SIFCO INDUSTRIES INC 10-K

Item 8. Financial Statements and Supplementary Data Financial Statements Report of Independent R egistered Public Acc ounting Firm (PCAOB ID : 49 ) 1 Report of Indep endent Registered Public Accounting Firm (PCAOB ID : 248 ) 2 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 1 Report provided in connection with audited financial statements for fiscal year ended 2023. 2 Report provided in connection with audited financial statements for fiscal year ended 2022. 29 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of SIFCO Industries, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of SIFCO Industries, Inc. and its subsidiaries (the Company) as of September 30, 2023, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements and financial statement schedule included under Item 15(a) (collectively, 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, 2023, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has debt maturing in October 2024 and an alternate financing arrangement has yet to be executed. This raises substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit 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 regarding the amounts and disclosures in the financial statements. Our audit 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 audit provides a reasonable basis for our opinion. 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 a critical audit matter 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. Goodwill Impairment Assessment As discussed in Notes 1 and 3 to the consolidated financial statements, the Company’s goodwill balance was $3.5 million at September 30, 2023 and is recorded at the Cleveland, Ohio (“Cleveland”) reporting unit. At July 31, 2023, the Company performed its annual goodwill impairment test by performing a quantitative analysis in lieu of a qualitative analysis and concluded there was no impairment of goodwill. The fair value of the Cleveland 30 Table of Contents reporting unit for the goodwill impairment assessment is estimated utilizing a combination of income (discounted cash flow method) and market valuation (market comparable method) approaches. The income approach involves using cash flow projections developed by management to calculate discounted cash flows, the sum of which is subject to certain adjustments to estimate the business enterprise value. The market approach involves performing research on guideline public companies that are similar in nature to the Company to develop an appropriate valuation multiple to estimate the business enterprise value. The estimated fair values determined by the income approach and market approach are then weighted to estimate the fair value of the Cleveland reporting unit. Significant judgment is required to forecast future cash flows, determine the discount rate applicable to the Cleveland reporting unit, select the appropriate guideline public companies and determine the appropriate market multiples from those guideline public companies. We identified the Company’s annual goodwill impairment test for the Cleveland reporting unit as a critical audit matter because of the significant assumptions management used in its annual impairment test, including the revenue growth rates and margin percentages used in the projected cash flows, the determination of the discount rate applicable to the reporting unit, the identification of comparable guideline public companies and the determination of the appropriate market multiples. Auditing management’s assumptions involved a high degree of auditor judgment and an increase in audit effort, including the use of our valuation specialists, due to the impact these assumptions have on the accounting estimate. Our audit procedures related to the Company’s annual goodwill impairment test included the following, among others: a. We tested the underlying data used by management in its model for completeness and accuracy. b. We developed an independent estimate of the Cleveland reporting unit’s fair value under both the income and market valuation approaches using publicly available market data for the Cleveland reporting unit’s industry and compared our independent estimate to management’s estimate of fair value. c. We utilized our valuation specialists to assist in the following procedures, among others: i. Testing the reasonableness of the discount rate by comparing the inputs used by management to publicly available market data. ii. Evaluating the comparability of the guideline public companies identified by management based upon publicly available market data. iii. Corroborating the market multiples selected by the Company by comparing them publicly available market data. iv. Evaluating the appropriateness of the valuation models used by management and testing their mathematical accuracy. /s/ RSM US LLP We have served as the Company's auditor since 2023. Cleveland, Ohio December 29, 2023 31 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders SIFCO Industries, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheet of SIFCO Industries, Inc. (an Ohio corporation) and subsidiaries (the “Company”) as of September 30, 2022, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for the year then ended, 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 the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit 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 regarding the amounts and disclosures in the financial statements. Our audit 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 audit provides a reasonable basis for our opinion. /s/ GRANT THORNTON LLP We served as the Company’s auditor from 2002 to 2023. Cleveland, Ohio December 22, 2022 32 Table of Contents SIFCO Industries, Inc. and Subsidiaries Consolidated Statements of Operations (Amounts in thousands, except per share data) Years Ended September 30, 2023 2022 Net sales $ 87,022 $ 83,902 Cost of goods sold 79,492 85,757 Gross profit (loss) 7,530 ( 1,855 ) Selling, general and administrative expenses 14,029 11,909 Amortization of intangible assets 233 313 Loss (gain) on disposal of operating assets 1 ( 7 ) Operating loss ( 6,733 ) ( 14,070 ) Interest expense, net 1,348 645 Gain on debt extinguishment — ( 5,106 ) Foreign currency exchange loss, net 9 15 Other expense, net 443 59 Loss before income tax expense (benefit) ( 8,533 ) ( 9,683 ) Income tax expense (benefit) 159 ( 43 ) Net loss $ ( 8,692 ) $ ( 9,640 ) Net loss per share: Basic $ ( 1.47 ) $ ( 1.65 ) Diluted $ ( 1.47 ) $ ( 1.65 ) Weighted-average number of common shares (basic) 5,929 5,830 Weighted-average number of common shares (diluted) 5,929 5,830 See notes to consolidated financial statements. 33 Table of Contents SIFCO Industries, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) (Amounts in thousands) Years Ended September 30, 2023 2022 Net loss $ ( 8,692 ) $ ( 9,640 ) Other comprehensive loss: Foreign currency translation adjustment, net of tax 268 ( 837 ) Retirement plan liability adjustment, net of tax 1,768 1,211 Interest rate swap agreement adjustment, net of tax ( 3 ) 12 Comprehensive loss $ ( 6,659 ) $ ( 9,254 ) See notes to consolidated financial statements. 34 Table of Contents SIFCO Industries, Inc. and Subsidiaries Consolidated Balance Sheets (Amounts in thousands, except per share data) September 30, 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 368 $ 1,174 Receivables, net of allowance for doubtful accounts of $ 242 and $ 111 , respectively 20,196 16,515 Contract asset 10,091 10,172 Inventories, net 8,853 8,969 Refundable income taxes 84 97 Prepaid expenses and other current assets 1,882 1,851 Total current assets 41,474 38,778 Property, plant and equipment, net 36,287 39,272 Operating lease right-of-use assets, net 14,380 15,167 Intangible assets, net 278 477 Goodwill 3,493 3,493 Other assets 81 79 Total assets $ 95,993 $ 97,266 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Current maturities of long-term debt $ 3,820 $ 4,379 Revolver 16,289 11,163 Short-term operating lease liabilities 869 792 Accounts payable 13,497 10,387 Accrued liabilities 6,477 5,868 Total current liabilities 40,952 32,589 Long-term debt, net of current maturities 2,457 3,508 Long-term operating lease liabilities, net of short-term 14,020 14,786 Deferred income taxes, net 142 137 Pension liability 3,417 4,812 Other long-term liabilities 670 744 Shareholders’ equity: Serial preferred shares, no par value, authorized 1,000 shares; 0 shares issued and outstanding at September 30, 2023 and 2022 — — Common shares, par value $ 1 per share, authorized 10,000 shares; issued and outstanding shares 6,105 at September 30, 2023 and 6,040 at September 30, 2022 6,105 6,040 Additional paid-in capital 11,626 11,387 Retained earnings 23,264 31,956 Accumulated other comprehensive loss ( 6,660 ) ( 8,693 ) Total shareholders’ equity 34,335 40,690 Total liabilities and shareholders’ equity $ 95,993 $ 97,266 See notes to consolidated financial statements. 35 Table of Contents SIFCO Industries, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Amounts in thousands) Years Ended September 30, 2023 2022 Cash flows from operating activities: Net (loss) $ ( 8,692 ) $ ( 9,640 ) Adjustments to reconcile net (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 6,404 6,348 Amortization of debt issuance costs 44 40 (Gain) loss on disposal of operating assets 1 ( 7 ) Loss on insurance proceeds received for damaged property 60 — Gain on extinguishment of debt — ( 5,106 ) Inventory valuation accounts ( 1,149 ) 1,639 LIFO effect ( 305 ) 729 Share transactions under employee stock plan 304 322 Deferred income taxes 5 ( 48 ) Other long-term liabilities 269 19 Changes in operating assets and liabilities: Receivables ( 3,304 ) 2,633 Contract assets 81 2,702 Inventories 1,872 443 Refundable income taxes 13 4 Prepaid expenses and other current assets ( 76 ) ( 138 ) Other assets 60 ( 4 ) Accounts payable 2,575 808 Accrued liabilities 322 ( 419 ) Accrued income tax and other 153 ( 27 ) Net cash (used in) provided by operating activities ( 1,363 ) 298 Cash flows from investing activities: Proceeds from disposal of property, plant and equipment 20 7 Capital expenditures ( 2,454 ) ( 3,199 ) Net cash used for investing activities ( 2,434 ) ( 3,192 ) Cash flows from financing activities: Proceeds from term note — 261 Proceeds from long term debt — 2,245 Repayments of long-term debt ( 1,086 ) ( 1,243 ) Proceeds from revolving credit agreement 80,041 79,802 Repayments of revolving credit agreement ( 74,915 ) ( 77,569 ) Proceeds from short-term debt borrowings 5,483 4,132 Repayments of short-term debt borrowings ( 6,642 ) ( 3,894 ) Net cash provided by financing activities 2,881 3,734 Increase (decrease) in cash and cash equivalents ( 916 ) 840 Cash and cash equivalents at beginning of year 1,174 346 Effects of exchange rate changes on cash and cash equivalents 110 ( 12 ) Cash and cash equivalents at end of year $ 368 $ 1,174 See notes to consolidated financial statements. 36 Table of Contents SIFCO Industries, Inc. and Subsidiaries Supplemental disclosure of Cash Flow Information (Amounts in thousands) Years Ended September 30, 2023 2022 Cash paid during the year: Cash paid for interest $ ( 1,324 ) $ ( 585 ) Cash paid for income tax, net $ ( 16 ) $ ( 19 ) Non-cash investing and financing activities: Additions to property, plant & equipment - incurred but not yet paid $ 230 $ 372 See notes to consolidated financial statements. 37 Table of Contents SIFCO Industries, Inc. and Subsidiaries Consolidated Statements of Shareholders’ Equity (Amounts in thousands ) Common Shares Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity Balance - September 30, 2021 5,987 $ 11,118 $ 41,596 $ ( 9,079 ) $ 49,622 Comprehensive (loss) income — — ( 9,640 ) 386 ( 9,254 ) Performance and restricted share expense — 428 — — 428 Share transactions under employee stock plans 53 ( 159 ) — — ( 106 ) Balance - September 30, 2022 6,040 11,387 31,956 ( 8,693 ) 40,690 Comprehensive (loss) income — — ( 8,692 ) 2,033 ( 6,659 ) Performance and restricted share expense — 375 — — 375 Share transactions under employee stock plans 65 ( 136 ) — — ( 71 ) Balance - September 30, 2023 6,105 $ 11,626 $ 23,264 $ ( 6,660 ) $ 34,335 See notes to consolidated financial statements. 38 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Amounts in thousands, except per share data) 1. Summary of Significant Accounting Policies A. DESCRIPTION OF BUSINESS SIFCO Industries, Inc. and its subsidiaries are engaged in the production of forgings and machined components primarily in the Aerospace and Energy ("A&E"), Defense and Commercial Space markets. The Company’s operations are conducted in a single business segment, "SIFCO" or the "Company." SIFCO operates from multiple locations. SIFCO manufacturing facilities are located in Cleveland, Ohio ("Cleveland"); Orange, California ("Orange"); and Maniago, Italy ("Maniago"). Cybersecurity Incident During fiscal 2023, the Company’s domestic operations were impacted by the Cybersecurity Incident ("Cyber Incident") which resulted in production delays and delayed shipments due to information access limitations. The Company has since completed data recovery and restoration from the cyber incident. See Note 11 , Commitments and Contingencies. B. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The U.S. dollar is the functional currency for all the Company’s U.S. operations and its non-operating non-U.S. subsidiaries. For these operations, all gains and losses from completed currency transactions are included in income. The functional currency for the Company's other non-U.S. subsidiaries is the Euro. Assets and liabilities are translated into U.S. dollars at the rates of exchange at the end of the period, and revenues and expenses are translated using average rates of exchange which approximate the rates in effect at the date of the transaction. Foreign currency translation adjustments are reported as a component of accumulated other comprehensive loss in the consolidated statements of shareholders’ equity. C. CASH EQUIVALENTS 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, 2023 and 2022. D. CONCENTRATIONS OF CREDIT RISK Receivables are presented net of allowance for doubtful accounts of $ 242 and $ 111 at September 30, 2023 and 2022, respectively. Accounts receivable outstanding longer than the contractual payment terms are considered past due. The Company writes off accounts receivable when they become uncollectible. In fiscal 2023 $ 16 of accounts receivable were written off against the allowance for doubtful accounts, while $ 53 were written off in fiscal 2022. Bad debt expense totaled $ 143 in fiscal 2023 and was a $ 3 benefit in fiscal 2022. Most of the Company’s receivables represent trade receivables due from manufacturers of turbine engines and aircraft components as well as turbine engine overhaul companies located throughout the world, including a significant concentration of U.S. based companies. In fiscal 2023, 12 % of the Company’s consolidated net sales were from one of its largest customers; and 32 % of the Company's consolidated net sales were from the three largest customers and their direct subcontractors, which individually accounted for 12 %, 10 % 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 23 % of the Company's consolidated net sales were from two of the largest customers and their direct subcontractors which individually accounted for 12 %, and 11 %, 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 2023 and 2022. At September 30, 2023, one of the Company’s largest customers had an outstanding net accounts receivable balance of 11 % of the total net accounts receivable; and one of the largest customers and their direct subcontractors collectively had an outstanding net accounts receivable which accounted for 13 % of total net accounts receivable. At September 30, 2022, three of the Company’s largest customers had outstanding net accounts receivable 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. The Company 39 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) performs ongoing credit evaluations of its customers’ financial conditions. The Company believes its allowance for doubtful accounts is sufficient based on the credit exposures outstanding at September 30, 2023. E. INVENTORY VALUATION For a portion of the Company's inventory, cost is determined using the last-in, first-out (“LIFO”) method. For approximately 19 % and 42 % of the Company’s inventories at September 30, 2023 and 2022, 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 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, and accrued reserves of $ 669 and $ 1,538 as of September 30, 2023 and 2022, 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. In order to accurately reflect the value of inventory, the Company wrote down inventory for obsolete and excess inventory, and accrued reserves of $ 3,380 and $ 3,546 as of September 30, 2023 and 2022. F. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost net of accumulated depreciation. Depreciation is generally computed using the straight-line method. Depreciation is provided in amounts sufficient to amortize the cost of the assets over their estimated useful lives. Depreciation provisions are based on estimated useful lives: (i) buildings, including building improvements - 5 to 40 years; (ii) machinery and equipment, including office and computer equipment - 3 to 20 years; (iii) software - 3 to 7 years (included in machinery and equipment); and (iv) leasehold improvements - 6 to 15 years range represent the remaining life or length of the lease, whichever is less (included in buildings). The Company's property, plant and equipment assets by major asset class at September 30 consist of: 2023 2022 Property, plant and equipment: Land $ 949 $ 913 Buildings 17,016 16,553 Machinery and equipment 96,874 93,510 Total property, plant and equipment 114,839 110,976 Less: Accumulated depreciation 78,552 71,704 Property, plant and equipment, net $ 36,287 $ 39,272 Depreciation expense was $ 6,170 and $ 6,035 in fiscal 2023 and 2022, respectively. G. LONG-LIVED 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. A triggering event is a change in circumstances that indicates the carrying value of the asset group may not be recoverable. 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. Fiscal 2023 The Company continuously monitors potential triggering events to determine if further testing is necessary. In the first, second, third and fourth quarters, the Company evaluated triggering events and did not identify any indicators that the asset groups might be impaired. 40 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) Fiscal 2022 The Company continuously monitors triggers to determine if further testing is necessary. 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. H. GOODWILL AND INTANGIBLE ASSETS Goodwill represents the excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill is subject to impairment testing if triggered in the interim, and if not, on an annual basis. The Company has selected July 31 as the annual impairment testing date. The first step of the goodwill impairment test compares the fair value of a reporting unit (as defined) with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered impaired. However, if the carrying amount exceeds the fair value, the Company should recognize an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill allocated to that reporting unit. See Note 3, Goodwill and Intangibles Assets , for further discussion of the July 31, 2023 and 2022 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, 2023. 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. Intangible assets are amortized over their useful lives ranging from one year to ten years . 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 - Long-Lived Asset Impairment for further discussion. I. 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 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, 2023 2022 Net loss $ ( 8,692 ) $ ( 9,640 ) Weighted-average common shares outstanding (basic and diluted) 5,929 5,830 Net loss per share – basic and diluted: $ ( 1.47 ) $ ( 1.65 ) Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share 202 270 J. REVENUE RECOGNITION The Company recognizes revenue using the five-step revenue recognition model in which it depicts the transfer of goods to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. 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. 41 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) 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 determination 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. When the criteria to recognize revenue over time are not met, revenue is recognized at point in time. Under this method, transferring control of the good or service to the customer satisfies the performance obligation to recognize revenue at a point in time. Transfer of control is satisfied when the Company has the right to present for payment and/or the customer has legal title, physical possession, significant risks and rewards of ownership and/or accepted the asset. 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. 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 after 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. 42 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) Contract Balances Contract assets on the consolidated balance sheets are recognized when control is transferred to the customer over-time and the Company does not have the contractual right to bill for the related performance obligations. In these instances, revenue recognized exceeds the amount billed to the customer and the right to payment is not solely subject to the passage of time. Amounts do not exceed their net realizable value. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. Payments from customers are received based on the terms established in the contract with the customer. K. LEASES 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. The Company primarily leases its manufacturing buildings, specifically at its Orange location, as well as certain machinery and office equipment. The Company determines if a contract contains a lease based on whether the contract conveys the right to control the use of identified assets for a period in exchange for consideration. Upon identification and commencement of a lease, the Company establishes a ROU asset and a lease liability. Operating leases are included in ROU assets, short-term operating lease liabilities, and long-term operating lease liabilities on the consolidated balance sheets. Finance leases are included in property, plant, and equipment, current maturities of long-term debt and long-term debt on the consolidated balance sheets. ROU assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date and duration of the lease term in determining the present value of the future payments. Lease expense for operating leases is recognized on a straight-line basis over the lease term, while the expense for finance leases is recognized as depreciation expense and interest expense using the accelerated interest method of recognition. L. EMPLOYEE RETENTION CREDIT Under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), the Employee Retention Credit ("ERC") is a refundable payroll tax credit for businesses and tax-exempt organizations that were affected during the COVID-19 pandemic. Eligible businesses, both for-profit and not-for-profit, that experienced a full or partial government-ordered suspension of operations or a "significant" decline in gross receipts in any quarter (more than 50% decrease in 2020 from 2019, and more than 20% in 2021) could receive a quarterly refundable payroll tax credit. The Company, with reasonably assured qualification, submitted and received approval for refunds under the ERC program. As no authoritative guidance exists under U.S. GAAP for reporting ERCs, the Company adopted International Accounting Standards (“IAS”) 20 – Accounting for Government Grants and Disclosure of Government Assistance which permits the recording and presentation of either the gross amount as other income or netting the credit against related expense. The Company recorded a gross benefit of $ 1,772 , which represented $ 1,688 claimed as refund and $ 84 in interest income. The ERC was recognized as a reduction in other manufacturing and selling, general and administrative expenses and allocated to the financial statement categories from which the payroll taxes were originally incurred. The Company recorded benefits to cost of goods sold of $ 1,452 , selling, general and administrative expense of $ 236 and interest income $ 84 , respectively and recorded selling, general and administrative expense of $ 354 for professional fees related to the tax credit in the consolidated condensed statements of operations during the twelve months ended September 30, 2023. M. IMPACT OF RECENTLY ADOPTED ACCOUNTING STANDARDS None. N. IMPACT OF NEWLY ISSUED ACCOUNTING STANDARDS 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 43 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) 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, this ASU is effective for the Company beginning October 1, 2023. The effect of adopting 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 July 2023, the FASB issued ASU 2023-03, “ Presentation of Financial Statement (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718) ”, to amend various SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No. 120, among other things. The ASU does not provide any new guidance so there is no transition or effective date associated with it. The Company is currently assessing the impact of adopting ASU 2023-03 on the consolidated financial statements and related disclosures. In November 2023, the FASB issued ASU 2023-07, " Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" , that would enhance disclosures for significant segment expenses for all public entities required to report segment information in accordance with ASC 280. ASC 280 requires a public entity to report for each reportable segment a measure of segment profit or loss that its chief operating decision maker (“CODM”) uses to assess segment performance and to make decisions about resource allocations. The amendments in ASU 2023-07 improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more useful financial analyses. Currently, Topic 280 requires that a public entity disclose certain information about its reportable segments. For example, a public entity is required to report a measure of segment profit or loss that the CODM uses to assess segment performance and make decisions about allocating resources. ASC 280 also requires other specified segment items and amounts such as depreciation, amortization and depletion expense to be disclosed under certain circumstances. The amendments in ASU 2023-07 do not change or remove those disclosure requirements. The amendments in ASU 2023-07 also do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply the amendments in ASU 2023-07 retrospectively to all prior periods presented in the financial statements. The Company is currently assessing the impact of adopting ASU 2023-07 on the consolidated financial statements and related disclosures. In December 2023, the FASB issued ASU 2023-09, " Income Taxes (Topic 740): Improvements to Income Tax Disclosures" . ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. Early adoption is permitted. A public entity should apply the amendments in ASU 2023-09 prospectively to all annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of this standard on our consolidated financial statements and related disclosures. O. USE OF ESTIMATES Accounting principles generally accepted in the U.S. require management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent liabilities, at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the period in preparing these financial statements. Actual results could differ from those estimates. P. RESEARCH AND DEVELOPMENT Research and development costs are expensed as they are incurred. Research and development expenses were nominal in fiscal 2023 and 2022. 44 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) Q. DEBT ISSUANCE COSTS Debt issuance costs are capitalized and amortized over the life of the related debt. Amortization of debt issuance costs is included in interest expense in the consolidated statements of operations. R. ACCUMULATED OTHER COMPREHENSIVE LOSS The components of accumulated other comprehensive loss as shown on the consolidated balance sheets at September 30 are as follows: 2023 2022 Foreign currency translation adjustment, net of income tax $ ( 5,928 ) $ ( 6,196 ) Net retirement plan liability adjustment, net of income tax ( 741 ) ( 2,509 ) Interest rate swap agreement, net of income tax 9 12 Total accumulated other comprehensive loss $ ( 6,660 ) $ ( 8,693 ) 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 Interest Rates Swap Adjustment Accumulated Other Comprehensive Loss Balance at September 30, 2021 ( 5,359 ) ( 3,720 ) — ( 9,079 ) Other comprehensive (loss) income before reclassifications ( 837 ) 527 12 ( 298 ) Amounts reclassified from accumulated other comprehensive loss — 684 684 Net current-period other comprehensive (loss) income ( 837 ) 1,211 12 386 Balance at September 30, 2022 ( 6,196 ) ( 2,509 ) 12 ( 8,693 ) Other comprehensive income (loss) before reclassifications 268 1,341 ( 3 ) 1,606 Amounts reclassified from accumulated other comprehensive loss — 427 427 Net current-period other comprehensive income (loss) 268 1,768 ( 3 ) 2,033 Balance at September 30, 2023 $ ( 5,928 ) $ ( 741 ) $ 9 $ ( 6,660 ) The following table reflects the changes in accumulated other comprehensive loss related to the Company for September 30, 2023 and 2022: Amount reclassified from accumulated other comprehensive loss Details about accumulated other comprehensive loss components 2023 2022 Affected line item in the Consolidated Statement of Operations Amortization of Retirement plan liability: Net actuarial gain 1,659 1,003 (1) Settlements/curtailments 108 208 (1) 1,767 1,211 Total before taxes — — Income tax expense $ 1,767 $ 1,211 Net of taxes (1) These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. See Note 8, Retirement Benefit Plans for further discussion. 45 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) S. INCOME TAXES The Company files a consolidated U.S. federal income tax return and tax returns in various state and local jurisdictions. The Company’s Irish and Italian subsidiaries also file tax returns in their respective jurisdictions. The Company provides deferred income taxes for the temporary difference between the financial reporting basis and tax basis of the Company’s assets and liabilities. Such taxes are measured using the enacted tax rates that are assumed to be in effect when the differences reverse. Deductible temporary differences result principally from recording certain expenses in the financial statements in excess of amounts currently deductible for tax purposes. 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 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. The Company maintains a valuation allowance against its deferred tax assets when management believes it is more likely than not that all or a portion of a deferred tax asset may not be realized. Changes in valuation allowances are recorded in the period of change. In determining whether a valuation allowance is warranted, the Company evaluates factors such as prior earnings history, expected future earnings, carry-back and carry-forward periods and tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset. The Tax Cut and Jobs Act (the "Act") includes provisions for Global Intangible Low-Taxed Income (“GILTI”) wherein minimum taxes are imposed on foreign income in excess of a deemed return on the tangible assets of foreign corporations. This income will effectively be taxed at a 10.5% tax rate. GILTI was effective for the Company starting in fiscal 2019. The Company has elected to account for GILTI as a component of tax expense in the period in which the Company is subject to the rules. T. FAIR VALUE MEASUREMENTS Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. In determining fair value, the Company utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. Based on the examination of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories: Level 1 - Quoted market prices in active markets for identical assets or liabilities Level 2 - Observable market based inputs or unobservable inputs that are corroborated by market data Level 3 - Unobservable inputs that are not corroborated by market data A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The book value of cash equivalents, accounts receivable, and accounts payable are considered to be representative of their fair values because of their short maturities. The carrying value of debt is considered to approximate the fair value based on the borrowing rates currently available to us for loans with similar terms and maturities. Fair value measurements of non-financial assets and non-financial liabilities are primarily used in goodwill, other intangible assets and long-lived assets impairment analysis, the valuation of acquired intangibles and in the valuation of assets held for sale. Goodwill and intangible assets are valued using Level 3 inputs. Defined benefit plans can be valued using Level 1, Level 2, Level 3 or a combination of Level 1, 2 and 3 inputs. See Note 8, Retirement Benefit Plans for further discussion. 46 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) U. SHARE-BASED COMPENSATION 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 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. V. GOING CONCERN In accordance with ASU 2014-15, " Presentation of Financial Statements—Going Concern (Subtopic 205-40) ("ASC 205-40") ", the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. This evaluation requires management to perform two steps. 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 substantial doubt is raised, management is required to consider whether its plans that are not yet fully implemented are probable of both being implemented and effective in alleviating that doubt. In the event substantial doubt is raised, disclosures in the notes to the consolidated financial statements of management’s plans and management’s conclusion as to whether the substantial doubt exists or has been alleviated are required. 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. This step shall 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. The Company has debt maturing in October 2024. As a result of this condition, there is 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. The Company cannot provide assurances that it will be successful in restructuring the 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 maturity date of its obligations under the Credit Agreements. See Note 5 , Debt and Subsequent Event and Note 14 , Subsequent Events. W. RECLASSIFICATIONS None. 2. Inventories Inventories at September 30 consist of: 2023 2022 Raw materials and supplies $ 1,684 $ 2,968 Work-in-process 4,061 3,356 Finished goods 3,108 2,645 Total inventories $ 8,853 $ 8,969 If the FIFO method had been used for the entire Company, inventories would have been $ 9,634 and $ 9,939 higher than reported at September 30, 2023 and 2022, respectively. LIFO benefit was $ 305 in fiscal 2023 and expense of $ 729 in fiscal 2022. In fiscal 2023, results showed a reduction of inventory resulting in liquidations of LIFO inventory quantities. The estimated liquidation of LIFO inventory quantities results in a projected increase in cost of goods sold of $ 1,476 during fiscal 2023. 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 $ 180 of LIFO liquidation in fiscal 2022. 47 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) 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 recorded an inventory reserve to adjust to net realizable value of $ 669 and $ 1,538 as of September 30, 2023 and 2022, respectively. The Company recorded an inventory reserve to adjust for obsolete and excess inventory of $ 3,380 and $ 3,546 as of September 30, 2023 and 2022. 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 $ 2,149 and $ 3,087 for years ended September 30, 2023 and 2022, respectively. 3. Goodwill and Intangible Assets The Company’s intangible assets by major asset class subject to amortization as of: September 30, 2023 Weighted Average Life at September 30, Original Cost Accumulated Amortization Impairment Currency Translation Net Book Value Intangible assets: Trade name 8 years $ 1,876 $ 1,876 $ — $ — $ — Technology asset 5 years 1,869 1,869 — — — Customer relationships 10 years 13,589 13,346 — 35 278 Total intangible assets $ 17,334 $ 17,091 $ — $ 35 $ 278 September 30, 2022 Intangible assets: Trade name 8 years $ 1,876 $ 1,868 $ — $ — $ 8 Technology asset 5 years 1,869 1,869 — — — Customer relationships 10 years 13,589 13,036 — ( 84 ) 469 Total intangible assets $ 17,334 $ 16,773 $ — $ ( 84 ) $ 477 The amortization expense on identifiable intangible assets for fiscal 2023 and 2022 was $ 233 and $ 313 , respectively. Amortization expense associated with the identified intangible assets is expected to be as follows: Amortization Expense Fiscal year 2024 $ 159 Fiscal year 2025 119 Goodwill is not amortized, but is subject to an annual impairment test. 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. These valuation techniques use estimates and assumptions including, but not limited to, the determination of appropriate market comparable, projected future cash flows (including timing and profitability), discount rate reflecting the risk inherent in future cash flows, perpetual growth rate, and projected future economic and market conditions (Level 3 inputs). Although the Company believes its assumptions are reasonable, actual results may vary significantly and may expose the Company to material impairment charges in the future. The methodology for determining fair values was consistent for the periods presented. 48 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) 2023 and 2022 Annual Goodwill Impairment Tests SIFCO performed its annual impairment test as of July 31, 2023 and 2022, respectively, for the Cleveland, Ohio ("Cleveland") reporting unit which is the only reporting unit that carries goodwill. Results determined that the fair value of the reporting unit exceeded the carrying value at each assessment date. As a result, no impairment was required as of September 30, 2023 and 2022, respectively. Goodwill is deductible for tax purposes. Changes in the net carrying amount of goodwill were as follows: Balance at September 30, 2021 $ 3,493 Goodwill impairment adjustment — Currency translation — Balance at September 30, 2022 3,493 Goodwill impairment adjustment — Currency translation — Balance at September 30, 2023 $ 3,493 4. Accrued Liabilities Accrued liabilities at September 30 consist of: 2023 2022 Accrued employee compensation and benefits $ 2,888 $ 2,705 Accrued workers’ compensation 648 912 Contract liabilities 1,150 807 Other accrued liabilities 1,791 1,444 Total accrued liabilities $ 6,477 $ 5,868 5. Debt and Subsequent Event Debt at September 30 consists of: 2023 2022 Revolving credit agreement $ 16,289 $ 11,163 Foreign subsidiary borrowings 5,771 7,101 Finance lease obligations 142 192 Other, net of unamortized debt issuance cost $ 9 and $ 20 364 594 Total debt 22,566 19,050 Less – current maturities ( 20,109 ) ( 15,542 ) Total long-term debt $ 2,457 $ 3,508 Credit Agreement and Security Agreement The Company's asset-based Credit Agreement (as amended, the "Credit Agreement"), Security Agreement (“Security Agreement”) and Export Credit Agreement (as amended, the "Export Credit Agreement") are secured by substantially all the assets of the Company and its U.S. subsidiaries and a pledge of 66.67 % of the stock of its first-tier non-U.S. subsidiaries. The Credit Agreement (as amended by Seventh Amendment (the "Seventh Amendment") described below), consists of a senior secured revolving credit facility with a maximum borrowing of $ 23,000 . The revolving commitment through the Export Credit which lends amounts to the Company on foreign receivables is $ 7,000 . The Credit Agreement and the Export Agreement were amended on August 9, 2023, when the Company and certain of its subsidiaries (collectively, the "borrowers") entered into the Seventh Amendment to the Credit Agreement and the Third Amendment (the "Third Amendment") to the Export Credit Agreement, in each case, with JPMorgan Chase Bank, N.A., a national banking association, (the "Lender"). The combined maximum borrowings was reduced to $ 30,000 (from $ 35,000 ); and the maximum borrowing under the Credit Agreement was 49 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) decreased to $ 23,000 (from $ 28,000 ) and the revolving commitment through the Export Agreement remained unchanged at $ 7,000 . The Seventh Amendment amends the Credit Agreement to, among other things, (i) advanced the loan maturity date to December 31, 2023; (ii) provided a waiver of Existing Defaults and concludes the forbearance period as described under the Forbearance Agreement dated April 28, 2023; (iv) 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 Revolving Commitment, less the Availability Block, if applicable, the Borrowing Base, and in combination with the Export Revolving Loan under the Export Credit Agreement to $ 18,000 through September 30, 2023 and $ 19,000 thereafter; (v) the Reserves under the Borrowing Base in the ABL Credit Agreement were reduced to $ 1,500 through September 30, 2023 and $ 2,000 thereafter. The Third Amendment amends the Export Credit Agreement to (i) modified the loan maturity date to December 31, 2023 and (ii) provided waiver of Existing Defaults and concludes the forbearance period as described under the Forbearance Agreement dated April 28, 2023. Lender’s agreement was subject to satisfaction of certain post closing deliverables, including: (i) one or more proposed term sheets which provide for the refinancing of all of the Obligations, in each case in an amount sufficient to repay the Obligations in full, by no later than September 19, 2023; (ii) a Confidential Information Memorandum ("CIM"), by no later than September 20, 2023; and (iii) a duly executed term sheet providing for the refinancing of all of the Obligations in an amount sufficient to repay the Obligations in full, by no later than October 8, 2023. The Credit Agreement contains affirmative and negative covenants and events of defaults. Prior to the Seventh Amendment, the Credit Agreement required the Company to maintain a fixed charge coverage ratio ("FCCR") to be less than 1.1 to 1.0 as of the last day of any calendar month; provided that the fixed charge coverage ratio will not be tested unless (i) a default has occurred and is continuing, (ii) when the combined availability was less than or equal to the greater of (x) 10 % of the lesser of the combined commitments or (y) 10 % of the combined borrowing base, and $ 2,000 , for three or more business days in any consecutive 30 day period. However, the Seventh Amendment provides that the Company will not permit the fixed charge coverage ratio to be less than 1.1 to 1.0 as of the last day of any calendar month; provided that the fixed charge coverage ratio will not be tested unless availability falls below the Reserves under the Borrowing Base in the ABL Credit Agreement of $ 1,500 . On November 8, 2023, the Company entered into the Eighth Amendment to the Credit Agreement (the "Eighth Amendment") with its Lender. The Eighth Amendment, among other things, reduced the Reserves under the Borrowing Base in the Credit Agreement to $ 1,500 , or such lesser amount, if any, as may be agreed upon in writing by the Lender in its sole discretion. See Note 14 , Subsequent Event for further discussion. On December 21, 2023, the Company entered into the Ninth Amendment (the "Ninth Amendment") to the Credit Agreement and the Fourth Amendment (the "Fourth Amendment") to the Export Credit Agreement with its lender. The Ninth Amendment amends the Credit Agreement to, among other things, to: (i) reflect the incurrence by borrowers of the Subordinated Loan and the execution and delivery by borrowers, the Lender and Silk (Mr. Silk is a member of the Board of Directors of the Company and considered a related party) of the Subordinated Loan Documents, and the receipt by borrowers of $ 3,000 in immediately available funds on the Ninth Amendment Effective Date; (ii) delay the maturity date from December 31, 2023 to October 4, 2024, or any earlier date on which the Revolving Commitment is reduced to zero or otherwise terminated pursuant to the terms of the Credit Agreement; (iii) reduce the Revolving Commitment to $ 19,000 from $ 23,000 ; (iv) modify the definition of Borrowing Base to mean, at any time, the sum of (a) 85 % of Eligible Accounts at such time, plus (b) the lesser of (1) 70 % of Eligible Inventory, valued at the lower of cost or market value, determined on a first-in-first-out basis, at such time and (2) the product of 85 % multiplied by the NOLV Percentage identified in the most recent inventory appraisal ordered by the Lender multiplied by Eligible Inventory, valued at the lower of cost or market value, determined on a first-in-first-out basis, at such time, minus (c) Reserves of $ 1,500 , increasing on the first day of each month by $ 250 , commencing on May 1, 2024 and continuing until (and including) August 1, 2024, or such lesser amount, if any, as may be agreed upon in writing by the Lender in its sole discretion (which may be by email from the Lender), plus (d) the PP&E Component; (v) modify the Applicable Margin schedule to reflect the following applicable rates: 2.75 % (CBFR REVSOFR30), 0.25 % (CBFR Spread (CB Floating Rate)), 2.75 % (SOFR Spread), and 0.50 % (Commitment Fee Rate); and (vi) amend and restate subsection (l) of the Reporting Schedule to require, by the 17th day of every month, the delivery of a rolling 13 week cash flow forecast in form acceptable to Lender, which must include a projected to actual results comparison for the week then ended and on a cumulative basis from the beginning of the cash flow forecast. The Fourth Amendment of the Export Credit Agreement, to, among other things, to: (i) reflect the incurrence by borrowers of the Subordinated Loan and the execution and delivery by borrowers, the Lender and Silk of the Subordinated Loan Documents, and the receipt by borrowers of $ 3.0 million in immediately available funds on the Ninth Amendment Effective Date; and (ii) delay the maturity date to October 4, 2024, or any earlier date on which the Revolving Commitment is reduced to zero or otherwise terminated pursuant to the terms thereof. See Note 14 , Subsequent Event for further discussion. 50 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) The Seventh Amendment provides that the Company maintains the Reserves under the Borrowing Base in the ABL Credit Agreement at $ 1,500 . In the event of a default, the Company may not be able to access the revolver, which could impact the ability to fund working capital needs, capital expenditures and invest in new business opportunities. The total collateral at September 30, 2023 and September 30, 2022 was $ 21,089 and $ 22,711 , respectively and the revolving commitment was $ 30,000 and $ 35,000 , respectively. Total availability at September 30, 2023 and September 30, 2022 was $ 2,830 and $ 9,403 , respectively, which exceeds both the collateral and total commitment threshold. Since the availability exceeded the Reserves minimum of $ 1,500 as of September 30, 2023 and 10.0 % of the revolving commitment at September 30, 2022, the FCCR calculation was not required. The Company's letters of credit balance was $ 1,970 for both periods. Borrowings will bear interest at the Lender's established domestic rate or SOFR, plus the applicable margin as set forth in the Seventh Amendment. The revolver has a rate based on SOFR plus 2.25 % spread, which was 7.68 % at September 30, 2023 and a rate based on SOFR plus 2.25 % spread, which was 4.86 % at September 30, 2022. The Export Credit Agreement has a rate based on SOFR plus 1.75 % spread, which was 7.18 % at September 30, 2023 and a rate based on SOFR plus 1.75 % spread, which was 4.36 % at September 30, 2022, 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. Subordinated Promissory Note and Guarantee The Company, in connection with and as a condition to the agreement by JPMorgan Chase Bank, N.A. to consummate the transactions contemplated by the Ninth Amendment and the Fourth Amendment, incurred a secured subordinated loan from Garnet Holdings, Inc., a California corporation owned and controlled by Mark J. Silk (“GHI”) (Mr. Silk is a member of the Board of Directors of the Company and considered a related party), in the original principal amount of $ 3,000 (the “Subordinated Loan”) on the terms and subject to the conditions of a Subordinated Secured Promissory Note (the “Subordinated Promissory Note”). The obligations of borrowers under the Subordinated Loan mature on October 4, 2024. Interest accrues on the then-outstanding principal amount at a rate of 14 % per annum and shall be paid in kind (and not in cash) by capitalization as additional principal ("PIK Interest") each six-month period after the date hereof in arrears. The Company agreed to pay to Mr. Silk a fully earned and non-refundable fee in an amount equal to $ 150 , which fee shall be due and payable in full on, and subject to the occurrence of the Maturity Date or such earlier date on which the Company’s obligations under the Subordinated Promissory Note are accelerated pursuant to the terms thereof. Borrower’s obligations under the Subordinated Promissory Note are secured by a first priority lien, subject to any liens granted to Lender as described in the Subordination Agreement, on all of borrowers’ accounts, deposit accounts, contract rights, documents, equipment, general intangibles, instruments, inventory, investment property, commercial tort claims, all other goods and personal property whether tangible or intangible and wherever located, and all proceeds of the foregoing. See Note 13, Related Party Transactions and Note 14 , Subsequent Event . The Ninth Amendment, was also subject to including, but not limited to, the execution and delivery by Mark. J. Silk, a member of the Board of Directors of the Company (“Silk”), of a Guaranty Agreement (the “Guaranty”) in favor of Lender pursuant to which Silk guarantees the obligations of borrowers under the Credit Agreement and Export Credit Agreement. The Fee Letter requires the borrowers to pay Silk a fee in an amount equal to $ 760 (the “Guaranty Fee”) in consideration for his agreement to execute and deliver the Guaranty. The Guaranty Fee becomes due and payable on the maturity date. See Note 13 , Related Party Transactions and Note 14 , Subsequent Event . 51 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) Foreign subsidiary borrowings Foreign debt at September 30 consists of: 2023 2022 Term loan $ 3,293 $ 3,818 Short-term borrowings 1,862 2,289 Factor 616 994 Total debt $ 5,771 $ 7,101 Less – current maturities ( 3,386 ) ( 4,078 ) Total long-term debt $ 2,385 $ 3,023 Receivables pledged as collateral $ 1,247 $ 792 Interest rates are based on Euribor rates plus spread which range from 0.5 % to 7.9 %. In September 2020, Maniago entered into a long-term term debt agreement in the amount of $ 1,465 , which was used to repay existing debt and for working capital purposes. The long-term loan repayment schedule is over a 72 month period and has a rate based on Euribor plus 3.20 % spread, which was 6.96 % at September 30, 2023. 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. The Maniago location factors receivables from one of its customers. The factoring programs are uncommitted, whereby the Company offers receivables for sale to an unaffiliated financial institution, which are then subject to acceptance by the unaffiliated financial institution. Following the sale and transfer of the receivables to the unaffiliated financial institution, the receivables are not isolated from the Company, and effective control of the receivables is not passed to the unaffiliated financial institution, which does not have the right to pledge or sell the receivables. 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 location did not obtain any new borrowings in fiscal 2023. In fiscal 2022, the location obtained borrowings from two separate lenders. 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 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 debt under foreign debt and other debt (excluding finance lease obligations, see Note 10, Leases ) over the next 5 fiscal years are as follows: Minimum debt payments 2024 $ 20,047 2025 961 2026 884 2027 493 2028 48 Thereafter — Total minimum debt payments $ 22,433 52 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) 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 $ 78 and $ 46 at September 30, 2023 and 2022, respectively. Other 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, 2023 and 2022 the PPP loan balance was $ 0 and $ 0 , respectively. 6. Revenue 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; (ii) airframe applications for a variety of aircraft; (iii) industrial gas and steam turbine engines for power generation units; and (iv) other commercial applications. The following table represents a breakout of total revenue by customer type: Years Ended September 30, 2023 2022 Commercial revenue $ 48,358 $ 39,786 Military revenue 38,664 44,116 Total $ 87,022 $ 83,902 The following table represents revenue by the various components: Years Ended September 30, Net Sales 2023 2022 Aerospace components for: Fixed wing aircraft $ 40,094 $ 39,474 Rotorcraft 16,369 15,602 Energy components for power generation units 23,033 17,396 Commercial product and other revenue 7,526 11,430 Total $ 87,022 $ 83,902 The following table represents revenue by geographic region based on the Company's selling operation locations: Years Ended September 30, Net Sales 2023 2022 North America $ 66,067 $ 68,333 Europe 20,955 15,569 Total $ 87,022 $ 83,902 In addition to the disaggregating revenue information provided above, approximately 46 % and 56 % of total net sales as of September 30, 2023 and 2022, 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 Generally, payment is due upon the shipment of goods. 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 53 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) 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. In circumstances where prepayments are required and payment is made prior to satisfaction of performance obligations, a contract liability is established. If the satisfaction of the performance obligation occurs over time, the contract liability is reversed over the course of production. If the satisfaction of the performance obligation is point in time, the contract liability reverses upon shipment. The following table contains a roll forward of contract assets and contract liabilities for the period ended September 30, 2023 and 2022: Contract assets - Ending balance, September 30, 2021 $ 12,874 Additional revenue recognized over-time 46,747 Less amounts billed to the customers ( 49,449 ) Contract assets - Ending balance, September 30, 2022 $ 10,172 Additional revenue recognized over-time 40,265 Less amounts billed to the customers ( 40,346 ) Contract assets - Ending balance, September 30, 2023 $ 10,091 Contract liabilities (included within Accrued liabilities) - Ending balance, September 30, 2021 $ ( 236 ) Payments received in advance of performance obligations ( 1,691 ) Performance obligations satisfied 1,120 Contract liabilities (included within Accrued liabilities) - Ending balance, September 30, 2022 $ ( 807 ) Payments received in advance of performance obligations ( 2,242 ) Performance obligations satisfied 1,899 Contract liabilities (included within Accrued liabilities) - Ending balance, September 30, 2023 $ ( 1,150 ) There were no impairment losses recorded on contract assets during the year ended September 30, 2023 and 2022, respectively. Remaining performance obligations As of September 30, 2023 and 2022, the Company has $ 89,591 and $ 81,852 , respectively, of remaining performance obligations, the majority of which are anticipated to be completed within the next twelve months . 7. Income Taxes The components of loss before income tax provision (benefit) are as follows: Years Ended September 30, 2023 2022 U.S. $ ( 10,260 ) $ ( 6,985 ) Non-U.S. 1,727 ( 2,698 ) Loss before income tax benefit $ ( 8,533 ) $ ( 9,683 ) 54 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) Income tax provision (benefit) consist of the following: Years Ended September 30, 2023 2022 Current income tax provision (benefit): U.S. federal $ — $ — U.S. state and local 2 14 Non-U.S. 152 ( 9 ) Total current tax provision 154 5 Deferred income tax provision (benefit): U.S. federal 10 10 U.S. state and local 3 3 Non-U.S. ( 8 ) ( 61 ) Total deferred tax provision (benefit) 5 ( 48 ) Income tax provision (benefit) $ 159 $ ( 43 ) The income tax provision (benefit) in the accompanying consolidated statements of operations differs from amounts determined by using the statutory rate as follows: Years Ended September 30, 2023 2022 Loss before income tax provision (benefit) $ ( 8,533 ) $ ( 9,683 ) Income tax provision (benefit) at U.S. federal statutory rates ( 1,792 ) ( 2,033 ) Tax effect of: Foreign rate differential ( 331 ) ( 46 ) Permanent items 83 ( 1,032 ) State and local income taxes 5 18 Federal tax credits ( 179 ) ( 157 ) Valuation allowance 2,363 3,198 Other 10 9 Income tax provision (benefit) $ 159 $ ( 43 ) 55 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) Deferred tax assets and liabilities at September 30 consist of the following: 2023 2022 Deferred tax assets: Net U.S. operating loss carryforwards $ 8,107 $ 6,166 Net non-U.S. operating loss carryforwards 740 1,023 Employee benefits 1,088 1,514 Inventory reserves 569 1,045 Allowance for doubtful accounts 62 33 Intangibles 759 1,223 Foreign tax credits 1,724 1,724 Other tax credits 1,882 1,684 Other 2,130 1,171 Total deferred tax assets $ 17,061 $ 15,583 Deferred tax liabilities: Depreciation ( 6,548 ) ( 7,298 ) Prepaid expenses ( 355 ) ( 286 ) Other ( 408 ) ( 419 ) Total deferred tax liabilities $ ( 7,311 ) $ ( 8,003 ) Net deferred tax assets 9,750 7,580 Valuation allowance ( 9,892 ) ( 7,717 ) Net deferred tax liabilities $ ( 142 ) $ ( 137 ) At September 30, 2023, the Company has a non-U.S. tax loss carryforward of approximately $ 5,988 related to the Company’s non-operating and Italian subsidiaries. The Company's non-operating subsidiary ceased operations in 2007 and therefore, a valuation allowance has been recorded against the deferred tax asset related to the Irish tax loss carryforward because it is unlikely that such operating loss can be utilized unless the Irish subsidiary resumes operations. Additionally, a valuation allowance has been recorded against the deferred tax asset related to the Italian tax loss carryforward as it is not more-likely-than-not that the deferred tax asset will be realizable. The non-operating and Italian tax loss carryforwards do not expire. The Company has $ 1,724 of foreign tax credit carryforwards that are subject to expiration in fiscal 2025-2028, $ 1,705 of U.S. general business tax credits that are subject to expiration in 2035-2043, $ 1,001 of interest expense carryforward that do not expire, and $ 33,205 of U.S. Federal tax loss carryforwards with $ 9,107 subject to expiration in fiscal 2037 and $ 24,098 that do not expire. A valuation allowance has been recorded against the deferred tax assets related to the foreign tax credit carryforwards, U.S. general business credits, interest expense carryforward, and U.S. Federal tax loss carryforwards. In addition, the Company has $ 178 of U.S. state tax credit carryforwards subject to expiration in fiscal 2024 and $ 28,561 of U.S. state and local tax loss carryforwards subject to expiration in fiscal 2024-2043. The U.S. state tax credit carryforwards and U.S. state and local tax loss carryforwards have been fully offset by a valuation allowance. The Company reported liabilities for uncertain tax positions, excluding any related interest and penalties, of $ 22 for both fiscal 2023 and 2022. If recognized, $ 22 of the fiscal 2023 uncertain tax positions would impact the effective tax rate. As of September 30, 2023, the Company had accrued interest of $ 17 and recognized $ 1 for interest and penalties in operations. The Company classifies interest and penalties on uncertain tax positions as income tax expense. A summary of activity related to the Company’s uncertain tax position is as follows: 2023 2022 Balance at beginning of year $ 22 $ 22 Decrease due to lapse of statute of limitations — — Balance at end of year $ 22 $ 22 56 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) The Company is subject to income taxes in the U.S. federal jurisdiction, Ireland, Italy and various states and local jurisdictions. The Company believes it has appropriate support for its federal income tax returns. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for fiscal years prior to 2020, state and local income tax examinations for fiscal years prior to 2017, or non-U.S. income tax examinations by tax authorities for fiscal years prior to 2007. The Company does not record deferred taxes on the undistributed earnings of its non-U.S. subsidiaries as it does not expect the temporary differences related to those unremitted earnings to reverse in the foreseeable future. As of September 30, 2023, the Company's non-U.S. subsidiaries had accumulated deficits of approximately $ 731 . Future distributions of accumulated earnings of the Company's non-U.S. subsidiaries may be subject to nominal withholding taxes. 8. Retirement Benefit Plans Defined Benefit Plans The Company and certain of its subsidiaries sponsor four defined benefit pension plans covering some of its employees. The Company’s funding policy for its defined benefit pension plans is based on an actuarially determined cost method allowable under Internal Revenue Service regulations. One of the defined benefit pension plans covers non-union employees of the Company’s U.S. operations who were hired prior to March 1, 2003. Benefit accruals ceased in March 2003. A second defined benefit plan covered employees at a business location that closed in December 2013, at which time benefits accruals ceased. The third defined pension plan covers one of the Company's union groups at the Cleveland location. Benefits accruals under this plan ceased in March 2020, when the then-current union disclaimed all interest in the bargaining unit. Curtailment occurred; however, there was no impact to consolidated financial statements. 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. The plan is a severance entitlement payable to the Italian employees who qualified prior to December 27, 2006. The plan is considered an unfunded defined benefit plan and its liability is measured as the actuarial present value of the vested benefits to which the employees would be entitled if they separated at the consolidated balance sheet date. The Company uses a September 30 measurement date for its U.S. defined benefit pension plans. Net pension expense, benefit obligations and plan assets for the Company-sponsored defined benefit pension plans consist of the following: Years Ended September 30, 2023 2022 Service cost $ 24 $ 42 Interest cost 1,090 714 Expected return on plan assets ( 1,101 ) ( 1,362 ) Amortization of net loss 319 476 Settlement cost 108 208 Net pension expense for defined benefit plans (non-operating expense) $ 440 $ 78 57 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) The status of all defined benefit pension plans at September 30 is as follows: 2023 2022 Benefit obligations: Benefit obligations at beginning of year $ 22,795 $ 29,330 Service cost 24 42 Interest cost 1,090 714 Actuarial (gain) ( 1,463 ) ( 5,265 ) Benefits paid ( 1,814 ) ( 1,970 ) Currency translation 25 ( 56 ) Benefit obligations at end of year $ 20,657 $ 22,795 Plan assets: Plan assets at beginning of year $ 17,937 $ 23,211 Actual return on plan assets 979 ( 3,376 ) Employer contributions 92 72 Benefits paid ( 1,814 ) ( 1,970 ) Plan assets at end of year $ 17,194 $ 17,937 Underfunded status at end of year $ ( 3,463 ) $ ( 4,858 ) As shown within the above table, there was a decrease in the benefit obligation of $ 2,138 to $ 20,657 at September 30, 2023 compared with $ 22,795 at September 30, 2022. The primary drivers that attributed to the change pertained to increase in the discount rate used partially offset by asset returns. Plans in which Benefit Obligations Exceed Assets at September 30, 2023 2022 Reconciliation of funded status: Plan assets less than projected benefit obligations $ ( 3,463 ) $ ( 4,858 ) Amounts recognized in accumulated other comprehensive loss: Net loss 4,504 6,271 Net amount recognized in the consolidated balance sheets $ 1,041 $ 1,413 Amounts recognized in the consolidated balance sheets are: Accrued liabilities ( 46 ) ( 46 ) Pension liability ( 3,417 ) ( 4,812 ) Accumulated other comprehensive loss – pretax 4,504 6,271 Net amount recognized in the consolidated balance sheets $ 1,041 $ 1,413 Where applicable, the following weighted-average assumptions were used in developing the benefit obligation and the net pension expense for defined benefit pension plans: Years Ended September 30, 2023 2022 Discount rate for liabilities 5.6 % 5.2 % Discount rate for expenses 5.1 % 2.9 % Expected return on assets 6.2 % 6.4 % 58 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) The Company held investments in pooled separate accounts and common/collective trusts prior to February 2023, in which the fair value of assets of the underlying funds are determined in the following ways: • U.S. equity securities are comprised of domestic equities that are priced using the closing price of the applicable nationally recognized stock exchange, as provided by industry standard vendors such as Interactive Data Corporation. • Non-U.S. equity securities are comprised of international equities. These securities are priced using the closing price from the applicable foreign stock exchange. • U.S. bond funds are comprised of domestic fixed income securities. Securities are priced by industry standards vendors, such as Interactive Data Corporation, using inputs such as benchmark yields, reported trades, broker/dealer quotes, or issuer spreads. ◦ Included as part of the U.S. bond funds, was a private placement funds, for which fair market value is not always commercially available, the fair value of these investments is primarily determined using a discounted cash flow model, which utilizes a discount rate based upon the average of spread surveys collected from private-market intermediaries who are active in both primary and secondary transactions, and takes into account, among other factors, the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements. • Non-U.S. bond funds are comprised of international fixed income securities. Securities are priced by Interactive Data Corporation, using inputs such as benchmark yields, reported trades, broker/dealer quotes, or issuer spreads. • Stable value fund is comprised of short-term securities and cash equivalent securities, which seek to provide high current income consistent with the preservation of principal and liquidity. As permitted under relevant securities laws, securities in this type of fund are valued initially at cost and thereafter adjusted for amortization of any discount or premium. During fiscal 2023, the Company transferred its investments to a new custodian. The Company held investments in mutual funds and money market funds, in which the fair value of assets of the underlying funds are determined in the following ways: • Mutual funds are valued at the daily closing price as reported by the fund. Mutual funds held are open-ended mutual funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily net asset value (“NAV”) and to transact at that price. The mutual funds held by the Plan are deemed to be actively traded. • Money market funds are valued at NAV, which approximates fair value. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. However, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement result. 59 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) The following tables set forth the asset allocation of the Company’s defined benefit pension plan assets and summarize the fair values and levels within the fair value hierarchy for such plan assets as of September 30, 2023 and 2022: September 30, 2023 Asset Amount Level 1 U.S. equity securities: Large value $ 879 $ 879 Large blend 3,124 3,124 Large growth 1,060 1,060 Mid blend 599 599 Small blend 499 499 Non-U.S. equity securities: Foreign large blend 615 615 Diversified emerging markets 272 272 Global equity securities 577 577 U.S. debt securities: Inflation protected bond — Intermediate term bond 5,676 5,676 Multi-sector bond 2,044 2,044 Stable value: Cash or money market 1,849 1,849 Total plan assets at fair value $ 17,194 $ 17,194 September 30, 2022 Asset Amount Level 2 Level 3 U.S. equity securities: Large value $ 393 $ 393 $ — Large blend 7,637 7,637 — Large growth 302 302 — Mid blend 167 167 — Small blend 359 359 — Non-U.S. equity securities: Foreign large blend 1,276 1,276 — Diversified emerging markets 63 63 — U.S. debt securities: Inflation protected bond 971 971 — Intermediate term bond 6,332 4,503 1,829 High inflation bond 78 78 — Non-U.S. debt securities: Emerging markets bonds — — — Stable value: Short-term bonds 359 359 — Total plan assets at fair value $ 17,937 $ 16,108 $ 1,829 60 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) Changes in the fair value of the Company’s Level 3 investments during the years ending September 30, 2023 and 2022 were as follows: 2023 2022 Balance at beginning of year $ 1,829 $ 2,108 Actual return on plan assets 94 ( 279 ) Purchases and sales of plan assets, net ( 1,923 ) — Balance at end of year $ — $ 1,829 Investment objectives relative to the assets of the Company’s defined benefit pension plans are to (i) optimize the long-term return on the plans’ assets while assuming an acceptable level of investment risk; (ii) maintain an appropriate diversification across asset categories and among investment managers; and (iii) maintain a careful monitoring of the risk level within each asset category. Asset allocation objectives are established to promote optimal expected returns and volatility characteristics given the long-term time horizon for fulfilling the obligations of the Company’s defined benefit pension plans. Selection of the appropriate asset allocation for the plans’ assets was based upon a review of the expected return and risk characteristics of each asset category in relation to the anticipated timing of future plan benefit payment obligations. The Company has a long-term objective for the allocation of plan assets. 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 plans' investments to vary around the objective without triggering a reallocation of the assets, as noted by the following: Percent of Plan Assets at September 30, Asset Allocation Range 2023 2022 U.S. equities 36 % 49 % 30 % to 70 % Non-U.S. equities 8 % 8 % 0 % to 20 % U.S. debt securities 45 % 41 % 20 % to 70 % Non-U.S. debt securities — % — % 0 % to 10 % Other securities 11 % 2 % 0 % to 60 % Total 100 % 100 % External consultants assist the Company with monitoring the appropriateness of the above investment strategy and the related asset mix and performance. To develop the expected long-term rate of return assumptions on plan assets, generally the Company uses long-term historical information for the target asset mix selected. Adjustments are made to the expected long-term rate of return assumptions when deemed necessary based upon revised expectations of future investment performance of the overall investments markets. The Company anticipates making approximately $ 93 in contributions to its defined benefit pension plans during fiscal 2024. The Company has carryover balances from previous periods that may be available for use as a credit to reduce the amount of contributions that the Company is required to make to certain of its defined benefit pension plans in fiscal 2024. The Company’s ability to elect to use such carryover balances will be determined based on the actual funded status of each defined benefit pension plan relative to the plan’s minimum regulatory funding requirements. 61 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) The following defined benefit payment amounts are expected to be made in the future: Years Ending September 30, Projected Benefit Payments 2024 $ 2,295 2025 1,893 2026 1,724 2027 1,669 2028 1,643 2029-2032 7,497 Multi-Employer Plan As noted within Note 12, Business Information, one of the bargaining units previously participated in a multi-employer plan; however, as part of the ratification of a new collective bargaining agreement in December 2019, there was a provision to withdraw from the existing multi-employer plan effective December 31, 2019. The withdrawal resulted in a liability of $ 739 , which was recorded within the costs of goods sold line in fiscal 2020 of the consolidated statements of operations and is included in other long-term liabilities. The liability is payable in quarterly installments over the next 20 years. The next four quarterly installments are recorded in accrued liabilities of the consolidated balance sheet. Defined Contribution Plans Substantially all non-union U.S. employees of the Company and its U.S. subsidiaries are eligible to participate in the Company’s U.S. defined contribution plan. The Company makes non-discretionary, regular matching contributions to this plan equal to an amount that represents one hundred percent ( 100 %) of a participant’s deferral contribution up to one percent ( 1 %) of eligible compensation plus eighty percent ( 80 %) of a participant’s deferral contribution between one percent ( 1 %) and six percent ( 6 %) of eligible compensation. The Company’s regular matching contribution expense for its U.S. defined contribution plan in fiscal 2023 and 2022 was $ 516 and $ 528 , respectively. This defined contribution plan provides that the Company may also make an additional discretionary matching contribution during those periods in which the Company achieves certain performance levels. The Company did not provide additional discretionary matching contributions in either fiscal 2023 and 2022. 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 $ 222 in fiscal 2023 and $ 204 in fiscal 2022. The Company sponsors a defined contribution plan for certain of its Maniago union employees. The plan is a severance entitlement plan payable to Italian employees based on local government laws, which qualifies as a defined contribution plan. 9. Stock-Based Compensation The Company has awarded performance and restricted shares 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"). The aggregate number of shares that may be awarded by the Company under the 2016 Plan is 1,196 shares, less any shares previously awarded and subject to an adjustment for the forfeiture of any unvested shares. In addition, shares that may be awarded are subject to individual recipient award limitations. The shares awarded under the 2016 Plan may be made in multiple forms including stock options, stock appreciation rights, restricted or unrestricted stock, and performance related shares. 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 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 62 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) awarded, depending on the level of the Company’s achievement of its financial performance objectives. Beginning in fiscal 2020, the maximum shares that may be achieved was reduced to 150 % of target. With respect to such performance shares, compensation expense is being accrued based on the probability of meeting the performance target. 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. The performance shares were valued at the closing market price of the Company’s common shares on the date of grant. The vesting of such shares is determined at the end of the performance period. The Company has awarded restricted shares to certain of its directors, officers and other employees of the Company. The restricted shares were valued at the closing market price of the Company’s common shares on the date of grant, and such value was recorded as unearned compensation. 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 approximatel y 420 sh ares that remain available for award at September 30, 2023. 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 $ 375 and $ 428 for fiscal 2023 and 2022, respectively. As of September 30, 2023, there was $ 259 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. The following is a summary of activity related to performance and restricted shares: 2023 2022 Number of Shares Weighted Average Fair Value at Date of Grant Number of Shares Weighted Average Fair Value at Date of Grant Outstanding at beginning of year 305 $ 4.75 406 $ 4.05 Restricted shares awarded 97 3.08 72 7.18 Restricted shares earned ( 126 ) 3.85 ( 75 ) 6.47 Performance shares awarded 27 2.84 44 8.00 Awards forfeited ( 70 ) 3.67 ( 142 ) 4.73 Outstanding at end of year 233 $ 4.65 305 $ 4.75 63 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) 10. Leases The components of lease expense were as follows: Year Ended September 30, 2023 Year Ended September 30, 2022 Lease expense Finance lease expense: Amortization of right-of use assets on finance leases $ 65 $ 46 Interest on lease liabilities 7 4 Operating lease expense 1,681 1,696 Variable lease cost 98 118 Total lease expense $ 1,851 $ 1,864 The following table presents the impact of leasing on the consolidated balance sheet at September 30: Classification to the consolidated balance sheets 2023 2022 Assets: Finance lease assets Property, plant and equipment, net $ 147 $ 202 Operating lease assets Operating lease right-of-use assets, net 14,380 15,167 Total lease assets $ 14,527 $ 15,369 Current liabilities: Finance lease liabilities Current maturities of long-term debt $ 61 $ 61 Operating lease liabilities Short-term operating lease liabilities 869 792 Non-current liabilities: Finance lease liabilities Long-term debt, net of current maturities 81 131 Operating lease liabilities Long-term operating lease liabilities, net of short-term 14,020 14,786 Total lease liabilities $ 15,031 $ 15,770 Supplemental cash flow and other information related to leases were as follows: September 30, 2023 September 30, 2022 Other Information Cash paid for amounts included in measurement of liabilities: Operating cash flows from operating leases $ 1,681 $ 1,693 Operating cash flows from finance leases 8 3 Financing cash flows from finance leases 62 53 Right-of-use assets obtained in exchange for new lease liabilities: Finance leases $ — 206 Operating leases 109 236 64 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) September 30, 2023 September 30, 2022 Weighted-average remaining lease term (years): Finance leases 2.9 3.6 Operating leases 12.5 13.5 Weighted-average discount rate: Finance leases 5.13 % 4.70 % Operating leases 5.93 % 5.93 % Future minimum lease payments under non-cancellable leases as of September 30, 2023 were as follows: Year ending September 30, Finance Leases Operating Leases 2024 $ 66 $ 1,699 2025 36 1,696 2026 29 1,693 2027 21 1,702 2028 — 1,557 Thereafter — 12,740 Total lease payments $ 152 $ 21,087 Less: Imputed interest ( 10 ) ( 6,198 ) Present value of lease liabilities $ 142 $ 14,889 11. Commitments and Contingencies In the normal course of business, the Company may be involved in ordinary, routine legal actions. The Company cannot reasonably estimate future costs, if any, related to these matters; however, it does not believe any such matters are material to its financial condition or results of operations. The Company maintains various liability insurance coverages to protect its assets from losses arising out of or involving activities associated with ongoing and normal business operations; however, it is possible that the Company’s future operating results could be affected by future costs of litigation. On December 30, 2022, the Company became aware of a cyber security issue involving unauthorized access to the Company's system. 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. The Company recorded costs of $ 60 to other expense (income), net of $ 3,000 insurance recovery and $ 1,215 to selling, general and administrative expense in the twelve months ended September 30, 2023, resulting in net IT incident costs of $ 1,275 in the twelve months ended September 30, 2023. The Company received the $ 3,000 of insurance proceeds on February 20, 2023. At September 30, 2023, the Company recorded $ 965 related to the Cyber Incident in accounts payable on the consolidated condensed balance sheets. The Company has incurred, and may continue to incur, certain expenses related to this attack, including expenses associated with additional remediation measures. The Company will accrue these costs as incurred. 65 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) 12. Business Information The Company identifies itself as one operating segment, SIFCO, which is a manufacturer of forgings and machined components for the A&E markets. Geographic net sales are based on location of customer. The United States of America is the single largest country for unaffiliated customer sales, accounting for 59 % and 72 % of consolidated net sales in fiscal 2023 and 2022, respectively. No other single country represents greater than 10% of consolidated net sales in fiscal 2023 and 2022. Net sales to unaffiliated customers located in various European countries accounted for 29 % and 19 % of consolidated net sales in fiscal 2023 and 2022, respectively. Net sales to unaffiliated customers located in various Asian countries accounted for 7 % and 6 % of consolidated net sales in fiscal 2023 and 2022, respectively. Other North American countries represent 6 % and 3 % of consolidated net sales in fiscal 2023 and 2022, respectively. The majority of the Company's operations and identifiable assets are located within the United States with the exception of its non-U.S. subsidiary located in Maniago, Italy. The identifiable assets for the Company's foreign subsidiaries as of September 30, 2023 were $ 16,460 , or 17 % of total assets, compared with $ 15,219 , of 16 % of total assets, as of September 30, 2022. 2023 2022 Long-Lived Assets United States $ 47,261 51,801 Europe 7,258 6,686 $ 54,519 58,487 At September 30, 2023, approximately 189 of the hourly plant personnel are represented by three separate collective bargaining agreements. The table below shows the expiration dates of the collective bargaining agreements. Plant locations Expiration date Cleveland, Ohio (unit 1) May 15, 2025 Cleveland, Ohio (unit 2) March 31, 2025 Maniago, Italy June 30, 2024 The Company is a party to collective bargaining agreements ("CBA") with certain employees located in Cleveland, which has two bargaining units. 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, was ratified in fiscal 2022. The Maniago location is party to the National Collective Agreement in Metalworking, which was renewed in February 2021. 13. Related Party Transactions On December 21, 2023, the Company entered into the Ninth Amendment to the Credit Agreement and Fourth Amendment to the Export Credit agreement with its lender incurring a secured subordinated loan from Garnet Holdings, Inc., a California corporation owned and controlled by Mark J. Silk (“GHI”), in the original principal amount of $ 3,000 (Mr. Silk is a member of the Board of Directors of the Company and considered a related party) and Mr. Silk delivered a personal guaranty in favor of the Company’s senior lender of certain Company indebtedness under the Credit Agreement and the Export Credit Agreement. See Note 5, Debt and Subsequent Event for further information. 14. Subsequent Events The Company has evaluated subsequent events through December 29, 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. On November 8, 2023, the Company entered into the Eighth Amendment to the Credit Agreement with its lender which reduced the Reserves under the Borrowing Base in the Credit Agreement to $ 1,500 , or such lesser amount, if any, as may be agreed upon in writing by the Lender in its sole discretion. See Note 5 , Debt and Subsequent Event for more information. 66 Table of Contents SIFCO Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Continued) On December 21, 2023, the Company entered into the Ninth Amendment to the Credit Agreement and the Fourth Amendment to the Export Credit Agreement with its lender. The Ninth Amendment amends the Credit Agreement to, among other things, (i) reduce the Revolving Credit Agreement to $ 19,000 , (ii) modifies the loan maturity date to October 4, 2024; (iii) incurred a secured subordinated loan from Garnet Holdings, Inc., a California corporation owned and controlled by Mark J. Silk (“GHI”) of $ 3,000 (iv) full personal guarantee from Mr. Silk; (v) maintains the Reserves under the Borrowing Base in the ABL Credit Agreement at $ 1,500 , increasing on the first day of each month by $ 250 , commencing on May 1, 2024 and continuing until (and including) August 1, 2024, or such a lesser amount, if any, as may be agreed upon in writing by the Lender in its sole discretion; (vi) modify the Applicable Margin schedule to reflect the following applicable rates to 2.75 % (CBFR REVSOFR30), 0.25 % (CBFR Spread (CB Floating Rate)), 2.75 % (SOFR Spread), and 0.50 % (Commitment Fee Rate) The Fourth Amendment of the Export Credit Agreement, which lends amounts to the Company on foreign receivables remained unchanged at $ 7,000 million, and extends the loan maturity date to October 4, 2024. See Note 5 , Debt and Subsequent Event for further information. On December 21, 2023, the Company issued a Subordinated Secured Promissory Note (the “Subordinated Promissory Note”) in the original principal amount of $ 3,000 , on the terms and subject to the conditions of: (a) a Subordinated Secured Promissory Note in the original principal amount of $ 3,000 issued by borrowers to GHI, (b) a Subordination and Intercreditor Agreement (the “Subordination Agreement”) by and among borrowers, GHI and Lender, and (c) a Side Letter by and among borrowers and Mark J. Silk (the “Fee Letter,” and together with the Subordinated Promissory Note and Subordination Agreement, the “Subordinated Loan Documents”). Interest accrues at a rate of 14 % per annum. See Note 5, Debt and Subsequent Event for further information. 67 Table of Contents Schedule II SIFCO Industries, Inc. and Subsidiaries Valuation and Qualifying Accounts Years Ended September 30, 2023 and 2022 (Amounts in thousands) Balance at Beginning of Period Additions (Reductions) Charged to Expense Additions (Reductions) Charged to Other Accounts Deductions Balance at End of Period Year Ended September 30, 2023 Deducted from asset accounts Allowance for doubtful accounts $ 111 $ 143 $ 4 $ ( 16 ) (a) $ 242 Inventory valuation accounts¹ 5,084 188 — ( 930 ) (b) 4,342 Inventory LIFO reserve 9,939 ( 305 ) — — 9,634 Deferred tax valuation allowance 7,717 2,574 ( 399 ) — 9,892 Accrual for estimated liability Workers’ compensation reserve 912 285 — ( 638 ) (c) 559 Year Ended September 30, 2022 Deducted from asset accounts Allowance for doubtful accounts 167 ( 3 ) — ( 53 ) (a) 111 Inventory valuation accounts¹ 3,769 1,983 11 ( 679 ) (b) 5,084 Inventory LIFO reserve 9,210 729 — — 9,939 Deferred tax valuation allowance 4,641 3,360 ( 284 ) — 7,717 Accrual for estimated liability Workers’ compensation reserve 888 741 — ( 717 ) (c) 912 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 (b) Inventory sold or otherwise disposed (c) Payment of workers’ compensation claims Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.