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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended 9/30/97 Commission file number 1-5978
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SIFCO Industries, Inc., and Subsidiaries
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Ohio 34-0553950
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
970 East 64th Street, Cleveland Ohio 44103
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code (216) 881-8600
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Shares, $1 Par Value American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
(TITLE OF CLASS)
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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 AND 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 X NO
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K.
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STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF
THE REGISTRANT. (THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO
THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF
SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF FILING.)
As of December 6, 1997 -- $72,150,098
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INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE (APPLICABLE ONLY TO CORPORATE
REGISTRANTS.)
As of November 30, 1997 -- 5,160,249
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DOCUMENTS INCORPORATED BY REFERENCE: LIST THE FOLLOWING DOCUMENTS IF
INCORPORATED BY REFERENCE AND THE PART OF THE FORM 10-K INTO WHICH THE DOCUMENT
IS INCORPORATED: (1) ANY ANNUAL REPORT TO SECURITY HOLDERS; (2) ANY PROXY OR
INFORMATION STATEMENT; AND (3) ANY PROSPECTUS FILED PURSUANT TO RULE 424(b) OR
(C) UNDER THE SECURITIES ACT OF 1933. (THE LISTED DOCUMENTS SHOULD BE CLEARLY
DESCRIBED FOR IDENTIFICATION PURPOSES.)
Portions of the 1997 Annual Report to Shareholders (Part I, III, IV)
Portions of the Proxy Statement for Annual Meeting of Shareholders on
January 27, 1998 (Part I,II,III)
<PAGE> 2
PART I
ITEM 1. BUSINESS
THE COMPANY
-----------
SIFCO Industries, Inc., an Ohio corporation (the "Company"), was
incorporated in 1916. The executive offices of the Company are located at 970
East 64th Street, Cleveland, Ohio 44103, and its telephone number is (216)
881-8600.
The Company is engaged in the production and sale of a variety of
metal-working processes, services and products produced primarily to the
specific design requirements of its customers. The processes include forging,
heat treating, welding, machining and electroplating; and the products include
forgings, machined forgings and other machined metal parts, remanufactured
component parts for turbine engines, and electroplating solutions and equipment.
The Company engages in international technology transfer and also has marketing
expertise to provide worldwide sourcing and distribution of overseas
manufacturers. The Company's operations are conducted in two segments: (1)
Turbine Component Services and Repair and (2) Aerospace Component Manufacturing.
TURBINE COMPONENT SERVICES AND REPAIR
-------------------------------------
The Company's Turbine Component Services and Repair segment consists of
the repair and remanufacture of jet engine and industrial turbine components;
precision machining for aerospace applications, including subassemblies and
finished replacement parts; and equipment, solutions and contract services in
selective electroplating for aerospace, defense and industrial markets.
AEROSPACE COMPONENT MANUFACTURING
---------------------------------
The Company's Aerospace Component Manufacturing segment consists of the
production and some finishing of forgings in numerous alloys for application in
the aerospace and several sophisticated industrial markets, utilizing a variety
of processes, including conventional and near-net shape hot forging and cold
forging techniques. The Company's forged products include: OEM and aftermarket
parts for aircraft engines; structural airframe components; and land-based gas
turbine engine parts; construction, ordnance and nuclear power components;
valves and other parts for oil drilling and mining equipment; and low and high
pressure closures for boilers.
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COMPETITION; PRINCIPAL CUSTOMERS; BACKLOG
-----------------------------------------
There is active competition among many companies, large and small, in
every one of the services and products offered by the Company. The Company,
however, believes that it offers a wider variety of services than most of its
competitors and is more experienced than most in meeting the exact requirements
and technical specifications of its customers, particularly those in the
aerospace and turbine components repair markets. In addition, the Company has
the ability to use its management and marketing expertise to provide worldwide
sourcing and selling capabilities.
There is excess capacity in many segments of the forging industry which
the Company believes has the effect of increasing competition and limits the
ability to raise prices. The Company feels, however, that its focus on quality
and customer service help to give it an advantage in the markets it serves.
Defense orders can be quite volatile year to year. The decline in
defense spending that occurred in the early nineties negatively impacted both
sales and income of the Company. The growth in the commercial aerospace business
and the turbine component service and repair business since that time has
reduced the impact of defense spending on the Company, with defense business
accounting for 11% to 15% of the Company's sales over the last few years.
The performance of the domestic and international air transport
industries directly and significantly impact our performance. The restructuring
and down turn in the airline industry, in the early nineties, negatively
impacted the sales and income of the Company by increasing price competition for
the available business. Recently there has been a strong resurgence in the
performance of the worldwide airlines industry. The Air Transport Association
predicts a continuation of record profit levels for the industry. Although
historically related, there can be no assurance that record profits for the air
transport industry will translate directly into the particular performance of
the Company.
A reduction in the number of airlines could result in fewer new
aircraft being ordered as the remaining airlines purchase the used aircraft from
the airlines no longer in business. On the other hand, older aircraft require
repairs more frequently than newer aircraft, and this could have a positive
effect on the Company. The airline industry's long term outlook is still for
continued growth in air travel which would suggest the need for newer aircraft
and growth in the requirement for repairs. The Company is not able to quantify
the interplay of these factors.
The Company believes it can partially compensate for these factors
mentioned above by its efforts to broaden its product lines and develop new
geographic markets, customers and technologies.
The identity and rankings of the Company's principal customers vary
from year to year, and the Company relies on its ability to adapt its services
and operations to changing requirements rather than on any high volume
production of a particular item or group of items for a particular
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customer or customers. Sales to the Company's three largest customers were
approximately $9.0 million, $6.5 million and $5.0 million, respectively. Sales
to the Company's next two largest customers were $3.2 million and $2.0 million.
The first and last of the aforementioned companies serve the aerospace market
and the remaining three the airline transportation market. The Company believes
that the total loss of sales of its largest customer or two or more of the four
remaining customers mentioned above would result in a materially adverse impact
on the business and income of the Company. Although there is no assurance that
this will continue, historically as one or more major customers have reduced
their purchases, one or more other customers have increased purchases avoiding a
materially adverse impact on the business or financial results of the Company.
No material part of the Company's business is seasonal.
Information concerning the Company's business, backlog and its
reportable business segments as set forth on pages 5, 6 and 16, respectively, of
the 1997 Annual Report to Shareholders is incorporated herein by reference.
RESEARCH AND DEVELOPMENT; PATENTS; RAW MATERIALS
------------------------------------------------
The forging, machining, development of remanufacturing processes, or
other preparation of prototype parts to customers' specifications for use in
their research and development of new parts or designs has been an ordinary
portion of the Company's business. Apart from such work, the Company has spent
no material amount of time or money on research and development activities; and
the accounting records of the Company do not differentiate between work on
orders for customer research and development and work on other customer orders.
The Company uses in its business various trademarks, trade names,
patents, trade secrets and licenses. A number of these licenses are important to
the Company and a loss of them could have a negative impact on the Company.
The Company has many sources for the raw materials, primarily high
quality steel, investment castings and chemicals essential to this business.
Suppliers of such materials are located in many areas throughout the country.
The Company does not depend on a single source for the supply of its materials
and believes that its sources are adequate for its business.
ENVIRONMENTAL REGULATIONS
-------------------------
In common with other companies engaged in similar businesses, the
Company has been required to comply with various laws and regulations relating
to the protection of the environment. The costs of such compliance have not had,
and are not presently expected to have, a material effect on the capital
expenditures, earnings or competitive position of the Company and its
subsidiaries under existing regulations and interpretations.
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EMPLOYEES
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The number of the Company's employees increased from 684 at the
beginning of the fiscal year to 770 at the end of the fiscal year.
ITEM 2. PROPERTIES
The Company's fixed assets include the plants described below and a
substantial quantity of machinery and equipment, most of which is general
purpose machinery and equipment using special jigs, tools and fixtures and in
many instances having automatic control features and special adaptions. The
Company's plants, machinery and equipment are in good operating condition, are
well-maintained and substantially all of its facilities are in regular use. The
Company considers the present level of fixed assets capitalized as of September
30, 1997 suitable and adequate given the current product offerings for the
respective business segments' operations in the current business environment.
The square footage numbers set forth in the following paragraphs are
approximations.
The Turbine Component Services and Repair segment has seven plants with
a total of 271 thousand square feet. Five of these plants with a total of 227
thousand square feet are for the repair and remanufacture jet engine and
industrial turbine components. Three of these plants are located in Cork,
Ireland (126 thousand square feet), one in Minneapolis, Minnesota (59 thousand
square feet) and one in Tampa, Florida (42 thousand square feet). A portion of
the Minneapolis plant is also the site of the Company's machining operations.
Selective Plating has two plants, one of which is located in
Independence, Ohio (34 thousand square feet), and a leased facility in Redditch,
England (10 thousand square feet).
The Company also leases space for sales offices and/or its contract
plating services in Norfolk, Virginia; Hartford (East Windsor), Connecticut; Los
Angeles (San Dimas), California; and Tacoma, Washington.
Selective Plating also leases sales office space in Saint-Maur, France.
The Aerospace Component Manufacturing segment has one plant of 223
thousand square feet located in Cleveland, Ohio. This facility is also the site
of the Company's corporate headquarters.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The information required by Item 5 is incorporated herein by reference
to pages 1, 7 and 11 of the Annual Report to Shareholders for the year ended
September 30, 1997. As of November 1, 1997, the Company had 776 shareholders of
record.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 is incorporated herein by reference
to page 7 of the Annual Report to Shareholders for the year ended September 30,
1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by Item 7 is incorporated herein by reference
to pages 5 and 6 of the Annual Report to Shareholders for the year ended
September 30, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by Item 8 are incorporated herein by
reference to pages 8 through 16, inclusive, of the Annual Report to Shareholders
for the year ended September 30, 1997.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT
The information required by Item 10 as to Directors of the Registrant,
is incorporated herein by reference to the information set forth on pages 4
through 6 of the Proxy Statement for the Annual Meeting of Shareholders to be
held January 27, 1998.
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT
The Executive Officers of the Company are elected annually to serve
for one-year terms or until their successors are elected and qualified. The
officers listed below were elected January 28, 1997.
<TABLE>
<CAPTION>
Name Age Title and Business Experience
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<S> <C> <C>
Charles H. Smith, Jr. (1) 77 Director since 1941; Chairman of the Board; Mr. Smith
previously served the Company as its Chief Executive
Officer from January 1943 until February 1983.
Jeffrey P. Gotschall (1) 49 Director since October 1986; Chief Executive Officer
since July 1990; President since October 1989 and Chief
Operating Officer from October 1986 to July 1990;
Mr. Gotschall previously served the Company from October
1986 through September 1989 as Executive Vice President
and from May 1985 through February 1989 as President of
SIFCO Turbine Component Services.
George D. Gotschall (1) 77 Director from 1950 to 1958 and continuously since 1962;
Mr. Gotschall is Assistant Secretary of the Company and
previously served the Company until February 1983 as Vice
President--International and Treasurer.
Richard A. Demetter 57 Vice President-Finance since January 1979; Chief Financial
Officer since January 1984, and previously Controller from
November 1976 to January 1984.
</TABLE>
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PART III (CONTINUED)
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT
(continued)
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT (CONTINUED)
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<TABLE>
<CAPTION>
Name Age Title and Business Experience
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<S> <C> <C>
Hudson D. Smith (1) 46 Director since 1988. Treasurer of the Company
since 1983; Vice President and General
Manager of SIFCO Forge Group since February
1995; General Manager of SIFCO Forge Group's
Cleveland Operations from October 1989
through January 1995; Group General Sales
Manager of SIFCO Forge Group from July 1985
through September 1989.
Timothy V. Crean 48 Managing Director of the SIFCO Turbine
Components Group since October 1995, and
Managing Director of SIFCO Turbine
Components, Ltd. since November 1986.
Mara L. Babin, Esq. 47 Secretary since July 1980, and General
Counsel since 1985, Ms. Babin is a partner in
the law firm of Squire, Sanders & Dempsey and
has been an attorney with the firm since
1975.
</TABLE>
(1) Charles H. Smith, Jr. and George D. Gotschall are brothers-in-law.
Hudson D. Smith is the son of Charles H. Smith, Jr. Jeffrey P. Gotschall is the
son of George D. Gotschall.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by
reference to pages 10 through 15 of the Proxy Statement for the Annual Meeting
of Shareholders to be held January 27, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by
reference to the information set forth on pages 2 through 8 of the Proxy
Statement for the Annual Meeting of Shareholders to be held January 27, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
---------------------
The following consolidated financial statements and related notes of
the Registrant and its subsidiaries contained on pages 8 through 16, inclusive,
of the Annual Report to Shareholders for the year ended September 30, 1997, are
incorporated herein by reference.
Consolidated Balance Sheets - September 30, 1997 and 1996.
Consolidated Statements of Income for the Years Ended September 30,
1997, 1996 and 1995.
Consolidated Statements of Shareholders' Equity for the Years Ended
September 30, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the Years Ended September
30, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements for the Years Ended
September 30, 1997, 1996 and 1995.
Report of Independent Public Accountants.
(a) (2) Financial Statement Schedules:
------------------------------
Report of Independent Public Accountants on the Financial Statement
Schedules.
Schedule II -- Allowance for Doubtful Accounts for the Years
Ended September 30, 1997, 1996 and 1995.
All schedules, other than Schedules II are omitted since the
information is not required or is otherwise furnished.
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PART IV (continued)
(a) (3) Exhibits:
---------
** (3) Second Amended Articles of Incorporation, as amended,
and Amended Code of Regulations.
*** (4) Instruments defining the rights of security
holders. Reference is made to Exhibit (3) above and
to Note 2, page 10 of the 1986 Annual Report to
Shareholders.
**** (9) Voting Trust Agreement, as amended.
(10) Material Contracts:
*****) (a) 1989 Stock Option Plan
# (b) Incentive Compensation Plan, as amended and restated
# (c) Deferred Compensation Program, as amended and
restated
****) (d) Form of Indemnification Agreement between the
Registrant and each of its Directors and Executive
Officers
*) (e) 1994 Phantom Stock Plan
(13) 1997 Annual Report to Shareholders
***** (21) Subsidiaries of the Registrant
(23) Consent of Arthur Andersen LLP
(24) Powers of Attorney
*) Incorporated herein by reference to Exhibit A to the
Proxy Statement for the Annual Meeting of
Shareholders held January 31, 1995.
**) Incorporated herein by reference to Form 10-K,
September 30, 1986
***) Incorporated herein by reference to Form 10-K,
September 30, 1987
****) Incorporated herein by reference to Form 10-K,
September 30, 1988
*****) Incorporated herein by reference to Form 10-K,
September 30, 1989
# Incorporated herein by reference to Form 10-K,
September 30, 1995
(27) Financial Data Schedule
(99) Report of Independent Public Accountants On The
Financial Statement Schedule II
(b) (1) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the last quarter of
the fiscal year ended September 30, 1997.
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SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIFCO INDUSTRIES, INC.
By: /*/ Richard A. Demetter
-----------------------------
Richard A. Demetter
Chief Accounting Officer
Date: December 15, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed below on December 18, 1997 by the following
persons on behalf of the Registrant in the capacities indicated.
<TABLE>
<S> <C>
/*/ Charles H. Smith, Jr. /*/ Richard S. Gray
- ------------------------------ -------------------------
Charles H. Smith, Jr. Richard S. Gray
Chairman of the Board; Director
Director
/*/ Jeffrey P. Gotschall /*/ William R. Higgins
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Jeffrey P. Gotschall William R. Higgins
President; Chief Executive Officer; Director
Director
/*/ Richard A. Demetter /*/ David V. Ragone
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Richard A. Demetter David V. Ragone
Vice President-Finance; Chief Financial Officer Director
/*/ George D. Gotschall /*/ Thomas J. Vild
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George D. Gotschall Thomas J. Vild
Assistant Secretary; Director Director
/*/ Hudson D. Smith /*/ J. Douglas Whelan
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Hudson D. Smith J. Douglas Whelan
Treasurer; Director Director
/*/ Richard A. Demetter
-------------------------
(Attorney in Fact)
</TABLE>
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EXHIBIT 13
<TABLE>
<CAPTION>
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Years Ended September 30 1997 % Change 1996 % Change 1995
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<S> <C> <C> <C> <C> <C>
Net sales $108,790 27.4% $85,420 25.4% $68,134
Net income 7,076 5,608 2,812
Net income per share 1.36 1.09 .55
Dividends per share .15 .10 ----
Shareholders' equity per share 7.86 12.1% 7.01 15.9% 6.05
Stock price range (high-low) 21 1/4 - 9 5/8 10 1/4 - 3 3/4 5 9 /16 - 2 15/16
Shares outstanding 5,160 5,127 5,092
Number of shareholders 766 815 835
Return on beginning shareholders' equity 19.7% 18.2% 10.3%
Long-term debt/equity percent 28.9% 29.4% 35.3%
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</TABLE>
*Includes reversal of restructuring charge to income of $1,512
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF BUSINESS
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OPERATIONS 1995-1997
1995
IN 1995, NET SALES increased to $68.1 million from $61.4 million or
approximately 11% with Turbine Component Services and Repair increasing 9% and
Aerospace Component Manufacturing increasing 15%. Defense-related sales
increased to $9.3 million from $7.0 million in 1994. Income before income taxes
was $3.1 million compared with $.270 million in 1994. The Company completed the
restructuring of the Aerospace Component Manufacturing business in the second
quarter of fiscal 1995 and income before income taxes for fiscal 1995, as well
as the second quarter, includes the reversal to income of $1.5 million of the
restructuring reserve. Income before income taxes in fiscal 1994 included a gain
of $.25 million from the sale of investments.
TURBINE COMPONENT SERVICES AND REPAIR SALES increased $3.8 million to $47.4
million from $43.6 million in 1994. Defense-related sales were $.7 million
compared with $1.0 million last year. Turbine Component Services and Repair
income from operations before corporate and interest expense increased to $3.6
million from $3.2 million in 1994. Increased activity from airline repair
customers was the primary source of the increase.
AEROSPACE COMPONENT MANUFACTURING SALES increased $2.8 million to $21.3 million
from $18.5 million in 1994. Defense-related sales were $8.6 million compared
with $6.0 million in 1994. Aerospace Component Manufacturing income from
operations before corporate and interest expense increased to $2.1 million
(including the reversal to income of $1.5 million of the restructuring reserve
mentioned above) compared with a $.9 million loss in 1994.
TOTAL NEW ORDERS FOR FISCAL 1995 increased to $72.0 million from $66.6 million
in 1994. Defense orders declined to $4.4 million from $11.5 million last year. A
retrofit of the CH-46 helicopter accounted for $7.0 million of defense orders in
1994.
1996
IN 1996, NET SALES increased to $85.4 million from $68.1 million, or
approximately 25%, with Turbine Component Services and Repair increasing 24% and
Aerospace Component Manufacturing increasing 27%. Defense-related sales
increased to $11.0 million from $9.3 million in 1995. Income before income taxes
was $4.7 million compared with $3.1 million in 1995. The Company completed the
restructuring of the Aerospace Component Manufacturing business in the second
quarter of fiscal 1995 and income before income taxes for fiscal 1995, as well
as the second quarter, includes the reversal to income of $1.5 million of the
restructuring reserve.
TURBINE COMPONENT SERVICES AND REPAIR SALES increased $11.3 million to $58.7
million from $47.4 million in 1995. Defense-related sales were $1.2 million, an
increase from $.7 million in 1995. Turbine Component Services and Repair income
from operations before corporate and interest expense increased to $5.9 million
from $3.6 million in 1995. Increased activity from airline repair customers was
the primary source of the increase.
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================================================================================
AEROSPACE COMPONENT MANUFACTURING SALES increased $5.8 million to $27.1 million
from $21.3 million in 1995. Defense-related sales were $9.8 million compared
with $8.6 million in 1995. Aerospace Component Manufacturing's income from
operations before corporate and interest expense increased to $1.7 million from
$.6 million in 1995, excluding the reversal to income in 1995 of the $1.5
million of the restructuring reserve mentioned above.
THE COMPANY'S TOTAL NEW ORDERS FOR FISCAL 1996 increased to $99.7 million from
$72.0 million in 1995. Defense orders increased to $17.8 million from $11.5
million last year. Backlog at September 30, 1996 and 1995 was $42.9 million and
$28.6 million, respectively.
1997
IN 1997 NET SALES rose to $108.8 million from $85.4 million in 1996, which is
our first $100 million sales year. This represents an increase of 27% from last
year's sales. Income before income taxes rose to $9.1 million from $4.7 million
last year or 94%. Net income per share was $1.36 compared to $1.09 last year.
Net income for 1996 and the fourth quarter of 1996 were increased by unusual
circumstances involving non-recurring items which include a valuation reserve
established in 1994 for deferred taxes that was reversed because of improved
profitability. This reserve reversal added $.25 per share to net income. In
addition, a tax benefit from the closing and consolidation of certain foreign
operations to improve the Company's effectiveness in selected markets added $.10
per share to net income.
TURBINE COMPONENT SERVICES AND REPAIR sales rose to $69.3 million from $58.7
million last year or 18%. Income from operations before corporate and interest
expense rose to $9.0 million from $5.9 million or 53%. Increased activity from
airline repair customers and a better product mix were the primary source of the
improved operating performance.
AEROSPACE COMPONENT MANUFACTURING sales increased 46% to $39.6 million from
$27.1 million last year. Income from operations before corporate and interest
expense was $3.5 million, an increase of 106% from $1.7 million last year as a
result of the higher operating levels and improved efficiencies.
The Company's total new orders for fiscal 1997 increased to $112.4 million
compared to $99.7 million in 1996. The following is a breakout by business
segment: Turbine Component Services and Repair, $69.0 million and $64.0 million,
respectively; and Aerospace Component Manufacturing, $43.4 million and $35.7
million, respectively.
The Company's backlog as of September 30, 1997 and 1996 was $44.9 million and
$42.9 million, respectively. The following is a breakout of the backlog by
business segment: Turbine Component Services and Repair, $11.6 million and $13.4
million, respectively; and Aerospace Component Manufacturing, $33.3 million and
$29.5 million, respectively. Approximately 3% of 1997's backlog is on hold and
9% is scheduled for delivery beyond fiscal 1998.
FINANCIAL POSITION
The Company's long-term debt as a percentage to equity at the end of the year
was 28.9% compared to 29.4% in 1996. As of September 30, 1997 the Company had
$4.5 million outstanding against its $9 million revolving credit agreement which
expires March 31, 1999. The Company feels it has adequate credit availability to
meet its requirements in the coming year.
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SELECTED FINANCIAL DATA
SIFCO INDUSTRIES, INC., AND SUBSIDIARIES
For the years ended September 30
($000 omitted except for per share data)
================================================================================
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 108,790 $ 85,420 $ 68,134 $ 61,429 $ 51,897
Operating income (loss) 9,123 4,694 3,067 24 (10,297)
Net gain on disposal of investments -- -- -- 246 --
Income tax (provision) benefit (2,047) 914 (255) (215) 1,196
Net income (loss) 7,076 5,608 2,812 55 (9,101)
Net income (loss) per share 1.36 1.09 .55 .01 (1.80)
Cash dividends per share .15 .10 -- -- --
Shareholders' equity 40,568 35,957 30,805 27,270 25,814
Shareholders' equity per
share at year end 7.86 7.01 6.05 5.39 5.16
Return on beginning
shareholders' equity 19.7% 18.2% 10.3% 0.2% (24.1)%
Long-term debt 11,716 10,575 10,875 6,975 7,875
Long-term debt to equity percent 28.9% 29.4% 35.3% 25.6% 30.5%
Working capital 24,520 20,860 16,671 9,675 5,234
Current ratio 2.3 2.2 2.2 1.6 1.3
Net property, plant and equipment 24,714 23,200 23,460 21,476 22,745
Total assets 74,444 67,970 60,682 55,784 54,924
Shares outstanding
at year end 5,160 5,127 5,092 5,062 5,003
<FN>
*Includes restructuring expense of $6,500.
**Includes reversal of restructuring charge to income of $1,512
</TABLE>
7
<PAGE> 5
CONSOLIDATED STATEMENTS OF INCOME
SIFCO INDUSTRIES, INC., AND SUBSIDIARIES
For the years ended September 30
($000 omitted except for per share data)
================================================================================
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 108,790 $ 85,420 $ 68,134
Costs and expenses:
Cost of goods sold (Note 1) 85,049 67,714 54,898
Selling, general and administrative expenses 14,224 12,335 11,106
Interest income (132) (120) (154)
Interest expense 1,141 1,141 1,091
Reversal of restructuring reserve (Note 1) --- --- (1,512)
Other (income) expense, net (Note 1) (615) (344) (362)
--------- --------- ---------
99,667 80,726 65,067
--------- --------- ---------
Income before income taxes 9,123 4,694 3,067
Income tax (provision) benefit (Note 3) (2,047) 914 (255)
--------- --------- ---------
Net income 7,076 $ 5,608 $ 2,812
========= ========= =========
Net income per share $ 1.36 $ 1.09 $ .55
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
8
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
SIFCO INDUSTRIES, INC., AND SUBSIDIARIES
September 30
($000 omitted except for per share data)
================================================================================
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 2,998 $ 2,130
Receivables, less allowance for doubtful accounts
of $829 in 1997 and $709 in 1996 20,516 17,929
Inventories (Note 1) 19,846 17,789
Refundable income taxes (Note 3) -- 193
Prepaid expenses and other current assets 689 627
------- -------
Total current assets 44,049 38,668
------- -------
PROPERTY, PLANT AND EQUIPMENT AT COST (NOTES 1 AND 2):
Land 855 855
Buildings 15,251 14,422
Machinery and equipment 47,631 45,359
------- -------
63,737 60,636
Less accumulated depreciation and amortization 39,023 37,436
------- -------
24,714 23,200
------- -------
OTHER ASSETS:
Goodwill, net of amortization (Note 1) 3,864 3,980
Deferred charges and other (Note 1) 1,817 2,122
------- -------
5,681 6,102
------- -------
$74,444 $67,970
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 2) $ 1,256 $ 2,500
Accounts payable 10,497 9,402
Accrued salaries and wages 1,279 974
Accrued workers' compensation 594 500
Other accrued expenses 5,675 4,432
Accrued income taxes (Note 3) 228 ---
------- -------
Total current liabilities 19,529 17,808
------- -------
LONG-TERM DEBT, NET OF CURRENT MATURITIES (NOTE 2) 11,716 10,575
------- -------
OTHER LONG-TERM LIABILITIES (NOTE 1) 2,631 3,630
------- -------
SHAREHOLDERS' EQUITY (NOTE 2):
Serial preferred shares, no par value, authorized 1,000,000
shares in 1997 and 1996 --- ---
Common shares, par value $1 per share, authorized 10,000,000 shares, issued
and outstanding 5,159,708 shares in 1997 and 5,126,604 shares in 1996 5,160 5,127
Capital in excess of par value 6,101 5,978
Earnings retained for use in the business 29,307 24,852
------- -------
Total shareholders' equity 40,568 35,957
------- -------
$74,444 $67,970
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
9
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIFCO INDUSTRIES, INC., AND SUBSIDIARIES
For the years ended September 30
($000 omitted)
================================================================================
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net income $ 7,076 $ 5,608 $2,812
Adjustments to reconcile net
income to net cash provided
by (used for) operating activities:
Depreciation and amortization 3,681 3,566 3,416
Loss on disposal of property, plant and equipment 370 90 40
Deferred income taxes (482) (1,177) 33
Non-cash restructuring expense (reversal) --- --- (1,512)
------- -------- ---------
10,645 8,087 4,789
NET CASH PROVIDED BY (USED FOR) CHANGES IN OPERATING
ASSETS AND LIABILITIES:
Receivables (2,587) (2,808) (2,238)
Inventories (2,057) (4,504) (2,945)
Accrued or refundable income taxes 421 (220) 1,066
Prepaid expenses and other current assets (62) (82) (129)
Accounts payable 1,095 2,738 458
Accrued salaries and wages 305 316 120
Other accrued expenses 1,337 319 571
Accrued restructuring expense --- --- (1,174)
------- -------- ---------
(1,548) (4,241) (4,271)
------- -------- ---------
Net cash provided by (used for) operating activities 9,097 3,846 518
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (6,613) (3,388) (4,890)
Decrease in funds held by trustee for capital project --- 472 261
Other (1,513) (169) 277
------- -------- ---------
Net cash provided by (used for) investing activities (8,126) (3,085) (4,352)
------- -------- ---------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES:
Proceeds from additional borrowings 6,000 2,200 3,800
Repayment of borrowings (6,103) (2,300) (1,900)
Grants received from Irish government agency --- --- 1,147
------- -------- ---------
Net cash provided by (used for) financing activities (103) (100) 3,047
------- -------- ---------
Increase (decrease) in cash and cash equivalents 868 661 (787)
Cash and cash equivalents, beginning of year 2,130 1,469 2,256
------- -------- ---------
Cash and cash equivalents, end of year $ 2,998 $ 2,130 $ 1,469
======= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
10
<PAGE> 8
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SIFCO INDUSTRIES, INC., AND SUBSIDIARIES
For the years ended September 30
(000 omitted except for per share data)
================================================================================
<TABLE>
<CAPTION>
Earnings
Retained
Common Capital in for Use
Shares Excess of in the
$1 Par Value Par Value Business
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE - September 30, 1994 $ 5,062 $ 5,849 $ 16,359
Net income -- -- 2,812
Shares issued to Employees' Thrift Plan 9 25 --
Stock options exercised, net of shares surrendered 21 (1) --
Foreign currency translation adjustment -- -- 669
- -------------------------------------------------------------------------------------------------------
BALANCE - September 30, 1995 $ 5,092 $ 5,873 $ 19,840
Net income -- -- 5,608
Shares issued to Employees' Thrift Plan 7 30 --
Shares issued to vendors as payment for services 11 29 --
Stock options exercised, net of shares surrendered 17 46 --
Foreign currency translation adjustment -- -- (83)
Dividends declared ($.10 per share) -- -- (513)
- -------------------------------------------------------------------------------------------------------
BALANCE - September 30, 1996 $ 5,127 $ 5,978 $ 24,852
Net income -- -- 7,076
Shares issued to Employees Thrift Plan 4 51 --
Shares issued to vendors as payment for services 3 29 --
Stock options exercised, net of shares surrendered 26 43 --
Foreign currency translation adjustment -- -- (1,847)
Dividends declared ($.15 per share) -- -- ( 774)
- -------------------------------------------------------------------------------------------------------
BALANCE - September 30, 1997 $ 5,160 $ 6,101 $ 29,307
=======================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
STOCK PRICES BY QUARTERS
(AMEX)
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------
High Low High Low
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter 113/8 95/8 53/8 33/4
Second Quarter 121/2 10 7 45/8
Third Quarter 147/8 101/4 9 67/16
Fourth Quarter 211/4 141/8 101/4 75/8
</TABLE>
11
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIFCO INDUSTRIES, INC., AND SUBSIDIARIES
September 30, 1997, 1996 and 1995
================================================================================
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
B. RESTRUCTURING EXPENSE:
In the fourth quarter of 1993, the Company recorded a restructuring charge of
$6.5 million for which no tax benefit was provided. The charge represented the
estimated reduction of the carrying value of certain Aerospace Component
Manufacturing assets and costs associated with downsizing the Cleveland Forge
operation. During 1994, the Company began implementing its plan to restructure
the Aerospace Component Manufacturing operations. The restructuring was
completed in the second quarter of fiscal 1995 and $1.512 million of the
restructuring reserve was reversed to income. Activities charged to the
restructuring reserve in fiscal 1995 are as follows:
<TABLE>
<CAPTION>
(000's omitted)
Cash 1995
- ---- ----
<S> <C>
Severance and other $ 75
Professional and other restructuring costs 78
--------
153
========
Non-Cash
- --------
Write-off of property, plant,
equipment and investments 15
Disposal of unsaleable inventory 14
Write-off of accounts receivable 113
Health care benefits 227
Employee claim settlements 541
Other 111
--------
1,021
--------
TOTAL $ 1,174
========
</TABLE>
C. INVENTORY VALUATION:
Inventories are stated at the lower of cost or market and include the cost of
material, labor and factory overhead.
Inventories entering into the determination of cost of sales are summarized
as follows:
<TABLE>
<CAPTION>
($000 omitted)
1997 1996
---- ----
<S> <C> <C>
Last-in, first-out cost $ 7,324 $ 7,514
First-in, first-out or average cost 12,522 10,275
-------- --------
$ 19,846 $ 17,789
======== ========
</TABLE>
Under the average cost method of accounting, LIFO inventories would have been
$4,372,000 and $3,570,000 higher than reported at September 30, 1997 and 1996,
respectively. The inventories at September 30, 1997 and 1996, respectively,
consisted of raw materials and supplies of $6,032,000 and $5,067,000, and
finished goods and work-in-process of $13,814,000 and $12,722,000.
D. DEPRECIATION POLICY:
For financial reporting purposes, the Company provides for depreciation of plant
and equipment, principally by the straight-line method, at annual rates
sufficient to amortize the cost over each asset's expected useful life. For tax
purposes, the Company uses various accelerated methods and provides for the
related deferred taxes. The principal rates of depreciation for financial
reporting purposes are: buildings 2% to 5% and machinery and equipment 5% to
33-1/3%.
E. GOODWILL:
Goodwill of $4,637,000, less accumulated amortization of $773,000 and $657,000
at September 30, 1997 and 1996, respectively, represents the excess of cost
over the net assets of acquired companies, and is being amortized over 40
years. The Company uses an undiscounted cash flow method to periodically review
the value of goodwill and other tangible assets and believes such assets are
realizable.
F. PENSIONS AND THRIFT PLANS:
The Company and its domestic subsidiaries sponsor five pension plans covering
substantially all United States employees. Two of the plans are multi-employer
defined contribution plans. Three of the plans are single employer
defined benefit plans. The Company's funding policy for defined benefit plans is
based on an actuarially determined cost method allowable under Internal Revenue
Service regulations.
The defined contribution plans are funded monthly. Pension costs charged to
operations for these plans were $43,000 in 1997, $32,000 in 1996, and $37,000
in 1995.
Net pension expense for the defined benefit plans for 1997, 1996, and 1995
consisted of the following components:
<TABLE>
<CAPTION>
($000 omitted)
1997 1996 1995
---- -------------
<S> <C> <C> <C>
Service cost - benefits earned
during the year $ 416 $ 398 $ 397
Interest cost on projected
benefit obligation 705 652 635
Actual return on plan assets (1,504) (1,042) (1,557)
Net amortization and deferral 763 318 955
------ ------ -------
Total Expense $ 380 $ 326 $ 430
====== ====== =======
</TABLE>
Assumptions used in accounting for the defined benefit pension plans as of
September 30, 1997, 1996, and 1995 were:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Weighted average discount rate
used for ending liabilities 7.50% 7.75% 7.50%
Weighted average discount rate
used for expense 7.75% 7.50% 8.25%
Rate of increase in compensation levels 4.00% 4.00% 4.00%
Expected long-term investment rate 8.50% 8.50% 8.50%
</TABLE>
12
<PAGE> 10
NOTES CONTINUED
================================================================================
The following table sets forth the funded status of the defined benefit plans
and the amounts shown in the Consolidated Balance Sheets as of September 30,
1997 and 1996:
<TABLE>
<CAPTION>
Plans with Assets Plans with Accum-
in Excess of lated Benefit
Accumulated Obligations in
Benefit Obligations Excess of Assets
($000 omitted)
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Plan assets at fair value,
primarily listed stocks,
funds, and bonds $ 9,798 $ 8,268 $ 961 $ 710
Actuarial present value of
the benefit obligation
Vested (6,829) (6,027) (1,003) (859)
Non-vested (411) (333) (144) (130)
------- ------- ------- -------
Accumulated benefit obligation (7,240) (6,360) (1,147) (989)
Projected effect of future
salary increases (1,808) (1,411) --- --
------- ------- ------- -------
Total projected benefit obligation (9,048) (7,771) (1,147) (989)
------- ------- ------- -------
Plan assets over (under)
projected benefit obligation 750 497 (186) (279)
Unrecognized prior service cost (167) (179) 81 98
Unrecognized net (gain) loss (1,875) (1,535) 63 103
Additional liability --- -- (224) (291)
Unrecognized transition
(asset) obligation (135) (170) 80 90
------- ------- ------- -------
Pension liability at end of year (1,427) $(1,387) (186) $ (279)
======= ======= ======= =======
</TABLE>
The employees in Ireland are covered by a pension plan, the cost of which
currently is accrued and fully funded.
All non-union employees of the Company and its domestic subsidiaries are
eligible to participate in the Company's thrift plan. The total costs for 1997,
1996 and 1995 were $71,000, $60,000, and $59,000, respectively.
G. NET INCOME PER SHARE:
Net income per share has been computed based upon the weighted average number of
common shares outstanding during the year and common share equivalents. The
weighted average number of common shares and common share equivalents was
5,183,935 in 1997, 5,124,075 in 1996, and 5,082,788 in 1995.
H. DEFERRED CHARGES AND OTHER:
The Company has classified in Deferred Charges and Other the net unamortized
cost of a 10-year non-competition agreement with the former owner of an acquired
company. This amounted to $2,000,000 less accumulated amortization of $1,050,000
and $850,000 as of September 30, 1997 and 1996, respectively.
I. CASH FLOW:
The Company considers all highly liquid short-term investments with original
maturities of three months or less to be cash equivalents.
Gross interest paid amounted to $1,272,000, $1,194,000, and $1,047,000 in
1997, 1996 and 1995, respectively. Income taxes paid (refunded) were $1,578,000,
$35,000, and ($1,021,000) in 1997, 1996 and 1995, respectively.
J. OTHER INCOME:
Other income is comprised primarily of grant income from Irish government
agencies, foreign exchange gains and losses, and royalty and fee income.
K. OTHER LONG TERM LIABILITIES:
The Company receives grants and subsidies from the Republic of Ireland as an
incentive to invest in manufacturing facilities in that country. These grants
and subsidies require that the Company maintain operations in that country for
10 years in order to qualify for the full value of the benefits received.
The Company's liability for the unearned portion of these items amounted to
$2,227,000 and $2,807,000 at September 30, 1997 and 1996, respectively, and is
included in other long term liabilities.
L. MANAGEMENT ESTIMATES:
The Company prepares its financial statements in accordance with generally
accepted accounting principles, which requires management to make estimates and
assumptions that affect amounts reported in the financial statements for the
reporting period. Actual results could differ from those estimates and
assumptions. These estimates and assumptions are revised as necessary.
13
<PAGE> 11
NOTES CONTINUED
================================================================================
2. DEBT
Long-term debt as of September 30, 1997 and 1996 consisted of:
<TABLE>
<CAPTION>
($000 omitted)
1997 1996
---- ----
<S> <C> <C>
Variable Rate Industrial Development
Revenue Improvement
and Refunding Bonds $ 1,900 $ 2,300
Notes payable to bank, due in
quarterly installments of $214,000,
plus interest, at base rate
with LIBOR option 5,572 --
Notes payable to bank -- 2,375
Note payable to bank, due
October 31, 1998, interest
payable quarterly, at rates
based upon LIBOR and
DIBOR (adjusted
quarterly) 1,000 1,000
Note payable to seller of
acquired business, at the base rate
plus 1/2% --- 1,000
Note payable under revolving credit
agreement, at the base rate with
LIBOR option 4,500 6,400
------- -------
12,972 13,075
Less - current maturities 1,256 2,500
------- -------
11,716 $10,575
======= =======
</TABLE>
The Company has a $9 million revolving credit agreement which expires March
31, 1999. As of September 30, 1997, the Company had $4.5 million outstanding
under this agreement. In addition, the Company has a $1.15 million credit
facility which is used for an irrevocable letter of credit which secures the $1
million loan from an Irish bank due October 31, 1998. A commitment fee of 1/4%
is incurred on the remaining unused balance. Interest is payable quarterly. The
average balance outstanding against the remaining capacity was $4.8 million,
$5.4 million, and $3.7 million, during 1997, 1996 and 1995, respectively.
The balances outstanding under this credit agreement have been classified as
long term debt.
The Industrial Development bond interest rate is reset weekly, based on
prevailing tax-exempt money market rates, and is payable quarterly. Principal is
payable in quarterly installments of $100,000, with the final balance due on May
1, 2002. The bonds are secured by the property and equipment of the facility,
and backed by an irrevocable bank letter of credit which expires on May 1, 1998.
Among other covenants, the Company is required to maintain a minimum tangible
net worth (as defined) of $30 million, increasing by 50% of net income
subsequent to September 30, 1997. At September 30, 1997, tangible net worth
exceeded the required minimum by $6.7 million.
The $1 million note payable to the bank has a variable interest rate based on
a combination of both LIBOR and DIBOR (Dublin Interbank Rates) rates. The
average effective rates of 1997, 1996, and 1995 were 6.7%, 6.7% , and 6.2%,
respectively.
3. FEDERAL INCOME TAX AND OTHER
The provision for income taxes in the accompanying Consolidated Statements of
Income differs from the statutory rate as follows:
<TABLE>
<CAPTION>
($000 omitted)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income before taxes $ 9,123 $ 4,694 $ 3,067
Less - State and local income taxes 20 -- --
------- ------- -------
$ 9,103 $ 4,694 $ 3,067
======= ======= =======
Tax provision at statutory rate $ 3,095 $ 1,596 $ 1,043
Tax effect of -
Foreign tax rate differential (1,116) (777) (466)
Valuation allowance --- (1,304) (410)
Deductible permanent book to
tax difference --- (511) --
Other (1) 48 82 88
------- ------- -------
Provision (benefit) for federal and
foreign income taxes 2,027 (914) 255
Add - State and local income taxes 20 -- --
------- ------- -------
$ 2,047 $ (914) $ 255
======= ======= =======
</TABLE>
(1) Non-deductible expenses
The provision (benefit) for income taxes differs from amounts currently payable
or refundable due to certain items reported for financial statement purposes in
periods which differ from those in which they are reported for tax purposes.
Income tax provision (benefit) is made up of the following components:
<TABLE>
<CAPTION>
($000 omitted)
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Current federal and foreign income taxes $ 3,686 $ 263 $ 255
Deferred federal income taxes (1,659) (1,177) --
State and local income taxes 20 -- --
------- ------- -------
$ 2,047 $ (914) $ 255
======= ======= =======
</TABLE>
14
<PAGE> 12
NOTES CONTINUED
================================================================================
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
($000 omitted)
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Employee benefits $ 1,460 $ 1,242
Doubtful accounts 153 140
Inventory and property reserves 355 224
Investment valuation reserve 511 511
Foreign taxes credits 161 161
Tax loss carryforward --- 28
Other 257 128
------- -------
2,897 2,434
Deferred tax liabilities:
Depreciation 950 910
Personal property taxes 127 89
Other --- 97
------- -------
1,077 1,096
------- -------
Deferred tax assets less liabilities 1,820 1,338
Valuation allowance (161) (161)
------- -------
Net deferred tax assets $ 1,659 $ 1,177
======= =======
</TABLE>
Cumulative undistributed earnings of foreign subsidiaries for which no U.S.
federal deferred income tax liabilities have been recorded were approximately
$18,241,000 at September 30, 1997.
4. SUMMARIZED QUARTERLY RESULTS
OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
($000 omitted)
1997 Quarter Ended
Dec 31 March 31 June 30 Sept 30 Total
<S> <C> <C> <C> <C> <C>
Net Sales $23,761 $27,122 $29,999 $27,908 $108,790
Cost of Sales 18,909 21,757 23,260 21,123 85,049
Net Income 1,098 1,426 2,009 2,543 7,076
Net Income
Per Share $.21 $.28 $.38 $.49 $1.36
</TABLE>
<TABLE>
<CAPTION>
($000 omitted)
1996 Quarter Ended
Dec 31 March 31 June 30 Sept 30 Total
<S> <C> <C> <C> <C> <C>
Net Sales $18,271 $22,096 $23,142 $21,911 $85,420
Cost of Sales 14,986 17,621 18,126 16,981 67,714
Net Income 362 1,102 1,390 2,754 5,608
Net Income
Per Share $.07 $.22 $.27 $.53 $1.09
</TABLE>
5. STOCK OPTIONS
Under the 1995 Stock Option Plan, 200,000 shares are reserved for incentive
stock option grants to key employees of the Company. Recipients of the grants
may purchase common shares at not less than fair market value no later than ten
years from date of the grant. 110,000 options were granted in fiscal 1996 at a
price of $4.25 and remained outstanding at September 30, 1997.
35,000 options issued under previous stock option plans (for which authority
to issue additional grants has expired) at prices ranging from $3.75 to $8.08
remained outstanding at September 30, 1997. During 1997 and 1996, 40,500 and
23,875 options were exercised at an aggregate price of approximately $236,000
and $112,000, respectively.
In 1997, the Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Black-Scholes option pricing model was used to determine that
the pro forma impact of compensation expense from incentive stock options
granted was immaterial.
The Company also has a 1994 Phantom Stock Plan. Grantees under the Plan are
credited with dividend equivalent units. Upon discontinuance of participation in
the Plan, the grantee is normally paid in cash, although shares may be issued at
the Company's discretion. The benefit under the Plan is based upon the
difference between the market price at the date of discontinuance and the award
price for vested award units, plus the market value of dividend equivalent
units.
As of September 30, 1997 and 1996, award units outstanding under the Phantom
Stock Plan, which includes awards still outstanding under two previous versions
of the Plan (for which authority to make additional awards has expired), were
124,563 and 185,938 at prices ranging from $2.72 to $10.625, plus 7,854 and
11,971 dividend equivalent units, respectively. Expense relating to the Plan was
$1,292,000 in 1997, $580,000 in 1996, and $-0- in 1995.
15
<PAGE> 13
NOTES CONTINUED
================================================================================
6. BUSINESS SEGMENTS
The Turbine Component Services and Repair segment (formerly Specialty Products)
consists primarily of turbine component remanufacturing, precision contract
machining, subassemblies, and finished parts; selective electroplating
equipment, solutions and services. The Aerospace Component Manufacturing segment
(formerly Forging) consists primarily of domestically produced and imported
forgings principally for the aerospace industry.
No one customer accounted for 10% or more of sales in any of the above years.
Intersegment sales are accounted for at cost.
Corporate expenses represent expenses which are not of an operating nature
and therefore not allocated to business segments. Corporate assets are
principally cash, cash equivalents and receivables.
The following table summarizes certain information regarding
segments of the Company's operations for the years ended
September 30, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
($000 omitted)
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Net sales, inc. intersegment sales:
Turbine Component
Services and Repair $ 69,259 $ 58,692 $ 47,370
Aerospace Component Manufacturing 39,628 27,121 21,345
Intersegment sales (97) (393) (581)
--------- --------- ---------
$ 108,790 $ 85,420 $ 68,134
========= ========= =========
Income from operations
before corporate expenses
and interest expense:
Turbine Component
Services and Repair $ 8,999 $ 5,933 $ 3,603
Aerospace Component Manufacturing 3,539 1,666 2,090
--------- --------- ---------
12,538 7,599 5,693
Corporate expenses (2,406) (1,884) (1,689)
Interest expense, net (1,009) (1,021) (937)
--------- --------- ---------
Income before income taxes $ 9,123 $ 4,694 $ 3,067
========= ========= =========
Depreciation and
amortization expense:
Turbine Component
Services and Repair $ 3,225 $ 2,947 $ 2,805
Aerospace Component Manufacturing 456 619 611
--------- --------- ---------
$ 3,681 $ 3,566 $ 3,416
========= ========= =========
Capital expenditures:
Turbine Component
Services and Repair $ 5,944 $ 2,733 $ 4,353
Aerospace Component Manufacturing 669 655 537
--------- --------- ---------
$ 6,613 $ 3,388 $ 4,890
========= ========= =========
Identifiable assets
Turbine Component
Services and Repair $ 52,960 $ 51,087 $ 47,355
Aerospace Component Manufacturing 18,246 14,309 11,315
Corporate 3,238 2,574 2,012
--------- --------- ---------
$ 74,444 $ 67,970 $ 60,682
========= ========= =========
Foreign operations
Net sales $ 37,675 $ 27,522 $ 21,793
Operating profit 5,826 2,584 2,402
Identifiable assets 29,111 24,116 23,723
</TABLE>
================================================================================
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
SIFCO INDUSTRIES, INC.
We have audited the accompanying consolidated balance sheets of SIFCO
INDUSTRIES, INC. (an Ohio corporation) AND SUBSIDIARIES as of September 30, 1997
and 1996, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended September
30, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of SIFCO Industries,
Inc. and Subsidiaries as of September 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
October 28, 1997.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of
our reports dated October 28, 1997, included and incorporated by reference in
this Form 10-K, into the Company's previously filed Registration Statements,
File Nos. 2-82001 and 33-32826.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
December 18, 1997.
<PAGE> 1
EXHIBIT 24
SIFCO INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned, an officer or director or both an officer and
director, of SIFCO Industries, Inc. (the "Company"), an Ohio corporation, which
anticipates filing with the Securities and Exchange Commission, Washington,
D.C., under the Securities Exchange Act of 1934, as amended, an Annual Report
on Form 10-K (which together with any and all amendments thereto is hereinafter
called the "Form 10-K"), does hereby constitute and appoint Charles H. Smith,
Jr., Jeffrey P. Gotschall, Richard A. Demetter, and Mara L. Babin, and any one
of them, with full power of substitution and resubstitution, as attorneys or
attorney to execute and file on behalf of the undersigned in his capacity as an
officer and/or director of the Company, the Form 10-K, with full power and
authority to do and perform any and all acts and things whatsoever required or
necessary to be done in the premises, as fully as to all intents and purposes
as he could do if personally present, hereby ratifying and approving the acts
of said attorneys and any of them and any such substitution.
Executed at Cleveland , Ohio , this 2nd day of December, 1997.
------------ ------- -------
/s/ Jeff Gotschall
------------------------------------
<PAGE> 2
EXHIBIT 24
SIFCO INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned, an officer or director or both an officer and
director, of SIFCO Industries, Inc. (the "Company"), an Ohio corporation, which
anticipates filing with the Securities and Exchange Commission, Washington,
D.C., under the Securities Exchange Act of 1934, as amended, an Annual Report
on Form 10-K (which together with any and all amendments thereto is hereinafter
called the "Form 10-K"), does hereby constitute and appoint Charles H. Smith,
Jr., Jeffrey P. Gotschall, Richard A. Demetter, and Mara L. Babin, and any one
of them, with full power of substitution and resubstitution, as attorneys or
attorney to execute and file on behalf of the undersigned in his capacity as an
officer and/or director of the Company, the Form 10-K, with full power and
authority to do and perform any and all acts and things whatsoever required or
necessary to be done in the premises, as fully as to all intents and purposes
as he could do if personally present, hereby ratifying and approving the acts
of said attorneys and any of them and any such substitution.
Executed at Cleveland , Ohio , this 12th day of December, 1997.
------------ ------- -------
/s/ Hudson D. Smith
------------------------------------
<PAGE> 3
EXHIBIT 24
SIFCO INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned, an officer or director or both an officer and
director, of SIFCO Industries, Inc. (the "Company"), an Ohio corporation, which
anticipates filing with the Securities and Exchange Commission, Washington,
D.C., under the Securities Exchange Act of 1934, as amended, an Annual Report
on Form 10-K (which together with any and all amendments thereto is hereinafter
called the "Form 10-K"), does hereby constitute and appoint Charles H. Smith,
Jr., Jeffrey P. Gotschall, Richard A. Demetter, and Mara L. Babin, and any one
of them, with full power of substitution and resubstitution, as attorneys or
attorney to execute and file on behalf of the undersigned in his capacity as an
officer and/or director of the Company, the Form 10-K, with full power and
authority to do and perform any and all acts and things whatsoever required or
necessary to be done in the premises, as fully as to all intents and purposes
as he could do if personally present, hereby ratifying and approving the acts
of said attorneys and any of them and any such substitution.
Executed at Cleveland , Ohio , this 12th day of December, 1997.
------------ ------- -------
/s/ Richard A. Gray
------------------------------------
<PAGE> 4
EXHIBIT 24
SIFCO INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned, an officer or director or both an officer and
director, of SIFCO Industries, Inc. (the "Company"), an Ohio corporation, which
anticipates filing with the Securities and Exchange Commission, Washington,
D.C., under the Securities Exchange Act of 1934, as amended, an Annual Report
on Form 10-K (which together with any and all amendments thereto is hereinafter
called the "Form 10-K"), does hereby constitute and appoint Charles H. Smith,
Jr., Jeffrey P. Gotschall, Richard A. Demetter, and Mara L. Babin, and any one
of them, with full power of substitution and resubstitution, as attorneys or
attorney to execute and file on behalf of the undersigned in his capacity as an
officer and/or director of the Company, the Form 10-K, with full power and
authority to do and perform any and all acts and things whatsoever required or
necessary to be done in the premises, as fully as to all intents and purposes
as he could do if personally present, hereby ratifying and approving the acts
of said attorneys and any of them and any such substitution.
Executed at Clearwater , Florida , this 15th day of December, 1997.
------------ ------- ------
/s/ W. R. Higgins
------------------------------------
<PAGE> 5
EXHIBIT 24
SIFCO INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned, an officer or director or both an officer and
director, of SIFCO Industries, Inc. (the "Company"), an Ohio corporation, which
anticipates filing with the Securities and Exchange Commission, Washington,
D.C., under the Securities Exchange Act of 1934, as amended, an Annual Report
on Form 10-K (which together with any and all amendments thereto is hereinafter
called the "Form 10-K"), does hereby constitute and appoint Charles H. Smith,
Jr., Jeffrey P. Gotschall, Richard A. Demetter, and Mara L. Babin, and any one
of them, with full power of substitution and resubstitution, as attorneys or
attorney to execute and file on behalf of the undersigned in his capacity as an
officer and/or director of the Company, the Form 10-K, with full power and
authority to do and perform any and all acts and things whatsoever required or
necessary to be done in the premises, as fully as to all intents and purposes
as he could do if personally present, hereby ratifying and approving the acts
of said attorneys and any of them and any such substitution.
Executed at Chagrin Falls , Ohio , this 16th day of December, 1997.
--------------- ------- -----
/s/ Thomas J. Vild
------------------------------------
<PAGE> 6
EXHIBIT 24
SIFCO INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned, an officer or director or both an officer and
director, of SIFCO Industries, Inc. (the "Company"), an Ohio corporation, which
anticipates filing with the Securities and Exchange Commission, Washington,
D.C., under the Securities Exchange Act of 1934, as amended, an Annual Report
on Form 10-K (which together with any and all amendments thereto is hereinafter
called the "Form 10-K"), does hereby constitute and appoint Charles H. Smith,
Jr., Jeffrey P. Gotschall, Richard A. Demetter, and Mara L. Babin, and any one
of them, with full power of substitution and resubstitution, as attorneys or
attorney to execute and file on behalf of the undersigned in his capacity as an
officer and/or director of the Company, the Form 10-K, with full power and
authority to do and perform any and all acts and things whatsoever required or
necessary to be done in the premises, as fully as to all intents and purposes
as he could do if personally present, hereby ratifying and approving the acts
of said attorneys and any of them and any such substitution.
Executed at Houston , Texas , this 16th day of December, 1997.
----------- ------- ------
/s/ John Douglas Whelan
------------------------------------
<PAGE> 7
EXHIBIT 24
SIFCO INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned, an officer or director or both an officer and
director, of SIFCO Industries, Inc. (the "Company"), an Ohio corporation, which
anticipates filing with the Securities and Exchange Commission, Washington,
D.C., under the Securities Exchange Act of 1934, as amended, an Annual Report
on Form 10-K (which together with any and all amendments thereto is hereinafter
called the "Form 10-K"), does hereby constitute and appoint Charles H. Smith,
Jr., Jeffrey P. Gotschall, Richard A. Demetter, and Mara L. Babin, and any one
of them, with full power of substitution and resubstitution, as attorneys or
attorney to execute and file on behalf of the undersigned in his capacity as an
officer and/or director of the Company, the Form 10-K, with full power and
authority to do and perform any and all acts and things whatsoever required or
necessary to be done in the premises, as fully as to all intents and purposes
as he could do if personally present, hereby ratifying and approving the acts
of said attorneys and any of them and any such substitution.
Executed at Cleveland , Ohio , this 18th day of December, 1997.
------------ ------- ------
/s/ Charles H. Smith, Jr.
------------------------------------
<PAGE> 8
EXHIBIT 24
SIFCO INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned, an officer or director or both an officer and
director, of SIFCO Industries, Inc. (the "Company"), an Ohio corporation, which
anticipates filing with the Securities and Exchange Commission, Washington,
D.C., under the Securities Exchange Act of 1934, as amended, an Annual Report
on Form 10-K (which together with any and all amendments thereto is hereinafter
called the "Form 10-K"), does hereby constitute and appoint Charles H. Smith,
Jr., Jeffrey P. Gotschall, Richard A. Demetter, and Mara L. Babin, and any one
of them, with full power of substitution and resubstitution, as attorneys or
attorney to execute and file on behalf of the undersigned in his capacity as an
officer and/or director of the Company, the Form 10-K, with full power and
authority to do and perform any and all acts and things whatsoever required or
necessary to be done in the premises, as fully as to all intents and purposes
as he could do if personally present, hereby ratifying and approving the acts
of said attorneys and any of them and any such substitution.
Executed at Cleveland , Ohio , this 18th day of December, 1997.
--------------- ------- -----
/s/ George D. Gotschall
------------------------------------
<PAGE> 9
EXHIBIT 24
SIFCO INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
POWER OF ATTORNEY
The undersigned, an officer or director or both an officer and
director, of SIFCO Industries, Inc. (the "Company"), an Ohio corporation, which
anticipates filing with the Securities and Exchange Commission, Washington,
D.C., under the Securities Exchange Act of 1934, as amended, an Annual Report
on Form 10-K (which together with any and all amendments thereto is hereinafter
called the "Form 10-K"), does hereby constitute and appoint Charles H. Smith,
Jr., Jeffrey P. Gotschall, Richard A. Demetter, and Mara L. Babin, and any one
of them, with full power of substitution and resubstitution, as attorneys or
attorney to execute and file on behalf of the undersigned in his capacity as an
officer and/or director of the Company, the Form 10-K, with full power and
authority to do and perform any and all acts and things whatsoever required or
necessary to be done in the premises, as fully as to all intents and purposes
as he could do if personally present, hereby ratifying and approving the acts
of said attorneys and any of them and any such substitution.
Executed at Wellesley , MA , this 12th day of December, 1997.
------------ ------ ------
/s/ David V. Ragone
------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANNUAL
REPORT OF SIFCO INDUSTRIES, INC. FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 2,998
<SECURITIES> 0
<RECEIVABLES> 20,516
<ALLOWANCES> 829
<INVENTORY> 19,846
<CURRENT-ASSETS> 44,049
<PP&E> 63,737
<DEPRECIATION> 39,023
<TOTAL-ASSETS> 74,444
<CURRENT-LIABILITIES> 19,529
<BONDS> 0
0
0
<COMMON> 40,568
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 74,444
<SALES> 108,790
<TOTAL-REVENUES> 109,405
<CGS> 85,049
<TOTAL-COSTS> 99,273
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 829
<INTEREST-EXPENSE> 1,141
<INCOME-PRETAX> 9,123
<INCOME-TAX> 2,047
<INCOME-CONTINUING> 7,076
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,076
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
Exhibit 99
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON THE FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Shareholders of
SIFCO Industries, Inc.
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in SIFCO Industries, Inc. and
Subsidiaries' annual report to shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated October 28, 1997. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in the index of financial statement schedules is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
October 28, 1997.
<PAGE> 2
SCHEDULE II
SIFCO INDUSTRIES, INC.
AND SUBSIDIARIES
ALLOWANCES FOR DOUBTFUL ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30 1997, 1996, AND 1995
($000 omitted)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
BALANCE
BEGINNING OF PERIOD $ 709 $ 726 $ 538
Additions
Charged to costs and expenses 184 43 86
Deductions - accounts
determined to be uncollectible (32) (117) (19)
Recoveries of fully reserved accounts --- 68 ---
Exchange rate changes and other (32) (11) 121
----- ----- -----
BALANCE
END OF PERIOD $ 829 $ 709 $ 726
===== ===== =====
</TABLE>
