Summary of Significant Accounting Policies

A. Principles of Consolidation

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

The U.S. dollar is the functional currency for all of the Company’s U.S. operations and its non-operating subsidiaries. For these operations, all gains and losses from completed currency transactions are included in income. The functional currency for the Company's other non-U.S. subsidiaries is the Euro. Assets and liabilities are translated into U.S. dollars at the rates of exchange at the end of the period, and revenues and expenses are translated using average rates of exchange for the period. Foreign currency translation adjustments are reported as a component of accumulated other comprehensive loss in the unaudited consolidated condensed financial statements.

These unaudited consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s fiscal 2019 Annual Report on Form 10-K. The year-end consolidated balance sheet data was derived from the audited financial statements and disclosures required by accounting principles generally accepted in the United States ("U.S."). The results of operations for any interim period are not necessarily indicative of the results to be expected for other interim periods or the full year.

COVID-19

In March 2020, the 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. The Company continues to monitor the development of and responses to the COVID-19 pandemic and the impact of COVID-19 on its business and respond accordingly. The full impact of the COVID-19 outbreak on the Company continues to evolve and the full magnitude that the pandemic will have on the Company’s financial condition, liquidity and future results of operations is uncertain. As the pandemic continues to impact operations of businesses across the world, our ability to meet customer demands for products may be impaired or, similarly, our customers have experienced and may continue to experience adverse business consequences. 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. Given the continuing evolution of the COVID-19 pandemic and the varied global responses to curb its spread, the Company is not presently able to estimate the effects of the COVID-19 outbreak on its future results of operations, financial condition or liquidity for fiscal year 2020.

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 2019 Annual Report on Form 10-K. Since the Annual Report, the Company has implemented Accounting Standards Update ("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 by the Company 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 below within section E. Recently Adopted Accounting Standards and in Note 4, Leases.

C. 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:



	Three Months Ended June 30,					Nine Months Ended June 30,
	2020		2019			2020		2019
Net Income (loss)	$	2,250	$	(7,370	)	$	4,168	$	(9,911	)

Weighted-average common shares outstanding (basic and diluted)	5,676		5,571			5,656		5,556
Effect of dilutive securities:
Restricted shares	115		—			106		—
Performance shares	16		—			6		—
Weighted-average common shares outstanding (basic and diluted)	5,807		5,571			5,768		5,556

Net income (loss) per share – basic:	$	0.40	$	(1.32	)	$	0.74	$	(1.78	)

Net income (loss) per share – diluted:	$	0.39	$	(1.32	)	$	0.72	$	(1.78	)

Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share	306		214			200		200

D. Impact of Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" and subsequent updates. ASU 2016-13 changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The new guidance will replace the current incurred loss approach with an expected loss model. The new expected credit loss impairment model will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt instruments, net investments in leases, loan commitments and standby letters of credit. Upon initial recognition of the exposure, the expected credit loss model requires entities to estimate the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses should consider historical information, current information and reasonable and supportable forecasts, including estimates of prepayments. Financial instruments with similar risk characteristics should be grouped together when estimating expected credit losses. ASU 2016-13 does not prescribe a specific method to make the estimate, so its application will require significant judgment. ASU 2016-13 is effective for public companies in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. 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 ASU 2016-13 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 condensed 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 for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. The Company continues to evaluate the effect adopting this ASU will have on the Company's results within the consolidated condensed statements of operations and financial condition.

E. Recently Adopted Accounting Standards

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 condensed balance sheet as of October 1, 2019, with no related impact on the Company's consolidated condensed statement of comprehensive income (loss) or consolidated condensed statement of cash flows.