UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2013~~March 31, 2014



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-5978

SIFCO Industries, Inc.

(Exact name of registrant as specified in its charter)



Ohio		34-0553950
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

970 East 64th Street, Cleveland Ohio		44103
(Address of principal executive offices)		(Zip Code)

(216) 881-8600

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, “non-accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

The number of the Registrant’s Common Shares outstanding at ~~June 30, 2013~~March 31, 2014 was ~~5,373,526.~~5,413,129.

Part I. Financial Information

Item 1. Financial Statements

SIFCO Industries, Inc. and Subsidiaries

Consolidated Condensed Statements of Operations

(Unaudited)

(Amounts in thousands, except per share data)


	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended March 31,						Six Months Ended March 31,
	2013			2012			2013			2012			2014			2013			2014			2013
Net sales	$	30,284		$	27,278		$	88,578		$	82,147		$	29,044		$	28,004		$	55,696		$	55,448
Cost of goods sold	22,757			20,991			69,653			65,275			22,740			22,098			43,822			43,678
Gross margin	7,527			6,287			18,925			16,872
Gross profit													6,304			5,906			11,874			11,770
Selling, general and administrative expenses	3,371			2,661			10,433			8,342			3,444			2,957			6,902			6,498
Amortization of intangible assets	492			709			1,544			2,186			545			493			1,090			1,051
Loss (gain) on disposal of operating assets	33			—			(89		)	—			—			3			(2		)	(122		)
Operating income	3,631			2,917			7,037			6,344			2,315			2,453			3,884			4,343
Interest income	(4		)	(8		)	(18		)	(16		)	(5		)	(9		)	(9		)	(14		)
Interest expense	76			124			261			352			51			79			136			185
Foreign currency exchange (gain) loss, net	7			(19		)	7			(22		)	(1		)	(8		)	6			—
Other income, net	(108		)	(113		)	(294		)	(347		)	(108		)	(109		)	(217		)	(186		)
Income from continuing operations before income tax provision	3,660			2,933			7,081			6,377			2,378			2,500			3,968			4,358
Income tax provision	1,103			831			2,134			1,990			867			731			1,303			1,412
Income from continuing operations	2,557			2,102			4,947			4,387			1,511			1,769			2,665			2,946
Income (loss) from discontinued operations, net of tax	(79		)	339			2,381			964			(85		)	(334		)	(292		)	1,904
Net income	$	2,478		$	2,441		$	7,328		$	5,351		$	1,426		$	1,435		$	2,373		$	4,850


Income per share from continuing operations
Basic	$	0.47		$	0.40		$	0.92		$	0.83		$	0.28		$	0.33		$	0.49		$	0.55
Diluted	$	0.47		$	0.40		$	0.92		$	0.82		$	0.28		$	0.33		$	0.49		$	0.55

Income (loss) per share from discontinued operations, net of tax
Basic	$	(0.01	)	$	0.06		$	0.44		$	0.18		$	(0.02	)	$	(0.06	)	$	(0.05	)	$	0.36
Diluted	$	(0.01	)	$	0.06		$	0.44		$	0.18		$	(0.02	)	$	(0.06	)	$	(0.05	)	$	0.35

Net income per share
Basic	$	0.46		$	0.46		$	1.36		$	1.01		$	0.26		$	0.27		$	0.44		$	0.91
Diluted	$	0.46		$	0.46		$	1.36		$	1.00		$	0.26		$	0.27		$	0.44		$	0.90

Weighted-average number of common shares (basic)	5,374			5,328			5,359			5,311			5,407			5,364			5,393			5,353
Weighted-average number of common shares (diluted)	5,402			5,353			5,399			5,343			5,423			5,404			5,415			5,398

See notes to unaudited consolidated condensed financial statements.

SIFCO Industries, Inc. and Subsidiaries

Consolidated Condensed Statements of Comprehensive Income

(Unaudited)

(Amounts in thousands, except per share data)


	Three Months Ended June 30,					Nine Months Ended June 30,						Three Months Ended March 31,					Six Months Ended March 31,
	2013		2012			2013			2012			2014		2013			2014		2013
Net income	$	2,478	$	2,441		$	7,328		$	5,351		$	1,426	$	1,435		$	2,373	$	4,850
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	—		(204		)	(285		)	(166		)	—		(1		)	—		(285		)
Retirement plan liability adjustment	337		241			895			666			153		329			302		558
Interest rate swap agreement adjustment	13		(1		)	43			(53		)	8		14			17		30
Comprehensive income	$	2,828	$	2,477		$	7,981		$	5,798		$	1,587	$	1,777		$	2,692	$	5,153

See notes to unaudited consolidated condensed financial statements.

SIFCO Industries, Inc. and Subsidiaries

Consolidated Condensed Balance Sheets

(Amounts in thousands, except per share data)


	June 30, 2013			September 30, 2012			March 31, 2014			September 30, 2013
	(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,609		$	7,176		$	4,511		$	4,508
Receivables, net of allowance for doubtful accounts of $604 and $539, respectively	22,620			20,780
Receivables, net of allowance for doubtful accounts of $297 and $481, respectively							22,194			24,811
Inventories, net	20,664			17,505			21,375			18,340
Deferred income taxes	1,343			1,415			987			987
Prepaid expenses and other current assets	1,307			1,122			2,336			1,767
Current assets of business held for sale	—			3,908
Assets held for sale							264			278
Current assets of business from discontinued operations							184			2,059
Total current assets	50,543			51,906			51,851			52,750
Property, plant and equipment, net	29,566			29,726			31,081			29,632
Intangible assets, net	13,083			14,627			12,561			13,651
Goodwill	7,015			7,015			7,658			7,620
Other assets	1,689			695			1,279			1,240
Noncurrent assets of business held for sale	—			2,576
Noncurrent assets of business from discontinued operations							6			872
Total assets	$	101,896		$	106,545		$	104,436		$	105,765
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	4,380		$	2,000		$	2,000		$	4,392
Accounts payable	7,353			9,181			11,661			6,773
Accrued liabilities	6,864			4,330			4,950			7,670
Current liabilities of business held for sale	—			1,171
Current liabilities of business from discontinued operations							46			1,086
Total current liabilities	18,597			16,682			18,657			19,921
Long-term debt, net of current maturities	7,130			19,683			4,634			7,381
Deferred income taxes	203			1,154			1,774			1,733
Other long-term liabilities	7,664			8,494			4,370			4,717
Noncurrent liabilities of business held for sale	—			390
Shareholders’ equity:
Serial preferred shares, no par value, authorized 1,000 shares	—			—			—			—
Common shares, par value $1 per share, authorized 10,000 shares; issued and outstanding shares – 5,407 at June 30, 2013 and 5,366 at September 30, 2012	5,407			5,366
Common shares, par value $1 per share, authorized 10,000 shares; issued and outstanding shares – 5,449 at March 31, 2014 and 5,407 at September 30, 2013							5,449			5,407
Additional paid-in capital	7,661			7,523			7,853			7,599
Retained earnings	66,925			59,597			71,123			68,750
Accumulated other comprehensive loss	(11,691		)	(12,344		)	(9,424		)	(9,743		)
Total shareholders’ equity	68,302			60,142			75,001			72,013
Total liabilities and shareholders’ equity	$	101,896		$	106,545		$	104,436		$	105,765

See notes to unaudited consolidated condensed financial statements.

SIFCO Industries, Inc. and Subsidiaries

Consolidated Condensed Statements of Cash Flows

(Unaudited)

(Amounts in thousands)


	Nine Months Ended June 30,						Six Months Ended March 31,
	2013			2012			2014			2013
Cash flows from operating activities:
Net income	$	7,328		$	5,351		$	2,373		$	4,850
Income from discontinued operations, net of tax	(2,381		)	(964		)
Loss (income) from discontinued operations, net of tax							292			(1,904		)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	4,465			4,741			3,358			2,825
Gain on disposal of operating assets	(89		)	—			(2		)	(122		)
LIFO expense (income)	(787		)	643
LIFO income							(164		)	(407		)
Share transactions under company stock plan	179			753			292			30
Other long-term liabilities							(26		)	149
Deferred income taxes	(179		)	(102		)	41			(630		)
Changes in operating assets and liabilities:
Receivables	(1,840		)	726			2,617			(1,783		)
Inventories	(2,372		)	(5,513		)	(2,871		)	(2,150		)
Refundable income taxes	—			281
Prepaid expenses and other current assets	(185		)	(435		)
Other assets	(994		)	(218		)
Accounts payable	(1,829		)	(2,091		)	4,850			(49		)
Accrued liabilities	1,521			982
Other long-term liabilities	143			(161		)
Net cash provided by operating activities of continuing operations	2,980			3,993
Net cash provided by (used for) operating activities of discontinued operations	(235		)	593
Other accrued liabilities							(949		)	(1,555		)
Accrued income and other taxes							(1,258		)	1,111
Other operating activities							(40		)	(1,434		)
Net cash provided by (used for) operating activities of continuing operations							8,513			(1,069		)
Net cash provided by operating activities of discontinued operations							471			875
Cash flows from investing activities:
Acquisition of business	—			(24,886		)
Proceeds from disposal of operating assets	164			—			—			125
Capital expenditures	(2,836		)	(1,676		)	(3,714		)	(1,611		)
Net cash used for investing activities of continuing operations	(2,672		)	(26,562		)	(3,714		)	(1,486		)
Net cash provided by (used for) investing activities of discontinued operations	8,641			(115		)
Net cash provided by investing activities of discontinued operations							950			8,470
Cash flows from financing activities:
Proceeds from term note	—			10,000
Repayments of term note	(1,500		)	(1,500		)
Payments on long term debt							(3,393		)	(1,000		)
Proceeds from revolving credit agreement	37,563			48,184			17,027			26,725
Repayments of revolving credit agreement	(46,271		)	(35,058		)	(18,774		)	(32,974		)
Proceeds from other debt	—			2,302
Dividends paid	(1,073		)	(1,060		)
Other	—			(29		)
Net cash provided by (used for) financing activities of continuing operations	(11,281		)	22,839
Proceeds from exercise of stock options							4			—
Cash dividends paid							(1,081		)	(1,073		)
Net cash used for financing activities of continuing operations							(6,217		)	(8,322		)
Increase (decrease) in cash and cash equivalents	(2,567		)	748			3			(1,532		)
Cash and cash equivalents at the beginning of the period	7,176			6,431			4,508			7,176
Effect of exchange rate changes on cash and cash equivalents	—			(60		)
Cash and cash equivalents at the end of the period	$	4,609		$	7,119		$	4,511		$	5,644
Supplemental disclosure of cash flow information of continuing operations:
Cash paid for interest	$	(239	)	$	(314	)	$	(108	)	$	(172	)
Cash paid for income taxes, net	(3,626		)	(1,822		)	(1,268		)	(2,241		)

See notes to unaudited consolidated condensed financial statements.

SIFCO Industries, Inc. and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements

(Amounts in thousands, except per share data)


1.	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~~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,				Three Months Ended March 31,						Six Months Ended March 31,
	2013			2012		2013		2012		2014			2013			2014			2013
Income from continuing operations	$	2,557		$	2,102	$	4,947	$	4,387	$	1,511		$	1,769		$	2,665		$	2,946
Income (loss) from discontinued operations, net of tax	(79		)	339		2,381		964		(85		)	(334		)	(292		)	1,904
Net income	$	2,478		$	2,441	$	7,328	$	5,351	$	1,426		$	1,435		$	2,373		$	4,850

Weighted-average common shares outstanding (basic)	5,374			5,328		5,359		5,311		5,407			5,364			5,393			5,353
Effect of dilutive securities:
Stock options	1			12		1		19		—			1			—			1
Restricted shares	14			6		10		6		13			9			15			8
Performance shares	13			7		29		7		3			30			7			36
Weighted-average common shares outstanding (diluted)	5,402			5,353		5,399		5,343		5,423			5,404			5,415			5,398

Net income per share – basic
Continuing operations	$	0.47		$	0.40	$	0.92	$	0.83	$	0.28		$	0.33		$	0.49		$	0.55
Discontinued operations	(0.01		)	0.06		0.44		0.18		(0.02		)	(0.06		)	(0.05		)	0.36
Net income	$	0.46		$	0.46	$	1.36	$	1.01	$	0.26		$	0.27		$	0.44		$	0.91

Net income per share – diluted:
Continuing operations	$	0.47		$	0.40	$	0.92	$	0.82	$	0.28		$	0.33		$	0.49		$	0.55
Discontinued operations	(0.01		)	0.06		0.44		0.18		(0.02		)	(0.06		)	(0.05		)	0.35
Net income	$	0.46		$	0.46	$	1.36	$	1.00	$	0.26		$	0.27		$	0.44		$	0.90

Anti-dilutive weighted-average common shares excluded from calculation of diluted earnings per share	18			147		58		147		24			51			22			78

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~~March 31, 2014 and at September 30, 2013, the Company held one interest rate swap agreement with a notional amount of $~~6,500~~5,000. 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~~six months of fiscal ~~year 2013,~~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 of Newly Issued Accounting Standards~~

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2013-2, “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 2013-5, “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.


2.	Inventories

Inventories consist of:


	June 30, 2013		September 30, 2012		March 31, 2014		September 30, 2013
Raw materials and supplies	$	7,871	$	4,207	$	5,072	$	5,906
Work-in-process	6,631		9,156		8,351		7,049
Finished goods	6,162		4,142		7,952		5,385
Total inventories	$	20,664	$	17,505	$	21,375	$	18,340

Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out (“LIFO”) method for ~~37%~~43.8% and ~~44%~~35.8% of the Company’s inventories at ~~June 30, 2013~~March 31, 2014 and September 30, ~~2012,~~2013, respectively. The first-in, first-out (“FIFO”) method is used for the remainder of the inventories. If the FIFO method had been used for the inventories for which cost is determined using the LIFO method, inventories would have been $~~8,750~~7,813 and $~~9,537~~7,977 higher than reported at ~~June 30, 2013~~March 31, 2014 and September 30, ~~2012~~2013, respectively.


3.	Goodwill and Intangible Assets

The Company’s intangible assets by major asset class subject to amortization consist of:


June 30, 2013	Estimated Useful Life	Original Cost		Accumulated Amortization		Net Book Value
March 31, 2014								Estimated Useful Life	Original Cost		Accumulated Amortization		Net Book Value
Intangible assets:
Trade name	10 years	$	1,900	$	397	$	1,503	10 years	$	2,000	$	546	$	1,454
Non-compete agreement	5 years	1,500		589		911		5 years	1,600		828		772
Below market lease	5 years	900		460		440		5 years	900		595		305
Customer relationships	10 years	13,000		2,771		10,229		10 years	13,800		3,801		9,999
Order backlog	1 year	2,100		2,100		—		1 year	2,200		2,169		31
Transition services								< 1 year	23		23		—
Total intangible assets		$	19,400	$	6,317	$	13,083		$	20,523	$	7,962	$	12,561


September 30, 2012	Estimated Useful Life	Original Cost		Accumulated Amortization		Net Book Value
September 30, 2013								Estimated Useful Life	Original Cost		Accumulated Amortization		Net Book Value
Intangible assets:
Trade name	10 years	$	1,900	$	254	$	1,646	10 years	$	2,000	$	446	$	1,554
Non-compete agreement	5 years	1,500		364		1,136		5 years	1,600		668		932
Below market lease	5 years	900		325		575		5 years	900		505		395
Customer relationships	10 years	13,000		1,796		11,204		10 years	13,800		3,111		10,689
Order backlog	1 year	2,100		2,034		66		1 year	2,200		2,119		81
Transition services								< 1 year	23		23		—
Total intangible assets		$	19,400	$	4,773	$	14,627		$	20,523	$	6,872	$	13,651

The amortization expense on identifiable intangible assets for the ~~nine~~six months ended ~~June 30,~~March 31, 2014 and 2013 ~~and 2012~~ was $~~1,544~~1,090 and $~~2,186~~1,051, and $545 and $493 during the second quarter of fiscal 2014 and 2013, respectively. Amortization expense associated with the identified intangible assets ~~all of which relates to SIFCO Forged Components,~~ is expected to be as follows:


	Amortization Expense		Amortization Expense
Fiscal year 2013	$	2,037
Fiscal year 2014	1,970		$	2,161
Fiscal year 2015	1,970		2,080
Fiscal year 2016	1,744		1,854
Fiscal year 2017	1,507		1,617
Fiscal year 2018			1,596

The Company’s goodwill ~~all of which relates to the SIFCO Forged Components segment,~~ is not being amortized and is subject to annual impairment tests. All of the goodwill is expected to be deductible for tax purposes. Changes in the net carrying amount of goodwill was as follows:



Balance at September 30, 2013	$	7,620
Goodwill purchase price adjustment	38
Balance at March 31, 2014	$	7,658


4.	Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows:


	June 30, 2013			September 30, 2012			March 31, 2014			September 30, 2013
Foreign currency translation adjustment, net of tax	$	(5,851	)	$	(5,566	)	$	(5,851	)	$	(5,851	)
Retirement plan liability adjustment, net of tax	(5,825		)	(6,720		)	(3,564		)	(3,866		)
Interest rate swap agreement adjustment, net of tax	(15		)	(58		)	(9		)	(26		)
Total accumulated other comprehensive loss	$	(11,691	)	$	(12,344	)	$	(9,424	)	$	(9,743	)


5.	Long-Term Debt

Long-term debt consists of:


	June 30, 2013		September 30, 2012		March 31, 2014		September 30, 2013
Revolving credit agreement	2,630		$	11,338	1,634		$	3,381
Term loan	6,500		8,000		5,000		6,000
Promissory Note	2,380		2,345		—		2,392
	11,510		21,683		6,634		11,773
Less – current maturities	4,380		2,000		2,000		4,392
Total long-term debt	$	7,130	$	19,683	$	4,634	$	7,381

In October 2011, the Company entered into an amendment to its existing credit agreement (the “Credit Agreement Amendment”) with its bank increasing the maximum borrowing amount from $30,000 to $40,000, of which $10,000 is a five (5) year term loan and $30,000 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 Irish subsidiary. The term loan is repayable in quarterly installments of $500 starting December 1, 2011.

The term loan has a ~~Libor-based~~LIBOR-based variable interest rate that was 2.2% at ~~June 30, 2013~~March 31, 2014. This rate 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~~LIBOR plus 0.75% to 1.75%, which percentage fluctuates based on the Company’s leverage ratio of outstanding indebtedness to EBITDA. At ~~June 30, 2013~~March 31, 2014, the interest rate was 1.0%. 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 ~~June 30, 2013~~March 31, 2014.

In connection with the purchase of the forging business and substantially all related operating assets from GEL Industries, Inc. (DBA Quality Aluminum ~~Forge, Inc.)~~Forge) (“QAF”), ~~as discussed more fully in Note 10,~~ the Company issued a non-interest bearing promissory note to the seller, which note ~~is payable~~was paid by the Company in November 2013. The imputed interest rate used to discount the note was 2.0% per annum.


6.	Income Taxes

For each interim reporting period, the Company makes an estimate of the effective tax rate it expects to be applicable for the full fiscal year for its continuing operations. This estimated effective rate is used in providing for income taxes on a year-to-date basis. The Company’s effective tax rate through the first ~~nine~~six months of fiscal ~~2013~~2014 was ~~30%~~33%, compared to ~~31%~~32% for the same period of fiscal ~~2012,~~2013, and differs from the U.S. federal statutory rate due primarily to (i) the impact of U.S. state and local income taxes, (ii) a domestic production activities deduction, (iii) application of tax credits, and (iv) the ~~recognition~~decrease in the reserve for uncertain tax positions.

The effective rate for the first six months of ~~U.S. federal income taxes on undistributed earnings of non-U.S. subsidiaries.~~fiscal 2014 reflects a $110 decrease in the reserve for uncertain tax positions, compared to the comparable period in fiscal 2013.

~~The~~In September 2013, the Internal Revenue Service issued final regulations governing the income tax ~~provision from continuing operations consists~~treatment of acquisitions, dispositions, and repairs of tangible property. Taxpayers are required to follow the new regulations in taxable years beginning on or after January 1, 2014. Management is currently assessing the impact of the ~~following:~~

Three Months Ended
June 30,

Nine Months Ended
June 30,
2013 2012 2013 2012
Current income tax provision:
U.S. federal $ 1,056
$ 638
$ 1,893
$ 1,592
U.S. state and local 80
144
245
321
Non-U.S 57
9
96
46
Total current tax provision 1,193
791
2,234
1,959
Deferred income tax provision (benefit):
U.S. federal (88 ) 40
(98 ) 31
U.S state and local (2 ) —
(2 ) —
Total deferred tax provision (benefit) (90 ) 40
(100 ) 31
Income tax provision $ 1,103
$ 831
$ 2,134
$ 1,990
regulations and does not expect they will have a material impact on the Company’s consolidated financial statements.

The Company is subject to income taxes in the U.S. federal jurisdiction, and various states, local and non-U.S. jurisdictions. The Company��s federal income tax returns for fiscal years 2010 and 2011, as well as the amended federal income tax returns for fiscal 2008 and 2009, are under review by the Internal Revenue Service, the outcome of which is not known at this time. The Company believes it has appropriate support for its federal income tax returns. The Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for fiscal years prior to ~~2006.~~2008.

At ~~June 30, 2013~~March 31, 2014 and September 30, ~~2012,~~2013, the Company recorded liabilities of $~~180~~67 and $~~120~~177, respectively, for uncertain tax positions and any related interest and penalties. The Company classifies any interest and penalties related to uncertain tax positions in income tax expense. A summary of activity related to the Company’s uncertain tax positions is as follows:

Balance at September 30, 2012 $ 120
Increase due to tax positions taken in current year 60
Balance at June 30, 2013 $ 180



Balance at September 30, 2013	$	177
Decrease due to tax positions effectively settled	(110		)
Balance at March 31, 2014	$	67


7.	Retirement Benefit Plans

The Company and certain of its subsidiaries sponsor defined benefit pension plans covering most of its employees. The components of net periodic benefit cost of the Company’s defined benefit plans are as follows:


	Three Months Ended June 30,						Nine months ended June 30,						Three Months Ended March 31,						Six Months Ended March 31,
	2013			2012			2013			2012			2014			2013			2014			2013
Service cost	$	72		$	71		$	216		$	214		$	30		$	75		$	61		$	151
Interest cost	212			247			638			740			250			215			501			429
Expected return on plan assets	(371		)	(351		)	(1,114		)	(1,052		)	(393		)	(372		)	(786		)	(744		)
Amortization of prior service cost	13			12			39			35			—			2			—			4
Amortization of net loss	219			210			656			630			151			226			301			453
Settlement cost	191			—			382			—			50			191			125			191
Net periodic benefit cost	$	336		$	189		$	817		$	567		$	88		$	337		$	202		$	484

Through ~~June 30,~~March 31, 2014 and 2013,, the Company has made contributions in the amount of $~~670~~255 and $360, respectively to its defined benefit pension plans. The Company ~~anticipates~~does not anticipate making ~~$129~~ ofany additional contributions to fund its defined benefit pension plans during the balance of fiscal ~~2013.~~2014.


8.	Stock-Based Compensation

In previous periods, the Company awarded stock options under its shareholder approved 1995 Stock Option Plan (“1995 Plan”) and 1998 Long-term Incentive Plan (“1998 Plan”). No further options may be awarded under either the 1995 Plan or the 1998 Plan. The 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. All options awarded under both plans are fully vested as of ~~June 30, 2013~~March 31, 2014.

At ~~June 30, 2013~~March 31, 2014 and ~~2012~~2013, there was no unrecognized compensation cost related to the stock options granted under the Company’s stock option plans. There was no compensation expense related to stock options recognized in the ~~nine~~six months ended ~~June 30, 2013~~March 31, 2014 and ~~2012~~2013. ~~There is one outstanding and exercisable option as~~As of ~~June 30, 2013~~March 31, 2014, ~~which has a weighted average remaining term of~~ ~~2.0~~ ~~years and an intrinsic value of~~ ~~$12~~.all options had been exercised.

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 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 Company’s 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 Company’s achievement of its financial performance objectives.

With respect to such performance shares, compensation expense is being ~~accrued at (i)~~ ~~100%~~ ~~of the target levels for recipients of the performance shares awarded during fiscal 2013, and (ii)~~ ~~50%~~ ~~of the target levels for recipients of the performance shares awarded during fiscal~~ ~~2012~~ ~~and~~ ~~2011~~.accrued. During each future reporting period, such expense may be subject to adjustment based upon the Company's financial performance, which impacts 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 Company’s common shares on the date of grant. The vesting of such shares is determined at the end of the performance period.

During the first six months of fiscal 2014, the Company granted 68 performance share awards under the 2007 Plan with a grant date fair value of $26.50 per share. The shares vest over a three year performance period. The Company terminated one of its performance share awards under the 2007 Plan that consisted of 45 performance share awards with a fair value of $16.03 per share. The Company granted a replacement award for 43 performance shares under the 2007 Plan with a grant date fair value of $26.50 per share. The shares vest over a two year performance period.

The Company has awarded restricted shares to ~~certain~~its Directors, Officers, and other employees of ~~its directors.~~the Company. The restricted shares were valued at the closing market price of the Company’s 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 year.~~three~~ ~~(3) years.~~

During the first six months of fiscal 2014, the Company granted 18 restricted shares under the 2007 Plan with a grant date fair value of $22.02 per share. The Company granted an additional 10 restricted shares under the 2007 Plan with a grant date fair value of $31.12 per share. The shares vest over a one year service period.

If all outstanding share awards are ultimately earned and issued at the target number of shares, then at ~~June 30, 2013~~March 31, 2014 there are approximately ~~355~~283 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.

Stock-based compensation under the 2007 Plan was $~~515~~553 and $~~822~~367 during the first ~~nine~~six months of fiscal ~~2013~~2014 and ~~2012~~2013 and ~~$148~~$315 and ~~$255~~$188 during the ~~third~~second quarter of fiscal ~~2013~~2014 and ~~2012,~~2013, respectively. As of ~~June 30, 2013~~March 31, 2014, there was $~~1,035~~3,154 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 ~~2.3~~2.5 years.

~~The following is a summary of activity related to the target number of shares awarded and the actual number of shares earned under the 2007 Plan:~~

Number of
Shares

Weighted
Average Fair
Value at Date
of Grant
Outstanding at September 30, 2012 158
$ 18.30
Restricted shares awarded (2013 award) 12
15.50
Restricted shares earned (2012 award) (5 ) 22.00
Performance shares awarded (2013 award) 60
15.98
Performance shares earned (2010 award) (33 ) 16.05
Awards forfeited (various awards) (38 ) 17.00
Outstanding at June 30, 2013 154
$ 17.85


9.	Business ~~Segments~~

The Company identifies reportable segments based upon distinct products manufactured and services performed. SIFCO Forged Components (“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. Turbine Component Services and Repair (“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 Company’s reportable segments are separately managed.

~~The following table summarizes certain information regarding segments of the Company’s continuing operations:~~

Three Months Ended
June 30,
Nine Months Ended
June 30,
2013 2012 2013 2012
Net sales:
SIFCO Forged Components $ 28,672
$ 25,650
$ 84,121
$ 76,500
Turbine Component Services and Repair 1,612
1,628
4,457
5,647
Consolidated net sales $ 30,284
$ 27,278
$ 88,578
$ 82,147
Operating income (loss):
SIFCO Forged Components $ 5,457
$ 4,137
$ 12,740
$ 9,931
Turbine Component Services and Repair (561 ) (393 ) (1,659 ) (854 )
Corporate unallocated expenses (1,265 ) (827 ) (4,044 ) (2,733 )
Consolidated operating income 3,631
2,917
7,037
6,344
Interest expense, net 72
116
243
336
Foreign currency exchange (gain) loss, net 7
(19 ) 7
(22 )
Other income, net (108 ) (113 ) (294 ) (347 )
Consolidated income from continuing operations before income tax provision $ 3,660
$ 2,933
$ 7,081
$ 6,377
Depreciation and amortization expense:
SIFCO Forged Components $ 1,289
$ 1,477
$ 3,950
$ 4,269
Turbine Component Services and Repair 99
86
260
250
Corporate unallocated expenses 91
74
255
222
Consolidated depreciation and amortization expense $ 1,479
$ 1,637
$ 4,465
$ 4,741
LIFO expense (income) for SIFCO Forged Components $ (380 ) $ 214
$ (787 ) $ 643

June 30,
2013 September 30,
2012
Identifiable assets:
SIFCO Forged Components $ 87,398
$ 84,519
Turbine Component Services and Repair 3,620
3,480
Corporate 10,878
12,063
Assets of business held for sale —
6,483
Consolidated total assets $ 101,896
$ 106,545


~~10.~~	~~Business~~ Acquisition

On ~~October 28, 2011, through its wholly-owned~~July 23, 2013, SIFCO Industries, Inc.'s subsidiary ~~Forge Acquisition, LLC, now known as Quality Aluminum Forge, LLC, the Company~~ completed the ~~acquisition~~purchase of the ~~QAF business. This~~forging business and substantially all related operating assets from MW General, Inc. (DBA General Aluminium Forgings). The forging business is operated in ~~QAF’s Orange and Long Beach, California facilities, all of~~General Aluminum Forgings, LLC's ("GAF") Colorado Springs, Colorado facility, which ~~are~~is leased. The ~~QAF~~purchase price for the business and related assets of GAF was approximately $4,400, after certain adjustments related principally to the final working capital level.

The GAF purchase transaction was accounted for under the purchase method of accounting. The Company has substantially completed the purchase accounting related to the GAF acquisition.

The results of operation of ~~QAF from its date of acquisition~~GAF are included in the Company’s unaudited consolidated condensed statements of operations for the three months ended and ~~are reported in the SIFCO Forged Components segment.~~six months ended March 31, 2014. The following unaudited pro forma information presents a summary of the results of operations for the Company including ~~QAF~~GAF as if the acquisition had occurred on October 1, ~~2011:~~2012:



	Three Months Ended March 31, 2013		Six Months Ended March 31, 2013
Net sales	$	29,376	$	58,219
Net income	$	1,455	$	4,813
Net income per share (basic)	$	0.27	$	0.90
Net income per share (diluted)	$	0.27	$	0.89

1110

Nine Months Ended June 30, 2012
Net sales $ 83,661
Net income 5,375
Net income per share (basic) $ 1.00
Net income per share (diluted) 1.00


~~11.~~10.	Discontinued Operations, Assets Held for Sale, and Business Divestiture

~~On December 10, 2012,~~As part of the Company’s strategy to focus on its core competencies in the Aerospace and Energy ("A&E") market, the Company ~~completed the divestiture of its Applied Surface Concepts (“ASC Group”) business segment. The Company received cash proceeds, net of certain transaction fees, of approximately~~ ~~$8,100~~ ~~for this business and~~ ~~$980~~ was placed in escrow, pending expiration in June 2014 of indemnification holdback provisions under the sale agreement. The ASC Group business included its U.S. operations, headquartered in Cleveland, Ohio, and three European operations located in France, Sweden and the United Kingdom. The ASC Group business developed, manufactured and sold selective plating products and provided contract services for low volume repair, refurbishment and OEM applications. The transaction resulted in a pre-tax gain of ~~$3,980~~decided in the ~~first nine months~~fourth quarter of ~~fiscal 2013.~~2013 to exit the Turbine Component Service and Repair ("Repair Group") business.

The table below presents the components of the balance sheet accounts classified as assets and liabilities held for sale at March 31, 2014 and September 30, ~~2012.~~2013, respectively.


			March 31, 2014		September 30, 2013
Assets:
Receivables, net	$	2,574	$	142	$	1,067
Inventories, net	1,188		—		660
Deferred income taxes	47		42		317
Prepaid expenses and other current assets	99		—		15
Total current assets of business held for sale	$	3,908
Total current assets of business from discontinued operations			$	184	$	2,059

Current assets held for sale			$	264	$	278

Property, plant and equipment, net	$	2,533	$	—	$	840
Other assets	43		6		32
Total noncurrent assets of business held for sale	$	2,576
Total noncurrent assets of business from discontinued operations			$	6	$	872
Liabilities:
Current maturities of long-term debt	$	2
Accounts payable	546		46		278
Accrued liabilities	623		—		808
Total current liabilities of business held for sale	$	1,171
Deferred income taxes	$	388
Other long-term liabilities	2
Total noncurrent liabilities of business held for sale	$	390
Total current liabilities of business from discontinued operations			$	46	$	1,086

As of March 31, 2014 and September 30, 2013, certain assets were recorded at the lower of carrying value or fair value.

The financial results of ~~ASC~~Repair Group included in discontinued operations were as follows:

Three Months Ended
June 30,

Nine Months Ended
June 30,
2013 2012 2013 2012
Net sales $ —
$ 3,690
$ 2,727
$ 11,410
Income before income tax provision —
369
180
1,354
Income tax provision 79
30
127
390
Income (loss) from operations, net of tax (79 ) 339
53
964
Gain (loss) on sale of discontinued operations, net of tax —
—
2,328
—
Income (loss) from discontinued operations, net of tax $ (79 ) $ 339
$ 2,381
$ 964



	Three Months Ended March 31,						Six Months Ended March 31,
	2014			2013			2014			2013
Net sales	$	—		$	1,590		$	1,339		$	2,846
Loss before income tax provision	(136		)	(495		)	(467		)	(937		)
Income tax benefit	(51		)	(195		)	(175		)	(381		)
Loss from discontinued operations, net of tax	$	(85	)	$	(300	)	$	(292	)	$	(556	)

~~12.~~ ~~Subsequent Events~~As the Company exited the Repair Group, the Company recognized $959 in workforce reduction costs of which $274 was incurred in the first six months of fiscal 2014 and $701 was paid as of March 31, 2014.

On ~~July 23, 2013, through its wholly-owned subsidiary, General Aluminum Forgings, LLC,~~December 10, 2012, the Company completed the ~~purchase~~divestiture of ~~the forging business~~its Applied Surface Concepts ("ASC") business. There were no assets or liabilities held for sale at March 31, 2014 and ~~substantially all related operating assets from MW General, Inc. (DBA General Aluminium Forgings) (“GAF”).~~ September 30, 2013.

The ~~forging business is operated~~financial results of ASC included in ~~GAF's Colorado Springs, Colorado facility. The purchase~~discontinued operations were as follows:



	Three Months Ended March 31, 2013			Six Months Ended March 31, 2013
Net sales	$	—		$	2,727
Income before income tax provision	—			180
Income tax provision	—			48
Income (loss) from operations, net of tax	—			132
Gain (loss) on sale of discontinued operations, net of tax	(34		)	2,328
Income (loss) from discontinued operations, net of tax	$	(34	)	$	2,460

1211

~~price for the forging business and related operating assets is approximately~~ ~~$4.5~~ million payable in cash, subject to certain adjustments related principally to the delivered working capital level or indemnification holdback provisions under the purchase agreement. In addition, the Company has assumed certain current operating liabilities of the forging business. The Company has not yet completed the purchase price accounting related to the GAF acquisition.

Effective July 23, 2013, the Company, entered into its second amendment to its existing credit agreement (“the Credit Agreement Amendment”) with Fifth Third Bank. The only material change was to add General Aluminum Forgings, LLC as a new borrower to its existing Credit Agreement.

The collective bargaining agreement with the hourly workers at the T&W forging facility, part of SIFCO Forged Components, expired on July 31, 2013. Negotiations regarding extension or renewal of the agreement are ongoing.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain various forward-looking statements and includes assumptions concerning the Company’s operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to risk and uncertainties. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company provides this cautionary statement identifying important economic, political and technological factors, among others, the absence or effect of which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. Such factors include the following: (1) the impact on business conditions in general, and on the demand for product in the ~~aerospace~~Aerospace and ~~power generation~~Energy ("A&E") industries in particular, of the global economic outlook, including the continuation of military spending at or near current levels and the availability of capital and liquidity from banks and other providers of credit; (2) future business environment, including capital and consumer spending; (3) competitive factors, including the ability to replace business which may be lost; (4) ~~successful development of turbine component repair processes and/or procurement of new repair process licenses from turbine engine manufacturers and/or the Federal Aviation Administration; (5)~~ metals and commodities price increases and the Company’s ability to recover such price increases; ~~(6)~~(5) successful development and market introduction of new products and services; ~~(7)~~(6) continued reliance on consumer acceptance of regional and business ~~aircraft powered by more fuel efficient turboprop engines; (8)~~aircraft; (7) continued reliance on military spending, in general, and/or several major customers, in particular, for revenues; ~~(9)~~(8) the impact on future contributions to the Company’s defined benefit pension plans due to changes in actuarial assumptions, government regulations and the market value of plan assets; ~~(10)~~(9) stable governments, business conditions, laws, regulations and taxes in economies where business is ~~conducted~~conducted; and ~~(11)~~(10) the ability to successfully integrate businesses that may be acquired into the Company’s operations.

The Company and its subsidiaries engage 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 both conventional and precision forging, heat-treating, coating, welding, and precision component machining. The products include conventional and precision forged components, machined forged components, other machined metal components, and remanufactured component parts for turbine engines. The ~~Company’s operations are conducted in two~~Company operates under one business ~~segments: (1)~~segment: SIFCO Forged ~~Components ("Forge Group") and (2) Turbine Component Services and Repair ("Repair Group").~~ Components.

The Company endeavors to plan and evaluate its ~~businesses’~~business operations while taking into consideration certain factors including the ~~following :~~following: (i) the projected build rate for ~~commercial,~~commercial; business and military aircraft as well as the engines that power such ~~aircraft,~~aircraft; (ii) the projected build rate for industrial gas turbine ~~engines, and~~engines; (iii) the projected maintenance, repair and overhaul schedules for commercial, business and military aircraft as well as the engines that power such ~~aircraft.~~aircraft; and (iv) anticipated exploration and production activities relative to oil and gas products.

The Company operates within a cost structure that includes a significant fixed component. Therefore, higher net sales volumes are expected to result in greater operating income because such higher volumes allow the business operations to better leverage the fixed component of their respective cost structures. Conversely, the opposite effect is expected to occur at lower net sales and related production volumes.

A. Results of Operations

Non-GAAP Financial Measures

Presented below is certain financial information based on our EBITDA and Adjusted EBITDA. References to “EBITDA” mean earnings from continuing operations before interest, taxes, depreciation and amortization, and references to “Adjusted EBITDA” mean EBITDA plus, as applicable for each relevant period, certain adjustments as set forth in the reconciliations of net income to EBITDA and Adjusted EBITDA.

Neither EBITDA nor Adjusted EBITDA is a measurement of financial performance under generally accepted accounting principles in the United States of America (“GAAP”). The Company presents EBITDA and Adjusted EBITDA because it believes that they are useful indicators for evaluating operating performance and liquidity, including the Company’s ability to incur and service debt and it uses EBITDA to evaluate prospective acquisitions. Although the Company uses EBITDA and Adjusted EBITDA for the

reasons noted above, the use of these non-GAAP financial measures as analytical tools has limitations. Therefore, reviewers of the Company’s financial information should not consider them in isolation, or as a substitute for analysis of the Company's results of operations as reported in accordance with GAAP. Some of these limitations include:

Neither EBITDA nor Adjusted EBITDA reflects the interest expense, or the cash requirements necessary to service interest payments, on indebtedness;

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and neither EBITDA nor Adjusted EBITDA reflects any cash requirements for such replacements;

The omission of the substantial amortization expense associated with the Company’s intangible assets further limits the usefulness of EBITDA and Adjusted EBITDA; and

Neither EBITDA nor Adjusted EBITDA includes the payment of taxes, which is a necessary element of operations.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to the Company to invest in the growth of its businesses. Management compensates for these limitations by not viewing EBITDA or Adjusted EBITDA in isolation and specifically by using other GAAP measures, such as net income, net sales, and operating profit, to measure operating performance. Neither EBITDA nor Adjusted EBITDA is a measurement of financial performance under GAAP, and neither should be considered as an alternative to net income or cash flow from operations determined in accordance with GAAP. The Company’s calculation of EBITDA and Adjusted EBITDA may not be comparable to the calculation of similarly titled measures reported by other companies.

The following table sets forth a reconciliation of net income to EBITDA and Adjusted EBITDA:


Dollars in thousands	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	June 30,						June 30,						March 31,						March 31,
	2013			2012			2013			2012			2014			2013			2014			2013
Net income	$	2,478		$	2,441		$	7,328		$	5,351		$	1,426		$	1,435		$	2,373		$	4,850
Less: Income (loss) from discontinued operations, net of tax	(79		)	339			2,381			964			(85		)	(334		)	(292		)	1,904
Income from continuing operations	2,557			2,102			4,947			4,387			1,511			1,769			2,665			2,946
Adjustments:
Depreciation and amortization expense	1,479			1,637			4,465			4,741			1,615			1,387			3,358			2,825
Interest expense, net	72			116			243			336			46			70			127			171
Income tax provision	1,103			831			2,134			1,990			867			731			1,303			1,412
EBITDA	5,211			4,686			11,789			11,454			4,039			3,957			7,453			7,354
Adjustments:
Foreign currency exchange (gain) loss, net (1)	7			(19		)	7			(22		)	(1		)	(8		)	6			—
Other income, net (2)	(108		)	(113		)	(294		)	(347		)	(108		)	(109		)	(217		)	(186		)
Loss (gain) on disposal of operating assets (3)	33			—			(89		)	—			—			3			(2		)	(122		)
Inventory purchase accounting adjustments (4)	—			(4		)	—			436
Non-recurring severance expense (5)	—			—			658			—
Equity compensation expense (6)	148			255			515			822
Pension settlement expense (7)	191			—			382			—
Acquisition transaction-related expenses (8)	84			36			100			279
LIFO expense (income) (9)	(380		)	214			(787		)	643
Non-recurring severance expense (4)													—			—			—			813
Equity compensation expense (5)													315			188			553			212
Pension settlement expense (6)													50			177			125			176
Acquisition transaction-related expenses (7)													35			—			45			15
LIFO income (8)													(82		)	(229		)	(164		)	(407		)
Adjusted EBITDA	$	5,186		$	5,055		$	12,281		$	13,265		$	4,248		$	3,979		$	7,799		$	7,855


(1)	Represents the gain or loss from changes in the exchange rates between the functional currency and the foreign currency in which the transaction is denominated.


(2)	Represents miscellaneous non-operating income or expense, primarily rental income from our Irish subsidiary.


(3)	Represents the difference between the proceeds from the sale of operating equipment and the carrying value shown on the Company’s books.


(4)	Represents ~~accounting adjustments to value inventory at fair market value associated with the acquisition of a business that was charged to cost of goods sold when the inventory was sold.~~


~~(5)~~	~~Represents~~ severance expense related to the departure of an executive officer. Included in the $0.8 million is $0.2 million of equity-based compensation expense recognized by the Company under its 2007 Long-term Incentive Plan.


~~(6)~~(5)	Represents the equity-based compensation expense recognized by the Company under its 2007 Long-term Incentive Plan.


~~(7)~~(6)	Represents expense incurred by a defined benefit pension plan related to settlement of pension obligations.


~~(8)~~(7)	Represents transaction-related costs such as legal, financial, tax due diligence expenses, valuation services costs, and executive travel that are required to be expensed as incurred.


~~(9)~~(8)	Represents the ~~increase (decrease)~~decrease in the reserve for inventories for which cost is determined using the last in, first out (“LIFO”) method.

~~Nine~~Six Months Ended ~~June 30, 2013~~March 31, 2014 compared with ~~Nine~~Six Months Ended ~~June 30, 2012~~March 31, 2013

Net sales from continuing operations in the nine months ended June 30, 2013 increased 7.8% to $88.6 million, compared with $82.1 million in the comparable period of fiscal 2012. This was due to an increase of $7.6 million or 10.0% in SIFCO Forged Components' net sales, offset by a decrease of $1.1 million or 21.1% in Turbine Component Services and Repair’s net sales.Overview

Income from continuing operations in the nine months ended June 30, 2013 increased 12.6% to $4.9 million, compared with $4.4 million in the comparable period of fiscal 2012. This was primarily driven by an increase in volume, reduced amortization of intangible assets, which was partially offset by higher selling, general and administrative costs. Income from discontinued operations, net of tax, which consists of the Company’s formerThe Company exited two reportable segments: Applied Surface Concepts ~~segment, was $2.4 million~~("ASC") business in the nine months ended June 30, 2013, compared with $1.0 million in the comparable period of fiscal 2012. The increase was primarily attributed to the after-tax gain of $2.3 million on the sale of the ASC Group business during the first quarter of fiscal 2013. Net income in the nine months ended June 30, 2013 increased 36.9% to $7.3 million, compared with $5.4 million in the comparable period of fiscal 2012.

In December, 2012 ~~the Company completed the divestiture of its ASC Group~~and Turbine Components Services and Repair ("Repair Group") business ~~segment. In October 2011, the~~in September, 2013. The Company completed the purchase of the forging business and substantially all related operating assets from ~~GEL Industries,~~MW General, Inc. (DBA ~~Quality~~General Aluminium Forgings) in July, 2013. The Company's results for the first six months of fiscal 2014 include the results of General Aluminum ~~Forge, Inc.~~Forgings ("GAF").

~~SIFCO Forged Components (“Forge Group”)~~

~~The Forge Group consists~~

Net Sales

Net sales for the first six months of the production, heat-treatment, surface-treatment, non-destructive testing, and machining of both conventional and precision forged components in various steel, titanium and aluminum alloys utilizing a variety of processes for application principallyfiscal 2014 increased $0.2 million to $55.7 million, compared to $55.5 million in the ~~aerospace and power generation industries.~~comparable period of fiscal 2013. The ~~Forge Group~~Company produces forged components for (i) turbine engines that power commercial business and regional aircraft, as well as military aircraft and armored military vehicles; (ii) airframe applications for a variety of aircraft; (iii) industrial gas turbine engines for power generation units; and (iv) other commercial applications. Net sales comparative information for the first six months of fiscal 2014 and 2013 is as follows:



(Dollars in millions)	Six Months Ended March 31,				Increase (Decrease)
Net Sales	2014		2013		Increase (Decrease)
Aerospace components for:
Fixed wing aircraft	$	29.0	$	27.8	$	1.2
Rotorcraft	15.4		16.4		(1.0		)
Energy components for power generation units	8.0		9.7		(1.7		)
Commercial product and other revenue	3.3		1.6		1.7
Total	$	55.7	$	55.5	$	0.2

Overall, net sales for the Company increased $0.2 million in the first six months of fiscal 2014 compared to the comparable period of fiscal 2013. The ~~Forge Group’s results for fiscal 2012 include~~increase in fixed wing aircraft sales, due primarily to the ~~results~~acquisition of ~~QAF~~GAF, were offset by lower rotorcraft sales, resulting from decreased demand in the ~~date~~Black Hawk and V-22 military rotorcraft programs. The Company's lower energy components sales were due to the timing of ~~its acquisition.~~sales to a major customer. The Company's higher commercial products and other revenue sales were due to sales related to a new ordnance program.

~~The Forge Group's~~Commercial net sales were 54.6% of total net sales and military net sales were 45.4% of total net sales in the ~~nine~~first six months ~~ended June 30, 2013~~of fiscal 2014, compared to 55.3% and 44.7%, respectively in the comparable period in fiscal 2013. Lower sales of the Compnay's energy components impacted commercial net sales for the first six months of fiscal 2014. Military net sales increased ~~10.0%~~$0.5 million to ~~$84.1~~$25.3 million in the first six months of fiscal 2014, compared ~~with $76.5~~to $24.8 million in the comparable period of fiscal ~~2012. Net~~2013. This was due primarily to an increase in sales ~~comparative information for~~due to a new ordnance program, which was partially offset by the decline in military rotorcraft sales.

Cost of Goods Sold

Cost of goods sold was $43.8 million during the first ~~nine~~six months of fiscal ~~2013 and 2012, respectively, is as follows:~~

(Dollars in millions) Nine Months Ended
June 30,
Increase
(Decrease)
Net Sales 2013 2012
Aerospace components for:
Fixed wing aircraft $ 41.4
$ 38.2
$ 3.2
Rotorcraft 25.0
21.4
3.6
Components for power generation units 14.6
13.3
1.3
Commercial product and other revenue 3.1
3.6
(0.5 )
Total $ 84.1
$ 76.5
$ 7.6

~~The increase~~2014, compared to $43.7 million in ~~net sales of forged components for fixed wing aircraft and rotorcraft during the nine months ended June 30, 2013, compared with~~ the comparable period of fiscal 2012, is due to additional sales volume from its base business, the acquisition of QAF during fiscal 2012, and higher tooling sales. The increase in net sales of forged components for power generation units2013.

Gross Profit

Gross profit was $11.9 million during the ~~nine~~first six months ~~ended June 30, 2013,~~of fiscal 2014, compared ~~with~~to $11.8 million in the comparable period of fiscal ~~2012, is due to higher military, gas~~2013.

Selling, General and ~~oil,~~Administrative Expenses

Selling, general and aftermarket sales of forged components. The decrease in net sales of commercial products and other revenue during the nine months ended June 30, 2013, compared with the comparable period of fiscal 2012, is primarily due to decreased demand for armored military vehicle components as a result of the completion of a significant armored vehicle retrofit program in fiscal 2012.

~~The Forge Group's aerospace components have both military and commercial applications. Net sales of such components that solely have military applications~~administrative expenses were $29.8 million in the nine months ended June 30, 2013, compared with $25.7 million in the comparable period in fiscal 2012. Demand for additional military helicopters and related replacement components are the primary driver of such military demand.

~~The Forge Group's cost of goods sold in the nine months ended June 30, 2013 increased 8.1% or $4.9 million to $64.7~~$6.9 million, or ~~76.9%~~12.4% of net sales, during the first six months of fiscal 2014, compared ~~with $59.8~~to $6.5 million, or ~~78.2%~~11.7% of net sales, in the comparable period of fiscal ~~2012.~~

2013. The ~~change in cost of goods sold is due primarily to the following factors:~~

~~Material costs decreased 2.3% or $0.6 million to $27.1 million, or 32.2%, compared with $27.7 million, or 36.3% of net sales, in the comparable period~~first six months of fiscal ~~2012. The improvement in material cost as~~2014 included a ~~percent of net sales is due primarily to product mix and favorable material pricing in the nine months ended June 30, 2013, compared with the comparable period of fiscal 2012.~~

~~LIFO costs decreased $1.4 million to income of~~ $0.8 million ~~or 0.9% of net sales, compared with expense of $0.6 million or 0.8% of net sales in the comparable period of fiscal 2012. The reduction in LIFO expense is primarily driven by~~non-recurring severance payment to a ~~reduction in inventory levels.~~

All other manufacturing costs increased 22.0% or $6.9 million to $38.3 million, or 45.6% of net sales, compared with $31.4 million, or 41.1 % of net sales, in the comparable period of fiscal 2012. Other manufacturing costs were affected by the following components of cost of goods sold:

(Dollars in millions) Nine Months Ended June 30,
Increase
(Decrease)
Manufacturing expenditures 2013 2012
Labor and Benefits $ 18.0
$ 16.3
$ 1.7
Inventory Revaluation 1.0
(0.5 ) 1.5
Utilities 3.6
3.5
0.1
Repairs, maintenance and supplies 3.6
3.3
0.3
Net Scrap 2.3
1.7
0.6
Depreciation 2.4
2.1
0.3
Rent 0.5
0.4
0.1
Tooling 2.0
1.7
0.3

The Forge Group's selling, general and administrative expenses in the nine months ended June 30, 2013 were $6.7 million, or 8.0% of net sales, compared with $6.8 million, or 8.8% of net sales, in the comparable period of fiscal 2012.former executive. Selling, general and administrative expenses ~~excluding amortization of intangible asset expenses,~~increased by $1.2 million, primarily due to increases in the nine months ended June 30, 2013 increased 13.9% to $5.2 million, or 6.2% of net sales, compared with $4.6 million, or 6.0% of net sales, in the comparable period of fiscal 2012. This increase is due primarily tocompensation and benefit costs, an increase in ~~compensation~~depreciation expense due to accelerating depreciation on certain computer assets targeted to be replaced by an upcoming Enterprise Resource Planning ("ERP") system installation, increased legal and ~~related benefit costs.~~

The Forge Group's operating income in the nine months ended June 30, 2013 increased 28.3% to $12.7 million, or 15.1% of net sales, compared with $9.9 million, or 13.0% of net sales, in the comparable period of fiscal 2012. The Forge Group's operating income in the nine months ended June 30, 2013, compared to the comparable period in fiscal 2012, was favorably impacted by increased product sales volumes that resulted in part from the acquisition of QAF, favorable material pricing, decreased LIFO reserve expenses, and decreased amortization of intangible assets. These were partially offset by higher other manufacturingprofessional costs, and ~~higher general and administrative compensation and benefit costs.~~the addition of GAF.

~~The Forge Group’s backlog as~~Amortization of ~~June 30, 2013~~Intangibles

Amortization of intangibles was ~~$103.9~~$1.1 million of which $84.9 million was scheduled for delivery over the next twelve months, compared with $106.0 million as of September 30, 2012, of which $87.8 million was scheduled for delivery over the next twelve months. All orders are subject to modification or cancellation by the customer with limited charges. Delivery lead times for certain raw materials (e.g. aerospace grades of steel) have shortened due to increased supply and the Forge Group believes that such lead time changes may ultimately result in a change in the ordering pattern of some of its customers. The Forge Group believes that some customers may delay placing orders, which may result in a decrease, relative to comparable prior year periods, in the Forge Group’s backlog. Accordingly, such backlog decrease, to the extent it may occur, is not necessarily indicative of actual sales expected for any succeeding period.

~~Turbine Component Services and Repair (“Repair Group”)~~

The Repair Group's net sales in the nine months ended June 30, 2013 decreased 21.1% to $4.4 million, compared with $5.6 million in the comparable period of fiscal 2012. Sales consists principally of component repair services (including precision component machining and industrial coatings) for small aerospace turbine engines. The decrease in net sales induring both the first ~~nine~~six months of fiscal ~~2013 is attributable to a decrease in sales volume compared with the same period of~~2014 and fiscal ~~2012.~~

The Repair Group's gross profit in the nine months ended June 30, 2013 was a loss of $0.6 million or 12.5% of net sales, compared with a gross profit of $0.2 million, or 3.5% of net sales, in the comparable period of fiscal 2012. The decrease in gross profit is due primarily to the decrease in sales volume and the Repair Group's inability to cover its fixed cost.

The Repair Group's selling, general and administrative expenses in the nine months ended June 30, 2013 increased $0.1 million to $1.1 million, or 24.7% of net sales, compared with $1.0 million, or 18.5% of net sales, in the comparable period of fiscal 2012.

The Repair Group's operating loss in the nine months ended June 30, 2013 was $1.7 million, or 37.2% of net sales, compared to a loss of $0.9 million, or 15.0% of net sales, in the comparable period of fiscal 2012. The operating loss in the nine months ended June 30, 2013 was negatively impacted by the lower sales volumes in relation to the fixed portion of the Repair Group’s operating cost structure.

~~Corporate Unallocated Expenses~~

Corporate unallocated expenses, consisting of corporate salaries and benefits, legal and professional and other expenses that are not related to and, therefore, not allocated to the business segments, were $4.0 million in the nine months ended June 30, 2013, compared with $2.7 million in the same period of fiscal 2012. This increase is primarily due to $0.8 million of non-recurring severance costs incurred in the nine months ended June 30, 2013. ~~The remaining $0.5 million increase is due to an increase in other compensation and related benefit costs as well as recruiting costs.~~

Other/General

In connection with the October 2011 acquisition of the QAF business, the Company borrowed $12.4 million from its revolving credit agreement and $10.0 million on a term note, and issued a $2.4 million promissory note to the seller of the QAF business. The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s debt agreement in the first ~~nine~~six months of both fiscal ~~2013~~2014 and ~~2012~~:2013:


	Weighted Average Interest Rate Nine Months Ended June 30,				Weighted Average Outstanding Balance Nine Months Ended June 30,		Weighted Average Interest Rate Six Months Ended March 31,				Weighted Average Outstanding Balance Six Months Ended March 31,
	2013		2012		2013	2012	2014		2013		2014	2013
Revolving credit agreement	1.2	%	1.2	%	$ 4.3 million	$ 12.0 million	1.0	%	1.2	%	$ 1.3 million	$ 5.2 million
Term note	2.9	%	2.9	%	$ 7.3 million	$ 9.3 million	2.9	%	2.9	%	$ 5.4 million	$ 7.6 million
Promissory note	2.0	%	2.0	%	$ 2.4 million	$ 2.3 million	2.0	%	2.0	%	$ 0.8 million	$ 2.3 million

Other income, net consists principally of ~~$0.3~~$0.2 million of rental income earned from the lease of the Company's Cork, Ireland facility.

Income ~~from Discontinued Operations, Net of Tax~~Taxes

~~Net income from discontinued operations, net of~~

The Company’s effective tax ~~increased to $2.4 million~~rate in the ~~nine~~first six months ~~ended~~ ~~June 30, 2013~~of fiscal 2014 was 33%, compared ~~with $0.9 million~~to 32% in the comparable period in fiscal 2013, and differs from the U.S. federal statutory rate due primarily to (i) the impact of ~~fiscal~~ ~~2012, primarily due to~~U.S. state and local taxes, (ii) domestic production activities deduction, (iii) application of tax credits, and (iv) the ~~after-tax gain of $2.3 million on the sale of the ASC Group during the first quarter of fiscal 2013.~~

~~Three Months Ended June 30, 2013 compared with Three Months Ended June 30, 2012~~

~~Net sales from continuing operations~~decrease in the third quarter of fiscal 2013 increased 11.0% to $30.3 million, compared with $27.3 million in the comparable period of fiscal 2012. This was due to an increase of $3.0 million or 11.8% in the Forge Group's net sales.reserve for uncertain tax positions.

Income from Continuing Operations

Income from continuing operations, ~~in the third quarter~~net of ~~fiscal 2013~~tax was ~~$2.5~~$2.7 million, or ~~8.4%~~4.8% of net sales, during the first six months of fiscal 2014, compared ~~with $2.1~~to $2.9 million, or ~~7.7%~~5.3% of net sales, in the comparable period of fiscal ~~2012. Net income in~~2013.

(Loss)/Income from Discontinued Operations

Loss from discontinued operations, net of tax, was $0.3 million during the ~~third quarter~~first six months of fiscal ~~2013 was $2.5 million, which was slightly higher than the $2.4~~2014, compared to income from discontinued operations, net of tax, of $1.9 million in the comparable period of fiscal ~~2012.~~2013. This line item consists of income from discontinued operations related to ASC and the Repair Group.

~~SIFCO Forged Components ("Forge Group")~~

The ~~Forge Group's net sales~~loss in fiscal 2014 is due to the shutdown costs and certain minimal continued operating costs associated with the closure of the Repair Group in the ~~third~~first quarter of fiscal 2014. The gain in fiscal 2013 ~~increased 11.8%~~is primarily due to ~~$28.7~~the after-tax gain of $2.5 million ~~compared with $25.6 million in~~on the ~~comparable period~~sale of ~~fiscal 2012.~~

~~Net sales comparative information for~~ASC during the ~~third~~first quarter of fiscal ~~2013 and 2012, respectively, is as follows:~~

172013.

Net Income

(Dollars in millions)
Three Months Ended
June 30,

Increase
(Decrease)
Net Sales 2013 2012
Aerospace components for:
Fixed wing aircraft $ 13.6
$ 13.6
$ —
Rotorcraft 8.7
7.0
1.7
Components for power generation units 4.9
3.9
1.0
Commercial product and other revenue 1.5
1.1
0.4
Total $ 28.7
$ 25.6
$ 3.1

The increase in net sales of forged components for rotorcraft, components for power generation units, and commercial products and other revenue during the quarter ended June 30, 2013, compared with the comparable period of fiscal 2012, is due to higher sales volume .

~~The Forge Group's aerospace components have both military and commercial applications.~~ Net sales of such components that solely have military applications were $10.5 million in the third quarter of fiscal 2013, compared with $8.8 million in the comparable period in fiscal 2012. Demand for additional military helicopters and related replacement components are the primary driver of such military demand.

~~The Forge Group's cost of goods sold in the third quarter of fiscal 2013 increased 8.5% or $1.6 million to $20.9~~income decreased by $2.5 million, or ~~73.1%~~51.1%, to $2.4 million, or 4.3% of net sales, during the first six months of fiscal 2014, compared ~~with $19.3~~to net income of $4.8 million, or ~~75.3%~~8.7% of net sales, in the comparable period of fiscal ~~2012.~~2013. Net income decreased due to discontinued operations as noted above.

Three Months Ended March 31, 2014 compared with Three Months Ended March 31, 2013

Net Sales

Net sales for the second quarter of fiscal 2014 increased 3.7% to $29.0 million, compared to $28.0 million in the comparable period of fiscal 2013. Net sales comparative information for the second quarter of fiscal 2014 and 2013 is as follows:



(Dollars in millions)	Three Months Ended March 31,				Increase (Decrease)
Net Sales	2014		2013		Increase (Decrease)
Aerospace components for:
Fixed wing aircraft	$	14.5	$	13.8	$	0.7
Rotorcraft	6.6		8.3		(1.7		)
Energy components for power generation units	5.4		5.1		0.3
Commercial product and other revenue	2.5		0.8		1.7
Total	$	29.0	$	28.0	$	1.0

Overall, net sales for the Company increased $1.0 million in the second quarter fiscal 2014 compared to the comparable period of fiscal 2013. The ~~change~~Company's higher fixed wing aircraft sales were due primarily to the acquisition of GAF. The Company's lower rotorcraft sales were due primarily to a decrease in demand in the Black Hawk and V-22 military rotorcraft programs. The Company's higher commercial products and other revenue sales were due to sales related to a new ordnance program.

Commercial net sales were 59.1% of total net sales and military net sales were 40.9% of total net sales in the second quarter of fiscal 2014, compared to 55.6% and 44.4%, respectively in the comparable period in fiscal 2013. Military net sales decreased $0.5 million to $11.9 million in the second quarter of fiscal 2014, compared to $12.4 million in the comparable period of fiscal 2013. This was due primarily to a decline in military rotorcraft sales, which was partially offset by an increase in sales due to a new ordnance program.

Cost of Goods Sold

Cost of goods sold increased by $0.6 million, or 2.9%, to $22.7 million during the second quarter of fiscal 2014, compared to $22.1 million in the comparable period of fiscal 2013. The increase in the dollar amount of cost of goods sold ~~is due primarily~~in the second quarter of fiscal 2014 compared to the ~~following factors:~~comparable period of fiscal 2013 was primarily due to higher outside work related to die repair and higher than typical utilities expenses due to the unseasonably cold weather.

~~Material costs decreased 6.9% or $0.6 million to $8.7~~Gross Profit

Gross profit increased by $0.4 million, or ~~30.2%~~6.8%, to $6.3 million during the second quarter of fiscal 2014, compared to $5.9 million in the comparable period of fiscal 2013. Gross profit as a percentage of net sales increased to 21.7% during the second quarter of fiscal 2014, compared ~~with $9.3~~to 21.1% in the comparable period in fiscal 2013. This increase was primarily due product mix.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $3.4 million, or ~~36.3%~~11.9% of net sales, during the second quarter of fiscal 2014, compared to $3.0 million, or 10.6% of net sales in the comparable period of fiscal ~~2012.~~2013. The ~~improvement~~increase in ~~material cost as a percent of net sales is due primarily to product mix and favorable material pricing in the third quarter of fiscal 2013, compared with the comparable period of fiscal 2012.~~

LIFO costs decreased $0.6 million to income of $0.4 million or 1.3% of net sales, compared with expense of $0.2 million or 0.8% of net sales in the comparable period of fiscal 2012. The reduction in LIFO expense is primarily driven by reduction in inventory levels.

All other manufacturing costs increased 29.3% or $2.9 million to $12.7 million, or 44.2% of net sales, compared with $9.8 million, or 38.2% of net sales, in the comparable period of fiscal 2012. Other manufacturing costs were affected by the following components of cost of goods sold:

(Dollars in millions) Three Months Ended June 30,
Increase
(Decrease)
Manufacturing expenditures 2013
2012
Labor and Benefits $ 6.0
$ 5.5
$ 0.5
Inventory Revaluation 0.1
(0.1 ) 0.2
Utilities 1.2
1.0
0.2
Repairs, maintenance and supplies 1.2
1.1
0.1
Net Scrap 0.8
0.4
0.4
Depreciation 0.8
0.8
—
Rent 0.2
0.1
0.1
Tooling 0.8
0.5
0.3

~~The Forge Group's~~ selling, general and administrative expenses in the ~~third~~second quarter of fiscal ~~2013~~2014 was due to increases in compensation and benefit costs, increased ~~3.1% to $2.3 million, or 7.9%~~legal and professional costs, the addition of ~~net sales, compared with $2.2 million, or 8.6% of net sales, in the comparable period of fiscal 2012. Selling, general~~GAF and administrative expenses, excluding amortization of intangible asset, expenses in the quarter ended June 30, 2013 increased 19.2% to $1.8 million, or 6.2% of net sales, compared with $1.5 million, or 5.8% of net sales, in the comparable period of fiscal 2012. This increase is due primarily to an increase in ~~compensation and related benefit costs.~~depreciation expense due to accelerating depreciation on certain computer assets targeted to be replaced by an upcoming ERP system installation, none of which were individually material.

~~The Forge Group's operating income in~~Amortization of Intangibles

Amortization of intangibles was $0.5 million during both the ~~third~~second quarter of fiscal ~~2013 increased 31.9% to $5.5 million, or 19.0% of net sales, compared with $4.1 million, or 16.1% of net sales, in the comparable period of~~2014 and fiscal 2012. The Forge Group's operating income in the third quarter of fiscal 2013 compared to the comparable period in fiscal 2012, was favorably impacted by increased product sales volumes, favorable material pricing, decreased LIFO reserve expenses, and decreased amortization of intangible assets.

~~These were partially offset by higher other manufacturing costs and higher general and administrative compensation and benefit costs.~~

~~Turbine Component Services and Repair ("Repair Group")~~

The Repair Group's net sales in both the third quarter of fiscal 2013 and in the comparable period of fiscal 2012 were $1.6 million. Sales consists principally of component repair services (including precision component machining and industrial coatings) for small aerospace turbine engines.

The Repair Group's gross profit in the third quarter of fiscal 2013 was a loss of $0.2 million, or 11.5% of net sales, compared to a loss of $0.1 million, or 2.8% of net sales, in the comparable period of fiscal 2012. The decrease in gross profit is due primarily to an increase in certain manufacturing costs, primarily supplies, repairs, and outside consulting fees.

The Repair Group's selling, general and administrative expenses in the third quarter fiscal 2013 increased 7.9% to $0.4 million, or 23.3% of net sales, compared with $0.3 million, or 21.3% of net sales, in the comparable period of fiscal 2012.

The Repair Group's operating loss in the third quarter of fiscal 2013 was a loss of $0.6 million, or 34.8% of net sales, compared to a loss of $0.4 million, or 24.1% of net sales, in the comparable period of fiscal 2012. The operating loss in the third quarter of fiscal 2013 was negatively impacted by increases in other manufacturing costs and selling, general and administrative expenses compared to the comparable period of fiscal 2012.

~~Corporate Unallocated Expenses~~

Corporate unallocated expenses, consisting of corporate salaries and benefits, legal and professional and other expenses that are not related to and, therefore, not allocated to the business segments, were $1.3 million in the third quarter of fiscal 2013, compared with $.8 million in the same period of fiscal 2012. The $0.5 million increase is due to an increase in compensation and related benefit costs as well as recruiting costs.2013.

Other/General

In connection with the October 2011 acquisition of the QAF business, the Company borrowed $12.4 million from its revolving credit agreement and $10.0 million on a term note, and issued a $2.4 million promissory note to the seller of the QAF business. The following table sets forth the weighted average interest rates and weighted average outstanding balances under the Company’s debt agreement in the ~~third~~second quarters of both fiscal ~~2013~~2014 and ~~2012~~:2013:


	Weighted Average Interest Rate Three Months Ended June 30,				Weighted Average Outstanding Balance Three Months Ended June 30,		Weighted Average Interest Rate Three Months Ended March 31,				Weighted Average Outstanding Balance Three Months Ended March 31,
	2013		2012		2013	2012	2014		2013		2014	2013
Revolving credit agreement	1.0	%	1.3	%	$ 2.5 million	$ 13.0 million	1.0	%	1.1	%	$ 0.6 million	$ 1.9 million
Term note	2.9	%	2.9	%	$ 6.8 million	$ 8.8 million	2.9	%	2.9	%	$ 5.2 million	$ 7.3 million
Promissory note	2.0	%	2.0	%	$ 2.4 million	$ 2.3 million	—	%	2.0	%	$ 0.0 million	$ 2.3 million

Other income, net consists principally of $0.1 million of rental income earned from the lease of the Company's Cork, Ireland facility.

Income Taxes

The Company’s effective tax rate in the second quarter of fiscal 2014 was 36%, compared to 29% in the comparable period in fiscal 2013, and differs from the U.S. federal statutory rate due primarily to (i) the impact of U.S. state and local taxes, (ii) domestic production activities deduction, (iii) application of tax credits, and (iv) the decrease in the reserve for uncertain tax positions.

The second quarter of fiscal 2014 does not reflect the research credit compared to the similar period in fiscal 2013 as the research credit expired at December 31, 2013.

Income from Continuing Operations

Income from continuing operations, net of tax was $1.5 million, or 5.2% of net sales, during the second quarter of fiscal 2014, compared to $1.8 million, or 6.3% of net sales, in the comparable period in fiscal 2013.

(Loss) from Discontinued Operations ~~Net of Tax~~

~~Net income~~

Loss from discontinued operations, net of tax, was ~~a loss of~~ $0.1 million induring the ~~third~~second quarter of fiscal ~~2013~~,2014, compared ~~with income~~to loss from discontinued operations, net of tax, of $0.3 million in the comparable period of fiscal ~~2012~~.2013. This line item consists of income from discontinued operations related to ASC and the Repair Group.

Net Income

Net income remained the same at $1.4 million, or 4.9% of net sales, during the second quarter of fiscal 2014, compared to net income of $1.4 million, or 5.1% of net sales, in the comparable period in fiscal 2013.

B. Liquidity and Capital Resources

Cash and cash equivalents ~~decreased $2.6~~was $4.5 million ~~to $4.6 million at June 30, 2013 from $7.2 million at~~for both March 31, 2014 and September 30, ~~2012.~~2013. At ~~June 30, 2013,~~March 31, 2014, essentially all of the ~~$4.6~~$4.5 million of the Company’s cash and cash equivalents were in the possession of its non-operating Irish subsidiary. Distributions from the Company’s Irish subsidiary to the Company may be subject to statutory restriction, adverse tax consequences or other limitations.

The Company’s operating activities of ~~continued~~continuing operations provided ~~$3.0~~$8.5 million of cash in the first ~~nine~~six months of fiscal ~~2013~~2014 compared with ~~$4.0~~$1.1 million of cash ~~provided~~used by operating activities of ~~continued~~continuing operations in the first ~~nine~~six months of fiscal ~~2012.~~2013. The cash provided by operating activities of continuing operations in the first ~~nine~~six months of fiscal ~~2013~~2014 was primarily due to net income of ~~$7.3 million;~~$2.4 million and ~~$3.6~~$3.5 million from the impact of such non-cash items as depreciation and amortization expense ~~deferred~~

~~taxes,~~and equity based compensation ~~expense and LIFO income.~~expense. These items were ~~offset~~increased by a ~~$5.6~~$2.3 million increase in net operating assets, primarily consisting of a ~~$1.8~~$2.6 million decrease in accounts receivable; a $2.9 million increase in inventories; a $4.9 million increase in accounts ~~receivable; a $2.4 million increase in inventories;~~payable; and a ~~$1.8~~$2.3 million decrease in ~~accounts payable.~~accrued liabilities and accrued taxes. These changes were due to factors resulting from normal business conditions of the Company, including (i) to support growth in business, (ii) the relative timing of sales and collections from customers, and the relative timing of payments to suppliers and tax authorities.

Capital expenditures were ~~$2.8~~$3.7 million in the first ~~nine~~six months of fiscal ~~2013~~2014 compared with ~~$1.7~~$1.6 million in the comparable ~~fiscal 2012 period. Capital expenditures during the first nine months~~period of fiscal ~~2013 consist of $1.9 million by the Forge Group, $0.3 million by the Repair Group and $0.6 million by Corporate, primarily related to the renovation of the Company’s corporate facilities.~~2013. In addition to the ~~$2.8~~$3.7 million expended during the first ~~nine~~six months of fiscal ~~2013, $0.4~~2014, $4.5 million was committed as of ~~June 30, 2013.~~March 31, 2014. The Company anticipates that total fiscal ~~2013~~2014 capital expenditures will be within the range of ~~$3.5~~$12.0 to ~~$4.5~~$13.0 million and will relate principally to the ~~expansion~~further enhancement of production and product offering capabilities and implementation of a new ERP system.

In the ~~Forge Group’s production capabilities.~~fourth quarter of fiscal 2013, the Company declared a special cash dividend of $0.20 per common share, which resulted in a cash expenditure of $1.1 million during first six months of fiscal 2014.

As described more fully in Note 109 to the unaudited consolidated condensed financial statements, the Company acquired GAF, a forging business, in ~~October 2011~~July 2013 for approximately ~~$24.9 million. The acquisition was financed~~$4.4 million at closing payable in cash by ~~borrowing approximately $22.4 million from its bank, which borrowing consisted of a new $10.0 million term loan and~~ drawing ~~approximately $12.4 million from~~on its revolving credit facility. ~~The balance of the acquisition was financed by the Company issuing a $2.4 million promissory note to the seller.~~

In October 2011, the Company entered into an amendment to its existing credit agreement (the “Credit Agreement Amendment”) with its bank increasing 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 Irish subsidiary. The term loan is repayable in quarterly installments of $0.5 million starting December 1, 2011.

The term loan has a variable interest rate based on ~~Libor,~~LIBOR, 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~~LIBOR plus 0.75% to 1.75%, which percentage fluctuates based on the Company’s leverage ratio of outstanding indebtedness to EBITDA. The bank 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~~In November 2013, the Company repaid a non-interest bearing promissory note that was issued to the seller ~~is non-interest bearing and is due in November 2013.~~of QAF. The Company was in compliance with all applicable loan covenants as of ~~June 30, 2013.~~March 31, 2014.

Future cash flows from the Company’s ~~U.S.~~ operations will be used to pay down amounts outstanding under the Company’s credit agreement. The Company believes it has adequate cash/liquidity available to finance its ~~U.S.~~ operations from the combination of (i) the Company’s expected cash flows from the ~~U.S.~~ operations and (ii) funds available under its existing credit agreement.

As described more fully in Note 1110 to the unaudited consolidated condensed financial statements, the Company exited the Repair Group business in December 2013 and completed the divestiture of its ~~Applied Surface Concepts~~ASC business segment in December 2012. ~~The~~In December

2013, the Company received net cash proceeds of $1.0 million from the sale of the Repair Group's machinery and equipment. In December 2012, the Company received net cash proceeds of approximately $8.1 million from the sale of ASC, net of certain transaction fees. These proceeds were used to pay down the Company’s revolving loan. In conjunction with this divestiture, the Company’s ASC ~~Group~~ non-U.S. subsidiaries paid a $1.1 million cash dividend to the Company. Proceeds from this dividend were used to pay down the Company’s revolving loan during the first quarter of fiscal ~~2013~~

~~C. 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.

Item 4. Controls and Procedures

As defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported on a timely basis, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Company’s disclosure controls and procedures include components of the Company’s internal control over financial reporting. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Management of the Company, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) as of ~~June 30, 2013~~March 31, 2014 (the “Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective. Accordingly, management has concluded that the unaudited consolidated condensed financial statements in this Form 10-Q fairly present, in all material respects, the Company’s financial position, results of operations and cash flows for the periods presented.

There were no changes to the Company’s internal controls over financial reporting during the quarter ended ~~June 30, 2013~~March 31, 2014, which would be expected to have a material effect on financial reporting.

Part II. Other Information

Item 6.(a) Exhibits

The following exhibits are filed with this report or are incorporated herein by reference to a prior filing in accordance with Rule 12b-32 under the Securities and Exchange Act of 1934 (Asterisk denotes exhibits filed with this report.).



Exhibit No.		Description
3.1		Third Amended Articles of Incorporation of SIFCO Industries, Inc., filed as Exhibit 3(a) of the Company’s Form 10-Q dated March 31, 2002, and incorporated herein by reference
*3.2		SIFCO Industries, Inc. Amended and Restated Code of Regulations dated January ~~29, 2002, filed as Exhibit 3(b) of the Company’s Form 10-Q dated March 31, 2002, and incorporated herein by reference~~28, 2014.
4.1		Credit and Security Agreement among Fifth Third Bank and SIFCO Industries, Inc. (and subsidiaries) dated December 10, 2010, filed as Exhibit 4.23 to the Company’s Form 8-K dated December 10, 2010 and incorporated herein by reference
4.2		First Amendment and Joinder to Credit and Security Agreement among Fifth Third Bank and SIFCO Industries, Inc. (and subsidiaries) dated October 28, 2011, filed as Exhibit 4.2 to the Company’s Form 8-K dated October 28, 2011 and incorporated herein by reference
4.3		Second Amendment and Joinder to Credit and Security Agreement among Fifth Third Bank and SIFCO Industries, Inc. (and subsidiaries) dated July 23, 2013, filed as Exhibit 4.3 to the Company’s Form 8-K dated July 23, 2013 and incorporated herein by reference
9.1		Voting Trust Agreement dated January 31, 2013, filed as Exhibit 9.1 to the Company’s Form 10-Q dated December 31, 2012 and incorporated herein by reference
10.1		SIFCO Industries, Inc. 1995 Stock Option Plan, filed as Exhibit 10(d) of the Company’s Form 10-Q dated March 31, 2002, and incorporated herein by reference
~~10.2~~		Change in Control Severance Agreement between the Company and Remigijus Belzinskas, dated September 28, 2000, filed as Exhibit 10(i) of the Company’s Form 10-Q/A dated December 31, 2000, and incorporated herein by reference
~~10.3~~		Amendment No. 1 to Change in Control Severance Agreement between the Company and Remigijus Belzinskas, dated February 5, 2007, filed as Exhibit 10.18 of the Company’s Form 10-Q dated December 31, 2006 and incorporated herein by reference

2118



Exhibit No.		Description
~~10.4~~10.2		SIFCO Industries, Inc. 2007 Long-Term Incentive Plan, filed as Exhibit A of the Company’s Proxy and Notice of 2008 Annual Meeting to Shareholders dated December 14, 2007, and incorporated herein by reference
~~10.5~~10.3		Letter Agreement between the Company and Jeffrey P. Gotschall, dated August 12, 2009 filed as Exhibit 10.1 of the Company’s Form 8-K dated August 12, 2009 and incorporated herein by reference 10.1 of the Company’s Form 8-K dated August 12, 2009 and incorporated herein by reference.
~~10.6~~		~~Interim Chief Executive Officer Agreement, dated as of August 31, 2009, by and among SIFCO Industries, Inc., Aviation Component Solutions and Michael S. Lipscomb and incorporated herein by reference~~
~~10.7~~10.4		Amended and Restated Change in Control and Severance Agreement, between James P. Woidke and SIFCO Industries, Inc., dated April 27, 2010 filed as Exhibit 10.15 of the Company’s Form 8-K dated April 30, 2010, and incorporated herein by reference
~~10.8~~10.5		Asset Purchase Agreement between T&W Forge, Inc and TWF Acquisition, LLC (a wholly-owned subsidiary of SIFCO Industries Inc.) dated December 10, 2010 filed as Exhibit 10.14 to the Company’s Form 8-K dated December 10, 2010, and incorporated herein by reference
~~10.9~~10.6		Amendment No. 1 to the SIFCO Industries, Inc. 2007 Long-Term Incentive Plan, filed as Exhibit A of the Company’s Proxy and Notice of 2011 Annual Meeting to Shareholders dated December 15, 2010, and incorporated herein by reference
~~10.10~~10.7		Asset Purchase Agreement between GEL Industries, Inc (DBA Quality Aluminum Forge) and Forge Acquisition, LLC (a wholly-owned subsidiary of SIFCO Industries Inc.) dated October 28, 2011, filed as Exhibit 10.16 to the Company’s Form 8-K dated October 28, 2011, and incorporated herein by reference
~~10.11~~10.8		Separation Agreement between the Company and Frank Cappello, dated December 31, 2012, filed as Exhibit 10.1 to the Company’s Form 8-K dated January 3, 2013, and incorporated herein by reference
10.9		Change in Control Agreement between the Company and Catherine M. Kramer, dated November 1, 2013, filed as Exhibit 10.1 to the Company's Form 8-K dated November 1, 2013, and incorporated herein by reference
14.1		Code of Ethics, filed as Exhibit 14.1 of the Company’s Form 10-K dated September 30, 2003, and incorporated herein by reference
*31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) / 15d-14(a)
*31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) / 15d-14(a)
*32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
*32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
*101		The following financial information from SIFCO Industries, Inc. Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2013~~March 31, 2014 filed with the SEC on ~~August 8, 2013,~~May 5, 2014, formatted in XBRL includes: (i) Consolidated Condensed Statements of Operations for the fiscal periods ended ~~June 30,~~March 31, 2014 and 2013, ~~and 2012,~~ (ii) Consolidated Condensed Statements of Comprehensive Income for the fiscal periods ended ~~June 30,~~March 31, 2014 and 2013, ~~and 2012,~~ (iii) Consolidated Condensed Balance Sheets at ~~June 30, 2013~~March 31, 2014 and September 30, ~~2012,~~2013, (iv) Consolidated Condensed Statements of Cash Flow for the fiscal periods ended ~~June 30,~~March 31, 2014 and 2013, ~~and 2012,~~ and (iv) the Notes to the Consolidated Condensed Financial Statements.

2219

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned ~~thereto~~thereunto duly authorized.



		SIFCO Industries, Inc.
		(Registrant)

Date: ~~August 8, 2013~~May 5, 2014		/s/ Michael S. Lipscomb
		Michael S. Lipscomb
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: ~~August 8, 2013~~May 5, 2014		/s/ Catherine M. Kramer
		Catherine M. Kramer
		Vice President-Finance and
		Chief Financial Officer
		(Principal Financial Officer)

2320



Balance at September 30, 2012	$	120
Increase due to tax positions taken in current year	60
Balance at June 30, 2013	$	180



	Number of Shares		Weighted Average Fair Value at Date of Grant
Outstanding at September 30, 2012	158		$	18.30
Restricted shares awarded (2013 award)	12		15.50
Restricted shares earned (2012 award)	(5	)	22.00
Performance shares awarded (2013 award)	60		15.98
Performance shares earned (2010 award)	(33	)	16.05
Awards forfeited (various awards)	(38	)	17.00
Outstanding at June 30, 2013	154		$	17.85



	June 30, 2013		September 30, 2012
Identifiable assets:
SIFCO Forged Components	$	87,398	$	84,519
Turbine Component Services and Repair	3,620		3,480
Corporate	10,878		12,063
Assets of business held for sale	—		6,483
Consolidated total assets	$	101,896	$	106,545



	Nine Months Ended June 30, 2012
Net sales	$	83,661
Net income	5,375
Net income per share (basic)	$	1.00
Net income per share (diluted)	1.00