sif-20230630

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 June 30, 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 June 30, 2023 was 6,107,148.

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 June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
Net sales	$	21,853	$	21,454	$	62,394	$	65,269
Cost of goods sold	18,375		21,080		55,935		63,427
Gross profit	3,478		374		6,459		1,842
Selling, general and administrative expenses	3,388		2,821		10,517		9,037

Amortization of intangible assets	63		62		187		252
Gain on disposal of operating assets	(3)		—		—		(2)

Operating income (loss)	30		(2,509)		(4,245)		(7,445)

Interest expense, net	305		146		919		453
Gain on debt extinguishment	—		—		—		(5,106)
Foreign currency exchange loss (gain), net	1		(7)		11		2
Other expense (income), net	323		23		287		(45)
Loss before income tax benefit	(599)		(2,671)		(5,462)		(2,749)
Income tax expense (benefit)	35		(3)		128		(29)


Net loss	$	(634)	$	(2,668)	$	(5,590)	$	(2,720)










Net loss per share
Basic	$	(0.11)	$	(0.46)	$	(0.94)	$	(0.47)
Diluted	$	(0.11)	$	(0.46)	$	(0.94)	$	(0.47)

Weighted-average number of common shares (basic)	5,940		5,840		5,925		5,827
Weighted-average number of common shares (diluted)	5,940		5,840		5,925		5,827

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 June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
Net loss	$	(634)	$	(2,668)	$	(5,590)	$	(2,720)
Other comprehensive loss:
Foreign currency translation adjustment, net of tax	20		(304)		436		(563)
Retirement plan liability adjustment, net of tax	153		188		305		426
Other	—		—		1		—
Comprehensive loss	$	(461)	$	(2,784)	$	(4,848)	$	(2,857)

See notes to unaudited consolidated condensed financial statements.

SIFCO Industries, Inc. and Subsidiaries

Consolidated Condensed Balance Sheets

(Amounts in thousands, except per share data)


	June 30, 2023		September 30, 2022
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	598	$	1,174
Receivables, net of allowance for doubtful accounts of $137 and $111, respectively	20,197		16,515

Contract assets	9,019		10,172

Inventories, net	10,610		8,969
Refundable income taxes	97		97

Prepaid expenses and other current assets	1,176		1,851


Total current assets	41,697		38,778
Property, plant and equipment, net	37,387		39,272
Operating lease right-of-use assets, net	14,567		15,167
Intangible assets, net	333		477
Goodwill	3,493		3,493
Other assets	79		79

Total assets	$	97,556	$	97,266
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	5,394	$	4,379
Revolver	14,948		11,163
Short-term operating lease liabilities	847		792
Accounts payable	11,469		10,387
Accrued liabilities	6,173		5,868

Total current liabilities	38,831		32,589
Long-term debt, net of current maturities, net of unamortized debt issuance costs	2,994		3,508
Long-term operating lease liabilities, net of short-term	14,203		14,786
Deferred income taxes, net	—		137
Pension liability	4,789		4,812
Other long-term liabilities	676		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 6,107 at June 30, 2023 and 6,040 at September 30, 2022	6,107		6,040
Additional paid-in capital	11,541		11,387
Retained earnings	26,366		31,956
Accumulated other comprehensive loss	(7,951)		(8,693)
Total shareholders’ equity	36,063		40,690
Total liabilities and shareholders’ equity	$	97,556	$	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)


	Nine Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(5,590)	$	(2,720)

Adjustments to reconcile net loss to net cash (used for) provided by operating activities:
Depreciation and amortization	4,821		4,800
Amortization of debt issuance costs	30		30
Gain on disposal of operating assets	—		(2)
Loss on insurance proceeds received for non-property claim	60		—

LIFO effect	(272)		586
Share transactions under company stock plan, net	221		203

Inventory valuation accounts	(1,793)		332

Gain on extinguishment of debt	—		(5,106)
Other long-term liabilities	66		(104)
Deferred income taxes	(136)		(18)
Changes in operating assets and liabilities:
Receivables	(3,160)		2,730
Contract assets	1,153		938
Inventories	869		(1,384)

Prepaid expenses and other current assets	653		479
Other assets	128		(13)
Accounts payable	585		828
Other accrued liabilities	(157)		(857)
Accrued income and other taxes	252		(25)

Net cash (used for) provided by operating activities	(2,270)		697

Cash flows from investing activities:

Proceeds from disposal of operating assets	13		2
Capital expenditures	(1,905)		(2,501)

Net cash used for investing activities	(1,892)		(2,499)

Cash flows from financing activities:
Proceeds from long-term debt	—		1,402
Payments on long-term debt	(809)		(1,039)
Proceeds from revolving credit agreement	60,087		59,668
Repayments of revolving credit agreement	(56,301)		(58,486)



Short-term debt borrowings	4,459		2,762
Short-term debt repayments	(3,965)		(2,715)


Net cash provided by financing activities	3,471		1,592
Decrease in cash and cash equivalents	(691)		(210)
Cash and cash equivalents at the beginning of the period	1,174		346
Effect of exchange rate changes on cash and cash equivalents	115		(25)
Cash and cash equivalents at the end of the period	$	598	$	111

Supplemental disclosure of cash flow information of operations:
Cash paid for interest	$	(924)	$	(423)
Cash paid for income taxes, net	$	(16)	$	(23)
Non-cash investing activities:
Additions to property, plant & equipment - incurred but not yet paid	$	306	$	336

See notes to unaudited consolidated condensed financial statements.

SIFCO Industries, Inc. and Subsidiaries

Consolidated Condensed Statements of Shareholders’ Equity

(Unaudited, Amounts in thousands)


	Nine Months Ended June 30, 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	—	—		—		(5,590)		742		(4,848)


Performance and restricted share expense	—	—		292		—		—		292
Share transactions under equity-based plans	67	67		(138)		—		—		(71)
Balance - June 30, 2023	6,107	$	6,107	$	11,541	$	26,366	$	(7,951)	$	36,063


	Three Months Ended June 30, 2023
	Common			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares	Amount
Balance - March 31, 2023	6,108	$	6,108	$	11,455	$	27,000	$	(8,124)	$	36,439




Comprehensive (loss) income	—	—		—		(634)		173		(461)

Performance and restricted share expense	—	—		86		—		—		86
Share transactions under equity-based plans	(1)	(1)		—		—		—		(1)
Balance - June 30, 2023	6,107	$	6,107	$	11,541	$	26,366	$	(7,951)	$	36,063


	Nine Months Ended June 30, 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	—	—		—		(2,720)		(137)		(2,857)


Performance and restricted share expense	—	—		309		—		—		309
Share transactions under equity-based plans	53	53		(159)		—		—		(106)
Balance - June 30, 2022	6,040	$	6,040	$	11,268	$	38,876	$	(9,216)	$	46,968


	Three Months Ended June 30, 2022
	Common			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares	Amount
Balance - March 31, 2022	6,040	$	6,040	$	11,264	$	41,544	$	(9,100)	$	49,748




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

Performance and restricted share expense	—	—		4		—		—		4

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

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 (loss). The functional currency for the Company's 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 which approximate the rates in effect at the date of the transaction. Foreign currency translation adjustments are reported as a component of accumulated other comprehensive loss in the 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 condensed balance sheet contained in these financial statements 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 per Share

The Company’s net loss per basic share has been computed based on the weighted-average number of common shares outstanding. During a period of net loss, zero restricted and performance shares are included in the calculation of diluted earnings per share because the effect would be anti-dilutive. 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 June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022


Net loss	$	(634)	$	(2,668)	$	(5,590)	$	(2,720)

Weighted-average common shares outstanding (basic and diluted)	5,940		5,840		5,925		5,827
Effect of dilutive securities:

Restricted shares	—		—		—		—
Performance shares	—		—		—		—
Weighted-average common shares outstanding (diluted)	5,940		5,840		5,925		5,827


Net loss per share – basic:	$	(0.11)	$	(0.46)	$	(0.94)	$	(0.47)







Net loss per share – diluted:	$	(0.11)	$	(0.46)	$	(0.94)	$	(0.47)

Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share	211		313		187		309

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 remaining post closing deliverable as established under the Seventh Amendment of the Credit Agreement discussed in Note 7, Debt and Subsequent Event 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.

F. Employee Retention Credit

Under the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), the Employee Retention Credit ("ERC") is a refundable payroll tax credit for businesses and tax-exempt organizations that were affected during the COVID-19 pandemic. Eligible businesses, both for-profit and not-for-profit, that experienced a full or partial government-ordered suspension of operations or a "significant" decline in gross receipts in any quarter (more than 50% decrease in 2020 from 2019, and more than 20% in 2021) could receive a quarterly refundable payroll tax credit. The Company, with reasonably assured qualification, submitted and received approval for refunds under the ERC program.

As no authoritative guidance exists under U.S. GAAP for reporting ERCs, the Company adopted International Accounting Standards (“IAS”) 20 – Accounting for Government Grants and Disclosure of Government Assistance which permits the recording and presentation of either the gross amount as other income or netting the credit against related expense. The Company recorded a gross benefit of $1,772, which represented $1,688 claimed as refund and $84 in interest income. The ERC was recognized as a reduction in other manufacturing and selling, general and administrative expenses and allocated to the financial statement categories from which the payroll taxes were originally incurred. The Company recorded benefits to cost of goods sold of $1,452, selling, general and administrative expense of $236 and interest income $84, respectively and recorded selling, general and administrative expense of $354 for professional fees related to the tax credit in the consolidated condensed statements of operations during the three and nine months ended June 30, 2023. The Company received $1,246 of refunds on May 9, 2023 and recorded $526 in accounts receivable on the consolidated condensed balance sheets as of June 30, 2023.

G. 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 $332 of inventories from changes in operating assets and liabilities to inventory valuation accounts adjustment to reconcile net loss to net cash used for operating activities to conform to current period presentation.

2.Inventories

Inventories consist of:


	June 30, 2023		September 30, 2022
Raw materials and supplies	$	1,763	$	2,968
Work-in-process	5,342		3,356
Finished goods	3,505		2,645
Total inventories, net	$	10,610	$	8,969

For a portion of the Company's inventory, cost is determined using the last-in, first-out ("LIFO") method. Approximately 19% and 42% of the Company’s inventories at June 30, 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 $9,668 and $9,939 higher than reported at June 30, 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 June 30, 2023 and September 30, 2022, our inventory valuation allowances were $3,857 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 third quarter, the Company evaluated potential 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 third quarter, the Company evaluated potential triggering events and determined interim testing was not required.

5. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows:


	June 30, 2023		September 30, 2022
Foreign currency translation adjustment	$	(5,760)	$	(6,196)
Retirement plan liability adjustment, net of tax	(2,204)		(2,509)
Interest rate swap agreement, net of tax	13		12
Total accumulated other comprehensive loss	$	(7,951)	$	(8,693)

6. Leases

The components of lease expense were as follows:


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022

Finance lease expense:
Amortization of right-of use assets on finance leases	$	11	$	2	$	47	$	16
Interest on lease liabilities	1		—		6		1
Operating lease expense	421		425		1,243		1,283

Variable lease cost	29		29		89		89

Total lease expense	$	462	$	456	$	1,385	$	1,389

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


	Classification in the consolidated condensed balance sheets	June 30, 2023		September 30, 2022
Assets:
Finance lease assets	Property, plant and equipment, net	$	170	$	202
Operating lease assets	Operating lease right-of-use assets, net	14,567		15,167
Total lease assets		$	14,737	$	15,369

Current liabilities:
Finance lease liabilities	Current maturities of long-term debt	$	64	$	61
Operating lease liabilities	Short-term operating lease liabilities	847		792
Non-current liabilities:
Finance lease liabilities	Long-term debt, net of current maturities

SEC Form 10-Q filed by SIFCO Industries Inc.