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Summary of Significant Accounting Policies | 9 Months Ended
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Jun. 30, 2019
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | 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 Irish subsidiaries. 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 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 2018 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 2018 Annual Report on Form 10-K. In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers (Topic 606)" and in March 2017, the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of the Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost," which were adopted by the Company on October 1, 2018. Significant changes to the Company's accounting policies as a result of adopting ASU 2014-09 (the "new revenue standard") and ASU 2017-07 are discussed below: Revenue A contract exists when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when performance obligations under the terms of the contract with a customer of the Company are satisfied. A portion of the Company's revenue is from purchase orders ("PO's"), which continue to be recognized as of a point in time when products are shipped from the Company's manufacturing facilities or at a later time when control of the products transfers to the customer. Revenue was previously recognized for certain long-term agreements ("LTA's"), firm fixed pricing agreements, and PO's at the point in time when the shipping terms were satisfied. Under the new revenue standard, the Company now recognizes certain revenue over time as it satisfies the performance obligations because the conditions of transfer of control to the applicable customer are as follows:
• | Certain military contracts, which support providing goods to the U.S. government, include provisions within the contract that are subject to the Federal Acquisition Regulation ("FAR"). The FAR provision allows the customer to unilaterally terminate the contract for convenience and requires the customer to pay the Company for costs incurred plus reasonable profit margin and take control of any work in process.
• | For certain commercial contracts involving customer-specific products, the contract may fall under the FAR clause provisions noted above for military contracts or may include certain provisions within their contract that the customer controls the work in process based on contractual termination clauses or restrictions of the Company's use of the product and the Company possesses a right to payment for work performed to date plus reasonable profit margin.
As a result of control transferring over time for these products, revenue is recognized based on progress toward completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products to be provided. The Company has elected to use the cost to cost input method of progress based on costs incurred for these contracts because it best depicts the transfer of goods to the customer based on incurring costs on the contracts. Under this method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred. Revenue is measured at the amount of consideration the Company expects to receive in exchange for transferring goods. An accounting policy election to exclude from transaction price was made for sales, value add, and other taxes the Company collects concurrent with revenue-producing activities when applicable. The Company has elected to recognize incremental costs incurred to obtain contracts, which primarily represent commissions paid to third party sales agents where the amortization period would be less than one year, as selling, general and administrative expenses in the consolidated condensed statements of operations as incurred. The Company elected a practical expedient under Topic 606 to not adjust the promised amount of consideration for the effects of any significant financing component where the Company expects, at contract inception, that the period between when the Company transfers a promised good to a customer and when the customer pays for that good will be one year or less. Finally, the Company's policy is to exclude performance obligations resulting from contracts with a duration of one year or less from its disclosures related to remaining performance obligations. The amount of consideration to which the Company expects to be entitled in exchange for the goods is not generally subject to significant variations. The Company has elected to recognize the cost of freight and shipping when control of the products has transferred to the customer as an expense in cost of goods sold on the consolidated condensed statements of operations, because those are costs incurred to fulfill the promise recognized, not a separate performance obligation. To the extent certain freight and shipping fees are charged to customers, the Company recognizes the amounts charged to customers as revenues and the related costs as an expense in cost of goods sold when control of the related products has transferred to the customer. Contracts are occasionally modified to account for changes in contract specifications, requirements, and pricing. The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Substantially all of the Company's contract modifications are for goods that are distinct from the existing contract. Therefore, the effect of a contract modification on the transaction price and the Company's measure of progress for the performance obligation to which it relates is generally recognized on a prospective basis. Contract Balances Contract assets on the consolidated condensed balance sheets is recognized when a good is transferred to the customer and the Company does not have the contractual right to bill for the related performance obligations. In these instances, revenue recognized exceeds the amount billed to the customer and the right to payment is not solely subject to the passage of time. Amounts do not exceed their net realizable value. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. Payment from customers are received based on the terms established in the contract with the customer. Pension Benefits With the adoption of ASU 2017-07 on October 1, 2018, service cost is included in other employee compensation costs within operating income and is the only component that may be capitalized when applicable. The other components of net periodic benefit cost are presented separately outside of operating income. The Company retrospectively adopted ASU 2017-07 and reclassified prior-year amounts using a practical expedient that permits the usage of amounts disclosed below in Note 7, Retirement Benefit Plans. Results showed expense for both the three months and nine months ended of fiscal 2019 and 2018 were reclassified from cost of sales and selling, general and administrative expenses, respectively, to other (income) expense, net and were not material to the consolidated condensed statement of operations. C. Net Loss per Share The Company’s net loss per basic share has been computed based on the weighted-average number of common shares outstanding. Due to the net loss for each reporting period, zero restricted shares are included in the calculation of basic or diluted earnings per share because the effect would be anti-dilutive. The dilutive effect of the Company’s restricted shares and performance shares were as follows:
| Three Months Ended June 30, |  | Nine Months Ended June 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Net loss | $ | (7,370 | ) |  | $ | (1,532 | ) |  | $ | (9,911 | ) |  | $ | (4,481 | )
Weighted-average common shares outstanding (basic and diluted) | 5,571 |  |  | 5,535 |  |  | 5,556 |  |  | 5,524 |
Net loss per share – basic and diluted: |  |  |  |  |  |  |
Net loss per share | $ | (1.32 | ) |  | $ | (0.28 | ) |  | $ | (1.78 | ) |  | $ | (0.81 | )
Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share | 202 |  |  | 156 |  |  | 200 |  |  | 135 |
D. Impact of Recently Issued Accounting Standards In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” and subsequent updates. The ASU's require lessees to recognize a lease liability and a right-of-use asset on the balance sheet by those leases with a lease term of more than twelve months. The standard allows for a modified retrospective transition for finance and operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements, but it does not require transition accounting for leases that expire prior to the date of initial adoption. Alternatively, the Company can elect the optional transition method to the adoption for lessees related to finance and operating leases existing at, or entered into after October 1, 2019, and the Company will record a cumulative effect adjustment to retained earnings on the same date, if necessary. This optional transition method will not require any restatements prior to the Company's 2020 fiscal year. The Company will adopt the new guidance on October 1, 2019, and has put together a project plan and team, compiled population of leases and is in process to perform search for unrecorded leases. As the implementation progresses, the Company will determine the extent of the impact on its consolidated condensed financial statements and related disclosures. 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. The Company is in the process of evaluating the effect that the adoption of ASU 2016-13 will have on the Company's results within the consolidated condensed statements of operations and financial condition. E. Recently Adopted Accounting Standards The new revenue standard introduces a five-step revenue recognition model in which a company should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. The new revenue standard also requires disclosure sufficient to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments and assets recognized from the cost to obtain or fulfill a contract. For further discussion, see Note 9, Revenue. On October 1, 2018, the Company adopted the new revenue standard and all related amendments using the modified retrospective method and applied those provisions to all open contracts. The Company recognized the cumulative effect by initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The cumulative effect of changes made to the balance sheet as of October 1, 2018 for the adoption of the new revenue standard was as follows:
|  | Balance at September 30, 2018 |  | Effect of Accounting Change |  | Balance at October 1, 2018
Assets |  |  |  |  |  |
Contract asset |  | $ | — |  |  | $ | 10,140 |  |  | $ | 10,140 |
Inventory, net |  | 18,269 |  |  | (6,542 | ) |  | 11,727 |
Liabilities & Shareholders' Equity |  |  |  |  |  |
Retained earnings |  | 37,097 |  |  | 3,598 |  |  | 40,695 |
As part of the cumulative effect of the accounting change made as it pertains to the inventory, net line, the impact includes a reduction to the Company's last-in, first-out (“LIFO”) reserve in the amount of $508 and excess and obsolete reserve of $366. As noted in Note 2, Inventories, a portion of the Company's inventory is on LIFO. The following tables reflect the changes to the financial statements line items as a result to the new revenue standard. The adoption of the new standard did not have an impact on "net cash provided by operating activities" on the consolidated condensed statement of cash flows for the nine months ended June 30, 2019. Consolidated condensed statement of operations for the nine months ended June 30, 2019:
|  | Previous Accounting Method |  | Effect of Accounting Change |  | As Reported
Net Sales |  | $ | 82,561 |  |  | $ | (1,230 | ) |  | $ | 81,331 |
Cost of Goods Sold |  | 76,435 |  |  | (1,316 | ) |  | 75,119 |
Loss before income tax benefit |  | (10,813 | ) |  | 86 |  |  | (10,727 | )
Net loss |  | (9,997 | ) |  | 86 |  |  | (9,911 | )
Basic net loss per share |  | $ | (1.80 | ) |  | $ | 0.02 |  |  | $ | (1.78 | )
Diluted net loss per share |  | $ | (1.80 | ) |  | $ | 0.02 |  |  | $ | (1.78 | )
Consolidated condensed statement of operations for the three months ended June 30, 2019:
|  | Previous Accounting Method |  | Effect of Accounting Change |  | As Reported
Net Sales |  | $ | 24,723 |  |  | $ | 150 |  |  | $ | 24,873 |
Cost of Goods Sold |  | 22,849 |  |  | 637 |  |  | 23,486 |
Loss before income tax expense |  | (7,219 | ) |  | (487 | ) |  | (7,706 | )
Net loss |  | (6,883 | ) |  | (487 | ) |  | (7,370 | )
Basic net loss per share |  | $ | (1.23 | ) |  | $ | (0.09 | ) |  | $ | (1.32 | )
Diluted net loss per share |  | $ | (1.23 | ) |  | $ | (0.09 | ) |  | $ | (1.32 | )
Consolidated condensed balance sheet as of June 30, 2019:
|  | Previous Accounting Method |  | Effect of Accounting Change |  | As Reported
Assets |  |  |  |  |  |
Contract asset |  | $ | — |  |  | $ | 8,910 |  |  | $ | 8,910 |
Inventory, net |  | 17,170 |  |  | (5,226 | ) |  | 11,944 |
Liabilities & Shareholders' Equity |  |  |  |  |  |
Contract liabilities (included within accrued liabilities) |  | 1,000 |  |  | — |  |  | 1,000 |
Deferred income taxes |  | 2,112 |  |  | — |  |  | 2,112 |
Retained earnings |  | 27,059 |  |  | 3,684 |  |  | 30,743 |
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," which amends certain cash flow issues which apply to all entities required to present a statement of cash flows. On October 1, 2018, the Company implemented provisions of ASU 2016-15 on a retrospective basis, which did not impact the consolidated condensed statements of cash flows for the periods presented.

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