30, 2021 and September 30, 2020, respectively.

If the FIFO method had been used for the inventories for which cost is determined using the LIFO method, inventories would have been $ 9,386 and $ 9,210 higher than reported at December 31, 2021 and September 30, 2021, respectively.

Accumulated Other Comprehensive Loss

3 unchanged sentences

Retirement plan liability adjustment, net of tax ( 3,601 ) ( 3,720 )

Other ( 6 ) —

Total accumulated other comprehensive loss $ ( 9,083 ) $ ( 9,079 )

1 unchanged sentence

Three Months Ended

June 30, Nine Months Ended

2021 2020 2021 2020

Finance lease expense:

2 unchanged sentences

Operating lease expense 429 549

431 664 1,523 1,743

Variable lease cost 30 35

34 39 104 118

Total lease expense $ 472 $ 601

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

Classification in the consolidated condensed balance sheets June 30,

Classification in the consolidated condensed balance sheets December 31,

2021 September 30,

10 unchanged sentences

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

2021 June 30,

2021 December 31,

Other Information

3 unchanged sentences

Financing cash flows from finance leases 13 14

Right-of-use assets obtained in exchange for new lease liabilities:

Operating leases 43 278

2021 September 30,

5 unchanged sentences

Operating leases 5.9 % 5.9 %

Future minimum lease under non-cancellable leases at June 30, 2021 were as follows:

Future minimum lease under non-cancellable leases at December 31, 2021 were as follows:

Finance Leases Operating Leases

Year ending September 30,

2021 (excluding the nine months ended June 30, 2021) $ 15 $ 425

2022 21 1,697

2022 (excluding the three months ended December 31, 2021) $ 8 $ 1,263

Thereafter — 15,911

12 unchanged sentences

Credit Agreement and Security Agreement

The Company's asset-based Credit Agreement (as amended, the "Credit Agreement"), Security Agreement (“Security Agreement”) and Export Credit Agreement (as amended, 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 Credit Agreement (as amended by Fifth Amendment (the "Fifth Amendment") described below), consists of a senior secured revolving credit facility with a maximum borrowing of $ 28,000 .

The revolving commitment through the Export Credit Agreement, as amended, which lends amounts to the Company on foreign receivables is $ 7,000 .

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 (as defined below) or upon additional lenders joining the Credit Agreement.

The Credit Agreement and the Export Agreement were amended on February 19, 2021, when the Company and certain of its subsidiaries (collectively, the "borrowers") entered into the Fifth Amendment to the Credit Agreement and the First Amendment (the "First Amendment") to the Export Credit Agreement, in each case, with JPMorgan Chase Bank, N.A., a national banking association, (the "Lender").

The combined maximum borrowings remain unchanged at $ 35,000 ;

however the maximum borrowing under the Credit Agreement was decreased to $ 28,000 (from $ 30,000 ) and the revolving commitment through the Export Agreement was increased to $ 7,000 (from $ 5,000 ).

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

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

Prior to the Fifth Amendment, the Credit Agreement required the Company to maintain a fixed charge coverage ratio ("FCCR") of 1.1 :1.0 any time the availability is equal to or less than 12.5 % of the revolving commitment.

However, the Fifth Amendment provides that the Company will not permit the fixed charge coverage ratio to be less than 1.1 to 1.0 as of the last day of any calendar month;

provided that the fixed charge coverage ratio will not be tested unless (i) a default has occurred and is continuing, (ii) when the combined availability was less than or equal to the greater of (x) 10 % of the lesser of the combined commitments or (y) 10 % of the combined borrowing base, and $ 2,000 , for three or more business days in any consecutive 30 day period.

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.

The total collateral at June 30, 2021 and September 30, 2020 was $ 28,628 and $ 26,964 , respectively and the revolving commitment was $ 35,000 for both periods.

Total availability at June 30, 2021 and September 30, 2020 was $ 17,543 and $ 13,284 , respectively, which exceed both the collateral and total commitment threshold.

Since the availability was greater than the 10.0 % of the revolving commitment as of June 30, 2021 and 12.5 % of the revolving commitment at 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 Fifth Amendment.

The revolver has a rate based on LIBOR plus 1.75 % spread, which was 1.84 % at June 30, 2021 and a rate based on LIBOR plus 1.5 % spread, which was 1.7 % at September 30, 2020.

The Export Credit Agreement has a rate based on LIBOR plus 1.25 % spread, which was 1.3 % at June 30, 2021 and a rate based on LIBOR plus 1.0 % spread, which was 1.2 % at September 30, 2020, respectively.

The Credit Agreement (as amended, the "Credit Agreement") contains affirmative and negative covenants and events of default.

The total collateral at December 31, 2021 and September 30, 2021 was $ 23,328 and $ 25,370 , respectively and the revolving commitment was $ 35,000 for both periods.

Total availability at December 31, 2021 and September 30, 2021 was $ 12,157 and $ 14,570 , respectively, which exceed both the collateral and total commitment threshold.

Since the availability was greater than the 10.0 % of the revolving commitment as of December 31, 2021 and September 30, 2021, no covenant calculations were required.

The revolver has a rate based on LIBOR plus 2.25 % spread, which was 2.3 % at December 31, 2021 and a rate based on LIBOR plus 1.75 % spread, which was 1.8 % at September 30, 2021.

The Export Credit Agreement as amended has a rate based on LIBOR plus 1.25 % spread, which was 1.3 % at December 31, 2021 and a rate based on LIBOR plus 1.25 % spread, which was 1.3 % at September 30, 2021, respectively.

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

10 unchanged sentences

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

The Maniago, Italy ("Maniago") location obtained borrowings from two separate lenders in the third quarter of fiscal 2021.

The first loan was for $ 717 with repayment terms of 6.5 years, of which $ 287 was forgiven in the same period and was recorded in other income within the consolidated condensed statements of operations and treated as a gain in debt extinguishment.

A second loan with a five year term was obtained in the amount of $ 303 .

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

The Maniago, Italy ("Maniago") location obtained borrowings from one lender in the first quarter of fiscal 2022.

The loan was for $ 1,141 with repayment terms of six years .

Under the terms of the borrowing, repayments are made quarterly in the amount of $ 56 , beginning December 31, 2022.

The Company factors receivables from one of its customers.

1 unchanged sentence

Debt issuance costs

The Company incurred debt issuance costs as it pertains to the Fifth Amendment in the amount of $ 45 and combined the amount with the remaining unamortized debt issuance costs prior to the amendment for a total of $ 86 , which is included in the consolidated condensed balance sheets as a deferred charge in other current assets, net of amortization of $ 10 and $ 205 at June 30, 2021 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 , 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 payments.

As of June 30, 2021 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.

As of June 30, 2021, the Company has submitted the application for forgiveness to the Small Business Administration.

However, no assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.

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 actions temporarily extends through December 31, 2025 certain expiring tax credit and other 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 income tax provision, deferred tax assets and liabilities, or related taxes payable through the third quarter of fiscal 2021.

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.

The Company had debt issuance costs of $ 86 , which is included in the consolidated condensed balance sheets as a deferred charge in other current assets, net of amortization of $ 24 and $ 17 at December 31, 2021 and September 30, 2021, respectively.

As of December 31, 2021 and September 30, 2021, the Paycheck Protection Program loan (the "PPP Loan") balance was $ 4,764 .

The Company has submitted the application for forgiveness of the full amount of the PPP Loan to the Small Business Administration ("SBA").

The Company was notified in January 2022 of the approval for the forgiveness of the PPP Loan (including the amounts previously paid and all accrued interest).

See Note 10, Subsequent Events , for further discussion related to the status of loan forgiveness.

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 2021 was ( 79 )%, compared with ( 2 )% for the same period of fiscal 2020.

The decrease in the effective rate was primarily attributable to tax benefits from adjusting deferred taxes recorded in Italy recognized on a discrete basis, partially offset by changes in jurisdictional mix of income in fiscal 2021 compared to the same period of fiscal 2020.

The Company’s effective tax rate through the first three months of fiscal 2022 was 1.3 %, compared with ( 43 )% for the same period of fiscal 2021.

The increase in the effective rate was primarily attributable to tax benefits from adjusting deferred taxes recorded in Italy recognized on a discrete basis in fiscal 2021, which were non-recurring in fiscal 2022.

The effective tax rate differs from the U.S.

2 unchanged sentences

statutory tax rate.

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 third 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.

4 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2021 2020 2021 2020

Service cost $ 11 $ 26

3 unchanged sentences

Net periodic cost $ ( 32 ) $ 57

During the nine months ended June 30, 2021 and 2020, the Company made $ 67 and $ 604 in contributions, respectively, to its defined benefit pension plans.

The Company anticipates making no 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.

During the three months ended December 31, 2021 and 2020, the Company made $ 0 in contributions to its defined benefit pension plans.

The Company anticipates making $ 36 in cash contributions to fund its defined benefit pension plans for the balance of fiscal 2022 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 2022.

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.

1 unchanged sentence

Stock-Based Compensation

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.

The shares awarded under the 2016 Plan may be made in multiple forms, including stock options, stock appreciation rights, restricted or unrestricted stock, and performance related shares.

Any such award is exercisable no later than ten years from the date of the grant.

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 % 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 amount 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.

The Company is currently recognizing compensation expense for two tranches of awards at 50 % of target where it has concluded it is probable that the performance criteria for those awards will be met, while the Company is currently not recognizing compensation expense for one tranche of awards where it has concluded that it is not probable that the performance criteria for those awards will be met.

During each future reporting period, such expense may be subject to adjustment based upon the Company's financial performance, which impacts the number of common shares that it expects to vest upon the completion of the performance period.

The performance shares were valued at the closing market price of the Company’s common shares on the date of the grant.

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

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

The restricted shares were valued at the closing market price of the Company’s common shares on the date of the grant, and such value was recorded as unearned compensation.

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

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

The Company awards 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").

Through the end of the first quarter of 2022, the Company granted 74 shares under the 2016 Plan to certain key employees.

The awards were split into two tranches, 44 performance shares and 30 shares of time-based restricted shares, with a grant date fair value of $ 8.00 per share.

The awards vest over three years .

In fiscal 2021, the Company granted its non-employee directors 30 restricted shares under the 2016 Plan, with a grant date fair value of $ 9.08 , which vests over one year .

One award for 57 restricted shares vested.

If all outstanding share awards are ultimately earned and vest at the target number of shares, there are approximately 442 shares that remain available for award at June 30, 2021.

If all outstanding share awards are ultimately earned and vest at the target number of shares, there are approximately 456 shares that remain available for award at December 31, 2021.

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 $ 378 and $ 262 during the first nine months of fiscal 2021 and 2020, respectively and $ 85 and $ 37 during the three months of fiscal 2021 and 2020, respectively.

As of June 30, 2021, there was $ 505 of total unrecognized compensation cost related to the performance shares and restricted shares awarded under the 2016 Plan.

Stock-based compensation under the 2016 Plan was $ 161 and $ 143 during the first three months of fiscal 2022 and 2021, respectively.

As of December 31, 2021, there was $ 779 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

June 30, Nine Months Ended

2021 2020 2021 2020

Commercial revenue $ 8,360 $ 10,753

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Three Months Ended

June 30, Nine Months Ended

Net Sales 2021 2020

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Three Months Ended

June 30, Nine Months Ended

Net Sales 2021 2020

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Total $ 19,247 $ 25,078

In addition to the disaggregated revenue information provided above, approximately 65 % and 60 % of total net sales as of June 30, 2021 and 2020, 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.

In addition to the disaggregated revenue information provided above, approximately 57 % and 58 % of total net sales as of December 31, 2021 and 2020, 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

The following table contains a roll forward of contract assets and contract liabilities for the period ended June 30, 2021:

The following table contains a roll forward of contract assets and contract liabilities for the period ended December 31, 2021:

Contract assets - Beginning balance, October 1, 2021 $ 12,874

1 unchanged sentence

Less amounts billed to the customers ( 10,812 )

Contract assets - Ending balance, June 30, 2021 $ 14,666

Contract assets - Ending balance, December 31, 2021 $ 13,307

Contract liabilities (included within Accrued liabilities) - Beginning balance, October 1, 2021 $ ( 236 )

1 unchanged sentence

Performance obligations satisfied 172

Contract liabilities (included within Accrued liabilities) - Ending balance, June 30, 2021 $ ( 501 )

There were no impairment losses recorded on contract assets as of June 30, 2021 and September 30, 2020.

Contract liabilities (included within Accrued liabilities) - Ending balance, December 31, 2021 $ ( 1,216 )

There were no impairment losses recorded on contract assets as of December 31, 2021 and September 30, 2021.

Remaining performance obligations

As of June 30, 2021, the Company has $ 78,083 of remaining performance obligations, the majority of which are anticipated to be completed within the next twelve months.

Commitments and Contingencies

In the normal course of business, the Company may be involved in ordinary, routine legal actions.

The Company cannot reasonably estimate future costs, if any, related to these matters;

however, it does not believe any such matters are material to its financial condition or results of operations.

The Company maintains various liability insurance coverages to protect its assets from losses arising out of or involving activities associated with ongoing and normal business operations;

however, it is possible that the Company’s future operating results could be affected by future costs of litigation.

A subsidiary of the Company, Quality Aluminum Forge, LLC ("Orange"), is currently a defendant in a lawsuit filed by Avco Corporation (“Avco”) in the Pennsylvania State Court, which was filed in August 2019, alleging that certain forged pistons delivered by the Orange plant failed to meet material specifications required by Avco.

Avco also sued Arconic, Inc.

(“Arconic”), which was the raw material supplier.

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

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.

Although the Company records reserves for legal disputes and other matters in accordance with GAAP, the ultimate outcomes of these types of matters are inherently uncertain.

Actual results may differ significantly from current estimates.

Given the current status of this matter, the Company has not accrued for any expected losses, 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;

failure to maintain required wage records and furnish accurate wage statements;

and unfair competition.

A settlement has been reached and the Company received preliminary court approval on July 13, 2020.

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 was granted and the previously recorded liability of $ 315 was paid on March 29, 2021.

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.

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.

In the third quarter of fiscal 2021, the Company completed the restoration of the final two of the six presses damaged in the fire.

Restoration of the building structure is nearly complete.

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

The Company received the remaining balance from the landlord, resulting in cash proceeds of $ 4,646 in fiscal 2021.

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):

September 30, 2020 $ 1,547

Cash proceeds ( 4,646 )

Capital expenditures (equipment) 2,495

Other expenses 58

Business interruption 546

June 30, 2021 $ —

The tables below reflect how the proceeds received impacted the consolidated condensed statements of operations for the nine months ended June 30, 2021 and 2020, respectively.

Nine Months Ended

June 30, 2021

Balance without insurance proceeds Insurance recoveries Balance with insurance proceeds

Cost of goods sold $ 65,921 ( 604 ) $ 65,317

Gain on insurance proceeds received $ — ( 2,495 ) $ ( 2,495 )

Income (loss) before income tax (benefit) expense $ ( 2,119 ) ( 3,099 ) $ 980

Nine Months Ended

June 30, 2020

Balance without insurance proceeds Insurance recoveries Balance with insurance proceeds

Cost of goods sold $ 73,374 ( 2,603 ) $ 70,771

Gain on insurance proceeds received $ — ( 2,683 ) $ ( 2,683 )

Income (loss) before income tax (benefit) expense $ ( 1,219 ) ( 5,286 ) $ 4,067

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 the landlord of the property for the restoration of the building as prescribed by the lease arrangement .

As of December 31, 2021, the Company has $ 75,730 of remaining performance obligations, the majority of which are anticipated to be completed within the next twelve months.

Subsequent Events

As referenced in Note 5, Debt, the PPP Loan application for forgiveness was in review with the SBA as of December 31, 2021.

In January 2022, the Company was notified by the SBA that the full PPP Loan originating amount of $ 5,025 was forgiven.

All accrued interest was forgiven and the amount previously repaid by the Company of $ 261 was reimbursed to the Company by its lender.

The Company elected to treat the PPP Loan as debt under FASB Topic 470.

As such, the Company will derecognize the liability in the second quarter of fiscal 2022 when the loan was forgiven and the Company is legally released from the loan.

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