SIFCO Industries, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended September 30, 2021; comparative figures are for FY2020. SIFCO manufactures forgings, machined components and sub-assemblies for aerospace and energy markets, operating as one reportable segment. This annual filing does not provide separate results for fiscal Q4.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $99.6 million | $113.6 million |
| Gross profit / gross margin | $11.2 million / 11.3% | $20.0 million / 17.6% |
| Operating income (loss) | $(1.1) million | $10.1 million |
| Net income (loss) | $(0.7) million; $(0.13) per diluted share | $9.2 million; $1.59 per diluted share |
| Operating cash flow | $3.9 million | $0.4 million |
| Capital expenditures | $5.0 million | $9.0 million |
| Adjusted EBITDA (non-GAAP) | $5.8 million | $12.2 million |
Sales fell 12.3%. Fixed-wing aircraft revenue declined $13.5 million and rotorcraft revenue fell $4.3 million, partly offset by a $3.7 million increase in energy components. Commercial revenue, including energy, was $36.6 million (36.7% of sales); military revenue was $63.0 million (63.3%).
Gross margin contracted as lower volume, $1.9 million of higher idle expense and reduced fire-related insurance recoveries weighed on results. FY2021 included $3.0 million of recognized insurance recoveries related to the 2018 Orange facility fire, versus $5.9 million in FY2020; restoration was completed by year-end. The $1.2 million income tax benefit supported net results, but the company still reported a loss.
Financial position and liquidity
- At September 30, 2021, cash was $0.3 million, total assets $110.7 million, and shareholders’ equity $49.6 million.
- Total debt was $21.2 million, including an $8.9 million revolving balance; long-term debt was $2.7 million. Current liabilities were $36.0 million against current assets of $47.6 million.
- Availability under the credit facilities was $14.6 million at year-end. The combined maximum borrowing commitment remained $35.0 million, and the revolving credit facility maturity was extended to February 19, 2024. The facilities are secured by substantially all U.S. company and subsidiary assets, with a pledge of 66.67% of first-tier non-U.S. subsidiary stock.
- Operating cash flow improved from $0.4 million to $3.9 million, helped by lower receivables and inventory and other non-cash adjustments; cash declined by $0.1 million during the year. Investing cash use was $0.9 million, including insurance proceeds that partly funded fire restoration expenditures.
- The pension liability declined to $6.1 million from $10.2 million, with actuarial and investment-related changes contributing. The company reported no cash dividends in FY2021 or FY2020.
Material changes and outlook
- Backlog decreased to $77.2 million from $91.1 million; $59.3 million was scheduled for delivery in FY2022, down from $63.6 million scheduled in FY2021. Management cautions that backlog can be changed or canceled and may not predict future sales.
- Management expected FY2022 capital expenditures of $2.5 million to $4.0 million, primarily for production capability, product offerings and cost reduction. The filing provides no earnings or revenue guidance.
- Management said commercial aerospace recovery remained uncertain: passenger traffic was estimated to take another two to four years to return to pre-pandemic levels, with aircraft build rates recovering unevenly. Energy orders showed some recovery; selected defense programs were described as favorable.
- COVID-19 continued to affect customer demand, supply chains and operations. U.S. labor shortages, employee turnover and operating inefficiency were also reported; headcount fell from approximately 446 to 378 during FY2021.
Risks, contingencies and unusual items
- Customer concentration is material: three customers and their direct subcontractors represented 38% of FY2021 sales. Major customers may reduce or delay orders.
- The company had applied for forgiveness of its approximately $4.8 million remaining PPP loan balance; forgiveness was not assured. A $0.3 million Italian loan was forgiven during FY2021 and recognized as a gain on debt extinguishment.
- Credit availability and collateral depend partly on receivables and business conditions; covenant requirements could constrain borrowing if availability falls. Management said liquidity was adequate, but noted pandemic-related uncertainty.
- Negotiations continued with a Cleveland bargaining unit under an expired agreement; operations continued under prior terms without reported disruption. Pension funding assumptions and potential multi-employer plan withdrawal exposure are additional uncertainties.
- The Orange facility fire insurance claim was finalized in FY2021. An Avco product-specification lawsuit was resolved for an immaterial amount and dismissed in October 2021. The company said routine legal matters were not believed material.
- Management reported internal control over financial reporting effective at September 30, 2021 and stated that a previously disclosed Maniago control weakness had been remediated. The auditor gave an unqualified opinion on the financial statements and reported no critical audit matters.
Key facts for investors to verify
- Whether commercial aerospace orders, aircraft build rates and SIFCO’s backlog recover, and whether backlog converts to revenue on schedule.
- Whether gross margins improve as production volume and labor availability change, and how much future results rely on non-recurring insurance recoveries or other adjustments.
- PPP loan forgiveness status, available borrowing capacity, covenant headroom and debt repayment requirements.
- Customer concentration, supplier constraints, labor negotiations and workforce retention risks.
- Capital spending against the stated FY2022 range, pension funding developments and any renewed impairment indicators.