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Summary of Significant Accounting Policies | 12 Months Ended
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Sep. 30, 2017
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies A. DESCRIPTION OF BUSINESS SIFCO Industries, Inc. and its subsidiaries are engaged in the production of forgings and machined components primarily in the Aerospace and Energy ("A&E") market. The Company’s operations are conducted in a single business segment, "SIFCO" or the "Company." B. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The U.S. dollar is the functional currency for all the Company’s U.S. operations and its Irish subsidiary. For these operations, all gains and losses from completed currency transactions are included in income currently. 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. Foreign currency translation adjustments are reported as a component of accumulated other comprehensive loss in the consolidated statements of shareholders’ equity. C. CASH EQUIVALENTS The Company considers all highly liquid short-term investments with original maturities of three months or less to be cash equivalents. A substantial majority of the Company’s cash and cash equivalent bank balances exceed federally insured limits as of September 30, 2017; however, were within federally insured limits at September 30, 2016. D. CONCENTRATIONS OF CREDIT RISK Receivables are presented net of allowance for doubtful accounts of $330 and $706 at September 30, 2017 and 2016, respectively. Accounts receivable outstanding longer than the contractual payment terms are considered past due. The Company writes off accounts receivable when they become uncollectible. During fiscal 2017 and 2016, $461 and $581, respectively, of accounts receivable were written off against the allowance for doubtful accounts. Bad debt expense totaled $77 and $359 in fiscal 2017 and fiscal 2016, respectively. Most of the Company’s receivables represent trade receivables due from manufacturers of turbine engines and aircraft components as well as turbine engine overhaul companies located throughout the world, including a significant concentration of U.S. based companies. In fiscal 2017, 22% of the Company’s consolidated net sales were from two of its largest customers; and 35% of the Company's consolidated net sales were from the three largest customers and their direct subcontractors, which individually accounted for 13%, 11% and 11%, of consolidated net sales, respectively. In fiscal 2016, 21% of the Company’s consolidated net sales were from two of its largest customers; and 46% of the Company's consolidated net sales were from four of the largest customers and their direct subcontractors which individually accounted for 12%, 12%, 11% and 11%, of consolidated net sales, respectively. No other single customer or group represented greater than 10% of total net sales in fiscal 2017 and 2016. At September 30, 2017, one of the Company’s largest customers had outstanding net accounts receivable which individually accounted for 10% of the total net accounts receivable; and three of the largest customers and direct subcontractors had outstanding net accounts receivable which accounted for 13%, 10% and 10% of total net accounts receivable, respectively. At September 30, 2016, two of the Company’s largest customers had outstanding net accounts receivable which accounted for 14% and 11% of total net accounts receivable; and four of the largest customers and direct subcontractors had outstanding net accounts receivable which accounted for 15%, 13%, 12% and 11% of total, net receivables, respectively. The Company performs ongoing credit evaluations of its customers’ financial conditions. The Company believes its allowance for doubtful accounts is sufficient based on the credit exposures outstanding at September 30, 2017. E. INVENTORY VALUATION Inventories are stated at the lower of cost or market. For a portion of the Company's inventory, cost is determined using the last-in, first-out (“LIFO”) method. For approximately 38% and 44% of the Company’s inventories at September 30, 2017 and 2016, respectively, the LIFO method is used to value the Company’s inventories. The first-in, first-out (“FIFO”) method is used to value the remainder of the Company’s inventories. The Company maintains allowances for obsolete and excess inventory. The Company evaluates its allowances for obsolete and excess inventory each quarter, and requires at a minimum that reserves be established based on an analysis of the age of the inventory. In addition, if the Company identifies specific obsolescence, other than that identified by the aging criteria, an additional reserve will be recognized. Specific obsolescence and excess reserve requirements may arise due to technological or market changes, or based on cancellation of an order. The Company’s reserves for obsolete and excess inventory were $3,859 and $3,308 at September 30, 2017 and 2016, respectively. F. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is generally computed using the straight-line method. Depreciation is provided in amounts sufficient to amortize the cost of the assets over their estimated useful lives. Depreciation provisions are based on estimated useful lives: (i) buildings, including building improvements - 5 to 40 years; (ii) machinery and equipment, including office and computer equipment - 3 to 20 years; (iii) software - 3 to 7 years (included in machinery and equipment); and (iv) leasehold improvements - remaining life or length of the lease (included in buildings). The Company's property, plant and equipment assets by major asset class at September 30 consist of:
|  | 2017 |  | 2016
Property, plant and equipment: |  |  |  |
Land |  | $ | 1,005 |  |  | $ | 979 |
Buildings |  | 15,084 |  |  | 15,393 |
Machinery and equipment |  | 75,080 |  |  | 82,665 |
Total property, plant and equipment |  | 91,169 |  |  | 99,037 |
Accumulated depreciation |  | 51,661 |  |  | 50,079 |
Property, plant and equipment, net |  | $ | 39,508 |  |  | $ | 48,958 |
The loss on disposal of operating assets is included as a separate line item in the accompanying consolidated statements of operations. Depreciation expense was $7,820 and $8,173 in fiscal 2017 and 2016, respectively. G. ASSET IMPAIRMENT The Company reviews the carrying value of its long-lived assets, including property, plant and equipment, when events and circumstances indicate a triggering event has occured. This review is performed using estimates of future undiscounted cash flows, which include proceeds from disposal of assets. If the carrying value of a long-lived asset is greater than the estimated undiscounted future cash flows, then the long-lived asset is considered impaired and an impairment charge is recorded for the amount by which the carrying value of the long-lived asset exceeds its fair value. In the announcement made in the third quarter of fiscal 2017, the Company decided to close the Alliance, Ohio ("Alliance") plant and transfer future orders to the Cleveland, Ohio ("Cleveland") plant resulted in a triggering event, requiring an impairment analysis to be performed by the Company in accordance with Accounting Standard Codification ("ASC") 360 Property, Plant and Equipment. As required by ASC 360, an impairment loss shall be recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. The carrying amount of long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. The Company used May 31, 2017 as the triggering date to evaluate the carrying values and test for recoverability of the Alliance machinery and equipment, customer list and trade name as this was the date of when the decision to close Alliance was approved. The fair value of the assets was estimated using Level 2 and Level 3 inputs based on the orderly liquidation value as determined by a third party appraisal and undiscounted cash flows. As a result, the Company recorded asset impairment charges of $4,786, which is labeled as asset impairment in the consolidated statements of operations included within loss on disposal or impairment of operating assets; $2,497 of the total impairment charge related to machinery and equipment and the remaining $2,289 related to intangible assets. The Company also impaired assets totaling $174 related to development of an ERP solution for one of its operating plants. There were no long-lived asset impairment charges in fiscal 2016. H. ASSETS HELD FOR SALE The Company’s Irish subsidiary sold its operating business in June 2007, but retained ownership of its Cork, Ireland facility. This property is subject to a lease arrangement with the acquirer of the business that expires in June 2027. Rental income is earned in quarterly installments of $103. At September 30, 2017, the net carrying value of the property was $1,447, which was reclassed to asset held for sale. At September 30, 2016, the carrying value of the property was $1,496 (accumulated depreciation of $1,437). Rental income of $413 was recognized in each of fiscal years 2017 and 2016, respectively, and is recorded in other income, net on the consolidated statements of operations. At June 30, 2017, the Company met the requirements of ASC 360 - asset held for sale classification for the Irish building. A formal plan was in place to sell the property in its current condition. At September 30, 2017, the Company had a buyer who agreed to specified terms. Refer to Note 8 Subsequent Events for further discussion. As such, the net book value of $1,447 represents a portion of the asset held for sale amount on the consolidated balance sheets as of September 30, 2017. No loss on sale of asset was recorded in the statement of operations under the loss on disposal or impairment of operating assets line due to the carrying amount of the property being less than the fair value less expected costs to sell. The remaining assets held for sale balance of $1,077 pertains to the Alliance building and certain machinery and equipment that meet the asset held for sale classification at September 30, 2017 due to the circumstances of the closure of Alliance and expected plan to sell. As previously stated, there was an initial impairment recorded within the consolidated statements of operations included within loss on disposal or impairment of operating assets for the Alliance assets that brought the fair value of the assets held for sale to its orderly liquidation value. Both the Irish property and the Alliance building and machinery and equipment are recorded as assets held for sale in the consolidated balance sheets. The Company expects to sell these assets within the next 12 months. I. GOODWILL AND INTANGIBLE ASSETS Goodwill represents the excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill is subject to impairment testing if triggered in the interim, if not, on an annual basis. The Company has selected July 31 as the annual impairment testing date. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill. Since the adoption of Accounting Standard Update ("ASU") 2017-04, Step 2 has been eliminated from the goodwill impairment test. The first step of the goodwill impairment test compares the fair value of a reporting unit (as defined) with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered impaired. However, if the carrying amount exceeds the fair value, the Company should recognize an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill allocated to that reporting unit. See Note 3, Goodwill and Intangibles, of the consolidated financial statements for further discussion of the interim goodwill test performed as of May 31, 2017 for one of its reporting units and as of July 31, 2017 annual impairment test results. Intangible assets consist of identifiable intangibles acquired or recognized in the accounting for the acquisition of a business and include such items as a trade name, a non-compete agreement, below market lease, customer relationships and order backlog. Intangible assets are amortized over their useful lives ranging from one year to ten years. Identifiable intangible assets assessment for impairment is evaluated when events and circumstances warrant such a review, as noted within Note 1, Summary of Significant Accounting Policies - Asset Impairment. J. NET LOSS PER SHARE The Company’s net loss per basic share has been computed based on the weighted-average number of common shares outstanding. Due to the net loss for each reporting period, zero restricted shares are included because the effect would be anti-dilutive. The dilutive effect of the Company’s restricted shares and performance shares were as follows:
|  | September 30,
|  | 2017 |  | 2016
Net loss |  | $ | (14,209 | ) |  | $ | (11,335 | )
Weighted-average common shares outstanding (basic and diluted) |  | 5,487 |  |  | 5,475 |
Net loss per share – basic and diluted: |  |  |  |
Net loss per share |  | $ | (2.59 | ) |  | $ | (2.07 | )
Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share |  | 93 |  |  | 32 |
K. REVENUE RECOGNITION Revenue is generally recognized from the sale of products shipped when the title and risk of loss passes to the customer, which is generally at the time of shipment. Substantially all product sales are made pursuant to a firm, fixed-price purchase orders or supply agreement demand forecasts received from customers. Provisions for estimated returns and uncollectible accounts provisions are provided for in the same period as the related revenues are recorded and are principally based on historical results modified, as appropriate, by the most current information available. Due to uncertainties in the estimation process, it is possible that actual results may vary from the estimates. L. CAPITAL LEASE OBLIGATIONS Capital leases are accounted for as the acquisition of an asset and the commitment of an obligation by the lessee and as a sale or financing by the lessor. All other leases are accounted for as operating leases. M. IMPACT OF RECENTLY ADOPTED ACCOUNTING STANDARDS In January 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-04, which simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The Company performs Step 1 of the annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. If the carrying amount exceeds the fair value, an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the fair value, not to exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This ASU must be applied prospectively and is effective for any annual and interim goodwill impairment test in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company adopted the standard in its second quarter of fiscal 2017 and there was no impact to the consolidated financial statements. In August 2014, the FASB issued ASU 2014-15, "Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern," which is intended to define the Company's responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures, regardless of the Company's performance or financial position. In connection with preparing financial statements for each annual and interim reporting period, an entity's management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. The Company adopted this standard effective September 30, 2017 and there was no impact to the consolidated financial statements. N. IMPACT OF NEWLY ISSUED ACCOUNTING STANDARDS In May 2017, the FASB issued ASU 2017-09, which clarifies when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The new guidance is effective for the Company on a prospective basis beginning on October 1, 2018, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements and it does not plan to early adopt the ASU. In March 2017, the FASB issued ASU 2017-07, which relates to pension related costs that require an entity to report the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs. The other components of the net periodic benefit cost are required to be presented in the income statement separately from the service cost component and outside of any subtotal of operating income. Additionally, only the service cost component will be eligible for capitalization in assets. The ASU is effective for October 1, 2018, early adoption is permitted and the ASU should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost in the income statement and prospectively for the capitalization of the service cost component. The amendment allows for a practical expedient that permits an employer to use the amounts disclosed in its pension and other post-retirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The Company would need to disclose if the practical expedient was used. The Company is currently evaluating the impact it may have on its consolidated financial statements and it does not plan to early adopt the ASU. In January 2017, the FASB issued ASU 2017-01, Business Combinations, which clarified existing guidance on the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Early adoption is permitted and the guidance is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted as of the beginning of the annual reporting period in which the ASU was issued. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements. In November 2016, the FASB issued ASU 2016-18 requiring that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash would be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This amendment is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods. Early adoption is permitted. The Company is currently evaluating its plans regarding the adoption, but does not expect that this ASU would have a material impact to the consolidated financial statements. In October 2016, the FASB issued ASU 2016-16, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs and eliminates the exception for an intra-entity transfer of an asset other than inventory. This ASU will be effective for the Company for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact it may have on its consolidated financial statements together with evaluating the adoption date. In August 2016, the FASB issued ASU 2016-15, which amends certain cash flow issues which apply to all entities required to present a statement of cash flow. The amendments are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods. Early adoption is permitted. The Company is currently evaluating the impact it may have on its consolidated financial statements together with evaluating the adoption date. In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which makes a number of changes meant to simplify and improve accounting for share-based payments. The ASU will be effective for the Company for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company has considered the potential implications of adoption of the ASU and due to the valuation allowance recorded at September 30, 2017 and September 30, 2016 in the U.S., the Company does not expect a material impact from a tax perspective. The Company is still evaluating other non-tax components it may have on its consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This ASU requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet and aligns many of the underlying principles of the new lessor model with those in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the requirements of ASU 2016-02 and has not yet determined its impact to its consolidated financial statements. In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 completes the joint effort by the FASB and International Accounting Standards Board to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” The ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing.” This ASU 2016-10 clarifies the implementation guidance on identifying performance obligations. These ASUs, along with subsequent updates, apply to all companies that enter into contracts with customers to transfer goods or services, and are effective for public entities for interim and annual reporting periods beginning after December 15, 2017. The Company will adopt the new guidance on October 1, 2018. The Company is executing a bottom up approach to analyze the standard's impact on its revenues by looking at historical policies and practices and identifying the differences from applying the new standard to its revenue streams. The Company has determined that many of its long-term agreements contain variable consideration clauses and is in the process of quantifying the impact to its consolidated financial statements. In addition, some of the Company's agreements have clauses which may require the Company to recognize revenue over time. The majority of the Company's current revenue is recognized at a point-in-time. As such, SIFCO continues to evaluate the impact of the standard on its financial reporting, disclosures and related systems and internal controls. O. USE OF ESTIMATES Accounting principles generally accepted in the U.S. require management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent liabilities, at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the period in preparing these financial statements. Actual results could differ from those estimates. P. DERIVATIVE FINANCIAL INSTRUMENTS The Company entered an interest rate swap agreement on March 29, 2016 to reduce risk related to variable-rate debt, which was subject to changes in market rates of interest. The interest rate swap was designated as a cash flow hedge. The agreement was canceled as part of the debt modification on November 9, 2016, as further discussed in Note 5, Debt, of the consolidated financial statements. The Company accounted for the interest rate swap termination by recording the loss in accumulated other comprehensive loss as of December 31, 2016. The amount incurred in interest expense was nominal. As part of the new Credit Facility (described further in Note 5, Debt, of the consolidated financial statements) on November 9, 2016, the Company entered a new interest rate swap on November 30, 2016 to reduce risk related to the variable debt over the life of the new term loan. At September 30, 2017, the Company held one interest rate swap agreement with a notional amount of $4,059. Cash flows related to the interest rate swap agreement are included in interest expense. The Company’s interest rate swap agreement and its variable-rate term debt were based upon LIBOR. At September 30, 2017 and 2016, the Company’s interest rate swap agreement qualified as a fully effective cash flow hedge against the Company’s variable-rate term note. The mark-to-market valuation was a $4 asset and a $30 liability at September 30, 2017 and September 30, 2016, respectively. Q. RESEARCH AND DEVELOPMENT Research and development costs are expensed as they are incurred. Research and development expense was nominal in fiscal 2017 and 2016. R. DEFERRED FINANCING COSTS Debt issuance costs are capitalized and amortized over the life of the related debt. Amortization of deferred financing costs is included in interest expense in the consolidated statements of operations. S. ACCUMULATED OTHER COMPREHENSIVE LOSS The components of accumulated other comprehensive loss as shown on the consolidated balance sheets at September 30 are as follows:
| 2017 |  | 2016
Foreign currency translation adjustment, net of income tax benefit of $0 and $0, respectively | $ | (4,607 | ) |  | $ | (5,623 | )
Net retirement plan liability adjustment, net of income tax benefit of ($3,758) and ($3,758), respectively | (4,648 | ) |  | (7,197 | )
Interest rate swap agreement, net of income tax benefit of $0 and $0, respectively | 4 |  |  | (30 | )
Total accumulated other comprehensive loss | $ | (9,251 | ) |  | $ | (12,850 | )
The following table provides additional details of the amounts recognized into net earnings from accumulated other comprehensive loss, net of tax:
| Foreign Currency Translation Adjustment |  | Retirement Plan Liability Adjustment |  | Interest Rates Swap Adjustment |  | Accumulated Other Comprehensive Loss
Balance at September 30, 2015 | $ | (5,731 | ) |  | $ | (6,257 | ) |  | $ | — |  |  | $ | (11,988 | )
Other comprehensive income (loss) before reclassifications | 108 |  |  | (1,991 | ) |  | (30 | ) |  | (1,913 | )
Amounts reclassified from accumulated other comprehensive loss | — |  |  | 1,051 |  |  | — |  |  | 1,051 |
Net current-period other comprehensive loss | $ | 108 |  |  | $ | (940 | ) |  | $ | (30 | ) |  | $ | (862 | )
Balance at September 30, 2016 | $ | (5,623 | ) |  | $ | (7,197 | ) |  | $ | (30 | ) |  | $ | (12,850 | )
Other comprehensive income (loss) before reclassifications | 1,016 |  |  | 1,655 |  |  | 28 |  |  | 2,699 |
Amounts reclassified from accumulated other comprehensive loss | — |  |  | 894 |  |  | 6 |  |  | 900 |
Net current-period other comprehensive loss | 1,016 |  |  | 2,549 |  |  | 34 |  |  | 3,599 |
Balance at September 30, 2017 | $ | (4,607 | ) |  | $ | (4,648 | ) |  | $ | 4 |  |  | $ | (9,251 | )
The following table reflects the changes in accumulated other comprehensive loss related to the Company for September 30, 2017 and 2016:
|  | Amount reclassified from accumulated other comprehensive loss |  |
Details about accumulated other comprehensive loss components |  | 2017 |  | 2016 |  | Affected line item in the Consolidated Statement of Operations
Amortization of Retirement plan liability: |  |  |  |  |  |
Prior service costs |  | $ | 15 |  |  | $ | — |  |  | (1)
Net actuarial loss |  | 927 |  |  | 828 |  |  | (1)
Settlements/curtailments |  | (48 | ) |  | 223 |  |  | (1)
|  | 894 |  |  | 1,051 |  |  | Total before taxes
|  | — |  |  | — |  |  | Income tax expense
|  | $ | 894 |  |  | $ | 1,051 |  |  | Net of taxes
(1) These accumulated other comprehensive income components are included in the computation of net periodic benefit cost. See Note 7, Retirement Benefit Plans, of the consolidated financial statements for further information. T. INCOME TAXES The Company files a consolidated U.S. federal income tax return and tax returns in various state and local jurisdictions. The Company’s Irish and Italian subsidiaries also file tax returns in the respective jurisdictions. The Company provides deferred income taxes for the temporary difference between the financial reporting basis and tax basis of the Company’s assets and liabilities. Such taxes are measured using the enacted tax rates that are assumed to be in effect when the differences reverse. Deductible temporary differences result principally from recording certain expenses in the financial statements in excess of amounts currently deductible for tax purposes. Taxable temporary differences result principally from tax depreciation in excess of book depreciation. The Company evaluates for uncertain tax positions taken at each balance sheet date. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest cumulative benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company's policy for interest and/or penalties related to underpayments of income taxes is to include interest and penalties in tax expenses. The Company maintains a valuation allowance against its deferred tax assets when management believes it is more likely than not that all or a portion of a deferred tax asset may not be realized. Changes in valuation allowances are recorded in the period of change. In determining whether a valuation allowance is warranted, the Company evaluates factors such as prior earnings history, expected future earnings, carry-back and carry-forward periods and tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset. U. FAIR VALUE MEASUREMENTS Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. In determining fair value, the Company utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. Based on the examination of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories: Level 1 - Quoted market prices in active markets for identical assets or liabilities Level 2 - Observable market based inputs or unobservable inputs that are corroborated by market data Level 3 - Unobservable inputs that are not corroborated by market data A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The book value of cash equivalents, accounts receivable, accounts payable, and revolving credit facilities are considered to be representative of their fair values because of their short maturities. Fair value measurements of non-financial assets and non-financial liabilities are primarily used in goodwill, other intangible assets and long-lived assets impairment analysis, the valuation of acquired intangibles and in the valuation of assets held for sale. Goodwill and intangible assets are valued using Level 3 inputs. V. SHARE-BASED COMPENSATION Share-based compensation is measured at the grant date, based on the calculated fair value of the award and the probability of meeting its performance condition, and is recognized as expense when it is probable that the performance conditions will be met over the requisite service period (generally the vesting period). Share-based expense includes expense related to restricted shares and performance shares issued under the Company's 2007 Long-Term Incentive Plan ("2007 Plan") and the 2016 Long-Term Incentive Plan ("2016 Plan"). The Company recognizes share-based expense within selling, general, and administrative expense. W. SHIPPING AND HANDLING COSTS The Company classifies all amounts billed to customers for shipping and handling as revenue and reflects shipping and handling costs in cost of sales. X. RESTRUCTURING CHARGES The Company’s policy is to recognize restructuring costs in accordance with the accounting rules related to exit or disposal activities and compensation and non-retirement post-employment benefits. Detailed documentation is maintained and updated to ensure that accruals are properly supported. If management determines that there is a change in estimate, the accruals are adjusted to reflect this change. Y. RECLASSIFICATIONS Certain amounts in prior years, as appropriate, have been reclassified to conform to the 2017 consolidated financial statement presentation. In fiscal 2017, the Company revised its classification within the consolidated balance sheet. It reclassified the prior year balance of $12,751 from current maturities of long-term debt to the revolver line. The Company revised its classification within the consolidated cash flows as it relates to short-term borrowings from a net presentation to a gross presentation. In fiscal 2017, Note 6, Income Taxes, of the consolidated financial statements includes revisions to certain prior year amounts to conform to current year disclosures.

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