Notes to Consolidated Financial Statements
Years ended September 30, 2012 and 2011
(Amounts in thousands,
except per share data)
1. Summary of Significant Accounting Policies
1.
|
Summary of Significant Accounting Policies
|
A. DESCRIPTION OF BUSINESS
SIFCO Industries, Inc. and Subsidiaries (the Company) are engaged in the production and sale of a variety of metalworking processes, services and products produced primarily to the specific
design requirements of its customers. The processes and services include forging, heat-treating, coating, welding, machining, and selective plating. The products include forged components (both conventional and precision), machined forged parts and
other machined metal parts, remanufactured components for turbine engines, and selective plating solutions and equipment. The Companys operations are conducted in three business segments: (i) Forged Components Group, (ii) Turbine
Component Services and Repair Group and (iii) Applied Surface Concepts Group.
B. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The
U.S. dollar is the functional currency for all the Companys U.S. operations and its Irish subsidiary. For these operations, all gains and losses from completed currency transactions are included in income currently. The functional currency for
the Companys other non-U.S. subsidiaries is the local currency. Assets and liabilities are translated into U.S. dollars at the rates of exchange at the end of the period, and revenues and expenses are translated using average rates of
exchange. Foreign currency translation adjustments are reported as a component of accumulated other comprehensive loss in the consolidated statements of shareholders equity.
C. CASH EQUIVALENTS
The Company considers all highly liquid short-term investments with original maturities of three months or less to be cash equivalents. A substantial majority of the Companys cash and cash
equivalent bank balances exceed federally insured limits at September 30, 2012.
D. SHORT-TERM INVESTMENTS
In general, short-term investments have a maturity of three months to one year at the date of purchase. Short-term investments classified as
held-to-maturity are recorded at cost, which approximates fair value.
E. CONCENTRATIONS OF CREDIT RISK
Receivables are presented net of allowance for doubtful accounts of $614 and $664 at September 30, 2012 and 2011, respectively. Accounts receivable outstanding longer than the contractual payment
terms are considered past due. The Company writes off accounts receivable when they become uncollectible. During fiscal 2012 and 2011, $322 and $133 of accounts receivable were written off against the allowance for doubtful accounts, respectively.
Bad debt expense totaled $164 and $196 in fiscal 2012 and 2011, respectively.
Most of the Companys receivables represent trade
receivables due from manufacturers of turbine engines and aircraft components as well as turbine engine overhaul companies located throughout the world, including a significant concentration of U.S. based companies. In fiscal 2012, approximately 44%
of the Companys net sales were to four (4) of its largest customers and approximately 66% of the Companys net sales were to a combination of five (5) of its largest customers and their direct subcontractors. No other
single customer or group represents greater than 5% of total net sales in fiscal 2012. At September 30, 2012, approximately 39% of the Companys outstanding net accounts receivable were due from four (4) of its largest customers and
approximately 61% of the Companys outstanding net accounts receivable were due from a combination of five (5) of its largest customers and their direct subcontractors. 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, 2012.
F. INVENTORY VALUATION
Inventories are stated at the lower of cost or market. For a portion of the Forge Groups inventory, cost is determined using the last-in, first-out (LIFO) method. For approximately 42%
and 54% of the Companys inventories at September 30, 2012 and 2011, respectively, the LIFO method is used to value the Companys inventories. The first-in, first-out (FIFO) method is used to value the remainder of the
Companys inventories.
22
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
The Company maintains allowances for obsolete and excess inventory. The Company evaluates its allowances
for obsolete and excess inventory each quarter. Each business segment maintains policies, which require at a minimum that reserves be established based on an analysis of the age of the inventory. In addition, if the Company identifies specific
obsolescence, other than that identified by the aging criteria, an additional reserve will be recognized. Specific obsolescence and excess reserve requirements may arise due to technological or market changes, or based on cancellation of an order.
The Companys reserves for obsolete and excess inventory were $1,718 and $1,398 at September 30, 2012 and 2011, respectively.
G. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is generally computed using the straight-line and the double declining balance methods. Depreciation is provided in amounts sufficient to
amortize the cost of the assets over their estimated useful lives. Depreciation provisions are based on estimated useful lives: (i) buildings, including building improvements - 5 to 50 years; (ii) machinery and equipment, including office
and computer equipment - 3 to 30 years, (iii) software - 1 to10 years and (iv) leasehold improvements - 3 to 6 years.
The Company
reviews the carrying value of its long-lived assets, including property, plant and equipment, at least annually or when events and circumstances warrant such a review. This review is performed using estimates of future undiscounted cash flows, which
include proceeds from disposal of assets. If the carrying value of a long-lived asset is greater than the estimated undiscounted future cash flows, then the long-lived asset is considered impaired and an impairment charge is recorded for the amount
by which the carrying value of the long-lived asset exceeds its fair value. Asset impairment charges of $219 were recorded in fiscal 2011 related to certain machinery and equipment of the Companys Repair Group. The impairment is recorded
in loss (gain) on disposal or impairment of operating assets in the accompanying statements of operations. The machinery and equipment was determined to be impaired and, therefore, the carrying value of such assets was reduced to its net realizable
value.
The Companys Irish subsidiary sold its operating business and retained ownership of its Cork, Ireland facility after the
business was sold. This property is subject to a lease arrangement with the acquirer of the business. At September 30, 2012, the carrying value of the property is $1,790 and is included in corporate identifiable assets (see Note 11). Rental
income of $433 and $443 was recognized in fiscal 2012 and 2011, and is recorded in other income on the consolidated statements of operations.
H. GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price paid over the fair value of the net assets of an acquired business. Goodwill is subject to annual
impairment testing and the Company has selected July 31 as the annual impairment testing date. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than
its carrying value, including goodwill. If so, then a two-step impairment test is used to identify potential goodwill impairment. The first step of the goodwill impairment test compares the fair value of a reporting unit (as defined) with its
carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered impaired, and the second step of the goodwill impairment test is not required. The second step measures the amount
of impairment, if any, by comparing the carrying value of the goodwill associated with a reporting unit to the implied fair value of the goodwill derived from the estimated overall fair value of the reporting unit and the individual fair values of
the other assets and liabilities of the reporting unit.
Intangible assets consist of identifiable intangibles acquired or recognized in the
accounting for the acquisition of a business and include such items as a trade name, a non-compete agreement, below market lease, customer relationships and order backlog. Intangible assets are amortized over their useful lives ranging from less
than one year to ten years.
23
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
I. NET INCOME PER SHARE
The Companys net income per basic share has been computed based on the weighted-average number of common shares outstanding. Net income per diluted share reflects the effect of the Companys
outstanding stock options, restricted shares and performance shares under the treasury stock method. The dilutive effect of the Companys stock options, restricted shares and performance shares were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Net income
|
|
$
|
6,548
|
|
|
$
|
7,449
|
|
Weighted-average common shares outstanding (basic)
|
|
|
5,317
|
|
|
|
5,271
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
15
|
|
|
|
38
|
|
Restricted shares
|
|
|
6
|
|
|
|
8
|
|
Performance shares
|
|
|
42
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding (diluted)
|
|
|
5,380
|
|
|
|
5,324
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$
|
1.23
|
|
|
$
|
1.41
|
|
Net income per share diluted
|
|
$
|
1.22
|
|
|
$
|
1.40
|
|
Outstanding share awards relating to approximately 144 and 123 weighted average shares were excluded from the calculation of diluted
earnings per share for the twelve months ended September 30, 2012 and 2011, respectively, as the impact of including such share awards in the calculation of diluted earnings per share would have had an anti-dilutive effect.
J. REVENUE RECOGNITION
The Company recognizes revenue in accordance with the relevant portions of the guidance provided by the United States Securities and Exchange Commission (SEC) related to revenue recognition in
financial statements. Revenue is generally recognized when products are shipped or services are provided to customers.
K. IMPACT OF RECENTLY ADOPTED ACCOUNTING STANDARDS
In July 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2012-2,
Intangibles
Goodwill and Other,
which allows an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived asset is impaired for determining whether it is necessary to perform the quantitative
impairment test. The ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this ASU did not have a material impact on the
Companys consolidated financial statements.
In September 2011, the FASB issued ASU 2011-09,
Disclosures about an Employers
Participation in a Multiemployer Plan
which requires the Company to provide additional quantitative and qualitative disclosures for multiemployer pension plans and multiemployer other postretirement benefit plans in which the Company
participates. The ASU is effective for fiscal years ending after December 15, 2011, with early adoption permitted. The adoption of this guidance did not have a material impact on the Companys consolidated financial statements.
L. IMPACT OF NEWLY ISSUED ACCOUNTING STANDARDS
In December 2011, the FASB issued ASU 2011-12,
Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of
Accumulated Other Comprehensive Income in ASU 2011-05
, and as a result entities are required to continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU
2011-05. This update is effective for public companies with fiscal years beginning after December 15, 2011. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
24
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
M. USE OF ESTIMATES
Accounting principles generally accepted in the U.S. (GAAP) require management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the
disclosure of contingent liabilities, at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the period in preparing these financial statements. Actual results could differ from those
estimates.
N. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses an interest rate swap agreement to reduce risk related to variable-rate debt, which is subject to changes in market rates of interest. The interest rate swap is designated as a cash flow
hedge. At September 30, 2012, the Company held an interest rate swap agreement with a notional amount of $8,000. Cash flows related to the interest rate swap agreement are included in interest expense. The Companys interest rate swap
agreement and its variable-rate term debt are based upon LIBOR. During fiscal year 2012, the Companys interest rate swap agreement qualified as a fully effective cash flow hedge against the Companys variable-rate term note interest risk.
The following table reports the effects of the mark-to-market valuation of the Companys interest rate swap agreement at September 30, 2012:
|
|
|
|
|
Interest rate swap agreement market value adjustment
|
|
$
|
(93
|
)
|
Tax effect of interest rate swap agreement market value adjustment
|
|
|
35
|
|
|
|
|
|
|
Net interest rate swap agreement market value adjustment
|
|
$
|
(58
|
)
|
|
|
|
|
|
Historically, the Company has been able to mitigate the impact of foreign currency risk, to the extent it existed, by means of hedging
such risk through the use of foreign currency exchange contracts, which typically expired within one year. However, such risk was mitigated only for the periods for which the Company had foreign currency exchange contracts in effect, and only to the
extent of the U.S. dollar amounts of such contracts. At September 30, 2012 and 2011, the Company had no foreign currency exchange contracts outstanding.
O. RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Research and development expense was approximately $1,046 and $946 in fiscal 2012 and 2011, respectively.
P.
ACCUMULATED OTHER COMPREHENSIVE LOSS
Comprehensive income is included on the consolidated statements of shareholders equity. The components of accumulated other comprehensive loss as
shown on the consolidated balance sheets at September 30 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Foreign currency translation adjustment, net of income tax benefit of $200 and $410, respectively
|
|
$
|
(5,566
|
)
|
|
$
|
(5,770
|
)
|
Net retirement plan liability adjustment, net of income tax benefit of $4,090 and $4,157, respectively
|
|
|
(6,720
|
)
|
|
|
(6,932
|
)
|
Interest rate swap agreement, net of income tax benefit of $35 in 2012
|
|
|
(58
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss
|
|
$
|
(12,344
|
)
|
|
$
|
(12,702
|
)
|
|
|
|
|
|
|
|
|
|
Q. INCOME TAXES
The Company files a consolidated U.S. federal income tax return and tax returns in various state and local jurisdictions. The Companys non-U.S. subsidiaries also file tax returns in various
jurisdictions, including Ireland, the United Kingdom, France and Sweden. The Company has provided U.S. deferred income taxes on all cumulative earnings of non-U.S. subsidiaries.
The Company provides deferred income taxes for the temporary difference between the financial reporting basis and tax basis of the Companys assets and liabilities. Such taxes are measured using the
enacted tax rates that are assumed to be in effect when the differences reverse. Deferred tax assets result principally from recording certain expenses in the financial statements in excess of amounts currently deductible for tax purposes. Deferred
tax liabilities result principally from tax depreciation in excess of book depreciation and unremitted foreign earnings.
25
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
The Company maintains a valuation allowance against its deferred tax assets when management believes it
is more likely than not that all or a portion of a deferred tax asset may not be realized. Changes in valuation allowances are included in the income tax provision in the period of change. In determining whether a valuation allowance is warranted,
the Company evaluates factors such as prior earnings history, expected future earnings, carry-back and carry-forward periods and tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset.
R. RECLASSIFICATIONS
Certain amounts in prior years may have been reclassified to conform to the 2012 consolidated financial statement presentation.
2. Inventories
Inventories at September 30 consist of:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Raw materials and supplies
|
|
$
|
4,551
|
|
|
$
|
4,216
|
|
Work-in-process
|
|
|
9,162
|
|
|
|
3,194
|
|
Finished goods
|
|
|
4,979
|
|
|
|
2,829
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
18,692
|
|
|
$
|
10,239
|
|
|
|
|
|
|
|
|
|
|
If the FIFO method had been used for the entire Company, inventories would have been $9,537 and $7,974 higher than reported at
September 30, 2012 and 2011, respectively.
3. Goodwill and Intangible Assets
3.
|
Goodwill and Intangible Assets
|
The Companys intangible assets by major asset class subject to amortization as
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
Estimated
Useful Life
|
|
|
Original
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net Book
Value
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name
|
|
|
10 years
|
|
|
$
|
1,900
|
|
|
$
|
254
|
|
|
$
|
1,646
|
|
Non-compete agreement
|
|
|
5 years
|
|
|
|
1,500
|
|
|
|
364
|
|
|
|
1,136
|
|
Below market lease
|
|
|
5 years
|
|
|
|
900
|
|
|
|
325
|
|
|
|
575
|
|
Customer relationships
|
|
|
10 years
|
|
|
|
13,000
|
|
|
|
1,796
|
|
|
|
11,204
|
|
Order backlog
|
|
|
1 year
|
|
|
|
2,100
|
|
|
|
2,034
|
|
|
|
66
|
|
Transition services agreement
|
|
|
< 1 year
|
|
|
|
23
|
|
|
|
23
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
19,423
|
|
|
$
|
4,796
|
|
|
$
|
14,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name
|
|
|
10 years
|
|
|
$
|
900
|
|
|
$
|
73
|
|
|
$
|
827
|
|
Non-compete agreement
|
|
|
5 years
|
|
|
|
500
|
|
|
|
81
|
|
|
|
419
|
|
Below market lease
|
|
|
5 years
|
|
|
|
900
|
|
|
|
145
|
|
|
|
755
|
|
Customer relationships
|
|
|
10 years
|
|
|
|
6,800
|
|
|
|
548
|
|
|
|
6,252
|
|
Order backlog
|
|
|
1 year
|
|
|
|
1,300
|
|
|
|
1,047
|
|
|
|
253
|
|
Transition services agreement
|
|
|
< 1 year
|
|
|
|
23
|
|
|
|
23
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
10,423
|
|
|
$
|
1,917
|
|
|
$
|
8,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Included in the intangible assets at September 30, 2012 are assets acquired in connection with the
purchase of the forging business and substantially all related operating assets from GEL Industries, Inc. (DBA Quality Aluminum Forge, Inc.) on October 28, 2011, as discussed more fully in Note 12. These acquired intangible assets consist of:
|
|
|
|
|
|
|
|
|
|
|
Estimated
Useful Life
|
|
|
Original
Cost
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
Trade name
|
|
|
10 years
|
|
|
$
|
1,000
|
|
Non-compete agreement
|
|
|
5 years
|
|
|
|
1,000
|
|
Customer relationships
|
|
|
10 years
|
|
|
|
6,200
|
|
Order backlog
|
|
|
1 year
|
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
9,000
|
|
|
|
|
|
|
|
|
|
|
The amortization expense on identifiable intangible assets for fiscal 2012 and 2011 was $2,879 and $1,917 respectively. Amortization
expense associated with the identified intangible assets, all of which relates to the Forged Components Group, is expected to be as follows:
|
|
|
|
|
|
|
Amortization
Expense
|
|
Fiscal year 2013
|
|
$
|
2,037
|
|
Fiscal year 2014
|
|
|
1,970
|
|
Fiscal year 2015
|
|
|
1,970
|
|
Fiscal year 2016
|
|
|
1,744
|
|
Fiscal year 2017
|
|
|
1,507
|
|
Goodwill, all of which relates to the Forged Components Group, is not amortized, but is subject to an annual impairment test. 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 fiscal 2012, the Company performed a quantitative
assessment of goodwill for impairment. The impairment test consisted of a comparison between the fair value of the indefinite lived intangible assets, as determined by projected undiscounted cash flows from future operations, and the carrying
values. The Company concluded that no impairment exists as of September 30, 2012. All of the goodwill is expected to be deductible for tax purposes. Changes in the net carrying amount of goodwill were as follows:
|
|
|
|
|
Balance at September 30, 2011
|
|
$
|
3,493
|
|
Goodwill acquired during the year
|
|
|
3,522
|
|
|
|
|
|
|
Balance at September 30, 2012
|
|
$
|
7,015
|
|
|
|
|
|
|
4. Accrued Liabilities
Accrued liabilities at September 30 consist of:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Accrued employee compensation and benefits
|
|
$
|
1,574
|
|
|
$
|
1,792
|
|
Accrued workers compensation
|
|
|
668
|
|
|
|
674
|
|
Accrued dividends
|
|
|
1,073
|
|
|
|
1,060
|
|
Other accrued liabilities
|
|
|
1,638
|
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
4,953
|
|
|
$
|
4,626
|
|
|
|
|
|
|
|
|
|
|
27
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
5. Government Grants
In previous periods
the Company received grants from certain government entities as an incentive to invest in facilities, research and employees. Capital grants are amortized into income over the estimated useful lives of the related assets. Employment grants are
amortized into income over five years. The unamortized portion of deferred grant revenue is recorded in other long-term liabilities at September 30, 2012 and 2011, which amounted to $336 and $375, respectively. The majority of the
Companys grants are denominated in Euros. The Company adjusts its deferred grant revenue balance in response to currency exchange rate fluctuations for as long as such grants are treated as obligations.
6. Long-Term Debt
Long-term debt at September 30 consists of:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Revolving credit agreement
|
|
$
|
11,338
|
|
|
$
|
1,184
|
|
Term loan
|
|
|
8,000
|
|
|
|
0
|
|
Promissory Note
|
|
|
2,345
|
|
|
|
0
|
|
Other
|
|
|
2
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,685
|
|
|
|
1,216
|
|
Less current maturities
|
|
|
2,002
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
19,683
|
|
|
$
|
1,186
|
|
|
|
|
|
|
|
|
|
|
In October 2011, the Company entered into an amendment to its existing credit agreement (the Credit Agreement Amendment)
with its bank to increase the maximum borrowing amount from $30.0 million to $40.0 million, of which $10.0 million is a five (5) year term loan and $30.0 million is a five (5) year revolving loan, secured by substantially all the assets of
the Company and its U.S. subsidiaries and a pledge of 65% of the stock of its non-U.S. subsidiaries. The term loan is repayable in quarterly installments of $0.5 million starting December 1, 2011.
The term loan has a Libor-based variable interest rate that was 2.2% at September 30, 2012 and which becomes an effective fixed rate of 2.9% after
giving effect to an interest rate swap agreement. Borrowing under the revolving loan bears interest at a rate equal to Libor plus 0.75% to 1.75%, which percentage fluctuates based on the Companys leverage ratio of outstanding indebtedness to
EBITDA. At September 30, 2012 the interest rate was 1.25%. The loans are subject to certain customary financial covenants including, without limitation, covenants that require the Company to not exceed a maximum leverage ratio and to maintain a
minimum fixed charge coverage ratio. There is also a commitment fee ranging from 0.10% to 0.25% to be incurred on the unused balance. The Company was in compliance with all applicable loan covenants as of September 30, 2012.
In connection with the acquisition of the Quality Aluminum Forge business (QAF), as discussed more fully in Note 12, the Company issued a
$2.4 million non-interest bearing promissory note to the seller, which note is payable by the Company in November, 2013. The imputed interest rate used to discount the note was 2% per annum.
28
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
7. Income Taxes
The components of income before income tax provision are as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
U.S
|
|
$
|
8,419
|
|
|
$
|
10,388
|
|
Non-U.S
|
|
|
981
|
|
|
|
850
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
$
|
9,400
|
|
|
$
|
11,238
|
|
|
|
|
|
|
|
|
|
|
The income tax provision consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Current income tax provision:
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
2,530
|
|
|
$
|
2,486
|
|
U.S. state and local
|
|
|
465
|
|
|
|
463
|
|
Non-U.S
|
|
|
229
|
|
|
|
162
|
|
|
|
|
|
|
|
|
|
|
Total current tax provision
|
|
|
3,224
|
|
|
|
3,111
|
|
Deferred income tax provision (benefit):
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
(396
|
)
|
|
|
627
|
|
U.S. state and local
|
|
|
(40
|
)
|
|
|
(62
|
)
|
Non-U.S
|
|
|
64
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax provision (benefit)
|
|
|
(372
|
)
|
|
|
678
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
2,852
|
|
|
$
|
3,789
|
|
|
|
|
|
|
|
|
|
|
The income tax provision differs from amounts currently payable or refundable due to certain items reported for financial statement
purposes in periods that differ from those in which they are reported for tax purposes. The income tax provision in the accompanying consolidated statements of operations differs from amounts determined by using the statutory rate as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Income before income tax provision
|
|
$
|
9,400
|
|
|
$
|
11,238
|
|
Less-U.S. state and local income tax provision
|
|
|
465
|
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
Income before U.S. and non-U.S. federal income tax provision
|
|
$
|
8,935
|
|
|
$
|
10,837
|
|
|
|
|
|
|
|
|
|
|
Income tax provision at U.S. federal statutory rates
|
|
$
|
3,038
|
|
|
$
|
3,693
|
|
Tax effect of:
|
|
|
|
|
|
|
|
|
Domestic production activities deduction
|
|
|
(278
|
)
|
|
|
(275
|
)
|
Undistributed earnings of non-U.S. subsidiaries
|
|
|
(91
|
)
|
|
|
132
|
|
State and local income taxes
|
|
|
425
|
|
|
|
401
|
|
Federal tax credits
|
|
|
(330
|
)
|
|
|
(289
|
)
|
Other
|
|
|
88
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
2,852
|
|
|
$
|
3,789
|
|
|
|
|
|
|
|
|
|
|
29
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Deferred tax assets and liabilities at September 30 consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net non-U.S. operating loss carryforwards
|
|
$
|
592
|
|
|
$
|
592
|
|
Employee benefits
|
|
|
3,282
|
|
|
|
2,910
|
|
Inventory reserves
|
|
|
664
|
|
|
|
641
|
|
Asset impairment reserve
|
|
|
398
|
|
|
|
435
|
|
Allowance for doubtful accounts
|
|
|
154
|
|
|
|
190
|
|
Foreign tax credits
|
|
|
3,021
|
|
|
|
3,221
|
|
Other
|
|
|
43
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
8,154
|
|
|
|
8,138
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(2,954
|
)
|
|
|
(3,336
|
)
|
Unremitted foreign earnings
|
|
|
(4,454
|
)
|
|
|
(5,083
|
)
|
Other
|
|
|
(248
|
)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(7,656
|
)
|
|
|
(8,419
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
|
498
|
|
|
|
(281
|
)
|
Valuation allowance
|
|
|
(579
|
)
|
|
|
(452
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(81
|
)
|
|
$
|
(733
|
)
|
|
|
|
|
|
|
|
|
|
At September 30, 2012, the Company has a non-U.S. tax loss carryforward of approximately $5,458, which relates to the
Companys Irish subsidiary that ceased operations in 2007. A valuation allowance has been recorded against the deferred tax asset related to this non-U.S. tax loss carryforward because it is unlikely that such operating loss can be
utilized unless the Irish subsidiary resumed operations. The non-U.S. tax loss carryforward does not expire.
The Company recognized a
$127 increase in the valuation allowance against its net deferred tax assets in fiscal years 2012 and a $12 reduction in the valuation allowance against its net deferred tax assets in fiscal 2011.
The Company reported liabilities for uncertain tax positions, which includes any related interest and penalties, in fiscal 2012 and 2011 of $120 and $96,
respectively. During fiscal 2012, the Company recognized a nominal amount for interest and no amount for penalties. Based on the statute of limitations for specific jurisdictions, the related unrecognized tax benefit for positions previously taken
may change in the next 12 months by approximately $3, which would be recorded through income tax expense. The Company classifies interest and penalties on uncertain tax positions as income tax expense. A summary of activity related to the
Companys uncertain tax position is as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Balance at beginning of year
|
|
$
|
96
|
|
|
$
|
63
|
|
Increase due to tax positions taken in current year
|
|
|
55
|
|
|
|
46
|
|
Increase due to tax positions taken in prior years
|
|
|
1
|
|
|
|
14
|
|
Lapse of statute of limitations
|
|
|
(32
|
)
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
120
|
|
|
$
|
96
|
|
|
|
|
|
|
|
|
|
|
30
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
The Company is subject to income taxes in the U.S. federal jurisdiction, and various states, local and
non-U.S. jurisdictions. The Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations for the years prior to fiscal year 2006.
8. Retirement Benefit Plans
8.
|
Retirement Benefit Plans
|
Defined
Benefit Plans
The Company and certain of its subsidiaries sponsor defined benefit pension plans covering most of its employees. The
Companys 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 Companys defined benefit pension plans, which covers
substantially all non-union employees of the Companys U.S. operations who were hired prior to March 1, 2003, was frozen in 2003. Consequently, although the plan otherwise continues, the plan ceased the accrual of additional pension
benefits for service subsequent to March 1, 2003.
The Company uses a September 30 measurement date for its U.S. defined benefit
pension plans. Net pension expense, benefit obligations and plan assets for the Company-sponsored defined benefit pension plans consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Service cost
|
|
$
|
266
|
|
|
$
|
273
|
|
Interest cost
|
|
|
988
|
|
|
|
1,059
|
|
Expected return on plan assets
|
|
|
(1,413
|
)
|
|
|
(1,454
|
)
|
Amortization of prior service cost
|
|
|
47
|
|
|
|
117
|
|
Amortization of net loss
|
|
|
861
|
|
|
|
682
|
|
Early retirement expense
|
|
|
0
|
|
|
|
61
|
|
Settlement cost
|
|
|
513
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Net pension expense for defined benefit plan
|
|
$
|
1,262
|
|
|
$
|
738
|
|
|
|
|
|
|
|
|
|
|
The status of all defined benefit
pension plans at September 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Benefit obligations:
|
|
|
|
|
|
|
|
|
Benefit obligations at beginning of year
|
|
$
|
24,030
|
|
|
$
|
21,889
|
|
Service cost
|
|
|
266
|
|
|
|
273
|
|
Interest cost
|
|
|
988
|
|
|
|
1,059
|
|
Amendments
|
|
|
0
|
|
|
|
0
|
|
Actuarial loss
|
|
|
2,659
|
|
|
|
1,821
|
|
Benefits paid
|
|
|
(1,637
|
)
|
|
|
(1,073
|
)
|
Early retirement expense
|
|
|
0
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
Benefit obligations at end of year
|
|
$
|
26,306
|
|
|
$
|
24,030
|
|
|
|
|
|
|
|
|
|
|
Plan assets:
|
|
|
|
|
|
|
|
|
Plan assets at beginning of year
|
|
$
|
16,642
|
|
|
$
|
16,653
|
|
Actual return on plan assets
|
|
|
2,929
|
|
|
|
364
|
|
Employer contributions
|
|
|
1,015
|
|
|
|
698
|
|
Benefits paid
|
|
|
(1,637
|
)
|
|
|
(1,073
|
)
|
|
|
|
|
|
|
|
|
|
Plan assets at end of year
|
|
$
|
18,949
|
|
|
$
|
16,642
|
|
|
|
|
|
|
|
|
|
|
31
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plans in which
Assets Exceed Benefit
Obligations at
September 30,
|
|
|
Plans in which
Benefit
Obligations
Exceed Assets at
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
Reconciliation of funded status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets in excess of (less than) projected benefit obligations
|
|
$
|
520
|
|
|
$
|
772
|
|
|
$
|
(7,877
|
)
|
|
$
|
(8,160
|
)
|
Amounts recognized in accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
872
|
|
|
|
562
|
|
|
|
9,907
|
|
|
|
10,449
|
|
Prior service cost
|
|
|
0
|
|
|
|
39
|
|
|
|
31
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized in the consolidated balance sheets
|
|
$
|
1,392
|
|
|
$
|
1,373
|
|
|
$
|
2,061
|
|
|
$
|
2,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
$
|
520
|
|
|
$
|
772
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Other long-term liabilities
|
|
|
0
|
|
|
|
0
|
|
|
|
(7,877
|
)
|
|
|
(8,160
|
)
|
Accumulated other comprehensive loss pretax
|
|
|
872
|
|
|
|
601
|
|
|
|
9,938
|
|
|
|
10,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized in the consolidated balance sheets
|
|
$
|
1,392
|
|
|
$
|
1,373
|
|
|
$
|
2,061
|
|
|
$
|
2,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts in accumulated other comprehensive loss that are expected to be recognized
as components of net periodic benefit costs during fiscal 2013 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Plans in which
Assets Exceed
Benefit
Obligations
|
|
|
Plans in which
Benefit
Obligations
Exceed Assets
|
|
Net loss
|
|
$
|
44
|
|
|
$
|
862
|
|
Prior service cost
|
|
|
0
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
44
|
|
|
$
|
870
|
|
|
|
|
|
|
|
|
|
|
Where applicable, the following weighted-average assumptions were used in developing the benefit
obligation and the net pension expense for defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Discount rate for liabilities
|
|
|
3.6
|
%
|
|
|
4.2
|
%
|
Discount rate for expenses
|
|
|
4.2
|
%
|
|
|
5.0
|
%
|
Expected return on assets
|
|
|
8.1
|
%
|
|
|
8.3
|
%
|
The Company classifies and discloses pension plan assets in one of the following three categories: (i) Level 1 - quoted market
prices in active markets for identical assets; (ii) Level 2 - observable market based inputs or unobservable inputs that are corroborated by market data or (iii) Level 3 - unobservable inputs that are not corroborated by market data. Level
1 and Level 2 assets are valued using market based inputs. Level 3 asset values are determined by the trustees using a discounted cash flow model. The following tables set forth the asset allocation of the Companys 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, 2012 and 2011:
32
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2012
|
|
Asset
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
U.S. equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large value
|
|
$
|
288
|
|
|
$
|
0
|
|
|
$
|
288
|
|
|
$
|
0
|
|
Large blend
|
|
|
8,592
|
|
|
|
0
|
|
|
|
8,592
|
|
|
|
0
|
|
Large growth
|
|
|
640
|
|
|
|
0
|
|
|
|
640
|
|
|
|
0
|
|
Mid blend
|
|
|
19
|
|
|
|
0
|
|
|
|
19
|
|
|
|
0
|
|
Small blend
|
|
|
4
|
|
|
|
0
|
|
|
|
4
|
|
|
|
0
|
|
Non-U.S equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign large blend
|
|
|
1,295
|
|
|
|
0
|
|
|
|
1,295
|
|
|
|
0
|
|
Diversified emerging markets
|
|
|
70
|
|
|
|
0
|
|
|
|
70
|
|
|
|
0
|
|
U.S. debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inflation protected bond
|
|
|
952
|
|
|
|
0
|
|
|
|
952
|
|
|
|
0
|
|
Intermediate term bond
|
|
|
6,412
|
|
|
|
0
|
|
|
|
4,319
|
|
|
|
2,093
|
|
High inflation bond
|
|
|
299
|
|
|
|
0
|
|
|
|
299
|
|
|
|
0
|
|
Non-U.S. debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emerging markets bonds
|
|
|
239
|
|
|
|
0
|
|
|
|
239
|
|
|
|
0
|
|
Stable value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term bonds
|
|
|
139
|
|
|
|
139
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total plan assets at fair value
|
|
$
|
18,949
|
|
|
$
|
139
|
|
|
$
|
16,717
|
|
|
$
|
2,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011
|
|
Asset
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
U.S. equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large value
|
|
$
|
204
|
|
|
$
|
0
|
|
|
$
|
204
|
|
|
$
|
0
|
|
Large blend
|
|
|
6,945
|
|
|
|
0
|
|
|
|
6,945
|
|
|
|
0
|
|
Large growth
|
|
|
832
|
|
|
|
0
|
|
|
|
832
|
|
|
|
0
|
|
Mid blend
|
|
|
43
|
|
|
|
0
|
|
|
|
43
|
|
|
|
0
|
|
Small blend
|
|
|
34
|
|
|
|
0
|
|
|
|
34
|
|
|
|
0
|
|
Non-U.S. equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign large blend
|
|
|
1,048
|
|
|
|
0
|
|
|
|
1,048
|
|
|
|
0
|
|
Diversified emerging markets
|
|
|
109
|
|
|
|
0
|
|
|
|
109
|
|
|
|
0
|
|
U.S. debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inflation protected bond
|
|
|
489
|
|
|
|
0
|
|
|
|
489
|
|
|
|
0
|
|
Intermediate term bond
|
|
|
6,176
|
|
|
|
0
|
|
|
|
4,083
|
|
|
|
2,093
|
|
High inflation bond
|
|
|
328
|
|
|
|
0
|
|
|
|
328
|
|
|
|
0
|
|
Non-U.S. debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emerging markets bonds
|
|
|
257
|
|
|
|
0
|
|
|
|
257
|
|
|
|
0
|
|
Stable value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term bonds
|
|
|
177
|
|
|
|
177
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total plan assets at fair value
|
|
$
|
16,642
|
|
|
$
|
177
|
|
|
$
|
14,372
|
|
|
$
|
2,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Changes in the fair value of the Companys Level 3
investments during the years ending September 30, 2012 and 2011 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Balance at beginning of year
|
|
$
|
2,093
|
|
|
$
|
1,911
|
|
Actual return on plan assets
|
|
|
118
|
|
|
|
144
|
|
Purchases and sales of plan assets, net
|
|
|
(118
|
)
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
2,093
|
|
|
$
|
2,093
|
|
|
|
|
|
|
|
|
|
|
Investment objectives relative to the assets of the Companys defined benefit pension plans are to (i) optimize the long-term
return on the plans assets while assuming an acceptable level of investment risk, (ii) maintain an appropriate diversification across asset categories and among investment managers, and (iii) maintain a careful monitoring of the risk
level within each asset category. Asset allocation objectives are established to promote optimal expected returns and volatility characteristics given the long-term time horizon for fulfilling the obligations of the Companys defined benefit
pension plans. Selection of the appropriate asset allocation for the plans assets was based upon a review of the expected return and risk characteristics of each asset category in relation to the anticipated timing of future plan benefit
payment obligations. The Company has a long-term objective for the allocation of plan assets. However, the Company realizes that actual allocations at any point in time will likely vary from this objective due principally to (i) the impact of
market conditions on plan asset values and (ii) required cash contributions to and distribution from the plans. The Asset Allocation Range anticipates these potential scenarios and provides flexibility for the Plans
investments to vary around the objective without triggering a reallocation of the assets, as noted by the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Plan Assets at
September 30,
|
|
|
Asset
Allocation
Range
|
|
|
|
2012
|
|
|
2011
|
|
|
U.S. equities
|
|
|
50
|
%
|
|
|
48
|
%
|
|
|
30% to 70%
|
|
Non-U.S. equities
|
|
|
7
|
%
|
|
|
7
|
%
|
|
|
0% to 20%
|
|
U.S. debt securities
|
|
|
41
|
%
|
|
|
42
|
%
|
|
|
20% to 70%
|
|
Non-U.S. debt securities
|
|
|
1
|
%
|
|
|
2
|
%
|
|
|
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. To develop the expected long-term rate of return assumptions on plan assets, generally the Company uses long-term historical information for the target asset mix selected. Adjustments are made to the expected long-term rate of
return assumptions when deemed necessary based upon revised expectations of future investment performance of the overall investments markets.
The Company expects to make contributions of approximately $1,423 to its defined benefit pension plans during fiscal 2013. The Company has carryover
balances from previous periods that may be available for use as a credit to reduce the amount of contributions that the Company is required to make to certain of its defined benefit pension plans in fiscal 2013. The Companys ability to elect
to use such carryover balances will be determined based on the actual funded status of each defined benefit pension plan relative to the plans minimum regulatory funding requirements. The following defined benefit payment amounts are expected
to be made in the future:
|
|
|
|
|
Years Ending
September 30,
|
|
Projected
Benefit Payments
|
|
2013
|
|
$
|
1,991
|
|
2014
|
|
|
1,370
|
|
2015
|
|
|
1,269
|
|
2016
|
|
|
1,288
|
|
2017
|
|
|
1,804
|
|
2018-2022
|
|
|
8,279
|
|
34
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Multi-Employer Plans
The Company contributes to two (2) U.S. multi-employer retirement plans for certain union
employees, as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Fund
|
|
Pension Protection Act Zone Status
|
|
|
FIP/RP Status
Pending/
Implemented
|
|
|
Contributions by the Company
|
|
|
Surcharge
Imposed
|
|
|
Expiration of
Collective
Bargaining
Agreement
|
|
|
|
2012
|
|
|
2011
|
|
|
|
2012
|
|
|
2011
|
|
|
|
Fund 1
|
|
|
Green
|
|
|
|
Green
|
|
|
|
No
|
|
|
$
|
52
|
|
|
$
|
60
|
|
|
|
No
|
|
|
|
5/31/2015
|
|
Fund 2
|
|
|
Yellow
|
|
|
|
Yellow
|
|
|
|
Implemented
|
|
|
$
|
205
|
|
|
$
|
144
|
|
|
|
Yes
|
|
|
|
7/31/2013
|
|
1
|
The fund is the IAM National Pension Fund EIN 51-6031295 / Plan number 002. The IAM National Pension Fund utilized the special 30-year amortization provided by
Public law 111-192, section 211 to amortize its losses from 2008.
|
2
|
The fund is the Boilermaker-Blacksmith National Pension Trust EIN 48-6168020 / Plan number 001.
|
The plans year-end to which the zone status relates is December 31, 2011 and 2010.
The risks of participating in the multi-employer retirement plan are different from a single-employer plan in that i) assets contributed to the
multiemployer 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.
Defined Contribution Plans
Substantially all non-union U.S. employees of the Company and its U.S. subsidiaries are eligible to participate in the Companys U.S. defined contribution plan. The Company makes non-discretionary,
regular matching contributions to this plan equal to an amount that represents one hundred percent (100%) of a participants deferral contribution up to one percent (1%) of eligible compensation plus eighty percent (80%) of a
participants deferral contribution between one percent (1%) and six percent (6%) of eligible compensation. The Companys regular matching contribution expense for its U.S. defined contribution plan in 2012 and 2011 was $607 and
$343, respectively. This defined contribution plan provides that the Company may also make an additional discretionary matching contribution during those periods in which the Company achieves certain performance levels. The Companys additional
discretionary matching contribution expense in 2012 and 2011 was $71 and $185, respectively.
The Companys United Kingdom subsidiary
sponsors a defined contribution plan for certain of its employees. The Company contributes annually 5% of eligible employees compensation, as defined. Total contribution expense in 2012 and 2011 was $21 and $20, respectively.
The Companys Swedish subsidiary sponsors defined contribution plans for its employees. The Company contributes annually a percentage of eligible
employees compensation, as defined. Total contribution expense in fiscal 2012 and 2011 was $9 and $6, respectively.
9. Stock-Based Compensation
9.
|
Stock-Based Compensation
|
In previous
periods, the Company awarded stock options under two shareholder approved plans. No further options may be granted under either of the two plans. Option exercise price is not less than fair market value on date of grant and options are exercisable
no later than ten years from date of grant. Options issued under both plans generally vested at a rate of 25% per year. To the extent possible, shares of treasury stock are used to satisfy share requirements resulting from the exercise of stock
options. As of September 30, 2012 and 2011, all options awarded under both plans are fully vested.
35
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Option activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Options at beginning of year
|
|
|
43
|
|
|
|
60
|
|
Weighted average exercise price
|
|
$
|
3.86
|
|
|
$
|
4.33
|
|
Options exercised during the year
|
|
|
(42
|
)
|
|
|
(17
|
)
|
Weighted average exercise price
|
|
$
|
3.86
|
|
|
$
|
5.50
|
|
Options at end of year
|
|
|
1
|
|
|
|
43
|
|
Weighted average exercise price
|
|
$
|
3.74
|
|
|
$
|
3.86
|
|
Options exercisable at end of year
|
|
|
1
|
|
|
|
43
|
|
Weighted average exercise price
|
|
$
|
3.74
|
|
|
$
|
3.86
|
|
As of September 30, 2012 and 2011, there was no unrecognized compensation cost related to the stock options granted under the
Companys stock option plans and, therefore, there was no compensation expense related to stock options recognized in fiscal years 2012 and 2011. The 1 outstanding and exercisable option as of September 30, 2012 is fully vested, has a
weighted average remaining term of 2.7 years, and an intrinsic value of $14.
The Company has awarded performance and restricted shares under
its shareholder approved 2007 Long-Term Incentive Plan (2007 Plan). The aggregate number of shares that may be awarded under the 2007 Plan is 600,000 less any shares previously awarded and subject to an adjustment for the forfeiture of
any unissued shares. In addition, shares that may be awarded are subject to individual recipient award limitations. The shares awarded under the 2007 Plan may be made in multiple forms including stock options, stock appreciation rights, restricted
or unrestricted stock, and performance related shares. Any such awards are exercisable no later than ten years from date of grant.
The
performance shares that have been awarded under the 2007 Plan generally provide for the issuance of the Companys common shares upon the Company achieving certain defined financial performance objectives during a period up to three years
following the making of such award. The ultimate number of common shares of the Company that may be earned pursuant to an award ranges from a minimum of no shares to a maximum of 150% of the initial target number of performance shares awarded,
depending on the level of the Companys achievement of its financial performance objectives.
With respect to such performance shares,
compensation expense is being accrued at (i) approximately 100% of the target levels for recipients of the performance shares awarded during fiscal 2012, (ii) approximately 50% of the target levels for recipients of the performance shares
awarded during fiscal 2011 and (iii) approximately 118% of the target levels for recipients of the performance shares awarded during fiscal 2010. During each future reporting period, such expense may be subject to adjustment based upon the
Companys subsequent estimate of the number of common shares that it expects to issue upon the completion of the performance period. The performance shares were valued at the closing market price of the Companys common shares on the date
of grant. The vesting of such shares is determined at the end of the performance period.
During fiscal 2012 and 2011, the Company awarded
restricted shares to certain of its directors. The restricted shares were valued at the closing market price of the Companys common shares on the date of grant, and such value was recorded as unearned compensation. The unearned compensation is
being amortized ratably over the restricted stock vesting period of one (1) to three (3) years.
If all outstanding share awards are
ultimately earned and issued at the target number of shares, then at September 30, 2012 there are approximately 396,200 shares that remain 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 a maximum of 150% of such target, then a fewer number of shares would be available for award.
Compensation expense related to the performance and restricted shares awarded under the 2007 Plan was $892 and $547 during fiscal 2012 and 2011,
respectively. The Company recognized income tax benefits of $59 and $45 in fiscal 2012 and 2011, respectively, as a result of issuing common shares that were earned under the 2007 Plan. As of September 30, 2012, there was $1,235 of total
unrecognized compensation cost related to the performance and restricted shares awarded under the 2007 Plan. The Company expects to recognize this cost over the next two (2) years.
36
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
The following is a summary of activity related to performance shares:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average Fair
Value at Date
of Grant
|
|
Outstanding at September 30, 2011
|
|
|
135
|
|
|
$
|
13.25
|
|
Restricted shares awarded (2012 award)
|
|
|
27
|
|
|
|
22.08
|
|
Restricted shares earned (2011 award)
|
|
|
(11
|
)
|
|
|
16.30
|
|
Restricted shares forfeited (various awards)
|
|
|
(1
|
)
|
|
|
22.00
|
|
Performance shares awarded (2012 award)
|
|
|
59
|
|
|
|
19.53
|
|
Performance shares forfeited (various awards)
|
|
|
(13
|
)
|
|
|
16.65
|
|
Performance shares earned (2009 award)
|
|
|
(9
|
)
|
|
|
5.99
|
|
Performance shares not earned (2009 award)
|
|
|
(29
|
)
|
|
|
5.99
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2012
|
|
|
158
|
|
|
$
|
18.30
|
|
|
|
|
|
|
|
|
|
|
10. Commitments and Contingencies
10.
|
Commitments and Contingencies
|
In the
normal course of business, the Company may be involved in ordinary, routine legal actions. The Company cannot reasonably estimate future costs, if any, related to these matters; however, it does not believe any such matters are material to its
financial condition or results of operations. The Company maintains various liability insurance coverages to protect its assets from losses arising out of or involving activities associated with ongoing and normal business operations; however, it is
possible that the Companys future operating results could be affected by future costs of litigation.
The Company leases various
facilities and equipment under operating leases expiring at various dates. The Company recorded rent expense of $1,058 and $564 in fiscal 2012 and 2011, respectively. At September 30, 2012, minimum rental commitments under non-cancelable leases
are as follows:
|
|
|
|
|
Year ending September 30,
|
|
Operating
Leases
|
|
2013
|
|
$
|
936
|
|
2014
|
|
|
649
|
|
2015
|
|
|
450
|
|
2016
|
|
|
256
|
|
Thereafter
|
|
|
189
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
2,480
|
|
|
|
|
|
|
37
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
11. Business Segments
The Company identifies
reportable segments based upon distinct products manufactured and services performed. The Forged Components Group (Forge Group) consists of the production, heat-treatment, surface-treatment, non-destructive testing and some machining of
both conventional and precision forged components in various steel, titanium and aluminum alloys utilizing a variety of processes for application principally in the aerospace and power generation industries. The Turbine Component Services and Repair
Group (Repair Group) consists primarily of the repair and remanufacture of small aerospace and industrial turbine engine components, and is also involved in providing precision component machining and industrial coating of turbine engine
components. The Applied Surface Concepts Group (ASC Group) is a provider of specialized selective plating processes and services used to apply metal coatings to a selective area of a component. The Companys reportable segments are
separately managed.
One customer of all three of the Companys segments accounted for 14% and 10% of the Companys consolidated net
sales in fiscal 2012 and 2011, respectively. One customer of two of the Companys segments in fiscal 2012 and three of the Companys segments in fiscal 2011 accounted for 14% and 19% of the Companys consolidated net sales in 2012 and
2011, respectively. One customer of two of the Companys segments in fiscal 2012 and one of the Companys segments in fiscal 2011accounted for 10% and 12% of the Companys consolidated net sales in fiscal 2012 and 2011, respectively.
The combined net sales to these three customers, and to the direct subcontractors to these three customers, accounted for 48% and 59% of the Companys consolidated net sales in fiscal 2012 and 2011, respectively.
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 78% and 80% of consolidated net sales in fiscal 2012 and 2011, respectively. No other single country represents greater than 10% of consolidated net sales in fiscal 2012 and 2011. Net sales to unaffiliated customers located in various
European countries accounted for 9% and 8% of consolidated net sales in fiscal 2012 and 2011, respectively. Net sales to unaffiliated customers located in various Asian countries accounted for 5% and 6% of consolidated net sales in fiscal 2012 and
2011, respectively.
Corporate unallocated expenses represent expenses that are not of a business segment operating nature and, therefore, are
not allocated to the business segments for reporting purposes. Corporate identifiable assets consist primarily of cash and cash equivalents, and the Companys Cork, Ireland facility.
38
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
The following table summarizes certain information regarding segments of the
Companys:
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Net sales:
|
|
|
|
|
|
|
|
|
Forged Components Group
|
|
$
|
102,900
|
|
|
$
|
84,145
|
|
Turbine Component Services and Repair Group
|
|
|
7,184
|
|
|
|
9,047
|
|
Applied Surface Concepts Group
|
|
|
15,022
|
|
|
|
14,165
|
|
|
|
|
|
|
|
|
|
|
Consolidated net sales
|
|
$
|
125,106
|
|
|
$
|
107,357
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
Forged Components Group
|
|
$
|
12,938
|
|
|
$
|
13,000
|
|
Turbine Component Services and Repair Group
|
|
|
(1,416
|
)
|
|
|
(277
|
)
|
Applied Surface Concepts Group
|
|
|
1,064
|
|
|
|
1,025
|
|
Corporate unallocated expenses
|
|
|
(3,240
|
)
|
|
|
(2,893
|
)
|
|
|
|
|
|
|
|
|
|
Consolidated operating income
|
|
|
9,346
|
|
|
|
10,855
|
|
Interest expense, net
|
|
|
438
|
|
|
|
82
|
|
Foreign currency exchange loss (gain), net
|
|
|
(25
|
)
|
|
|
5
|
|
Other income, net
|
|
|
(467
|
)
|
|
|
(470
|
)
|
|
|
|
|
|
|
|
|
|
Consolidated income before income tax provision
|
|
$
|
9,400
|
|
|
$
|
11,238
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense:
|
|
|
|
|
|
|
|
|
Forged Components Group
|
|
$
|
5,855
|
|
|
$
|
3,542
|
|
Turbine Component Services and Repair Group
|
|
|
341
|
|
|
|
308
|
|
Applied Surface Concepts Group
|
|
|
379
|
|
|
|
426
|
|
Corporate unallocated expenses
|
|
|
96
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
Consolidated depreciation and amortization expense
|
|
$
|
6,671
|
|
|
$
|
4,386
|
|
|
|
|
|
|
|
|
|
|
LIFO expense for the Forged Components Group
|
|
$
|
1,563
|
|
|
$
|
479
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
Forged Components Group
|
|
$
|
2915
|
|
|
$
|
2,798
|
|
Turbine Component Services and Repair Group
|
|
|
410
|
|
|
|
219
|
|
Applied Surface Concepts Group
|
|
|
196
|
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
Consolidated capital expenditures
|
|
$
|
3,521
|
|
|
$
|
3,293
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
Forged Components Group
|
|
$
|
84,519
|
|
|
$
|
58,361
|
|
Turbine Component Services and Repair Group
|
|
|
3,480
|
|
|
|
3,758
|
|
Applied Surface Concepts Group
|
|
|
6,437
|
|
|
|
6,217
|
|
Corporate
|
|
|
12,109
|
|
|
|
11,675
|
|
|
|
|
|
|
|
|
|
|
Consolidated total assets
|
|
$
|
106,545
|
|
|
$
|
80,011
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. subsidiaries:
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
5,612
|
|
|
$
|
5,010
|
|
Operating income
|
|
|
470
|
|
|
|
369
|
|
Identifiable assets (excluding cash)
|
|
|
4,511
|
|
|
|
4,422
|
|
39
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
12. Business Acquisition
On October 28,
2011, through its wholly-owned subsidiary, Forge Acquisition, LLC now known as QAF, the Company completed the purchase of the forging business and substantially all related operating assets from GEL Industries, Inc. (DBA Quality Aluminum
Forge, Inc.). The forging business is operated in QAFs Orange and Long Beach, California facilities, all of which are leased. The purchase price for the forging business and related operating assets was approximately $24.9 million payable in
cash, after certain adjustments related principally to the final working capital level and/or indemnification holdback provisions under the purchase agreement. In addition, the Company has assumed certain current operating liabilities of the forging
business. The Company recorded net sales of $19.2 million from the date of acquisition through September 30, 2012.
The QAF purchase
transaction is accounted for under the purchase method of accounting. The allocation of the purchase price, including amounts attributable to goodwill and intangible assets, all of which belong to the Forged Component Group, is as follows:
|
|
|
|
|
|
|
October 28,
2011
|
|
Assets acquired:
|
|
|
|
|
Accounts receivable
|
|
$
|
3,703
|
|
Inventory
|
|
|
3,961
|
|
Property and equipment
|
|
|
4,965
|
|
Intangible assets
|
|
|
9,000
|
|
Goodwill
|
|
|
3,522
|
|
Other
|
|
|
153
|
|
|
|
|
|
|
|
|
|
25,304
|
|
Liabilities assumed:
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
418
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
24,886
|
|
|
|
|
|
|
The above fair values of assets acquired and liabilities assumed, as initially reported, were based upon appraisals, other studies and
additional information available at the time of the acquisition of QAF. The Company believes that such information provided a reasonable basis for determining the fair values of the assets acquired and liabilities assumed.
On December 10, 2010, through its wholly-owned subsidiary, TWF Acquisition, LLC now known as T&W Forge, LLC (TWF), the
Company completed the purchase of the forging business and substantially all related operating assets from T&W Forge, Inc. (T&W Forge). TWF operates in T&W Forges Alliance, Ohio facility under a long-term lease
arrangement, with an option to purchase the facility at a nominal price. The TWF purchase transaction is accounted for under the purchase method of accounting. The Company recorded net sales of $18.7 million from the date of acquisition through
September 30, 2012.
The results of operation of QAF and TWF from their respective dates of acquisition are included in the
Companys consolidated statements of operations and are reported in the Forge Group. The following unaudited pro forma information presents a summary of the results of operations for the Company including QAF and TWF as if the acquisitions had
occurred on October 1, 2010 and 2009, respectively:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
Net sales
|
|
$
|
126,619
|
|
|
$
|
129,757
|
|
Net income
|
|
|
7,533
|
|
|
|
9,915
|
|
Net income per share (basic)
|
|
|
1.42
|
|
|
|
1.88
|
|
Net income per share (diluted)
|
|
|
1.40
|
|
|
|
1.86
|
|
40
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
13. Summarized Quarterly Results of Operations (Unaudited)
13.
|
Summarized Quarterly Results of Operations (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 Quarter Ended
|
|
|
|
Dec. 31
|
|
|
March 31
|
|
|
June 30
|
|
|
Sept. 30
|
|
Net sales
|
|
$
|
28,510
|
|
|
$
|
34,079
|
|
|
$
|
30,968
|
|
|
$
|
31,549
|
|
Cost of goods sold
|
|
|
22,045
|
|
|
|
26,601
|
|
|
|
23,047
|
|
|
|
25,332
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
1,733
|
|
|
|
2,696
|
|
|
|
3,302
|
|
|
|
1,669
|
|
Income tax provision
|
|
|
547
|
|
|
|
972
|
|
|
|
861
|
|
|
|
472
|
|
Net income
|
|
|
1,186
|
|
|
|
1,724
|
|
|
|
2,441
|
|
|
|
1,197
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.22
|
|
|
|
0.32
|
|
|
|
0.46
|
|
|
|
0.22
|
|
Diluted
|
|
|
0.22
|
|
|
|
0.32
|
|
|
|
0.46
|
|
|
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 Quarter Ended
|
|
|
|
Dec. 31
|
|
|
March 31
|
|
|
June 30
|
|
|
Sept. 30
|
|
Net sales
|
|
$
|
21,396
|
|
|
$
|
26,804
|
|
|
$
|
28,875
|
|
|
$
|
30,282
|
|
Cost of goods sold
|
|
|
16,421
|
|
|
|
19,878
|
|
|
|
22,075
|
|
|
|
22,542
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
1,857
|
|
|
|
3,002
|
|
|
|
2,879
|
|
|
|
3,500
|
|
Income tax provision
|
|
|
651
|
|
|
|
1,007
|
|
|
|
815
|
|
|
|
1,316
|
|
Net income
|
|
|
1,206
|
|
|
|
1,995
|
|
|
|
2,064
|
|
|
|
2,184
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.23
|
|
|
|
0.38
|
|
|
|
0.39
|
|
|
|
0.41
|
|
Diluted
|
|
|
0.23
|
|
|
|
0.38
|
|
|
|
0.39
|
|
|
|
0.41
|
|
41