What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-12-23 compared with 2021-12-10 · 53 added, 43 removed, 103 unchanged (48% of the section changed)

3 unchanged sentences

SIFCO is engaged in the production of forgings, sub-assemblies, and machined components primarily for the Aerospace and Energy ("A&E") markets.

The processes and services include forging, heat-treating and machining.

The processes and services include forging, heat-treating, chemical processing and machining.

The Company's operations are conducted in a single business segment.

Information relating to the Company's financial results is set forth in the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

COVID-19 Pandemic

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

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

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

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

Impact of COVID-19 & Other Factors

The lingering impact and residual effects of the coronavirus ("COVID-19") pandemic, along with other factors, such as ongoing geopolitical tensions, have created strains on supply chains, and general economic conditions.

While the exact timing and pace of recovery in our markets continues to be indeterminable, there are indications that commercial air travel is steadily recovering in certain areas.

The long-term outlook remains positive given the nature of the industry, there continues to be uncertainty with respect to when commercial air traffic will return to pre-COVID-19 levels.

Given the fluidity of the situation, it is still unclear how lasting and deep the ongoing economic impacts of COVID-19 will last.

During fiscal 2022, the effects of COVID-19 continued to have an impact on the Company’s results of operations.

The Company has been impacted by delays in receiving orders and obtaining materials required to produce certain products.

As sales volumes have fluctuated, the Company has taken measures to reduce costs by furloughing certain of its employees from time to time at one of its plant locations.

Additionally, our operations are subject to global economic and geopolitical risks.

For example, while the Company does not have a presence in these regions, the ongoing conflict between Russia and Ukraine has impacted economic activity as well as the availability and price of raw materials and energy.

The Company continues to actively monitor these factors and find ways to mitigate the impact on its operations.

Principal Products and Services

4 unchanged sentences

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

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

In fiscal 2022, commercial and military revenues accounted for 47.

4% and 52.6% of revenues, respectively, compared with 36.7% in commercial revenues and 63.3% in military revenues in fiscal 2021.

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

3 unchanged sentences

and Maniago, Italy ("Maniago").

SIFCO's operations are AS 9100D and/or ISO 9001:2015 certified and the Company also holds multiple NADCAP certifications and site approvals from key OEM customers.

SIFCO's operations are AS 9100D and/or ISO 9001:2015 certified and the Company also holds multiple National Aerospace and Defense Contractors Accreditation Program (“NADCAP”) certifications and site approvals from key OEM customers.

During fiscal year 2022, the Company was subject to a NADCAP audit in Orange pursuant to which maintenance issues were identified that required remediation in order to meet the requisite qualifications for NADCAP Certification.

The Company temporarily lost NADCAP Certification at its Orange location in the third quarter of fiscal 2022 and was required to outsource the process that required such certification to a third party.

The Company has since regained such NADCAP Certification in Orange in the first quarter of fiscal 2023 and has been able to fully resume operations.

The Company's success is not dependent on patents, trademarks, licenses or franchises.

Raw Materials

SIFCO generally has multiple sources for its raw materials, which consist primarily of high-quality metals essential to its business.

While the effects from the COVID-19 pandemic disrupted the global supply chain and availability of raw materials, SIFCO generally has multiple sources for its raw materials, which consist primarily of high-quality metals essential to its business.

Suppliers of such materials are located principally in North America and Europe.

1 unchanged sentence

Due to the limited supply of certain raw materials, some material is provided by a small number of suppliers;

however, SIFCO believes that its sources are adequate for its business.

SIFCO’s products are made primarily of steel, stainless steel, nickel alloy, titanium and aluminum.

however, SIFCO believes that its sources are adequate for its busines s.

The Company has experienced delays in the supply chain, which could effect our ability to timely obtain materials and components from our suppliers in the quantities we require or on favorable ter ms.

As a result of supply chain disruptions and inflationary pressures, the Company has experienced increases in pricing for raw materials which could effect our customer demand and cost.

However, SIFCO believes that its ability to pass through raw material costs on certain contractual agreements and discrete orders limits this exposure.

For those contractual agreements, in which pass through pricing is not permissible, a material adverse effect upon the profitability of one or more of the affected contracts, future period financial reporting and performance may result.

SIFCO’s products are made primarily of steel, high temperature alloys, nickel alloy, titanium and aluminum.

SIFCO's product offerings include:

8 unchanged sentences

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

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

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

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

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

The impact of COVID-19 continues to be assessed by the Company as it has significantly impacted the commercial aerospace industry through the ongoing disruption of global travel, which remains uncertain.

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

While demand for travel declined at a rapid pace beginning in the second half of our fiscal 2020 and has remained depressed compared to pre-pandemic levels, commercial air travel has progressively shown signs of recovery in recent months with increasing air traffic, primarily in certain domestic markets.

The recovery in international commercial air travel has been slower with international travel moderately recovered from COVID-19 pandemic lows.

The exact pace and timing of the commercial air travel recovery remains uncertain and is expected to continue to be uneven depending on factors such as trends in the number of COVID-19 infections (e.g., impact of new variants of COVID-19 resurfacing), the continued efficacy and public acceptance of vaccines and easing of quarantines and travel restrictions, among other factors.

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

military for aircraft, helicopters, vehicles, and munitions.

The Company's top programs include Blackhawk (H60), V-22, C-130 and F-35.

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

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

Coming out of the pandemic, the defense aerospace market has been impacted by COVID overproduction and build rates.

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

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

Certain programs in which the Company participates have seen favorable trends, which are expected to continue.

• SIFCO supplies new and spare components for commercial aircraft, principally for large aircraft produced by Boeing and Airbus.

2 unchanged sentences

Increases in domestic leisure travel has led to some recovery and domestic business travel is expected to pick-up later into 2023, while international travel continues to lag as individual countries and regions have experienced varied recovery from, and resurgences in, the spread of COVID-19.

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

Therefore, build rates, particularly the Boeing 777-9 (formerly 777X), 787, 737 Max and the Airbus A350, declined and partially rebounded in 2022, but not as quickly as previously anticipated.

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

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

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

4 unchanged sentences

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

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

SIFCO competes with numerous companies, both in and tangential to the A&E industry, of which fifteen are known by SIFCO.

SIFCO competes with both U.S.

16 unchanged sentences

government and its agencies.

Under the terms of these agreements, it is possible for demand and build rate to fluctuate or for the U.S.

Under the terms of these agreements, it is possible for demand and build rates to fluctuate or for the U.S.

government to terminate existing contracts.

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

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

During fiscal 2022, SIFCO had one direct customer that accounted for 11% of consolidated net sales;

and 23% of the Company's consolidated net sales were from two customers and their direct subcontractors, which individually accounted for 12% and 11% of net sales, respectively.

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

5 unchanged sentences

Backlog of Orders

SIFCO’s total backlog as of September 30, 2021 decreased to $77.2 million, compared with $91.1 million as of September 30, 2020.

Orders for delivery scheduled in the upcoming fiscal year 2022 decreased to $59.3 million compared with $63.6 million scheduled in fiscal 2021.

SIFCO’s total backlog as of September 30, 202 2 increased to $81.9 million, co mpared with $77.2 million as of September 30, 2021.

Orders for delivery scheduled in the upcoming fiscal year 2023 increased to $65.5 m illion compared with $59.3 million scheduled in fiscal 2022.

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

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

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

Backlog information may not be indicative of future sales.

The increase in total backlog as of September 30, 2022 compared with the previous year is primarily due to tim ing of annual awards and SIFCO's customers adjusting orders due to recovery within the commercial airline industry.

The continuing uncertainty regarding the COVID-19 pandemic and its impact on the commercial airline industry is expected and may continue to impact sales order backlog growth in that market into fiscal 2024.

Backlog information may not be indic ative of future sales.

Regulatory Matters

4 unchanged sentences

Human Capital Management

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

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

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

SIFCO employed approximat ely 378 ful l-time employees at the beginning of fiscal 2022, which decreased to approximately 348 employees at the end of fiscal 2022.

In response to the impact of COVID-19 on the commercial aerospace industry (including declines in revenues of our customers), during fiscal 2022, the Company experienced one shutdown at its Orange

facility, which primarily manufactures commercial aerospace product.

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

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

4 unchanged sentences

The Company is a party to collective bargaining agreements ("CBA") with certain employees within the Cleveland location.

The Cleveland location has two bargaining units;

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

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

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

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

The Company ratified its CBA with one such bargaining unit in December 2019 and ratified its CBA with the second bargaining unit in December 2021.

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

1 unchanged sentence

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

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

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

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

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

During fiscal 2022, we experienced increased turnover, along with a shortage of applicants to fill staffing requirements at our U.S.

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

This has adversely affected our operating efficiency.

While this has adversely affected our operating efficiency, quality and delivery continue to meet or exceed customer standards as reflected in our customer scorecards.

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

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

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

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

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

We continue to implement, maintain, and, to the extent needed, update or modify, procedures and protocols developed in response to the COVID-19 pandemic to minimize the risk to the health and safety of our employees continuing to operate our facilities and provide products to our customers on a timely basis.

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

The Company's products are distributed in the U.S.

10 unchanged sentences

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

What changed 10-K

Item 1. Business