What changed in this filing

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Item 1. Business

2024-01-02 compared with 2022-12-23 · 31 added, 46 removed, 110 unchanged (41% of the section changed)

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

Impact of COVID-19 & Other Factors

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

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

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

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

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

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

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

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

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

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

Cybersecurity Incident

As reported on Forms 8-K filed January 6, 2023 and February 10, 2023, the Company became aware of unauthorized access to the Company's systems on December 30, 2022.

The Company’s domestic operations were impacted by this Cybersecurity Incident ("Cyber Incident") which resulted in production delays and delayed shipments due to information access limitations.

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.

The Company has since completed data recovery and restoration from the cyber incident.

See Note 11 , Commitments and Contingencies.

Principal Products and Services

SIFCO is a manufacturer of forgings and machined components for the A&E markets.

SIFCO is a manufacturer of forgings and machined components for the Aerospace and Defense, Energy and Commercial Space markets.

We provide our customers with envelope and precision forgings, rough and finished machined components, as well as sub-assemblies.

SIFCO services both original equipment manufacturers ("OEM") and aftermarket customers with products that range in size from approximately 2 to 1,200 pounds.

SIFCO services both original equipment manufacturers ("OEM"), Tier 1 and Tier 2 suppliers, and aftermarket service providers with products that range in size from approximately 2 to 1,200 pounds.

The Company's strategic vision is to build a leading A&E company positioned for long-term, stable growth and profitability.

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

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

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

In fiscal 2023, commercial and military revenues accounted for 55.6% and 44.4% of revenues, respectively, compared with 47.4% in commercial revenues and 52.6% in military revenues in fiscal 2022.

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

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

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

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

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

Raw Materials

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

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

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

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

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

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

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

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

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

The residual impacts of COVID-19 continue to be assessed by the Company.

While demand for travel declined at a rapid pace beginning in the second half of our fiscal 2020, commercial air travel has progressively shown signs of recovery to pre-pandemic levels in fiscal 2023 with increasing air traffic, in both domestic and international markets.

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

military for aircraft, helicopters, vehicles, and munitions.

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

The Company's top programs include Blackhawk (H60), C-130, F-18 and F-35.

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

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

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

As the pandemic has continued, the decrease in passenger air travel demand has impacted and continues to impact our customers' orders for new aircraft.

Current estimates regarding the return of passenger air traffic to pre-COVID-19 levels is another two to four years as recovery has been extremely uneven.

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

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

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

Domestic and international travel are now at pre-pandemic levels.

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

In fiscal year 2023, build rates on these platforms continued to rebound.

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

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SIFCO has positioned itself to be less dependent on OEM production, but with flexibility to address the demand cycle in this segment as well as continuing to support the aftermarket.

• SIFCO also supplies components to the commercial space industry, which is rapidly evolving.

An increasing number of commercial companies are participating in the space launch and reentry industry, which brings continuous development, innovation in technologies, and new approaches in this market.

• SIFCO supplies components to the commercial space industry, which is rapidly evolving.

An increasing number of companies are participating in the space launch and reentry programs, which brings continuous development, innovation in technologies, and new approaches in this market.

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

• SIFCO supplies components to the semiconductor industry, for use in the manufacture of microchips.

These components require very challenging material properties and purity.

Our technical expertise has allowed SIFCO to gain customer certifications for a variety of materials in the this application.

We believe this market holds growth opportunity for SIFCO.

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

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SIFCO believes it can expand its market share by (i) continuing to increase capacity utilization;

(ii) broadening its product lines through investment in equipment that expands its manufacturing capabilities;

(ii) broadening its product lines through

investment in equipment that expands its manufacturing capabilities;

and (iii) developing new customers in markets where the participants require similar technical competence and service as those in the A&E industries.

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During fiscal 2023, SIFCO had one direct customer that accounted for 12% of consolidated net sales;

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

and 32% of the Company's consolidated net sales were from three customers and their direct subcontractors, which individually accounted for 12%, 10% and 10% of net sales, respectively.

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

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No material part of SIFCO’s business is seasonal.

For additional financial information about geographic areas, refer to Note 12, Business Information, of the consolidated financial statements.

For additional financial information about geographic areas, refer to Note 12, Business Information .

Backlog of Orders

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

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

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

The increase in total backlog as of September 30, 2023 compared with the previous year is primarily due to tim ing of annual awards, SIFCO's customers adjusting orders due to recovery within the commercial airline industry, new content awarded, and extended raw material lead times.

Backlog information may not be indic ative of future sales.

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Human Capital Management

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

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

facility, which primarily manufactures commercial aerospace product.

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

SIFCO employed approximat ely 348 f ul l-time employees at the beginning of fiscal 2023, which increased to ap proximatel y 368 employees at the end of fiscal 2023.

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

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

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

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

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

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

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

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

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

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

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

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

What changed 10-K

Item 1. Business