What changed in this filing

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Item 1. Financial Statements

2023-07-06 compared with 2022-08-15 · 176 added, 145 removed, 294 unchanged (52% of the section changed)

5 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

Net sales $ 21,299 $ 19,247

4 unchanged sentences

Gain on disposal of operating assets ( 11 ) —

Gain on insurance recoveries — — — ( 2,495 )

Operating (loss) income ( 2,509 ) 130 ( 7,445 ) 1,351

Operating loss ( 2,069 ) ( 3,652 )

Interest expense, net 275 115

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

Foreign currency exchange (gain) loss, net ( 3 ) 5

Other expense (income), net 182 ( 32 )

(Loss) income before income tax benefit ( 2,671 ) 218 ( 2,749 ) 980

Income tax benefit ( 3 ) ( 36 ) ( 29 ) ( 776 )

Net (loss) income $ ( 2,668 ) $ 254 $ ( 2,720 ) $ 1,756

Net (loss) income per share

Loss before income tax expense (benefit) ( 2,523 ) ( 3,740 )

Income tax expense (benefit) 66 ( 49 )

Net loss $ ( 2,589 ) $ ( 3,691 )

Net loss per share

Basic $ ( 0.44 ) $ ( 0.64 )

8 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

Net (loss) income $ ( 2,668 ) $ 254 $ ( 2,720 ) $ 1,756

Net loss $ ( 2,589 ) $ ( 3,691 )

Other comprehensive (loss) income:

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

( 304 ) 79 ( 563 ) 62

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

188 211 426 634

Comprehensive (loss) income $ ( 2,784 ) $ 544 $ ( 2,857 ) $ 2,452

Foreign currency translation adjustment, net of tax 342 ( 117 )

Retirement plan liability adjustment, net of tax 78 119

Other 1 ( 6 )

Comprehensive loss $ ( 2,168 ) $ ( 3,695 )

See notes to unaudited consolidated condensed financial statements.

8 unchanged sentences

15,308 16,515

Insurance receivable 1 3,000 —

Contract assets 11,522 10,172

25 unchanged sentences

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

issued and outstanding shares 6,040 at June 30, 2022 and 5,987 at September 30, 2021

issued and outstanding shares 6,072 at December 31, 2022 and 6,040 at September 30, 2022

Additional paid-in capital 11,406 11,387

4 unchanged sentences

See notes to unaudited consolidated condensed financial statements.

1 See Note 12, Commitments & Contingencies on Note 13, Subsequent Events

SIFCO Industries, Inc.

2 unchanged sentences

(Unaudited, Amounts in thousands)

Nine Months Ended

Three Months Ended

Cash flows from operating activities:

Net (loss) income $ ( 2,720 ) $ 1,756

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

Net loss $ ( 2,589 ) $ ( 3,691 )

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

Depreciation and amortization 1,571 1,614

1 unchanged sentence

Gain on disposal of operating assets ( 11 ) —

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

Loss on insurance proceeds received for non-property claim 110 —

LIFO effect 262 176

Share transactions under company stock plan 51 54

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

Inventory valuation accounts ( 812 ) ( 239 )

Other long-term liabilities ( 96 ) ( 55 )

11 unchanged sentences

Cash flows from investing activities:

Insurance proceeds received for damaged property — 4,101

Proceeds from disposal of operating assets 12 —

6 unchanged sentences

Repayments of revolving credit agreement ( 19,385 ) ( 19,041 )

Payment of debt issuance costs — ( 45 )

Short-term debt borrowings 1,360 —

Short-term debt repayments ( 1,370 ) ( 1,487 )

Net cash (used for) provided by financing activities 1,592 ( 1,876 )

Decrease in cash and cash equivalents ( 210 ) ( 198 )

Net cash provided by (used for) financing activities 116 ( 358 )

(Decrease) increase in cash and cash equivalents ( 127 ) 415

Cash and cash equivalents at the beginning of the period 1,174 346

3 unchanged sentences

Cash paid for interest $ ( 259 ) $ ( 141 )

Cash paid for income taxes, net $ ( 23 ) $ ( 22 )

Non-cash investing activities:

Additions to property, plant & equipment - incurred but not yet paid $ 795 $ 869

See notes to unaudited consolidated condensed financial statements.

3 unchanged sentences

(Unaudited, Amounts in thousands )

Nine Months Ended

June 30, 2022

Three Months Ended

December 31, 2022

Common Additional

5 unchanged sentences

Balance - September 30, 2022 6,040 $ 6,040 $ 11,387 $ 31,956 $ ( 8,693 ) $ 40,690

Comprehensive loss — — — ( 2,720 ) ( 137 ) ( 2,857 )

Comprehensive income (loss) — — — ( 2,589 ) 421 ( 2,168 )

Performance and restricted share expense — — 122 — — 122

Share transactions under equity based plans 32 32 ( 103 ) — — ( 71 )

Balance - June 30, 2022 6,040 $ 6,040 $ 11,268 $ 38,876 $ ( 9,216 ) $ 46,968

Balance - December 31, 2022 6,072 $ 6,072 $ 11,406 $ 29,367 $ ( 8,272 ) $ 38,573

Three Months Ended

June 30, 2022

Common Additional

Capital Retained

Earnings Accumulated

Comprehensive

Shareholders’

Shares Amount

Balance - March 31, 2022 6,040 $ 6,040 $ 11,264 $ 41,544 $ ( 9,100 ) $ 49,748

Comprehensive income — — — ( 2,668 ) ( 116 ) ( 2,784 )

Performance and restricted share expense — — 4 — — 4

Balance - June 30, 2022 6,040 $ 6,040 $ 11,268 $ 38,876 $ ( 9,216 ) $ 46,968

Nine Months Ended

June 30, 2021

December 31, 2021

Common Additional

5 unchanged sentences

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

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

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

Performance and restricted share expense — — 161 — — 161

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

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

Three Months Ended

June 30, 2021

Common Additional

Capital Retained

Earnings Accumulated

Comprehensive

Shareholders’

Shares Amount

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

Comprehensive income — — — 254 290 544

Performance and restricted share expense — — 85 — — 85

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

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

See notes to unaudited consolidated condensed financial statements.

6 unchanged sentences

The accompanying unaudited consolidated condensed financial statements include the accounts of SIFCO Industries, Inc.

and its wholly-owned subsidiaries (the "Company").

and its wholly-owned subsidiaries (collectively, the "Company").

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

11 unchanged sentences

A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company's Annual Report on Form 10-K for the year ended September 30, 2022.

Net (Loss)/Income per Share

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

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.

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

2 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

Net (loss) income $ ( 2,668 ) $ 254 $ ( 2,720 ) $ 1,756

Weighted-average common shares outstanding (basic) 5,840 5,779 5,827 5,753

Effect of dilutive securities:

Restricted shares — 146 — 145

Performance shares — 81 — 62

Weighted-average common shares outstanding (diluted) 5,840 6,006 5,827 5,960

Net (loss) income per share – basic:

$ ( 0.46 ) $ 0.04 $ ( 0.47 ) $ 0.31

Net (loss) income per share – diluted:

Net loss $ ( 2,589 ) $ ( 3,691 )

Weighted-average common shares outstanding (basic and diluted) 5,896 5,800

Net loss per share – basic and diluted:

$ ( 0.44 ) $ ( 0.64 )

Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share 176 297

Recently Adopted Accounting Standards

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

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

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

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

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.

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

In the third quarter, certain qualitative factors, including operating results, at the Orange, California ("Orange") location, triggered a recoverability test.

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 will continue to monitor the carrying value of its assets groups for indicators of impairment;

accordingly, there may be impairments in the future.

Going Concern

As required by Accounting Standard Codification ("ASC") ASC Topic 205-40, Presentation of Financial Statements - Going Concern, management assesses the Company's ability to continue as a going concern for one year from the financial statement issuance at each annual and interim reporting period.

The accompanying consolidated condensed financial statements have been prepared assuming the Company will continue as a going concern.

The Company has debt maturing in February 2024 and is currently under a Forbearance Agreement ending August 15, 2023 with its lender as a result of default under the Company’s Credit Agreement to provide (i) timely borrowing base certificates and monthly financial reports for the periods of December 2022, January 2023 and February 2023 and (ii) failure to maintain a fixed charge coverage ratio ("FCCR") not less than 1.1 to 1.0 for the periods of December 2022, January 2023, February 2023 and March 2023.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company is evaluating available financial alternatives, including obtaining acceptable alternative financing as well as seeking additional waivers, forbearances or amendments to the covenants and/or other provisions of the current Credit Agreements and an extension of the forbearance period.

The Company cannot provide assurances that it will be successful in negotiating such a waiver or extension of the forbearance period, restructuring of existing debt obligations, obtaining capital or entering into a strategic alternative transaction which provides sufficient funding for the refinancing of its outstanding indebtedness prior to the expiration of the forbearance period or prior to the maturity date of its obligations under the Credit Agreements.

The consolidated condensed financial statements do not include any adjustments to the carrying amount and classification of assets, liabilities, and reported expense that may be necessary if the Company was unable to continue as a going concern.

See Note 7, Debt and Subsequent Event and Note 13, Subsequent Events.

Recent Accounting Standards Not Yet Adopted

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reclassification

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

Certain amounts in prior years have been reclassified to conform to the fiscal 2023 consolidated condensed statement presentation.

In fiscal 2023, the Company revised its classification within the consolidated condensed statements of cash flows by moving a prior year amount of $ 239 of inventories from changes in operating assets and liabilities to adjustments to reconcile net loss to net cash provided by operating activities to conform to current period presentation.

Inventories consist of:

3 unchanged sentences

Finished goods 2,729 2,645

Total inventories $ 12,515 $ 12,546

Total inventories, net $ 8,322 $ 8,969

For a portion of the Company's inventory, cost is determined using the last-in, first-out ("LIFO") method.

Approximately 42 % and 39 % of the Company’s inventories at June 30, 2022 and September 30, 2021, respectively, use the LIFO method.

An actual valuation of inventory under the LIFO method is made at the end of each fiscal year based on the inventory levels and costs existing at that time.

Approximately 26 % and 42 % of the Company’s inventories at December 31, 2022 and September 30, 2022, respectively, use the LIFO method.

actual valuation of inventory under the LIFO method is made at the end of each fiscal year based on the inventory levels and costs existing at that time.

Accordingly, interim LIFO calculations must be based on management’s estimates of expected year-end inventory levels and costs.

Because the actual results may vary from these estimates, and calculations are subject to many factors beyond management’s control, the annual results may differ from interim results as they are subject to adjustments based on the differences between the estimates and the actual results.

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

If the FIFO method had been used for the inventories for which cost is determined using the LIFO method, inventories would have been $ 9,796 and $ 9,210 higher than reported at June 30, 2022 and September 30, 2021, respectively.

Because the actual results may vary from these estimates, the annual results may differ from interim results as they are subject to adjustments based on the differences between the estimates and the actual results.

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

If the FIFO method had been used for the inventories for which cost is determined using the LIFO method, inventories would have been $ 10,202 and $ 9,939 higher than reported at December 31, 2022 and September 30, 2022, respectively.

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

The Company estimates excess and obsolescence and shrink reserves for its inventory based upon historical experience, historical and projected sales trends and the age of inventory on hand.

As of December 31, 2022 and September 30, 2022, our inventory valuation allowances were $ 4,567 and $ 5,084 , respectively.

Long-lived Assets

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 the asset group.

As required by ASC 360 ("Topic 360"), should the carrying value of an asset group exceed the estimated undiscounted future cash flows, then the asset group is considered impaired and an impairment charge is recorded for the amount by which the carrying value of the asset group exceeds its fair value.

The Company continuously monitors for indicators of impairment to determine if further testing is necessary.

In the first quarter, the Company evaluated triggering events and did not identify any indicators that the asset groups might be impaired.

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.

In the first quarter, the Company determined that interim testing was not required.

Accumulated Other Comprehensive Loss

3 unchanged sentences

Retirement plan liability adjustment, net of tax ( 2,431 ) ( 2,509 )

Interest rate swap agreement, net of tax 13 12

Total accumulated other comprehensive loss $ ( 8,272 ) $ ( 8,693 )

1 unchanged sentence

Three Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

Finance lease expense:

5 unchanged sentences

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

Classification in the consolidated condensed balance sheets June 30,

Classification in the consolidated condensed balance sheets December 31,

2022 September 30,

10 unchanged sentences

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

2022 June 30,

2022 December 31,

Other Information

3 unchanged sentences

Financing cash flows from finance leases 12 13

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

Operating leases — 43

2022 September 30,

5 unchanged sentences

Operating leases 5.9 % 5.9 %

Future minimum lease payments under non-cancellable leases at June 30, 2022 were as follows:

Future minimum lease payments under non-cancellable leases at December 31, 2022 were as follows:

Finance Leases Operating Leases

Year ending September 30,

2022 (excluding the nine months ended June 30, 2022) $ 2 $ 406

2023 (excluding the three months ended December 31, 2022) $ 55 $ 1,249

2024 67 1,674

2025 37 1,671

2026 29 1,668

2027 21 1,680

Thereafter — 14,279

2 unchanged sentences

Present value of lease liabilities $ 193 $ 15,391

Debt and Subsequent Event

Debt consists of:

8 unchanged sentences

Credit Agreement and Security Agreement

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

On March 23, 2022, the Company entered into the Sixth Amendment (the "Sixth Amendment") to the Credit Agreement (as previously amended, the "Credit Agreement") and the Second Amendment (the "Second Amendment") to the Export Credit Agreement (the "Export Credit Agreement") with its lender.

The total collateral at June 30, 2022 and September 30, 2021 was $ 25,215 and $ 25,370 , respectively, and the revolving commitment was $ 35,000 for both periods.

Total availability at June 30, 2022 and September 30, 2021 was $ 14,089 and $ 14,570 , respectively, which exceeds both the collateral and total commitment threshold.

Since the availability was greater than 10.0 % of the revolving commitment as of June 30, 2022 and September 30, 2021, no covenant calculations were required.

The Company has a letter of credit balance of $ 1,800 as of June 30, 2022 and September 30, 2021, respectively.

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

On March 23, 2022, the Company entered into the Sixth Amendment (the "Sixth Amendment") to the Credit Agreement and the Second Amendment (the "Second Amendment") to the Export Credit Agreement with its lender.

The total collateral at December 31, 2022 and September 30, 2022 was $ 21,646 and $ 22,711 , respectively, and the revolving commitment was $ 35,000 for both periods.

Total availability at December 31, 2022 and September 30, 2022 was $ 8,130 and $ 9,403 , respectively, which exceeds both the collateral and total commitment threshold.

Since the availability was greater than 10.0 % of the revolving commitment as of December 31, 2022 and September 30, 2022, no covenant calculations were required.

The Company has a letter of credit balance of $ 1,970 as of December 31, 2022 and September 30, 2022, respectively.

The Credit Agreement has a maturity date of February 19, 2024.

The Sixth Amendment amends the Credit Agreement to, among other things, (i) revise the fixed coverage ratio to exclude the first $ 1,500 of unfunded capital expenditures through April 20, 2023, (ii) increase the letter of credit sub-limit from $ 2,000 to $ 3,000 , (iii) modify the reference rate from the London interbank offered rate ("LIBOR") to the secured overnight financing rate ("SOFR") and (iv) revise 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 under the Export Credit Agreement.

The revolving credit agreement (or "revolver"), as amended, has a rate based on SOFR plus a 1.75 % spread, which was 2.9 % at June 30, 2022 and a rate based on LIBOR plus a 1.75 % spread, which was 1.8 % at September 30, 2021.

The Export Credit Agreement as amended has a rate based on SOFR plus a 1.5 % spread, which was 2.6 % at June 30, 2022 and a rate based on LIBOR plus a 1.25 % spread, which was 1.3 % at September 30, 2021, respectively.

The revolving credit agreement (or "revolver"), as amended, has a rate based on SOFR plus a 2.25 % spread, which was 6.5 % at December 31, 2022 and a rate based on LIBOR plus a 2.25 % spread, which was 4.9 % at September 30, 2022.

The Export Credit Agreement as amended has a rate based on SOFR plus a 1.75 % spread, which was 6.0 % at December 31, 2022 and a rate based on LIBOR plus a 1.75 % spread, which was 4.4 % at September 30, 2022.

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.

Foreign subsidiary borrowings

On February 6, 2023, the Company received a Notice of Event of Default and Reservation of Rights (the “Notice”) from its Lender, with respect to (i) that certain Credit Agreement dated as of August 8, 2018;

and (ii) that certain Export Credit Agreement dated as of December 17, 2018.

The Notice indicated that the Loan Parties to the Credit Agreements have informed Lender of the occurrence of Events of Defaults under the Credit Agreements as a result of the failure to deliver the required Borrowing Base Certificates thereunder and other Events of Default.

The Notice indicated further that Lender is in the process of evaluating the Existing Defaults and reserves all of its rights and remedies under the Credit Agreements and any other Loan Documents with respect thereto.

The failure by the Company to provide timely borrowing base certificates and monthly financial reports for the periods of December 2022, January 2023 and February 2023 in accordance with the terms of the Credit Agreements were a result of information access limitations experienced due to the cybersecurity incident that occurred on December 30, 2022.

As a secondary default, the Company failed to maintain a FCCR not less than 1.1 to 1.0 for the periods of December 2022, January 2023, February 2023 and March 2023.

The secondary default voided the availability spring minimum threshold and triggered the FCCR covenant compliance.

See Note 12, Commitments & Contingencies .

On April 28, 2023, the Company and its subsidiary guarantors entered into a Forbearance Agreement (the "Forbearance Agreement") with J.P.

Morgan Chase Bank, N.A.

in respect to the Event of Default under the Credit Agreement.

Pursuant to the Forbearance Agreement, during the forbearance period defined therein:

(i) the Reserves under the Borrowing Base in the ABL Credit Agreement are reduced to $ 2,000 ;

(ii) the aggregate outstanding principal balance of the Revolving Exposure under the ABL Credit Agreement and Export Revolving Loan may not at any time exceed the lesser of $ 19,000 and the Borrowing Base.

Foreign subsidiary borrowings in USD

Foreign debt consists of:

8 unchanged sentences

Interest rates on foreign borrowings are based on Euribor rates, which range from 0.5 % to 5.6 %.

The Company's Maniago, Italy ("Maniago") location obtained borrowings from one lender in the first nine months of fiscal 2022.

The Company's Maniago, Italy ("Maniago") location obtained borrowings from one lender in the first three months of fiscal 2022.

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

3 unchanged sentences

Debt issuance costs

The Company had debt issuance costs of $ 86 , which are included in the consolidated condensed balance sheets as a deferred charge in other current assets, net of amortization of $ 38 and $ 17 at June 30, 2022 and September 30, 2021, respectively.

As of June 30, 2022 and September 30, 2021, the Paycheck Protection Program loan (the "PPP Loan") balance was $ 0 and $ 4,764 , respectively.

The Company applied for forgiveness of the full amount of the PPP Loan to the Small Business Administration ("SBA") and was notified by the SBA in January 2022 that the full PPP Loan originating amount of $ 5,025 was forgiven.

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

The Company had debt issuance costs of $ 86 , which are included in the consolidated condensed balance sheets as a deferred charge in other current assets, net of amortization of $ 53 and $ 46 at December 31, 2022 and September 30, 2022, 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 and the Company was legally released from the loan.

The gain on extinguishment of loan is included in the consolidated condensed statements of operations in the amount of $ 5,106 (which includes $ 81 of interest forgiven).

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

As of December 31, 2022 and September 30, 2022 the PPP loan balance was $ 0 .

For each interim reporting period, the Company makes an estimate of the effective tax rate it expects to be applicable for the full fiscal year for its operations.

This estimated effective rate is used in providing for income taxes on a year-to-date basis.

The Company’s effective tax rate through the first nine months of fiscal 2022 was 1 %, compared with ( 79 )% for the same period of fiscal 2021.

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

The Company’s effective tax rate through the first three months of fiscal 2023 was ( 2.6 )%, compared with 1.3 % for the same period of fiscal 2022.

The decrease in the effective rate was primarily attributable to changes in jurisdictional mix of income in fiscal 2023 compared with the same period of fiscal 2022.

The effective tax rate differs from the U.S.

8 unchanged sentences

Three Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

Service cost $ 6 $ 11

2 unchanged sentences

Amortization of net loss 78 119

Settlement cost 69 — 69 —

Net periodic cost $ 36 $ 57 $ ( 29 ) $ 171

During the nine months ended June 30, 2022 and 2021, the Company made $ 12 and $ 67 in contributions, respectively to its defined benefit pension plans.

Net periodic pension cost (benefit) $ 81 $ ( 32 )

During the three months ended December 31, 2022 and 2021, the Company made $ 8 and $ 0 in contributions, respectively to its defined benefit pension plans.

The Company anticipates making $ 48 in cash contributions to fund its defined benefit pension plans for the balance of fiscal 2023, and will use carryover balances from previous periods that have been available for use as a credit to reduce the amount of cash contributions that the Company is required to make to certain defined benefit plans in fiscal 2023.

2 unchanged sentences

Stock-Based Compensation

The Company has outstanding equity awards under the Company's 2007 Long-Term Incentive Plan ("2007 Plan") and the Company's 2007 Long-Term Incentive Plan (Amended and Restated as of November 16, 2016) (as further amended, the "2016 Plan"), and awards performance and restricted shares under the 2016 Plan.

The Company has outstanding equity awards under the Company's 2007 Long-Term Incentive Plan (the "2007 Plan") and the Company's 2007 Long-Term Incentive Plan (Amended and Restated as of November 16, 2016) (as further amended, the "2016 Plan"), and awards performance and restricted shares under the 2016 Plan.

In fiscal 2023, the Company granted 86 shares under the 2016 Plan to certain key employees.

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

The awards were split into two tranches, comprised of 27 performance-based shares and 59 time-based restricted shares, with a grant date fair value of $ 2.84 per share.

The awards vest over three years .

There were 5 shares forfeited during the period.

In fiscal 2022, the Company granted its non-employee directors 42 restricted shares under the 2016 Plan, with a grant date fair value of $ 6.59 per share, which vests over one year .

One award for 30 restricted shares vested in January 2022.

If all outstanding share awards are ultimately earned and vest at the target number of shares, there are approximately 433 shares that remain available for award at June 30, 2022.

If any of the outstanding share awards are ultimately earned and vest at greater than the target number of shares, up to a maximum of 200 % or 150 % of such target, then a fewer number of shares would be available for award.

Stock-based compensation under the 2016 Plan was $ 309 and $ 378 during the first nine months of fiscal 2022 and 2021, respectively, and $ 4 and $ 85 during the three months ended of fiscal 2022 and 2021, respectively.

As of June 30, 2022, there was $ 394 of total unrecognized compensation cost related to the performance shares and restricted shares awarded under the 2016 Plan.

There were zero shares forfeited during the three month period ended December 31, 2022.

If all outstanding share awards are ultimately earned and vest at the target number of shares, there are approximately 387 shares that remain available for award at December 31, 2022.

If any of the outstanding share awards are ultimately earned and vest at greater than the target number of shares, up to a maximum of 150 % of such target, then a fewer number of shares would be available for award.

Stock-based compensation under the 2016 Plan was $ 122 and $ 161 during the first three months of fiscal 2023 and 2022, respectively.

As of December 31, 2022, there was $ 395 of total unrecognized compensation cost related to the performance shares and restricted shares awarded under the 2016 Plan.

The Company expects to recognize this cost over the next 1.5 years.

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(iii) industrial gas and steam turbine engines for power generation units;

and (iv) other commercial applications.

and (iv) commercial space, semiconductor and other commercial applications.

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.

The following table represents a breakout of total revenue by customer type:

Three Months Ended

June 30, Nine Months Ended

2022 2021 2022 2021

Commercial revenue $ 10,181 $ 8,360

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Three Months Ended

June 30, Nine Months Ended

Net Sales 2022 2021

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Three Months Ended

June 30, Nine Months Ended

Net Sales 2022 2021

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Total $ 21,299 $ 19,247

In addition to the disaggregated revenue information provided above, approximately 58 % and 65 % of total net sales as of June 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 at a point in time.

In addition to the disaggregated revenue information provided above, approximately 54 % and 57 % of total net sales for the three months ended December 31, 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 at a point in time.

Contract Balances

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

The following table contains a roll forward of contract assets and contract liabilities for the period ended December 31, 2022:

Contract assets - Beginning balance, October 1, 2022 $ 10,172

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Less amounts billed to the customers ( 10,692 )

Contract assets - Ending balance, June 30, 2022 $ 11,936

Contract assets - Ending balance, December 31, 2022 $ 11,522

Contract liabilities (included within Accrued liabilities) - Beginning balance, October 1, 2022 $ ( 807 )

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Performance obligations satisfied 426

Contract liabilities (included within Accrued liabilities) - Ending balance, June 30, 2022 $ ( 470 )

There were no impairment losses recorded on contract assets as of June 30, 2022 and September 30, 2021.

Contract liabilities (included within Accrued liabilities) - Ending balance, December 31, 2022 $ ( 1,782 )

There were no impairment losses recorded on contract assets as of December 31, 2022 and September 30, 2022.

Remaining performance obligations

As of June 30, 2022, the Company has $ 69,399 of remaining performance obligations, the majority of which are anticipated to be completed within the next twelve months.

As of December 31, 2022, the Company has $ 84,169 of remaining performance obligations, the majority of which are anticipated to be completed within the next twelve months.

Commitments and Contingencies

On December 30, 2022, the Company became aware of a cyber security issue involving unauthorized access to the Company's system (the "Cyber Incident").

The Company immediately began an investigation and engaged cyber security experts to assist with the assessment of the incident and to help determine what data was impacted.

The Company's investigation uncovered that the threat actor had gained access to certain areas of the Company's systems on or about December 27, 2022.

With the assistance of outside cyber security experts, the Company located and closed the unauthorized access to our systems and identified compromised information, and notified those impacted in accordance with state and federal requirements.

The Company undertook a number of other measures to demonstrate our continued support and commitment to data privacy and protection and coordinated with law enforcement.

The Company maintains $ 3,000 of cybersecurity insurance coverage to limit our exposure to losses such as those related to the Cyber Incident.

Included in the consolidated condensed balance sheets at December 31, 2022, the Company recorded a $ 3,110 liability within accounts payable for costs incurred related to the cyber attack and an insurance receivable of $ 3,000 to other expense (income), net within the consolidated condensed statements of operations.

The Company subsequently received the $ 3,000 insurance proceeds on February 20, 2023.

The Company has incurred, and may continue to incur, certain expenses related to this attack, including expenses associated with additional remediation measures and further investigation of this matter.

The Company will accrue these fees as incurred.

Subsequent Events

The Company has evaluated subsequent events through July 5, 2023, the date the financial statements were available to be issued, and has determined that the following subsequent events require disclosure in the financial statements.

Cyber Incident

On December 30, 2022, the Company became aware of a cyber security issue involving unauthorized access to the Company's systems.

The Company immediately initiated response protocols and an investigation, engaging cyber security experts to assist with the assessment of the incident and to help determine what data was impacted.

See Note 12, Commitments and Contingencies for more information.

Forbearance Agreement

On April 28, 2023, the Company and its subsidiary guarantors entered into a Forbearance Agreement with J.P.

Morgan Chase Bank, N.A.

in respect to its Credit Agreement in response to the Notice of Event of Default and Reservation of Rights notice received on February 6, 2023.

See Note 7, Debt and Subsequent Event for more information.

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

What changed 10-Q

Item 1. Financial Statements