What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2020-12-23 compared with 2019-12-16 · 562 added, 410 removed, 715 unchanged (58% of the section changed)

5 unchanged sentences

We have audited the accompanying consolidated balance sheets of SIFCO Industries, Inc.

(an Ohio corporation) and subsidiaries (the “Company”) as of September 30, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for the years then ended, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”).

(an Ohio corporation) and subsidiaries (the “Company”) as of September 30, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for the two years then ended, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Change in accounting principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of October 1, 2019 due to the adoption of ASU 2016-02, Leases (Topic 842).

Basis for opinion

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Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

2 unchanged sentences

We have served as the Company’s auditor since 2002.

Cincinnati, Ohio

Cleveland, Ohio

December 23, 2020

Table of C ontents

SIFCO Industries, Inc.

3 unchanged sentences

Years Ended September 30,

Net sales $ 113,573 $ 112,454

Cost of goods sold 93,611 101,817

Gross profit 19,962 10,637

Selling, general and administrative expenses 14,022 15,274

1 unchanged sentence

Amortization of intangible assets 1,497 1,648

Gain on disposal and impairment of assets

Operating loss

Interest income

Interest expense

Foreign currency exchange gain, net

Other expense (income), net

Loss before income tax benefit

Loss (gain) on disposal or impairment of operating assets 174 ( 282 )

Gain on insurance recoveries ( 5,874 ) ( 7,253 )

Operating income (loss) 10,143 ( 7,044 )

Interest expense, net 886 1,053

Foreign currency exchange loss (gain), net 51 ( 7 )

Other expense, net 226 117

Income (loss) before income tax benefit 8,980 ( 8,207 )

Income tax benefit ( 211 ) ( 701 )

Net loss per share:

Net income (loss) $ 9,191 $ ( 7,506 )

Net income (loss) per share:

Basic $ 1.62 $ ( 1.35 )

Diluted $ 1.59 $ ( 1.35 )

Weighted-average number of common shares (basic) 5,661 5,566

1 unchanged sentence

See notes to consolidated financial statements.

Table of C ontents

SIFCO Industries, Inc.

and Subsidiaries

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Comprehensive Income (Loss)

(Amounts in thousands)

Years Ended September 30,

Net income (loss) $ 9,191 $ ( 7,506 )

Other comprehensive income (loss), net of tax:

1 unchanged sentence

Retirement plan liability adjustment, net of tax $ 0 and $ 0 , respectively

Interest rate swap agreement adjustment, net of tax $0 and $0, respectively

Comprehensive loss

See notes to the consolidated financial statements.

( 569 ) ( 3,968 )

Comprehensive income (loss) $ 9,032 $ ( 12,186 )

See notes to consolidated financial statements.

Table of C ontents

SIFCO Industries, Inc.

6 unchanged sentences

Receivables, net of allowance for doubtful accounts of $ 249 and $ 592 , respectively

23,225 23,159

Other receivables 1,547 3,500

3 unchanged sentences

Prepaid expenses and other current assets 2,338 1,459

Assets held for sale

Total current assets 55,206 49,458

Property, plant and equipment, net 44,201 39,610

Operating lease right-of-use assets, net 17,021 —

Intangible assets, net 1,890 3,320

Goodwill 3,493 3,493

Other assets 137 218

Total assets $ 121,948 $ 96,099

LIABILITIES AND SHAREHOLDERS’ EQUITY

1 unchanged sentence

Current maturities of long-term debt $ 7,144 $ 5,786

Revolver 12,870 15,542

Short-term operating lease liabilities 991 —

Accounts payable 14,002 19,799

2 unchanged sentences

Long-term debt, net of current maturities 4,606 2,052

Long-term operating lease liabilities, net of short-term 16,188 —

Deferred income taxes 1,400 1,718

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See notes to consolidated financial statements.

Table of C ontents

SIFCO Industries, Inc.

4 unchanged sentences

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash provided by operating activities:

Net income (loss) $ 9,191 $ ( 7,506 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 7,380 7,525

Amortization and write-off of debt issuance costs

Gain on disposal of operating assets or impairment of operating assets

Amortization of debt issuance costs 129 99

Loss (gain) on disposal of operating assets or impairment of operating assets 174 ( 282 )

Gain on insurance proceeds received for damaged property ( 5,874 ) ( 7,253 )

Loss on extinguishment of debt

LIFO (benefit) expense

LIFO effect ( 10 ) ( 75 )

Share transactions under employee stock plan 390 515

3 unchanged sentences

Changes in operating assets and liabilities:

Receivables 251 4,506

Contract assets ( 1,648 ) ( 209 )

Inventories ( 4,653 ) 1,025

Refundable income taxes 38 ( 15 )

Prepaid expenses and other current assets ( 980 ) ( 3,069 )

Other assets 125 ( 50 )

Accounts payable ( 7,060 ) 2,046

6 unchanged sentences

Capital expenditures ( 9,026 ) ( 9,447 )

Net cash provided by (used for) investing activities

Net cash used for investing activities ( 1,198 ) ( 767 )

Cash flows from financing activities:

Proceeds from term note

Repayments of term note

Proceeds from long-term debt 6,628 1,505

Repayments of long-term debt ( 1,618 ) ( 1,424 )

Proceeds from revolving credit agreement 111,404 80,154

4 unchanged sentences

Share retirement — ( 62 )

Net cash used for financing activities

Decrease in cash and cash equivalents

Net cash provided by (used for) financing activities 822 ( 5,869 )

Increase (decrease) in cash and cash equivalents 73 ( 907 )

Cash and cash equivalents at beginning of year 341 1,252

2 unchanged sentences

See notes to consolidated financial statements.

Table of C ontents

SIFCO Industries, Inc.

7 unchanged sentences

Non-cash investing and financing activities:

Capital expenditures funded by capital lease borrowings

Additions to property, plant & equipment - incurred but not yet paid $ 915 $ 2,480

See notes to consolidated financial statements.

Table of C ontents

SIFCO Industries, Inc.

2 unchanged sentences

(Amounts in thousands )

Shares Additional

Capital Retained

Earnings Accumulated

Comprehensive

1 unchanged sentence

Balance - September 30, 2018 $ 5,690 $ 10,031 $ 37,097 $ ( 8,629 ) $ 44,189

Cumulative effect for the adoption of ASC 606 — — 3,598 — 3,598

Comprehensive loss — — ( 7,506 ) ( 4,680 ) ( 12,186 )

Shares retired ( 21 ) — ( 41 ) — ( 62 )

Performance and restricted share expense — 511 — — 511

1 unchanged sentence

Balance - September 30, 2019 5,777 10,438 33,148 ( 13,309 ) 36,054

Cumulative effect for the adoption of ASC 606

Comprehensive loss

Shares retired

Comprehensive income (loss) — — 9,191 ( 159 ) 9,032

Other — 47 — — 47

Performance and restricted share expense — 398 — — 398

2 unchanged sentences

See notes to consolidated financial statements.

Table of C ontents

SIFCO Industries, Inc.

7 unchanged sentences

The Company’s operations are conducted in a single business segment, "SIFCO" or the "Company."

Impact of COVID-19 Pandemic

In March 2020, a novel strain of coronavirus ("COVID-19") was recognized as a pandemic by the World Health Organization and the outbreak subsequently became increasingly widespread in the United States and other countries in which the Company operates.

The Company has taken proactive steps to ensure the safety of its employees and customers as well as to preserve the Company’s financial flexibility.

Immediate action was taken by the Company to minimize the spread of COVID-19 in its workplace and monitor the development of and responses to the COVID-19 pandemic and the impact it may have on the business.

We have been following the guidance from the U.S.

Centers for Disease Control to protect employees and prevent the spread at our plant locations.

The actions implemented include:

telework, alternate schedules, pre-shift temperature screenings, masks, social distancing, and enhanced cleaning protocols.

The impact of the COVID-19 outbreak on the Company continues to evolve and the full magnitude the pandemic will have on the Company's financial condition, liquidity and future results is uncertain.

Also uncertain is the timing, duration, shape and magnitude of recovery.

The resurgence of COVID-19 cases, and the continuation of restrictions, disruptions to travel, and businesses worldwide, may reduce customer demand and/or impair our ability to meet customer demands for products.

Reduced demand for products or impaired ability to meet customer demand (including as a result of disruptions at our facilities, in the transportation of products, and/or in the operations of our vendors) could have a material adverse effect on our business, operations and financial performance.

There continues to be significant uncertainty regarding the duration of the pandemic as well as the timing and scope of recovery in the commercial aerospace industry, with a return to pre-COVID-19 levels of activity not expected in commercial aerospace industry for several years.

The Company expects to continue to assess the potential implications of these conditions on its operations and take actions to preserve liquidity, including certain cost reduction measures taken subsequent to the end of fiscal year 2020, including a furlough of employees at one of its locations, starting in late November 2020 and continuing through the balance of the calendar year, in response to market conditions and its impact of the COVID-19 pandemic on customers’ ordering schedules.

PRINCIPLES OF CONSOLIDATION

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dollar is the functional currency for all the Company’s U.S.

operations and its Irish subsidiary.

operations and its non-operating subsidiaries.

For these operations, all gains and losses from completed currency transactions are included in income.

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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, 2018.

A substantial majority of the Company’s cash and cash equivalent bank balances are within federally insured limits as of September 30, 2020 and 2019.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

CONCENTRATIONS OF CREDIT RISK

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and 49 % of the Company's consolidated net sales were from the four largest customers and their direct subcontractors, which individually accounted for 16 %, 13 %, 10 % and 10 %, of consolidated net sales, respectively.

In fiscal 2018, 31% of the Company’s consolidated net sales were from two of its largest customers;

and 38% of the Company's consolidated net sales were from three of the largest customers and their direct subcontractors which individually accounted for 14% , 12% and 12% , of consolidated net sales, respectively.

In fiscal 2019, 44 % of the Company’s consolidated net sales were from three of its largest customers;

and 50 % of the Company's consolidated net sales were from four of the largest customers and their direct subcontractors which individually accounted for 14 %, 13 %, 12 % and 11 %, of consolidated net sales, respectively.

Other than what has been disclosed, no other single customer or group represented greater than 10% of total net sales in fiscal 2020 and 2019.

At September 30, 2020, two of the Company’s largest customers had outstanding net accounts receivable which individually accounted for 30 % of the total net accounts receivable;

and three of the largest customers and direct subcontractors had outstanding net accounts receivable which accounted for 15% , 14% , and 12% of total net accounts receivable, respectively.

At September 30, 2018, three of the Company’s largest customers had outstanding net accounts receivable which individually accounted for 10% of total net accounts receivable;

and five of the largest customers and direct subcontractors had outstanding net accounts receivable which accounted for 16% , 14% , 12% , 11% , and 11% of total net accounts receivable, respectively.

and three of the largest customers and their direct subcontractors had outstanding net accounts receivable which accounted for 13 %, 13 %, and 12 % of total net accounts receivable, respectively.

At September 30, 2019, two of the Company’s largest customers had outstanding net accounts receivable which individually accounted for 10 % of total net accounts receivable;

and three of the largest customers and their direct subcontractors had outstanding net accounts receivable which accounted for 15 %, 14 %, and 12 % of total net accounts receivable, 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, 2020.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

INVENTORY VALUATION

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and (iv) leasehold improvements - remaining life or length of the lease, whichever is less (included in buildings).

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

The Company's property, plant and equipment assets by major asset class at September 30 consist of:

Property, plant and equipment:

Land $ 1,000 $ 964

Buildings 15,564 15,805

Machinery and equipment 91,461 82,379

1 unchanged sentence

Accumulated depreciation

63,824 59,538

Property, plant and equipment, net $ 44,201 $ 39,610

5 unchanged sentences

Under the Accounting Standard Codification ("ASC") 360 ("Topic 360"), 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.

The Company continuously monitors triggers to determine if further testing is necessary.

In fiscal 2020, the Company evaluated triggers for asset impairment three times.

During two of the three assessments, it was determined that there were no triggering events requiring further review of its assets groups.

The fourth quarter assessment resulted in further evaluation.

Certain qualitative factors, such as the reduction on future forecasted sales due to the reduction of committed orders by certain customers triggered a recoverability test on its Orange, California ("Orange") location.

The result of management's analysis on the asset group's recoverability at year-end indicated that the long-lived assets, right-of-use assets and definite lived intangible assets were recoverable and did not require further review for impairment.

The Company experienced three triggering events in fiscal 2019 requiring the review of two asset groups to determine if the carrying value of each asset group is recoverable.

Certain qualitative factors were triggered at its Orange, California ("Orange") location.

Certain qualitative factors were triggered at its Orange location.

See Note 11, Commitments and Contingencies, of the consolidated financial statements, for further discussion on the evaluation of its long-lived assets as it relates to the Orange asset group.

1 unchanged sentence

The results of management's analysis on the asset group's recoverability at interim and at year-end, respectively, indicated that the long-lived assets and definite lived intangible assets were recoverable and did not require further review for impairment.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

ASSETS HELD FOR SALE

The assets held for sale at September 30, 2019 and 2018, were $0 and $35 , respectively.

The balance remaining at September 30, 2018 relates to the Alliance building and certain machinery and equipment, which the Company sold in the first quarter of fiscal 2019 for a gain on sale of asset within the consolidated statements of operations of $282 .

In October 2018, the Company executed a purchase agreement and finalized the sale transaction with a buyer for the Alliance building and land.

The Company received cash proceeds for both the building and machinery and equipment, less cost to sell, of approximately $317 , which is recorded as part of a gain on disposal and impairment of asset within the consolidated statements of operations.

GOODWILL AND INTANGIBLE ASSETS

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See Note 3, Goodwill and Intangibles , of the consolidated financial statements for further discussion of the July 31, 2020 and 2019 annual impairment test results and its interim goodwill test performed as of May 31, 2019 for one of its reporting units.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

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.

1 unchanged sentence

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, of the consolidated financial statements.

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 diluted earnings per share because the effect would be anti-dilutive.

NET INCOME (LOSS) PER SHARE

The Company’s net income and loss per basic share has been computed based on the weighted-average number of common shares outstanding.

Net income in the current period, per diluted share reflects the effect of the Company's outstanding restricted shares and performance shares under the treasury method.

In the prior period, due to the net loss for each reporting period, zero restricted shares are included in the calculation of diluted earnings per share because the effect would be anti-dilutive.

The dilutive effect is as follows:

September 30,

Weighted-average common shares outstanding (basic and diluted)

Net loss per share – basic and diluted:

Net loss per share

Net income (loss) $ 9,191 $ ( 7,506 )

Weighted-average common shares outstanding (basic) 5,661 5,566

Effect of dilutive securities:

Restricted shares 120 —

Performance shares 10 —

Weighted-average common shares outstanding (diluted) 5,791 5,566

Net income (loss) per share – basic:

$ 1.62 $ ( 1.35 )

Net income (loss) per share – diluted:

$ 1.59 $ ( 1.35 )

Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share 207 196

REVENUE RECOGNITION

SIFCO adopted Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers ("Topic 606" and the "revenue standard") using the modified retrospective method and applied those provisions to all open contracts on October 1, 2018.

The Company recognizes revenue in the following manner using the five-step revenue recognition model.

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 contracts are 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 revenue standard, the Company now recognizes

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

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 specialized or unique goods to the U.S.

government with no alternative use, 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 with no alternative use, 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 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 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.

The Company recognizes revenue using the five-step revenue recognition model in which it depicts the transfer of goods to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services.

The revenue standard also requires disclosure sufficient to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments and assets recognized from the cost to obtain or fulfill a contract.

Contract Balances

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Payment from customers are received based on the terms established in the contract with the customer.

The Company has implemented ASU 2016-02, "Leases (Topic 842)" and ASU 2018-11, "Leases (Topic 842) Targeted Improvements," (collectively with ASU 2016-02, "Topic 842"), which was adopted on October 1, 2019 using the cumulative-effect adjustment transition method.

Significant changes to the Company's accounting policies as a result of adopting Topic 842 are referenced in Note 1, Summary of Significant Accounting Policies - Impact of Recently Adopted Accounting Standards and in Note 10, Leases .

SIFCO Industries, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements - (Continued)

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.

IMPACT OF RECENTLY ADOPTED ACCOUNTING STANDARDS

On October 1, 2018, the Company adopted the revenue standard.

The 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.

For further discussion, see Note 6, Revenue, of the consolidated financial statements.

With the adoption by the Company of the 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 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 revenue standard was as follows:

Balance at September 30, 2018

Effect of Accounting Change

Balance at October 1, 2018

Contract asset

Inventory, net

Liabilities & Shareholders' Equity

Retained earnings

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 LIFO reserve in the amount of $508 and excess and obsolete reserve of $366 .

As noted in Note 2, Inventories, of the consolidated financial statements, 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 revenue standard.

The adoption of the revenue standard did not have an impact on "net cash provided by operating activities" on the consolidated statement of cash flows as of September 30, 2019.

Consolidated statement of operations for the year end September 30, 2019:

Previous Accounting Method

Effect of Accounting Change

Cost of Goods Sold

Basic and diluted net loss per share

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

Consolidated balance sheet as of September 30, 2019:

Previous Accounting Method

Effect of Accounting Change

Contract asset

Inventory, net

Liabilities & Shareholders' Equity

Contract liabilities (included within accrued liabilities)

Deferred income taxes

Retained earnings

In March 2017, the Financial Accounting Standards Board ("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 was adopted by the Company on October 1, 2018.

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 in Note 8, Retirement Benefit Plans, of the consolidated financial statements.

Results showed expense for 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 statement of operations.

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 statements of cash flows for the periods presented.

The Company adopted Topic 842 as of October 1, 2019, using the cumulative effective method.

Under the transition method selected by the Company, leases that are not short-term in nature existing at, or entered on October 1, 2019 were required to be recognized and measured.

Prior period amounts were not adjusted and continue to be reflected with the Company's historical accounting.

The adoption of Topic 842 resulted in the Company recording right-of-use ("ROU") assets and operating lease liabilities of approximately $ 18,059 to the consolidated balance sheet as of October 1, 2019, with no related impact on the Company's consolidated statement of comprehensive income (loss) or consolidated statement of cash flows.

IMPACT OF NEWLY ISSUED ACCOUNTING STANDARDS

In February 2016, the FASB issued ASU 2016-02, “ Leases (Topic 842).

” In July 2018, the FASB issued ASU 2018-11, "Leases (Topic 842) Targeted Improvements," (collectively with ASU 2016-02, "Topic 842"), which amends ASU 2016-02 and provides new and (optional) transition method permitting the recognition of a cumulative effect adjustment to retained earnings on the date of adoption, rather than requiring retrospective restatement of prior periods.

Topic 842's objective is to increase transparency and comparability among entities by recognizing lease right-of-use assets ("ROU") and lease liabilities except for short-term leases on the consolidated balance sheet and provide additional disclosure information about leasing arrangements.

Topic 842 modifies the definition of a lease to clarify that an arrangement contains a lease when such arrangement conveys the right to control the use of an identified asset.

This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within the year of adoption.

The Company adopted this new guidance on October 1, 2019 and has elected to apply a modified retrospective transition approach as permitted, which includes a number of optional practical expedients that can be applied.

This approach applies to all leases that exist at or commence after the date of our initial application.

The Company will not adjust comparative periods or make the new required lease disclosure prior to the effective date.

SIFCO will elect the package of practical expedients permitted under the transition guidance within the new standard, which among other things, permits companies not to reassess prior conclusions about lease identification, lease classification and initial direct costs.

SIFCO did not elect the hindsight practical expedient.

The Company is in process of finalizing the design and implementation of internal controls, policies and processes to comply w ith the new standard .

The adoption of Topic 842 will result in the recognition of ROU assets and lease liabilities of approximately $16,106 to $20,218 based on the lease portfolio as of October 1, 2019.

The lease liability and the corresponding ROU asset primarily relate to one of its leased manufacturing buildings at its Orange location.

The prospective impact on the consolidated statements of comprehensive loss under the new standard is substantially the same compared to the current lease accounting model and the impact to retained earnings will be minimal.

The accounting for capital leases related to equipment, which are referred to as financing leases under the new standard, is substantially unchanged under the new standard and is not expected to have a material impact on our liquidity or consolidated statements of cash flows.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326):

8 unchanged sentences

ASU 2016-13 is effective for public companies in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

Subsequent to September 30, 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 small 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.

Since SIFCO is a SRC, the Company does not need to implement until October 1, 2023.

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 statements of operations and financial condition.

In December 2019, 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 continues to evaluate the effect adopting this ASU will have on the Company's results within the consolidated statements of operations and financial condition.

USE OF ESTIMATES

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Amortization of debt issuance costs is included in interest expense in the consolidated statements of operations.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

ACCUMULATED OTHER COMPREHENSIVE LOSS

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Foreign currency translation adjustment, net of income tax benefit of $ 0 and $ 0 , respectively

$ ( 5,257 ) $ ( 5,667 )

Net retirement plan liability adjustment, net of income tax benefit of $( 3,758 ) and $( 3,758 ), respectively

( 8,211 ) ( 7,642 )

Total accumulated other comprehensive loss $ ( 13,468 ) $ ( 13,309 )

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

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, 2017

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive income (loss)

Net current-period other comprehensive loss

Foreign Currency Translation Adjustment Retirement Plan Liability Adjustment Accumulated Other Comprehensive Loss

Balance at September 30, 2018 $ ( 4,955 ) $ ( 3,674 ) $ ( 8,629 )

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Balance at September 30, 2019 ( 5,667 ) ( 7,642 ) ( 13,309 )

Other comprehensive income (loss) before reclassifications 410 ( 1,560 ) ( 1,150 )

Amounts reclassified from accumulated other comprehensive income — 991 991

Net current-period other comprehensive income (loss) 410 ( 569 ) ( 159 )

Balance at September 30, 2020 $ ( 5,257 ) $ ( 8,211 ) $ ( 13,468 )

The following table reflects the changes in accumulated other comprehensive loss related to the Company for September 30, 2020 and 2019:

Amount reclassified from accumulated other comprehensive loss

Details about accumulated other comprehensive loss components

Affected line item in the Consolidated Statement of Operations

Details about accumulated other comprehensive loss components 2020 2019 Affected line item in the Consolidated Statement of Operations

Amortization of Retirement plan liability:

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Net actuarial gain (loss)

( 808 ) ( 4,214 ) (1)

Settlements/curtailments

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— — Income tax expense

(1) These accumulated other comprehensive income components are included in the computation of net periodic benefit cost.

$ ( 569 ) $ ( 3,968 ) Net of taxes

(1) These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost.

See Note 8, Retirement Benefit Plans , of the consolidated financial statements for further information.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

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’s Irish and Italian subsidiaries also file tax returns in their 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.

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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

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

The Company's policy for interest and/or penalties related to underpayments of income taxes is to include interest and penalties in tax expenses.

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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.

The Tax Cut and Jobs Act (the "Act") includes provisions for Global Intangible Low-Taxed Income (“GILTI”) wherein minimum taxes are imposed on foreign income in excess of a deemed return on the tangible assets of foreign corporations.

This income will effectively be taxed at a 10.5% tax rate.

GILTI was effective for the Company starting in fiscal 2019.

The Company has elected to account for GILTI as a component of tax expense in the period in which the Company is subject to the rules.

FAIR VALUE MEASUREMENTS

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Goodwill and intangible assets are valued using Level 3 inputs.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

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 Company's 2007 Plan Long-Term Incentive Plan (Amended and Restated as of November 16, 2016) ("2016 Plan").

The Company recognizes share-based expense within selling, general, and administrative expense.

GOING CONCERN

In accordance with ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40) (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued.

This evaluation requires management to perform two steps.

First, management must evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern.

Second, if management concludes that substantial doubt is raised, management is required to consider whether it has plans in place to alleviate that doubt.

As required by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued.

Disclosures in the notes to the consolidated financial statements are required if management concludes that substantial doubt exists or that its plans alleviate the substantial doubt that was raised.

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

See Note 5, Debt, for further discussion regarding the Company's Credit Agreement, which matures in fewer than 12 months and management's plan related to going concern.

Inventories at September 30 consist of:

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If the FIFO method had been used for the entire Company, inventories would have been $ 8,286 and $ 8,296 higher than reported at September 30, 2020 and 2019, respectively.

LIFO benefit was $75 in fiscal 2019 and LIFO expense was $560 in 2018.

Since adopting the revenue standard, results show a reduction of inventory resulting in liquidations of LIFO inventory quantities.

The estimated liquidation of LIFO inventory quantities results in a projected increase in cost of goods sold of approximately $340

LIFO benefit was $ 10 and $ 75 in fiscal 2020 and 2019, respectively.

There was no LIFO liquidation in fiscal 2020.

In fiscal 2019, results showed a reduction of inventory resulting in liquidations of LIFO inventory quantities.

The estimated liquidation of LIFO inventory quantities results in a projected increase in cost of goods sold of approximately $ 340 during fiscal 2019.

These inventories were carried in prior periods at the then prevailing costs, which were accurate at the time, but differ from the current manufacturing cost and/or material costs.

SIFCO Industries, Inc.

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Notes to Consolidated Financial Statements - (Continued)

as of September 30, 2019.

These inventories were carried in prior periods at the then prevailing costs, which were accurate at the time, but differ from the current manufacturing cost and/or material costs.

Goodwill and Intangible Assets

The Company’s intangible assets by major asset class subject to amortization as of:

September 30, 2019

Weighted Average Life at September 30,

Currency Translation

September 30, 2020 Weighted Average Life at September 30, Original

Cost Accumulated

Amortization Impairment Currency Translation Net Book

Intangible assets:

Technology asset

Customer relationships

Trade name 8 years

$ 1,876 $ 1,729 $ — $ ( 12 ) $ 135

Technology asset 5 years

1,869 1,843 — ( 24 ) 2

Customer relationships 10 years

13,589 11,833 — ( 3 ) 1,753

Total intangible assets $ 17,334 $ 15,405 $ — $ ( 39 ) $ 1,890

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Intangible assets:

Technology asset

Customer relationships

Trade name 8 years $ 1,876 $ 1,503 $ — $ ( 13 ) $ 360

Technology asset 5 years

1,869 1,544 — ( 28 ) 297

Customer relationships 10 years

13,589 10,859 — ( 67 ) 2,663

Total intangible assets $ 17,334 $ 13,906 $ — $ ( 108 ) $ 3,320

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The Company tests its goodwill for impairment in the fourth fiscal quarter, and in interim periods if certain events occur indicating that the carrying amount of goodwill may be impaired.

During the third quarter of fiscal 2019, management reviewed qualitative factors under ASC 350 ("Topic 350"), which triggered an interim goodwill assessment as of May 31, 2019 for its Maniago reporting unit.

Certain qualitative factors related to the soft energy market resulting in lower sales and continued under-performance relative to projected future operating results were factors that led the Company to perform an interim assessment of goodwill.

The Company's fair value measurement approach combines the income (discounted cash flow method) and market valuation (market comparable method) techniques for each of the Company’s reporting units that carry goodwill.

The Company uses a fair value measurement approach which combines the income (discounted cash flow method) and market valuation (market comparable method) techniques for each of the Company’s reporting units that carry goodwill.

These valuation techniques use estimates and assumptions including, but not limited to, the determination of appropriate market comparable, projected future cash flows (including timing and profitability), discount rate reflecting the risk inherent in future cash flows, perpetual growth rate, and projected future economic and market conditions (Level 3 inputs).

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The methodology for determining fair values was consistent for the periods presented.

2020 Annual Goodwill Impairment Tests

SIFCO performed its annual impairment test as of July 31, 2020 for the Cleveland, Ohio ("Cleveland") reporting unit, it was determined that the fair value of the reporting unit exceeds the carrying value.

No impairment charge as of September 30, 2020.

SIFCO Industries, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements - (Continued)

Upon completion of the interim impairment test for the Maniago reporting unit, it was determined that the fair value of the reporting unit for Maniago did not exceed the carrying value, which resulted in a full write-down of the reporting unit's goodwill in the third quarter of fiscal 2019 in the amount of $8,294 (non-cash charge).

The Company completed its annual impairment test of goodwill as of July 31, 2019 for the Cleveland reporting unit, and for both the Cleveland and Maniago reporting units as of July 31, 2018.

2019 Annual Goodwill Impairment Tests

Certain qualitative factors, such as lower sales due to the soft energy market and continued under-performance relative to projected future operating results were factors that led the Company to perform an interim assessment of goodwill.

Upon completion of the interim impairment test performed in fiscal 2019 for the Maniago reporting unit, it was determined that the fair value of the reporting unit for Maniago did not exceed the carrying value, which resulted in a full write-down of the reporting unit's goodwill in the third quarter of fiscal 2019 in the amount of $ 8,294 (non-cash charge).

Upon completion of the annual impairment testing for the Cleveland reporting unit, it was determined that the fair value of the reporting unit exceeds the carrying value.

As such, no additional impairment of goodwill existed as of September 30, 2019 and no impairment existed for the Cleveland and Maniago reporting units as of September 30, 2018, respectively.

As such, no additional impairment of goodwill existed as of September 30, 2019.

Goodwill is expected to be deductible for tax purposes.

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Balance at September 30, 2018 $ 12,020

Goodwill impairment adjustment ( 8,294 )

Currency translation ( 233 )

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Accrued employee compensation and benefits $ 5,476 $ 4,238

Accrued workers’ compensation 546 181

Contract liabilities 636 382

Other accrued liabilities 1,632 756

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Capital lease obligations 80 138

unamortized debt issuance cost

Other loan less unamortized debt issuance cost

Other, net of unamortized debt issuance cost $( 20 ) and $( 25 )

Total debt 24,620 23,380

Less – current maturities ( 20,014 ) ( 21,328 )

Total long-term debt $ 4,606 $ 2,052

Credit Agreement and Security Agreement of 2018

On August 8, 2018, the Company entered into a new asset-based Credit Agreement ("Credit Agreement") and a Security Agreement (“Security Agreement”) with a new lender.

The Credit Agreement matures on August 6, 2021 and is comprised of a senior secured revolving credit facility of a maximum borrowing of $30,000 .

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 existing lender or upon additional lenders joining the Credit Agreement.

The terms of the Credit Agreement contain both a lock box arrangement and subjective acceleration clause.

As a result, the amount outstanding on the revolving credit facility is classified as a short-term liability and the availability at September 30, 2019 and 2018 was $7,709 and $8,437 , respectively.

The proceeds from the Credit Agreement were used to repay

SIFCO Industries, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements - (Continued)

the indebtedness and extinguishment of the Company's November 9, 2016 Amended and Restated Credit and Security Agreement, for working capital purposes, for general corporate purposes and to pay fees and expenses incurred in connection with entering into the Credit Agreement.

Credit Agreement and Security Agreement of 2018

On August 8, 2018, the Company entered into an asset-based Credit Agreement ("Credit Agreement") and a Security Agreement (“Security Agreement”) with its current lender.

The Credit Agreement matures on August 6, 2021 and is comprised of a senior secured revolving credit facility with a maximum borrowing of $ 30,000 .

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 existing lender or upon additional lenders joining the Credit Agreement.

The terms of the Credit Agreement contain both a lock box arrangement and subjective acceleration clause.

As a result, the amount outstanding on the revolving credit facility is classified as a short-term liability.

The proceeds from the Credit Agreement were used to pay fees and expenses incurred in connection with entering into the Credit Agreement and continue to be used for working capital purposes and general corporate purposes.

The Credit Agreement contains affirmative and negative covenants and events of defaults.

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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.

See discussion below regarding the First Amendment (the "First Amendment") to the Credit Agreement and Security Agreement discussion, which revises the provision related to FCCR.

See discussion below regarding the Fourth Amendment (the "Fourth Amendment") to the Credit Agreement and Security Agreement discussion, which revises the provision related to FCCR.

On November 5, 2018, the Company entered into the First Amendment with its lender.

The First Amendment retroactively amended certain definitions and provisions effective as of the original closing date to clarify the parties' original understanding regarding, among other things:

(i) the permitted liens securing certain indebtedness of the Company to the City of Cleveland (noted as Other debt within the above debt table), (ii) the time frames for which certain post-closing requirements would be satisfied, and (iii) the conditions under which the Company will be required to meet the minimum FCCR, which is as follows:

the borrowers will not permit the FCCR to be less than:

(a) 1.1 to 1.0 as of August 31, 2018 or as of September 30, 2018;

or (b) 1.1 to 1.0 at any month end on or after October 31, 2018;

provided that the FCCR will not be tested under this clause (b) unless (i) a Default has occurred and is continuing or (ii) availability was less than or equal to 12.5% of the Revolving Commitment for three or more business days in any consecutive 30 day period (with the FCCR calculated as of the end of the month for which the lender has most recently received financial statements).

The First Amendment retroactively amended certain definitions and provisions effective as of the original closing date to clarify the parties' original understanding.

On December 17, 2018, the Company entered into an Export Credit Agreement (the “Export Credit Agreement”) with its Lender.

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As previously stated, the Company is subject to certain customary loan covenants if availability is less than or equal to 12.5 % of the revolving commitment for three or more business days in any consecutive 30 day period;

however, the Fourth Amendment to the Credit Agreement resulted in the reduction of its availability from 12.5% of the revolving commitment to the 10% of the lessor of collateral or total revolving commitment, with a $2,000 floor through June 30, 2020.

In determining the availability, the lender looks at the total collateral.

If the total collateral is less than $ 20,000 , then the $2,000 floor will apply;

however, if the total collateral is greater than or equal to $20,000 , but less than the $35,000 (revolving commitment);

then 10% of the total collateral is used, but if the collateral exceeds $35,000 , then 10% of the total commitment is used as lending will not exceed the $35,000 revolving commitment unless the accordion feature is enacted.

This will reset back to previous requirements prior to the Fourth Amendment, commencing July 1, 2020.

As of September 30, 2019, the total collateral was $24,000 and the revolving commitment was $35,000 .

The measurement at 10% were $2,400 and $3,500 , respectively.

Total availability at September 30, 2019 was $7,709 , which exceed both the collateral and total commitment threshold.

however, the Fourth Amendment to the Credit Agreement resulted in the reduction of its availability from 12.5 % of the revolving commitment to 10 % of the lesser of the collateral or total revolving commitment, with a $ 2,000 floor through June 30, 2020.

This previous requirement prior to the Fourth Amendment reset on July 1, 2020.

As of September 30, 2020 and 2019, the total collateral was $ 26,964 and $ 24,000 , respectively, and the revolving commitment was $ 35,000 for both periods.

Total availability at September 30, 2020 and 2019 was $ 13,284 and $ 7,709 , respectively, which exceed both the collateral and total commitment threshold.

If availability had fallen short, the Company would be required to meet the FCCR covenant, which must not be less than 1.1 to 1.0.

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Borrowings will bear interest at the lender's established domestic rate or LIBOR, plus the applicable margin as set forth in the Credit Agreement.

The revolver has a rate based on LIBOR plus a 1.50% spread, which was 3.60% and 3.85% at September 30, 2019 and 2018, respectively and the Export Credit Agreement

The revolver has a rate based on LIBOR plus a 1.50 % spread, which was 1.7 % and 3.6 % at September 30, 2020 and 2019, respectively.

The Export Credit Agreement has a rate based on LIBOR plus a 1.00 % spread at September 30, 2020 and 1.25 % spread at September 30, 2019, which was 1.2 % and 3.4 % at September 30, 2020 and 2019, respectively.

The Company also has a commitment fee of 0.25 % under the Credit Agreement to be incurred on the unused balance of the revolver.

SIFCO Industries, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements - (Continued)

has a rate based on LIBOR plus a 1.25% spread, which was 3.4% at September 30, 2019.

The Company also has a commitment fee of 0.25% under the Credit Agreement to be incurred on the unused balance of the revolver.

The Company incurred a $496 loss on extinguishment of debt that is included within the interest expense line in the consolidated statement of operations as a result of the refinancing in fiscal 2018.

The loss primarily consisted of unamortized financing costs and costs incurred from the previous lender during the refinancing.

The Company's Credit Agreement is set to mature within the next twelve months.

Absent being able to refinance, the reporting entity would not be able to meet its obligations within the next year.

Although there is no assurance that management will be successful in completing such refinancing or that such refinancing will be on terms similar to the current Credit Agreement or otherwise satisfactory to management, management intends to refinance its Credit Agreement with its Lender and is deemed probable of being implemented which would mitigate any adverse conditions.

Foreign subsidiary borrowings

Foreign debt at September 30 consists of:

Term loan $ 2,670 $ 2,318

Short-term borrowings 2,620 3,744

Factor 469 530

Total debt $ 5,759 $ 6,592

Less – current maturities ( 3,544 ) ( 5,501 )

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In December 2018, Maniago entered into a six month short-term debt arrangement with one of its lenders in the amount of $ 1,137 , to be used for working capital purposes, which has been repaid as of the end of the fiscal year 2019.

In September, Maniago was able to modify its repayment schedule for one tranche of its existing term debt by reducing its next two payments by approximately $96 and extending the loan for an additional six months in which the final payment will be made at that time (to be paid by October 2020).

The Company is currently in negotiations with its lenders and other potential partners to refinance certain debt obligations at its Maniago location to provide Maniago with sufficient future liquidity.

If Maniago is unsuccessful in obtaining additional financing, it may experience certain challenges in meeting certain obligations.

This foreign debt is collateralized by Maniago’s assets.

The Company has not pledged any assets as collateral or guaranteed Maniago’s debt.

The consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of the Maniago assets or the amounts and classifications of the Maniago liabilities that may result from the outcome of this uncertainty.

Management believes that the actions presently being taken to obtain additional funding and implement its strategic plan will provide adequate liquidity to finance its Maniago operations.

In September 2020, Maniago entered into a long-term term debt agreement in the amount of $ 1,465 , which was used to repay existing debt and for working capital purposes.

The long-term loan repayment schedule is over a 72 month period and has a rate based on EURIBOR plus 3.20 % spread, which was 2.7 % at September 30, 2020.

To assist with the preservation of liquidity and uncertainty of COVID-19, subsequent to September 30, 2020, Maniago finalized with certain lenders a deferment of payments ranging between 6 to 12 months which has been reflected within the future minimum payment schedule.

The Company factors receivables from one of its customers.

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The Company accounts for the pledge of receivables under this agreement as short-term debt and continues to carry the receivables on its consolidated balance sheets.

Payments on long-term debt under the foreign term debt and other debt (excluding finance lease obligations, see Note 10, Leases , of the consolidated financial statements) over the next 5 years are as follows:

Minimum long-term debt payments

thereafter 266

Total Minimum long-term debt payments $ 8,601

SIFCO Industries, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements - (Continued)

Payments on long-term debt under the foreign term debt and other debt (excluding capital lease obligations, see Note 10, Commitments and Contingencies , of the consolidated financial statements) over the next 5 years are as follows:

Minimum long-term debt payments

Total Minimum long-term debt payments

Debt issuance costs

The Company incurred debt issuance costs as it pertains to the Credit Agreement in the amount of $ 212 , and incurred additional costs in fiscal 2019 of $ 75 related to the First and Second Amendments, which are included in the consolidated balance sheet as a deferred charge in other current assets, net of amortization of $ 205 and $ 106 at September 30, 2020 and 2019, respectively.

In response to the economic uncertainty created by the COVID-19 pandemic, as described above in Note 1, Summary of Significant Accounting Policies , and taking into consideration the Company’s market capitalization, status as a smaller reporting company, and uncertainties and volatility in, and disruptions to, the capital markets, as well as the terms of the Company’s Credit Agreement, the Company applied for and received funds under Paycheck Protection Program (or "PPP") of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").

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 and 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 relating to, among other things, payment defaults, breach of representations and warranties, or provisions of the promissory note.

The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing 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, interest on mortgage obligations, rents on leases and utility payments.

The Company repaid $ 261 of proceeds back to its lender, leaving a remaining balance of $ 4,764 , of which $ 3,176 will be paid in the next twelve months and the remaining $ 1,588 in the following twelve months after, pending any forgiveness of such loan, as described below.

Under the terms of the CARES Act, PPP Loan recipients can apply for and potentially be granted forgiveness for all or a portion of loans granted under the PPP.

Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payroll costs and mortgage interest, rent or utility costs and the maintenance of employee and compensation levels.

Although the Company intends to file for forgiveness, no assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.

As of September 30, 2020, the Company is waiting for further guidance regarding how to apply for the forgiveness for all or a portion of the PPP loan.

The Company produces forged components for (i) turbine engines that power commercial, business and regional aircraft as well as military aircraft and armored military vehicles;

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and (iv) other commercial applications.

The following table represents a breakout of total revenue by customer type for the twelve months ended September 30, 2019 and 2018, respectively.

The following table represents a breakout of total revenue by customer type:.

September 30,

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Military revenue 65,238 57,455

¹ Prior period amounts have not been adjusted under the modified retrospective adoption method.

The following table represents revenue by the various components for the twelve months ended September 30, 2019 and 2018, respectively.

Total $ 113,573 $ 112,454

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

The following table represents revenue by the various components:

September 30,

Net Sales 2020 2019

Aerospace components for:

Fixed wing aircraft $ 52,039 $ 52,895

Rotorcraft 31,454 23,602

Energy components for power generation units 16,682 17,646

Commercial product and other revenue 13,398 18,311

¹ Prior period amounts have not been adjusted under the modified retrospective adoption method.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

The following table represents revenue by geographic region based on the Company's selling operation locations for the twelve months ended September 30 , 2019 and 2018, respectively:

Total $ 113,573 $ 112,454

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

September 30,

Net Sales 2020 2019

North America $ 98,144 $ 95,667

¹ Prior period amounts have not been adjusted under the modified retrospective adoption method.

In addition to the disaggregating revenue information provided above, approximately 56% of total net sales as of September 30, 2019 is recognized on an over-time basis because of the continuous transfer of control to the customer, with the remainder recognized as a point in time.

Europe 15,429 16,787

Total $ 113,573 $ 112,454

In addition to the disaggregating revenue information provided above, approximately 59 % and 56 % of total net sales as of September 30, 2020 and 2019, respectively, was recognized on an over-time basis because of the continuous transfer of control to the customer, with the remainder recognized as a point in time.

Contract Balances

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For performance obligations recognized at a point in time, a contract asset is not established as the billing and revenue recognition occur at the same time.

For performance obligations recognized over time, a contract asset is established as revenue is recognized prior to billing and shipment.

For performance obligations recognized over time, a contract asset is established as revenue that is recognized prior to billing and shipment.

Upon shipment and billing, the value of the contract asset is reversed and accounts receivable is recorded.

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If the satisfaction of the performance obligation is point in time, the contract liability reverses upon shipment.

The following table contains a roll forward of contract assets and contract liabilities for the period ended September 30, 2019:

The following table contains a roll forward of contract assets and contract liabilities for the period ended September 30, 2020 and 2019:

Contract assets - Beginning balance, October 1, 2018 $ 10,140

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Contract assets - Ending balance, September 30, 2019 $ 10,349

Additional revenue recognized over-time 67,043

Less amounts billed to the customers ( 65,395 )

Contract assets - Ending balance, September 30, 2020 $ 11,997

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

Contract liabilities (included within Accrued liabilities) - Beginning balance, October 1, 2018 $ —

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Contract liabilities (included within Accrued liabilities) - Ending balance, September 30, 2019 $ ( 382 )

There were no impairment losses recorded on contract assets during the year ended September 30, 2019.

Payments received in advance of performance obligations ( 865 )

Performance obligations satisfied 611

Contract liabilities (included within Accrued liabilities) - Ending balance, September 30, 2020 $ ( 636 )

There were no impairment losses recorded on contract assets during the year ended September 30, 2020 and 2019, respectively.

Remaining performance obligations

As of September 30, 2019, the Company has $117,600 of remaining performance obligations, the majority of which are anticipated to be completed within the next twelve months.

The components of loss before income tax benefit are as follows:

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

Years Ended September 30,

Loss before income tax benefit

As of September 30, 2020 and 2019, the Company has $ 91,135 and $ 117,600 , respectively, of remaining performance obligations, the majority of which are anticipated to be completed within the next twelve months.

The components of income (loss) before income tax benefit are as follows:

September 30,

$ 10,071 $ 3,416

( 1,091 ) ( 11,623 )

Income (loss) before income tax benefit $ 8,980 $ ( 8,207 )

Income tax benefit consist of the following:

Years Ended September 30,

September 30,

Current income tax provision (benefit):

federal $ — $ —

state and local 19 ( 27 )

2 unchanged sentences

state and local 1 2

( 433 ) ( 575 )

Total deferred tax provision (benefit) ( 422 ) ( 565 )

Income tax benefit $ ( 211 ) $ ( 701 )

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

The income tax benefit in the accompanying consolidated statements of operations differs from amounts determined by using the statutory rate as follows:

Years Ended September 30,

Loss before income tax benefit

Income tax benefit at U.S.

September 30,

Income (loss) before income tax benefit $ 8,980 $ ( 8,207 )

Income tax provision (benefit) at U.S.

federal statutory rates $ 1,886 $ ( 1,723 )

2 unchanged sentences

State and local income taxes 20 14

Impact of tax law changes

Federal tax credits ( 135 ) ( 144 )

Valuation allowance ( 2,025 ) ( 556 )

Prior year tax adjustments

Income tax benefit $ ( 211 ) $ ( 701 )

On December 22, 2017, the Tax Cut and Jobs Act (the "Act") was enacted that, among other items, reduced the U.S.

corporate tax rate effective January 1, 2018 from 35% to 21%, imposed a one-time transition tax on accumulated foreign earnings not previously subject to U.S.

taxation, provides a U.S.

federal tax exemption on future distributions of foreign earnings, and beginning in fiscal 2019, creates a new minimum tax on certain foreign-sourced earnings.

corporate tax rate reduction resulted in a blended tax rate of 24.5% for fiscal 2018 (based on 35% corporate rate through December 31, 2017 and 21% from that date through the end of fiscal 2018).

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

In response to the Act, the Securities and Exchange Commission (the "SEC") issued Staff Accounting Bulletin 118 ("SAB 118").

SAB 118 expresses views of the SEC regarding ASC Topic 740, Income Taxes ("Topic 740") in the reporting period that includes the enactment date of the Act.

The SEC staff, in issuing SAB 118 recognized that a company’s review of certain income tax effects of the Act may be incomplete at the time the financial statements are issued for the reporting period that includes the enactment date, including interim periods therein.

If a company does not have the necessary information available, prepared or analyzed for certain income tax effects of the Act, SAB 118 allows a company to report provisional numbers and adjust those amounts during the measurement period not to extend beyond one year from the day of enactment.

As required, during the first quarter of fiscal 2019, the Company completed its accounting for items previously considered provisional during fiscal 2018.

At September 30, 2018, the Company's provisional estimate with respect to the one-time transition tax was $240 , net of applicable foreign tax credits generated.

As a result of the valuation allowance in the U.S.

on tax attribute carry forwards, no charge to tax expense was recorded related to the one-time transition tax.

The Company continues to interpret the law and additional guidance related to the Act during the measurement period and no measurement period adjustment was made during the first quarter of fiscal 2019, upon finalization of the one-time transition tax.

All other items of the Act were considered complete at September 30, 2018.

The Act also includes provisions for Global Intangible Low-Taxed Income (“GILTI”) wherein minimum taxes are imposed on foreign income in excess of a deemed return on the tangible assets of foreign corporations.

This income will effectively be taxed at a 10.5% tax rate.

GILTI was effective for the Company starting in fiscal 2019.

The Company has elected to account for GILTI as a component of tax expense in the period in which the Company is subject to the rules.

As described above, on March 27, 2020, the CARES Act was enacted and signed into law, which includes 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 CARES Act did not materially affect the Company’s fiscal 2020 income tax provision, deferred tax assets and liabilities, or related taxes payable.

The Company continues to assess the future implications of these provisions within the CARES Act on its consolidated financial statements but does not expect the impact to be material.

Deferred tax assets and liabilities at September 30 consist of the following:

5 unchanged sentences

Allowance for doubtful accounts 73 144

Intangibles 2,197 2,535

Foreign tax credits 1,724 1,724

Other tax credits 1,359 1,232

Other 1,171 918

Total deferred tax assets 14,593 15,847

Deferred tax liabilities:

Depreciation ( 8,653 ) ( 8,135 )

Prepaid expenses ( 376 ) ( 192 )

Other ( 1,635 ) ( 1,681 )

Total deferred tax liabilities $ ( 10,664 ) $ ( 10,008 )

2 unchanged sentences

Net deferred tax liabilities ( 1,400 ) ( 1,718 )

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

At September 30, 2020, the Company has a non-U.S.

tax loss carryforward of approximately $6,618 related to the Company’s Irish and Italian subsidiaries.

The Company's Irish subsidiary ceased operations in 2007 and therefore, a valuation allowance has been recorded against the deferred tax asset related to the Irish tax loss carryforward because it is unlikely that such operating loss can be utilized unless the Irish subsidiary resumes operations.

tax loss carryforward of approximately $ 6,141 related to the Company’s non-operating and Italian subsidiaries.

The Company's non-operating subsidiary ceased operations in 2007 and therefore, a valuation allowance has been recorded against the deferred tax asset related to the Irish tax loss carryforward because it is unlikely that such operating loss can be utilized unless the Irish subsidiary resumes operations.

Additionally, a valuation allowance has been recorded in fiscal 2020 against a portion of the deferred tax asset related to the Italian tax loss carryforward that was not considered realizable.

The Irish and Italian tax loss carryforwards do not expire.

The non-operating and Italian tax loss carryforwards do not expire.

The Company has $ 1,724 of foreign tax credit carryforwards that are subject to expiration in fiscal 2023-2028, $ 1,182 of U.S.

general business tax credits that are subject to expiration in 2035-2040, and $ 12,943 of U.S.

Federal tax loss carryforwards with

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

$12,625 subject to expiration in fiscal 2036-2037 and $6,733 that do not expire.

Federal tax loss carryforwards with $ 9,622 subject to expiration in fiscal 2037 and $ 3,321 that do not expire.

A valuation allowance has been recorded against the deferred tax assets related to the foreign tax credit carryforwards, U.S.

6 unchanged sentences

state and local tax loss carryforwards have been fully offset by a valuation allowance.

The Company reported liabilities for uncertain tax positions, excluding any related interest and penalties, of $22 and $53 in fiscal 2019 and 2018.

As of fiscal 2020, the valuation allowance on the Company’s U.S.

net deferred tax assets is $ 5,329 .

Each reporting period, the Company assesses available positive and negative evidence and estimate in determining the realizability of its deferred tax assets.

Through fiscal 2019, the Company’s history of U.S.

operating losses has resulted in significant negative evidence requiring a full valuation allowance to be recorded against the U.S.

net deferred tax assets.

Recent positive evidence includes profitable fiscal 2020 U.S.

results, however, there continues to be uncertainty as a result of the ongoing COVID-19 pandemic.

Accordingly, the Company has maintained a full valuation allowance on its U.S.

net deferred tax assets in fiscal 2020.

However, 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.

The Company reported liabilities for uncertain tax positions, excluding any related interest and penalties, of $ 22 for both fiscal 2020 and 2019.

If recognized, $ 22 of the fiscal 2020 uncertain tax positions would impact the effective tax rate.

17 unchanged sentences

subsidiaries may be subject to nominal withholding taxes.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

Retirement Benefit Plans

Defined Benefit Plans

The Company and certain of its subsidiaries sponsor defined benefit pension plans covering most of its employees.

The Company and certain of its subsidiaries sponsor four defined benefit pension plans covering some of its employees.

The Company’s funding policy for its defined benefit pension plans is based on an actuarially determined cost method allowable under Internal Revenue Service regulations.

One of the defined benefit pension plans covers substantially all non-union employees of the Company’s U.S.

operations who were hired prior to March 1, 2003, and this plan was frozen in 2003, while another plan that covered union employees no longer has active participants due to the business closure.

Consequently, although both plans continue, the non-union plan ceased the accrual of additional pension benefits for service subsequent to March 1, 2003, and the related union plan has had no participants accrue additional benefits subsequent to December 31, 2013.

The Company sponsors another defined benefit plan for certain of its employees.

One of the defined benefit pension plans covers non-union employees of the Company’s U.S.

operations who were hired prior to March 1, 2003.

Benefit accruals ceased in March 2003.

A second defined benefit plan covered employees at a business location that closed in December 2013, at which time benefits accruals ceased.

The third defined pension plan covers one of the Company's union groups at the Cleveland location.

See Notes 11 and 12, Commitment and Contingencies and Business information, for further discussion regarding its union status.

Benefits accruals under this plan ceased in March 2020, when the then-current union disclaimed all interest in the bargaining unit.

Curtailment occurred;

however, there was no impact to consolidated financial statements.

A new union has been certified and collective bargaining is underway.

Such bargaining will determine whether benefit accruals under this plan will resume or whether retirement benefits will be provided through a defined contribution plan.

The Company sponsors a fourth defined benefit plan for certain employees at its Maniago location.

The plan is a severance entitlement payable to the Italian employees who qualified prior to December 27, 2006.

3 unchanged sentences

Net pension expense, benefit obligations and plan assets for the Company-sponsored defined benefit pension plans consists of the following:

Years Ended September 30,

September 30,

Service cost $ 341 $ 299

Interest cost 832 1,055

3 unchanged sentences

Net pension expense for defined benefit plans $ 711 $ 456

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

The status of all defined benefit pension plans at September 30 is as follows:

1 unchanged sentence

Benefit obligations at beginning of year $ 30,548 $ 27,437

Service cost 341 299

Interest cost 832 1,055

Actuarial loss (gain)

Actuarial loss 2,037 3,691

Benefits paid ( 1,965 ) ( 1,914 )

6 unchanged sentences

Plan assets at end of year $ 21,609 $ 20,970

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

Plans in which

5 unchanged sentences

Amounts recognized in accumulated other comprehensive loss:

Net loss 11,973 11,404

Net amount recognized in the consolidated balance sheets $ 1,762 $ 1,830

7 unchanged sentences

Assets Exceed

Plans in which

Obligations Plans in which

Exceed Assets

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

Net loss $ — $ 844

Where applicable, the following weighted-average assumptions were used in developing the benefit obligation and the net pension expense for defined benefit pension plans:

11 unchanged sentences

bond funds, are private placement funds, for which fair market value is not always commercially available, the fair value of these investments is primarily determined using a discounted cash flow model, which utilizes a discount rate based upon the average of spread surveys collected from private-market intermediaries who are active in both primary and secondary transactions, and takes into account, among other factors, the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

bond funds are comprised of international fixed income securities.

4 unchanged sentences

However, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement result.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

The following tables set forth the asset allocation of the Company’s defined benefit pension plan assets and summarize the fair values and levels within the fair value hierarchy for such plan assets as of September 30, 2020 and 2019:

September 30, 2019

September 30, 2020 Asset

Amount Level 2 Level 3

equity securities:

Large value $ 175 $ 175 $ —

Large blend 9,334 9,334 —

Large growth 1,109 1,109 —

Mid blend 176 176 —

Small blend 224 224 —

equity securities:

10 unchanged sentences

Total plan assets at fair value $ 21,609 $ 19,511 $ 2,098

September 30, 2018

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

September 30, 2019 Asset

Amount Level 2 Level 3

equity securities:

Large value $ 435 $ 435 $ —

Large blend 9,368 9,368 —

Large growth 625 625 —

Mid blend 163 163 —

Small blend 159 159 —

equity securities:

10 unchanged sentences

Total plan assets at fair value $ 20,970 $ 18,965 $ 2,005

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

Changes in the fair value of the Company’s Level 3 investments during the years ending September 30, 2020 and 2019 were as follows:

11 unchanged sentences

The “Asset Allocation Range” listed below anticipates these potential scenarios and provides flexibility for the Plan’s investments to vary around the objective without triggering a reallocation of the assets, as noted by the following:

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

Percent of Plan Assets at

September 30,

debt securities

Other securities

September 30, Asset

equities 51 % 51 % 30 % to 70 %

equities 8 % 8 % 0 % to 20 %

debt securities 40 % 39 % 20 % to 70 %

debt securities — % 1 % 0 % to 10 %

Other securities 1 % 1 % 0 % to 60 %

Total 100 % 100 %

External consultants assist the Company with monitoring the appropriateness of the above investment strategy and the related asset mix and performance.

7 unchanged sentences

Benefit Payments

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

Multi-Employer Plans

2026-2030 8,432

Multi-Employer Plan

The Company contributes to one ( 1 ) U.S.

multi-employer retirement plan for certain union employees, as follow:

Pension Protection Act Zone Status

FIP/RP Status

Contributions by the Company

Expiration of

Fund Pension Protection Act Zone Status FIP/RP Status

Implemented Contributions by the Company Surcharge

Imposed Expiration of

2020 2019 2020 2019

Fund ¹ N/A Red Implemented $ — $ 55 Yes 5/31/2020

¹ The fund is the IAM National Pension Fund – EIN 51-6031295 / Plan number 2.

The IAM National Pension Fund ("IAM plan") utilized the special 30-year amortization provided by Public law 111-192, section 211 to amortize its losses from 2008.

The plan's year-end to which the zone status relates is December 31, 2018 and 2017.

The plan's year-end to which the zone status relates is December 31, 2018.

Under the Pension Protection Act of 2006 and extended by the Multi-employer Pension Reform Act of 2014, certain safeguards were implemented to inform participants about the financial health of pension plan.

The Company received the zone status notice from the IAM plan.

The notice mentions the plan is well funded at 89% ;

The notice states the plan is well funded at 89 %;

however, the IAM Plan's Board of Trustees voluntarily elected to place the plan in the Red Zone, which deems it to be in critical status for 2019 due to decline of the IAM Plan's credit balance and challenging investment environment.

As such, all participating employers are required by regulation to begin contributing 5% Pension Protection Act ("PPA") contribution surcharges effective with hours worked on or after June 1, 2019.

Absent adoption of the Rehabilitation Plan and schedules, the PPA contribution surcharges increase to 10% effective for the hours worked on or after January 1, 2020 and apply continuously until such adoption.

As such, all participating employers were required by regulation to begin contributing 5% Pension Protection Act ("PPA") contribution surcharges effective June 1, 2019.

The Company began contributing the surcharges during fiscal 2019.

The risks of participating in the multi-employer retirement plan are different from a single-employer plan in that (i) assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers;

(ii) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers;

and (iii) if the Company chooses to stop participating in the multi-employer retirement plan, the Company may be required to pay the plan an amount based on the unfunded status of the plan, referred to as a withdrawal liability.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

As noted within Note 12, Business Information, the bargaining unit that participated in this multi-employer plan ratified a new collective bargaining agreement in December 2019.

Included within this agreement was a provision to withdraw from the existing multi-employer plan effective December 31, 2019.

The withdrawal resulted in a withdrawal liability of $ 739 , which was recorded within the costs of goods sold line of the consolidated statements of operations and is included in other long-term liabilities.

The liability is payable in quarterly installments over the next 20 years.

The next four quarterly installments are recorded in accrued liabilities of the consolidated balance sheet.

The Company withdrew from the multi-employer plan to mitigate the risks associated with these plans.

Subsequent to the withdrawal, the remaining risk to the Company is the potential occurrence of a "mass withdrawal" of all participating employers within three years of the Company's withdrawal date, in which case the Company could be assessed additional withdrawal liability.

Defined Contribution Plans

8 unchanged sentences

The Company did not provide additional discretionary matching contributions in either fiscal 2020 and 2019.

Effective January 1, 2020, the Company sponsors a defined contribution plan for the Cleveland bargaining unit that withdrew from the multi-employer plan, as described above.

The Company's makes a non-elective contribution equal to $ 1.50 per work, vacation, or holiday hour, up to a maximum of 40 hours per week.

The Company non-elective contribution expense was $ 56 in fiscal 2020.

The Company sponsors a defined contribution plan for certain of its Maniago union employees.

2 unchanged sentences

The Company has awarded performance and restricted shares under its shareholder-approved amended and restated 2007 Plan, which was further amended and restated under the 2016 Plan.

The aggregate number of shares that may be awarded by the Company was increased by 646 shares, less any shares previously awarded and subject to an adjustment for the forfeiture of any unvested shares, pursuant to the 2016 Plan.

At the Annual Meeting of Shareholders held on January 30, 2020, the shareholders of the Company approved the first amendment (the "Amendment") to the 2016 Plan.

The Amendment increased the number of shares available for award under the 2016 Plan by 550 shares.

The aggregate number of shares that may be awarded by the Company was increased to 1,196 shares, less any shares previously awarded and subject to an adjustment for the forfeiture of any unvested shares, pursuant to the 2016 Plan.

In addition, shares that may be awarded are subject to individual recipient award limitations.

3 unchanged sentences

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 shares that may be achieved was reduced to 150 % of target.

With respect to such performance shares, compensation expense is accrued based on the probability of meeting the performance target.

The Company is currently recognizing compensation expense for one tranche of awards as it has concluded it is probable it will meet the performance criteria for that award, while the Company is not currently recognizing compensation expense for two tranches of awards as it has concluded it is not probable it will meet the performance criteria for those awards.

During each future reporting period, such expense is evaluated and may be subject to adjustment based upon the Company’s financial performance, which impacts the number of common shares that it expects to issue upon the completion of the performance period.

The Company is currently recognizing compensation expense for one of its tranches of awards as it has concluded it is probable that the performance criteria for that award will be met.

The Company is not currently recognizing compensation expense for two tranches of awards as it has concluded it is not probable it will meet the performance criteria for those awards.

During each future reporting period, such expense may be subject to adjustment based upon the Company's financial

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

performance, which impacts the number of shares that it expects to vest up on the completion of a performance period.

The performance shares were valued at the closing market price of the Company’s common shares on the date of grant.

4 unchanged sentences

If all outstanding share awards are ultimately earned and issued at the target number of shares, then at September 30, 2020 there are approximately 589 shares that remain available for award under the 2016 Plan.

If any of the outstanding share awards are ultimately earned and issued at greater than the target number of shares, up to a maximum of 200% of such target, then a fewer number of shares would be available for award.

If any of the outstanding share awards are ultimately earned and issued at greater than the target number of shares, up to the 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 expense of $ 398 and $ 511 for fiscal 2020 and 2019, respectively.

As of September 30, 2020, there was $ 359 of total unrecognized compensation cost related to the performance and restricted shares awarded under the 2016 Plan.

The Company expects to recognize this cost over the next 1.3 years .

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

The Company expects to recognize this cost over the next 1.0 year.

The following is a summary of activity related to performance and restricted shares:

Weighted Average

Shares Weighted Average

Fair Value at Date

Weighted Average

of Grant Number of

Shares Weighted Average

Fair Value at Date

6 unchanged sentences

Outstanding at end of year 371 $ 4.14 331 $ 5.33

The adoption of Topic 842 requires lessees to recognize a ROU asset and a lease liability on the consolidated balance sheet, with the exception of short-term leases.

The Company primarily leases its manufacturing buildings, specifically at its Orange location, machinery and office equipment.

The Company determines if a contract contains a lease based on whether the contract conveys the right to control the use of identified assets for a period in exchange for consideration.

Upon identification and commencement of a lease, the Company establishes a ROU asset and a lease liability.

Operating leases are included in ROU assets, short-term operating lease liabilities, and long-term operating lease liabilities on the consolidated balance sheets.

Finance leases are included in property, plant, and equipment, current maturities of long-term debt and long-term debt on the consolidated balance sheets.

The Company has remaining lease terms ranging from one to 16 years, some of which include options to renew the lease.

The total lease term is determined by considering the initial lease term per the lease agreement, which is adjusted to include any renewal options that the Company is reasonably certain to exercise as well as any period that the Company has control before the stated initial term of the agreement.

If the Company determines there exists a reasonable certainty of exercising termination or early buyout options, then the lease terms are adjusted to account for these facts.

A portion of our real estate leases include rents that are generally subject to annual changes in the Consumer Price Index ("CPI").

Such changes to the CPI are treated as variable lease payments.

The Company elected the package of practical expedients permitted under the transition guidance within the new standard which, among other things, allowed the Company to carry forward the historical lease classification.

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

The Company has made an accounting policy election to not separate non-lease components from lease components when allocating consideration for the buildings and machinery and equipment ROU asset classes.

The election was made to reduce the administrative burden that would be imposed on the Company.

ROU assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

As most of the leases do not provide an implicit rate, the Company uses the incremental borrowing rate based on the information available at commencement date and duration of the lease term in determining the present value of the future payments.

Lease expense for operating leases is recognized on a straight-line basis over the lease term, while the expense for finance leases is recognized as depreciation expense and interest expense using the accelerated interest method of recognition.

A lease asset and lease liability are not recorded for leases with an initial term of 12 months or less and the lease expense related to these leases is recognized as incurred over the lease term.

The components of lease expense were as follows:

September 30, 2020

Lease expense

Finance lease expense:

Amortization of right-of use assets on finance leases $ 55

Interest on lease liabilities 5

Operating lease expense:

Variable lease cost:

Total lease expense $ 2,390

The following table presents the impact of leasing on the consolidated balance sheet at September 30:

Classification to the consolidated balance sheets 2020

Finance lease assets Property, plant and equipment, net $ 89

Operating lease assets Operating lease right-of-use assets, net 17,021

Total lease assets $ 17,110

Current liabilities:

Finance lease liabilities Current maturities of long-term debt $ 58

Operating lease liabilities Short-term operating lease liabilities 991

Non-current liabilities:

Finance lease liabilities Long-term debt, net of current maturities 22

Operating lease liabilities Long-term operating lease liabilities, net of short-term 16,188

Total lease liabilities $ 17,259

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

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

September 30, 2020

Other Information

Cash paid for amounts included in measurement of liabilities:

Operating cash flows from operating leases $ 2,173

Operating cash flows from finance leases 5

Financing cash flows from finance leases 57

Right-of-use assets obtained in exchange for new lease liabilities:

Operating leases $ 278

September 30, 2020

Weighted-average remaining lease term (years):

Finance leases 1.64

Operating leases 15.15

Weighted-average discount rate:

Finance leases 4.84 %

Operating leases 5.89 %

Future minimum lease payments under non-cancellable leases as of September 30, 2020 were as follows:

Year ending September 30, Finance Leases Operating

2021 $ 55 $ 1,939

2022 21 1,687

Thereafter — 17,515

Total lease payments $ 82 $ 26,039

Imputed interest ( 2 ) ( 8,860 )

Present value of lease liabilities $ 80 $ 17,179

As previously disclosed in the Company's 2019 Annual Report on Form 10-K, the Company recorded rent expense of $ 2,391 in fiscal 2019 and under the previous lease accounting standard, future minimum lease payments under initial or remaining non-cancellable lease terms in excess of one year would have been as follows:

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

Year ending September 30, Finance Leases Operating

2020 $ 61 $ 2,172

2021 61 1,865

2022 21 1,583

Thereafter — 16,711

Total lease payments $ 149 $ 25,331

Interest ( 11 )

Present value of lease liabilities $ 138

Commitments and Contingencies

5 unchanged sentences

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.

No specific amount of damages was claimed by Avco and no discovery has occurred at this time and Orange disagrees with the allegations made 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 disagrees with 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.

1 unchanged sentence

Actual results may differ significantly from current estimates.

Given the current status of this matter, the Company has not recorded a loss, as the Company does not have a reasonable basis on which to establish an estimate.

Given the current status of this matter, the Company has not recorded a charge, as the Company 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, which is similar to the one previously settled in fiscal 2018.

As mentioned previously, 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 recorded an estimated loss of $250 as of September 30, 2019.

The Company was a defendant in a different class action lawsuit filed in the Superior Court of California, County of Orange, 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;

and unfair competition related to fiscal 2017.

The Company had previously recorded an estimate and settled the case in fiscal 2018.

In fiscal 2018, an additional $11 was incurred and $391 was paid during the second quarter of fiscal 2018.

On December 26, 2018, the Orange location experienced a fire at its manufacturing facility, causing damage to one of three manufacturing buildings.

The building that was damaged housed six of the eight presses on site.

The Company is fully insured and actively working with its insurance carrier to restore the site to full service as safely and quickly as possible.

As of September 30, 2019, the Company has recorded insurance proceeds of $11,986 , of which $8,486 has been received.

The fire also destroyed a leased building, which in accordance with its lease agreement, the Company is responsible to restore the property to full replacement value.

With the Company being fully insured, the restoration of the property is covered and the insurance carrier has

and unfair competition.

A settlement has been reached and the Company received preliminary court approval on July 13, 2020, following a brief delay caused by COVID-19 closures and restrictions.

Class action notices were sent at the end of September.

The Company recorded an additional $ 65 in fiscal 2020 as part of the estimated loss and had previously recorded an estimated loss of $ 250 as of September 30, 2019.

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 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.

In fiscal 2020, the Company continued to make significant progress in its restoration of its operations at the manufacturing facility at the Company's Orange location, which was damaged by a fire that occurred in fiscal 2019.

As part of these efforts, the Company continued to actively work with its insurance carrier to obtain insurance proceeds in order to restore its Orange location to full service as safely and quickly as possible, following the fire.

The Company relocated a press to Orange from a temporary Michigan location in November 2019, which was placed into service in March 2020, and two other presses were brought into service at the Orange location, one in December 2019 and the second at the end of July 2020.

Restoration of the building structure is nearly complete.

As of the September 30, 2020, Orange had six out of eight presses in production.

SIFCO Industries, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements - (Continued)

separately funded a partial payment of insurance proceeds as of September 30, 2019 to the landlord for the restoration of the damaged building as prescribed under the lease arrangement in the amount of $2,878 .

The table below reflects the receipt of proceeds and how they were expended as of September 30, 2019.

the six presses damaged in the fire are still in the restoration process.

The Company anticipates to have those restored within the first half of fiscal 2021;

however, no assurances can be made that the restoration will be completed within such timeframe.

As of September 30, 2020, the Company recognized insurance proceeds of $ 8,974 , of which $ 7,427 out of the $ 10,927 received pertains to fiscal 2020.

As of September 30, 2019, the Company recognized insurance proceeds of $ 11,986 , of which $ 8,486 had been received.

As the fire damaged a building leased by the Company, pursuant to the terms of the lease agreement, the Company was responsible to restore the property to full replacement value.

With the Company being fully insured, the restoration of the property was covered by insurance and the insurance carrier has separately funded payments of insurance proceeds as of September 30, 2020 and 2019, respectively, directly to the landlord for the restoration of the building as prescribed under the lease arrangement in the amount of $ 713 and $ 2,878 , respectively.

The table below reflects the receipt of proceeds and how they were disbursed as of September 30, 2020 and 2019, respectively.

Any additional recoveries in excess of recognized losses are treated as gain contingencies and will be recognized when the gain is realized or realizable.

The Company also maintains business interruption insurance coverage and continues to work with the insurance company to reach an agreement on the recoverable amounts of business interruption expenses.

As noted within the table below, payments totaling $1,168 were made towards this coverage as of September 30, 2019 and is reflected within the cost of goods sold line within the consolidated financial statements as of September 30, 2019.

The Company maintains business interruption insurance coverage and continues to work with the insurance company to reach an agreement on the recoverable amounts of business interruption expenses.

As noted within the tables below, payments totaling $ 1,219 and $ 1,168 were made towards this coverage as of September 30, 2020 and 2019 and are reflected within the cost of goods sold line within the consolidated financial statements.

Balance sheet (Other receivables):

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September 30, 2019 $ 3,500

Balance sheet (Other receivables):

September 30, 2019 $ 3,500

Cash received ( 10,927 )

Capital expenditures (equipment) 5,874

Other expenses 1,881

Business interruption 1,219

September 30, 2020 $ 1,547

The following table reflects how the proceeds received impacted the consolidated statements of operations as of September 30,

Years Ended September 30, 2019

Balance without insurance proceeds

Insurance recoveries

Balance with insurance proceeds

September 30, 2020

Balance without insurance proceeds Insurance recoveries Balance with insurance proceeds

Cost of goods sold $ 96,711 $ ( 3,100 ) $ 93,611

Loss (gain) on disposal and impairment of assets

Included within the gain on disposal and impairment of assets in the consolidated statements of operations is approximately $1,107 in impairment charges for the equipment damaged by the fire offset by insurance proceeds received.

For the long-lived assets that were not damaged as a result of the fire, the Company performed a separate evaluation of these assets.

In accordance with Topic 360, the fire resulted in a triggering event as of December 31, 2018, requiring an interim assessment to determine if the carrying amount of long-lived assets are recoverable.

As noted within Topic 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 results of management's analysis indicated that the remaining long-lived assets as of December 31, 2018 were recoverable and continue to be as of September 30, 2019.

The Company leases certain facilities, machinery and equipment, and office buildings under long-term leases.

The leases generally provide renewal options and require the Company to pay for utilities, insurance, taxes and maintenance.

The Company recorded rent expense of $2,391 and $2,522 in fiscal 2019 and 2018, respectively.

Included in rent expense are lease payments related to the Company's Orange facility for which the lease payments commenced in December 2016 and expire in 2036.

At September 30, 2019, minimum rental commitments under non-cancelable leases are as follows:

Year ending September 30,

Finance Leases

Total minimum lease payments

Amount representing interest

Present value of minimum lease payments

Gain on insurance recoveries $ — ( 5,874 ) $ ( 5,874 )

Income before income tax benefit $ 6 ( 8,974 ) $ 8,980

SIFCO Industries, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements - (Continued)

Amortization of the cost of equipment under capital leases is included in depreciation expense.

At September 30, assets recorded under capital leases consist of the following:

Machinery and equipment

Accumulated depreciation

September 30, 2019

Balance without insurance proceeds Insurance recoveries Balance with insurance proceeds

Cost of goods sold $ 105,448 $ ( 3,631 ) $ 101,817

Loss (gain) on insurance recoveries $ 1,102 ( 8,355 ) $ ( 7,253 )

Loss before income tax benefit $ ( 20,193 ) ( 11,986 ) $ ( 8,207 )

Included in the September 30, 2019 loss (gain) on insurance proceeds in the consolidated statements of operations is approximately $ 1,107 in impairment charges for the equipment damaged by the fire offset by insurance proceeds received.

In fiscal 2019, the Company performed a separate evaluation of the long-lived assets that were not damaged in the fire.

As noted within Topic 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 results of management's analysis indicated that the remaining long-lived assets as of December 31, 2018 were recoverable and continued to be as of September 30, 2019.

Business Information

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Geographic net sales are based on location of customer.

The United States of America is the single largest country for unaffiliated customer sales, accounting for 72% and 69% of consolidated net sales in fiscal 2019 and 2018, respectively.

The United States of America is the single largest country for unaffiliated customer sales, accounting for 72 % of consolidated net sales in fiscal 2020 and 2019.

No other single country represents greater than 10% of consolidated net sales in fiscal 2020 and 2019.

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United States $ 56,134 35,079

At September 30, 2019, approximately 195 of the hourly plant personnel are represented by two separate and active collective bargaining agreements.

Europe 10,607 11,562

$ 66,741 46,641

At September 30, 2020, approximately 203 of the hourly plant personnel are represented by three separate collective bargaining agreements.

The table below shows the expiration dates of the collective bargaining agreements.

Plant locations

Expiration date

Cleveland, Ohio

Maniago, Italy

December 31, 2019

Plant locations Expiration date

Cleveland, Ohio (unit 1) May 15, 2025

Cleveland, Ohio (unit 2) May 31, 2020

Maniago, Italy December 31, 2019

The Company is a party to collective bargaining agreements ("CBA") with certain employees located in Cleveland, which has two bargaining units.

the Company went into early negotiations and ratified its CBA with one such unit in November 2019 and is expected to enter negotiations with the second unit in the second quarter of fiscal 2020.

The Maniago location is party to the National Collective Agreement in metal working.

Negotiations have begun with Maniago;

however, until an agreement is reached, Maniago will continue to apply existing terms of its current contract.

The Company entered into early negotiations and ratified its CBA with one such unit in December 2019.

The second bargaining unit received notice in the second quarter of fiscal 2020 from the International Association of Machinists and Aerospace Workers Union that they were disclaiming all interest in representing the unit.

In the same quarter, the International Brotherhood of Boilermakers Union filed a petition to represent the unit.

In June 2020, the National Labor Relations Board certified the International Brotherhood of Boilermakers as the elected representative of the Company’s second bargaining group.

Negotiations with this bargaining group are ongoing and the workforce continues to work under existing

SIFCO Industries, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements - (Continued)

terms and conditions.

The Maniago location is party to the National Collective Agreement in Metalworking, which expired in December 2019.

Negotiations have been ongoing regarding such agreement and Maniago continues to apply existing terms and condition until a new agreement is reached.

Subsequent events

The Company has evaluated subsequent events through the date the consolidated financial statements are issued.

On November 26, 2019, the Company ratified a new collective bargaining agreement with one of its bargaining units.

Included within the agreement, was a provision to withdraw from its existing multi-employer plan, the IAM plan.

The withdrawal from the IAM plan is subject to a withdrawal liability.

The current estimate of the withdrawal liability is approximately $745 , subject to finalization.

This will be payable in quarterly installments over the next 20 years .

On December 3, 2020, the Company received its final installment from its insurance claims relating to the fire at the Orange location that occurred during fiscal 2019.

The amount received was $ 3,148 that will be realized in the first quarter of fiscal 2021.

The Company is not aware of any other subsequent events which would require recognition or disclosure in the consolidated financial statements.

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(Amounts in thousands)

of Period Additions

Expense Additions

Accounts Deductions Balance at

Year Ended September 30, 2020

Deducted from asset accounts

Allowance for doubtful accounts

Inventory obsolescence reserve¹

Allowance for doubtful accounts $ 592 ( 80 ) — ( 263 ) (a) $ 249

Inventory obsolescence reserve 3,335 518 ( 151 ) ( 26 ) (b) $ 3,676

Inventory LIFO reserve 8,296 ( 10 ) — — $ 8,286

1 unchanged sentence

Accrual for estimated liability

Workers’ compensation reserve

Workers’ compensation reserve 181 703 — ( 338 ) (c) $ 546

Year Ended September 30, 2019

Deducted from asset accounts

Allowance for doubtful accounts

Inventory obsolescence reserve

Allowance for doubtful accounts $ 520 $ 39 $ — $ 33 (a) $ 592

Inventory obsolescence reserve¹ 3,556 517 ( 106 ) ( 632 ) (b) 3,335

Inventory LIFO reserve¹ 8,371 ( 75 ) — — 8,296

1 unchanged sentence

Accrual for estimated liability

Workers’ compensation reserve

Workers’ compensation reserve 136 395 — ( 350 ) (c) 181

¹ Due to the adoption of Topic 606, there was impact to the opening balance for these accounts.

Accounts determined to be uncollectible, net of recoveries

Inventory sold or otherwise disposed

Payment of workers’ compensation claims

(a) Accounts determined to be uncollectible, net of recoveries

(b) Inventory sold or otherwise disposed

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data