SIFCO INDUSTRIES INC
For the period ended Sep 30, 2024. Filed Dec 26, 2024.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Dec 26, 2024
SIF$16.77-0.6%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-09-30; filed 2024-01-02.
0000090168-23-000083
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsFinancial Statements and Supplemental DataReport of Independent Registered Public Accounting Firm (PCAOB IDReport of Indep endent Registered Public Accounting Firm (PCAOB IDConsolidated Statements of OperationsConsolidated Statements of Comprehensive Income (Loss)Consolidated Balance SheetsCurrent report: 10-K
Period ended 2024-09-30; filed 2024-12-26.
0000090168-24-000060
Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 158 previous paragraphs and 66 current paragraphs.
28 unchanged; 22 reworded; 16 added; 108 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 8 previous and 3 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (16)
Current report
CBlade Sale
Current report
In October 2024, the Company sold its European operations in order to streamline operational synergies and refocus on its core aerospace forging business. SIFCO Irish Holdings, Ltd., a wholly owned subsidiary of the Company, entered into a Share Purchase Agreement (the “SPA”) pursuant to which it sold 100% of the share capital of C Blade S.p.A. Forging & Manufacturing, an Italian joint stock company and wholly-owned subsidiary of the Company (“CBlade”), for cash consideration.
Current report
As a result of the planned sale transaction, the Company’s financial statements have been prepared with the net assets, results of operations, and cash flows of CBlade presented as assets held for sale and discontinued operations, respectively, as of and for the years ended September 30, 2024 and 2023. All historical statements, amounts and related disclosures have been retrospectively adjusted to conform to this presentation. Refer to Note 2 —Assets Held for Sale and Discontinued Operationsof the Notes to Consolidated Financial Statements.
Current report
2024, compared to $27.4 million in fiscal 2023 primarily due to higher demand in the commercial space market, as well as increases in build rates in the commercial aerospace industry. Military net sales decreased $0.8 million to $37.9 million in fiscal 2024, compared to $38.7 million in fiscal 2023 primarily due to V22 and C130 demand reductions, partially offset by higher demand in certain rotorcraft and munition programs.
Current report
Gross Profit
Current report
Gross profit increased by $2.6 million, to $6.0 million during fiscal 2024, compared with $3.3 million in fiscal 2023. Gross margin percent of sales was 7.5% during fiscal 2024, compared with 5.1% in fiscal 2023, primarily due to the increases in sales volume and COGS discussed above and the impact of favorable mix of products sold, particularly due to growth in the commercial space market.
Current report
Selling, general and administrative (“SG&A”) expenses were $11.1 million, or 14.0% of net sales, during fiscal 2024, compared with $12.3 million, or 18.6% of net sales, in fiscal 2023. The decrease in SG&A expenses is primarily due to lower costs related to the prior year's cybersecurity incident, partially offset by higher legal and other costs related to the evaluation of strategic alternatives.
Current report
Loss from Continuing Operations
Current report
Net loss was $8.6 million during fiscal 2024 compared with $10.5 million in fiscal 2023 due to higher sales volumes and gross margins improvements coupled with lower SG&A expenses, partially offset by higher interest expense.
Current report
Our primary requirements for liquidity and capital resources besides our growth initiatives, are working capital, capital expenditures, principal and interest payments on our outstanding debt, and other general corporate needs. Historically, the main sources of liquidity of the Company have been cash flows from operations and borrowings under our debt agreements. As of September 30, 2024, the Company was not party to any off-balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources. The cash requirements for the upcoming fiscal year relate to payments on our outstanding debt and leases, operating and capital purchase commitments, and expected contributions to our defined benefit and contribution plans. For information regarding the Company’s expected cash requirements and timing of payments related to leases and noncancellable purchase commitments, see Note 11 —Leases and Note 12 —Commitments and Contingencies of the Notes to Consolidated Financial Statements. Additionally, refer to Note 19 —Retirement Benefit Plans of the Notes to Consolidated Financial Statements for more information related to the Company’s pension and defined contribution plans.
Current report
With the sale of the CBlade manufacturing operations located in Maniago, Italy, the Company expects to increase its cash on hand from the proceeds, which will be used to repay a portion of its outstanding debt balances and for general operational needs. Historically, the cash flows from the Company’s CBlade business represented a material portion of the consolidated results of operations, financial condition and cash flows. Although future contributions from the CBlade business will cease with the execution of the sale transaction, the Company believes that its streamlined operations and lower overall costs will allow management to focus on domestic growth opportunities. However, there is no guarantee that the Company’s continuing operations will sufficiently replace the liquidity and cash flows previously provided by CBlade’s operations. For details regarding the sale of CBlade, refer to Note 2 —Assets Held for Sale and Discontinued Operationsof the Notes to Consolidated Financial Statements.
Current report
We believe that our existing cash will be sufficient to finance our continued operations, planned capital expenditures and the additional expenses that we expect to incur during the next 12 months. In order to support and achieve our future growth plans, we may need or advantageously seek to obtain additional funding through equity or debt financing. We believe that our current operating structure will facilitate sufficient cash flows from operations to satisfy our expected long-term liquidity requirements beyond the next 12 months. If these resources are not sufficient to satisfy our liquidity requirements due to changes in circumstances, we may be required to borrow under our loan agreement or seek additional financing. The Company’s liquidity could be negatively affected if the Company is unable to obtain capital, 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. For details regarding our debt agreements, see Note 6 —Debtof the Notes to Consolidated Financial Statements.
Current report
The Company’s operating activities used $2.6 million of cash in fiscal 2024, compared with $3.8 million of cash used in fiscal 2023. The cash used by operating activities in fiscal 2024 was primarily due to net operating loss of $8.6 million, adjusted for non-cash items such as depreciation and amortization of $4.8 million, amortization of debt issuance costs of $1.2 million, LIFO expense of $0.9 million, change in NRV reserve $0.6 million, equity based compensation of $0.2 million, partially offset by sources of working capital of $2.3 million. The use of cash from working capital of $2.3 million was primarily due to higher inventories due to timing of raw material receipts, the increase in accounts receivable due to higher sales and timing of payments at the end of the fiscal year, and higher prepaid expenses attributable to deferred financing costs related to the debt refinancing, partially offset by an increase in contract liabilities due to advance payments for raw materials and higher sales recognized over-time and higher accounts payable due to timing of payments.
Current report
Refer to Note 6 —Debtof the Notes to Consolidated Financial Statements for details regarding our financing activities during fiscal 2024 and 2023.
Current report
Net Cash Provided By (Used For) Discontinued Operations
Current report
Net cash from discontinued operations are presented in the consolidated statements of cash flows as summarized operating, investing and financing cash flows, as well as the impact of exchange rate changes on cash. The Company’s operating activities from discontinued operations provided $1.4 million of cash in fiscal 2024, compared with $2.4 million of cash provided by fiscal 2023 primarily driven by net income from discontinued operations and changes in working capital. Cash used for investing activities from discontinued operations was $1.4 million and $1.3 million in fiscal 2024 and 2023, respectively, related to outlays for capital expenditures. Cash provided by financing activities from discontinued operations was $1.1 million in fiscal 2024 compared to $2.0 million of cash used in fiscal 2023, attributable to proceeds from new borrowings and loan payments, respectively.
Removed paragraphs (108)
Previous report
Gross Profit (Loss)
Previous report
Gross profit increased by $9.4 million, to $7.5 million during fiscal 2023, compared with a loss of $1.9 million in fiscal 2022. Gross margin percent of sales was 8.7% during fiscal 2023, compared with (2.2%) in fiscal 2022, primarily due to increased volume, ERC benefit of $1.5 million, reduction of NRV reserveand idle expense, and lower outside processing costs compared with the prior year.
Previous report
Selling, general and administrative expenses were $14.0 million, or 16.1% of netsales, during fiscal 2023, compared with $11.9 million, or 14.2% of net sales, in fiscal 2022. The increase in selling, general and administrative expensesis primarily due to incremental IT costs related to the cybersecurity incident of $1.3 million and professional fees primarily related to the ERC credit of $0.4 million partially offset by ERC benefit of $0.2 million. See Note 11, Commitments and Contingenciesfor further discussion on cyber incident.
Previous report
The Company recorded an operating loss of $6.7 million during fiscal 2023, compared with an operating loss of $14.1 million in fiscal 2022.
Previous report
Prior year results included 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 Eventfor further discussion.
Previous report
Net interest expense was $1.3 million in fiscal 2023 compared with$0.6 million in fiscal 2022. The increase was due to higher interest rates and higher average borrowings compared with the prior year. See Note 5, Debt and Subsequent Eventfor further discussion.
Previous report
Net Loss
Previous report
Net loss was $8.7 million during fiscal 2023, compared with $9.6 million in fiscal 2022. The decrease in net loss in the current period was primarily due to increased volume, ERC refund benefit, reduction of NRV reserveand idle expense, lower outside processing costs and stabilized raw material pricing partially offset by cybersecurity incident costs. Prior year results included a $5.1 million gain on debt extinguishment previously noted.
Previous report
(4)Represents the gain on extinguishment of debt and interest for the amount forgiven by the SBA as it relates to the PPP loan in fiscal 2022.
Previous report
Historically, the main sources of liquidity of the Company have been cash flows from operations and borrowings under our Credit Agreement (as defined below under "Financing Activities"). The Company's liquidity could be negatively affected if the Company is unable to restructure existing debt obligations, obtain capital or enter 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, 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 Note 5, Debt and Subsequent Event.
Previous report
The Company’s operating activi ties provided $0.3 million of cash in fiscal 2022. The cash provided by operating activities in fiscal 2022 was primarily due to non-cash items, such as depreciation and amortization of $6.3 million, inventory write down to NRV of $1.5 million, LIFO effect of $0.7 million, equity based compensation of $0.3 million and source of working capital of $6.0 million, partially offset by the forgiveness of the PPP loan of $5.1 million and net loss of $9.6 million. The source of cash from working capital of $6.0 million was primarily due to reductions in receivables due to lower sales and improved collections as well as decreases in inventories, partially offset by payments to suppliers.
Previous report
As discussed in Note 5, Debt and Subsequent Event, the Company amended the Credit Agreement and the Export Agreement on August 9, 2023. The combined maximum borrowings decreased to $30.0 million from $35.0 million. The Seventh Amendment (the "Seventh Amendment") to the Credit Agreement (as amended, the "Credit Agreement") consists of a senior secured revolving credit facility with a maximum borrowing of $23.0 million, previously $28.0 million. The revolving commitment through the Third Amendment (the "Third Amendment") of the Export Credit Agreement, which lends amounts to the Company on foreign receivables remained unchanged at $7.0 million. The Seventh Amendment, among other things, (i) advanced the loan maturity date to December 31, 2023; (ii) provided a waiver of Existing Defaults and concludes the forbearance period as described under the Forbearance Agreement dated April 28, 2023; (iv) the aggregate outstanding principal balance of the Revolving Exposure under the ABL Credit Agreement and Export Revolving Loan may not at any time exceed the lesser of Revolving Commitment, less the Availability Block, if applicable, the Borrowing Base, and in combination with the Export Revolving Loan under the Export Credit Agreement to $18.0 million through September 30, 2023 and $19.0 million thereafter; (v) the Reserves under the Borrowing Base in the ABL Credit Agreement were reduced to $1.5 million through September 30, 2023 and $2.0 million thereafter. The Third Amendment amends the Export Credit Agreement to (i) modified the loan maturity date to December 31, 2023 and (ii) provided waiver of Existing Defaults and concludes the forbearance period as described under the Forbearance Agreement dated April 28, 2023. The Seventh Amendment was subject to satisfaction of certain post closing deliverables, including: (i) one or more proposed term sheets which provide for the refinancing of all of the Obligations under the current Credit Agreement, in each case in an amount sufficient to repay the Obligations in full, by no later than September 19, 2023; (ii) a Confidential Information Memorandum ("CIM"), by no later than September 20, 2023; and (iii) a duly executed term sheet providing for the refinancing of all of the Obligations in an amount sufficient to repay the Obligations in full, by no later than October 8, 2023. All post closing deliverables were satisfied as required under the Seventh Amendment.
Previous report
As discussed in Note 5, Debt and Subsequent Event, on November 8, 2023, the Company entered into the Eighth Amendment to the Credit Agreement (the "Eighth Amendment") with its Lender. The Eighth Amendment, among other things, reduced the Reserves under the Borrowing Base in the Credit Agreement to $1.5 million, or such lesser amount, if any, as may be agreed upon in writing by the Lender in its sole discretion.
Previous report
As discussed in Note 5, Debt and Subsequent Event, on December 21, 2023 the Company entered into the Ninth Amendment (the "Ninth Amendment") to the Credit Agreement and the Fourth Amendment (the "Fourth Amendment") to the Export Credit Agreement with its lender JPMorgan Chase Bank, N.A. (the "Lender") The Ninth Amendment amends the Credit Agreement to, among other things, to: (i) reflect the incurrence by borrowers of the Subordinated Loan and the execution and delivery by borrowers, the Lender and GHI of the Subordinated Loan Documents, and the receipt by borrowers of $3.0 million immediately available funds on the Ninth Amendment Effective Date; (ii) delay the maturity date from December 31, 2023 to October 4, 2024, or any earlier date on which the Revolving Commitment is reduced to zero or otherwise terminated pursuant to the terms of the Credit Agreement; (iii) reduce the Revolving Commitment from $23.0 million to $19.0 million; (iv) modify the Reserves of $1.5 million, increasing on the first day of each month by $0.3 million, commencing on May 1, 2024 and continuing until (and including) August 1, 2024, or such lesser amount, if any, as may be agreed upon in writing by the Lender in its sole discretion (which may be by email from the Lender), plus (d) the PP&E Component; (v) modify the Applicable Margin schedule to reflect the following applicable rates 2.75% (SOFR Spread), and 0.50% (Commitment Fee Rate). The Fourth Amendment of the Export Credit Agreement, to, among other things, to: (i) reflect the incurrence by borrowers of the Subordinated Loan and the execution and delivery by borrowers, the Lender and GHI of the Subordinated Loan Documents, and the receipt by borrowers of $3.0 million in immediately available funds on the Ninth Amendment Effective Date; and (ii) delay the maturity date to October 4, 2024, or any earlier date on which the Revolving Commitment is reduced to zero or otherwise terminated pursuant to the terms thereof.
Previous report
The Company incurred a secured subordinated loan from Garnet Holdings, Inc., a California corporation owned and controlled by Mark J. Silk (“GHI”) (Mr. Silk is a member of the Board of Directors of the Company and considered a related party), in the original principal amount of $3.0 million (the “Subordinated Loan”) as a condition to the consummation of the transactions contemplated by the Ninth Amendment to the Credit Agreement. See Note 13, Related Party Transactionsand Note 14, Subsequent Eventfor further discussion.
Previous report
As discussed in Note 5, Debt and Subsequent Event, the Company's Maniago, Italy location did not obtain any new borrowings in fiscal 2023. The Company repaid $2.0 million of its Company's foreign term loans in 2023.
Previous report
In fiscal 2022, the Company's Maniago, Italy location obtained borrowings from two separate lenders. The first loan was for $1.2 million with repayment terms of six years. A second loan with a five year term was obtained in the amount of $1.0 million. The proceeds of the first loan is to be used for working capital purposes, the proceeds of the second loan are earmarked for capital investment. The Company repaid $1.2 million of its Company's foreign term loans in 2022.
Previous report
The Company had net borrowings under its revolving credit facility of $5.1 million in fiscal 2023 and $2.2 million in fiscal 2022. Amounts borrowed under the Credit Agreement are secured by substantially all the assets of the Company and its U.S. subsidiaries and a pledge of 66.67% of the stock of its first-tier non-U.S. subsidiaries. Borrowings will bear interest at the lender's established domestic rate or SOFR, plus the applicable margin as set forth in the Credit Agreement. The revolver has a rate based on SOFR plus a 2.25% spread, which was 7.68% at September 30, 2023 and the Export Credit Agreement, as discussed in Note 5, Debt and Subsequent Event, has a rate based on SOFR plus a 1.75% spread, which was 7.18% at September 30, 2023. The Company also has a commitment fee of 0.25% under the Credit Agreement to be incurred on the unused balance of the revolver.
Previous report
As the Company’s Credit Agreement is asset-based, a sustained significant decrease in revenue in the U.S. or excessive aging of the underlying receivables could materially affect the collateral capacity limitation of the availability under the Credit Agreement and could impact our ability to comply with covenants in our Credit Agreement.
Previous report
Under the Company's Credit Agreement, the Company is subject to certain customary loan covenants regarding availability as discussed in Note 5, Debt and Subsequent Event. The availability at September 30, 2023 was $2.8 million. If the availability had fallen short, the Company would be required to meet the fixed charge coverage ratio ("FCCR") covenant, which must not be less than 1.1 to 1.0. In the event of a default, we may not be able to access our revolver, which could impact the ability to fund working capital needs, capital expenditures and invest in new business opportunities. Because the availability was greater than the $1.5 million Reserve minimum as of September 30, 2023, the FCCR calculation was not required.
Previous report
C. Off-Balance Sheet Arrangements
Previous report
In the normal course of business, the Company may be party to certain arrangements that are not reflected in the Consolidated Balance Sheets. The Company does not have obligations that meet the definition of an off-balance sheet arrangement that have had, or are reasonably likely to have, a material effect on the Company’s financial condition or results of operations.
Previous report
D. Critical Accounting Policies and Estimates
Previous report
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Estimates are revised as additional information becomes available. The Company believes that the accounting estimates employed and the resulting balances are reasonable; however, actual results in these areas could differ from the management's estimates under different assumptions or conditions.
Previous report
Significant accounting policies used in the preparation of the consolidated financial statements are discussed in Note 1, Summary of Significant Accounting Policies. The Company believes that the assumptions and estimates associated with allowance for doubtful accounts, inventory valuation, goodwill, contract balances, and income taxes have the greatest potential impact on our financial statements because they are inherently uncertain, involve significant judgements, and include areas where different estimates reasonably could materially impact the financial statements. The Company believes that the critical accounting estimates employed and the resulting balances are reasonable; however, actual results in these areas could differ from management's estimates under different assumptions or conditions.
Previous report
Allowances for Doubtful Accounts
Previous report
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of certain customers to make required payments. The Company evaluates the adequacy of its allowances for doubtful accounts each quarter based on the customers’ credit-worthiness, current economic trends or market conditions, past collection history, aging of outstanding accounts receivable and specific identified risks. As these factors change, the Company’s allowances for doubtful accounts may change in subsequent periods. Historically, losses have been within management’s expectations and have not been significant.
Previous report
Inventories
Previous report
Approximately 19% of the Company's inventory is valued using the last-in, first-out (“LIFO”) method with the remaining valued using the first-in, first-out ("FIFO") method stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less reasonably predictable costs of completion.
Previous report
The Company evaluates obsolete and excess inventory on a quarterly basis. The Company maintains a formal policy, which requires at a minimum, that amounts are written down based on an analysis of the age of the inventory. In addition, if the Company learns of specific obsolescence, other than that identified by the aging criteria, an additional write down will be recognized. Specific obsolescence may arise due to a technological or market change or based on cancellation of an order. Management’s judgment is necessary in determining the proper write down for obsolete and excess inventory. For the portion of the Company's inventory not valued at LIFO, inventory is valued at FIFO and stated at the lower of cost or net realizable value. The Company evaluates net realizable value on a quarterly basis. See Note 2, Inventories for further discussion.
Previous report
Revenue Recognition
Previous report
The Company recognizes revenue using the five-step revenue recognition model in which it depicts the transfer of goods to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. The revenue standard also requires disclosure sufficient to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments and assets recognized from the cost to obtain or fulfill a contract.
Previous report
Contract assets on the consolidated balance sheets are recognized when a good is transferred to the customer and the Company does not have the contractual right to bill for the related performance obligations. In these instances, revenue recognized exceeds the amount billed to the customer and the right to payment is not solely subject to the passage of time. Amounts do not exceed their net realizable value. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. Payment from customers are received based on the terms established in the contract with the customer.
Previous report
Impairment of Long-Lived Assets
Previous report
The Company reviews the carrying value of its long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset (group) might not be recoverable. This review involves judgment and is performed using estimates of future undiscounted cash flows, which include proceeds from disposal of assets and which the Company considers a critical accounting estimate. The Company would assess the fair value of the asset group and compare it to its carrying value. Under the Accounting Standard Codification ("ASC") 360 ("Topic 360"), if the carrying value of a long-lived asset or asset group is greater than the estimated undiscounted future cash flows, then the long-lived asset or asset group is considered impaired and an impairment charge is recorded for the amount by which the carrying value of the long-lived asset or asset group exceeds its fair value.
Previous report
In projecting future undiscounted cash flows, the Company relies on internal budgets and forecasts, and projected proceeds upon disposal of long-lived assets. The Company’s budgets and forecasts are based on historical results and anticipated future market conditions, such as the general business climate and the effectiveness of competition. The Company believes that its estimates of future undiscounted cash flows and fair value are reasonable; however, changes in estimates of such undiscounted cash flows and fair value could change the Company’s estimates, which could result in future impairment charges.
Previous report
2023 Long-Lived Asset Recoverability Tests
Previous report
In the first, second, third and fourth quarters, the Company evaluated triggering events and did not identify any indicators that the asset groups might be impaired.
Previous report
2022 Long-Lived Asset Recoverability Tests
Previous report
In the third and fourth quarters, certain qualitative factors, including operating results, at the Orange, California ("Orange") location, triggered recoverability tests. The results of both indicated that the long-lived assets, right-of-use assets and definite lived intangible assets were recoverable and did not require further review for impairment.
Showing the first 40 of 108 passages. Open the source sections for the rest.
Reworded paragraphs (22)
Previous wording
When planning and evaluating its business operations, the Company takes 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 build rate for industrial steam and gas turbine engines; and (iii) the projected maintenance, repair and overhaul schedules for commercial, business and military aircraft, as well as the engines that power such aircraft.
Current wording
When planning and evaluating its business operations, the Company takes 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 demand for private space launch and reentry programs; and (iii) the projected maintenance, repair and overhaul schedules for commercial, business and military aircraft, as well as the engines that power such aircraft.
Previous wording
The Company produces forged components for (i) turbine engines that power commercial, business and regional aircraft as well as military aircraft and armored military vehicles; (ii) airframe applications for a variety of aircraft; (iii) industrial gas and steam turbine engines for power generation units; and (iv) other commercial applications.
Current wording
The Company produces forged components for (i) turbine engines that power commercial, business and regional aircraft as well as military aircraft and armored military vehicles; (ii) airframe applications for a variety of aircraft; (iii) private space launch and reentry programs; and (iv) other commercial applications.
Previous wording
As reported on Forms 8-K filed January 6, 2023 and February 10, 2023, the Company became aware of unauthorized access to the Company's systems on December 30, 2022. The Company’s domestic operations were impacted by this Cybersecurity Incident which resulted in production delays and delayed shipments due to information access limitations. The Company initiated response protocols and an investigation, engaging cyber security experts to assist with the assessment of the incident and to help determine what data was impacted. The Company has since completed data recovery and restoration from the cyber incident. See Note 11, Commitments and Contingencies.
Current wording
As reported on Forms 8-K filed January 6, 2023 and February 10, 2023, the Company became aware of unauthorized access to the Company’s systems on December 30, 2022. The Company’s domestic operations were impacted by this cybersecurity incident which resulted in production delays and delayed shipments due to information access limitations. The Company initiated response protocols and an investigation, engaging cyber security experts to assist with the assessment of the incident and to help determine what data was impacted. The Company has since completed data recovery and restoration from the cyber incident. See Note 12 — Commitments and Contingenciesof the Notes to Consolidated Financial Statements.
Previous wording
Net sales comparative information for fiscal 2023 and 2022, respectively, is as follows:
Current wording
Net sales comparative information for fiscal 2024 and 2023 is as follows:
Previous wording
Net sales in fiscal 2023 increased 3.7%, or $3.1 million to $87.0 million, compared with $83.9 million in fiscal 2022. The timing of shipments, coupled with increased demand in the steam turbine power generation market, have contributed to the increase in deliveries in fiscal 2023 than in fiscal 2022. Fixed wing aircraft sales increased $0.6 million compared with the same period last year primarily due to F35, 737 and 787 programs. Rotorcraft sales increased $0.8 million in fiscal 2023 compared to the same period in fiscal 2022 primarily due to commercial and Blackhawk programs. The energy components for power generation units increased $5.6 million compared with the same period last year due to growth in the steam turbine markets. Commercial products and other revenue decreased $3.9 million in fiscal 2023 compared to the same period in fiscal 2022, primarily due to timing of orders related to a munitions program partially offset by an increase in commercial space.
Current wording
Net sales in fiscal 2024 increased 20.4%, or $13.5 million, to $79.6 million, compared with $66.1 million in fiscal 2023. Higher demand in the commercial space market and the timing of shipments and contract approvals across most markets contributed to the increase in deliveries in fiscal 2024 from fiscal 2023. Fixed wing aircraft sales increased $1.8 million compared with the same period last year primarily due to the 787 program. Rotorcraft sales increased $0.9 million in fiscal 2024 compared to the same period in fiscal 2023 primarily due to the Sikorsky H60 and Blackhawk programs, partially offset by declines in sales in the Bell/Boeing Osprey V22 components. Commercial space products increased by $8.6 million year-over-year due to higher demand for staged-combustion engine components. Energy components for power generation units decreased $0.3 million compared with the same period last year due to lower demand in the steam turbine markets. Commercial products and other revenue increased by $2.5 million in fiscal 2024 compared to fiscal 2023, primarily due to timing of orders related to munitions programs.
Previous wording
Commercial net sales were 55.6% of total net sales and military net sales were 44.4% of total net sales in fiscal 2023, compared with 47.4% and 52.6%, respectively, in the comparable period in fiscal 2022. Commercial net sales increased $8.6 million to $48.4 million in fiscal 2023, compared to $39.8 million in fiscal 2022 primarily due to growth in the energy components for power generation units (steam turbine markets) and the increase in build rates in the commercial aerospace industry. Military net sales decreased $5.4 million to $38.7 million in fiscal 2023, compared to $44.1 million in fiscal 2022 primarily due to V22 demand reduction and timing of orders related to a munition program.
Current wording
Commercial net sales were 52.4% of total net sales and military net sales were 47.6% of total net sales in fiscal 2024, compared with 41.5% and 58.5%, respectively, in fiscal 2023. Commercial net sales increased $14.4 million to $41.8 million in fiscal
Previous wording
Cost of goods sold ("COGS") decreased by $6.3 million, or 7.3%, to $79.5 million, or 91.3% of net sales, during fiscal 2023, compared with $85.8 million or 102.2% of net sales in the comparable period of fiscal 2022. The decrease was primarilydue to increased volume, ERC benefit of $1.5 million and reduction of net realizable value ("NRV") reserve of $0.9 millionand lower idle expense of $0.9 million. Current year results include $2.1 million of idle expense and $0.9 million benefit associated with NRV compared with prior year costs of $3.1 million and $1.5 million, respectively.
Current wording
Cost of goods sold (“COGS”) increased by $10.9 million, or 17.4%, to $73.7 million, or 92.5% of net sales, during fiscal 2024, compared with $62.7 million, or 94.9%, of net sales during fiscal 2023. The increase was primarily due to increased volume, coupled with higher labor costs of $1.3 million and other manufacturing and overhead costs of $1.4 million, primarily consisting of supplies, outside processing fees and insurance. Current year results include $1.4 million of idle expense and less than $0.1 million of expense associated with net realizable value (“NRV”) compared with prior year costs of $2.1 million and $0.9 million, respectively, which partially offset the increases in COGS in fiscal 2024. Additionally, fiscal 2023 results included $1.5 million of Employee Retention Credit (“ERC”) benefit that did not reoccur in fiscal 2024.
Previous wording
Amortization of intangibles decreased $0.1 million to $0.2 million during fiscal 2023, compared with $0.3 million in the comparable period of fiscal 2022. The decrease was primarily due to certain intangible assets that were fully amortized during fiscal 2023.
Current wording
In fiscal 2024, amortization of intangibles decreased slightly by $0.1 million compared to the prior year due to certain intangible assets that were fully amortized during fiscal 2023.
Previous wording
The Company’s effective tax rate in fiscal 2023 was (1.9%) compared with 0.4% in fiscal 2022. The decrease in the effective tax rate in fiscal 2023 is primarily attributable to changes in jurisdictional mix of income in fiscal 2023 compared with the same period in 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.
Current wording
The Company’s effective tax rate in fiscal 2024 was (0.4)% compared with (0.2)% in fiscal 2023. The decrease in the effective tax rate in fiscal 2024 is primarily attributable to changes in jurisdictional mix of income in fiscal 2024 compared with the same period in fiscal 2023. 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.
Previous wording
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:
Current wording
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, 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:
Previous wording
•The omission of the amortization expense associated with the Company’s intangible assets further limits the usefulness of EBITDA and Adjusted EBITDA; and
Current wording
•The omission of the amortization expense associated with the Company’s intangible assets further limits the usefulness of EBITDA and Adjusted EBITDA as measurements of financial performance; and
Previous wording
(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.
Current wording
(4)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 and executive severance.
Previous wording
(6)Represents expense incurred by its defined benefit pension plans related to settlement of pension obligations.
Current wording
(5)Represents expense incurred by its defined benefit pension plans related to settlement of pension obligations.
Previous wording
(7)Represents the change in the reserve for inventories for which cost is determined using the last-in, first-out (“LIFO”) method.
Current wording
(6)Represents the change in the reserve for inventories for which cost is determined using the last-in, first-out (“LIFO”) method.
Previous wording
(8)Represents incremental information technology costs as it relates to the cybersecurity incident and loss on insurance recovery.
Current wording
(7)Represents incremental information technology costs (and credits) as it relates to the cybersecurity incident and loss on insurance recovery.
Previous wording
(9)Represents expense related to evaluation of strategic alternatives.
Current wording
(8)Represents expense related to evaluation of strategic alternatives.
Previous wording
Cash and cash equivalents decreased to $0.4 million at September 30, 2023 compared with $1.2 million at September 30, 2022. At September 30, 2023 and 2022, cash included financing proceeds for capital investment and a nominal amount 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.
Current wording
Cash and cash equivalents increased to $1.7 million at September 30, 2024 compared with $21 thousand at September 30, 2023. As of September 30, 2024 and 2023, the Company also had cash and cash equivalents related to its business held for sale (i.e., CBlade) of $1.0 million and $0.3 million, respectively, which are included in Current assets of business held for sale in the audited consolidated balance sheets. As of September 30, 2024 and 2023, cash included financing proceeds for capital investment and a nominal amount of the Company’s cash and cash equivalents were in the possession of its non-U.S. holding company subsidiary.
Previous wording
The Company’s operating activi ties used $1.4 million of cash in fiscal 2023, compared with $0.3 million provided in fiscal 2022. The cash used by operating activities in fiscal 2023 was primarily due to net operating loss of $8.7 million, adjusted for non-cash items such as change in NRV reserve $1.1 million, and LIFO benefit of $0.3 million, partially offset by depreciation and amortization of $6.4 million, equity based compensation of $0.3 million and sources of working capital of $1.7 million. The source of cash from working capital of $1.7 million was primarily due to increase in accounts payable due to timing of payments and lower inventories due to extended lead times, partially offset by higher accounts receivable due to increased sales at the end of the fiscal year.
Current wording
The Company’s operating activities used $3.8 million of cash in fiscal 2023. The cash used by operating activities in fiscal 2023 was primarily due to net operating loss of $10.5 million, adjusted for non-cash items such as change in NRV reserve $1.1 million, and LIFO benefit of $0.3 million, partially offset by depreciation and amortization of $5.1 million, equity based compensation of $0.3 million and sources of working capital of $2.4 million. The source of cash from working capital of $2.4 million was primarily due to increase in accounts payable due to timing of payments and lower inventories due to extended raw material lead times, partially offset by higher accounts receivable due to increased sales at the end of the fiscal year.
Previous wording
Cash used for investing activities was $2.4 million in fiscal 2023, compared with $3.2 million in fiscal 2022. Fiscal 2023 and fiscal 2022 expenditures were used primarily for manufacturing enhancement and maintenance capital. Capital commitments at September 30, 2023 were $1.1 million. The Company anticipates the total fiscal 2024 capital expenditures will be within the range of $3.5 million to $4.5 million and will relate principally to the further enhancement of production and product offering capabilities and operating cost reductions.
Current wording
Cash used for investing activities was $2.0 million in fiscal 2024, compared with $1.1 million in fiscal 2023. Fiscal 2024 and fiscal 2023 expenditures were used primarily for manufacturing enhancement and maintenance. Capital commitments at September 30, 2024 were $0.3 million. The Company anticipates the total fiscal 2025 capital expenditures will be within the range of $2.0 million to $3.0 million and will relate principally to the further enhancement of production and product offering capabilities and operating cost reductions.
Previous wording
Cash provided by financing activities was $2.9 million in fiscal 2023 compared to cash provided by financing activities of $3.7 million in fiscal 2022.
Current wording
Cash provided by financing activities was $6.3 million in fiscal 2024 compared to cash provided by financing activities of $4.9 million in fiscal 2023. The year-over-year increase was primarily related to the higher proceeds received from the related party promissory note and funds drawn from the revolving credit facility, net of payments made, during fiscal 2024.
Previous wording
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.
Current wording
Future cash flows from the Company’s operations may be used to pay down outstanding debt amounts. 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 its loan and security agreement as described in Note 6 —Debtof the Notes to Consolidated Financial Statements for its domestic locations.
Previous wording
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, could negatively impact our ability to obtain additional debt financing on terms equivalent to our existing Credit Agreement. 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.
Current wording
Tightening of the credit market and standards, as well as capital market volatility, could negatively impact our ability to obtain additional debt financing on terms equivalent to our existing debt agreements when needed in the future. 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.