What changed in this filing

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Item 1A. Risk Factors

2024-01-02 compared with 2022-12-23 · 52 added, 52 removed, 244 unchanged (30% of the section changed)

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Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and financial condition.

We face risks related to the COVID-19 pandemic , its affects, and actions in response thereto, which have exacerbated or could further exacerbate conditions in our risk factors noted below.

Risks Related to Our Business and Operations

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

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

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

In addition to the near term impact of the COVID-19 pandemic on the commercial aerospace industry, there is risk that the industry implements longer-term strategies involving reduced capacity, shifting route patterns, and mitigation strategies related to impacts from COVID-19 and the risk of future public health crises.

Residual negative impacts of the COVID-19 pandemic on the commercial aerospace industry may continue for a prolonged period of time.

We continue to experience changes in demand from our customers in this market and a reduction in demand for commercial aircraft will adversely impact our net sales and operating results.

There is risk that the industry reintroduces mitigation strategies in response to residual impacts from COVID-19, which could include reduced capacity and shifting route patterns.

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

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

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

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

Any of these factors would have a significant impact on the demand within the commercial aerospace industry.

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at other times, defense spending can decrease.

Future levels of defense

spending are uncertain and subject to congressional debate.

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

Any reduction in future U.S.

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The failure to realize amounts reflected in our backlog could materially adversely affect our business, financial condition and results of operations in future periods.

SIFCO business is dependent on a small number of direct and indirect customers.

SIFCO business is dependent on a few number of direct and indirect customers.

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

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

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

In fiscal 2023, one direct customer accounted for approximately 12% percent of our consolidated net sales and three direct customers and their direct subcontractors accounted for approximately 32% of the Company’s consolidated net sales.

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

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

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

We continue to provide for remote work for certain of our employees, which may increase our vulnerability to cyber and other information technology risks.

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

Furthermore, the Company may have access to sensitive, confidential, or personal data or information that may be subject to privacy and security laws, regulations, or other contractually-imposed controls.

Despite our use of reasonable and appropriate controls, material security breaches, theft, misplaced, lost or corrupted data, programming, or employee errors and/or malfeasance could lead to the compromise or improper use of such sensitive, confidential, or personal data or information, resulting in possible negative consequences, such as fines, ransom demands, penalties, loss of reputation, competitiveness or customers, or other negative consequences resulting in adverse impacts to our results of operations or financial condition.

Despite our use of reasonable and appropriate controls, material security breaches, theft, misplaced, lost or corrupted data, programming, or

employee errors and/or malfeasance could lead to the compromise or improper use of such sensitive, confidential, or personal data or information, resulting in possible negative consequences, such as fines, ransom demands, penalties, loss of reputation, competitiveness or customers, or other negative consequences resulting in adverse impacts to our results of operations or financial condition.

SIFCO relies on our suppliers to meet the quality and delivery expectations of our customers.

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

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

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

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

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

It is unclear how our supply chain could

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

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

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It also is not possible for SIFCO to obtain insurance to protect against all operational risks and liabilities.

Substantial claims resulting from an incident in excess of the indemnification we receive and our insurance coverage would harm our financial condition, results of operations and cash flows.

Substantial claims resulting from an incident in excess of the indemnification we receive and

our insurance coverage would harm our financial condition, results of operations and cash flows.

Moreover, any accident or incident for which we are liable, even if fully insured, could negatively affect our standing with our customers and the public, thereby making it more difficult for us to compete effectively, and could significantly impact the cost and availability of adequate insurance in the future.

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

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

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

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

As further described in Item 9A in our Annual Report on Form 10-K, for the fiscal year ended September 30, 2023, management determined that SIFCO’s internal control over financial reporting and its disclosure controls and procedures were not effective.

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

Management identified deficiencies in its oversight and backup and recovery controls that represent a material weakness in internal control over financial reporting.

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

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

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

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

As the demand for employees returns to pre-COVID-19 levels, if we continue to experience increased turnover and/or are unable to quickly hire employees and subsequently retain our workforce, or we experience a significant or prolonged work stoppage in such an environment, we may experience increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees, and our ability to secure new work and our results of operations and financial condition could be adversely affected.

If we continue to experience turnover and/or are unable to quickly hire employees and subsequently retain our workforce, or we experience a significant or prolonged work stoppage in such an environment, we may experience increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees, and our ability to secure new work and our results of operations and financial condition could be adversely affected.

Additionally, two of our locations are parties to collective bargaining agreements.

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

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

In particular, the recent

conflict between Russia and Ukraine has caused shortages in the availability of fuel.

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

Risks Related to Financial Matters

A decline in operating results or access to financing may have an adverse impact on our liquidity position.

Our ability to make required payments of principal and interest on our debt will depend in part on our future performance, which, to a certain extent, is subject to general economic, financial, competitive, political and other factors, some of which are beyond our control.

Accordingly, conditions could arise that could limit our ability to generate sufficient cash flows or to access borrowings to enable us to fund our liquidity needs, which could further limit our financial flexibility or impair our ability to obtain alternative financing sufficient to repay our debt at maturity.

We believe that our cash on hand, together with funds generated by our operations and borrowings under our existing credit facilities, will provide us with sufficient liquidity and capital resources to meet our operating needs for the foreseeable future.

Significant assumptions underlie this belief however, including, among other things, assumptions relating to future sales volumes, the successful implementation of our business strategies and that there will be no material adverse developments in our competitive market position, business, liquidity or capital requirements.

In the event that we do not have sufficient liquidity, we may be required to seek additional capital, reduce or cut back our operating activities, capital expenditures or otherwise alter our business strategy.

If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted.

If we incur additional debt, the agreements governing that debt may contain significant financial and other covenants that may materially restrict our operations.

The Company may not be able to obtain refinancing or additional financing on favorable terms or at all.

The Company has identified certain risks related to the Company's ability to continue as a going concern.

See Note 1, Going Concern for further information.

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

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

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

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

Global economic conditions may adversely impact our business, operating results or financial condition.

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

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

downturn that has adversely impacted many businesses, including ours.

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

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

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

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

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

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

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Changes to these estimates and assumptions could have a material adverse effect on our financial position, results of operations or cash flows.

Differences between actual investment returns and our assumed long-term returns on assets will result in changes in future pension expense and the funded status of our Plans, and could increase future funding of the Plans.

Differences between actual investment returns and our assumed long-term returns

on assets will result in changes in future pension expense and the funded status of our Plans, and could increase future funding of the Plans.

Changes in these factors affect our plan funding, cash flows, earnings, and shareholders’ equity.

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

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

The tightening of the credit market and standards, as well as capital market volatility, could negatively impact our ability to obtain additional debt financing on terms equivalent to our existing Credit Agreement.

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General Risks

Our business is subject to risks associated with widespread public health crises, including the current COVID-19 pandemic.

In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World Health Organization, and the outbreak subsequently became increasingly widespread in the United States and other countries in which we conduct business.

While we continue to actively monitor the pandemic and take steps to mitigate the risks posed by its spread, there is no guarantee that our efforts will mitigate the adverse impacts of COVID-19 or will be effective.

Uncertain factors relating to the COVID-19 pandemic continue to include the duration of the outbreak, the severity of the disease, and the actions taken, or perception of actions that may be taken, to contain or treat its impact, including declarations and/or re-instituting states of emergency, business closures, manufacturing restrictions and a prolonged period of travel, commercial and/or other similar restrictions and limitations.

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

Our business is subject to risks associated with widespread public health crises.

We have continued to see a prolonged residual impact of the COVID-19 pandemic on the economy, our industry, and our business, with increased challenges for customers, labor shortages, supply chain disruptions, and increasing inflation, among others.

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

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

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

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

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

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

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

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

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

The A&E industries continue to be negatively impacted by the residual impacts of the COVID-19 pandemic and its effects as a result of various restrictions on air travel, supply chain disruptions and labor shortages.

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

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

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

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

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

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

Additionally, the pandemic could lead to an extended disruption of economic activity whereby the impact on our consolidated results of operations, financial position and cash flows could be material.

While the potential economic impact brought by and the duration of the coronavirus outbreak may be difficult to assess or predict, the continuation of a widespread pandemic could result in significant or sustained disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.

While the Company believes it has adequate cash/liquidity available to finance its operations, our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, depends on our future performance, which is subject to general economic, financial, competitive and other factors (including the continued impact of COVID-19) beyond our control.

Additionally, the residual impacts of the pandemic could lead to an extended disruption of economic activity whereby the impact on our consolidated results of operations, financial position and cash flows could be material.

While the potential economic impact brought by and the duration of the residual impacts of the coronavirus outbreak may be difficult to assess or predict, the resurgence of a widespread pandemic could result in significant or sustained disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.

While the Company believes it

has adequate cash/liquidity available to finance its operations, our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, depends on our future performance, which is subject to general economic, financial, competitive and other factors (including the continued residual impact of COVID-19) beyond our control.

In addition, while we believe we have taken appropriate steps to maintain a safe workplace to protect our employees from contracting and spreading the coronavirus, we may not be able to prevent the spread of the virus among our employees, face litigation or other proceedings making claims related to unsafe working conditions, inadequate protection of our employees or other claims.

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

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

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

The price of our common stock may fluctuate significantly.

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changes in accounting standards, policies, guidance, interpretations or principles;

changes in general conditions in the domestic and global economies or financial markets, including those resulting from war, incidents of terrorism, health crises (such as the ongoing COVID-19 pandemic) or responses to such events;

changes in general conditions in the domestic and global economies or financial markets, including those resulting from war, incidents of terrorism, health crises or responses to such events;

litigation involving our company or investigations or audits by regulators into the operations of our company or our competitors;

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We maintain standard property casualty insurance coverage for our properties and may be able to recover costs associated with certain natural disasters through insurance;

however, even if covered by insurance, any significant damage or destruction of our facilities due to such events could result in our inability to meet customer delivery schedules and may result in the loss of customers and significant additional costs to SIFCO.

significant additional costs to SIFCO.

Thus, any significant damage or destruction of our properties could have a material adverse effect on our business, financial condition or results of operations.

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

What changed 10-K

Item 1A. Risk Factors