SIFCO INDUSTRIES INC - Quarter Report: 2023 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-5978

SIFCO Industries, Inc.

(Exact name of registrant as specified in its charter)


Ohio						34-0553950
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

970 East 64th Street, Cleveland Ohio						44103
(Address of principal executive offices)						(Zip Code)

(216) 881-8600

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “non-accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares

SIF

NYSE American

The number of the Registrant’s Common Shares, par value $1.00, outstanding at March 31, 2023 was 6,107,648.

Part I. Financial Information

Item 1. Financial Statements

SIFCO Industries, Inc. and Subsidiaries

Consolidated Condensed Statements of Operations

(Unaudited)

(Amounts in thousands, except per share data)


	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Net sales	$	19,242	$	24,568	$	40,541	$	43,815
Cost of goods sold	17,522		23,109		37,560		42,347
Gross profit	1,720		1,459		2,981		1,468
Selling, general and administrative expenses	3,849		2,680		7,129		6,216

Amortization of intangible assets	63		65		124		190
Loss (gain) on disposal of operating assets	14		(2)		3		(2)

Operating loss	(2,206)		(1,284)		(4,275)		(4,936)

Interest expense, net	339		193		614		307
Gain on debt extinguishment	—		(5,106)		—		(5,106)
Foreign currency exchange loss, net	12		3		9		9
Other income, net	(218)		(36)		(35)		(68)
(Loss) income before income tax expense (benefit)	(2,339)		3,662		(4,863)		(78)
Income tax expense (benefit)	28		23		93		(26)


Net (loss) income	$	(2,367)	$	3,639	$	(4,956)	$	(52)










Net (loss) income per share
Basic	$	(0.40)	$	0.62	$	(0.84)	$	(0.01)
Diluted	$	(0.40)	$	0.61	$	(0.84)	$	(0.01)

Weighted-average number of common shares (basic)	5,940		5,840		5,918		5,819
Weighted-average number of common shares (diluted)	5,940		5,961		5,918		5,819

See notes to unaudited consolidated condensed financial statements.

SIFCO Industries, Inc. and Subsidiaries

Consolidated Condensed Statements of Comprehensive (Loss) Income

(Unaudited)

(Amounts in thousands)


	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Net (loss) income	$	(2,367)	$	3,639	$	(4,956)	$	(52)
Other comprehensive (loss) income:
Foreign currency translation adjustment, net of tax	74		(136)		416		(259)
Retirement plan liability adjustment, net of tax	74		119		152		238
Other	—		—		1		—
Comprehensive (loss) income	$	(2,219)	$	3,622	$	(4,387)	$	(73)

See notes to unaudited consolidated condensed financial statements.

SIFCO Industries, Inc. and Subsidiaries

Consolidated Condensed Balance Sheets

(Amounts in thousands, except per share data)


	March 31, 2023		September 30, 2022
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	316	$	1,174
Receivables, net of allowance for doubtful accounts of $113 and $111, respectively	17,395		16,515

Contract assets	10,636		10,172

Inventories, net	11,276		8,969
Refundable income taxes	97		97

Prepaid expenses and other current assets	1,689		1,851


Total current assets	41,409		38,778
Property, plant and equipment, net	38,543		39,272
Operating lease right-of-use assets, net	14,793		15,167
Intangible assets, net	395		477
Goodwill	3,493		3,493
Other assets	80		79

Total assets	$	98,713	$	97,266
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	4,336	$	4,379
Revolver	13,003		11,163
Short-term operating lease liabilities	833		792
Accounts payable	14,869		10,387
Accrued liabilities	5,937		5,868

Total current liabilities	38,978		32,589
Long-term debt, net of current maturities, net of unamortized debt issuance costs	3,309		3,508
Long-term operating lease liabilities, net of short-term	14,416		14,786
Deferred income taxes, net	72		137
Pension liability	4,815		4,812
Other long-term liabilities	684		744

Shareholders’ equity:
Serial preferred shares, no par value, authorized 1,000 shares	—		—
Common shares, par value $1 per share, authorized 10,000 shares; issued and outstanding shares 6,108 at March 31, 2023 and 6,040 at September 30, 2022	6,108		6,040
Additional paid-in capital	11,455		11,387
Retained earnings	27,000		31,956
Accumulated other comprehensive loss	(8,124)		(8,693)
Total shareholders’ equity	36,439		40,690
Total liabilities and shareholders’ equity	$	98,713	$	97,266

See notes to unaudited consolidated condensed financial statements.

SIFCO Industries, Inc. and Subsidiaries

Consolidated Condensed Statements of Cash Flows

(Unaudited, Amounts in thousands)


	Six Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net loss	$	(4,956)	$	(52)

Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization	3,198		3,210
Amortization of debt issuance costs	20		20
Loss (gain) on disposal of operating assets	3		(2)
Loss on insurance proceeds received for non-property claim	110		—

LIFO effect	(199)		383
Share transactions under company stock plan	136		199

Inventory valuation accounts	(1,657)		(189)

Gain on extinguishment of debt	—		(5,106)
Other long-term liabilities	(256)		(107)
Deferred income taxes	(64)		(15)
Changes in operating assets and liabilities:
Receivables	(383)		1,441
Contract assets	(464)		(239)
Inventories	(29)		(2,409)

Prepaid expenses and other current assets	145		490
Other assets	317		4
Accounts payable	3,918		387
Other accrued liabilities	(390)		(1,191)
Accrued income and other taxes	178		(20)

Net cash used for operating activities	(373)		(3,196)

Cash flows from investing activities:

Proceeds from disposal of operating assets	16		2
Capital expenditures	(1,435)		(1,493)

Net cash used for investing activities	(1,419)		(1,491)

Cash flows from financing activities:
Proceeds from long-term debt	—		1,402
Payments on long-term debt	(525)		(696)
Proceeds from revolving credit agreement	37,832		41,912
Repayments of revolving credit agreement	(35,991)		(38,004)



Short-term debt borrowings	2,356		1,623
Short-term debt repayments	(2,856)		(1,755)


Net cash provided by financing activities	816		4,482
Decrease in cash and cash equivalents	(976)		(205)
Cash and cash equivalents at the beginning of the period	1,175		346
Effect of exchange rate changes on cash and cash equivalents	117		(17)
Cash and cash equivalents at the end of the period	$	316	$	124

Supplemental disclosure of cash flow information of operations:
Cash paid for interest	$	(550)	$	(249)
Cash paid for income taxes, net	$	(16)	$	(15)
Non-cash investing activities:
Additions to property, plant & equipment - incurred but not yet paid	$	319	$	422

See notes to unaudited consolidated condensed financial statements.

SIFCO Industries, Inc. and Subsidiaries

Consolidated Condensed Statements of Shareholders’ Equity

(Unaudited, Amounts in thousands)


	Six Months Ended March 31, 2023
	Common			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares	Amount









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

Comprehensive (loss) income	—	—		—		(4,956)		569		(4,387)


Performance and restricted share expense	—	—		207		—		—		207
Share transactions under equity-based plans	68	68		(139)		—		—		(71)
Balance - March 31, 2023	6,108	$	6,108	$	11,455	$	27,000	$	(8,124)	$	36,439


	Three Months Ended March 31, 2023
	Common			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares	Amount
Balance - December 31, 2022	6,072	$	6,072	$	11,406	$	29,367	$	(8,272)	$	38,573




Comprehensive (loss) income	—	—		—		(2,367)		148		(2,219)

Performance and restricted share expense	—	—		85		—		—		85
Share transactions under equity-based plans	36	36		(36)		—		—		—
Balance - March 31, 2023	6,108	$	6,108	$	11,455	$	27,000	$	(8,124)	$	36,439


	Six Months Ended March 31, 2022
	Common			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares	Amount









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

Comprehensive loss	—	—		—		(52)		(21)		(73)


Performance and restricted share expense	—	—		306		—		—		306
Share transactions under equity-based plans	53	53		(160)		—		—		(107)
Balance - March 31, 2022	6,040	$	6,040	$	11,264	$	41,544	$	(9,100)	$	49,748


	Three Months Ended March 31, 2022
	Common			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares	Amount
Balance - December 31, 2021	6,003	$	6,003	$	11,156	$	37,905	$	(9,083)	$	45,981




Comprehensive income (loss)	—	—		—		3,639		(17)		3,622

Performance and restricted share expense	—	—		145		—		—		145
Share transactions under equity-based plans	37	37		(37)		—		—		—
Balance - March 31, 2022	6,040	$	6,040	$	11,264	$	41,544	$	(9,100)	$	49,748

See notes to unaudited consolidated condensed financial statements.

SIFCO Industries, Inc. and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements

(Amounts in thousands, except per share data)

1.Summary of Significant Accounting Policies

A. Principles of Consolidation

The accompanying unaudited consolidated condensed financial statements include the accounts of SIFCO Industries, Inc. and its wholly-owned subsidiaries (collectively, the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation.

The U.S. dollar is the functional currency for all of the Company’s operations in the United States ("U.S.") and its non-operating 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 for the period. Foreign currency translation adjustments are reported as a component of accumulated other comprehensive loss in the unaudited consolidated condensed financial statements.

These unaudited consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s fiscal 2022 Annual Report on Form 10-K. The year-end consolidated balance sheet data was derived from the audited financial statements and disclosures required by accounting principles generally accepted in the U.S. The results of operations for any interim period are not necessarily indicative of the results to be expected for other interim periods or the full year.

B. Accounting Policies

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

C. Net (Loss) Income per Share

The Company’s net (loss) income per basic share has been computed based on the weighted-average number of common shares outstanding. During a period of net loss, zero restricted and performance shares are included in the calculation of diluted earnings per share because the effect would be anti-dilutive. In a period of net income, the net income per diluted share reflects the effect of the Company's outstanding restricted shares and performance shares under the treasury stock method. The dilutive effect is as follows:


	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022


Net (loss) income	$	(2,367)	$	3,639	$	(4,956)	$	(52)

Weighted-average common shares outstanding (basic and diluted)	5,940		5,840		5,918		5,819
Effect of dilutive securities:

Restricted shares	—		100		—		—
Performance shares	—		21		—		—
Weighted-average common shares outstanding (diluted)	5,940		5,961		5,918		5,819


Net (loss) income per share – basic:	$	(0.40)	$	0.62	$	(0.84)	$	(0.01)







Net (loss) income per share – diluted:	$	(0.40)	$	0.61	$	(0.84)	$	(0.01)

Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share	196		196		186		307

D. Going Concern

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

The accompanying consolidated condensed financial statements have been prepared assuming the Company will continue as a going concern. The Company has debt maturing in December 2023 and an alternate financing arrangement has yet to be executed. This condition raises 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 able to provide the post closing deliverables as established under the Seventh Amendment of the Credit Agreement or be successful in restructuring of existing debt obligations, obtaining capital or entering into a strategic alternative transaction which provides sufficient funding for the refinancing of its outstanding indebtedness prior to the maturity date of its obligations under the Credit Agreements. The consolidated condensed financial statements do not include any adjustments to the carrying amount and classification of assets, liabilities, and reported expense that may be necessary if the Company was unable to continue as a going concern. See Note 7, Debt and Subsequent Event and Note 13, Subsequent Events.

E. Recent Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" and subsequent updates. ASU 2016-13 changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The new guidance will replace the current incurred loss approach with an expected loss model. The new expected credit loss impairment model will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt instruments, net investments in leases, loan commitments and standby letters of credit. Upon initial recognition of the exposure, the expected credit loss model requires entities to estimate the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses should consider historical information, current information and reasonable and supportable forecasts, including estimates of prepayments. Financial instruments with similar risk characteristics should be grouped together when estimating expected credit losses. ASU 2016-13 does not prescribe a specific method to make the estimate, so its application will require significant judgment. ASU 2016-13 is effective for public companies in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. However, in November 2019, the FASB issued ASU 2019-10, "Financial Instruments - Credit Loss (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)," which defers the effective date for public filers that qualify as a smaller reporting company ("SRC"), as defined by the Securities and Exchange Commission, to fiscal years after December 15, 2022, including interim periods within those fiscal years. Because SIFCO is considered a SRC, the Company is not required to implement until October 1, 2023. The Company will continue to evaluate the effect of adopting ASU 2016-13 will have on the Company's results within the consolidated statements of operations and financial condition.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. This ASU, along with recently issued ASU 2021-01, which further clarifies the scope of Topic 848, is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2022. ASU 2020-04 was effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022. The Company has not applied any optional expedients and exceptions to date, and will continue to evaluate the impact of the guidance and whether it will apply the optional expedients and exceptions.

F. Reclassification

Certain amounts in prior years have been reclassified to conform to the fiscal 2023 consolidated condensed statement presentation. In fiscal 2023, the Company revised its classification within the consolidated condensed statement of cash flows by moving a prior year amount of $189 of inventories from changes in operating assets and liabilities to adjustments to reconcile net loss to net cash used for operating activities to conform to current period presentation.

2.Inventories

Inventories consist of:


	March 31, 2023		September 30, 2022
Raw materials and supplies	$	2,185	$	2,968
Work-in-process	5,201		3,356
Finished goods	3,890		2,645
Total inventories, net	$	11,276	$	8,969

For a portion of the Company's inventory, cost is determined using the last-in, first-out ("LIFO") method. Approximately 21% and 42% of the Company’s inventories at March 31, 2023 and September 30, 2022, respectively, use the LIFO method. An actual valuation of inventory under the LIFO method is made at the end of each fiscal year based on the inventory levels and costs existing at that time. Accordingly, interim LIFO calculations must be based on management’s estimates of expected year-end inventory levels and costs. Because the actual results may vary from these estimates, the annual results may differ from interim results as they are subject to adjustments based on the differences between the estimates and the actual results. The first-in, first-out (“FIFO”) method is used for the remainder of the inventories, which are stated at the lower of cost or net realizable value ("NRV"). If the FIFO method had been used for the inventories for which cost is determined using the LIFO method, inventories would have been $9,741 and $9,939 higher than reported at March 31, 2023 and September 30, 2022, respectively. Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. The Company estimates net realizable value, excess and obsolescence and shrink reserves for its inventory based upon historical experience, historical and projected sales trends and the age of inventory on hand. As of March 31, 2023 and September 30, 2022, our inventory valuation allowances were $3,753 and $5,084, respectively.

3.Long-lived Assets

The Company reviews the carrying value of its long-lived assets ("asset groups"), including property, plant and equipment, when events and circumstances indicate a triggering event has occurred. This review is performed using estimates of future undiscounted cash flows, which include proceeds from disposal of the asset group. As required by ASC 360 ("Topic 360"), should the carrying value of a asset group exceed the estimated undiscounted future cash flows, then the asset group is considered impaired and an impairment charge is recorded for the amount by which the carrying value of the asset group exceeds its fair value.

The Company continuously monitors for indicators of impairment to determine if further testing is necessary. In the second quarter, the Company evaluated triggering events and did not identify any indicators that the asset groups might be impaired.

4.Goodwill

The Company tests its goodwill for impairment in the fourth fiscal quarter, and in interim periods if certain events occur indicating that the carrying amount of goodwill may be impaired. In the second quarter, the Company evaluated triggering events and determined interim testing was not required.

5. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows:


	March 31, 2023		September 30, 2022
Foreign currency translation adjustment	$	(5,780)	$	(6,196)
Retirement plan liability adjustment, net of tax	(2,357)		(2,509)
Interest rate swap agreement, net of tax	13		12
Total accumulated other comprehensive loss	$	(8,124)	$	(8,693)

6. Leases

The components of lease expense were as follows:


	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022

Finance lease expense:
Amortization of right-of use assets on finance leases	$	18	$	2	$	29	$	14
Interest on lease liabilities	2		—		4		—
Operating lease expense	416		429		839		828

Variable lease cost	25		30		50		60

Total lease expense	$	461	$	461	$	922	$	902

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


	Classification in the consolidated condensed balance sheets	March 31, 2023		September 30, 2022
Assets:
Finance lease assets	Property, plant and equipment, net	$	187	$	202
Operating lease assets	Operating lease right-of-use assets, net	14,793		15,167
Total lease assets		$	14,980	$	15,369

Current liabilities:
Finance lease liabilities	Current maturities of long-term debt	$	64	$	61
Operating lease liabilities	Short-term operating lease liabilities	833		792
Non-current liabilities:
Finance lease liabilities	Long-term debt, net of current maturities	113		131
Operating lease liabilities	Long-term operating lease liabilities, net of short-term	14,416		14,786
Total lease liabilities		$	15,426	$	15,770

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


	March 31, 2023		March 31, 2022
Other Information

Cash paid for amounts included in measurement of liabilities:
Operating cash flows from operating leases	$	844	$	834
Operating cash flows from finance leases	4		—
Financing cash flows from finance leases	30		15
Right-of-use assets obtained in exchange for new lease liabilities:

Operating leases	60		—


	March 31, 2023		September 30, 2022
Weighted-average remaining lease term (years):
Finance leases	3.3		3.6
Operating leases	13.0		13.5
Weighted-average discount rate:
Finance leases	4.9	%	4.7	%
Operating leases	5.9	%	5.9	%

Future minimum lease payments under non-cancellable leases at March 31, 2023 were as follows:


	Finance Leases		Operating Leases
Year ending September 30,
2023 (excluding the six months ended March 31, 2023)	$	35	$	833
2024	68		1,686
2025	37		1,683
2026	30		1,681
2027	21		1,693
Thereafter	—		14,297
Total lease payments	$	191	$	21,873
Less: Imputed interest	(14)		(6,624)
Present value of lease liabilities	$	177	$	15,249

7. Debt and Subsequent Event

Debt consists of:


	March 31, 2023		September 30, 2022
Revolving credit agreement	$	13,003	$	11,163
Foreign subsidiary borrowings	6,982		7,101
Finance lease obligations	177		192
Other, net of unamortized debt issuance costs $(15) and $(20), respectively	486		594



Total debt	20,648		19,050

Less – current maturities	(17,339)		(15,542)
Total long-term debt	$	3,309	$	3,508

Credit Agreement and Security Agreement

The Credit Agreement contains affirmative and negative covenants and events of default. On March 23, 2022, the Company entered into the Sixth Amendment (the "Sixth Amendment") to the Credit Agreement and the Second Amendment (the "Second Amendment") to the Export Credit Agreement with its lender. The total collateral at March 31, 2023 and September 30, 2022 was $21,304 and $22,711, respectively, and the revolving commitment was $35,000 for both periods. Total availability at March 31, 2023 and September 30, 2022 was $2,524 and $9,403, respectively, which exceeds both the collateral and total commitment threshold. Since the availability was greater than 10.0% of the revolving commitment as of September 30, 2022, no covenant calculations were required. As of March 31, 2023, the Company was not in compliance with covenant requirements as a result of the Event of Default described below. The Company has a letter of credit balance of $1,970 as of March 31, 2023 and September 30, 2022, respectively. The Credit Agreement under the Sixth Amendment had a maturity date of February 19, 2024. The maturity is modified to December 31, 2023 under the Seventh Amendment (the "Seventh Amendment") to the Credit Agreement, which is discussed below.

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

The revolving credit agreement (or "revolver"), as amended, has a rate based on SOFR plus a 2.25% spread, which was 7.0% at March 31, 2023 and a rate based on LIBOR plus a 2.25% spread, which was 4.9% at September 30, 2022. The Export Credit Agreement as amended has a rate based on SOFR plus a 1.75% spread, which was 6.5% at March 31, 2023 and a rate based on LIBOR plus a 1.75% spread, which was 4.4% at September 30, 2022. The Company also has a commitment fee of 0.25% under the Credit Agreement as amended to be incurred on the unused balance of the revolver.

On February 6, 2023, the Company received a Notice of Event of Default and Reservation of Rights (the “Notice”) from its Lender, with respect to (i) that certain Credit Agreement dated as of August 8, 2018; and (ii) that certain Export Credit Agreement dated as of December 17, 2018. The Notice indicated that the Loan Parties to the Credit Agreements have informed Lender of the occurrence of Events of Defaults under the Credit Agreements as a result of the failure to deliver the required Borrowing Base Certificates thereunder and other Events of Default. The Notice indicated further that Lender is in the process of evaluating the Existing Defaults and reserves all of its rights and remedies under the Credit Agreements and any other Loan Documents with respect thereto. The failure by the Company to provide timely borrowing base certificates and monthly financial reports for the periods of December 2022, January 2023 and February 2023 in accordance with the terms of the Credit Agreements were a result of information access limitations experienced due to the cybersecurity incident that occurred on December 30, 2022. As a secondary default, the Company failed to maintain a FCCR not less than 1.1 to 1.0 for the periods of December 2022, January 2023, February 2023 and March 2023. The secondary default voided the availability spring minimum threshold and triggered the FCCR covenant compliance. See Note 12, Commitments & Contingencies.

On April 28, 2023, the Company and its subsidiary guarantors entered into a Forbearance Agreement (the "Forbearance Agreement") with J.P. Morgan Chase Bank, N.A. in respect to the Event of Default under the Credit Agreement. Pursuant to the Forbearance Agreement, (i) the Reserves under the Borrowing Base in the ABL Credit Agreement are reduced to $2,000; (ii) the aggregate outstanding principal balance of the Revolving Exposure under the ABL Credit Agreement and Export Revolving Loan may not at any time exceed the lesser of $19,000 and the Borrowing Base.

On August 9, 2023, the Company entered into the Seventh Amendment to the Credit Agreement and the Third Amendment (the "Third Amendment") to the Export Credit Agreement with its lender. The Seventh Amendment amends the Credit Agreement to, among other things, (i) reduce the Revolving Credit Agreement to $23,000, thereby reducing the total revolving commitment to $30,000; (ii) advances the loan maturity date to December 31, 2023; (iii) provides 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 are reduced to $1,500 through September 30, 2023 and $2,000 thereafter. The Second Amendment amends the Export Credit Agreement to (i) modify the loan maturity date to December 31, 2023 and (ii) provides waiver of Existing Defaults and concludes the forbearance period as described under the Forbearance Agreement dated April 28, 2023. Lender’s agreement is 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, 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.

Foreign subsidiary borrowings in USD

Foreign debt consists of:


	March 31, 2023		September 30, 2022
Term loan	$	3,819	$	3,818
Short-term borrowings	2,275		2,289
Factor	888		994
Total debt	$	6,982	$	7,101

Less – current maturities	(4,041)		(4,078)
Total long-term debt	$	2,941	$	3,023

Receivables pledged as collateral	$	480	$	792

Interest rates on foreign borrowings are based on Euribor rates, which range from 0.5% to 6.4%.

The Company's Maniago, Italy ("Maniago") location obtained borrowings from one lender in the first six months of fiscal 2022. The loan was for $1,141 with repayment terms of six years. Under the terms of the borrowing, repayments are made quarterly in the amount of $56, beginning on December 31, 2022.

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

Debt issuance costs

The Company had debt issuance costs of $86, which are included in the consolidated condensed balance sheets as a deferred charge in other current assets, net of amortization of $60 and $46 at March 31, 2023 and September 30, 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 March 31, 2023 and September 30, 2022 the PPP loan balance was $0.

8. Income Taxes

For each interim reporting period, the Company makes an estimate of the effective tax rate it expects to be applicable for the full fiscal year for its operations. This estimated effective rate is used in providing for income taxes on a year-to-date basis. The Company’s effective tax rate through the first six months of fiscal 2023 was (1.9)%, compared with 33.3% for the same period of fiscal 2022. The decrease in the effective rate was primarily attributable to changes in jurisdictional mix of income in fiscal 2023 compared with the same period of fiscal 2022. The effective tax rate differs from the U.S. federal statutory rate due primarily to the valuation allowance against the Company’s U.S. deferred tax assets and income in foreign jurisdictions that are taxed at different rates than the U.S. statutory tax rate.

The Company is subject to income taxes in the U.S. federal jurisdiction, Ireland, Italy, and various state and local jurisdictions.

9. Retirement Benefit Plans

The Company and certain of its subsidiaries sponsor defined benefit pension plans covering some of its employees. The components of the net periodic benefit cost of the Company’s defined benefit plans are as follows:


	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Service cost	$	6	$	11	$	12	$	21
Interest cost	274		178		549		357
Expected return on plan assets	(277)		(340)		(554)		(681)

Amortization of net loss	77		119		153		238

Net periodic pension cost (benefit)	$	80	$	(32)	$	160	$	(65)

During the six months ended March 31, 2023 and 2022, the Company made $13 and $0 in contributions, respectively, to its defined benefit pension plans. The Company anticipates making $43 in cash contributions to fund its defined benefit pension plans for the balance of fiscal 2023, and will use carryover balances from previous periods that have been available for use as a credit to reduce the amount of cash contributions that the Company is required to make to certain defined benefit plans in fiscal 2023. The Company's ability to elect to use such carryover balance will be determined based on the actual funded status of each defined benefit pension plan relative to the plan's minimum regulatory funding requirements. The Company does not anticipate making cash contributions above the minimum funding requirement to fund its defined benefit pension plans during the balance of fiscal 2023.

10. Stock-Based Compensation

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

In the first six months of fiscal 2023, the Company granted 86 shares under the 2016 Plan to certain key employees. The awards were split into two tranches, comprised of 27 performance-based shares and 59 time-based restricted shares, with a grant date fair value of $2.84 per share. The awards vest over three years. There were 3 shares forfeited during the six month period ended March 31, 2023.

In the first six months of fiscal 2023, the Company granted its non-employee directors 38 restricted shares under the 2016 Plan, with a grant date fair value of $3.48 per share, which vest over one year. One award for 42 restricted shares vested in January 2023.

If all outstanding share awards are ultimately earned and vest at the target number of shares, there are approximately 300 shares that remain available for award at March 31, 2023. If any of the outstanding share awards are ultimately earned and vest at greater than the target number of shares, up to a maximum of 150% of such target, then a fewer number of shares would be available for award.

Stock-based compensation under the 2016 Plan was $207 and $306 during the first six months of fiscal 2023 and 2022, respectively. As of March 31, 2023, there was $436 of total unrecognized compensation cost related to the performance shares and restricted shares awarded under the 2016 Plan. The Company expects to recognize this cost over the next 1.4 years.

11. Revenue

The Company produces forged components for (i) turbine engines that power commercial, business and regional aircraft as well as military aircraft and other military applications; (ii) airframe applications for a variety of aircraft; (iii) industrial gas and steam turbine engines for power generation units; and (iv) commercial space, semiconductor and other commercial applications.

Revenue is recognized when performance obligations under the terms of the contract with a customer of the Company are satisfied. A portion of the Company's contracts are from purchase orders ("PO's"), which continue to be recognized as of a point in time when products are shipped from the Company's manufacturing facilities or at a later time when control of the products transfers to the customer. Under the revenue standard, the Company recognizes certain revenue over time as it satisfies the performance obligations because the conditions of transfer of control to the applicable customer are as follows:

•Certain military contracts, which relate to the provisions of specialized or unique goods to the U.S. government with no alternative use, include provisions within the contract that are subject to the Federal Acquisition Regulation ("FAR"). The FAR provision allows the customer to unilaterally terminate the contract for convenience and requires the customer to pay the Company for costs incurred plus reasonable profit margin and take control of any work in process.

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

As a result of control transferring over time for these products, revenue is recognized based on progress toward completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products to be provided. The Company elected to use the cost to cost input method of progress based on costs incurred for these contracts because it best depicts the transfer of goods to the customer based on incurring costs on the contracts. Under this method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred.

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


	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Commercial revenue	$	11,361	$	9,506	$	21,542	$	17,866
Military revenue	7,881		15,062		18,999		25,949
Total	$	19,242	$	24,568	$	40,541	$	43,815

The following table represents revenue by end market:


	Three Months Ended March 31,				Six Months Ended March 31,
Net Sales	2023		2022		2023		2022
Aerospace components for:
Fixed wing aircraft	$	8,855	$	10,071	$	19,581	$	19,960
Rotorcraft	3,513		4,371		7,894		7,914
Energy components for power generation units	5,101		4,346		9,724		8,003
Commercial product and other revenue	1,773		5,780		3,342		7,938
Total	$	19,242	$	24,568	$	40,541	$	43,815

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


	Three Months Ended March 31,				Six Months Ended March 31,
Net Sales	2023		2022		2023		2022
North America	$	14,353	$	20,426	$	31,647	$	36,288
Europe	4,889		4,142		8,894		7,527
Total	$	19,242	$	24,568	$	40,541	$	43,815

In addition to the disaggregated revenue information provided above, approximately 49% and 62% of total net sales for the six months ended March 31, 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

The following table contains a roll forward of contract assets and contract liabilities for the period ended March 31, 2023:



Contract assets - Beginning balance, October 1, 2022	$	10,172
Additional revenue recognized over-time	20,230
Less amounts billed to the customers	(19,766)
Contract assets - Ending balance, March 31, 2023	$	10,636



Contract liabilities (included within Accrued liabilities) - Beginning balance, October 1, 2022	$	(807)
Payments received in advance of performance obligations	(1,428)
Performance obligations satisfied	1,019
Contract liabilities (included within Accrued liabilities) - Ending balance, March 31, 2023	$	(1,216)

There were no impairment losses recorded on contract assets as of March 31, 2023 and September 30, 2022.

Remaining performance obligations

As of March 31, 2023, the Company has $96,674 of remaining performance obligations, the majority of which are anticipated to be completed within the next twelve months.

12. Commitments and Contingencies

On December 30, 2022, the Company became aware of a cyber security issue involving unauthorized access to the Company's system (the "Cyber Incident"). The Company immediately began an investigation and engaged cyber security experts to assist with the assessment of the incident and to help determine what data was impacted. The Company's investigation uncovered that the threat actor had gained access to certain areas of the Company's systems on or about December 27, 2022. With the assistance of outside cyber security experts, the Company located and closed the unauthorized access to our systems and identified compromised information, and notified those impacted in accordance with state and federal requirements. The

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

The Company maintains $3,000 of cybersecurity insurance coverage to limit our exposure to losses such as those related to the Cyber Incident. The Company recorded costs in selling, general and administrative expense associated with the Cyber Incident of $1,000 during the three months ended March 31, 2023. The Company recorded costs of $110 to other expense (income), net of $3,000 insurance recovery and $1,000 to selling, general and administrative expense in the six months ended March 31, 2023, resulting in net costs of $1,000 and $1,110 in the three and six months ended March 31, 2023, respectively. The Company received the $3,000 of insurance proceeds on February 20, 2023. At March 31, 2023, the Company recorded $1,000 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 and further investigation of this matter. The Company will accrue these costs as incurred.

13. Subsequent Events

The Company has evaluated subsequent events through August 14, 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.

Forbearance Agreement

On April 28, 2023, the Company and its subsidiary guarantors entered into a Forbearance Agreement with J.P. Morgan Chase Bank, N.A. in respect to its Credit Agreement in response to the Notice of Event of Default and Reservation of Rights notice received on February 6, 2023. See Note 7, Debt and Subsequent Event for more information.

Credit Agreement Amendment

On August 9, 2023, the Company entered into the Seventh Amendment to the Credit Agreement and the Third Amendment to the Export Credit Agreement with its lender which waived the Event of Default, ended the forbearance period, and provided for further changes to the agreements. See Note 7, Debt and Subsequent Event for more information.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain various forward-looking statements and includes assumptions concerning the Company’s operations, future results and prospects. The words "will," "may," "designed to," "outlook," "believes," "should," "anticipates," "plans," "expects," "intends," "estimates," "forecasts" and similar expressions identify certain of these forward-looking statements. These forward-looking statements are based on current expectations and are subject to risk and uncertainties. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides this cautionary statement identifying important economic, political and technological factors, among others, the absence or effect of which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. Such factors include the following: (1) the impact on business conditions in general, and on the demand for product in the aerospace and energy (or "A&E") industries in particular, of the global economic outlook, including the continuation of military spending at or near current levels and the availability of capital and liquidity from banks, the financial markets and other providers of credit; (2) the future business environment, including capital and consumer spending; (3) competitive factors, including the ability to replace business that may be lost at comparable margins; (4) metals and commodities price increases and the Company’s ability to recover such price increases; (5) successful development and market introduction of new products and services; (6) continued reliance on consumer acceptance of regional and business aircraft powered by more fuel efficient turboprop engines; (7) continued reliance on military spending, in general, and/or several major customers, in particular, for revenues; (8) the impact on future contributions to the Company’s defined benefit pension plans due to changes in actuarial assumptions, government regulations and the market value of plan assets; (9) stable governments, business conditions, laws, regulations and taxes in economies where business is conducted; (10) the ability to successfully integrate businesses that may be acquired into the Company’s operations; (11) cyber and other security threats or disruptions faced by us, our customers or our suppliers and other partners; (12) our exposure to additional risks as a result of our international business, including risks related to geopolitical and economic factors, suppliers, laws and regulations; (13) the ability to maintain a qualified workforce; (14) the adequacy and availability of our insurance coverage; (15) our ability to develop new products and technologies and maintain technologies, facilities, and equipment to win new competitions and meet the needs of our customers; (16) our ability to realize amounts in our backlog; (17) investigations, claims, disputes, enforcement actions, litigation and/or other legal proceedings; (18) extraordinary or force majeure events affecting the business or operations of our business (19) the continued long term impact of the COVID-19 pandemic and related residual negative impact on the global economy, which may exacerbate the above factors and/or impact our results of operations and financial condition; and (20) in connection with its entry into the Seventh

Amendment to its Credit Agreement and Third Amendment to its Export Credit Agreement, the Company is evaluating available financial alternatives, including obtaining acceptable alternative financing. The Company has obtained lender waiver on Existing Defaults and concluded the forbearance period as described under the Forbearance Agreement dated April 28, 2023. If the Company is unable to find alternative financing as contemplated by the terms of the Seventh Amendment, the lender under the Credit Agreement may choose to accelerate repayment. The Company cannot provide assurances that it will be able to provide the post closing deliverables as established under the Seventh Amendment of the Credit Agreement or be successful in restructuring of existing debt obligations, obtaining capital or entering into a strategic alternative transaction which provides sufficient funding for the refinancing of its outstanding indebtedness prior to the maturity date of its obligations under the Credit Agreements.

The Company engages in the production of forgings and machined components primarily for the A&E and commercial space markets. The processes and services provided by the Company include forging, heat-treating, machining, subassembly, and test. The Company operates under one business segment.

The Company endeavors to continue to plan and evaluate its business operations while taking into consideration certain factors including the following: (i) the projected build rate for commercial, business and military aircraft, as well as the engines that power such aircraft; (ii) the projected maintenance, repair and overhaul schedules for commercial, business and military aircraft, as well as the engines that power such aircraft; (iii) the projected build rate and repair for industrial turbines; and (iv) commercial space.

The Company operates within a cost structure that includes a significant fixed component. Therefore, higher net sales volumes are expected to result in greater operating income because such higher volumes allow the business operations to better leverage the fixed component of their respective cost structures. Conversely, the opposite effect is expected to occur at lower net sales and related production volumes.

A. Results of Operations

Overview

Impact of COVID-19 & Other Factors

The lingering impact and residual effects of the COVID-19 pandemic, along with other factors such as ongoing geopolitical tensions, strains on supply chains and inflationary impacts continue to impact the United States and other countries in which the Company operates. During fiscal 2022, the ongoing impact of the COVID-19 pandemic continued to effect the Company’s results of operations. Given the long lead times for certain of the Company's products, the Company has continued to see an impact related to the effects of COVID-19 on orders and deliveries in the first six months of fiscal 2023. While the exact timing and pace of recovery in our markets continues to be indeterminable, commercial air travel is steadily recovering. While the long-term outlook remains positive given the nature of the industry, there continues to be uncertainty with the respect to when commercial air traffic will return to pre-COVID-19 levels.

Additionally, our operations are subject to global economic and geopolitical risks. For example, while the Company does not have a presence in these regions, the ongoing conflict between Russia and Ukraine has impacted economic activity as well as the availability and price of raw materials and energy. The Company continues to actively monitor these factors and seeks to find ways to mitigate the impact on its operations.

Backlog of Orders

SIFCO’s total backlog at March 31, 2023 was $96.7 million, compared with $72.0 million as of March 31, 2022. Orders may be subject to modification or cancellation by the customer with limited charges. Recovery in the A&E markets coupled with extended raw material lead times has resulted in increased bookings. Backlog information may not be indicative of future sales.

Six Months Ended March 31, 2023 compared with Six Months Ended March 31, 2022

Net Sales

Net sales comparative information for the first six months of fiscal 2023 and 2022 is as follows:


(Dollars in millions)	Six Months Ended March 31,				Increase/ (Decrease)
Net Sales	2023		2022
Aerospace components for:
Fixed wing aircraft	$	19.6	$	20.0	$	(0.4)
Rotorcraft	7.9		7.9		—
Energy components for power generation units	9.7		8.0		1.7
Commercial product and other revenue	3.3		7.9		(4.6)
Total	$	40.5	$	43.8	$	(3.3)

Net sales for the first six months of fiscal 2023 decreased $3.3 million to $40.5 million, compared with $43.8 million in the comparable period of fiscal 2022. In general, the production of the Company's products have lead times of varying lengths. The cybersecurity incident, due to information access limitations and system constraints, impacted domestic operations and the timing of shipments in the second quarter of fiscal 2023. Year over year, the cybersecurity incident and extended raw material lead times largely drove the decrease in sales. The Company's foreign operations were not impacted by the cybersecurity incident and is reflected in the sales to the power generation market that it primarily serves. Fixed wing sales decreased $0.4 million compared with the same period last year primarily due to 767 and 737 programs. Rotorcraft sales were flat compared with the same period last year. The energy components for power generation units increased by $1.7 million due to growth in the steam turbine markets. Commercial products and other revenue decreased $4.6 million in the first six months of fiscal 2023 compared to the same period in fiscal 2022, primarily due to the cybersecurity incident impact to domestic operations and timing of shipments, raw material lead times and the timing of orders related to a munitions program.

Commercial net sales were 53.1% of total net sales and military net sales were 46.9% of total net sales in the first six months of fiscal 2023, compared with 40.8% and 59.2%, respectively, in the comparable period in fiscal 2022. Military net sales decreased by $6.9 million to $19.0 million in the first six months of fiscal 2023, compared with $25.9 million in the comparable period of fiscal 2022, primarily due to timing in order placement related to a munitions program and information access limitations and system constraints as a result of the cybersecurity incident. Commercial net sales increased $3.7 million to $21.5 million in the first six months of fiscal 2023, compared with $17.9 million in the comparable period of fiscal 2022, primarily due to an increase in the power generation steam turbine market and commercial space.

Cost of Goods Sold

Cost of goods sold decreased by $4.8 million, or 11.3%, to $37.6 million, or 92.7% of net sales, during the first six months of fiscal 2023, compared with $42.3 million or 96.7% of net sales, in the comparable period of fiscal 2022. The decrease is primarily due to lower volume, reduction of NRV reserve of $1.2 million and lower labor and idle expense of $0.6 million and $0.4 million, respectively partially offset by higher utility costs of $0.3 million.

Gross Profit

Gross profit increased $1.5 million to $3.0 million in the first six months of fiscal 2023, compared with $1.5 million gross profit in the comparable period of fiscal 2022. Gross profit percent of sales was 7.3% during the first six months of fiscal 2023, compared with 3.3% in the comparable period in fiscal 2022. The increase in gross profit compared to prior fiscal year was primarily due to product mix, reduction of NRV reserve $1.2 million and lower labor and idle expense of $0.6 million and $0.4 million, respectively partially offset by higher utility costs of $0.3 million.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $7.1 million, or 17.6%, of net sales during the first six months of fiscal 2023, compared with $6.2 million, or 14.2%, of net sales in the comparable period of fiscal 2022. The increase in selling, general and administrative expenses is primarily due to incremental IT costs related to the cybersecurity incident of $1.0 million. See Note 12, Commitments and Contingencies for further discussion.

Amortization of Intangibles

Amortization of intangibles was $0.1 million in the first six months of fiscal 2023, compared with $0.2 million in the comparable period of fiscal 2022.

Other/General

In the first six months of fiscal 2022, the Company recognized a gain on extinguishment of debt related to the PPP loan that was forgiven by the SBA for $5.1 million. See Note 5, Debt and Subsequent Event for further discussion.

The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s debt agreement in the first six months of both fiscal 2023 and 2022:


	Weighted Average Interest Rate Six Months Ended March 31,				Weighted Average Outstanding Balance Six Months Ended March 31,
	2023		2022		2023	2022
Revolving credit agreement	6.3	%	1.8	%	$ 11.8 million	$ 9.9 million
Foreign term debt	4.2	%	3.2	%	$ 7.2 million	$ 6.3 million
Other debt	1.5	%	0.5	%	$ 0.5 million	$ 3.2 million

Income Taxes

The Company’s effective tax rate through the first six months of fiscal 2023 was (1.9)%, compared with 33% for the same period of fiscal 2022. The decrease in the effective rate was primarily attributable to changes in jurisdictional mix of income in fiscal 2023 compared with the same period of fiscal 2022. The effective tax rate differs from the U.S. federal statutory rate due primarily to the valuation allowance against the Company’s U.S. deferred tax assets and income in foreign jurisdictions that are taxed at different rates than the U.S. statutory tax rate.

Net Loss

Net loss was $5.0 million during the first six months of fiscal 2023, compared with net loss of $0.1 million in the comparable period of fiscal 2022. The decrease compared with prior year is primarily due to PPP forgiveness, lower volume and higher selling, general and administrative expenses.

Three Months Ended March 31, 2023 compared with Three Months Ended March 31, 2022

Net Sales

Net sales for the second quarter of fiscal 2023 decreased 21.7% to $19.2 million, compared with $24.6 million in the comparable period of fiscal 2022. The cybersecurity incident, due to information access limitations and system constraints, impacted domestic operations and the timing of shipments in the second quarter of fiscal 2023. Extended raw material lead times in fiscal 2023 also contributed to the decrease in sales. Net sales comparative information for the second quarter of fiscal 2023 and 2022 is as follows:


(Dollars in millions)	Three Months Ended March 31,				Increase (Decrease)
Net Sales	2023		2022
Aerospace components for:
Fixed wing aircraft	$	8.8	$	10.1	$	(1.3)
Rotorcraft	3.5		4.4		(0.9)
Energy components for power generation units	5.1		4.3		0.8
Commercial product and other revenue	1.8		5.8		(4.0)
Total	$	19.2	$	24.6	$	(5.4)

The reduction in commercial product and other revenues of $4.0 million was due to information access limitations and system constraints as a result of the cybersecurity impact to domestic operations and shipments, extended raw material lead times and timing of orders for a munitions program partially offset by an increase in sales related to the commercial space industry. Fixed wing sales decreased $1.3 million compared with the same period last year primarily due to F18 and 737 programs. Rotorcraft sales decreased $0.9 million compared with the same period last year primarily due to V22 and H60 programs and procurement delays caused by prolonged long term agreement negotiations with certain customers. This was partially offset by an increase of $0.8 million in power generation sales driven by growth in the steam turbine market.

Commercial net sales were 59.0% of total net sales and military net sales were 41.0% of total net sales in the second quarter of fiscal 2023, compared with 38.7% and 61.3%, respectively, in the comparable period of fiscal 2022. Military net sales

decreased by $7.2 million to $7.9 million in the second quarter of fiscal 2023, compared with $15.1 million in the comparable period of fiscal 2022, primarily due to the timing of orders for a munitions program and F18 and H60 programs. Commercial net sales increased $1.9 million to $11.4 million in the second quarter of fiscal 2023, compared with $9.5 million in the comparable period of fiscal 2022 primarily due to increase in sales related the commercial space, 737, 767 and 787 programs.

Cost of Goods Sold

Cost of goods sold was $17.5 million, or 91.1% of net sales, during the second quarter of fiscal 2023, compared with $23.1 million or 94.1% of net sales, in the comparable period of fiscal 2022, primarily due to lower volume, reduction of NRV reserve of $0.4 million partially offset by higher idle expense and utility costs of $0.5 million and $0.2 million, respectively.

Gross Profit

Gross profit increased $0.2 million to $1.7 million during the second quarter of fiscal 2023, compared with $1.5 million in the comparable period of fiscal 2022. Gross margin was 8.9% during the second quarter of fiscal 2023, compared with 5.9% in the comparable period in fiscal 2022. The increase in gross margin was primarily due to lower costs incurred as noted above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $3.8 million, or 20.0% of net sales, during the second quarter of fiscal 2023, compared with $2.7 million, or 10.9% of net sales, in the comparable period of fiscal 2022. The increase is primarily due to IT incident costs of $1.0 million and higher salary and benefit costs of $0.1 million.

Amortization of Intangibles

Amortization of intangibles was $0.1 million in the second quarter of fiscal 2023 compared with $0.1 million in the second quarter of fiscal 2022.

Other/General

Included in other income, net, in the second quarter of fiscal 2022 is the PPP loan for forgiveness of $5.1 million. See Note 5, Debt and Subsequent Event for further discussion.

The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s Credit Agreement in the second quarter of both fiscal 2023 and 2022:


	Weighted Average Interest Rate Three Months Ended March 31,				Weighted Average Outstanding Balance Three Months Ended March 31,
	2023		2022		2023	2022
Revolving credit agreement	6.7	%	1.8	%	$ 12.4 million	$ 11.1 million
Foreign term debt	4.9	%	5.0	%	$ 7.1 million	$ 6.6 million
Other debt	1.4	%	1.8	%	$ 0.5 million	$ 0.8 million

Income Taxes

The Company's effective tax rate in the second quarter of fiscal 2023 was (1.2)%, compared with 1% for the same period of fiscal 2022. The decrease in the effective rate was primarily attributable to changes in jurisdictional mix of income during the three months ended March 31, 2023 compared to the same period of fiscal 2022. The effective tax rate differs from the U.S. Federal statutory rate due primarily to the valuation allowance against the Company's U.S. deferred tax assets and income in foreign jurisdictions that are taxed at different rates than the U.S. statutory tax rate.

Net (Loss) Income

Net loss was $2.4 million during the second quarter of fiscal 2023, compared with net income of $3.6 million in the comparable period of fiscal 2022. The net income in fiscal 2022 is primarily attributed to the gain on loan extinguishment related to the PPP loan noted above, partially offset by the higher costs noted above.

Non-GAAP Financial Measures

Presented below is certain financial information based on the Company's EBITDA and Adjusted EBITDA. References to “EBITDA” mean earnings (losses) from continuing operations before interest, taxes, depreciation and amortization, and references to “Adjusted EBITDA” mean EBITDA plus, as applicable for each relevant period, certain adjustments as set forth in the reconciliations of net income to EBITDA and Adjusted EBITDA.

Neither EBITDA nor Adjusted EBITDA is a measurement of financial performance under generally accepted accounting principles in the United States of America (“GAAP”). The Company presents EBITDA and Adjusted EBITDA because management believes that they are useful indicators for evaluating operating performance and liquidity, including the Company’s ability to incur and service debt and it uses EBITDA to evaluate prospective acquisitions. Although the Company uses EBITDA and Adjusted EBITDA for the reasons noted above, the use of these non-GAAP financial measures as analytical tools has limitations. Therefore, reviewers of the Company’s financial information should not consider them in isolation, or as a substitute for analysis of the Company's results of operations as reported in accordance with GAAP. Some of these limitations include:

•Neither EBITDA nor Adjusted EBITDA reflects the interest expense, or the cash requirements necessary to service interest payments on indebtedness;

•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and neither EBITDA nor Adjusted EBITDA reflects any cash requirements for such replacements;

•The omission of the amortization expense associated with the Company’s intangible assets further limits the usefulness of EBITDA and Adjusted EBITDA; and

•Neither EBITDA nor Adjusted EBITDA includes the payment of taxes, which is a necessary element of operations.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to the Company to invest in the growth of its businesses. Management compensates for these limitations by not viewing EBITDA or Adjusted EBITDA in isolation and specifically by using other GAAP measures, such as net income (loss), net sales, and operating income (loss), to measure operating performance. Neither EBITDA nor Adjusted EBITDA is a measurement of financial performance under GAAP, and neither should be considered as an alternative to net loss or cash flow from operations determined in accordance with GAAP. The Company’s calculation of EBITDA and Adjusted EBITDA may not be comparable to the calculation of similarly titled measures reported by other companies.

The following table sets forth a reconciliation of net income to EBITDA and Adjusted EBITDA:


Dollars in thousands	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2023		2022		2023		2022
Net (loss) income	$	(2,367)	$	3,639	$	(4,956)	$	(52)
Adjustments:
Depreciation and amortization expense	1,626		1,596		3,198		3,210
Interest expense, net	339		193		614		307
Income tax expense (benefit)	28		23		93		(26)
EBITDA	(374)		5,451		(1,051)		3,439
Adjustments:
Foreign currency exchange (gain) loss, net (1)	12		3		9		9
Other (income), net (2)	(328)		(36)		(146)		(68)
Loss (gain) on disposal of assets (3)	14		(2)		3		(2)


Gain on extinguishment of debt (4)	—		(5,106)		—		(5,106)
Equity compensation (5)	85		145		207		306


LIFO impact (6)	(461)		207		(199)		383
IT incident costs (7)	1,086		—		1,087		—


Adjusted EBITDA	$	34	$	662	$	(90)	$	(1,039)

(1)Represents the gain or loss from changes in the exchange rates between the functional currency and the foreign currency in which the transaction is denominated.

(2)Represents miscellaneous non-operating income or expense, such as pension costs and foreign energy tax credits.

(3)Represents the difference between the proceeds from the sale of operating equipment and the carrying value shown on the Company's books or asset impairment of long-lived assets.

(4)Represents the gain on extinguishment of debt and interest for the amount forgiven by the SBA as it relates to the PPP loan.

(5)Represents the equity-based compensation expense recognized by the Company under the 2016 Plan due to granting of awards, awards not vesting and/or forfeitures.

(6)Represents the change in the reserve for inventories for which cost is determined using the last-in, first-out (“LIFO”) method.

(7)Represents incremental information technology costs as it relates to the cybersecurity incident and loss on insurance recovery.

B. Liquidity and Capital Resources

The main sources of liquidity for the Company have been cash flows from operations and borrowings under our Credit Agreement. The Company's liquidity could be negatively affected if the Company is unable to find alternative financing prior to the expiration of the Credit Agreement, by customers extending payment terms to the Company and/or the decrease in demand for our products. The Company and management will continue to assess and actively manage liquidity needs. See "Results of Operation" for further discussion of the lingering impacts of COVID-19. See Note 7, Debt and Subsequent Event.

Cash and cash equivalents was $0.3 million at March 31, 2023 and $1.2 million at September 30, 2022. At March 31, 2023, the majority of the Company’s cash and cash equivalents were in the possession of its non-U.S. subsidiaries. Distributions from the Company's non-U.S. subsidiaries to the Company may be subject to adverse tax consequences.

Operating Activities

The Company’s operating activities used $0.4 million of cash in the first six months of fiscal 2023, primarily due to operating results and an increase in accounts payable of $3.9 million.

The Company’s operating activities used $3.2 million of cash in the first six months of fiscal 2022, primarily due to operating results, an increase in inventory of $2.4 million, and a reduction of accrued liabilities of $1.2 million, partially offset by accounts receivable collections and a slight increase in accounts payable.

Investing Activities

Cash used for investing activities was $1.4 million in the first six months of fiscal 2023, compared with $1.5 million in the first six months of fiscal 2022. Capital commitments as of March 31, 2023 were $0.5 million. The Company anticipates that the remaining total fiscal 2023 capital expenditures will be within the range of $0.5 million to $1.0 million and will relate principally to the further enhancement of production and product offering capabilities and drive operating cost reductions.

Financing Activities

Cash provided by financing activities was $0.8 million in the first six months of fiscal 2023, compared with $4.5 million in the first six months of fiscal 2022.

As discussed in Note 7, Debt and Subsequent Event, the Company's Maniago location obtained borrowings from a lender during the first six months of fiscal 2022 for approximately $1.1 million with a six year term. The proceeds of this loan were to be used for working capital purposes. The Company had $0.5 million of net short-term debt repayments in the first six months of fiscal 2023 compared with net short-term debt repayments of $0.1 million in the first six months of fiscal 2022.

The Company had net borrowings to the revolver under the Credit Agreement of $1.8 million in the first six months of fiscal 2023 compared with net borrowings of $3.9 million in the first six months of fiscal 2022.

Under the Company's Credit Agreement, the Company is subject to certain customary loan covenants regarding availability as discussed in Note 7, Debt and Subsequent Event. The availability at March 31, 2023 was $2.5 million, which was greater than the 10.0% of the Revolving Commitment as of March 31, 2023. If availability falls below the 10% level or an event of default occurs, the Company is required to meet the fixed charge coverage ratio covenant, which must not be less than 1.1 to 1.0.

As noted in Note 7, Debt and Subsequent Event, on March 23, 2022, the Company entered its Sixth Amendment which amends the Credit Agreement to, among other things, (i) revise the fixed coverage ratio to exclude the first $1.5 million of unfunded capital expenditures through April 20, 2023, (ii) increase the letter of credit sub-limit from $2.0 million to $3.0 million, (iii)

modify the reference rate from the London interbank offered rate ("LIBOR") to the secured overnight financing rate ("SOFR") under the Credit Agreement, and (iv) revise the property, plant and equipment component of the borrowing base under the Credit Agreement. Additionally, the Export Credit Agreement was amended by the Second Amendment, which replaces the reference rate from LIBOR to SOFR in the Export Credit Agreement.

As noted in Note 7, Debt and Subsequent Event on February 6, 2023, the Company received a Notice from its Lender, with respect to (i) that certain Credit Agreement dated as of August 8, 2018; and (ii) that certain Export Credit Agreement dated as of December 17, 2018. The Notice indicated that the Loan Parties to the Credit Agreements have informed Lender of the occurrence of Events of Defaults under the Credit Agreements as a result of the failure to deliver the required Borrowing Base Certificates thereunder and other Events of Default. The Notice indicated further that Lender is in the process of evaluating the Existing Defaults and reserves all of its rights and remedies under the Credit Agreements and any other Loan Documents with respect thereto. The failure by the Company to provide timely borrowing base certificates and monthly financial reports for the periods of December 2022, January 2023 and February 2023 in accordance with the terms of the Credit Agreements were a result of information access limitations experienced due to the cybersecurity incident that occurred on December 30, 2022. As a secondary default, the Company failed to maintain a FCCR not less than 1.1 to 1.0 for the periods of December 2022, January 2023, February 2023 and March 2023. The secondary default voided the availability spring minimum threshold and triggered the FCCR covenant compliance. See Note 12, Commitments & Contingencies.

As noted in Note 7, Debt and Subsequent Event on April 28, 2023, the Company and its subsidiary guarantors entered into a Forbearance Agreement with J.P. Morgan Chase Bank, N.A. in respect to the Event of Default under the Credit Agreement. Pursuant to the Forbearance Agreement, during the forbearance period defined therein: (i) the Reserves under the Borrowing Base in the ABL Credit Agreement are reduced to $2.0 million; (ii) the aggregate outstanding principal balance of the Revolving Exposure under the ABL Credit Agreement and Export Revolving Loan may not at any time exceed the lesser of $19.0 million and the Borrowing Base.

As noted in Note 7, Debt and Subsequent Event, on August 9, 2023, the Company entered into the Seventh Amendment to the Credit Agreement and the Third Amendment to the Export Credit Agreement with its lender. The Seventh Amendment amends the Credit Agreement to, among other things, (i) reduce the Revolving Credit Agreement to $23.0 million, thereby reducing the total revolving commitment to $30.0 million; (ii) modifies the loan maturity date to December 31, 2023; (iii) provides 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 $19.0 million. The Second Amendment amends the Export Credit Agreement to (i) modify the loan maturity date to December 31, 2023 and (ii) provides waiver of Existing Defaults and concludes the forbearance period as described under the Forbearance Agreement dated April 28, 2023.

Future cash flows from the Company’s operations may be used to pay down amounts outstanding under the Credit Agreement and its foreign related debts. The Company believes it has adequate cash/liquidity available to finance its operations from the combination of (i) the Company’s expected cash flows from operations and (ii) funds available under the Credit Agreement for its domestic locations. In fiscal year 2022, the Company was able to obtain new financing at its Maniago location to provide Maniago with sufficient liquidity.

Additionally, the credit and capital markets saw significant volatility during the course of the pandemic. Tightening of the credit market and standards, as well as capital market volatility caused by various factors, including the continued long term effects of COVID-19 and/or ongoing geopolitical tensions, could negatively impact our ability to obtain additional debt financing on terms equivalent to our existing Credit Agreement, in the event the Company seeks additional liquidity sources. Capital market uncertainty and volatility, together with the Company’s market capitalization and status as a smaller reporting company could also negatively impact our ability to obtain equity financing.

C. Recent Accounting Standards Not Yet Adopted

For recent accounting standards not yet adopted refer to Note 1, Summary of Significant Accounting Policies - Recent Accounting Standards Not Yet Adopted for further detail. Additionally, the Company's significant accounting policies and procedures are explained in the Management's Discussion and Analysis section of the Company's Annual Report on Form 10-K for the year ended September 30, 2022.

Item 4. Controls and Procedures

As defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed in reports filed or

submitted under the Exchange Act is recorded, processed, summarized and reported on a timely basis, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Company’s disclosure controls and procedures include components of the Company’s internal control over financial reporting. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management of the Company, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) as of March 31, 2023 (the “Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were not effective, as a result of the continuing existence of the material weakness in the Company's internal controls over financial reporting described in Item 9A of the Company's Annual Report.

In the first quarter of fiscal 2023, the Company identified the following material weakness:

•On December 30, 2022, the Company experienced a cybersecurity incident that led to a disruption of its domestic operations. As a result of the cyber incident and its residual effects, the Company identified deficiencies in its oversight and backup and recovery controls that represent a material weakness in internal control over financial reporting. See Note 12, Commitments and Contingencies.

The Company is in the process of designing and implementing improved controls to remediate the material weaknesses that continued to exist as of March 31, 2023.

Remediation Plan for Material Weakness in Internal Control over Financial Reporting

Management and the Company's Board of Directors are committed to improving the Company's overall system of internal controls over financial reporting.

To address the material weakness identified in our control environment, the Company is taking the following actions:

With respect to cybersecurity controls, the Company has redeployed enhanced endpoint protection and detection tools, implemented new back-up protocols and increased oversight on its information technology systems.

The actions we are taking are subject to ongoing senior management review as well as oversight by the Audit Committee of the Board of Directors. Although we plan to complete this remediation as quickly as possible, we cannot, at this time, estimate how long it will take.

Changes in Internal Control over Financial Reporting

As of March 31, 2023, management has designed and implemented additional controls to remediate the previously reported material weaknesses in Item 9A on Form 10-K for the fiscal year ended September 30, 2022 and in Item 4 on Form 10-Q for the first quarter ended December 31, 2022.

•Lack of precise review controls associated with the valuation of inventory at the Orange location and long-lived asset impairment triggering event indicators in the fourth quarter at the Orange location were not sufficient in preventing material errors.

Management, with the oversight of the Audit Committee, took the following steps as part of our remediation efforts:

•Implemented additional review controls related to certain accounting matters with manual calculations and financial statements disclosures to ensure appropriate valuation of inventory and identification and conclusion of indicators of impairment per ASC 360.

Given the remediation efforts noted above, testing of applicable controls completed during the second quarter and the determination that controls are designed and operating effectively, management has concluded that the material weakness in Item 9A on Form 10-K for the fiscal year ended September 30, 2022 has been remediated as of March 31, 2023.

Except for the remediation items described in Item 4 related to prior year findings, there have been no changes in the Company's internal controls over financial reporting during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

Part II. Other Information

Items 1, 2, 3, 4 and 5 are not applicable or the answer to such items is negative; therefore, the items have been omitted and no reference is required in this Quarterly Report.

Item 1A. Risk Factors

The Company is subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended September 30, 2022. Except as set forth below, there have been no material changes to our risk factors since the Company's Annual Report on Form 10-K for the year ended September 30, 2022. Investors should consider the risks described below and all of the other information set forth in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and the related notes and “Management's Discussion and Analysis of Financial Condition and Results of Operations,” in evaluating our business and prospects. If any of the risks described herein occurs, our business, financial condition or results of operations could be negatively affected. Additional risks and uncertainties, including risks not currently known or that are currently deemed immaterial may also adversely affect our business financial conditions or results of operations.

The price and availability of oil and other energy sources worldwide could adversely impact our results of operations. Unexpected pricing of fuel or a shortage of, or disruption in, the supply of fuel or other energy sources could have a material adverse effect on our and our customers' business, results of operations and financial condition.

Our results of operations can be directly affected, positively and negatively, by volatility in the cost and availability of energy, which is subject to global supply and demand and other factors beyond our control. The ongoing conflict between Russia and Ukraine has impacted global energy markets, particularly in Europe, leading to high volatility and increasing prices for crude oil, natural gas and other energy supplies. Our customers' businesses are significantly impacted by the availability and pricing of fuel. Weather-related events, natural disasters, terrorism, wars, political disruption or instability involving oil-producing countries, changes in governmental or cartel policy concerning crude oil or aircraft fuel production, labor strikes, cyberattacks or other events affecting refinery production, transportation, taxes, marketing, environmental concerns, market manipulation, price speculation and other unpredictable events may drive actual or perceived fuel supply shortages. In particular, the recent conflict between Russia and Ukraine has caused shortages in the availability of fuel. In the event that the supply of natural gas from Russia stops or is significantly reduced, there may be supply disruptions, increased prices, shutdowns of manufacturing facilities, or further rationing of energy supply within countries where we and/or our customers do business, which could have a material adverse impact on our and our customers' business or results of operations in those countries.

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

The ability to deliver SIFCO's products on schedule is dependent upon a variety of factors, including execution of internal performance plans, availability of raw materials, internal and supplier produced parts and structures, conversion of raw materials into parts and assemblies, and performance of suppliers and others. We rely on numerous third-party suppliers for raw materials and a large proportion of the components used in our production process. Certain of these raw materials and components are available only from single sources or a limited number of suppliers, or similarly, customers’ specifications may require SIFCO to obtain raw materials and/or components from a single source or certain suppliers. Many of our suppliers are small companies with limited financial resources and manufacturing capabilities. We do not currently have the ability to manufacture these components ourselves. Consequently, we risk disruptions in our supply of key products and components if our suppliers fail or are unable to perform because of shortages in raw materials, operational problems, strikes, natural disasters, health crises (such as the COVID-19 or other pandemics) or other factors. We have and may continue to experience delays in the delivery of such products as a result of increased demands and pressures on the supply chain, customs, labor issues, geopolitical pressures, disruptions associated with the COVID-19 or other pandemics, changes in political, economic, and social conditions, weather, laws and regulations. Unfavorable fluctuations in price, international trade policies, quality, delivery, and availability of these products could continue to adversely affect the Company's ability to meet demands of customers and cause negative impacts to the Company's cost structure, profitability and its cash flow. It is unclear how our supply chain could be further impacted by COVID-19, including the spread of new variants, and there are many unknowns including how long we will be impacted, the severity of the impacts and the probability of a recurrence of COVID-19 or similar regional or global pandemics. If we were unsuccessful in obtaining those products from other sources or at comparable cost, a disruption in our supply chain could adversely affect our sales, earnings, financial condition, and liquidity.

We may have disputes with our vendors arising from, among other things, the quality of products and services or customer concerns about the vendor. If any of our vendors fail to timely meet their contractual obligations or have regulatory compliance

or other problems, our ability to fulfill our obligations may be jeopardized. Economic downturns can adversely affect a vendor’s ability to manufacture or deliver products. Further, vendors may also be enjoined from manufacturing and distributing products to us as a result of litigation filed by third parties, including intellectual property litigation. If SIFCO were to experience difficulty in obtaining certain products, there could be an adverse effect on its results of operations and on its customer relationships and our reputation. Additionally, our key vendors could also increase pricing of their products, which could negatively affect our ability to win contracts by offering competitive prices.

Any material supply disruptions could adversely affect our ability to perform our obligations under our contracts and could result in cancellation of contracts or purchase orders, penalties, delays in realizing revenues, and payment delays, as well as adversely affect our ongoing product cost structure.

Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact results of operations and financial condition.

Although we continue to review and enhance our systems and cybersecurity controls, SIFCO has experienced and expects to continue to experience cybersecurity threats, including threats to our information technology infrastructure and attempts to gain access to the Company’s sensitive information, as do our customers, suppliers and subcontractors. Although we maintain information security policies and procedures to prevent, detect, and mitigate these threats, information system disruptions, equipment failures or cybersecurity attacks, such as unauthorized access, malicious software and other intrusions, could still occur and may lead to potential data corruption, exposure of proprietary and confidential information. Further, while SIFCO works cooperatively with its customers, suppliers and subcontractors to seek to minimize the impacts of cyber threats, other security threats or business disruptions, in addition to our internal processes, procedures and systems, it must also rely on the safeguards put in place by those entities.

Any intrusion, disruption, breach or similar event may cause operational stoppages, fines, penalties, diminished competitive advantages through reputational damages and increased operational costs. The costs related to cyber or other security threats or disruptions may not be fully mitigated by insurance or other means.

If the Company's backups are not up-to-date or the Company is unable to recover and restore backups in a timely manner, this may result in an adverse effect on results of operations and financial condition.

If the Company fails to secure alternative financing, it may not be able to support operations.

In connection with its entry into the Seventh Amendment to its Credit Agreement and Third Amendment to its Export Credit Agreement, the Company is evaluating available financial alternatives, including obtaining acceptable alternative financing. Through the referenced amendments, the Company has obtained a lender waiver on Existing Defaults and concluded the forbearance period as described under the Forbearance Agreement dated April 28, 2023. If the Company is unable to find alternative financing in accordance with the Seventh Amendment, the lender of the Credit Agreement may choose to accelerate repayment. The Company cannot provide assurances that it will be able to provide the post closing deliverables as established under the Seventh Amendment of the Credit Agreement or be successful in restructuring of existing debt obligations, obtaining capital or entering into a strategic alternative transaction which provides sufficient funding for the refinancing of its outstanding indebtedness prior to the maturity date of its obligations under the Credit Agreements.

Item 6. (a) Exhibits

The following exhibits are filed with this report or are incorporated herein by reference to a prior filing in accordance with Rule 12b-32 under the Securities and Exchange Act of 1934 (Asterisk denotes exhibits filed with this report.).


Exhibit No.						Description
2.1						Stock Purchase Agreement between Riello Investimenti Partners SGR S.p.A., Giorgio Visentini, Giorgio Frassini, Giancarlo Sclabi and Matteo Talmassons and SIFCO Italy Holdings S.R.L (a wholly-owned subsidiary of SIFCO Industries Inc.) dated March 16, 2015 filed as Exhibit 2.1 to the Company’s Form 8-K dated July 2, 2015, and incorporated herein by reference
2.2						Amendment to the Stock Purchase Agreement Riello Investimenti Partners SGR S.p.A., Giorgio Visentini, Giorgio Frassini, Giancarlo Sclabi and Matteo Talmassons and SIFCO Italy Holdings S.R.L (a wholly-owned subsidiary of SIFCO Industries Inc.) dated June 30, 2015 filed as Exhibit 2.2 to the Company’s Form 8-K dated July 2, 2015, and incorporated herein by reference
3.1						Third Amended Articles of Incorporation of SIFCO Industries, Inc., filed as Exhibit 3(a) of the Company’s Form 10-Q dated March 31, 2002, and incorporated herein by reference
3.2						SIFCO Industries, Inc. Amended and Restated Code of Regulations dated January 28, 2016, filed as Exhibit 3.2 of the Company’s Form 10-K dated September 30, 2015, and incorporated herein by reference
9.1						Voting Trust Agreement dated January 31, 2013, filed as Exhibit 9.1 to the Company’s Form 10-Q dated February 11, 2013 and incorporated herein by reference
9.2						Voting Trust Extension Agreement dated January 15, 2015, filed as Exhibit 9.2 to the Company's Form 10-Q dated February 3, 2015 and incorporated herein by reference
9.3						Voting Trust Agreement dated January 31, 2017, filed as Exhibit 9.3 to the Company's Form 10-Q dated December 31, 2016 and incorporated herein by reference
9.4						Voting Trust Extension Agreement dated January 18, 2019, filed as Exhibit 9.4 to the Company's Form 10-Q dated February 14, 2019, and incorporated herein by reference
9.5						Voting Trust Extension Agreement dated January 27, 2021, filed as Exhibit 9.5 to the Company's Form 10-Q dated February 5, 2021, and incorporated herein by reference
10.1						SIFCO Industries, Inc. 2007 Long-Term Incentive Plan, filed as Exhibit A of the Company’s Proxy and Notice of 2008 Annual Meeting to Shareholders dated December 14, 2007, and incorporated herein by reference
10.2						Letter Agreement between the Company and Jeffrey P. Gotschall, dated August 12, 2009 filed as Exhibit 10.1 of the Company’s Form 8-K dated August 12, 2009 and incorporated herein by reference
10.3						Amendment No. 1 to the SIFCO Industries, Inc. 2007 Long-Term Incentive Plan, filed as Exhibit A of the Company’s Proxy and Notice of 2011 Annual Meeting to Shareholders dated December 15, 2010, and incorporated herein by reference
10.4						Change in control Agreement and Separation Agreement between the Company and Peter W. Knapper, effective June 29, 2022, filed as Exhibit 10.1 to the Company's Form 8-K dated June 29, 2022 and incorporated herein by reference.
10.5						Form of SIFCO Industries, Inc. Long-term incentive plan performance share award, filed as Exhibit 10.6 to the Company's Form 10-Q dated May 16, 2016, and incorporated herein by reference
10.6						Form of SIFCO Industries, Inc. Long-term incentive plan restricted share award, filed as Exhibit 10.7 to the Company's Form 10-Q dated May 16, 2016, and incorporated herein by reference
10.7						Credit Agreement, dated August 8, 2018, by and among SIFCO Industries, Inc. and Lender named therein and J.P. Morgan Chase Bank, N.A., filed as Exhibit 10.12 to the Company's Form 10-Q dated August 9, 2018, and incorporated herein by reference
10.8						Amendment and Restatement to the SIFCO Industries, Inc. 2007 Long-Term Incentive Plan, filed as Exhibit A of the Company’s Proxy and Notice of 2017 Annual Meeting to Shareholders dated December 6, 2016, and incorporated herein by reference
10.9						Form of SIFCO Industries, Inc. Long-term incentive plan performance share award, filed as Exhibit 10.14 to the Company's Form 10-Q dated January 31, 2017, and incorporated herein by reference
10.10						Form of SIFCO Industries, Inc. Long-term incentive plan restricted share award, filed as Exhibit 10.15 to the Company's Form 10-Q dated January 31, 2017, and incorporated herein by reference
10.11						Form of SIFCO Industries, Inc. Long-term incentive plan restricted share award, filed as Exhibit 10.16 to the Company's Form 10-Q dated January 31, 2017, and incorporated herein by reference


10.12						Change in Control Agreement and Separation Agreement between the Company and Thomas R. Kubera, effective June 29, 2019, filed as Exhibit 10.2 to the Company's Form 8-K dated July 1, 2019 and incorporated herein by reference
10.13						First Amendment to Credit Agreement, dated November 5, 2018, by and among SIFCO Industries, Inc., T&W Forge, LLC., Quality Aluminum Forge, LLC., and JPMorgan Chase Bank, N.A., a national banking association, filed as exhibit 10.1 to the Company's Form 8-K dated November 8, 2018, and incorporated herein by reference
10.14						Economic Development Administration Title IX Loan Agreement, dated November 8, 2018, by and between the City of Cleveland and SIFCO Industries, Inc., filed as exhibit 10.2 to the Company's Form 8-K dated November 8, 2018, and incorporated herein by reference
10.15						Second Amendment to Credit Agreement, dated December 17, 2018, by and among SIFCO Industries, Inc., T&W Forge, LLC., Quality Aluminum Forge, LLC., and JPMorgan Chase Bank, N.A., a national banking association, filed as exhibit 10.2 to the Company's Form 8-K dated December 19, 2018, and incorporated herein by reference
10.16						Export Credit Agreement, dated December 17, 2018, by and among SIFCO Industries, Inc., T & W Forge, LLC, Quality Aluminum Forge, LLC, and JPMorgan Chase Bank, N.A., a national banking association filed as Exhibit 10.1 to the Company's Form 8-K dated December 19, 2018 and incorporated herein by reference
10.17						Third Amendment to Credit Agreement, dated March 29, 2019, by and among SIFCO Industries, Inc., Quality Aluminum Forge, LLC., and JPMorgan Chase Bank, N.A., a national banking association, filed as exhibit 10.19 to the Company's Form 10-Q dated May 10, 2019
10.18						Fourth Amendment to Credit Agreement, dated September 20, 2019, by and among SIFCO Industries, Inc., Quality Aluminum Forge, LLC., and JPMorgan Chase Bank, N.A., a national banking association, filed as exhibit 10.1 to the Company's Form 8-K dated September 24, 2019, and incorporated herein by reference.
10.19						First Amendment to the SIFCO Industries, Inc. 2007 Long-Term Incentive Plan (Amended and Restated as of November 16, 2016) filed as Exhibit A of the Company’s Definitive Proxy Statement dated December 16, 2019, and incorporated herein by reference.
10.20						Promissory Note, dated April 10, 2020, by and between SIFCO Industries, Inc. and JPMorgan Chase Bank, N.A., a national banking association, filed as exhibit 10.1 to the Company's Form 8-K dated April 13, 2020, and incorporated herein by reference.
10.21						Form of SIFCO Industries, Inc. Long-term incentive plan restricted share award, filed as Exhibit 10.21 to the Company's Form 10-K dated December 23, 2020, and incorporated herein by reference
10.22						Fifth Amendment to Credit Agreement, dated February 19, 2021, by and among SIFCO Industries, Inc., Quality Aluminum Forge, LLC., and JPMorgan Chase Bank, N.A., a national banking association, filed as exhibit 10.1 to the Company's Form 8-K dated February 22, 2021, and incorporated herein by reference.
10.23						First Amendment to Export Credit Agreement, dated February 19, 2021, by and among SIFCO Industries, Inc., Quality Aluminum Forge, LLC, and JPMorgan Chase Bank, N.A., a national banking association filed as Exhibit 10.2 to the Company's Form 8-K dated February 22, 2021, and incorporated herein by reference
10.24						Sixth Amendment to the Credit Agreement, dated March 23, 2022, by and among SIFCO Industries, Inc., Quality Aluminum Forge, LLC, and JPMorgan Chase Bank, N.A., a national banking association filed as Exhibit 10.1 to the Company's Form 8-K dated March 24, 2022, and incorporated herein by reference
10.25						Second Amendment to the Export Credit Agreement, dated March 23, 2022, by and among SIFCO Industries, Inc., Quality Aluminum Forge, LLC, and JPMorgan Chase Bank, N.A., a national banking association filed as Exhibit 10.2 to the Company's Form 8-K dated March 24, 2022, and incorporated herein by reference
10.26						Forbearance Agreement, dated April 28, 2023, by and among JPMorgan Chase Bank, N.A., SIFCO Industries, Inc., T&W Forge LLC, and Quality Aluminum Forge, LLC.
10.27						Seventh Amendment to Credit Agreement, dated August 9, 2023, by and among SIFCO Industries, Inc., Quality Aluminum Forge, LLC., and JPMorgan Chase Bank, N.A., a national banking association, filed as exhibit 10.1 to the Company's Form 8-K dated August 10, 2023, and incorporated herein by reference.
10.28						Third Amendment to Export Credit Agreement, dated August 9, 2023, by and among SIFCO Industries, Inc., Quality Aluminum Forge, LLC., and JPMorgan Chase Bank, N.A., a national banking association, filed as exhibit 10.2 to the Company's Form 8-K dated August 10, 2023, and incorporated herein by reference.
14.1						Code of Ethics, filed as Exhibit 14.1 of the Company’s Form 8-K dated February 6, 2018, and incorporated herein by reference
*31.1						Certification of Chief Executive Officer pursuant to Rule 13a-14(a) / 15d-14(a)
*31.2						Certification of Chief Financial Officer pursuant to Rule 13a-14(a) / 15d-14(a)
*32.1						Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
*32.2						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350


*101						The following financial information from SIFCO Industries, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 filed with the SEC on August 14, 2023, formatted in XBRL includes: (i) Consolidated Condensed Statements of Operations for the fiscal periods ended March 31, 2023 and 2022, (ii) Consolidated Condensed Statements of Comprehensive Income for the fiscal periods ended March 31, 2023 and 2022, (iii) Consolidated Condensed Balance Sheets at March 31, 2023 and September 30, 2022, (iv) Consolidated Condensed Statements of Cash Flow for the fiscal periods ended March 31, 2023 and 2022, (iv) Consolidated Condensed Statements of Shareholders' Equity for the periods March 31, 2023 and 2022, and (v) the Notes to the Consolidated Condensed Financial Statements.
*104						Cover Page Interactive Data File: the cover page XBRL tags are embedded within the Inline XBRL document and are contained with Exhibit 101

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						SIFCO Industries, Inc.
						(Registrant)

Date: August 14, 2023						/s/ Peter W. Knapper
						Peter W. Knapper
						President and Chief Executive Officer
						(Principal Executive Officer)

Date: August 14, 2023						/s/ Thomas R. Kubera
						Thomas R. Kubera
						Chief Financial Officer
						(Principal Financial Officer)