Summary of Significant Accounting Policies

A. Principles of Consolidation

The accompanying unaudited consolidated condensed financial statements include the accounts of SIFCO Industries, Inc. and its wholly-owned subsidiaries (the “Company”). All significant intercompany accounts and transactions have been eliminated.

The U.S. dollar is the functional currency for all of the Company’s U.S. operations and its Irish subsidiary. For these operations, all gains and losses from completed currency transactions are included in income currently. Foreign currency translation adjustments are reported as a component of accumulated other comprehensive loss in the unaudited consolidated condensed financial statements.

These unaudited consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s fiscal 2013 Annual Report on Form 10-K. The results of operations for any interim period are not necessarily indicative of the results to be expected for other interim periods or the full year.

B. Net Income per Share

The Company’s 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 Company’s outstanding stock options, restricted shares and performance shares under the treasury stock method. The dilutive effect of the Company’s stock options, restricted shares and performance shares were as follows:



	Three Months Ended June 30,						Nine Months Ended June 30,
	2014			2013			2014			2013
Income from continuing operations	$	1,983		$	2,865		$	4,648		$	5,810
Income (loss) from discontinued operations, net of tax	(76		)	(387		)	(368		)	1,518
Net income	$	1,907		$	2,478		$	4,280		$	7,328

Weighted-average common shares outstanding (basic)	5,413			5,374			5,399			5,359
Effect of dilutive securities:
Stock options	—			1			—			1
Restricted shares	18			14			16			10
Performance shares	—			13			5			29
Weighted-average common shares outstanding (diluted)	5,431			5,402			5,420			5,399

Net income per share – basic
Continuing operations	$	0.37		$	0.53		$	0.86		$	1.08
Discontinued operations	(0.01		)	(0.07		)	(0.07		)	0.28
Net income	$	0.36		$	0.46		$	0.79		$	1.36

Net income per share – diluted:
Continuing operations	$	0.37		$	0.53		$	0.86		$	1.08
Discontinued operations	(0.01		)	(0.07		)	(0.07		)	0.28
Net income	$	0.36		$	0.46		$	0.79		$	1.36

Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share	17			18			20			58

C. 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 June 30, 2014 and at September 30, 2013, the Company held one interest rate swap agreement with a notional amount of $4,500 and $6,000, respectively. Cash flows related to the interest rate swap agreement are included in interest expense. The Company’s interest rate swap agreement and its variable-rate term debt are based upon LIBOR. During the first nine months of fiscal 2014, the Company’s interest rate swap agreement qualified as a fully effective cash flow hedge against the Company’s variable-rate term note interest risk.

D. Impact on Newly Issued Accounting Standards Not Yet Adopted

In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2014-08, "Presentation of Financial Statements and Property, Plant, and Equipment — Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,'' which revises what qualifies as a discontinued operation, changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. This ASU will be effective for the Company for applicable transactions occurring after October 1, 2015. The Company will prospectively apply the guidance to applicable transactions.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers," which clarifies existing accounting literature relating to how and when a company recognizes revenue. Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. ASU 2014-09 will be effective for the Company October 1, 2017. The Company is in the process of determining what impact, if any, the adoption of this ASU will have on its financial position, results of operations and cash flows.

In June 2014, the FASB issued ASU 2014-12, "Compensation – Stock Compensation," which requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee is able to cease rendering service and still be eligible to vest in the award if the performance target is achieved. The ASU will be effective for the Company October 1, 2016. The Company will prospectively apply the guidance to applicable transactions.

E. Reclassifications

Certain prior period amounts were reclassified to conform to the current consolidated financial statement presentation.