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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 9/30/99 Commission file number 1-5978
------- ------
SIFCO Industries, Inc., and Subsidiaries
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Ohio 34-0553950
- ------------------------------- ----------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
970 East 64th Street, Cleveland Ohio 44103
- ---------------------------------------- -----
(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
- ------------------------------------------ -------------------------
Common Shares, $1 Par Value American Stock Exchange
- ------------------------------------------ -------------------------
Securities registered pursuant to Section 12(g) of the Act:
(TITLE OF CLASS)
- --------------------------------------------------------------------------------
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
--- ---
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. X
---
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 3, 1999 -- $20,772,187
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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, 1999 -- 5,194,308
- --------------------------------------------------------------------------------
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 Annual Report to Shareholders for the year ended September 30,
1999 (Part I, II, IV)
Portions of the Proxy Statement for Annual Meeting of Shareholders on January
25, 2000 (Part 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
metalworking processes, services and products produced primarily to the specific
design requirements of its customers. The processes include forging, heat
treating, coating, 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'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, inventory management, 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. The Company's forged products include: OEM and aftermarket parts
for aircraft engines; structural airframe components; land-based gas turbine
engine parts; and miscellaneous commercial products.
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.
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Over the last five years, the aerospace industry went from a cyclical
low to a cyclical high and restructured itself to reduce cycle times. During
that period, which began with intense price competition and eroding profit
margins, SIFCO achieved steadily improving operating and financial performance
by strengthening its customer relationships and expanding its market share and
by continually investing in newer, more efficient processes and facilities to
convert more of its revenues into earnings. Markets for SIFCO's products and
services continued to grow over the years and its customer relationships
continued to improve as the Company focused on making customers' lives easier by
providing JIT inventory management, reasonable pricing on turbine repairs, and a
high level of service. In fiscal 1994, the Aerospace Component Manufacturing
Group (Manufacturing Group) restructured for dramatically improved efficiency
and seized many opportunities to make forged parts for new airplanes. As a
result, fiscal 1995 saw an improvement in financial performance over the
previous four years. The Turbine Component Services and Repair Group (Repair
Group) began reorganizing that year, starting a program to manage "just-in-time"
(JIT) parts inventories for airline customers. These efforts led to even
stronger operating and financial performance in fiscal 1996 as the worldwide
airline industry strengthened and more air travel increased the demand for
engine maintenance.
Net sales topped $100 million for the first time in fiscal 1997 and
profit doubled from the year before. With favorable global market conditions,
fiscal 1998 sales were the best the Company ever had, but the aerospace industry
cycle was beginning to turn downward again. The $11 million in capital
expenditures in fiscal 1998 should meet the Company's needs through fiscal 2000,
but the cost of these investments depressed earnings in fiscal 1999, as
short-term industry conditions were less favorable than they were the year
before. Capital expenditures in fiscal 1999 were $4.9 million. Although the
Company's sales and earnings in fiscal 1999 did not reach the prior year's
records, fiscal 1999 sales were the second highest the Company has ever had.
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,
customer service and offering a broader range of capabilities helps to give it
an advantage in the markets it serves.
The performance of the domestic and international air transport
industries directly and significantly impact our performance. 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,
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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 customer or customers. The Company
believes that the total loss of sales of its largest customer or two of its next
largest customers 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 15, respectively, of
the Annual Report to Shareholders for the year ended September 30, 1999 is
incorporated herein by reference.
Information concerning the Company's Safe Harbor Statement set forth on
page 16 of the Annual Report to Shareholders for the year ended September 30,
1999 is hereby incorporated 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 metals, 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
---------
The number of the Company's employees decreased from 863 at the
beginning of the fiscal year to 848 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, 1999 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 296 thousand square feet. Five of these plants with a total of 252
thousand square feet are for the repair and remanufacture of jet engine and
industrial turbine components. Three of these plants are located in Cork,
Ireland (127 thousand square feet), one in Minneapolis, Minnesota (59 thousand
square feet) and one in Tampa, Florida (66 thousand square feet). A portion of
the Minneapolis plant is also the site of the Company's machining operations.
The remaining two plants, which are involved in selective plating, are located
in Independence, Ohio (34 thousand square feet), and Redditch, England (a leased
facility of 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; Tacoma,
Washington; and 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 and 10 of the Annual Report to Shareholders for the year ended
September 30, 1999. As of December 3, 1999, the Company had 783 shareholders of
record.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 is incorporated herein by reference
to page 1 of the Annual Report to Shareholders for the year ended September 30,
1999.
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 2 through 6 of the Annual Report to Shareholders for the year ended
September 30, 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 7A is incorporated herein by reference
to Note 7 on page 15 of the Annual Report to Shareholders for the year ended
September 30, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by Item 8 are incorporated herein by
reference to pages 7 through 15, inclusive, of the Annual Report to Shareholders
for the year ended September 30, 1999.
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 3
through 8 of the Proxy Statement for the Annual Meeting of Shareholders to be
held January 25, 2000.
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 26, 1999.
<TABLE>
<CAPTION>
Name Age Title and Business Experience
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<S> <C> <C>
Charles H. Smith, Jr. (1) 79 Director of the Company since 1941; Chairman of the Board since 1970; Mr.
Smith previously served the Company as its Chief Executive Officer
from January 1943 until February 1983.
Jeffrey P. Gotschall (1) 51 Director of the Company since October 1986; Chief Executive Officer since
July 1990 and President since October 1989; 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) 79 Director of the Company 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 59 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)
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
Name Age Title and Business Experience
- ---- --- -----------------------------
<S> <C> <C>
Hudson D. Smith (1) 48 Director of the Company since 1988; Treasurer of the Company since
1983 and President of the SIFCO Forge Group since January 1998;
Vice President and General Manager of SIFCO Forge Group from January
1995 to January 1998, General Manager of SIFCO Forge Group's Cleveland
Operations from October 1989 through January 1995 and Group General Sales
Manager of SIFCO Forge Group from July 1985 through September 1989.
Timothy V. Crean 51 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. 49 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 8 through 14 of the Proxy Statement for the Annual Meeting of
Shareholders to be held January 25, 2000.
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 6 of the Proxy
Statement for the Annual Meeting of Shareholders to be held January 25, 2000.
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 7 through 15, inclusive,
of the Annual Report to Shareholders for the year ended September 30, 1999, are
incorporated herein by reference.
Consolidated Balance Sheets - September 30, 1999 and 1998.
Consolidated Statements of Income for the Years Ended September 30,
1999, 1998 and 1997.
Consolidated Statements of Shareholders' Equity for the Years Ended
September 30, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the Years Ended September
30, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements for the Years Ended
September 30, 1999, 1998 and 1997.
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, 1999, 1998 and 1997.
All schedules, other than Schedule II are omitted since the
information is not required or is otherwise furnished.
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PART IV (continued)
<TABLE>
<S> <C> <C>
(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
## (f) 1998 Long Term Incentive Plan
(13) 1999 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
## Incorporated herein by reference to Appendix A to the Proxy Statement for the Annual Meeting
of Shareholders held January 26, 1999
(27) ab Financial Data Schedule
(99) ab Report of Independent Public Accountants on The Financial Statement Schedule II - Allowance for
Doubtful Accounts for the Years Ended September 30, 1999, 1998 and 1997.
(b) (1) Reports on Form 8-K
-------------------
</TABLE>
No reports on Form 8-K were filed during the last quarter of the
fiscal year ended September 30, 1999.
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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, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below on December 15, 1999 by the following
persons on behalf of the Registrant in the capacities indicated.
/*/ 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
- ------------------------ ----------------------
Jeffrey P. Gotschall William R. Higgins
President; Chief Executive Officer; Director
Director
/*/ Richard A. Demetter /*/ David V. Ragone
- ----------------------- -------------------
Richard A. Demetter David V. Ragone
Vice President-Finance; Chief Financial Officer Director
/*/ George D. Gotschall /*/ Thomas J. Vild
- ----------------------- ------------------
George D. Gotschall Thomas J. Vild
Assistant Secretary; Director Director
/*/ Hudson D. Smith /*/ J. Douglas Whelan
- ------------------- ---------------------
Hudson D. Smith J. Douglas Whelan
Treasurer; Director Director
/*/ Maurice Foley
- -----------------
Maurice Foley /*/Richard A. Demetter
Director ----------------------
Richard A. Demetter
(Attorney in Fact)
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Exhibit 13
[LOGO]
SIFCO INDUSTRIES, INC
ANNUAL
REPORT
1999
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[LOGO]
SIFCO INDUSTRIES, INC
Corporate Headquarters
970 East 64th Street
Cleveland, Ohio 44103 -1694
Phone: (216) 881-8600
Fax: (216) 432-6281
SIFCO Industries, Inc., is dedicated to meeting the technical needs of the
aerospace industry in the production, repair, coating, machining and marketing
of jet engine and other aerospace components. SIFCO serves 90% of the world's
airlines through a growing network of manufacturing service and distribution
centers in the United States, Europe and the Far East. The Company is committed
to the satisfaction of its customers worldwide through competitive pricing,
total service, comprehensive technology and superior quality.
TABLE OF CONTENTS
Financial Highlights.............................. 1
Shareholders' Letter.............................. 2
Turbine Component Services & Repair............... 4
Aerospace Component Manufacturing................. 4
Management's Discussion and Analysis.............. 5
Consolidated Statements of Income................. 7
Consolidated Balance Sheets....................... 8
Consolidated Statements of Cash Flows............. 9
Consolidated Statements of
Shareholders' Equity............................ 10
Notes to Consolidated
Financial Statements............................ 11
Summarized Quarterly Results...................... 14
Safe Harbor Statement............................. 16
Report of Independent Public
Accountants....................................... 16
Company Directors & Officers...................... 17
<PAGE> 3
SIFCO'S REVENUE SOURCES TODAY
[PICTURE]
TURBINE COMPONENT
SERVICES & REPAIR
"We fix parts from the
turbine section of
aerospace and land-based
gas turbine engines"
70% of 1999 Sales
AEROSPACE
COMPONENT
MANUFACTURING
"We make parts for a wide
variety of commercial
and military aircraft,
including helicopters "
30% of 1999 Sales
FINANCIAL HIGHLIGHTS OF 1999
----------------------------
<TABLE>
<CAPTION>
Years Ended September 30 1999 1998 1997 1996 1995
==============================================================================================================================
<S> <C> <C> <C> <C> <C>
Net sales $ 115,490 $ 123,175 $ 108,790 $ 85,420 $ 68,134
Operating income 4,105 11,609 9,123 4,694* 3,067
Income tax (provision) benefit (332) (2,324) (2,047) 914 (255)
Net income 3,773 9,285 7,076 5,608 2,812
Net income per share (basic) .73 1.80 1.38 1.10 .55
Net income per share (diluted) .72 1.78 1.36 1.09 .55
Cash dividends per share .20 .20 .15 .10
Shareholders' equity 50,046 49,890 40,568 35,957 30,805
Shareholders' equity per
share at year end 9.64 9.65 7.86 7.01 6.05
Return on beginning
shareholders' equity 7.6% 22.9% 19.7% 18.2% 10.3%
Long-term debt 12,985 16,500 11,716 10,575 10,875
Long-term debt to equity percent 25.9% 33.1% 28.9% 29.4% 35.3%
Working capital 30,258 30,252 24,520 20,860 16,671
Current ratio 2.6 2.4 2.3 2.2 2.2
Net property, plant and equipment 31,392 32,582 24,714 23,200 23,460
Total assets 86,461 90,884 74,444 67,970 60,682
Shares outstanding
at year end 5,193 5,170 5,160 5,127 5,092
Stock price range (high-low) 15 - 7 27 1/8 - 11 5/8 21 1/4 - 9 5/8 10 1/4 - 3 3 /4 5 9/1 - 2 15/16
</TABLE>
(*)Includes reversal of restructuring charge to income of $1,512
Dollars in thousands, except per share amounts
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[LOGO] SIFCO
TO OUR SHAREHOLDERS
IN FISCAL 1999, NET SALES REACHED THEIR SECOND- HIGHEST LEVEL IN SIFCO'S 86-YEAR
HISTORY.
In fiscal 1999, net sales reached their second-highest level in SIFCO's
86- year history. We are nevertheless disappointed that our financial
performance was below fiscal 1998's, which admittedly was a hard act to follow.
We had invested substantially in people, facilities, and equipment to increase
our operating capabilities and efficiencies, improve our profit margins, and
fortify our competitive position in the aerospace industry. Continual investment
is necessary to cope with the cycles that have been as much a part of our
industry as SIFCO itself has been since the beginning of aviation early this
century. Success in this business demands skillful piloting through the
industry's valleys on the way to its peaks.
In our annual report a year ago, we tempered our excitement about fiscal
1998's record financial performance by noting that we stood "at the threshold of
a challenging future." Our investments in fiscal 1998 would help maintain
growth, profitability, and a good return for our shareholders, but because there
was evidence that commercial aircraft manufacturing was near its cyclical peak,
the softer part of our business cycle would characterize 1999. Industrywide
efforts were underway to reduce cycle times and, in turn, reduce inventories. As
we were implementing and refining synchronous (or "flow") manufacturing
techniques to reduce our own cycle times and inventories, our priority was to
prepare for the downturn and position the company to take advantage of the
upturn. It is important to note that SIFCO has made diligent efforts to maintain
its commitment to serve the global aerospace market. As a result of this
commitment and our efforts to satisfy the needs of international customers,
sales from our overseas operations were $54 million, or 47 percent of the
Company's total sales, compared to $48 million, or 39 percent, last year. Our
offshore facilities now account for 44 percent of our total asset base.
Our Turbine Component Repair Group sales increased slightly, but profit
margins shrank because the business mix this year contained more lower-margin
replacement parts than higher-margin repair services, and operating income
decreased 42 percent from the prior year. Diversification into new products has
contributed nearly 50 percent to our sales growth over the past three years.
Customer deferrals and stretch-outs mark the soft part of our business cycle,
but also free up resources to prepare for serving the industry's demands when
business firms up again.
Delivering higher quality repairs in less time is the purpose of our
investments in new repair technology and processes. Our
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================================================================================
IN OUR 86 - YEAR HISTORY WE HAVE NEVER SEEN A CHALLENGE THAT WE COULD NOT MEET.
investments in fiscal 1998 gave us 25 percent more capacity during 1999. This
increased our fixed costs, of course, and as business softened we could not
cover these costs to the extent we wanted.
As expected, sales slowed in our Aerospace Component Manufacturing Group.
This Group is as strong as ever in its niche markets, but as in the Turbine
Component Repair Group, despite long-term supply agreements with many of our
major customers, deferrals, stretch-outs, and other timing issues can have a
major effect on year-to-year comparisons. Some customers have been modifying
their internal operations to reduce cycle times and inventories. This has
delayed orders, preventing another record year. In light of positive booking
trends, however, we believe the manufacturing segment of our business is
approaching the bottom of its cycle and should begin to rebound in fiscal 2000.
We focused our attention in fiscal 1999 on expanding our participation in
new products and services and increasing our market share. The more we fortify
our niches this way, the less affected we should be by cyclical shifts in the
industry. We work hard to foster interdependence with the aerospace industry
OEMs so they can rely on us as the experts in our particular field. Top-notch
quality and service are the key to our prosperity. The $11 million in capital
expenditures in fiscal 1998 took care of most of our capital needs for 1999 and
2000. They helped us achieve our objectives for fiscal 1999, namely, to increase
market share and efficiency. Reaching those objectives, however, only partially
relieves our disappointment over the cyclical obstacles to a second consecutive
record year. Still, in our 86-year history we have never seen a challenge that
we could not meet, so we remain committed to our long-term growth plans, with a
strong balance sheet to help us weather temporarily weak business conditions. We
firmly believe that our investments in new technology and facility expansions
will lead to earnings improvements in fiscal 2000 as volume increases and our
mix of business becomes more profitable. We are confident in our ability to
convert additional business into returns for shareholders.
We will continue to report our progress to you and appreciate your
continued loyalty and support. If you have any questions or comments, please
call our Cleveland headquarters at 216-881-8600, or visit our website at
www.sifco.com.
Sincerely,
Charles H. Smith, Jr., Chairman of the Board
Jeffrey P. Gotschall, President & CEO
3
<PAGE> 6
TURBINE COMPONENT SERVICES AND REPAIR GROUP (TCSR)
================================================================================
SIFCO's Turbine Component Repair Group is a world-class provider of repairs for
blades, vanes, and other components in the hot sections of gas turbine engines.
Repairing turbine blades and vanes demands capable personnel with sophisticated
equipment incorporating the latest technology. Specialized processes such as
electron beam welding, fluoride ion cleaning, laser drilling, and diffusion
bonding are routine operations in the Repair Group's facilities. The continual
development of new repair procedures broadens the service offering for engines
already in use and for new generations of engines that will be used by more and
more customers worldwide.
SIFCO's prominence in the repair industry is a result of years of hard work and
the interdependence that has developed naturally between the Repair Group and
OEMs. By keeping the Repair Group's knowledge and expertise on the cutting edge,
the Group is a strong and cost-effective competitor and a highly valued provider
of information and resources to our customers around the world.
The Repair Group increased its capacity by 25 percent in 1998 to accommodate
demand and anticipate growth over the next several years. The extra capacity
reduced lead times and turntimes and continues to facilitate ongoing quality
improvements and product diversification. Volume did not meet expectations for
1999, but the company is well prepared for the industry's next cyclical upturn.
SIFCO's Repair Group facilities are organized around product families for
improved efficiency and equipment utilization.
================================================================================
The Turbine Component Services and Repair segment has seven plants. Three
of these plants are located in Cork, Ireland, one is in Minneapolis, Minnesota
and one is in Tampa, Florida. A portion of the Minneapolis plant is also the
site of the Company's machining operations. The remaining two plants, which are
involved in selective plating, are located in Independence, Ohio and Redditch,
England. 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; Tacoma, Washington; and Saint-Maur, France.
The Aerospace Component Manufacturing segment has one plant located in
Cleveland, Ohio. This facility is also the site of the Company's corporate
headquarters.
================================================================================
AEROSPACE COMPONENT MANUFACTURING GROUP
================================================================================
The Aerospace Component Manufacturing Group produces forged and finished OEM
components in a wide variety of alloys for the aerospace industry. Nearly all
major commercial, civilian, and military aircraft (including helicopters)
contain original or spare components manufactured by SIFCO. In other words,
without SIFCO, it just doesn't fly.
The Manufacturing Group excels at turning difficult-to-shape materials into
intricate shapes of exacting design, even in small volumes, to provide products
that meet the critical specifications of aerospace customers. The Manufacturing
Group has earned an unparalleled reputation for meeting quality requirements and
obtaining timely approval of new developments.
Throughout fiscal 1999, the Manufacturing Group continued to implement and
refine its Synchronous Manufacturing project, a major redesign and upgrade of
factory processes so that all fabrication capabilities are aligned and tuned for
increases in efficiency. Shorter lead times, shorter cycle times, lower
inventories, and increased capacity for new orders and new products are the
objective of this undertaking, which will maintain SIFCO's position in this
industry.
Already, processes that used to take three months can now be completed in two
weeks, with lower raw material, work-in-process and finished goods inventories.
In fiscal 1999, raw material and finished goods inventories each decreased $1
million, and work-in-process inventory decreased over $2.5 million. Continuous
process improvement is well suited to our manufacturing operations and we will
continue to realize new levels of efficiency in fiscal 2000.
4
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF BUSINESS
================================================================================
OPERATIONS 1997-1999
1997 In 1997 net sales rose to $108.8 million from $85.4 million in 1996,
and was our first $100 million sales year. This represents an
increase of 27% from the prior year's sales. Income before income
taxes rose to $9.1 million from $4.7 million or 94% and net income
per share was $1.36 compared to $1.09 in 1996.
Net income for 1996 and the fourth quarter of 1996 were increased by
unusual circumstances involving nonrecurring 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 in 1996 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.
1998 In 1998 net sales increased 13% to a record $123.2 million from
$108.8 million in 1997. Income before income taxes rose to $11.6
million from $9.1 million, an increase of 27% over the prior year.
Net income per diluted share was $1.78 versus $1.36 in 1997.
Turbine Component Services and Repair sales rose to $80.0 million
from $69.3 million in 1997, or 15%. Income from operations before
corporate and interest expense rose to $10.0 million from $9.0
million, or 11%. Margins in 1998 were negatively impacted as compared
to 1997 by the mix of engine repairs performed.
Aerospace Component Manufacturing sales increased 9% to $43.3 million
from $39.6 million in 1997. Income from operations before corporate
and interest expense rose to $5.0 million from $3.5 million, an
increase of 43%. The segment benefited from a $.3 million LIFO
reserve reversal in 1998 compared to a charge of $.4 million in 1997.
The Company's total new orders for fiscal 1998 increased to $120.7
million from $112.4 million in 1997. The following is a breakout by
business segment: Turbine Component Services and Repair, $77.8
million and $69.0 million, respectively; and Aerospace Component
Manufacturing, $42.9 million and $43.4 million, respectively.
The Company's backlog as of September 30, 1998 and 1997 was $41.3
million and $44.9 million, respectively. Approximately 4% of 1998's
backlog is on hold and 8% is scheduled for delivery beyond fiscal
1999. The following is a breakout by business segment: Turbine
Component Services and Repair, $7.7 million and $11.6 million,
respectively; and Aerospace Component Manufacturing, $33.6 million
and $33.3 million, respectively.
5
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF BUSINESS (continued)
================================================================================
1999 In 1999 net sales decreased 6.2% to $115.5 million from
$123.2 million in 1998 but were still the second highest in
SIFCO's 86-year history. Income before income taxes declined
to $4.1 million or 65% from last year's $11.6 million. Net
income per diluted share was $.72 compared to $1.78 last
year.
Turbine Component Services and Repair sales rose slightly to
a record $81.1 million from $80.0 million last year. Income
from operations before corporate and interest expense
declined to $5.8 million from $10.0 million last year. While
sales rose overall, there was a higher mix of lower margin
business and a shift of business between some facilities
resulting in unabsorbed overheads that were not offset by the
increase in volume at others. Repair volume for the older
engine types fell off as many of the older planes powered by
these engines were retired from the fleet.
Aerospace Component Manufacturing sales decreased
approximately 21% to $34.3 million from $43.3 million last
year. Income from operations before corporate and interest
expense decreased to $1.2 million from $5.0 million last
year. The segment benefited from a $0.3 million LIFO reversal
in both 1999 and 1998. Whereas 1998 was a cyclical peak in
the aircraft industry, 1999 began the cyclical decline.
Boeing has slowed its build rate and has already procured the
forgings for the aircraft it is building now. Almost all
customers have instituted inventory reduction plans under
which they order fewer parts at a time, due to reduced
manufacturing cycle times. Many industry analysts feel that
the current decline will be much shorter than in the past
with recovery expected in the second half of 2000 and rising
through 2001 for large commercial aircraft.
The Company's total new orders for fiscal 1999 declined to
$115.4 million from $120.7 million in 1998. The following is
a breakout by business segment: Turbine Component Services
and Repair $82.0 million and $77.8 million, respectively; and
Aerospace Component Manufacturing $33.4 million and $42.9
million, respectively.
The Company's backlog as of September 30, 1999 and 1998 was
$39.5 million and $41.3 million, respectively. Approximately
3% of 1999's backlog is on hold and 13.2% is scheduled for
delivery beyond fiscal 2000. The following is a breakout by
business segment: Turbine Component Services and Repair $7.4
million and $7.7 million, respectively; and Aerospace
Component Manufacturing $32.1 million and $33.6 million,
respectively.
Based on the results of studies to date, the Company does not
believe that the Year 2000 issue will have an adverse effect
YEAR on its financial condition or results of operations. Our
2000 review includes: business applications which are supported by
ISSUE internal MIS employees, standard commercial programs on local
PCs, manufacturing and building equipment and a survey of
major customers and vendors for compliance. The problems
detected to date have been manageable and correctable. The
review and any changes required will be completed before
December 1999. The Company estimates its total cost to be
compliant at approximately $150,000, excluding the cost of
Company information technology employees.
The Company's Year 2000 program is based on various
assumptions and expectations that cannot be assured. The cost
estimate does not include costs associated with addressing
and resolving issues as a result of the failure of third
parties to become Year 2000 compliant. The Company's
contingency plans include identification of alternate
suppliers of key products and services used in manufacturing
and support functions. Still, having no precedent for a Year
2000 problem, it is impractical for the Company to determine
what impact, if any, would occur to the Company's business if
third parties did not address their Year 2000 issues.
The Company's long-term debt as a percentage to equity at the
FINANCIAL compared to 33.1% in 1998. As of September 30, 1999 the
POSITION Company had no outstanding balance against its $6 million
revolving credit agreement which expires March 31, 2001. The
Company feels it has adequate financing available to meet its
needs through the foreseeable future.
6
<PAGE> 9
SIFCO Industries, Inc., and subsidiaries
CONSOLIDATED STATEMENTS OF INCOME For the years ended September 30
($000 omitted except for per share data)
================================================================================
<TABLE>
<CAPTION>
1999 1998 1997
==================================================================================================
<S> <C> <C> <C>
NET SALES $ 115,490 $ 123,175 $ 108,790
COSTS AND EXPENSES:
Cost of goods sold (Note 1) 97,772 97,587 85,049
Selling, general and administrative expenses 12,827 13,240 14,224
Interest income (277) (220) (132)
Interest expense 1,276 1,305 1,141
Other (income) expense, net (Note 1) (213) (346) (615)
- --------------------------------------------------------------------------------------------------
111,385 111,566 99,667
- --------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 4,105 11,609 9,123
INCOME TAX (PROVISION) BENEFIT (NOTE 3) (332) (2,324) (2,047)
- --------------------------------------------------------------------------------------------------
NET INCOME $ 3,773 $ 9,285 $ 7,076
- --------------------------------------------------------------------------------------------------
NET INCOME PER SHARE (BASIC) $ .73 $ 1.80 $ 1.38
NET INCOME PER SHARE (DILUTED) $ .72 $ 1.78 $ 1.36
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
7
<PAGE> 10
SIFCO Industries, Inc., and subsidiaries
CONSOLIDATED BALANCE SHEETS September 30
($000 omitted except for per share data)
================================================================================
<TABLE>
<CAPTION>
1999 1998
=============================================================================================================
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,487 $ 3,503
Receivables, less allowance for doubtful accounts
of $722 in 1999 and $774 in 1998 22,192 20,073
Inventories (Note 1) 23,935 27,639
Refundable income taxes 354
Prepaid expenses and other current assets 1,365 552
- -------------------------------------------------------------------------------------------------------------
Total current assets 49,333 51,767
PROPERTY, PLANT AND EQUIPMENT AT COST (NOTES 1 AND 2):
Land 867 855
Buildings 18,935 18,627
Machinery and equipment 57,292 56,326
- -------------------------------------------------------------------------------------------------------------
77,094 75,808
Less accumulated depreciation and amortization 45,702 43,226
- -------------------------------------------------------------------------------------------------------------
31,392 32,582
- -------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Funds held by trustee for capital project 677 922
Goodwill, net of amortization (Note 1) 3,632 3,748
Deferred charges and other (Note 1) 1,427 1,865
- -------------------------------------------------------------------------------------------------------------
5,736 6,535
- -------------------------------------------------------------------------------------------------------------
$ 86,461 $ 90,884
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
1999 1998
=============================================================================================================
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 2) $ 1,415 $ 1,400
Accounts payable 11,094 12,192
Accrued salaries and wages 1,074 1,456
Accrued workers' compensation 696 801
Other accrued expenses 4,796 5,098
Accrued income taxes (Note 3) -- 568
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 19,075 21,515
LONG-TERM DEBT, NET OF CURRENT MATURITIES (NOTE 2) 12,985 16,500
- -------------------------------------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES (NOTE 1) 4,355 2,979
- -------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (NOTE 2):
Serial preferred shares, no par value, authorized 1,000,000 shares in 1999
and 1998 Common shares, par value $1 per share, authorized 10,000,000
shares, issued
and outstanding 5,192,607 shares in 1999 and 5,170,384 shares in 1998 5,193 5,170
Capital in excess of par value 6,352 6,198
Accumulated other comprehensive income (loss) (2,749) 8
Earnings retained for use in the business 41,250 38,514
- -------------------------------------------------------------------------------------------------------------
Total shareholders' equity 50,046 49,890
- -------------------------------------------------------------------------------------------------------------
$ 86,461 $ 90,884
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
8
<PAGE> 11
SIFCO Industries, Inc., and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended September 30
($000 omitted)
================================================================================
<TABLE>
<CAPTION>
1999 1998 1997
==========================================================================================================================
<S> <C> <C> <C>
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net income $ 3,773 $ 9,285 $ 7,076
Adjustments to reconcile net
income to net cash provided
by (used for) operating activities:
Depreciation and amortization 4,589 4,055 3,681
Loss on disposal of property, plant and equipment 71 21 370
Deferred income taxes 335 (152) (482)
- -------------------------------------------------------------------------------------------------------------------------
8,768 13,209 10,645
NET CASH PROVIDED BY (USED FOR) CHANGES
IN OPERATING ASSETS AND LIABILITIES:
Receivables (2,119) 443 (2,587)
Inventories 3,704 (7,793) (2,057)
Accrued or refundable income taxes (922) 340 421
Prepaid expenses and other current assets (813) 137 (62)
Accounts payable (1,098) 1,695 1,095
Accrued salaries and wages (382) 177 305
Accrued workers' compensation and other accrued expenses (407) (370) 1,337
- -------------------------------------------------------------------------------------------------------------------------
(2,037) (5,371) (1,548)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities 6,731 7,838 9,097
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (4,902) (11,313) (6,613)
Decrease (increase) in funds held by
trustee for capital project 245 (922)
Other (2,030) (462) (1,513)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities (6,687) (12,697) (8,126)
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES:
Proceeds from additional borrowings -- 16,300 6,000
Repayment of borrowings (3,500) (11,372) (6,103)
Grants received from Irish government agency 1,440 436 --
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (2,060) 5,364 (103)
Increase (decrease) in cash and cash equivalents (2,016) 505 868
Cash and cash equivalents, beginning of year 3,503 2,998 2,130
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 1,487 $ 3,503 $ 2,998
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements
9
<PAGE> 12
SIFCO Industries, Inc., and subsidiaries
CONSOLIDATED STATEMENTS OF For the years ended September 30
SHAREHOLDERS' EQUITY ($000 omitted except for per share data)
================================================================================
<TABLE>
<CAPTION>
Accumulated Earnings
Other Retained
Common Capital in Comprehensive for Use
Shares Excess of Income in the Comprehensive
$1 Par Value Par Value (Loss) Business Income
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE - September 30, 1996 $ 5,127 $ 5,978 $ 892 $ 23,960
Net income -- -- -- 7,076 7,076
Foreign currency translation adjustment -- -- (1,847) (1,847)
-------
Comprehensive income -- -- -- -- 5,229
-------
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 -- --
Dividends declared ($.15 per share) -- -- -- (774)
- ------------------------------------------------------------------------------------------------------------
BALANCE - September 30, 1997 5,160 6,101 (955) 30,262
Net income -- -- -- 9,285 9,285
Foreign currency translation adjustment -- -- 963 -- 963
-------
Comprehensive income -- -- -- -- 10,248
-------
Shares issued to Employees' Thrift Plan 3 49 -- --
Shares issued to vendors as payment for services 2 53 -- --
Stock options exercised, net of shares surrendered 5 (5) -- --
Dividends declared ($.20 per share) -- -- -- (1,033)
- ------------------------------------------------------------------------------------------------------------
BALANCE - September 30, 1998 5,170 6,198 8 38,514
Net income -- -- -- 3,773 3,773
Foreign currency translation adjustment -- -- (2,757) -- (2,757)
-------
Comprehensive income -- -- -- -- 1,016
-------
Shares issued to Employees' Thrift Plan 6 51 -- --
Shares issued to vendors as payment for services 4 48 -- --
Stock options exercised, net of shares surrendered 13 55 -- --
Dividends declared ($.20 per share) -- -- -- (1,037)
- ------------------------------------------------------------------------------------------------------------
BALANCE - September 30, 1999 $ 5,193 $ 6,352 $ (2,749) $ 41,250
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
STOCK PRICES BY QUARTERS (AMEX)
(Unaudited)
1999 1998
================================================================
High Low High Low
First Quarter 15 11 3 /8 24 18 1/2
Second Quarter 14 7 /8 7 5 /8 25 5/8 18 1/2
Third Quarter 9 1 /4 7 3 /16 27 1/8 20 1/8
Fourth Quarter 9 1/8 7 22 7/8 11 5/8
10
<PAGE> 13
SIFCO Industries, Inc., and
subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1999, 1998 and 1997
================================================================================
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. 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:
($000 omitted)
1999 1998
===================================================================
Last-in, first-out cost $ 7,077 $11,376
First-in, first-out or average cost 16,858 16,263
- -------------------------------------------------------------------
$23,935 $27,639
- -------------------------------------------------------------------
Under the average cost method of accounting, LIFO inventories would have been
$3,789,000 and $4,060,000 higher than reported at September 30, 1999 and 1998,
respectively. The inventories at September 30, 1999 and 1998, respectively,
consisted of raw materials and supplies of $6,780,000 and $8,008,000, and
finished goods and work-in-process of $17,155,000 and $19,631,000.
C. 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%.
D. GOODWILL:
Goodwill of $4,637,000, less accumulated amortization of $1,005,000 and $889,000
at September 30, 1999 and 1998, 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.
E. PENSIONS AND THRIFT PLANS:
The Company and its subsidiaries sponsor defined benefit pension plans covering
most of its employees. The Company also contributes to two multi-employer
defined contribution plans for certain union employees. The Company's funding
policy for domestic defined benefit plans is based on an actuarially determined
cost method allowable under Internal Revenue Service regulations. Foreign plans
are funded in accordance with the requirements of regulatory bodies governing
the plan.
At September 30, 1999, the Company adopted SFAS No. 132, "Employers' Disclosure
about Pensions and Other Postretirement Benefits,"which standardizes the
disclosure requirements for pensions and other postretirement benefits. This
statement does not change the measurement or recognition of these plans.
Net pension expense for the defined benefit plans for 1999, 1998, and 1997
consisted of the following components:
<TABLE>
<CAPTION>
($000 omitted)
1999 1998 1997
========================================================================================
<S> <C> <C> <C>
Service cost $ 906 $ 779 $ 665
Interest cost 967 951 852
Expected return on plan assets (1,122) (872)
Amortization of transition
(asset) obligation (13) (13) (13)
Amortization of prior service cost (2) (2) (2)
Amortization of net loss (gain) (79) (39) (26)
- ----------------------------------------------------------------------------------------
Net pension cost of defined benefit plans 657 666 604
Defined contribution plans 43 42 43
- ----------------------------------------------------------------------------------------
Total Pension Expense $ 700 $ 708 $ 647
- ----------------------------------------------------------------------------------------
</TABLE>
The status of all significant defined domestic and foreign benefit plans was as
follows (in thousands):
<TABLE>
Benefit Obligations: 1999 1998
==================================================================
<S> <C> <C>
Benefit obligation at
beginning of year $ 14,002 $ 12,468
Service cost 906 779
Interest cost 967 951
Participant contributions 183 166
Amendments for union contracts 540
Actuarial loss (gain) (339) (181)
Benefits paid (524) (272)
Currency translation adjustment (289) 91
- ------------------------------------------------------------------
Benefit obligation at end of year $ 15,446 $ 14,002
Plan Assets: 1999 1998
==================================================================
Plan assets at beginning of year $ 16,515 $ 13,649
Actual return on plan assets 1,569 2,317
Employer contributions 333 558
Participant contributions 183 166
Benefits paid (513) (284)
Currency translation adjustment (353) 109
- ------------------------------------------------------------------
Plan assets at end of year $ 17,734 $ 16,515
==================================================================
</TABLE>
11
<PAGE> 14
NOTES CONTINUED
<TABLE>
<CAPTION>
Reconciliation of Funded Status: 1999 1998
==================================================================
<S> <C> <C>
Plan assets in excess of projected
benefit obligations $ 2,288 $ 2,513
Unrecognized net loss (gain) (4,443) (3,735)
Unrecognized prior service cost 471 (71)
Unrecognized transition
obligation (asset) (49) (63)
Currency translation adjustment 14
- ------------------------------------------------------------------
Net amount recognized in the
balance sheet $(1,719) $(1,356)
==================================================================
</TABLE>
The net pension liability recognized in the balance sheet was composed of (in
thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred charges and other $ 123 $ 111
Other long-term liabilities (1,842) (1,541)
- ------------------------------------------------------------------
Net amount recognized $(1,719) $(1,430)
==================================================================
</TABLE>
Weighted-average assumptions used for defined benefit plans:
1999 1998 1997
==========================================================================
Discount rate for liabilities 7.4% 6.7% 7.3%
Discount rate for expense 6.8% 7.1% 7.5%
Expected return on assets 8.1% 8.1% 8.3%
Rate of compensation increase 4.0% 3.8% 4.0%
All nonunion employees of the Company and its domestic subsidiaries are
eligible to participate in the Company's thrift plan. The total costs for 1999,
1998 and 1997 were $80,000, $82,000, and $71,000, respectively.
The Company's Irish subsidiary sponsors a tax-advantaged profit sharing
program for all of its employees, which was adopted in 1999. Employer
contributions and elective employee contributions are invested in common stock
of the Company without being subject to personal income taxes if held for at
least three years. Employees have the option of taking a cash taxable
distribution. The total cost of the plan for 1999 was $156,000.
F. NET INCOME PER SHARE:
Effective October 1, 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share." In accordance with SFAS No. 128,
the Company's basic net income per share amounts have been computed based on the
average number of common shares outstanding. Net income per share amounts
include the effect of the Company's outstanding stock options under the treasury
stock method. In accordance with SFAS No. 128, net income per share and
weighted-average shares outstanding have been restated to conform to this
statement for all periods presented. The weighted-average number of common
shares and common share equivalents were as follows:
BASIC DILUTED
----- -------
1999 5,180,776 5,227,935
1998 5,164,114 5,228,431
1997 5,141,497 5,183,935
G. 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 $1,450,000
and $1,250,000 as of September 30, 1999 and 1998, respectively.
H. 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 $1,295,000 , $1,200,000, and $1,272,000, in
1999, 1998 and 1997, respectively. Income taxes paid were $1,246,000,
$2,105,000, and $1,578,000, in 1999, 1998 and 1997, respectively.
I. OTHER INCOME:
Other income is comprised primarily of grant income from Irish government
agencies, foreign exchange gains and losses, and royalty and fee income.
J. 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
$3,241,000 and $2,412,000 at September 30, 1999 and 1998, respectively, and is
included in other long-term liabilities.
K. COMPREHENSIVE INCOME:
Effective October 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement requires the disclosure of comprehensive
income, which includes net income and other comprehensive income items
previously included within separate components of shareholders' equity. For the
Company, this consists of foreign currency translation adjustments. Since the
undistributed earnings of the Company's foreign subsidiaries are intended to be
permanently reinvested, taxes have not been provided for currency translation
adjustments. The adoption of SFAS No. 130 did not have a material effect on the
Company's primary financial statements, but did affect the presentation of the
accompanying Consolidated Statements of Shareholders' Equity.
L. MANAGEMENT ESTIMATES:
The Company prepares its financial statements in accordance with generally
accepted accounting principles, which require 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.
12
<PAGE> 15
NOTES CONTINUED
================================================================================
2. DEBT
Long-term debt as of September 30, 1999 and 1998 consisted of:
($000 omitted)
1999 1998
=================================================================
Variable Rate Industrial Development
Revenue Improvement
and Refunding Bonds $ 3,900 $ 4,100
Notes payable to bank, due in
quarterly installments of $300,000 10,500 11,700
Note payable to bank, due
October 31, 1999, interest
payable quarterly, at rates based
upon LIBOR and DIBOR -- 1,000
Note payable under revolving credit
agreement, at the base rate -- 1,100
- -----------------------------------------------------------------
14,400 17,900
Less - current maturities 1,415 1,400
- -----------------------------------------------------------------
$12,985 $16,500
=================================================================
In April 1998, the Company restructured its credit facilities. It reduced the
previously existing $9 million revolving credit agreement to $6 million which is
the current amount available at September 30, 1999. The revolving credit
agreement bears interest at the bank's base rate, and also replaced the $5.144
million term loan with a 10-year, $12 million term loan. The term loan is
repayable in quarterly payments of $0.3 million. The term loan bears interest at
a fixed rate of 7.24%, subject to adjustment if certain loan covenants are not
maintained.
The average balance outstanding against the revolving credit agreement was
$2.2 million, $4.3 million and $4.8 million during 1999, 1998 and 1997,
respectively. The balances outstanding under the revolving credit agreement have
been classified as long-term debt. A commitment fee of 1/4% is incurred on the
remaining unused balance.
In 1998, the Company obtained a $4.1 million, 15-year, Industrial Development
bond. The proceeds of the bond of $1.6 million and the balance of the funds are
being used to expand the Turbine Component Services and Repair facility in
Tampa, Florida. The interest rate is reset weekly, based on prevailing
tax-exempt money market rates. The first principal payment is $200,000 and
increases each year until the final payment of $355,000 in 2013. The principal
payment increases by $15,000 and $5,000 in the second and third year,
respectively, and by $10,000 in the following seven years. The bonds are secured
by the property and equipment of the facility, and backed by an irrevocable
letter of credit.
Among other covenants, the Company is required to maintain a minimum tangible
net worth (as defined) of $30.0 million, increasing by 50% of net income
subsequent to September 30, 1997. Tangible net worth exceeded the required
minimum by $12.1 million at September 30, 1999.
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)
1999 1998 1997
==================================================================================
<S> <C> <C> <C>
Income before income taxes $ 4,105 $ 11,609 $ 9,123
Less - State and local income taxes 6 57 20
- ----------------------------------------------------------------------------------
$ 4,099 $ 11,552 $ 9,103
==================================================================================
Tax provision at statutory rate $ 1,393 $ 3,928 $ 3,095
Tax effect of -
Foreign tax rate differential (975) (1,569)
Other (92) (92) 48
- ----------------------------------------------------------------------------------
Provision for federal and
foreign income taxes 326 2,267 2,027
Add - State and local income taxes 6 57 20
- ----------------------------------------------------------------------------------
$ 332 $ 2,324 $ 2,047
==================================================================================
</TABLE>
The provision 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 is made up of the following components:
<TABLE>
<CAPTION>
($000 omitted)
1999 1998 1997
==================================================================================
<S> <C> <C> <C>
Current federal and foreign
income taxes $ (9) $ 2,419 $ 2,509
Deferred federal income taxes 335 (152) (482)
State and local income taxes 6 57 20
- ----------------------------------------------------------------------------------
$ 332 $ 2,324 $ 2,047
==================================================================================
</TABLE>
Deferred tax assets and liabilities are comprised of the following:
($000 omitted)
1999 1998
==================================================================
Deferred tax assets:
Employee benefits $ 1,531 $ 1,545
Doubtful accounts 180 106
Inventory and property reserves 324 392
Investment valuation reserve 511 511
Foreign taxes credits 161 161
Other 398 440
- ------------------------------------------------------------------
3,105 3,155
Deferred tax liabilities:
Depreciation 1,243 1,044
Personal property taxes 225 139
- ------------------------------------------------------------------
1,468 1,183
- ------------------------------------------------------------------
Deferred tax assets less liabilities 1,637 1,972
Valuation allowance (161) (161)
- ------------------------------------------------------------------
Net deferred tax assets $ 1,476 $ 1,811
==================================================================
Cumulative undistributed earnings of foreign subsidiaries for which no U.S.
federal deferred income tax liabilities have been recorded were approximately
$27,117,000 at September 30, 1999.
13
<PAGE> 16
NOTES CONTINUED
================================================================================
4. SUMMARIZED QUARTERLY RESULTS
OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
($000 omitted)
1999 QUARTER ENDED
Dec 31 March 31 June 30 Sept 30 Total
<S> <C> <C> <C> <C> <C>
Net Sales $ 29,525 $ 30,281 $ 30,535 $ 25,149 $115,490
Cost of Goods Sold 25,080 25,343 25,958 21,391 97,772
Net Income 879 1,098 908 888 3,773
Net Income Per Share
Basic $ .17 $ .21 $ .18 $ .17 $ .73
Diluted $ .17 $ .21 $ .17 $ .17 $ .72
</TABLE>
<TABLE>
<CAPTION>
($000 omitted)
1998 Quarter Ended
Dec 31 March 31 June 30 Sept 30 Total
<S> <C> <C> <C> <C> <C>
Net Sales $ 29,898 $ 30,949 $ 31,957 $ 30,371 $123,175
Cost of Goods Sold 23,212 24,681 25,434 24,260 97,587
Net Income 2,427 2,369 2,136 2,353 9,285
Net Income Per Share
Basic $ .47 $ .46 $ .41 $ .46 $ 1.80
Diluted $ .47 $ .45 $ .41 $ .45 $ 1.78
</TABLE>
5. STOCK OPTIONS
Under the 1995 Stock Option Plan, 200,000 shares were reserved for incentive
stock options granted 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. As of September 30, 1999, none were available for
future grant. Options also remained outstanding under previous stock option
plans for which authority to issue additional grants has expired.
Option activity relating to these plans during the last three years was as
follows:
OPTIONS
====================================================================
OUTSTANDING SEPTEMBER 30, 1996 (67,250 exercisable) 185,500
Granted -0-
Exercised (40,500)
Expired or cancelled -0-
- --------------------------------------------------------------------
OUTSTANDING SEPTEMBER 30, 1997 (62,500 exercisable) 145,000
Granted 10,000
Exercised (6,750)
Expired or cancelled -0-
- --------------------------------------------------------------------
OUTSTANDING SEPTEMBER 30, 1998 (83,250 exercisable) 148,250
Granted 80,000
Exercised (15,750)
Expired or cancelled (7,500)
- --------------------------------------------------------------------
OUTSTANDING SEPTEMBER 30, 1999 (97,500 exercisable) 205,000
====================================================================
The following table provides additional information regarding options
outstanding as of September 30, 1999:
OPTION OPTIONS OPTIONS REMAINING LIFE
EXERCISE PRICE OUTSTANDING EXERCISABLE OF OPTION (YRS)
============================================================
3.75 10,000 10,000 3.1
4.25 100,000 75,000 6.1
6.50 10,000 10,000 2.1
12.88 75,000 -0- 9.1
20.38 10,000 2,500 8.3
- ------------------------------------------------------------
Total 205,000 97,500
============================================================
During 1999 and 1998, options were exercised at an aggregate price of $99,000
and $42,000, respectively.
During 1999, the Company adopted a Long-Term Incentive Plan. The aggregate
number of stock options which may be awarded under the Plan in each fiscal year
shall be 1.5% of the total outstanding shares at September 30, 1998 up to a
maximum of 5% of such total outstanding shares.
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 for all years presented.
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 (as defined) at the date of discontinuance
and the award price for vested award units, plus the market value (as defined)
of dividend equivalent units.
As of September 30, 1999 and 1998, 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
111,663 and 124,063 at prices ranging from $3.55 to $20.31, plus 10,122 and
8,103 dividend equivalent units, respectively. Expense (income) relating to the
Plan was -0- in 1999, $(288,000) in 1998, and $1,292,000 in 1997.
14
<PAGE> 17
NOTES CONTINUED
================================================================================
6. BUSINESS SEGMENTS
The Turbine Component Services and Repair segment consists primarily of turbine
component remanufacturing, precision contract machining, subassemblies, and
finished parts; selective electroplating equipment, solutions and services. The
Aerospace Component Manufacturing segment consists primarily of domestically
produced forgings and semi-finished components principally for the aerospace
industry.
No one customer accounted for 10% or more of sales in 1999 or 1997. One
customer in 1998, an aircraft engine manufacturer, accounted for approximately
11% of sales. 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, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
($000 omitted)
1999 1998 1997
=========================================================================================
<S> <C> <C> <C>
Net sales, inc. intersegment sales:
Turbine Component Services and Repair $ 81,145 $ 80,000 $ 69,259
Aerospace Component Manufacturing 34,345 43,250 39,628
Intersegment sales 0 (75) (97)
- -----------------------------------------------------------------------------------------
$ 115,490 $ 123,175 $ 108,790
=========================================================================================
Income (loss) from operations
before corporate expenses
and interest expense:
Turbine Component Services and Repair $ 5,844 $ 9,991 $ 8,999
Aerospace Component Manufacturing 1,155 4,954 3,539
-----------------------------------------------------------------------------------------
6,999 14,945 12,538
Corporate expenses (1,895) (2,251) (2,406)
Interest expense, net (999) (1,085) (1,009)
- -----------------------------------------------------------------------------------------
Income before income taxes $ 4,105 $ 11,609 $ 9,123
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
($000 omitted)
1999 1998 1997
=========================================================================================
<S> <C> <C> <C>
Depreciation and amortization expense:
Turbine Component Services and Repair $ 3,971 $ 3,559 $ 3,225
Aerospace Component Manufacturing 618 496 456
- -----------------------------------------------------------------------------------------
$ 4,589 $ 4,055 $ 3,681
=========================================================================================
Capital expenditures:
Turbine Component Services and Repair $ 3,338 $ 8,495 $ 5,944
Aerospace Component Manufacturing 1,564 2,818 669
- -----------------------------------------------------------------------------------------
$ 4,902 $ 11,313 $ 6,613
=========================================================================================
Identifiable assets
Turbine Component Services and Repair $ 65,011 $ 64,682 $ 52,960
Aerospace Component Manufacturing 19,260 22,328 18,246
Corporate 2,190 3,874 3,238
- -----------------------------------------------------------------------------------------
$ 86,461 $ 90,884 $ 74,444
=========================================================================================
Foreign operations
Net sales $ 53,982 $ 47,866 $ 37,675
Operating profit 4,687 7,330 5,826
Identifiable assets 38,444 36,455 29,111
</TABLE>
7. FOREIGN CURRENCY MANAGEMENT
The U.S. dollar is the functional currency for substantially all of the
Company's consolidated operations. For these operations, all gains
and losses from currency transactions are included in income
currently. For certain foreign equity investments, the functional
currency is the local currency. The cumulative translation effects for
equity investments using functional currencies other than the U. S.
dollar are included in the earnings retained for use in the business in
stockholders' equity.
The Company uses currency forwards and options, which typically expire
within one year, to hedge payments and receipts of currencies related to the
purchase and sale of goods overseas. Realized gains and losses on these
contracts are recognized in the same period as the hedged transactions.
At September 30, 1999, the Company had forward contracts to sell US
$6,000,000. These contracts mature in October 1999 and are fully covered by U.S.
dollar receivables at September 30, 1999.
15
<PAGE> 18
SAFE HARBOR STATEMENT
This Annual Report contains 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 the
following cautionary statement identifying important economic,
political and technological factors, among others, the absence 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) continuation of the
current and projected future business environment, including
interest rates and capital and consumer spending; (2) competitive
factors and competitor responses to the Company's initiatives; (3)
successful development and market introductions of anticipated new
products; (4) stability of government laws and regulations,
including taxes; (5) stable governments and business conditions in
emerging economies; (6) successful penetration of emerging
economies; (7) continuation of the favorable environment to make
acquisitions, domestic and foreign, including regulatory
requirements and market values of candidates; (8) successful
identification and conversion of computer systems to address the
year 2000 issue by the Company, suppliers and vendors.
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, 1999
and 1998, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended September
30, 1999. 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, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1999, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
October 26, 1999.
16
<PAGE> 19
================================================================================
DIRECTORS
Maurice Foley
Director, AerFi Group plc
Shannon, Ireland
George D. Gotschall
Assistant Secretary
SIFCO Industries, Inc.
Jeffrey P. Gotschall
President & Chief Executive Officer
SIFCO Industries, Inc.
Richard S. Gray
Retired President
Enterprise Development, Inc.
Cleveland, Ohio
William R. Higgins
CEO
Applied Fiber Systems
Clearwater, Florida
David V. Ragone
Partner
Ampersand Ventures
Wellesley, Massachusetts
Charles H. Smith, Jr.
Chairman of the Board
SIFCO Industries, Inc.
Hudson D. Smith
Treasurer, SIFCO Industries, Inc.
President, SIFCO Forge Group
Thomas J. Vild
Vild & Associates
Chagrin Falls, Ohio
J. Douglas Whelan
President & Chief Operating Officer
Wyman-Gordon Company
North Grafton, Massachusetts
- --------------------------------------------------------------------------------
OFFICERS
Charles H. Smith, Jr.
Chairman of the Board
Jeffrey P. Gotschall
President & Chief Executive Officer
Richard A. Demetter
Vice President-Finance and Chief
Financial Officer
Timothy V. Crean
Executive Vice President
George D. Gotschall
Assistant Secretary
Hudson D. Smith
Treasurer
Mara L. Babin
Secretary & General Counsel
Partner
Squire, Sanders & Dempsey
- --------------------------------------------------------------------------------
AUDITORS
Arthur Andersen LLP
200 Public Square, Suite 1800
Cleveland, Ohio 44114-2803
LEGAL COUNSEL
Squire, Sanders & Dempsey
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
TRANSFER AGENT &
REGISTRAR
National City Bank
Corporate Trust Operations
P. O. Box 92301
Cleveland, Ohio 44193-0900
Phone: 1-800-622-6757
DIVIDEND REINVESTMENT
SIFCO Industries maintains a dividend reinvestment program that enables
shareholders topurchase additional shares of SIFCO stock without fees or service
charges. To participate in this program, or for answers to any questions on your
dividend investment account, contact the SIFCO corporate office.
FORM 10-K REQUESTS
A copy of the Company's current form 10-K annual report as filed with the
Securities and Exchange Commission is available without charge to shareholders
upon written request to the corporate secretary.
ANNUAL MEETING
The annual meeting of shareholders of SIFCO Industries, Inc. will be held at the
National City Bank, East Ninth Street and Euclid Avenue, Cleveland, Ohio, at
10:30 AM on January 25, 2000.
LISTING
SIFCO's common stock is listed on the American Stock Exchange, symbol SIF.
17
<PAGE> 20
[LOGO]
SIFCO
INDUSTRIES, INC.
970 East 64th Street, Cleveland, Ohio 44103-1694
Phone: (216) 881-8600 Fax: (216) 432-6281
or visit our home page: www.sifco.com
<PAGE> 1
ARTHUR ANDERSEN LLP
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
reports dated October 26, 1999, 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 15, 1999.
<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 Tampa, Florida this 7th day of December, 1999.
/s/ Charles H. Smith, Jr.
--------------------------
<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 Naples, Florida, this 6th day of December, 1999.
/s/ George D. Gotschall
--------------------------
<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 4th day of December, 1999.
/s/ Richard S. 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 Tampa, Florida, this 6th day of December, 1999.
/s/ William 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 Tampa, Florida, this 7th day of December, 1999.
/s/ David V. Ragone
--------------------------
<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 Tampa, Florida this 7th day of December, 1999.
/s/ Thomas J. Vild
--------------------------
<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 Tampa, Florida this 7th day of December, 1999.
/s/ J. Douglas Whelan
--------------------------
<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 8th day of December, 1999.
/s/ JEFFREY P. GOTSCHALL
--------------------
Jeffrey P. 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 Cleveland, Ohio, this 8th day of December, 1999.
/s/ HUDSON D. SMITH
---------------
Hudson D. Smith
<PAGE> 10
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, 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 Castlelough, Ireland, this 7th day of December, 1999.
/s/ Maurice Foley
---------------------
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000090168
<NAME> SIFCO INDUSTRIES, INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 1,487
<SECURITIES> 0
<RECEIVABLES> 22,192
<ALLOWANCES> 0
<INVENTORY> 23,935
<CURRENT-ASSETS> 49,333
<PP&E> 31,392
<DEPRECIATION> 0
<TOTAL-ASSETS> 86,461
<CURRENT-LIABILITIES> 19,075
<BONDS> 0
0
0
<COMMON> 5,193
<OTHER-SE> 44,853
<TOTAL-LIABILITY-AND-EQUITY> 86,461
<SALES> 0
<TOTAL-REVENUES> 115,490
<CGS> 97,772
<TOTAL-COSTS> 110,599
<OTHER-EXPENSES> 213
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 999
<INCOME-PRETAX> 4,105
<INCOME-TAX> 332
<INCOME-CONTINUING> 3,773
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,773
<EPS-BASIC> .73
<EPS-DILUTED> .72
</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 26, 1999. 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 26, 1999.
<PAGE> 2
SCHEDULE II
SIFCO INDUSTRIES, INC.
AND SUBSIDIARIES
ALLOWANCES FOR DOUBTFUL ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30 1999, 1998, AND 1997
($000 omitted)
1999 1998 1997
----- ----- -----
BALANCE
BEGINNING OF PERIOD $ 774 $ 829 $ 709
Additions
Charged to Costs and Expenses 84 83 184
Deductions - Accounts
determined to be uncollectible 169 (152) (32)
Recoveries of fully reserved accounts 94 8 --
Exchange rate changes and other (61) 6 (32)
BALANCE
END OF PERIOD $ 722 $ 774 $ 829
===== ===== =====
