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 2012 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					Six Months Ended
	March 31,					March 31,
	2013			2012		2013		2012
Income from continuing operations	$	1,469		$	1,452	$	2,390	$	2,285
Income (loss) from discontinued operations, net of tax		(34	)		272		2,460		625

Net income	$	1,435		$	1,724	$	4,850	$	2,910

Weighted-average common shares outstanding (basic)		5,364			5,315		5,353		5,303
Effect of dilutive securities:
Stock options		1			20		1		22
Restricted shares		9			1		8		1
Performance shares		30			0		36		0

Weighted-average common shares outstanding (diluted)		5,404			5,336		5,398		5,326

Net income per share – basic
Continuing operations	$	0.27		$	0.27	$	0.45	$	0.43
Discontinued operations		(0.01	)		0.05		0.46		0.12

Net income	$	0.27		$	0.32	$	0.91	$	0.55

Net income per share – diluted:
Continuing operations	$	0.27		$	0.27	$	0.44	$	0.43
Discontinued operations		(0.01	)		0.05		0.46		0.12

Net income	$	0.27		$	0.32	$	0.90	$	0.55


Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share		51			151		78		147

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 March 31, 2013, the Company held one interest rate swap agreement with a notional amount of $7,000. 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 six months of fiscal year 2013, 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 of Newly Issued Accounting Standards

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2013-02, “Comprehensive Income”, which provides guidance on disclosure requirements for items reclassified out of Accumulated Other Comprehensive Income (“AOCI”). This new guidance requires entities to present (either on the face of the income statement or in the notes to the financial statements) the effects on the income statement of amounts reclassified out of AOCI. The new guidance will be effective for the Company beginning October 1, 2013. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

In March 2013, the Financial Accounting Standards Board issued ASU 2013-05, “Foreign Currency Matters”, which provides guidance on a parent’s accounting for the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. This new guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The new guidance will be effective for the Company beginning October 1, 2014. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

E. Reclassifications

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