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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, 2021
or

☐ | 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, 2021 was 5,989,129.

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,
| 2021 |  | 2020 |  | 2021 |  | 2020
Net sales | $ | 25,330 |  |  | $ | 27,777 |  |  | $ | 75,274 |  |  | $ | 84,521 |
Cost of goods sold | 22,040 |  |  | 23,628 |  |  | 65,317 |  |  | 70,771 |
Gross profit | 3,290 |  |  | 4,149 |  |  | 9,957 |  |  | 13,750 |
Selling, general and administrative expenses | 2,912 |  |  | 2,864 |  |  | 10,336 |  |  | 10,393 |
Amortization of intangible assets | 248 |  |  | 408 |  |  | 765 |  |  | 1,224 |
Loss on disposal of operating assets | — |  |  | 55 |  |  | — |  |  | 98 |
Gain on insurance recoveries | — |  |  | (1,683) |  |  | (2,495) |  |  | (2,683) |
Operating income | 130 |  |  | 2,505 |  |  | 1,351 |  |  | 4,718 |
Interest expense | 143 |  |  | 183 |  |  | 478 |  |  | 697 |
Foreign currency exchange loss, net | 1 |  |  | 12 |  |  | 22 |  |  | 12 |
Other loss (income), net | (232) |  |  | 27 |  |  | (129) |  |  | (58) |
Income before income tax expense (benefit) | 218 |  |  | 2,283 |  |  | 980 |  |  | 4,067 |
Income tax expense (benefit) | (36) |  |  | 33 |  |  | (776) |  |  | (101) |
Net income | $ | 254 |  |  | $ | 2,250 |  |  | $ | 1,756 |  |  | $ | 4,168 |
Net income per share |  |  |  |  |  |  |
Basic | $ | 0.04 |  |  | $ | 0.40 |  |  | $ | 0.31 |  |  | $ | 0.74 |
Diluted | $ | 0.04 |  |  | $ | 0.39 |  |  | $ | 0.29 |  |  | $ | 0.72 |
Weighted-average number of common shares (basic) | 5,779 |  |  | 5,676 |  |  | 5,753 |  |  | 5,656 |
Weighted-average number of common shares (diluted) | 6,006 |  |  | 5,807 |  |  | 5,960 |  |  | 5,768 |

See notes to unaudited consolidated condensed financial statements.
2

SIFCO Industries, Inc. and Subsidiaries
Consolidated Condensed Statements of Comprehensive Income (Loss)
(Unaudited)
(Amounts in thousands)

| Three Months Ended June 30, |  | Nine Months Ended June 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
Net income | $ | 254 |  |  | $ | 2,250 |  |  | $ | 1,756 |  |  | $ | 4,168 |
Other comprehensive income: |  |  |  |  |  |  |
Foreign currency translation adjustment, net of tax $0 and $0 for the three months ended and net of tax $0 and $0 for the nine months ended, respectively | 79 |  |  | 113 |  |  | 62 |  |  | 175 |
Retirement plan liability adjustment, net of tax $0 and $0 for the three months end and net of tax $0 and $0 for the nine month ended, respectively | 211 |  |  | 188 |  |  | 634 |  |  | 626 |
Comprehensive income | $ | 544 |  |  | $ | 2,551 |  |  | $ | 2,452 |  |  | $ | 4,969 |

See notes to unaudited consolidated condensed financial statements.
3

SIFCO Industries, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
(Amounts in thousands, except per share data)

| June 30, 2021 |  | September 30, 2020
| (unaudited) |  |
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 247 |  |  | $ | 427 |
Receivables, net of allowance for doubtful accounts of $120 and $249, respectively | 20,206 |  |  | 23,225 |
Other receivables | — |  |  | 1,547 |
Contract assets | 14,666 |  |  | 11,997 |
Inventories, net | 15,864 |  |  | 15,569 |
Refundable income taxes | 103 |  |  | 103 |
Prepaid expenses and other current assets | 1,596 |  |  | 2,338 |
Total current assets | 52,682 |  |  | 55,206 |
Property, plant and equipment, net | 43,788 |  |  | 44,201 |
Operating lease right-of-use assets, net | 16,174 |  |  | 17,021 |
Intangible assets, net | 1,137 |  |  | 1,890 |
Goodwill | 3,493 |  |  | 3,493 |
Other assets | 86 |  |  | 137 |
Total assets | $ | 117,360 |  |  | $ | 121,948 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |
Current liabilities: |  |  |
Current maturities of long-term debt | $ | 9,828 |  |  | $ | 7,144 |
Revolver | 9,825 |  |  | 12,870 |
Short-term operating lease liabilities | 800 |  |  | 991 |
Accounts payable | 12,244 |  |  | 14,002 |
Accrued liabilities | 6,889 |  |  | 8,290 |
Total current liabilities | 39,586 |  |  | 43,297 |
Long-term debt, net of current maturities | 2,903 |  |  | 4,606 |
Long-term operating lease liabilities, net of short-term | 15,624 |  |  | 16,188 |
Deferred income taxes | 556 |  |  | 1,400 |
Pension liability | 9,611 |  |  | 10,165 |
Other long-term liabilities | 743 |  |  | 769 |
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 5,989 at June 30, 2021 and 5,916 at September 30, 2020 | 5,989 |  |  | 5,916 |
Additional paid-in capital | 11,025 |  |  | 10,736 |
Retained earnings | 44,095 |  |  | 42,339 |
Accumulated other comprehensive loss | (12,772) |  |  | (13,468) |
Total shareholders’ equity | 48,337 |  |  | 45,523 |
Total liabilities and shareholders’ equity | $ | 117,360 |  |  | $ | 121,948 |

See notes to unaudited consolidated condensed financial statements.
4

SIFCO Industries, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited, Amounts in thousands)

| Nine Months Ended June 30,
| 2021 |  | 2020
Cash flows from operating activities: |  |  |
Net income | $ | 1,756 |  |  | $ | 4,168 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Depreciation and amortization | 5,710 |  |  | 5,576 |
Amortization of debt issuance costs | 62 |  |  | 79 |
Loss on disposal of operating assets | — |  |  | 98 |
Gain on insurance proceeds received | (2,495) |  |  | (2,683) |
LIFO effect | 582 |  |  | (16) |
Share transactions under company stock plan | 362 |  |  | 253 |
Gain on extinguishment of debt | (287) |  |  | — |
Other long-term liabilities | 49 |  |  | (291) |
Deferred income taxes | (891) |  |  | (116) |
Changes in operating assets and liabilities: |  |  |
Receivables | 3,094 |  |  | 4,347 |
Contract assets | (2,670) |  |  | (2,785) |
Inventories | (823) |  |  | (4,623) |
Refundable income taxes | — |  |  | 10 |
Prepaid expenses and other current assets | 192 |  |  | (125) |
Other assets | 50 |  |  | 142 |
Accounts payable | 115 |  |  | (4,175) |
Other accrued liabilities | (1,561) |  |  | 2,465 |
Accrued income and other taxes | 207 |  |  | (30) |
Net cash provided by operating activities | 3,452 |  |  | 2,294 |
Cash flows from investing activities: |  |  |
Insurance proceeds received | 4,101 |  |  | 6,183 |
Capital expenditures | (5,875) |  |  | (7,441) |
Net cash used for investing activities | (1,774) |  |  | (1,258) |
Cash flows from financing activities: |  |  |
Proceeds from long-term debt | 1,020 |  |  | 5,161 |
Payments on long-term debt | (341) |  |  | (839) |
Proceeds from revolving credit agreement | 67,043 |  |  | 85,082 |
Repayments of revolving credit agreement | (70,089) |  |  | (89,323) |
Payment of debt issuance costs | (45) |  |  | — |
Short-term debt borrowings | 3,535 |  |  | 2,139 |
Short-term debt repayments | (2,999) |  |  | (3,319) |
Net cash used for financing activities | (1,876) |  |  | (1,099) |
Decrease in cash and cash equivalents | (198) |  |  | (63) |
Cash and cash equivalents at the beginning of the period | 427 |  |  | 341 |
Effect of exchange rate changes on cash and cash equivalents | 18 |  |  | 11 |
Cash and cash equivalents at the end of the period | $ | 247 |  |  | $ | 289 |
Supplemental disclosure of cash flow information of operations: |  |  |
Cash paid for interest | $ | (296) |  |  | $ | (583) |
Cash paid for income taxes, net | $ | (22) |  |  | $ | (41) |

See notes to unaudited consolidated condensed financial statements.
5

SIFCO Industries, Inc. and Subsidiaries
Consolidated Condensed Statements of Shareholders’ Equity
(Unaudited, Amounts in thousands)

|  | Nine Months Ended June 30, 2021
|  | Common |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  |  |  | Total Shareholders’ Equity
|  | Shares |  | Amount |  |  |  |  |  |
Balance - September 30, 2020 |  | 5,916 |  |  | $ | 5,916 |  |  | $ | 10,736 |  |  | $ | 42,339 |  |  | $ | (13,468) |  |  |  |  | $ | 45,523 |
Comprehensive income |  | — |  |  | — |  |  | — |  |  | 1,756 |  |  | 696 |  |  |  |  | 2,452 |
Performance and restricted share expense |  | — |  |  | — |  |  | 378 |  |  | — |  |  | — |  |  |  |  | 378 |
Share transactions under equity based plans |  | 73 |  |  | 73 |  |  | (89) |  |  | — |  |  | — |  |  |  |  | (16) |
Balance - June 30, 2021 |  | 5,989 |  |  | $ | 5,989 |  |  | $ | 11,025 |  |  | $ | 44,095 |  |  | $ | (12,772) |  |  |  |  | $ | 48,337 |

|  | Three Months Ended June 30, 2021
|  | Common |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  |  |  | Total Shareholders’ Equity
|  | Shares |  | Amount |  |  |  |  |  |
Balance - March 31, 2021 |  | 5,989 |  |  | $ | 5,989 |  |  | $ | 10,940 |  |  | $ | 43,841 |  |  | $ | (13,062) |  |  |  |  | $ | 47,708 |
Comprehensive loss |  | — |  |  | — |  |  | — |  |  | 254 |  |  | 290 |  |  |  |  | 544 |
Performance and restricted share expense |  | — |  |  | — |  |  | 85 |  |  | — |  |  | — |  |  |  |  | 85 |
Balance - June 30, 2021 |  | 5,989 |  |  | $ | 5,989 |  |  | $ | 11,025 |  |  | $ | 44,095 |  |  | $ | (12,772) |  |  |  |  | $ | 48,337 |

|  | Nine Months Ended June 30, 2020
|  | Common |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  |  |  | Total Shareholders’ Equity
|  | Shares |  | Amount |  |  |  |  |  |
Balance - September 30, 2019 |  | 5,777 |  |  | $ | 5,777 |  |  | $ | 10,438 |  |  | $ | 33,148 |  |  | $ | (13,309) |  |  |  |  | $ | 36,054 |
Comprehensive income |  | — |  |  | — |  |  | — |  |  | 4,168 |  |  | 801 |  |  |  |  | 4,969 |
Other |  |  |  | — |  |  | 46 |  |  | — |  |  | — |  |  |  |  | 46 |
Performance and restricted share expense |  | — |  |  | — |  |  | 262 |  |  | — |  |  | — |  |  |  |  | 262 |
Share transactions under equity based plans |  | 139 |  |  | 139 |  |  | (147) |  |  | — |  |  | — |  |  |  |  | (8) |
Balance - June 30, 2020 |  | 5,916 |  |  | $ | 5,916 |  |  | $ | 10,599 |  |  | $ | 37,316 |  |  | $ | (12,508) |  |  |  |  | $ | 41,323 |

|  | Three Months Ended June 30, 2020
|  | Common |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  |  |  | Total Shareholders’ Equity
|  | Shares |  | Amount |  |  |  |  |  |
Balance - March 31, 2020 |  | 5,916 |  |  | $ | 5,916 |  |  | $ | 10,516 |  |  | $ | 35,066 |  |  | $ | (12,809) |  |  |  |  | $ | 38,689 |
Comprehensive loss |  | — |  |  | — |  |  | — |  |  | 2,250 |  |  | 301 |  |  |  |  | 2,551 |
Performance and restricted share expense |  | — |  |  | — |  |  | 46 |  |  | — |  |  | — |  |  |  |  | 46 |
Share transactions under equity based plans |  | — |  |  | — |  |  | 37 |  |  | — |  |  | — |  |  |  |  | 37 |
Balance - June 30, 2020 |  | 5,916 |  |  | $ | 5,916 |  |  | $ | 10,599 |  |  | $ | 37,316 |  |  | $ | (12,508) |  |  |  |  | $ | 41,323 |

See notes to unaudited consolidated condensed financial statements.
6

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 (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 U.S. operations 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 2020 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 United States ("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 fiscal 2020 Annual Report on Form 10-K.
C. Net Income per Share
The Company’s net income per basic share has been computed based on the weighted-average number of common shares outstanding. Net income per diluted share reflects the effect of the Company's outstanding restricted shares and performance shares under the treasury method. The dilutive effect is as follows:

| Three Months Ended June 30, |  | Nine Months Ended June 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
Net Income | $ | 254 |  |  | $ | 2,250 |  |  | $ | 1,756 |  |  | $ | 4,168 |
Weighted-average common shares outstanding (basic and diluted) | 5,779 |  |  | 5,676 |  |  | 5,753 |  |  | 5,656 |
Effect of dilutive securities: |  |  |  |  |  |  |
Restricted shares | 146 |  |  | 115 |  |  | 145 |  |  | 106 |
Performance shares | 81 |  |  | 16 |  |  | 62 |  |  | 6 |
Weighted-average common shares outstanding (basic and diluted) | 6,006 |  |  | 5,807 |  |  | 5,960 |  |  | 5,768 |
Net income per share – basic: | $ | 0.04 |  |  | $ | 0.40 |  |  | $ | 0.31 |  |  | $ | 0.74 |
Net income per share – diluted: | $ | 0.04 |  |  | $ | 0.39 |  |  | $ | 0.29 |  |  | $ | 0.72 |
Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share | 184 |  |  | 306 |  |  | 206 |  |  | 200 |

D. Impact of Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" and subsequent updates. ASU 2016-13 changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The new guidance will replace the current incurred loss approach with an expected loss model. The new expected credit loss impairment model will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt instruments, net investments in leases, loan commitments and standby letters of credit.
7

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 beginning after December 15, 2022, including interim periods within those fiscal years. Because SIFCO is considered a SRC, the Company does not need to implement ASU 2016-13 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 condensed statements of operations and financial condition.
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes", which was issued to (i) reduce the complexity of the standard by removing certain exceptions to the general principles in Topic 740 and (ii) improve consistency and simplify other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective beginning October 1, 2021. The Company continues to evaluate the effect that adopting this ASU will have on the Company's results within the consolidated condensed 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.
In August 2018, the FASB issued ASU 2018-14, "Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)," which adds the following disclosure requirements: (1) the weighted-average interest crediting rates used in the Company's cash balance pension plans and other similar plans; (2) a narrative description of the reasons for significant gains and losses affecting the benefit obligation for the period; and (3) an explanation of any other significant changes in the benefit obligation or plan assets that are not otherwise apparent in the other disclosures required by Accounting Standards Codification ("ASC") Topic 715, "Compensation - Retirement Benefits." The ASU also clarifies the guidance included in ASC 715-20-50-3 on defined benefit plans disclosure requirements. This ASU will be effective October 1, 2021 and the Company is currently assessing the impact that this standard will have on our consolidated condensed financial statements.
2.Inventories
Inventories consist of:

| June 30, 2021 |  | September 30, 2020
Raw materials and supplies | $ | 5,443 |  |  | $ | 6,548 |
Work-in-process | 5,142 |  |  | 3,786 |
Finished goods | 5,279 |  |  | 5,235 |
Total inventories | $ | 15,864 |  |  | $ | 15,569 |

For a portion of the Company's inventory, cost is determined using the last-in, first-out ("LIFO") method. Approximately 37% and 47% of the Company’s inventories at June 30, 2021 and September 30, 2020, 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, calculations are subject to many factors beyond management’s control, and 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. If the FIFO method had been used for the inventories for which cost is determined using the LIFO method, inventories would have been $8,868 and $8,286 higher than reported at June 30, 2021 and September 30, 2020, respectively.
8

3. Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are as follows:

| June 30, 2021 |  | September 30, 2020
Foreign currency translation adjustment | $ | (5,195) |  |  | $ | (5,257) |
Retirement plan liability adjustment, net of tax | (7,577) |  |  | (8,211) |
Total accumulated other comprehensive loss | $ | (12,772) |  |  | $ | (13,468) |

4. Leases
The components of lease expense were as follows:

| Three Months Ended June 30, |  | Nine Months Ended June 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
Finance lease expense: |  |  |  |  |  |  |
Amortization of right-of use assets on finance leases | $ | 13 |  |  | $ | 14 |  |  | $ | 41 |  |  | $ | 41 |
Interest on lease liabilities | 1 |  |  | 1 |  |  | 2 |  |  | 4 |
Operating lease expense: | 431 |  |  | 664 |  |  | 1,523 |  |  | 1,743 |
Variable lease cost: | 34 |  |  | 39 |  |  | 104 |  |  | 118 |
Total lease expense | $ | 479 |  |  | $ | 718 |  |  | $ | 1,670 |  |  | $ | 1,906 |

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

| Classification in the consolidated condensed balance sheets | June 30, 2021 |  | September 30, 2020
Assets: |  |  |  |
Finance lease assets | Property, plant and equipment, net | $ | 48 |  |  | $ | 89 |
Operating lease assets | Operating lease right-of-use assets, net | 16,174 |  |  | 17,021 |
Total lease assets |  | $ | 16,222 |  |  | $ | 17,110 |
Current liabilities: |  |  |  |
Finance lease liabilities | Current maturities of long-term debt | $ | 29 |  |  | $ | 58 |
Operating lease liabilities | Short-term operating lease liabilities | 800 |  |  | 991 |
Non-current liabilities: |  |  |  |
Finance lease liabilities | Long-term debt, net of current maturities | 7 |  |  | 22 |
Operating lease liabilities | Long-term operating lease liabilities, net of short-term | 15,624 |  |  | 16,188 |
Total lease liabilities |  | $ | 16,460 |  |  | $ | 17,259 |

9

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

| June 30, 2021 |  | June 30, 2020
Other Information |  |  |
Cash paid for amounts included in measurement of liabilities: |  |  |
Operating cash flows from operating leases | $ | 1,525 |  |  | $ | 1,628 |
Operating cash flows from finance leases | 2 |  |  | 4 |
Financing cash flows from finance leases | 44 |  |  | 42 |
Right-of-use assets obtained in exchange for new lease liabilities: |  |  |
Operating leases | 43 |  |  | 278 |

| June 30, 2021 |  | September 30, 2020
Weighted-average remaining lease term (years): |  |  |
Finance leases | 1.1 |  | 1.6
Operating leases | 14.6 |  | 15.2
Weighted-average discount rate: |  |  |
Finance leases | 3.9 | % |  | 4.8 | %
Operating leases | 5.9 | % |  | 5.9 | %

Future minimum lease under non-cancellable leases at June 30, 2021 were as follows:

| Finance Leases | Operating Leases
Year ending September 30, |  |
2021 (excluding the nine months ended June 30, 2021) | $ | 15 |  | $ | 425 |
2022 | 21 |  | 1,697 |
2023 | 1 |  | 1,633 |
2024 | — |  | 1,648 |
2025 | — |  | 1,644 |
Thereafter | — |  | 17,526 |
Total lease payments | $ | 37 |  | $ | 24,573 |
Less: Imputed interest | (1) |  | (8,149) |
Present value of lease liabilities | $ | 36 |  | $ | 16,424 |

5. Debt
Debt consists of:

| June 30, 2021 |  | September 30, 2020
Revolving credit agreement | $ | 9,825 |  |  | $ | 12,870 |
Foreign subsidiary borrowings | 7,101 |  |  | 5,759 |
Finance lease obligations | 36 |  |  | 80 |
Other, net of unamortized debt issuance costs $(34) and $(20), respectively | 5,594 |  |  | 5,911 |
Total debt | 22,556 |  |  | 24,620 |
Less – current maturities | (19,653) |  |  | (20,014) |
Total long-term debt | $ | 2,903 |  |  | $ | 4,606 |

10

Credit Agreement and Security Agreement
The Company's asset-based Credit Agreement (as amended, the "Credit Agreement"), Security Agreement (“Security Agreement”) and Export Credit Agreement (as amended, the "Export Credit Agreement") are secured by substantially all the assets of the Company and its U.S. subsidiaries and a pledge of 66.67% of the stock of its first-tier non-U.S. subsidiaries. The Credit Agreement (as amended by Fifth Amendment (the "Fifth Amendment") described below), consists of a senior secured revolving credit facility with a maximum borrowing of $28,000. The revolving commitment through the Export Credit Agreement, as amended, which lends amounts to the Company on foreign receivables is $7,000. The Credit Agreement also has an accordion feature, which allows the Company to increase maximum borrowings by up to $10,000 upon consent of the Lender (as defined below) or upon additional lenders joining the Credit Agreement. The Credit Agreement and the Export Agreement were amended on February 19, 2021, when the Company and certain of its subsidiaries (collectively, the "borrowers") entered into the Fifth Amendment to the Credit Agreement and the First Amendment (the "First Amendment") to the Export Credit Agreement, in each case, with JPMorgan Chase Bank, N.A., a national banking association, (the "Lender"). The combined maximum borrowings remain unchanged at $35,000; however the maximum borrowing under the Credit Agreement was decreased to $28,000 (from $30,000) and the revolving commitment through the Export Agreement was increased to $7,000 (from $5,000). The Fifth Amendment, among other things, extended the maturity date from August 6, 2021 to February 19, 2024.
The Credit Agreement contains affirmative and negative covenants and events of defaults. Prior to the Fifth Amendment, the Credit Agreement required the Company to maintain a fixed charge coverage ratio ("FCCR") of 1.1:1.0 any time the availability is equal to or less than 12.5% of the revolving commitment. However, the Fifth Amendment provides that the Company will not permit the fixed charge coverage ratio to be less than 1.1 to 1.0 as of the last day of any calendar month; provided that the fixed charge coverage ratio will not be tested unless (i) a default has occurred and is continuing, (ii) when the combined availability was less than or equal to the greater of (x) 10% of the lesser of the combined commitments or (y) 10% of the combined borrowing base, and $2,000, for three or more business days in any consecutive 30 day period. In the event of a default, the Company may not be able to access the revolver, which could impact the ability to fund working capital needs, capital expenditures and invest in new business opportunities. The total collateral at June 30, 2021 and September 30, 2020 was $28,628 and $26,964, respectively and the revolving commitment was $35,000 for both periods. Total availability at June 30, 2021 and September 30, 2020 was $17,543 and $13,284, respectively, which exceed both the collateral and total commitment threshold. Since the availability was greater than the 10.0% of the revolving commitment as of June 30, 2021 and 12.5% of the revolving commitment at September 30, 2020, the FCCR calculation was not required.
Borrowings will bear interest at the Lender's established domestic rate or LIBOR, plus the applicable margin as set forth in the Fifth Amendment. The revolver has a rate based on LIBOR plus 1.75% spread, which was 1.84% at June 30, 2021 and a rate based on LIBOR plus 1.5% spread, which was 1.7% at September 30, 2020. The Export Credit Agreement has a rate based on LIBOR plus 1.25% spread, which was 1.3% at June 30, 2021 and a rate based on LIBOR plus 1.0% spread, which was 1.2% at September 30, 2020, respectively. The Company also has a commitment fee of 0.25% under the Credit Agreement as amended to be incurred on the unused balance of the revolver.
Foreign subsidiary borrowings
Foreign debt consists of:

| June 30, 2021 |  | September 30, 2020
Term loan | $ | 3,391 |  |  | $ | 2,670 |
Short-term borrowings | 1,991 |  |  | 2,620 |
Factor | 1,719 |  |  | 469 |
Total debt | $ | 7,101 |  |  | $ | 5,759 |
Less – current maturities | (4,801) |  |  | (3,544) |
Total long-term debt | $ | 2,300 |  |  | $ | 2,215 |
Receivables pledged as collateral | $ | 1,547 |  |  | $ | 1,859 |

Interest rates on foreign borrowings are based on Euribor rates which range from 1.0% to 4.2%.
11

The Maniago, Italy ("Maniago") location obtained borrowings from two separate lenders in the third quarter of fiscal 2021. The first loan was for $717 with repayment terms of 6.5 years, of which $287 was forgiven in the same period and was recorded in other income within the consolidated condensed statements of operations and treated as a gain in debt extinguishment. A second loan with a five year term was obtained in the amount of $303. The proceeds of these loans were to be used for working capital purposes.
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 incurred debt issuance costs as it pertains to the Fifth Amendment in the amount of $45 and combined the amount with the remaining unamortized debt issuance costs prior to the amendment for a total of $86, which is included in the consolidated condensed balance sheets as a deferred charge in other current assets, net of amortization of $10 and $205 at June 30, 2021 and September 30, 2020, 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 to the Company was made through JPMorgan Chase Bank, N.A., a national banking association and the Company’s existing lender. The note has an aggregate principal amount of approximately $5,025, of which $261 was repaid in fiscal 2020 and has a two year term. The interest rate on the PPP Loan is 0.98%, which was deferred for the first six months of the term of the loan. The promissory note evidencing the PPP Loan contains customary events of default. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owed from the Company, and/or filing suit and obtaining judgment against the Company. The loan proceeds were received on April 10, 2020 and were used for payroll payments. As of June 30, 2021 and September 30, 2020, the PPP loan balance was $4,764.
PPP Loan recipients can apply for and potentially be granted forgiveness for all or a portion of loans granted under the Paycheck Protection Program. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payroll costs. As of June 30, 2021, the Company has submitted the application for forgiveness to the Small Business Administration. However, no assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.
6. Income Taxes
On December 27, 2020, the Consolidated Appropriations Act, 2021 (the "Appropriations Act") was enacted in response to the COVID-19 pandemic. The Appropriations Act, among other actions temporarily extends through December 31, 2025 certain expiring tax credit and other provisions. Additionally, the Appropriations Act enacts new provisions and extends certain provisions originated within the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"), enacted on March 27, 2020. The CARES Act included provisions relating to refundable payroll tax credits, deferral of certain payment requirements for the employer portion of Social Security taxes, net operating loss carryback periods and temporarily increasing the amount of net operating losses that corporations can use to offset income, alternative minimum tax ("AMT") credit refunds, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property. The Appropriations Act and CARES Act did not materially affect the Company’s income tax provision, deferred tax assets and liabilities, or related taxes payable through the third quarter of fiscal 2021. The Company will continue to assess the implications of these and any new relief provisions on its consolidated condensed financial statements but does not expect the impact to be material.
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 nine months of fiscal 2021 was (79)%, compared with (2)% for the same period of fiscal 2020. The decrease in the effective rate was primarily attributable to tax benefits from adjusting deferred taxes recorded in Italy recognized on a discrete basis, partially offset by changes in jurisdictional mix of income in fiscal 2021 compared to the same period of fiscal 2020. 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. Recent positive evidence related to the potential or partial release of the Company's valuation allowance includes profitable U.S. results, however, there continues to be uncertainty as a result of the ongoing COVID-19 pandemic. As such, the Company has maintained a full valuation allowance on its U.S. net deferred tax assets in the third quarter of fiscal 2021. It is reasonably possible that sufficient positive evidence required to release all, or a portion of the valuation allowance in the U.S. will exist within the next 12 months.
12

The Company is subject to income taxes in the U.S. federal jurisdiction, Ireland, Italy, and various state and local jurisdictions.
7.Retirement Benefit Plans
The Company and certain of its subsidiaries sponsor defined benefit pension plans covering some of its employees. The components of net periodic benefit cost of the Company’s defined benefit plans are as follows:

| Three Months Ended June 30, |  | Nine Months Ended June 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
Service cost | $ | 26 |  |  | $ | 85 |  |  | $ | 78 |  |  | $ | 255 |
Interest cost | 175 |  |  | 208 |  |  | 525 |  |  | 624 |
Expected return on plan assets | (355) |  |  | (363) |  |  | (1,066) |  |  | (1,090) |
Amortization of net loss | 211 |  |  | 188 |  |  | 634 |  |  | 564 |
Net periodic cost | $ | 57 |  |  | $ | 118 |  |  | $ | 171 |  |  | $ | 353 |

During the nine months ended June 30, 2021 and 2020, the Company made $67 and $604 in contributions, respectively, to its defined benefit pension plans. The Company anticipates making no additional cash contributions to fund its defined benefit pension plans for the balance of fiscal 2021 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 2021. 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 2021.
8.Stock-Based Compensation
The Company has awarded performance and restricted shares under the Company's 2007 Long-Term Incentive Plan ("2007 Plan") and the Company's 2007 Long-Term Incentive Plan (Amended and Restated as of November 16, 2016) (as further amended, the "2016 Plan"). The aggregate number of shares that may be awarded by the Company under the 2016 Plan is 1,196 shares, less any shares previously awarded and subject to an adjustment for the forfeiture of any unvested shares. In addition, shares that may be awarded are subject to individual recipient award limitations. The shares awarded under the 2016 Plan may be made in multiple forms, including stock options, stock appreciation rights, restricted or unrestricted stock, and performance related shares. Any such award is exercisable no later than ten years from the date of the grant.
The performance shares that have been awarded under both plans generally provide for the vesting of the Company’s common shares upon the Company achieving certain defined financial performance objectives during a period up to three years following the making of such award. The ultimate number of common shares of the Company that may be earned pursuant to an award ranges from a minimum of no shares to a maximum of 200% of the initial target number of performance shares awarded, depending on the level of the Company’s achievement of its financial performance objectives. Beginning in fiscal 2020, the maximum share amount that may be achieved was reduced to 150% of target.
With respect to such performance shares, compensation expense is being accrued based on the probability of meeting the performance target. The Company is currently recognizing compensation expense for two tranches of awards at 50% of target where it has concluded it is probable that the performance criteria for those awards will be met, while the Company is currently not recognizing compensation expense for one tranche of awards where it has concluded that it is not probable that the performance criteria for those awards will be met. During each future reporting period, such expense may be subject to adjustment based upon the Company's financial performance, which impacts the number of common shares that it expects to vest upon the completion of the performance period. The performance shares were valued at the closing market price of the Company’s common shares on the date of the grant. The vesting of such shares is determined at the end of the performance period.
The Company has awarded restricted shares to its directors, officers, and other employees of the Company. The restricted shares were valued at the closing market price of the Company’s common shares on the date of the grant, and such value was recorded as unearned compensation. The unearned compensation is being amortized ratably over the restricted stock vesting period of one year or three years.
In fiscal 2021, the Company granted 120 shares under the 2016 Plan to certain key employees. The awards were split into two tranches, 71 performance shares and 49 shares of time-based restricted shares, with a grant date fair value of $3.74 per share. The awards vest over three years.
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In fiscal 2021, the Company granted its non-employee directors 30 restricted shares under the 2016 Plan, with a grant date fair value of $9.08, which vests over one year. One award for 57 restricted shares vested.
If all outstanding share awards are ultimately earned and vest at the target number of shares, there are approximately 442 shares that remain available for award at June 30, 2021. 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 200% or 150% of such target, then a fewer number of shares would be available for award.
Stock-based compensation under the 2016 Plan was $378 and $262 during the first nine months of fiscal 2021 and 2020, respectively and $85 and $37 during the three months of fiscal 2021 and 2020, respectively. As of June 30, 2021, there was $505 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 1.3 years.
9.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) other commercial applications.
The following table represents a breakout of total revenue by customer type:

| Three Months Ended June 30, |  | Nine Months Ended June 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
Commercial revenue | $ | 6,453 |  |  | $ | 12,266 |  |  | $ | 26,453 |  |  | $ | 34,954 |
Military revenue | 18,877 |  |  | 15,511 |  |  | 48,821 |  |  | 49,567 |
Total | $ | 25,330 |  |  | $ | 27,777 |  |  | $ | 75,274 |  |  | $ | 84,521 |

The following table represents revenue by the various components:

| Three Months Ended June 30, |  | Nine Months Ended June 30,
Net Sales | 2021 |  | 2020 |  | 2021 |  | 2020
Aerospace components for: |  |  |  |  |  |  |
Fixed wing aircraft | $ | 8,941 |  |  | $ | 13,730 |  |  | $ | 28,907 |  |  | $ | 39,130 |
Rotorcraft | 6,065 |  |  | 8,687 |  |  | 21,668 |  |  | 22,348 |
Energy components for power generation units | 3,199 |  |  | 3,804 |  |  | 14,763 |  |  | 9,879 |
Commercial product and other revenue | 7,125 |  |  | 1,556 |  |  | 9,936 |  |  | 13,164 |
Total | $ | 25,330 |  |  | $ | 27,777 |  |  | $ | 75,274 |  |  | $ | 84,521 |

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

| Three Months Ended June 30, |  | Nine Months Ended June 30,
Net Sales | 2021 |  | 2020 |  | 2021 |  | 2020
North America | $ | 22,794 |  |  | $ | 24,261 |  |  | $ | 62,578 |  |  | $ | 75,532 |
Europe | 2,536 |  |  | 3,516 |  |  | 12,696 |  |  | 8,989 |
Total | $ | 25,330 |  |  | $ | 27,777 |  |  | $ | 75,274 |  |  | $ | 84,521 |

In addition to the disaggregated revenue information provided above, approximately 65% and 60% of total net sales as of June 30, 2021 and 2020, 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.
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Contract Balances
The following table contains a roll forward of contract assets and contract liabilities for the period ended June 30, 2021:

Contract assets - Beginning balance, October 1, 2020 |  | $ | 11,997 |
Additional revenue recognized over-time |  | 49,070 |
Less amounts billed to the customers |  | (46,401) |
Contract assets - Ending balance, June 30, 2021 |  | $ | 14,666 |

Contract liabilities (included within Accrued liabilities) - Beginning balance, October 1, 2020 |  | $ | (636) |
Payments received in advance of performance obligations |  | (628) |
Performance obligations satisfied |  | 763 |
Contract liabilities (included within Accrued liabilities) - Ending balance, June 30, 2021 |  | $ | (501) |

There were no impairment losses recorded on contract assets as of June 30, 2021 and September 30, 2020.
Remaining performance obligations
As of June 30, 2021, the Company has $78,083 of remaining performance obligations, the majority of which are anticipated to be completed within the next twelve months.
10. Commitments and Contingencies
In the normal course of business, the Company may be involved in ordinary, routine legal actions. The Company cannot reasonably estimate future costs, if any, related to these matters; however, it does not believe any such matters are material to its financial condition or results of operations. The Company maintains various liability insurance coverages to protect its assets from losses arising out of or involving activities associated with ongoing and normal business operations; however, it is possible that the Company’s future operating results could be affected by future costs of litigation.
A subsidiary of the Company, Quality Aluminum Forge, LLC ("Orange"), is currently a defendant in a lawsuit filed by Avco Corporation (“Avco”) in the Pennsylvania State Court, which was filed in August 2019, alleging that certain forged pistons delivered by the Orange plant failed to meet material specifications required by Avco. Avco also sued Arconic, Inc. (“Arconic”), which was the raw material supplier. No specific amount of damages was claimed by Avco and discovery has only recently begun. Orange disputes the allegations made by Avco and has made cross claims against Arconic. Previously, Orange was a defendant with respect to the same action in the United States District Court for the District of Rhode Island, which action was dismissed in connection with the movement of the matter to Pennsylvania State Court. Although the Company records reserves for legal disputes and other matters in accordance with GAAP, the ultimate outcomes of these types of matters are inherently uncertain. Actual results may differ significantly from current estimates. Given the current status of this matter, the Company has not accrued for any expected losses, as the Company has not deemed it probable and does not have a reasonable basis on which to establish an estimate.
The Company is a defendant in a purported class action lawsuit filed in the Superior Court of California, County of Orange, which was filed in August 2017, arising from employee wage-and-hour claims under California law for alleged meal period, rest break, hourly and overtime wage calculation, timely wage payment and necessary expenditure indemnification violations; failure to maintain required wage records and furnish accurate wage statements; and unfair competition. A settlement has been reached and the Company received preliminary court approval on July 13, 2020. Class action notices were sent at the end of September and there were no objections to the settlement. On February 4, 2021, the court issued a tentative ruling to grant final approval. The final approval was granted and the previously recorded liability of $315 was paid on March 29, 2021.
During fiscal 2020, the Company received notice from the International Association of Machinists and Aerospace Workers Union that they were disclaiming all interest in representing certain hourly employees at the Company’s Cleveland facility. Subsequently, the International Brotherhood of Boilermakers Union filed a petition to represent this same group of hourly employees. A mail ballot election took place in June 2020 and the National Labor Relations Board certified the International Brotherhood of Boilermakers as the elected representative of the Company’s hourly production employees. The Company’s obligations will be more fully understood following the ratification of a collective bargaining agreement.
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In the first quarter of fiscal 2021, the insurance claim related to the fire on December 26, 2018 at the Orange location was finalized with the Company's insurance carrier. In the third quarter of fiscal 2021, the Company completed the restoration of the final two of the six presses damaged in the fire. Restoration of the building structure is nearly complete.
Having finalized the claim with its insurance carrier, proceeds in the amount of $3,148 were received in December 2020. The Company received the remaining balance from the landlord, resulting in cash proceeds of $4,646 in fiscal 2021. As noted in the table below, $3,099 was recognized within the consolidated condensed statements of operations and the balance was separately designated to the landlord for the continued restoration of the damaged building as prescribed under the lease arrangement. The Company has business interruption insurance coverage, of which $546 of the amount received was reflected within the cost of goods sold line within the consolidated condensed statement of operations.

Balance sheet (Other receivables): |
September 30, 2020 | $ | 1,547 |
| Cash proceeds | (4,646) |
| Capital expenditures (equipment) | 2,495 |
| Other expenses | 58 |
| Business interruption | 546 |
June 30, 2021 | $ | — |

The tables below reflect how the proceeds received impacted the consolidated condensed statements of operations for the nine months ended June 30, 2021 and 2020, respectively.

| Nine Months Ended June 30, 2021
| Balance without insurance proceeds | Insurance recoveries | Balance with insurance proceeds
Cost of goods sold | $ | 65,921 |  | (604) |  | $ | 65,317 |
Gain on insurance proceeds received | $ | — |  | (2,495) |  | $ | (2,495) |
Income (loss) before income tax (benefit) expense | $ | (2,119) |  | (3,099) |  | $ | 980 |

| Nine Months Ended June 30, 2020
| Balance without insurance proceeds | Insurance recoveries | Balance with insurance proceeds
Cost of goods sold | $ | 73,374 |  | (2,603) |  | $ | 70,771 |
Gain on insurance proceeds received | $ | — |  | (2,683) |  | $ | (2,683) |
Income (loss) before income tax (benefit) expense | $ | (1,219) |  | (5,286) |  | $ | 4,067 |

The following table demonstrates the total settlement amount since December 26, 2018:

| Total Claim
Property & damage ** | $ | 20,364 |
Extra expense & mitigation expense | 4,404 |
Business interruption | 2,932 |
| $ | 27,700 |

**$3,640 of total was directed to the landlord of the property for the restoration of the building as prescribed by the lease arrangement.
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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. 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 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; and (19) the impact of the novel COVID-19 pandemic and related impact on the global economy, which may exacerbate the above factors and/or impact our results of operations and financial condition.
The Company is engaged in the production of forgings and machined components primarily for the A&E 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 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; and (iii) the projected build rate and repair for industrial turbines.
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
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) other commercial applications.
Fire Restoration
The insurance claim related to the fire on December 26, 2018 at the Orange location was finalized with the Company's insurance carrier. In the third quarter of fiscal 2021, the Company completed the restoration of the final two of the six presses damaged in the fire. Restoration of the building structure is nearly complete.
Having finalized the claim with its insurance carrier, proceeds in the amount of $3.1 million were received in December 2020 and the remaining balance from the landlord, resulting in the Company having received cash proceeds of $4.6 million in fiscal 2021. A total of $3.1 million was recognized within the consolidated condensed statements of operations and the balance was separately designated as payable to the landlord for the continued restoration of the damaged building as prescribed under the
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lease arrangement. The Company has business interruption insurance coverage, of which $0.5 million of the amount received was reflected within the cost of goods sold line within the consolidated condensed statement of operations.
For further detail of how the consolidated condensed statements of operations and balance sheets were impacted for the nine months ended, refer to Note 10, Commitments and Contingencies.
COVID-19
Since being recognized by the World Health Organization as a pandemic, the novel coronavirus ("COVID-19") outbreak continues to impact the United States and other countries in which we operate. The COVID-19 pandemic and its effects continue to evolve, including scope, severity and duration of the COVID-19 pandemic, as well as any worsening of the pandemic, the potential for additional outbreaks of the pandemic, the impact of new variants of COVID-19, actions to contain the pandemic's spread or treat its impact, the rollout and effectiveness of the vaccine, and governmental, business and other actions taken in response to the pandemic. The exact timing and pace of the recovery is indeterminable as certain markets have reopened, some of which have since experienced a resurgence of COVID-19 cases, and, throughout the course of the pandemic, new variants of COVID-19 have been identified and spread significantly, resulting in additional restrictions put in place by certain governments around the world. Capital markets and economies worldwide have been negatively impacted by COVID-19 and, given the fluidity of the situation, it is still unclear how lasting and deep the economic impacts will be, specifically in relation to the commercial aerospace industry. During fiscal 2021, the COVID-19 pandemic continues to have mixed effects on the Company’s results of operations. Given the long lead times for certain of the Company's products, the Company has seen a greater impact related to the effects of COVID-19 on orders and deliveries in fiscal 2021 than in fiscal 2020. In response to the uncertain environment created by the COVID-19 pandemic, the Company has, in prior periods, taken measures to reduce costs by furloughing and laying off certain of its employees from one of its plant locations that has experienced reduced sales of commercial aerospace products. Such employees have since returned to work; however, the Company implemented a second furlough in July 2021. The Company continues to actively monitor and find ways to mitigate the impact of the pandemic on its operations and consider its ability to pivot its operations and the industries served.
Backlog of Orders
SIFCO’s total backlog at June 30, 2021 was $78.1 million, compared with $100.9 million as of June 30, 2020. Orders may be subject to modification or cancellation by the customer with limited charges. Sales in the A&E markets continue to be impacted by the COVID-19 pandemic, which has created increased pressure in these markets. If the COVID-19 pandemic continues to have a material impact on the A&E markets, including with regards to our more significant customers, it could materially affect our business and results of operations. Backlog may decline as customers adjust orders in response to the ongoing COVID-19 pandemic and its impact on their operations. Backlog information may not be indicative of future sales.
Nine Months Ended June 30, 2021 compared with Nine Months Ended June 30, 2020
Net Sales
Net sales comparative information for the first nine months of fiscal 2021 and 2020 is as follows:

(Dollars in millions) | Nine Months Ended June 30, |  | Increase/ (Decrease)
Net Sales | 2021 |  | 2020 |
Aerospace components for: |  |  |  |  |
Fixed wing aircraft | $ | 28.9 |  |  | $ | 39.1 |  |  | $ | (10.2) |
Rotorcraft | 21.7 |  |  | 22.3 |  |  | (0.6) |
Energy components for power generation units | 14.8 |  |  | 9.9 |  |  | 4.9 |
Commercial product and other revenue | 9.9 |  |  | 13.2 |  |  | (3.3) |
Total | $ | 75.3 |  |  | $ | 84.5 |  |  | $ | (9.2) |

Net sales for the first nine months of fiscal 2021 decreased $9.2 million to $75.3 million, compared with $84.5 million in the comparable period of fiscal 2020. Given the long lead times for certain of the Company's products, the Company has seen a greater impact related to the effects of COVID-19 on orders and deliveries in fiscal 2021 than in fiscal 2020. Fixed wing aircraft sales decreased $10.2 million compared with the same period last year due to timing of customer orders and a decrease in build rates in certain commercial programs, partially offset by increased sales for military programs. Commercial products and other revenue decreased $3.3 million in the first nine months of fiscal 2021 compared to the same period in fiscal 2020, primarily due to timing of orders related to a munitions program. The energy components for power generation units increased by $4.9 million primarily due to customer order increases as the market saw some recovery.
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Commercial net sales were 35.1% of total net sales and military net sales were 64.9% of total net sales in the first nine months of fiscal 2021, compared with 41.4% and 58.6%, respectively, in the comparable period in fiscal 2020. Military net sales decreased by $0.7 million to $48.8 million in the first nine months of fiscal 2021, compared with $49.6 million in the comparable period of fiscal 2020, primarily due to the timing of orders related to a munitions program. Commercial net sales decreased $8.5 million to $26.5 million in the first nine months of fiscal 2021, compared with $35.0 million in the comparable period of fiscal 2020 primarily due to decreased build rates in certain commercial programs, partially offset by an increase in energy components sales for power generation due to increased customer orders.
Cost of Goods Sold
Cost of goods sold decreased by $5.5 million, or 7.7%, to $65.3 million, or 86.8% of net sales, during the first nine months of fiscal 2021, compared with $70.8 million or 83.7% of net sales, in the comparable period of fiscal 2020. Prior year results include higher insurance recoveries of $2.0 million related to business interruption and mitigation expense as part of the fire settlement. Once excluded from the results, the decrease is primarily due to decreased volume, cost controlling measures and the non-recurrence of the one-time pension withdrawal liability charge of $0.8 million incurred in the prior year.
Gross Profit
Gross profit decreased $3.8 million to $10.0 million during the first nine months of fiscal 2021, compared with $13.8 million in the comparable period of fiscal 2020. Gross margin percent of sales was 13.2% during the first nine months of fiscal 2021, compared with 16.3% in the comparable period in fiscal 2020. The decrease in gross profit was primarily due to decreased volume and lower insurance recoveries.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $10.3 million, or 13.7% of net sales during the first nine months of fiscal 2021, compared with $10.4 million, or 12.3% of net sales in the comparable period of fiscal 2020. The decrease in selling, general and administrative expenses is due to the continued cost reduction efforts by management in response to COVID-19 and other effects of the COVID-19 pandemic and its impact on operations such as lower wages related to a first quarter furlough at one location and less travel expense, partially offset by higher legal and professional costs and commissions.
Amortization of Intangibles
Amortization of intangibles was $0.8 million in the first nine months of fiscal 2021, compared with $1.2 million in the comparable period of fiscal 2020. Such decrease was primarily due to certain intangible assets that were fully amortized during fiscal 2020.
Other/General
The Company recorded income before taxes of $1.0 million in the first nine months of fiscal 2021, compared with $4.1 million in the first nine months of fiscal 2020.
In the first nine months of fiscal 2021, results included a $2.5 million gain on insurance recoveries, compared to $2.7 million in the comparable period.
Interest expense was $0.5 million in the first nine months of fiscal 2021, compared to $0.7 million in the first nine months of fiscal 2020.
The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s debt agreement in the first nine months of both fiscal 2021 and 2020:

| Weighted Average Interest Rate Nine Months Ended June 30, |  | Weighted Average Outstanding Balance Nine Months Ended June 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
Revolving credit agreement | 1.5 | % |  | 3.2 | % |  | $ 8.8 million |  | $ 14.8 million
Foreign term debt | 3.5 | % |  | 3.9 | % |  | $ 7.0 million |  | $ 5.5 million
Other debt | 0.9 | % |  | 0.4 | % |  | $ 5.7 million |  | $ 6.1 million

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Income Taxes
The Company’s effective tax rate through the first nine months of fiscal 2021 was (79)%, compared with (2)% for the same period of fiscal 2020. The decrease in the effective rate was primarily attributable to tax benefits from adjusting deferred taxes recorded in Italy recognized on a discrete basis, partially offset by changes in jurisdictional mix of income in fiscal 2021 compared to the same period of fiscal 2020. 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 Income
Net income was $1.8 million during the first nine months of fiscal 2021, compared with $4.2 million in fiscal 2020. The decrease in income is primarily due to lower sales and lower insurance recoveries since the claim was settled in the first quarter of 2021, partially offset by continued cost saving activities and the favorable tax benefit recorded in the first nine months of fiscal 2021.
Three Months Ended June 30, 2021 compared with Three Months Ended June 30, 2020
Net Sales
Net sales for the third quarter of fiscal 2021 decreased 8.8% to $25.3 million, compared with $27.8 million in the comparable period of fiscal 2020. Net sales comparative information for the third quarter of fiscal 2021 and 2020 is as follows:

(Dollars in millions) | Three Months Ended June 30, |  | Increase (Decrease)
Net Sales | 2021 |  | 2020 |
Aerospace components for: |  |  |  |  |
Fixed wing aircraft | $ | 8.9 |  |  | $ | 13.7 |  |  | $ | (4.8) |
Rotorcraft | 6.1 |  |  | 8.7 |  |  | (2.6) |
Energy components for power generation units | 3.2 |  |  | 3.8 |  |  | (0.6) |
Commercial product and other revenue | 7.1 |  |  | 1.6 |  |  | 5.5 |
Total | $ | 25.3 |  |  | $ | 27.8 |  |  | $ | (2.5) |

The increase in commercial product and other revenues was attributed to timing of orders for a munitions program. There was a decrease of $4.8 million in fixed wing aircraft revenues due to timing of customer orders and a decrease in build rates in certain commercial programs. The decrease of $2.6 million in rotorcraft sales is primarily due to timing of shipments related to certain military programs.
Commercial net sales were 25.5% of total net sales and military net sales were 74.5% of total net sales in the third quarter of fiscal 2021, compared with 44.2% and 55.8%, respectively, in the comparable period of fiscal 2020. Military net sales increased by $3.4 million to $18.9 million in the third quarter of fiscal 2021, compared with $15.5 million in the comparable period of fiscal 2020, primarily due to the timing of orders for a munitions program. Commercial net sales decreased $5.8 million to $6.5 million in the third quarter of fiscal 2021, compared with $12.3 million in the comparable period of fiscal 2020 primarily due to decreased build rates in certain commercial programs.
Cost of Goods Sold
Cost of goods sold was $22.0 million, or 87.0% of net sales, during the third quarter of fiscal 2021, compared with $23.6 million or 85.1% of net sales, in the comparable period of fiscal 2020, primarily due to lower volume from commercial aerospace programs.
Gross Profit
Gross profit decreased $0.9 million to $3.3 million during the third quarter of fiscal 2021, compared with $4.1 million in the comparable period of fiscal 2020. Gross margin was 13.0% during the third quarter of fiscal 2021, compared with 14.9% in the comparable period in fiscal 2020. The decrease in gross margin was primarily due to lower sales volume.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $2.9 million, or 11.5% of net sales, during the third quarter of fiscal 2021, compared with $2.9 million, or 10.3% of net sales, in the comparable period of fiscal 2020. The increase is primarily due to an
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increase in legal and professional costs and IT related costs partially offset by lower salary and benefits in the third quarter of fiscal 2021.
Amortization of Intangibles
Amortization of intangibles was $0.2 million in the third quarter of fiscal 2021 compared with $0.4 million in the third quarter of fiscal 2020. The decrease was due to certain intangible assets that became fully amortized during the prior fiscal year.
Other/General
The Company recorded income before income taxes of $0.2 million in the third quarter of fiscal 2021, compared to income before income taxes of $2.3 million in the third quarter of fiscal 2020.
Prior period results include a $1.7 million gain in insurance proceeds related to the insurance recovery from the damage that occurred related to the fire at the Orange location.
Interest expense was $0.1 million in the third quarter of fiscal 2021, compared to $0.2 million in the third quarter of fiscal 2020.
The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s Credit Agreement in the third quarter of both fiscal 2021 and 2020:

| Weighted Average Interest Rate Three Months Ended June 30, |  | Weighted Average Outstanding Balance Three Months Ended June 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
Revolving credit agreement | 1.5 | % |  | 2.0 | % |  | $ 8.0 million |  | $ 12.5 million
Foreign term debt | 3.4 | % |  | 3.9 | % |  | $ 6.8 million |  | $ 5.3 million
Other debt | 0.9 | % |  | 0.9 | % |  | $ 5.6 million |  | $ 6.1 million

Income Taxes
The Company's effective tax rate in the third quarter of fiscal 2021 was (16)%, compared with 2% for the same period of fiscal 2020. The decrease in the effective rate was primarily attributable to changes in jurisdictional mix of income during the three months ended June 30, 2021 compared to the same period of fiscal 2020. 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 Income
Net income was $0.3 million during the third quarter of fiscal 2021, compared with net income of $2.3 million in the comparable period of fiscal 2020. Prior year results benefited from a $1.7 million insurance recovery gain as the Company continued to work through the restoration of the Orange location.
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;
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•The omission of the substantial 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 |  | Nine Months Ended
| June 30, |  | June 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
Net income | $ | 254 |  |  | $ | 2,250 |  |  | $ | 1,756 |  |  | $ | 4,168 |
Adjustments: |  |  |  |  |  |  |
Depreciation and amortization expense | 1,980 |  |  | 1,845 |  |  | 5,710 |  |  | 5,576 |
Interest expense, net | 143 |  |  | 183 |  |  | 478 |  |  | 697 |
Income tax expense (benefit) | (36) |  |  | 33 |  |  | (776) |  |  | (101) |
EBITDA | 2,341 |  |  | 4,311 |  |  | 7,168 |  |  | 10,340 |
Adjustments: |  |  |  |  |  |  |
Foreign currency exchange loss, net (1) | 1 |  |  | 12 |  |  | 22 |  |  | 12 |
Other loss (income), net (2) | (232) |  |  | 27 |  |  | (129) |  |  | (58) |
Loss on disposal of assets (3) | — |  |  | 55 |  |  | — |  |  | 98 |
Gain on insurance recoveries (4) | — |  |  | (1,683) |  |  | (2,495) |  |  | (2,683) |
Equity compensation (5) | 85 |  |  | 37 |  |  | 378 |  |  | 262 |
LIFO impact (6) | 248 |  |  | (5) |  |  | 582 |  |  | (16) |
Adjusted EBITDA | $ | 2,443 |  |  | $ | 2,754 |  |  | $ | 5,526 |  |  | $ | 7,955 |

(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, grant income or extinguishment of debt.
(3)Represents the difference between the proceeds from the sale of operating equipment and the carrying values shown on the Company's books.
(4)Represents the difference between the insurance proceeds received for the damaged property and the carrying values shown on the Company's books for the assets that were damaged in the fire at the Orange location.
(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.
B. Liquidity and Capital Resources
Historically, the main sources of liquidity have been cash flows from operations and borrowings under our Credit Agreement. The ongoing impact and magnitude of the COVID-19 pandemic remain uncertain (including the pandemic's continued effects on the global economy and potential for market disruptions), with the commercial aerospace market continuing to be impacted by the global disruption in travel and, further, the pandemic and responses to the continued spread of the pandemic causing continued interruptions to the business of our customers and suppliers, which in turn is likely to impact our business, operations and results as well as our liquidity and capital resources. The Company's liquidity could be negatively affected by customers extending payment terms to the Company and/or the decrease in demand for our products as a result of the impact of the COVID-19 on the commercial airline industry. As the impact of the COVID-19 pandemic on the economy and the Company's
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operations continues to evolve, the Company and management will continue to assess and actively manage liquidity needs. See "Results of Operation - COVID - 19" for further discussion of the impact of the pandemic.
Cash and cash equivalents was $0.2 million at June 30, 2021 and $0.4 million at September 30, 2020. At June 30, 2021, 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 provided $3.5 million of cash in the first nine months of fiscal 2021, compared with $2.3 million in the first nine months of fiscal 2020. The cash provided in fiscal 2021 was primarily due to net income of $1.8 million, a $1.4 million decrease in working capital, and $3.1 million in non-cash items, such as gain on insurance recovery and changes in deferred income taxes, depreciation and amortization, equity based compensation, and LIFO effect. The cash provided from working capital was primarily due to decrease in receivables due to customer collections and decreased sales.
The Company’s operating activities provided $2.3 million of cash in the first nine months of fiscal 2020. The cash provided by operating activities in the first nine months of fiscal 2020 was primarily due to net income of $4.2 million and $2.9 million in non-cash items, such as depreciation and amortization, equity based compensation, deferred income taxes and LIFO effect, partially offset by the use of working capital of $4.8 million (increase in inventory of $4.6 million, $2.8 million in contract assets, net accruals of $1.7 million offset by $4.3 million decrease in receivables). The use of cash from working capital was primarily due to increase in inventories to support orders and customer adjustments for the remaining fiscal 2020 and payments to suppliers and disbursements related to the fire recovery, partially offset by decreased receivables resulting from improved collections.
Investing Activities
Cash used for investing activities was $1.8 million in the first nine months of fiscal 2021, which includes $4.1 million of insurance recovery on the damaged property related to the fire at the Orange location, compared with $1.3 million in the first nine months of fiscal 2020. Capital expenditures were $5.9 million, of which $3.7 million related to the continued restoration of the Orange location as a result of the fire. In addition to the $5.9 million spent for capital expenditures during the first nine months of fiscal 2021, $1.3 million was committed for future capital expenditures as of June 30, 2021. The Company anticipates that the remaining total fiscal 2021 capital expenditures will be within the range of $0.5 million to $1.1 million (exclusive of fire related expenditures) and will relate principally to the further enhancement of production and product offering capabilities and operating cost reductions. Separate from the amounts given above, the Company anticipates incurring additional costs in fiscal 2021 of approximately $0.8 million to $1.0 million in capital expenditures at the Orange location as the result of the fire and resulting damage that took place. These costs are expected to be offset by the insurance proceeds previously received.
Financing Activities
Cash used for financing activities was $1.9 million in the first nine months of fiscal 2021, compared with cash used for financing activities of $1.1 million in the first nine months of fiscal 2020.
As discussed in Note 5, Debt, the Company amended the Credit Agreement and the Export Agreement on February 19, 2021. The combined maximum borrowings remain unchanged at $35.0 million. The Fifth Amendment (the "Fifth Amendment") to the Credit Agreement (as amended, the "Credit Agreement") consists of a senior secured revolving credit facility with a maximum borrowing $28.0 million, previously $30.0 million. The revolving commitment through the First Amendment (the "First Amendment") of the Export Credit Agreement, which lends amounts to the Company on foreign receivables increased its revolving commitment from $5.0 million to $7.0 million. The Fifth Amendment, among other things, extends the maturity date from August 6, 2021 to February 19, 2024.
As discussed in Note 5, Debt, the Company's Maniago, Italy location obtained borrowings from two separate lenders during the third quarter of fiscal 2021. The first loan was for $0.7 million with repayment terms of 78 months, of which $0.3 million was forgiven in the same period and included as a gain in debt extinguishment in the operating activities within the consolidated condensed statements of cash flows. A second loan with a five year term was obtained in the amount of $0.3 million. The proceeds of these loans were to be used for working capital purposes.
The Company had net repayments to the revolver under the Credit Agreement of $3.0 million in the first nine months of fiscal 2021 compared with net repayments of $4.2 million in the first nine months of fiscal 2020.
Under the Company's Credit Agreement, the Company is subject to certain customary loan covenants regarding availability as discussed in Note 5, Debt. The availability at June 30, 2021 was $17.5 million. If availability had fallen short, the Company
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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 10.0% of the Revolving Commitment as of June 30, 2021, the FCCR calculation was not required.
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 and inventory as a result of the impact of the COVID-19 pandemic 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.
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. The Company was previously able to defer payments for certain debt obligations at its Maniago location to provide Maniago with liquidity.
Additionally, the credit and capital markets has seen 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, in the event the Company seeks additional liquidity sources as a result of the continued impact of COVID-19. 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. Impact of Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" and subsequent updates. ASU 2016-13 changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The new guidance will replace the current incurred loss approach with an expected loss model. The new expected credit loss impairment model will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt instruments, net investments in leases, loan commitments and standby letters of credit. Upon initial recognition of the exposure, the expected credit loss model requires entities to estimate the credit losses expected 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 are considered smaller reporting companies ("SRC"), as defined by the Securities and Exchange Commission, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Because SIFCO is considered a SRC, the Company does not need 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 condensed statements of operations and financial condition.
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" was issued to (i) reduce the complexity of the standard by removing certain exceptions to the general principles in Topic 740 and (ii) improve consistency and simplify other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective beginning October 1, 2021. The Company is currently in the process of evaluating the impact of adoption of the rules on the Company's financial condition, results of operations and disclosure.
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.
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In August 2018, the FASB issued ASU 2018-14, "Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)," which adds the following disclosure requirements: (1) the weighted-average interest crediting rates used in the Company's cash balance pension plans and other similar plans; (2) a narrative description of the reasons for significant gains and losses affecting the benefit obligation for the period; and (3) an explanation of any other significant changes in the benefit obligation or plan assets that are not otherwise apparent in the other disclosures required by Accounting Standards Codification ("ASC") Topic 715, "Compensation - Retirement Benefits." The ASU also clarifies the guidance included in ASC 715-20-50-3 on defined benefit plans disclosure requirements. This ASU will be effective October 1, 2021 and the Company is currently assessing the impact that this standard will have on our consolidated condensed financial statements.
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 June 30, 2021 (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 2020 Annual Report on Form 10-K.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis.
The following material weakness related to our control environment existed as of June 30, 2021.
•Insufficient review of specific controls associated with revenue, inventory, income taxes, and other matters at the Maniago location.
The control environment deficiencies described above could have resulted in a failure to prevent or detect a material misstatement in our financial statements due to the omission of information or inappropriate conclusions regarding information required to be recorded, processed, summarized, and reported in the Company’s SEC reports. Notwithstanding the identified material weakness, management believes the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.
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 to remediate the material weakness:
•Using a risk-based approach, management will implement additional monitoring controls through increased oversight and training local management to execute additional controls in detecting material errors.
•External resources with specialized knowledge and expertise, where appropriate, are being engaged and utilized and additional review controls are being instituted to prevent and detect material errors on a timely basis.
With the oversight of senior management and the Company's Board of Directors, the Company continues to take steps and additional measures to remediate the underlying causes of the identified material weakness, including but not limited to (i) engaging subject matter experts on an as need basis to assist management in generating accurate, transparent, and timely financial information, and (ii) continue to strengthen organizational structure including holding individuals accountable for their internal control responsibilities.
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Although we continue to make meaningful progress on our remediation plan during fiscal year 2021, we cannot estimate how long it will take to complete the process or the costs of actions required. There is no assurance that the aforementioned plans will be sufficient and that additional steps may not be necessary.
Changes in Internal Control over Financial Reporting and other Remediation
No material changes in our internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) occurred during the period covered by this Quarterly Report on Form 10‑Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Items 1A, 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 1. Legal Proceedings
In the normal course of business, the Company may be involved in ordinary, routine legal actions. The Company cannot reasonably estimate future costs, if any, related to these matters and does not believe any such matters are material to its financial condition or results of operations. The Company maintains various liability insurance coverages to protect its assets from losses arising out of or involving activities associated with ongoing and normal business operations; however, it is possible that the Company’s future operating results could be affected by future costs of litigation. For a more information regarding our outstanding material legal proceedings, see Note 10, Commitments and Contingencies.
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

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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, 2019, filed as Exhibit 10.1 to the Company's Form 8-K dated July 1, 2019 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.

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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
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 June 30, 2021 filed with the SEC on August 6, 2021, formatted in XBRL includes: (i) Consolidated Condensed Statements of Operations for the fiscal periods ended June 30, 2021 and 2020, (ii) Consolidated Condensed Statements of Comprehensive Income for the fiscal periods ended June 30, 2021 and 2020, (iii) Consolidated Condensed Balance Sheets at June 30, 2021 and September 30, 2020, (iv) Consolidated Condensed Statements of Cash Flow for the fiscal periods ended June 30, 2021 and 2020, (iv) Consolidated Condensed Statements of Shareholders' Equity for the periods June 30, 2021 and 2020, 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 6, 2021 |  | /s/ Peter W. Knapper
|  | Peter W. Knapper
|  | President and Chief Executive Officer
|  | (Principal Executive Officer)
Date: August 6, 2021 |  | /s/ Thomas R. Kubera
|  | Thomas R. Kubera
|  | Chief Financial Officer
|  | (Principal Financial Officer)

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