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 2014 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. Accounting Policies

A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of the Company's fiscal 2014 Annual Report on Form 10-K. Since the Annual Report, the Company has changed its estimates process for its workers' compensation reserve. The Company uses a third party actuary to evaluate its reserves annually. Effective in the first quarter of fiscal 2015, the Company changed to a new third party administrator that also evaluates the reserve on a monthly basis. The change in administrators resulted in a reduction in the Company's reserve and a corresponding decrease in expense of approximately $400. The change is reflected in the Company's first quarter fiscal 2015 results.

C. Net Income (loss) per Share

The Company’s net income (loss) per basic share has been computed based on the weighted-average number of common shares outstanding. Net income (loss) 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 restricted shares and performance shares were as follows:



	Three Months Ended December 31,
	2014			2013
Income (loss) from continuing operations	$	(1,345	)	$	1,154
Income (loss) from discontinued operations, net of tax	(63		)	(207		)
Net income (loss)	$	(1,408	)	$	947

Weighted-average common shares outstanding (basic)	5,422			5,378
Effect of dilutive securities:
Restricted shares	25			16
Performance shares	—			14
Weighted-average common shares outstanding (diluted)	5,447			5,408

Net income (loss) per share – basic
Continuing operations	$	(0.25	)	$	0.22
Discontinued operations	(0.01		)	(0.04		)
Net income (loss)	$	(0.26	)	$	0.18

Net income (loss) per share – diluted:
Continuing operations	$	(0.25	)	$	0.21
Discontinued operations	(0.01		)	(0.04		)
Net income (loss)	$	(0.26	)	$	0.17

Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share	8			20

D. 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, 2014, the Company held one interest rate swap agreement with a notional amount of $4,000. The interest rate swap matured as of December 31, 2014. 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 quarter of fiscal 2015, 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.

E. Reclassifications

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