What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-12-23 compared with 2021-12-10 · 239 added, 201 removed, 956 unchanged (32% of the section changed)

Financial Statements and Supplementary Data

Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB ID :

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Balance Sheets

Consolidated Statements of Cash Flows

Consolidated Statements of Shareholders' Equity

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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We have audited the accompanying consolidated balance sheets of SIFCO Industries, Inc.

(an Ohio corporation) and subsidiaries (the “Company”) as of September 30, 2021 and 2020, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the for each of the two years ended, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”).

(an Ohio corporation) and subsidiaries (the “Company”) as of September 30, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the two years in the period ended September 30, 2022 and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

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Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical audit matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involve our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit

matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Recoverability of long-lived assets at Orange, California

As described further in Note 1 to the financial statements, the Company reviews the carrying value of its long-lived assets when events and circumstances indicate a triggering event has occurred.

This review is performed using estimates of future undiscounted cash flows.

If the carrying value of a long-lived asset or asset group is greater than the estimated undiscounted future cash flows, the long-lived asset or asset group is considered impaired and an impairment charge is recorded for the amount by which the carrying value exceeds its fair value.

We identified the recoverability of long-lived assets at Orange, California as a critical audit matter.

The principal considerations for our determination that the recoverability of long-lived assets at Orange, California is a critical audit matter are the high degree of auditor judgement necessary in evaluating certain inputs and assumptions made by management in the undiscounted cash flow analysis.

Those assumptions include forecasted revenue and EBITDA and estimated sale price of the asset group at the end of the useful life, which contribute significantly to the undiscounted cash flows of the asset group.

Our audit procedures related to the analysis included the following, among others.

• We obtained an understanding of and evaluated the design of controls relating to management’s recoverability of long-lived assets analysis, including controls over the determination of the undiscounted cash flows of the asset group and review controls over the reasonableness of key inputs and assumptions.

• We assessed the reasonableness of the methodologies and significant inputs used to estimate the future cash flows of the asset group, including the revenue and EBITDA growth rates.

• We assessed the reasonableness of the estimated sale value of the asset group at the end of the useful life.

/s/ GRANT THORNTON LLP

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Cost of goods sold 85,757 88,386

Gross profit 11,205 19,962

Gross (loss) profit ( 1,855 ) 11,205

Selling, general and administrative expenses 11,909 13,484

Amortization of intangible assets 313 1,011

Loss on disposal or impairment of operating assets 209 174

(Gain) loss on disposal or impairment of operating assets ( 7 ) 209

Gain on insurance recoveries — ( 2,397 )

Operating income (loss) ( 1,102 ) 10,143

Operating (loss) ( 14,070 ) ( 1,102 )

Interest expense, net 645 638

Gain on debt extinguishment ( 5,106 ) ( 287 )

Foreign currency exchange loss, net 15 23

Other expense, net 59 489

Income (loss) before income tax benefit ( 1,965 ) 8,980

(Loss) before income tax benefit ( 9,683 ) ( 1,965 )

Income tax benefit ( 43 ) ( 1,222 )

Net income (loss) $ ( 743 ) $ 9,191

Net income (loss) per share:

Net (loss) $ ( 9,640 ) $ ( 743 )

Net (loss) per share:

Basic $ ( 1.65 ) $ ( 0.13 )

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and Subsidiaries

Consolidated Statements of Comprehensive Income

Consolidated Statements of Comprehensive Income (Loss)

(Amounts in thousands)

Years Ended September 30,

Net income (loss) $ ( 743 ) $ 9,191

Other comprehensive income (loss), net of tax:

Net (loss) $ ( 9,640 ) $ ( 743 )

Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustment, net of tax $ 0 and $ 0 , respectively

Retirement plan liability adjustment, net of tax $ 0 and $ 0 , respectively

( 837 ) ( 102 )

Comprehensive income $ 3,646 $ 9,032

Retirement plan liability adjustment, net of tax $ 0 and $ 0 , respectively

Interest rate swap agreement adjustment, net of tax $ 0 and $ 0 , respectively

Comprehensive (loss) income $ ( 9,254 ) $ 3,646

See notes to consolidated financial statements.

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16,515 19,914

Other receivables — 1,547

Contract asset 10,172 12,874

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Cash flows from operating activities:

Net income (loss) $ ( 743 ) $ 9,191

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

Net (loss) $ ( 9,640 ) $ ( 743 )

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

Depreciation and amortization 6,348 7,662

Amortization of debt issuance costs 40 72

Loss on disposal of operating assets or impairment of operating assets 209 174

(Gain) loss on disposal of operating assets or impairment of operating assets ( 7 ) 209

Gain on insurance proceeds received for damaged property — ( 2,397 )

Gain on extinguishment of debt ( 5,106 ) ( 287 )

Inventory valuation accounts 1,639 92

LIFO effect 729 924

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Insurance proceeds received for damaged property — 4,101

Proceeds from disposal of property, plant and equipment 7 —

Capital expenditures ( 3,199 ) ( 4,979 )

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Cash flows from financing activities:

Proceeds from term note 261 1,020

Proceeds from long term debt 2,245 —

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Comprehensive income (loss) — — ( 743 ) 4,389 3,646

Shares retired — 47 — — 47

Performance and restricted share expense — 469 — — 469

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The Company’s operations are conducted in a single business segment, "SIFCO" or the "Company."

Impact of COVID-19 Pandemic

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

As a result of the COVID-19 pandemic and related government mandated restrictions on the Company’s business as well as the businesses of its customers and suppliers, disruption to the Company’s business and the manufacture and sale of its products has occurred and is expected to continue into fiscal 2022.

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

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

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

Such employees have since returned to work.

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

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.

While the long-term outlook remains positive given the nature of the industry, there continues to be uncertainty with the 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.

PRINCIPLES OF CONSOLIDATION

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The Company considers all highly liquid short-term investments with original maturities of three months or less to be cash equivalents.

A substantial majority of the Company’s cash and cash equivalent bank balances exceed federally insured limits as of September 30, 2021.

A substantial majority of the Company’s cash and cash equivalent bank balances exceed federally insured limits as of September 30, 2022 and 2021.

CONCENTRATIONS OF CREDIT RISK

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The Company writes off accounts receivable when they become uncollectible.

During fiscal 2021 $ 9 of accounts receivable were recovered against the allowance for doubtful accounts while in fiscal 2020 $ 263 of accounts receivable were written off against the allowance for doubtful accounts.

In fiscal 2022 $ 53 of accounts receivable were written off against the allowance for doubtful accounts, while in fiscal 2021 $ 9 of accounts receivable were recovered against the allowance for doubtful accounts.

Bad debt benefit totaled $ 3 and $ 91 in fiscal 2022 and fiscal 2021, respectively.

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based companies.

In fiscal 2021, 20 % of the Company’s consolidated net sales were from two of its largest customers;

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

In fiscal 2022, 11 % of the Company’s consolidated net sales were from one of its largest customers;

and 49 % of the Company's consolidated net sales were from four of the largest customers and their direct subcontractors which individually accounted for 16 %, 13 %, 10 % and 10 %, of consolidated net sales, respectively.

Other than what has been disclosed, no other single customer or group represented greater than 10% of total net sales in fiscal 2021 and 2020.

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

In fiscal 2021, 20 % of the Company’s consolidated net sales were from two of its largest customers;

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

SIFCO Industries, Inc.

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Notes to Consolidated Financial Statements - (Continued)

At September 30, 2021, none of the Company’s largest customers had outstanding net accounts receivable balances that were individually greater than 10% of the total net accounts receivable;

and one of the largest customers and their direct subcontractors collectively had outstanding net accounts receivable which accounted for 17 % of total net accounts receivable.

At September 30, 2020, one of the Company’s largest customers had outstanding net accounts receivable which individually accounted for 11 % of total net accounts receivable;

and three of the largest customers and their direct subcontractors had outstanding net accounts receivable which accounted for 13 %, 13 %, and 12 % of total net accounts receivable, respectively.

net sales, respectively.

Other than what has been disclosed, no other single customer or group represented greater than 10% of total net sales in fiscal 2022 and 2021.

At September 30, 2022, three of the Company’s largest customers had outstanding net accounts receivable balances that were 15 %, 11 % and 10 %, respectively of the total net accounts receivable;

and four of the largest customers and their direct subcontractors collectively had outstanding net accounts receivable which accounted for 15 %, 11 %, 11 % and 10 %, respectively of total net accounts receivable.

At September 30, 2021, none of the Company’s largest customers had outstanding net accounts receivable which individually accounted for 10% or more of total net accounts receivable;

and one of the largest customers and their direct subcontractors had outstanding net accounts receivable which accounted for 17 %, of total net accounts receivable, respectively.

The Company performs ongoing credit evaluations of its customers’ financial conditions.

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For approximately 42 % and 39 % of the Company’s inventories at September 30, 2022 and 2021, respectively, the LIFO method is used to value the Company’s inventories.

The first-in, first-out (“FIFO”) method is used to value the remainder of the Company’s inventories, which are stated at the lower cost or net realizable value.

The Company maintains allowances for obsolete and excess inventory.

The Company evaluates its allowances for obsolete and excess inventory each quarter and requires at a minimum that reserves be established based on an analysis of the age of the inventory.

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

Specific obsolescence and excess reserve requirements may arise due to technological or market changes or based on cancellation of an order.

The Company’s reserves for obsolete and excess inventory were $ 3,444 and $ 3,676 at September 30, 2021 and 2020, respectively.

The first-in, first-out (“FIFO”) method is used to value the remainder of the Company’s inventories, which are stated at the lower of cost or net realizable value.

Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion.

In order to accurately reflect inventory, the Company wrote down inventory to realizable value of $ 1,538 and $ 325 for years ended September 30, 2022 and 2021, respectively.

The Company writes down inventory for obsolete and excess inventory each quarter and requires at a minimum that the write down be established based on an analysis of the age of the inventory.

In addition, if the Company identifies specific obsolescence, other than that identified by the aging criteria, an additional write down will be recognized.

Specific obsolescence and excess write down requirements may arise due to technological or market changes or based on cancellation of an order.

The Company did not have a significant write down for obsolete and excess inventory for the years ended September 30, 2022 and 2021.

PROPERTY, PLANT AND EQUIPMENT

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Property, plant and equipment, net $ 39,272 $ 42,708

The (gain) loss on disposal of operating assets is included as a separate line item in the accompanying consolidated statements of operations.

Depreciation expense was $ 6,035 and $ 6,651 in fiscal 2022 and 2021, respectively.

ASSET IMPAIRMENT

The Company reviews the carrying value of its long-lived assets ("asset groups"), including property, plant and equipment, when events and circumstances indicate a triggering event has occurred.

This review is performed using estimates of future undiscounted cash flows, which include proceeds from disposal of assets.

Under the Accounting Standard Codification ("ASC") 360 ("Topic 360"), if the carrying value of a long-lived asset is greater than the estimated undiscounted future cash flows, then the long-lived asset is considered impaired and an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value.

SIFCO Industries, Inc.

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Notes to Consolidated Financial Statements - (Continued)

ASSET IMPAIRMENT

The Company reviews the carrying value of its long-lived assets ("asset groups"), when events and circumstances indicate a triggering event has occurred.

This review is performed using estimates of future undiscounted cash flows, which include proceeds from disposal of assets.

The Company continuously monitors triggers to determine if further testing is necessary.

In the fourth quarter, further assessment was necessary as certain qualitative factors, such as, operating results triggered a recoverability test on its Orange, California ("Orange") location.

In the third and fourth quarters, further assessment was necessary as certain qualitative factors, such as, operating results, historical and forecasted market conditions and projected undiscounted future cash flows triggered a recoverability test on its Orange, California ("Orange") location.

The results indicated that the long-lived assets, right-of-use assets and definite lived intangible assets were recoverable and did not require further review for impairment.

The Company continuously monitored and tested for recoverability at the Orange location.

The result of management's analysis on the asset group's recoverability at September 30, 2020 did not require further review for impairment.

The Company continuously monitors triggers to determine if further testing is necessary.

In the fourth quarter, further assessment was necessary as certain qualitative factors, such as, operating results, historical and forecasted market conditions and projected undiscounted future cash flows triggered a recoverability test on its Orange location.

The results indicated that the long-lived assets, right-of-use assets and definite lived intangible assets were recoverable and did not require further review for impairment.

GOODWILL AND INTANGIBLE ASSETS

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The Company has selected July 31 as the annual impairment testing date.

With the adoption of Accounting Standard Update ("ASU") 2017-04, Step 2 has been eliminated from the goodwill impairment test.

The first step of the goodwill impairment test compares the fair value of a reporting unit (as defined) with its carrying amount, including goodwill.

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See Note 3, Goodwill and Intangibles Assets , of the consolidated financial statements for further discussion of the July 31, 2022 and 2021 annual impairment test results.

The Company monitors for triggering events outside of the annual impairment assessment date and no potential triggers were identified through September 30, 2022.

Intangible assets consist of identifiable intangibles acquired or recognized in the accounting for the acquisition of a business and include such items as a trade name, a non-compete agreement, below market lease, customer relationships and order backlog.

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Identifiable intangible assets assessment for impairment is evaluated when events and circumstances warrant such a review, as noted within Note 1, Summary of Significant Accounting Policies - Asset Impairment, of the consolidated financial statements.

NET INCOME (LOSS) PER SHARE

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

NET (LOSS) PER SHARE

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

Due to the net loss in the reporting period, zero restricted shares 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.

In the prior period, net loss 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:

September 30,

Net income (loss) $ ( 743 ) $ 9,191

Weighted-average common shares outstanding (basic) 5,759 5,661

Effect of dilutive securities:

Restricted shares — 120

Performance shares — 10

Weighted-average common shares outstanding (diluted) 5,759 5,791

Net income (loss) per share – basic:

$ ( 0.13 ) $ 1.62

Net income (loss) per share – diluted:

$ ( 0.13 ) $ 1.59

Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share 412 207

SIFCO Industries, Inc.

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Notes to Consolidated Financial Statements - (Continued)

September 30,

Net (loss) $ ( 9,640 ) $ ( 743 )

Weighted-average common shares outstanding (basic and diluted) 5,830 5,759

Net (loss) income per share – basic and diluted:

$ ( 1.65 ) $ ( 0.13 )

Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share 270 412

REVENUE RECOGNITION

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The revenue standard also requires disclosure sufficient to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments and assets recognized from the cost to obtain or fulfill a contract.

The Company recognizes revenue in the following manner using the five-step revenue recognition model.

A contract exists when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

Revenue is recognized when performance obligations under the terms of the contract with a customer of the Company are satisfied.

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

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

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

government with no alternative use, include provisions within the contract that are subject to the Federal Acquisition Regulation ("FAR").

The FAR provision allows the customer to unilaterally terminate the contract for convenience and requires the customer to pay the Company for costs incurred plus reasonable profit margin and take control of any work in process.

• For certain commercial contracts involving customer-specific products with no alternative use, the contract may fall under the FAR clause provisions noted above for military contracts or may include certain provisions within their contract that the customer controls the work in process based on contractual termination clauses or restrictions of the Company's use of the product and the Company possesses a right to payment for work performed to date plus reasonable profit margin.

As a result of control transferring over time for these products, revenue is recognized based on progress toward completion of the performance obligation.

The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products to be provided.

The Company elected to use the cost to cost input method of progress based on costs incurred for these contracts because it best depicts the transfer of goods to the customer based on incurring costs on the contracts.

Under this method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.

Revenues are recorded proportionally as costs are incurred.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods.

An accounting policy election to exclude from transaction price was made for sales, value add, and other taxes the Company collects concurrent with revenue-producing activities when applicable.

The Company has elected to recognize incremental costs incurred to obtain contracts, which primarily represent commissions paid to third party sales agents where the amortization period would be less than one year, as selling, general and administrative expenses in the consolidated statements of operations as incurred.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

The Company elected a practical expedient under Topic 606 to not adjust the promised amount of consideration for the effects of any significant financing component where the Company expects, at contract inception, that the period between when the Company transfers a promised good to a customer and when the customer pays for that good will be one year or less.

Finally, the Company's policy is to exclude performance obligations resulting from contracts with a duration of one year or less from its disclosures related to remaining performance obligations.

The amount of consideration to which the Company expects to be entitled in exchange for the goods is not generally subject to significant variations.

The Company elected to recognize the cost of freight and shipping when control of the products has transferred to the customer as an expense in cost of goods sold on the consolidated statements of operations, because those are costs incurred to fulfill the promise recognized, not a separate performance obligation.

To the extent certain freight and shipping fees are charged to customers, the Company recognizes the amounts charged to customers as revenues and the related costs as an expense in cost of goods sold when control of the related products has transferred to the customer.

Contracts are occasionally modified to account for changes in contract specifications, requirements, and pricing.

The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations.

Substantially all of the Company's contract modifications are for goods that are distinct from the existing contract.

Therefore, the effect of a contract modification on the transaction price and the Company's measure of progress for the performance obligation to which it relates is generally recognized on a prospective basis.

Contract Balances

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Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract.

Payment from customers are received based on the terms established in the contract with the customer.

Payments from customers are received based on the terms established in the contract with the customer.

The leasing standard requires lessees to recognize a Right-of-Use ("ROU") asset and a lease liability on the consolidated balance sheet, with the exception of short-term leases.

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IMPACT OF RECENTLY ADOPTED ACCOUNTING STANDARDS

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 is effective for the Company and did not have a material impact to the pension disclosures.

See Note 8, Retirement Benefit Plans , of the consolidated financial statements for further information.

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.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

IMPACT OF NEWLY ISSUED ACCOUNTING STANDARDS

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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

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

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.

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

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

Simplifying the Accounting for Income Taxes" 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 adoption of this ASU is not expected to have a material impact to the Company's results within the consolidated statements of operations and financial condition.

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

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( 2,509 ) ( 3,720 )

Interest rate swap agreement, net of income tax benefit of $ 0 and $ 0 , respectively

Total accumulated other comprehensive loss $ ( 8,693 ) $ ( 9,079 )

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The following table provides additional details of the amounts recognized into net earnings from accumulated other comprehensive loss, net of tax:

Foreign Currency Translation Adjustment Retirement Plan Liability Adjustment Accumulated Other Comprehensive Loss

Foreign Currency Translation Adjustment Retirement Plan Liability Adjustment Interest Rates Swap Adjustment Accumulated Other Comprehensive Loss

Balance at September 30, 2020 $ ( 5,257 ) $ ( 8,211 ) $ — $ ( 13,468 )

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Amortization of Retirement plan liability:

Prior service costs

Net actuarial gain (loss)

4,217 ( 808 ) (1)

Net actuarial gain 1,003 4,217 (1)

Settlements/curtailments

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Taxable temporary differences result principally from tax depreciation in excess of book depreciation.

The Company evaluates for uncertain tax positions taken at each balance sheet date.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position.

For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the

SIFCO Industries, Inc.

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Notes to Consolidated Financial Statements - (Continued)

The Company evaluates for uncertain tax positions taken at each balance sheet date.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position.

For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest cumulative benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

largest cumulative benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.

The Company's policy for interest and/or penalties related to underpayments of income taxes is to include interest and penalties in tax expenses.

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Share-based compensation is measured at the grant date, based on the calculated fair value of the award and the probability of meeting its performance condition, and is recognized as expense when it is probable that the performance conditions will be met over the requisite service period (generally the vesting period).

Share-based expense includes expense related to restricted shares and performance shares issued under the Company's 2007 Plan Long-Term Incentive Plan (Amended and Restated as of November 16, 2016) (as further amended, the "2016 Plan").

Share-based expense includes expense related to restricted shares and performance shares issued under the Company's 2007 Long-Term Incentive Plan (Amended and Restated as of November 16, 2016) (as further amended, the "2016 Plan").

The Company recognizes share-based expense within selling, general, and administrative expense and adjusts for any forfeitures as they occur.

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First, management must evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern.

Second, if management concludes that

Second, if management concludes that substantial doubt is raised, management is required to consider whether it has plans in place to alleviate that doubt.

This evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued.

Disclosures in the notes to the consolidated financial statements are required if management concludes that substantial doubt exists or that its plans alleviate the substantial doubt that was

SIFCO Industries, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements - (Continued)

substantial doubt is raised, management is required to consider whether it has plans in place to alleviate that doubt.

As required by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued.

Disclosures in the notes to the consolidated financial statements are required if management concludes that substantial doubt exists or that its plans alleviate the substantial doubt that was raised.

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

RECLASSIFICATIONS

Certain amounts in prior years have been reclassified to conform to the 2022 consolidated statement presentation.

In fiscal 2022, the Company revised its classification within the Consolidated Statement of Cash Flows by moving a prior year amount of $ 325 of inventories from changes in operating assets and liabilities to adjustments to reconcile net loss to net cash provided by operating activities as this item is non-cash and is not a part of operating assets and liabilities.

Inventories at September 30 consist of:

4 unchanged sentences

If the FIFO method had been used for the entire Company, inventories would have been $ 9,939 and $ 9,210 higher than reported at September 30, 2022 and 2021, respectively.

LIFO expense was $ 924 in fiscal 2021 and a LIFO benefit was $ 10 in fiscal 2020.

LIFO expense was $ 729 in fiscal 2022 and $ 924 in fiscal 2021.

In fiscal 2022, results showed a reduction of inventory resulting in liquidations of LIFO inventory quantities.

1 unchanged sentence

These inventories were carried in prior periods at the then prevailing costs, which were accurate at the time, but differ from the current manufacturing cost and/or material costs.

There was no LIFO liquidation in fiscal 2020.

There was $ 156 of LIFO liquidation in fiscal 2021.

For the portion of the Company's inventory not valued at LIFO, inventory is valued at FIFO and stated at the lower of cost or net realizable value.

The Company wrote down inventory to net realizable value by $ 1,538 and $ 325 for the years ended September 30, 2022 and 2021, respectively.

The Company did not have a significant write down for obsolete and excess inventory for the years ended September 30, 2022 and 2021.

The allocation of production costs to inventory are based on a normal range of capacity in production.

The amount of cost allocated to each unit of production is not increased as a consequence of low production or idle capacity.

As a result, the Company recorded idle cost of $ 3,087 and $ 2,126 for years ended September 30, 2022 and 2021, respectively.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

Goodwill and Intangible Assets

17 unchanged sentences

The amortization expense on identifiable intangible assets for fiscal 2022 and 2021 was $ 313 and $ 1,011 , respectively.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

Amortization expense associated with the identified intangible assets is expected to be as follows:

6 unchanged sentences

The Company tests its goodwill for impairment in the fourth fiscal quarter, and in interim periods if certain events occur indicating that the carrying amount of goodwill may be impaired.

Factors that would necessitate an interim goodwill impairment assessment include a sustained decline in the Company's stock price, prolonged negative industry or economic trends, or significant under-performance relative to expected, historical or projected future operating results.

The Company uses a fair value measurement approach which combines the income (discounted cash flow method) and market valuation (market comparable method) techniques for each of the Company’s reporting units that carry goodwill.

5 unchanged sentences

Results determined that the fair value of the reporting unit exceeded the carrying value at each assessment date.

No impairment charge as of September 30, 2021 and 2020, respectively.

As a result, no impairment was required as of September 30, 2022 and 2021, respectively.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

Goodwill is expected to be deductible for tax purposes.

14 unchanged sentences

Total accrued liabilities $ 5,868 $ 6,871

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

Debt at September 30 consists of:

1 unchanged sentence

Foreign subsidiary borrowings 7,101 6,632

Capital lease obligations 22 80

Finance lease obligations 192 22

Other, net of unamortized debt issuance cost ($ 20 ) and $( 32 )

13 unchanged sentences

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

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

The Credit Agreement and the Export Credit Agreement were amended on March 23, 2022, when the Company entered into the Sixth Amendment to the Credit Agreement and the Second Amendment to the Export Agreement with its Lender.

The Sixth Amendment, among other things, (i) revised the fixed coverage ratio to exclude the first $ 1,500 of unfunded capital expenditures through April 20, 2023, (ii) increased the letter of credit sub-limit from $ 2,000 to $ 3,000 , (iii) modified the reference rate from the London interbank offered rate ("LIBOR") to SOFR and (iv) revised the property, plant and equipment component of the borrowing base under the Credit Agreement.

The Second Amendment amends the Export Credit Agreement to replace the reference rate from LIBOR to SOFR.

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

6 unchanged sentences

Since the availability was greater than the 10.0 % of the revolving commitment as of September 30, 2022 and 10.0 % of the revolving commitment at September 30, 2021, 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 September 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 September 30, 2021 and a rate based on LIBOR plus 1.0 % spread, which was 1.2 % at September 30, 2020, respectively.

The Company's letters of credit balance was $ 1,970 and $ 1,800 as of September 30, 2022 and 2021, respectively.

Borrowings will bear interest at the Lender's established domestic rate or SOFR, plus the applicable margin as set forth in the Sixth Amendment.

The revolver has a rate based on SOFR plus 2.25 % spread, which was 4.86 % at September 30, 2022 and a rate based on LIBOR plus 1.75 % spread, which was 1.84 % at September 30, 2021.

The Export Credit Agreement has a rate based on SOFR plus 1.75 % spread, which was 4.36 % at September 30, 2022 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.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

Foreign subsidiary borrowings

11 unchanged sentences

To assist with the preservation of liquidity and uncertainty of COVID-19, subsequent to September 30, 2020, Maniago finalized with certain lenders a deferment of payments ranging between 6 to 12 months which has been reflected within the future minimum payment schedule.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

The Company factors receivables from one of its customers.

2 unchanged sentences

The Company accounts for the pledge of receivables under this agreement as short-term debt and continues to carry the receivables on its consolidated balance sheets.

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

The Maniago location obtained borrowings from two separate lenders in fiscal 2022.

The first loan agreement was entered into in October 2021, in the amount of $ 1,200 with a repayment term of six years .

The second loan agreement was entered into in September 2022, in the amount of $ 1,100 with a repayment term of five years .

The proceeds from the first loan were used for working capital and the proceeds from the second loan for capital investment.

The Maniago location obtained borrowings from two separate lenders in fiscal 2021.

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

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

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

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

Payments on long-term debt under the foreign term debt and other debt (excluding finance lease obligations, see Note 10, Leases , of the consolidated financial statements) over the next 5 years are as follows:

Minimum long-term debt payments

Payments on debt under foreign debt and other debt (excluding finance lease obligations, see Note 10, Leases , of the consolidated financial statements) over the next 5 years are as follows:

Minimum debt payments

Thereafter 44

Total Minimum long-term debt payments $ 7,715

Debt issuance costs

The Company had debt issuance costs of $ 86 , which are included in the consolidated balance sheets as a deferred charge in other current assets, net of amortization of $ 46 and $ 17 at September 30, 2022 and 2021, respectively.

On April 10, 2020, the Company entered into an unsecured promissory note under the Paycheck Protection Program (the “PPP Loan”).

The PPP Loan had an aggregate principal amount of $ 5,025 .

The loan proceeds were used for payroll payments and the SBA granted full forgiveness on January 25, 2022.

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

As such, the Company derecognized the liability in the second quarter of fiscal 2022 when the loan was forgiven.

As of September 30, 2022 and 2021 the PPP loan balance was $ 0 and $ 4,764 , respectively.

SIFCO Industries, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements - (Continued)

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 balance sheets as a deferred charge in other current assets, net of amortization of $ 17 and $ 205 at September 30, 2021 and 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 September 30, 2021 and 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 September 30, 2021, the Company has applied for forgiveness of all of its PPP Loan to the Small Business Administration.

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

The Company produces forged components for (i) turbine engines that power commercial, business and regional aircraft as well as military aircraft and armored military vehicles;

16 unchanged sentences

Total $ 83,902 $ 99,591

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

The following table represents revenue by geographic region based on the Company's selling operation locations:

4 unchanged sentences

Total $ 83,902 $ 99,591

In addition to the disaggregating revenue information provided above, approximately 65 % and 59 % of total net sales as of September 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 as a point in time.

In addition to the disaggregating revenue information provided above, approximatel y 56 % and 65 % of total net sales as of September 30, 2022 and 2021, respectively, was recognized on an over-time basis because of the continuous transfer of control to the customer, with the remainder recognized as a point in time.

Contract Balances

1 unchanged sentence

For performance obligations recognized at a point in time, a contract asset is not established as the billing and revenue recognition occur at the same time.

For performance obligations recognized over time, a contract asset is established as revenue that is recognized prior to billing and shipment.

For performance obligations recognized over time, a contract asset is established for revenue that is recognized prior to billing and shipment.

Upon shipment and billing, the value of the contract asset is reversed and accounts receivable is recorded.

2 unchanged sentences

If the satisfaction of the performance obligation is point in time, the contract liability reverses upon shipment.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

The following table contains a roll forward of contract assets and contract liabilities for the period ended September 30, 2022 and 2021:

19 unchanged sentences

Notes to Consolidated Financial Statements - (Continued)

The components of income (loss) before income tax benefit are as follows:

The components of loss before income tax benefit are as follows:

September 30,

1 unchanged sentence

( 2,698 ) ( 442 )

Income (loss) before income tax benefit $ ( 1,965 ) $ 8,980

Loss before income tax benefit $ ( 9,683 ) $ ( 1,965 )

Income tax benefit consist of the following:

12 unchanged sentences

September 30,

Income (loss) before income tax benefit $ ( 1,965 ) $ 8,980

Income tax provision (benefit) at U.S.

(Loss) before income tax benefit $ ( 9,683 ) $ ( 1,965 )

Income tax (benefit) at U.S.

federal statutory rates $ ( 2,033 ) $ ( 413 )

1 unchanged sentence

Foreign rate differential ( 46 ) ( 193 )

Permanent items ( 1,032 ) 27

State and local income taxes 18 6

3 unchanged sentences

Income tax benefit $ ( 43 ) $ ( 1,222 )

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 credits 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

On August 16, 2022, the U.S.

enacted the Inflation Reduction Act of 2022, which includes a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases after December 31, 2022, and several tax incentives to promote clean energy.

The Company does not believe this legislation will have a material impact on the Company’s consolidated financial statements and will continue to assess the implications.

SIFCO Industries, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements - (Continued)

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 for fiscal 2021.

The Company will continue to assess the implications of these and any new relief provisions on its consolidated financial statements but does not expect the impact to be material.

Deferred tax assets and liabilities at September 30 consist of the following:

24 unchanged sentences

The Company has $ 1,724 of foreign tax credit carryforwards that are subject to expiration in fiscal 2023-2028, $ 1,506 of U.S.

general business tax credits that are subject to expiration in 2035-2041, and $ 14,588 of U.S.

general business tax credits that are subject to expiration in 2035-2042, $ 466 of interest expense carryforward that do not expire, and $ 25,038 of U.S.

Federal tax loss carryforwards with $ 9,107 subject to expiration in fiscal 2037 and $ 15,931 that do not expire.

12 unchanged sentences

A summary of activity related to the Company’s uncertain tax position is as follows:

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

Balance at beginning of year $ 22 $ 22

1 unchanged sentence

Balance at end of year $ 22 $ 22

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

The Company is subject to income taxes in the U.S.

19 unchanged sentences

The third defined pension plan covers one of the Company's union groups at the Cleveland location.

See Notes 11 and 12, Commitment and Contingencies and Business information, for further discussion regarding its union status.

Benefits accruals under this plan ceased in March 2020, when the then-current union disclaimed all interest in the bargaining unit.

1 unchanged sentence

however, there was no impact to consolidated financial statements.

A new union has been certified and collective bargaining is underway.

Such bargaining will determine whether benefit accruals under this plan will resume or whether retirement benefits will be provided through a defined contribution plan.

A new union was certified and the collective bargaining agreement was finalized in December 2021, at which time it was agreed that the defined benefit plan would be frozen and retirement benefits are to be provided through a defined contribution plan.

The Company sponsors a fourth defined benefit plan for certain employees at its Maniago location.

3 unchanged sentences

defined benefit pension plans.

Net pension expense, benefit obligations and plan assets for the Company-sponsored defined benefit pension plans consists of the following:

Net pension expense, benefit obligations and plan assets for the Company-sponsored defined benefit pension plans consist of the following:

September 30,

13 unchanged sentences

Interest cost 714 699

Actuarial (gain) loss ( 967 ) 2,037

Actuarial (gain) ( 5,265 ) ( 967 )

Benefits paid ( 1,970 ) ( 2,349 )

7 unchanged sentences

As shown within the above table, there was a decrease in the benefit obligation of $ 6,535 to $ 22,795 at September 30, 2022 compared with $ 29,330 at September 30, 2021.

The primary drivers that attributed to the change pertained to updates in the mortality scale and the discount rate used along with asset returns being better than expected.

The primary drivers that attributed to the change pertained to increase in the discount rate used partially offset by asset returns.

Plans in which

53 unchanged sentences

High inflation bond 78 78 —

debt securities:

Emerging markets bonds 164 164 —

Stable value:

36 unchanged sentences

However, the Company realizes that actual allocations at any point in time will likely vary from this objective due principally to (i) the impact of market conditions on plan asset values and (ii) required cash contributions to and distribution from the plans.

The “Asset Allocation Range” listed below anticipates these potential scenarios and provides flexibility for the Plan’s investments to vary around the objective without triggering a reallocation of the assets, as noted by the following:

The “Asset Allocation Range” listed below anticipates these potential scenarios and provides flexibility for the plans' investments to vary around the objective without triggering a reallocation of the assets, as noted by the following:

Percent of Plan Assets at

37 unchanged sentences

The Company did not provide additional discretionary matching contributions in either fiscal 2022 and 2021.

Effective January 1, 2020, the Company sponsors a defined contribution plan for the Cleveland bargaining unit that withdrew from the multi-employer plan, as described above.

The Company makes a non-elective contribution equal to $ 1.50 per work, vacation, or holiday hour, up to a maximum of 40 hours per week.

The Company sponsors two defined contribution plans for the Cleveland bargaining units that either withdrew from the multi-employer plan (union) pension plan or bargained to freeze the company-sponsored pension plan.

Impacted employees were enrolled into one of two newly formed defined contribution plans.

The Company makes a non-elective contribution equal to $ 1.50 or $ 1.25 per work, vacation, or holiday hour, up to a maximum of 40 hours per week.

The Company's non-elective contribution expense was $ 204 in fiscal 2022 and $ 112 in fiscal 2021.

The Company sponsors a defined contribution plan for certain of its Maniago union employees.

The plan is a severance entitlement payable plan to Italian employees based on local government laws, which qualifies as a defined contribution plan.

The plan is a severance entitlement plan payable to Italian employees based on local government laws, which qualifies as a defined contribution plan.

Stock-Based Compensation

4 unchanged sentences

Any such awards are exercisable no later than ten years from the date of 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

SIFCO Industries, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements - (Continued)

following the granting 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.

1 unchanged sentence

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

The Company is not recognizing compensation expense for three tranches of awards as it has concluded 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 shares that it expects to vest upon the completion of a performance period.

4 unchanged sentences

The unearned compensation is being amortized ratably over the restricted stock vesting period of one ( 1 ) year or three ( 3 ) years.

If all outstanding share awards are ultimately earned and vest at the target number of shares, there are approximately 447 shares that remain available for award at September 30, 2021.

If all outstanding share awards are ultimately earned and vest at the target number of shares, there are approximatel y 473 sh ares that remain available for award at September 30, 2022.

If any of the outstanding share awards are ultimately earned and vest at greater than the target number of shares, up to the 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 expense of $ 428 and $ 469 for fiscal 2022 and 2021, respectively.

As of September 30, 2021, there was $ 349 of total unrecognized compensation cost related to the performance and restricted shares awarded under the 2016 Plan.

As of September 30, 2022, there was $ 275 of total unrecognized compensation cost rel ated to the performance and restricted shares awarded under the 2016 Plan.

The Company expects to recognize this cost over the next year.

9 unchanged sentences

Performance shares awarded 44 8.00 71 3.74

Performance shares earned — — — —

Awards forfeited ( 142 ) 4.73 ( 8 ) 3.18

33 unchanged sentences

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

Finance leases $ 206 $ —

Operating leases 236 43

12 unchanged sentences

2023 $ 69 $ 1,662

2024 61 1,671

2025 33 1,669

2026 27 1,667

2027 19 1,680

Thereafter — 14,280

19 unchanged sentences

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

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

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 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.

1 unchanged sentence

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

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

Having finalized the claim with its insurance carrier, cash proceeds of $ 4,548 were received in fiscal 2021.

8 unchanged sentences

September 30, 2021 $ —

Balance sheet (Other receivables):

September 30, 2020 $ 1,547

Cash received ( 4,548 )

Capital expenditures (equipment) 2,397

Other expenses 58

Business interruption 546

September 30, 2021 $ —

The following table reflects how the proceeds received impacted the consolidated statements of operations as of September 30, 2021:

4 unchanged sentences

(Loss) before income tax benefit $ ( 4,966 ) $ ( 3,001 ) $ ( 1,965 )

September 30, 2020

Balance without insurance proceeds Insurance recoveries Balance with insurance proceeds

Cost of goods sold $ 96,711 $ ( 3,100 ) $ 93,611

Gain on insurance recoveries $ — $ ( 5,874 ) $ ( 5,874 )

Income before income tax benefit $ 6 $ ( 8,974 ) $ 8,980

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

The following table demonstrates the total settlement amount since December 26, 2018:

7 unchanged sentences

The United States of America is the single largest country for unaffiliated customer sales, accounting for 72 % and 66 % of consolidated net sales in fiscal 2022 and 2021, respectively.

No other single country represents greater than 10% of consolidated net sales in fiscal 2021 and 2020 Net sales to unaffiliated customers located in various European countries accounted for 18 % and 14 % of consolidated net sales in fiscal 2021 and 2020, respectively.

Net sales to unaffiliated customers located in various Asian countries accounted for 8 % of consolidated net sales in fiscal 2021 and 2020, respectively.

No other single country represents greater than 10% of consolidated net sales in fiscal 2022 and 2021.

Net sales to unaffiliated customers located in various European countries accounted for 19 % and 18 % of consolidated net sales in fiscal 2022 and 2021, respectively.

Net sales to unaffiliated customers located in various Asian countries accounted for 6 % and 8 % of consolidated net sales in fiscal 2022 and 2021, respectively.

Substantially all of the Company's operations and identifiable assets are located within the United States with the exception of its non-U.S.

1 unchanged sentence

The identifiable assets for the Company's foreign subsidiaries as of September 30, 2022 were $ 15,219 compared with $ 19,586 as of September 30, 2021.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

Long-Lived Assets

6 unchanged sentences

Cleveland, Ohio (unit 1) May 15, 2025

Cleveland, Ohio (unit 2) May 31, 2020

Cleveland, Ohio (unit 2) March 31, 2025

Maniago, Italy June 30, 2024

1 unchanged sentence

The Company's Cleveland bargaining unit 1 ratified its CBA in fiscal 2020 .

The second bargaining unit, under its new representative the International Brotherhood of Boilermakers, is in ongoing negotiations with the Company and there continues to be no work disruptions as the Company operates per the terms of the previous contract.

The second bargaining unit, under its new representative the International Brotherhood of Boilermakers, was ratified in fiscal 2022.

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

Subsequent events

The Company has evaluated subsequent events through the date the consolidated financial statements are issued.

In October 2021, the Company's Maniago location obtained a new loan agreement with a lender in the amount of $ 1,200 (equivalent to 1,000 Euros) with repayment term of 6 years.

The Company is not aware of any other subsequent events which would require recognition or disclosure in the consolidated financial statements.

10 unchanged sentences

Allowance for doubtful accounts $ 167 $ ( 3 ) $ — $ ( 53 ) (a) $ 111

Inventory obsolescence reserve 3,676 ( 50 ) ( 180 ) ( 2 ) (b) 3,444

Inventory valuation accounts¹ 3,769 1,983 11 ( 679 ) (b) 5,084

Inventory LIFO reserve 9,210 729 — — 9,939

5 unchanged sentences

Allowance for doubtful accounts 249 ( 91 ) — 9 (a) 167

Inventory obsolescence reserve¹ 3,335 518 ( 151 ) ( 26 ) (b) 3,676

Inventory valuation accounts¹ 3,676 275 ( 180 ) ( 2 ) (b) 3,769

Inventory LIFO reserve 8,286 924 — — 9,210

2 unchanged sentences

Workers’ compensation reserve 546 1,241 ( 53 ) ( 846 ) (c) 888

¹ Due to the adoption of Topic 606, there was impact to the opening balance for these accounts.

¹Inventory valuation accounts, previously Inventory obsolescence reserve, reflect the impact of excess and obsolete and net realizable value inventory write downs.

(a) Accounts determined to be uncollectible, net of recoveries

3 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 8. Financial Statements and Supplementary Data