What changed in this filing

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Item 1A. Risk Factors

2022-12-23 compared with 2021-12-10 · 50 added, 51 removed, 246 unchanged (29% of the section changed)

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

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

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

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

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

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

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

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

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

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at other times, defense spending can decrease.

Future levels of defense spending are uncertain and subject to congressional debate.

Future levels of defense

spending are uncertain and subject to congressional debate.

Any reduction in future U.S.

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The Company may not receive the full amounts estimated under the contracts in our total backlog, which could reduce our sales in future periods below the levels anticipated, and which makes backlog an uncertain indicator of future operating results.

As of September 30, 2021, our total backlog was $77.2 million.

As of September 30, 2022, our total backlog w as $81.9 millio n.

Orders may be canceled and scope adjustments may occur, and we may not realize the full amounts of sales that we anticipate in our backlog numbers.

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

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

In fiscal 2022, one direct customer accounted for approximately 11% percent of our consolidated net sales and two direct

customers and their direct subcontractors accounted for approximately 23% of the Company’s consolidated net sales.

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

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

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

In connection with the COVID-19 pandemic, we provided for remote work for certain of our employees, which may increase our vulnerability to cyber and other information technology risks.

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

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

Consequently, we risk disruptions in our supply of key products and components if our suppliers fail or are unable to perform because of shortages in raw materials, operational problems, strikes, natural disasters, health crises (such as the COVID-19 pandemic) or other factors.

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

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

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

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

It is unclear how our supply chain could

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

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

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The Company's business is subject to risks associated with international operations.

SIFCO has operations in Maniago, Italy.

SIFCO has operations in Maniago, Italy and operates internationally.

A number of risks inherent in international operations could have a material adverse effect on our results of operations, including:

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general economic and political uncertainties and potential for social unrest in countries in which we or our customers operate;

other deterioration of economic conditions, including the effect of inflation on our customers and suppliers;

limitations on our ability to enforce legal rights and remedies;

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Because of the significance of the judgment and estimation processes described above, it is possible that materially different amounts could be obtained if different assumptions were used or if the underlying circumstances were to change.

Changes in underlying assumptions, circumstances or estimates may have a material adverse effect upon the profitability of one or more of the affected contracts, future period financial reporting and performance.

Our technologies could become obsolete, reducing our revenues and profitability.

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

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

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

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

In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely

manner, the market price of our stock could decline if investors and others lose confidence in the reliability of our financial statements and we could be subject to sanctions or investigations by the SEC or other applicable regulatory authorities.

As further described in Item 9A in our Annual Report on Form 10-K, for the fiscal year ended September 30, 2022, management determined that SIFCO’s internal control over financial reporting and its disclosure controls and procedures were not effective.

Management identified a material weakness related to lack of precise review controls associated with the valuation of inventory at the Orange location and long-lived asset impairment triggering event indicators in the fourth quarter at the Orange location.

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

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

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

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

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

As of September 30, 2022, we employed approximately 348 pe ople.

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

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

At various points since the start of the COVID-19 pandemic, we furloughed or terminated portions of our workforce as a result of the negative impact the pandemic and its effects had on the demand for our products and services.

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

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

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

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

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

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

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

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

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

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

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

These mandates are effective as of January 4, 2022.

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

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

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

The price and availability of oil and other energy sources worldwide could adversely impact our results of operations.

Unexpected pricing of fuel or a shortage of, or disruption in, the supply of fuel or other energy sources could have a material adverse effect on our and our customers' business, results of operations and financial condition.

Our results of operations can be directly affected, positively and negatively, by volatility in the cost and availability of energy, which is subject to global supply and demand and other factors beyond our control.

The ongoing conflict between Russia and Ukraine has impacted global energy markets, particularly in Europe, leading to high volatility and increasing prices for crude oil, natural gas and other energy supplies.

Our customers' businesses are significantly impacted by the availability and pricing of fuel.

Weather-related events, natural disasters, terrorism, wars, political disruption or instability involving oil-producing countries, changes in governmental or cartel policy concerning crude oil or aircraft fuel production, labor strikes, cyberattacks or other events affecting refinery production, transportation, taxes, marketing, environmental concerns, market manipulation, price speculation and other unpredictable events may drive actual or perceived fuel supply shortages.

In particular, the recent conflict between Russia and Ukraine has caused shortages in the availability of fuel.

In the event that the supply of natural gas from Russia stops or is significantly reduced, there may be supply disruptions, increased prices, shutdowns of manufacturing facilities, or further rationing of energy supply within countries where we and/or our customers do business, which could have a material adverse impact on our and our customers' business or results of operations in those countries.

Risks Related to Financial Matters

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

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

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

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

downturn that has adversely impacted many businesses, including ours.

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

Current or potential customers may delay or decrease spending on our products and services as their business and/or budgets are impacted by economic conditions.

The inability of current and potential customers to pay SIFCO for its products and services may adversely affect its earnings and cash flows.

Further, we are exposed to fluctuations in inflation, which could negatively affect our business, financial condition and results of operation.

The United States and other jurisdictions have recently experienced high levels of inflation.

If the inflation rate continues to increase, it will likely affect our expenses, including, but not limited to, employee compensation and labor expenses and increased costs for supplies, and we may not be successful in offsetting such cost increases.

We cannot predict changes in worldwide or regional economic conditions and government policies, as such conditions are highly volatile and beyond our control.

If these conditions deteriorate for extended periods, however, our business, results of operations and financial condition could be materially adversely affected.

Our indebtedness and restrictive covenants under our credit facilities could limit our operational and financial flexibility.

We have incurred significant indebtedness, and may incur additional debt in the future.

We have incurred indebtedness, and may incur additional debt in the future.

Our ability to make interest and scheduled principal payments and operate within restrictive covenants could be adversely impacted by changes in the availability, terms and cost of capital, changes in interest rates or changes in our credit ratings or our outlook.

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

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

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

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

Small Business Administration.

The PPP Loan was made by the Company’s current lenders.

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

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

no representations that the loan will be forgiven.

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

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

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Market volatility and adverse capital or credit market conditions may affect our ability to access cost-effective sources of funding and may expose SIFCO to risks associated with the financial viability of suppliers.

The financial markets can experience high levels of volatility and disruption, reducing the availability of credit for certain issuers and the financial markets have undergone significant volatility in reaction to the COVID-19 pandemic.

The 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.

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Goodwill and other intangible assets are a component of our assets.

At September 30, 2021, goodwill was $3.5 million and other intangible assets were $0.9 million of our total assets of $110.7 million.

At Septem ber 30, 2022, goodwill was $3.5 million and other intangible assets were $0.5 million of our total assets of $97.3 million.

We may have to write off all or part of our goodwill or other intangible assets if their value becomes impaired.

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

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

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

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

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

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

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

As a result, we have been operating in industries which have been significantly impacted by the COVID-19 pandemic.

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

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

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

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

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

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

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

If the pandemic continues and conditions worsen, we may experience additional adverse impacts on our operations, costs, customer orders, and collections of accounts receivable, which may be material.

If the pandemic continues and/or conditions worsen, we may experience additional adverse impacts on our operations, costs, customer orders, and collections of accounts receivable, which may be material.

While we are unable to predict the magnitude of the impact of these factors at this time, the loss of, or significant reduction in, purchases by our large customers could have a material adverse effect on our business, financial condition, and results of operations.

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Furthermore, we may face a sustained disruption to our operations due to one or more of the factors described above.

The impact of the COVID-19 pandemic may also exacerbate other risks and uncertainties the Company faces or may face.

The impact of the COVID-19 pandemic and its effects may also exacerbate other risks and uncertainties the Company faces or may face.

The impact depends on the severity and duration of the current COVID-19 pandemic and actions taken by governmental authorities and other third parties in response, each of which is uncertain, rapidly changing and difficult to predict.

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

What changed 10-K

Item 1A. Risk Factors