<PAGE> 1
["S" GRAPHIC/LOGO]
Backed by over 88 years of industrial experience, the diamond "S" trademark can
be found on critical aircraft components manufactured throughout this century.
It can still be found on parts such as landing gears of the classic Vought F4U
Corsair and the latest generation 737-800 manufactured by Boeing.
[SIFCO GRAPHIC/LOGO]
In 1993, a new corporate logo was designed by SIFCO employees to promote greater
unity in our marketing identity and to illustrate the significant growth in
SIFCO's business from manufacturing to turbine component services and repair.
SIFCO engineers describe it as depicting an airfoil cross-section, while the
more poetic among us claim it symbolizes man's flight from earthly bounds. While
we admit that the interpretation of any abstraction can be open to debate, our
graphic was selected to represent the technical as well as the personal points
of view, and embodies our pride in a company firmly rooted in tradition and
poised for future growth. It serves as the hallmark of SIFCO's commitment to
customers -- a commitment that promises the best-engineered manufactured
products and the most personal and timely service available anywhere worldwide.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Financial Highlights .......................... 1
Letter to Our Shareholders .................... 2
Management's Discussion and Analysis
of Business ................................... 4
Consolidated Statements of Income ............. 6
Consolidated Balance Sheets ................... 7
Consolidated Statements of Cash Flows ......... 8
Consolidated Statements of
Shareholders' Equity .......................... 9
Notes to Consolidated
Financial Statements .......................... 10
Safe Harbor Statement ......................... 15
Report of Independent Public Accountants....... 15
Shareholder Information ....................... 16
</TABLE>
STOCK PRICES BY QUARTERS (AMEX)
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------------------------------
HIGH LOW High Low
<S> <C> <C> <C> <C>
First Quarter $ 7 11/16 $ 6 9/16 $ 15 $ 11 3/8
Second Quarter 7 1/4 5 5/8 14 7/8 7 5/8
Third Quarter 7 1/4 5 5/8 9 1/4 7 3/16
Fourth Quarter 7 5/8 5 1/8 9 1/8 7
</TABLE>
<PAGE> 2
[SIFCO GRAPHIC/LOGO]
-------------------------------------------------------------------------------
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 the world's airlines
through a network of manufacturing and service centers in the United States and
abroad. The Company is committed to the satisfaction of its customers worldwide
through competitive pricing, total service, comprehensive
technology and superior quality.
The Company's operations consist of two business segments:
<TABLE>
<S> <C>
TURBINE COMPONENT AEROSPACE
SERVICES AND REPAIR COMPONENT
MANUFACTURING
"WE FIX PARTS FROM THE TURBINE
SECTION OF AEROSPACE AND LAND-BASED "WE MAKE PARTS FOR A WIDE VARIETY OF
GAS TURBINE ENGINES." COMMERCIAL AND MILITARY AIRCRAFT,
67% OF 2000 SALES INCLUDING HELICOPTERS."
33% OF 2000 SALES
</TABLE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended September 30 2000 1999 1998 1997 1996
(Amounts in thousands, except per share data)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net sales $ 106,138 $ 115,490 $ 123,175 $ 108,790 $ 85,420
Income before income tax provision 2,479 4,105 11,609 9,123 4,694*
Income tax (provision) benefit (57) (332) (2,324) (2,047) 914
Net income 2,422 3,773 9,285 7,076 5,608
Net income per share (basic) .47 .73 1.80 1.38 1.10
Net income per share (diluted) .47 .72 1.78 1.36 1.09
Cash dividends per share .20 .20 .20 .15 .10
SHARES OUTSTANDING AT YEAR END 5,134 5,193 5,170 5,160 5,127
BALANCE SHEET DATA
Working capital $ 28,676 $ 31,924 $ 32,102 $ 26,235 $ 22,048
Property, plant and equipment, net 29,009 31,392 32,582 24,714 23,200
Total assets 80,500 88,662 93,011 76,159 70,043
Long-term debt, net of current maturities 11,962 12,985 16,500 11,716 10,575
Total shareholders' equity 45,500 50,046 49,890 40,568 35,957
Shareholders' equity per share at year end 8.86 9.64 9.65 7.86 7.01
FINANCIAL RATIOS
Return on beginning shareholders' equity 4.8% 7.6% 22.9% 19.7% 18.2%
Long-term debt to equity percent 26.3% 25.9% 33.1% 28.9% 29.4%
Current ratio 2.6 2.6 2.5 2.3 2.2
STOCK PRICE RANGE (HIGH-LOW) $7 11/16-5 1/8 $15-7 $27 1/8-11 5/8 $21 1/4-9 5/8 $10 1/4-3 3/4
</TABLE>
* Includes reversal of restructuring charge to income of $1,512
1
<PAGE> 3
[SIFCO GRAPHIC/LOGO]
TO OUR SHAREHOLDERS
-------------------------------------------------------------------------------
Fiscal 2000 brought both disappointment and encouragement. Although the
investments we have made over the past few years have not yet realized their
full potential, we are pleased that our fourth quarter results show positive
strides toward our objectives. While our net sales fell by 8.1% in the fiscal
year, our fourth quarter sales showed an increase of 5.4%. Similar results are
reflected in pre-tax income (which decreased 39.6% for the year, but increased
14.6% for the fourth quarter), net income (which decreased 35.8% for the year,
but increased 8% for the fourth quarter), and earnings per diluted share (which
decreased from $.72 to $.47 for the year, but increased from $.17 to $.19 for
the fourth quarter). Most promising is our 7.8% growth in backlog for the year,
which suggests a much more favorable market environment for SIFCO's products and
services.
The annual revenue from our largest business segment, SIFCO's Turbine
Component Services and Repair Group, was down 12.3% from 1999. The sales growth
that we anticipated in 1998 when we expanded our facilities in Ireland and Tampa
did not yet materialize. Repair volume for the older engine types fell off as
many of the older planes powered by these engines were retired from the fleet.
The reduction in Repair Group revenue for the year can be related principally to
the decline in the demand for JT8D and JT9D engine overhaul, which is
attributable to the retirement or reduced utilization of older model aircraft,
such as the 737-100/200, the 747-100/200, the 727, and the DC-9. This trend is
expected to continue.
We recognize that the JT8D and JT9D market is mature; however, newer
models of these engines will continue to require repairs in the future. The
balance of the shortfall in revenue can be linked to reduced volume of CFM56 and
RB211 engine overhaul repairs, a reduction in the sales volume of replacement
parts, and the continued encroachment of the engine manufacturers into the
repair marketplace. For fiscal 2000, reduced sales volumes of both repair
services and replacement parts correspondingly reduced the Repair Group's
operating income. The margin on replacement-part sales decreased in fiscal 2000
while the further weakening of the euro improved the Repair Group's margin on
its sales of repair services. The Repair Group is responding to these changes by
tailoring resources to throughput and accelerating its introduction of products
and services for the newer engine types, such as PW4000, Trent, AE3007 and
BR700. The Repair Group continues to access new markets for its technology
applications. Further, the Repair Group continues to explore opportunities in
the field of repairing land-based, industrial gas turbines utilized in the
generation of electric power.
The Aerospace Component Manufacturing Group's net sales increased 1.8%
in fiscal 2000, but the rise in build rates for regional and business jets drove
fourth-quarter revenues up 30.5% from their prior-year level. The ACM Group is a
major supplier of components for the Rolls-Royce AE3007 engines used on the
popular Embraer 135 and 145 regional jets. If not for the decline in raw
material costs, which were
2
<PAGE> 4
-------------------------------------------------------------------------------
passed on to customers through reduced selling prices, fiscal 2000 sales would
have increased 4.9% on the same number of units. Through its e-commerce
activity, the ACM Group was able to add another major aerospace customer to its
list of world-class customers, and it received new orders for over 100
components that it had not previously manufactured. While the cost for the
construction of tooling and related expenditures for these new components
impacted fiscal 2000, the expected revenues from the sales of these components
should benefit future years.
Despite lower net sales and net income for the year, we continued to
strengthen our balance sheet. Total debt decreased to $13.4 million from $14.4
million, while cash and cash equivalents increased to $4.7 million from $2.0
million. Total shareholders' equity declined $4.5 million, net of $2.4 million
of net income. This decline is primarily due to a $5.6 million foreign currency
translation adjustment as we reduced the reported carrying value of our assets
in Ireland to reflect the declining value of the euro relative to the U.S.
dollar and $1.0 million of dividends. Our current ratio remained strong at 2.6,
and we feel we have the necessary resources to meet marketplace challenges.
On a personal note, an expression of gratitude must be extended to
Richard Demetter, who retired this past year after 23 years of service with the
Company. His thoroughness guided us through many business cycles during his
tenure. Our new Vice President and Chief Financial Officer is Frank Cappello,
who assumed that role in February 2000. We are very pleased to have Frank on our
team as we face the business challenges of the aerospace industry.
As we focus on fiscal 2001, we are encouraged by the stronger outlook
for the aerospace industry. We are confident that our investments will improve
our financial results as the markets we serve continue to evolve and that our
strong balance sheet and commitment to growth will provide positive returns for
our shareholders.
We thank you for your continued loyalty and support.
Sincerely,
/s/ Charles H. Smith, Jr. /s/ Jeffery P. Gotschall
Chairman of the Board President and Chief Executive Officer
3
<PAGE> 5
MANAGEMENTS DISCUSSION AND ANALYSIS OF BUSINESS
-------------------------------------------------------------------------------
RESULTS OF OPERATIONS
FISCAL YEAR 1999 COMPARED WITH FISCAL YEAR 1998
In 1999 net sales decreased 6.2% to $115.5 million from $123.2 million in 1998
but were still the second highest in the Company's 86-year history. Income
before income taxes declined to $4.1 million or 65% from $11.6 million in 1998.
Net income per diluted share was $.72 compared to $1.78 in 1998.
Turbine Component Services and Repair sales rose slightly to a record $81.1
million from $80.0 million in 1998. Operating income declined to $5.7 million
from $9.6 million in 1998. 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 other
facilities. 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 in 1998. Operating income decreased to $1.1 million
from $5.0 million in 1998. 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 slowed its build rate and
already procured the forgings for the aircraft it was building. Almost all
customers 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 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.
FISCAL YEAR 2000 COMPARED WITH FISCAL YEAR 1999
In 2000, net sales decreased 8.1% to $106.1 million from $115.5 million in 1999.
Net income per diluted share was $.47 compared to $.72 in 1999.
TURBINE COMPONENT SERVICES AND REPAIR GROUP ("REPAIR GROUP")
The Repair Group, which accounted for 67% of the Company's business in 2000, had
net sales of $71.2 million, down 12.3% from the $81.1 million level in 1999. The
net sales growth that was anticipated when we expanded our repair facilities in
1998 has not materialized. The primary contributor to the decline in repair
sales volume has been the reduced demand for the overhaul of older model JT8D
and JT9D engines as many of the older model 737-100/200, 727, 747-100/200 and
DC-9 aircraft, powered by these engines, have experienced reduced utilization or
were retired from their respective fleets. Also contributing to the reduction in
repair sales was the reduced volume of repairs to the CFM56 (GE/Snecma) and
RB211 (Rolls-Royce) engines as a result of the further encroachment of the jet
engine manufacturers into the repair marketplace. Revenues associated with the
demand for replacement parts that complement the repair services provided to
customers was also down in 2000 because of the reduced repair volumes in
general.
Operating income in fiscal 2000 declined to $3.4 million, or 4.8% of net sales,
from $5.7 million, or 7.0% of net sales, in 1999. While repair sales were down
in 2000 compared to 1999, margins on such sales were up slightly as a direct
result of the further weakening of the euro in relation to the U.S. dollar. The
vast majority of the Repair Group's U.S. and non-U.S. sales are denominated in
U.S. dollars. At the same time, over 50% of the Group's operations are located
in Ireland and related costs are denominated in local currency that is tied
directly to the euro. Consequently, as the euro declines, costs are favorably
impacted when measured and reported in equivalent U.S. currency. A decline in
the availability of used replacement parts that can be refurbished required the
Repair Group to procure higher cost new OEM replacement parts. As a result, not
only did the Repair Group experience a general reduction in sales volume, the
Repair Group also was impacted by lower margins on replacement parts sales due
to higher replacement part costs in fiscal 2000.
During 2000, selling, general and administrative and other income/expenses for
the Repair Group were generally comparable to 1999.
4
<PAGE> 6
MANAGEMENTS DISCUSSION AND ANALYSIS OF BUSINESS (CONTINUED)
-------------------------------------------------------------------------------
AEROSPACE COMPONENT MANUFACTURING GROUP ("ACM GROUP")
Net sales for fiscal 2000 increased 1.8% to $35.0 million, compared with $34.3
million for fiscal 1999. The sales increase is net of a reduction in selling
price of $1.1 million caused by a decline in the market price of titanium during
fiscal 2000 that was passed on to customers. The increase in sales is
attributable to a rise in the build rates for business and regional jet aircraft
during the latter part of fiscal 2000, offset in part by a reduction in the
large aircraft build cycle from its peak in 1999.
The ACM Group's operating income in fiscal 2000 was $1.5 million, or 4.3% of net
sales, compared with $1.1 million, or approximately 3.2% of net sales in fiscal
1999. The operating income benefited in fiscal 2000 from the decline in the
market price of titanium. In addition, the Group benefited from a $0.8 million
and $0.3 million LIFO reversal in fiscal 2000 and 1999, respectively. During
fiscal 2000 this benefit was partially offset by an increase in tooling
expenditures of $0.7 million. The increase is attributable to construction of
new tooling to support new programs, as well as increases in die maintenance
costs as a result of the full year impact of the Group's implementation of its
Synchronous Manufacturing project in fiscal 1999. The objectives of the
Synchronous Manufacturing project include shorter lead times, shorter cycle
times, lower inventories and increased capacity for new orders and new products.
Selling, general and administrative expenses for fiscal 2000 declined $0.2
million to $2.0 million, compared to $2.2 million in fiscal 1999. The decline in
selling, general and administrative expenses is primarily attributable to lower
benefit costs.
OTHER/GENERAL
Corporate unallocated expenses of $1.9 million in both 2000 and 1999, consist of
corporate salaries and benefits, legal and professional and other corporate
expenses.
Net interest expense for 2000 is down 17.6% to $0.8 million from $1.0 million in
1999, primarily due to the Company's reduction of its outstanding debt
obligations through the use of its operating cash flows.
The Company's backlog as of September 30, 2000 and 1999 was $42.6 million and
$39.5 million, respectively. Approximately 2.8% of 2000's backlog is on hold and
6.2% is scheduled for delivery beyond fiscal 2001. The following is a breakout
by business segment: Repair Group: $9.1 million and $7.4 million, respectively;
and ACM Group: $33.5 million and $32.1 million, respectively.
FINANCIAL POSITION
The Company's long-term debt as a percentage to equity at the end of the year
was 26.3% compared to 25.9% in 1999. As of September 30, 2000 the Company had a
$0.4 million outstanding balance against its $6.0 million revolving credit
agreement which expires March 31, 2002. The Company feels it has adequate
financing available to meet its liquidity needs through the foreseeable future.
5
<PAGE> 7
SIFCO INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME Years ended September 30
(Amounts in thousands, except per share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
==============================================================================================
<S> <C> <C> <C>
NET SALES $ 106,138 $ 115,490 $ 123,175
OPERATING EXPENSES:
Cost of goods sold 90,732 97,772 97,587
Selling, general and administrative expenses 12,357 12,827 13,240
----------------------------------------------------------------------------------------------
Total operating expenses 103,089 110,599 110,827
----------------------------------------------------------------------------------------------
Operating Income 3,049 4,891 12,348
INTEREST INCOME (196) (277) (220)
INTEREST EXPENSE 1,019 1,276 1,305
OTHER INCOME, NET (253) (213) (346)
----------------------------------------------------------------------------------------------
Income before income tax provision 2,479 4,105 11,609
INCOME TAX PROVISION 57 332 2,324
----------------------------------------------------------------------------------------------
Net income $ 2,422 $ 3,773 $ 9,285
==============================================================================================
NET INCOME PER SHARE (BASIC) $ .47 $ .73 $ 1.80
NET INCOME PER SHARE (DILUTED) $ .47 $ .72 $ 1.78
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES (BASIC) 5,169 5,181 5,164
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES (DILUTED) 5,203 5,228 5,228
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 8
SIFCO INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS September 30
(Amounts in thousands, except per share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
==============================================================================================
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,687 $ 2,022
Receivables, less allowance for doubtful accounts
of $765 in 2000 and $722 in 1999 19,743 22,192
Inventories 19,878 23,935
Refundable income taxes -- 354
Deferred income taxes 1,486 1,666
Prepaid expenses and other current assets 656 1,365
----------------------------------------------------------------------------------------------
Total current assets 46,450 51,534
PROPERTY, PLANT AND EQUIPMENT AT COST:
Land 859 867
Buildings 18,493 18,935
Machinery and equipment 55,724 57,292
----------------------------------------------------------------------------------------------
75,076 77,094
Less - accumulated depreciation and amortization 46,067 45,702
----------------------------------------------------------------------------------------------
Property, plant and equipment, net 29,009 31,392
OTHER ASSETS:
Funds held by trustee for capital project 530 677
Goodwill and other intangible assets, net 3,866 4,182
Other assets 645 877
----------------------------------------------------------------------------------------------
Total other assets 5,041 5,736
----------------------------------------------------------------------------------------------
Total assets $ 80,500 $ 88,662
==============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,420 $ 1,415
Accounts payable 10,263 11,629
Accrued salaries and wages 1,251 1,074
Accrued workers' compensation 731 696
Accrued income taxes 81 --
Other accrued liabilities 4,028 4,796
----------------------------------------------------------------------------------------------
Total current liabilities 17,774 19,610
LONG-TERM DEBT, NET OF CURRENT MATURITIES 11,962 12,985
OTHER LONG-TERM LIABILITIES 5,264 6,021
SHAREHOLDERS' EQUITY:
Serial preferred shares, no par value, authorized 1,000 shares -- --
Common shares, par value $1 per share, authorized 10,000 shares;
issued 5,205 shares in 2000 and 5,193 shares in 1999;
outstanding 5,134 shares in 2000 and 5,193 shares in 1999 5,205 5,193
Additional paid-in-capital 6,413 6,352
Accumulated other comprehensive loss (8,310) (2,749)
Retained earnings 42,641 41,250
Common shares held in treasury at cost, 71 shares in 2000 (449) --
----------------------------------------------------------------------------------------------
Total shareholders' equity 45,500 50,046
----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 80,500 $ 88,662
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 9
SIFCO INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended September 30
(Amounts in thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
============================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,422 $ 3,773 $ 9,285
Adjustments to reconcile net
income to net cash provided
by (used for) operating activities:
Depreciation and amortization 4,587 4,589 4,055
Loss on disposal of property, plant and -- 71 21
Deferred income taxes 176 335 (152)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Receivables 2,449 (2,119) 443
Inventories 4,057 3,704 (7,793)
Accrued or refundable income taxes 435 (922) 340
Prepaid expenses and other current assets 709 (813) 137
Other assets 232 238 248
Accounts payable (1,366) (840) 1,972
Accrued salaries and wages 177 (382) 177
Accrued workers' compensation and other accrued liabilities (733) (407) (370)
Other long-term liabilities (753) (1,711) (196)
------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 12,392 5,516 8,602
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,633) (4,902) (11,313)
Decrease (increase) in funds held by
trustee for capital project 147 245 (922)
Other (2,743) 1,920 955
------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (7,229) (2,737) (11,280)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from additional borrowings 397 -- 16,300
Repayment of borrowings (1,415) (3,500) (11,372)
Repurchase of common shares (449) -- --
Dividends (1,031) (1,037) (1,033)
------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (2,498) (4,537) 3,895
------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 2,665 (1,758) 782
Cash and cash equivalents, beginning of year 2,022 3,780 2,998
------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 4,687 $ 2,022 $ 3,780
============================================================================================================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,021 $ 1,295 $ 1,200
Cash paid for income taxes, net 62 1,246 2,105
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 10
CONSOLIDATED STATEMENTS OF SIFCO Industries, Inc., and Subsidiaries
SHAREHOLDERS' EQUITY Years ended September 30
(Amounts in thousands, except per share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED COMMON
ADDITIONAL OTHER SHARES TOTAL
COMMON PAID-IN COMPREHENSIVE RETAINED HELD IN SHAREHOLDERS'
SHARES CAPITAL INCOME(LOSS) EARNINGS TREASURY EQUITY
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
BALANCE - September 30, 1997 $5,160 $6,101 $ (955) $30,262 $ -- $40,568
Comprehensive income:
Net income -- -- -- 9,285 -- 9,285
Foreign currency translation adjustment -- -- 963 -- -- 963
------
Total comprehensive income 10,248
Shares issued to Defined Contribution Plan 3 49 -- -- -- 52
Shares issued to vendor as payment for services 2 53 -- -- -- 55
Stock options exercised, net of shares surrendered 5 (5) -- -- -- --
Dividends declared ($.20 per share) -- -- -- (1,033) -- (1,033)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE - September 30, 1998 $5,170 $6,198 $ 8 $38,514 $ -- $49,890
Comprehensive income:
Net income -- -- -- 3,773 -- 3,773
Foreign currency translation adjustment -- -- (2,757) -- -- (2,757)
------
Total comprehensive income 1,016
Shares issued to Defined Contribution Plan 6 51 -- -- -- 57
Shares issued to vendor as payment for services 4 48 -- -- -- 52
Stock options exercised, net of shares surrendered 13 55 -- -- -- 68
Dividends declared ($.20 per share) -- -- -- (1,037) -- (1,037)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE - September 30, 1999 $5,193 $6,352 $(2,749) $41,250 $ -- $50,046
Comprehensive loss:
Net income -- -- -- 2,422 -- 2,422
Foreign currency translation adjustment -- -- (5,561) -- -- (5,561)
------
Total comprehensive loss (3,139)
Shares issued to Defined Contribution Plan 1 5 -- -- -- 6
Shares issued to vendor as payment for services 6 42 -- -- -- 48
Stock options exercised 5 14 -- -- -- 19
Shares repurchased and held in treasury -- -- -- -- (449) (449)
Dividends declared ($.20 per share) -- -- -- (1,031) -- (1,031)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE - September 30, 2000 $5,205 $6,413 $(8,310) $42,641 $(449) $45,500
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE> 11
SIFCO INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED September 30, 2000, 1999, and 1998
FINANCIAL STATEMENTS (Amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. DESCRIPTION OF BUSINESS:
SIFCO Industries, Inc., an Ohio Corporation, and its subsidiaries (the
"Company") engage in the production and sale of a variety of metalworking
processes, services and products produced primarily to the specific design
requirements of its customers. The processes include forging, heat treating,
coating, welding, machining and electroplating; and the products include
forgings, machined forged parts and other machined metal parts, remanufactured
component parts for turbine engines, and electroplating solutions and equipment.
B. 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.
C. CASH EQUIVALENTS:
The Company considers all highly liquid short-term investments with original
maturities of three months or less to be cash equivalents.
D. INVENTORY VALUATION:
Inventories are stated at the lower of cost or market. Inventory costs include
material, direct labor and factory overhead. Cost is determined by the last-in,
first-out (LIFO) method for approximately 31% and 30% of inventories at
September 30, 2000 and 1999, respectively. The first-in, first-out (FIFO) method
is used for the remainder of inventories.
E. DEPRECIATION:
The Company provides for depreciation of property, plant and equipment,
principally by the straight-line method, at annual rates sufficient to amortize
the cost over each asset's expected useful life. The principal rates of
depreciation for financial reporting purposes are: buildings 2% to 5% and
machinery and equipment 5% to 33-1/3%.
F. GOODWILL AND OTHER INTANGIBLE ASSETS:
Goodwill and other intangible assets primarily represent the excess of cost over
the net assets of acquired companies. Goodwill is amortized using the
straight-line method over 40 years. Also included is a 10-year, non-competition
agreement with the former owner of an acquired company. This asset is being
amortized using the straight-line method over 10 years. At September 30, 2000
and 1999, accumulated amortization of goodwill and other intangible assets was
$2,770 and $2,455, respectively. The Company uses an undiscounted cash flow
method to periodically review the value of goodwill and other intangible assets
and believes such assets are realizable.
G. NET INCOME PER SHARE:
The Company's net income per basic share amounts have been computed based on the
average number of common shares outstanding. Net income per diluted share
amounts reflect the effect of the Company's outstanding stock options under the
treasury stock method.
H. OTHER INCOME:
Other income is comprised primarily of grant income from Irish government
agencies, foreign exchange gains and losses, and royalty and fee income.
I. USE OF ESTIMATES:
Accounting principles generally accepted in the United States require management
to make a number of estimates and assumptions relating to the reported amounts
of assets and liabilities and the disclosure of contingent liabilities, at the
date of the consolidated financial statements, and the reported amounts of
revenues and expenses during the period in preparing these consolidated
financial statements. Actual results could differ from these estimates.
J. REVENUE RECOGNITION:
Sales are generally recognized when products are shipped or services are
provided to customers.
K. NEW ACCOUNTING STANDARD:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement, as amended by SFAS No. 138,
is effective for fiscal years beginning after June 15, 2000. The standard
establishes accounting and reporting standards for derivative instruments and
for hedging activities. SFAS No. 133 requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded in earnings or other comprehensive income, based on
whether the instrument is designated as part of a hedge transaction and, if so,
the type of hedge transaction. The Company is required to adopt this statement
in the first quarter of fiscal 2001. The Company believes that the adoption of
SFAS No. 133 will not have a material impact on its financial position or
results of operations.
L. RECLASSIFICATIONS:
Certain amounts in prior years have been reclassified to conform to the 2000
consolidated financial statement presentation.
2. INVENTORIES
INVENTORIES CONSIST OF:
<TABLE>
<CAPTION>
2000 1999
==========================================================
<S> <C> <C>
Raw materials and supplies $ 4,380 $ 6,780
Finished goods and work-in-progress 15,498 17,155
-----------------------------------------------------------
Total inventories $19,878 $23,935
===========================================================
</TABLE>
If the FIFO method had been used for the entire Company, inventories would have
been $2,979 and $3,789 higher than reported at September 30, 2000 and 1999,
respectively.
10
<PAGE> 12
NOTES CONTINUED (Amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------
3. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
2000 1999
============================================================
<S> <C> <C>
Term note payable to bank $ 9,300 $10,500
Revolving credit agreement 397 --
Industrial development variable rate
demand revenue bonds 3,685 3,900
------------------------------------------------------------
Total debt 13,382 14,400
Less - current maturities 1,420 1,415
------------------------------------------------------------
Total long-term debt $11,962 $12,985
============================================================
</TABLE>
The term note is unsecured and payable in quarterly installments of $300
through February 1, 2005 with the remaining balance of $3,900 due May 1, 2005.
The term note has a variable interest rate which, after giving effect to an
interest rate swap agreement with the same bank, becomes an effective fixed rate
of 7.74% and is subject to adjustment if certain loan covenants are not
maintained. The interest rate swap agreement has a notional amount equal to the
amount owed under the term note and bears interest at a fixed rate of 5.99%.
The Company has an unsecured $6,000 revolving credit agreement which expires
on March 31, 2002 and bears interest at the bank's base rate. The interest rate
was 9.5% at September 30, 2000. The average balance outstanding against the
revolving credit agreement was $212, $2,205, and $4,300 during 2000, 1999 and
1998, respectively. A commitment fee of 1/4% is incurred on the remaining unused
balance.
The Company has a $4,100, 15-year, Industrial Development bond outstanding,
the net proceeds of which are being used at the Turbine Component Services and
Repair facility in Tampa, Florida. The interest rate is reset weekly, based on
prevailing tax-exempt money market rates (5.6% at September 30, 2000). The bond
requires annual principal payments ranging from $220 in 2001 to $355 in 2013.
The bonds are guaranteed by a letter of credit, which is secured by the property
and equipment of the facility.
Under its various credit agreements, the Company is subject to certain
customary covenants. These include, without limitation, a minimum tangible net
worth level (as defined). At September 30, 2000 the Company was in compliance
with such covenants.
4. INCOME TAXES
Income tax provision consists of the following:
<TABLE>
<CAPTION>
2000 1999 1998
========================================================================
<S> <C> <C> <C>
Current U.S. federal and non-U.S.
income tax provision (benefit) $ (108) $ (9) $ 2,419
Deferred U.S. federal
income tax provision (benefit) 176 335 (152)
State and local income tax
provision (benefit) (11) 6 57
------------------------------------------------------------------------
Income tax provision $ 57 $ 332 $ 2,324
================================================================================
</TABLE>
The income tax provision 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. The income tax
provision in the accompanying Consolidated Statements of Income differs from the
statutory rate as follows:
<TABLE>
<CAPTION>
2000 1999 1998
================================================================================
<S> <C> <C> <C>
Income before income tax provision $ 2,479 $ 4,105 $ 11,609
Less-U.S., state and local income tax
provision (benefit) (11) 6 57
--------------------------------------------------------------------------------
Income before federal
income tax provision $ 2,490 $ 4,099 $ 11,552
================================================================================
Income tax provision at U.S. federal
statutory rate $ 847 $ 1,393 $ 3,928
Tax effect of:
Non-U.S. tax rate differential (792) (975) (1,569)
Other 13 (92) (92)
--------------------------------------------------------------------------------
U.S. federal and non-U.S.
income tax provision 68 326 2,267
Add-U.S., state and local income tax
provision (benefit) (11) 6 57
--------------------------------------------------------------------------------
Income tax provision $ 57 $ 332 $ 2,324
================================================================================
</TABLE>
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
2000 1999
=============================================================
<S> <C> <C>
Deferred tax assets:
Employee benefits $ 1,308 $ 1,531
Doubtful accounts 151 180
Inventory and property reserves 355 324
Investment valuation reserve 511 511
Foreign taxes credits 161 161
Other 370 398
-------------------------------------------------------------
Total deferred tax assets 2,856 3,105
Deferred tax liabilities:
Depreciation 1,220 1,243
Personal property taxes 175 225
-------------------------------------------------------------
Total deferred tax liabilities 1,395 1,468
-------------------------------------------------------------
Deferred tax assets less liabilities 1,461 1,637
Valuation allowance (161) (161)
-------------------------------------------------------------
Net deferred tax assets $ 1,300 $ 1,476
=============================================================
</TABLE>
The realization of the Company's net deferred tax assets is dependent upon
the generation of future U.S. taxable income. Management believes it is more
likely than not that the Company will generate sufficient future U.S. taxable
income to fully utilize the established net deferred tax assets.
Cumulative undistributed earnings of non-U.S. subsidiaries for which no U.S.
federal deferred income tax liabilities have been recorded were approximately
$25,000 at September 30, 2000.
11
<PAGE> 13
NOTES CONTINUED (Amounts in thousands, except share and per share data)
--------------------------------------------------------------------------------
5. RETIREMENT BENEFIT PLANS:
The Company and certain of its U.S. subsidiaries sponsor defined benefit
pension plans covering most of its employees. The Company's funding policy for
U.S. defined benefit plans is based on an actuarially determined cost method
allowable under Internal Revenue Service regulations. Non-U.S. 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.
Net pension expense for the Company-sponsored defined benefit plans for 2000,
1999, and 1998 consists of the following:
<TABLE>
<CAPTION>
2000 1999 1998
========================================================================
<S> <C> <C> <C>
Service cost $ 886 $ 906 $ 779
Interest cost 1,153 967 951
Expected return on plan assets (1,317) (1,122) (1,010)
Amortization of transition
(asset) obligation 12 (13) (13)
Amortization of prior service cost 42 (2) (2)
Amortization of net gain (132) (79) (39)
------------------------------------------------------------------------
Net pension expense for defined
benefit plans $ 644 $ 657 $ 666
========================================================================
</TABLE>
The status of all significant U.S. and non-U.S. defined benefit plans
is as follows:
<TABLE>
<CAPTION>
Benefit Obligations: 2000 1999
=============================================================
<S> <C> <C>
Benefit obligation at
beginning of year $ 15,446 $ 14,002
Service cost 886 906
Interest cost 1,153 967
Participant contributions 187 183
Amendments for union contracts --- 540
Actuarial gain (1,061) (339)
Benefits paid (1,395) (524)
Currency translation adjustment (620) (289)
-------------------------------------------------------------
Benefit obligation at end of year $ 14,596 $ 15,446
=============================================================
</TABLE>
<TABLE>
<CAPTION>
Plan Assets: 2000 1999
============================================================
<S> <C> <C>
Plan assets at beginning of year $ 17,734 $ 16,515
Actual return on plan assets 1,941 1,569
Employer contributions 466 333
Participant contributions 187 183
Benefits paid (1,395) (513)
Currency translation adjustment (789) (353)
------------------------------------------------------------
Plan assets at end of year $ 18,144 $ 17,734
============================================================
</TABLE>
<TABLE>
<CAPTION>
Plans in which Plans in which
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
-------- -------------
Reconciliation of
Funded Status: 2000 1999 2000 1999
===========================================================================
<S> <C> <C> <C> <C>
Plan assets in excess
of projected
benefit obligations $ 3,941 $ 3,256 $ (393) $ (968)
Unrecognized net gain (3,917) (3,226) (1,999) (1,217)
Unrecognized prior
service cost 640 391 (211) 80
Unrecognized transition
asset (7) (8) (53) (41)
Currency translation
adjustment 94 14 --- ---
---------------------------------------------------------------------------
Net amount recognized
in the balance sheet $ 751 $ 427 $(2,656) $(2,146)
===========================================================================
</TABLE>
The net amounts are recorded in other long-term liabilities.
Assumptions used for defined benefit plans consist of:
<TABLE>
<CAPTION>
2000 1999 1998
===================================================================
<S> <C> <C> <C>
Discount rate for liabilities 7.8% 7.4% 6.7%
Expected return on assets 8.6% 8.1% 8.1%
Rate of compensation increase 4.0% 4.0% 3.8%
</TABLE>
The Company also contributes to two U.S. multi-employer defined contribution
plans for certain union employees. The Company's contributions to these plans in
2000, 1999 and 1998 were $46, $43 and $42, respectively.
All nonunion employees of the Company and its U.S. subsidiaries are eligible
to participate in the Company's defined contribution plan. The total cost for
2000, 1999 and 1998 was $85, $80, and $82, respectively.
The Company's Irish subsidiary sponsors, for all of its employees, a
tax-advantaged profit sharing program which was adopted in 1999. Company
discretionary contributions and employee elective 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 2000 and 1999 was $-0-and
$156, respectively.
12
<PAGE> 14
NOTES CONTINUED (Amounts in thousands, except share and per share data)
================================================================================
6. GOVERNMENT GRANTS
The Company receives grants and subsidies from the Republic of Ireland as an
incentive to invest in facilities and training in that country. These grants and
subsidies generally require that the Company maintain operations for ten years
in order to qualify for the full value of benefits received. These grants are
recorded as deferred credits when awarded and are subsequently amortized into
income over the period in which such grants are required to be earned. The
unamortized portion of these grants amounted to $2,656 and $3,241 at September
30, 2000 and 1999, and is included in other long-term liabilities. Grant revenue
of $513, $620 and $662 for 2000, 1999 and 1998, respectively, is included in
other income, net.
These grants may be repayable in certain circumstances, principally the sale
of related assets or discontinuance of operations. The contingent liability for
such possible repayments was $4,545 and $3,330 at September 30, 2000 and 1999,
respectively.
7. STOCK OPTIONS
During 1999, the Company adopted the 1998 Long-Term Incentive Plan. The
aggregate number of stock options which may be granted under the Plan in each
fiscal year is limited to 1.5% of the total outstanding shares at September 30,
1998 up to a maximum of 5% of such total outstanding shares. Options also remain
outstanding under two previous stock option plans for which authority to issue
additional grants has expired. 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. Options issued under all plans generally vest at a rate of 25% per
year.
Option activity relating to these plans during the last three years was as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
===========================================================================================
<S> <C> <C> <C>
Options at beginning of year 205,000 148,250 145,000
Weighted average exercise price $ 8.28 $ 5.67 $ 4.68
Options granted during the year 76,000 80,000 10,000
Weighted average exercise price $ 7.08 $ 12.88 $ 20.38
Options exercised during the year (5,000) (15,750) (6,750)
Weighted average exercise price $ 3.75 $ 6.26 $ 6.16
Options canceled during the year -- (7,500) --
Weighted average exercise price $ -- $ 10.00 $ --
Options at end of year 276,000 205,000 148,250
Weighted average exercise price $ 8.03 $ 8.28 $ 5.67
Options exercisable at end of year 138,750 97,500 83,250
Weighted average exercise price $ 6.14 $ 4.84 $ 4.84
</TABLE>
The following table provides additional information regarding options
outstanding as of September 30, 2000:
<TABLE>
<CAPTION>
OPTION OPTIONS OPTIONS REMAINING LIFE
EXERCISE PRICE OUTSTANDING EXERCISABLE OF OPTIONS (YRS)
======================================================================
<S> <C> <C> <C>
3.75 5,000 5,000 2.1
4.25 100,000 100,000 5.1
6.50 10,000 10,000 1.1
6.81 5,000 -- 9.4
6.94 55,000 -- 9.1
7.63 16,000 -- 9.1
12.88 75,000 18,750 8.1
20.38 10,000 5,000 7.3
----------------------------------------------------------------------
Total 276,000 138,750
======================================================================
</TABLE>
The Company employs the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation." The
pro forma impact of compensation expense from incentive stock options granted
was immaterial for all years presented.
The Company had three Phantom Stock Plans as of September 30, 1999. During
2000, all remaining participants in the Company's three Phantom Stock Plans
elected to discontinue participation in the Plans and, therefore, all such
participants received full and final distributions from the Plans. Consequently,
as of September 30, 2000, there were no award units outstanding under any of
these Phantom Stock Plans, and the Company has no further obligation under such
Plans. As of September 30, 1999 and 1998, award units outstanding under the
Phantom Stock Plans 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 Plans was, -0- in 2000 and 1999, and $(288) in 1998.
8. SUMMARIZED QUARTERLY RESULTS OF OPERATIONS(UNAUDITED AND RESTATED)
<TABLE>
<CAPTION>
2000 QUARTER ENDED
------------------------------------------------------
Dec 31 March 31 June 30 Sept 30
------ -------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 25,345 $ 28,182 $ 26,097 $ 26,514
Cost of goods sold:
Previously reported 21,447 23,160 22,989 23,136
Restated 21,447 23,493 22,656 23,136
Net income:
Previously reported 484 1,088 (109) 959
Restated 484 934 45 959
Net income per share
Basic:
Previously reported $ .09 $ .21 $ (.02) $ .19
Restated $ .09 $ .18 $ .01 $ .19
Diluted:
Previously reported $ .09 $ .21 $ (.02) $ .19
Restated $ .09 $ .18 $ .01 $ .19
</TABLE>
<TABLE>
<CAPTION>
1999 Quarter Ended
--------------------------------------------------
Dec 31 March 31 June 30 Sept 30
------ -------- ------- -------
<S> <C> <C> <C> <C>
Net sales $29,525 $30,281 $30,535 $25,149
Cost of goods sold 25,080 25,343 25,958 21,391
Net income 879 1,098 908 888
Net income per share
Basic $ .17 $ .21 $ .18 $ .17
Diluted $ .17 $ .21 $ .17 $ .17
</TABLE>
The Company restated its results for the second and third quarters of fiscal
2000 for an inventory valuation adjustment at its Aerospace Component
Manufacturing Group that reduced net income for the second quarter by $154 and
increased net income for the third quarter by $154. Such restatement had no
effect on net income for the entire fiscal year.
13
<PAGE> 15
NOTES CONTINUED (Amounts in thousands, except share and per share data)
================================================================================
9. CONTINGENCIES
In the normal course of business, the Company is involved in pending legal
actions. The Company cannot reasonably estimate future costs, if any, related to
these matters. Although it is possible that the Company's future operating
results could be affected by future cost of litigation, it is management's
belief at this time that such costs will not have a material adverse effect on
the Company's consolidated financial position or results of operations.
10. 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 accumulated other
comprehensive loss in shareholders' 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, 2000, the Company had forward contracts to sell U.S. $3,500.
These contracts mature in October and November of 2000 and are fully covered by
U.S. dollar receivables at September 30, 2000.
11. BUSINESS SEGMENTS
Reportable segments are identified by the Company based upon distinct products
manufactured and services provided. The Turbine Component Services and Repair
("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 ("ACM") segment consists primarily of domestically produced
forgings and semi-finished components principally for the aerospace industry.
The Company's reportable segments are separately managed.
Two customers accounted for 17% and 12%, respectively, of the Company's
consolidated net sales in 2000. The customer that accounted for 17% of such
sales was supplied by both of the Company's business segments, while the
customer that accounted for 12% of such sales was supplied by the Company's
Repair segment. One customer of the Company's Repair segment accounted for 13%
of consolidated net sales in 1999. One customer supplied by both of the
Company's business segments accounted for 15% of the Company's consolidated net
sales in 1998.
Unallocated amounts 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, 2000, 1999, and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
============================================================================================
<S> <C> <C> <C>
Net sales, inc. intersegment sales:
Turbine Component Services and Repair $ 71,180 $ 81,145 $ 80,000
Aerospace Component Manufacturing 34,958 34,345 43,250
Intersegment sales -- -- (75)
--------------------------------------------------------------------------------------------
Consolidated net sales $ 106,138 $ 115,490 $ 123,175
============================================================================================
Operating income:
Turbine Component Services and Repair $ 3,425 $ 5,689 $ 9,630
Aerospace Component Manufacturing 1,491 1,097 4,969
Corporate unallocated expenses (1,867) (1,895) (2,251)
--------------------------------------------------------------------------------------------
Consolidated operating income 3,049 4,891 12,348
Interest expense, net 823 999 1,085
Other income, net (253) (213) (346)
--------------------------------------------------------------------------------------------
Consolidated income before
income tax provision $ 2,479 $ 4,105 $ 11,609
============================================================================================
Depreciation and amortization expense:
Turbine Component Services and Repair $ 3,908 $ 3,971 $ 3,559
Aerospace Component Manufacturing 679 618 496
--------------------------------------------------------------------------------------------
Consolidated depreciation and
amortization expense $ 4,587 $ 4,589 $ 4,055
============================================================================================
Capital expenditures:
Turbine Component Services and Repair $ 4,118 $ 3,338 $ 8,495
Aerospace Component Manufacturing 515 1,564 2,818
--------------------------------------------------------------------------------------------
Consolidated capital expenditures $ 4,633 $ 4,902 $ 11,313
============================================================================================
Identifiable assets:
Turbine Component Services and Repair $ 55,614 $ 65,011 $ 64,682
Aerospace Component Manufacturing 18,408 19,260 22,328
Corporate 6,478 4,391 5,795
--------------------------------------------------------------------------------------------
Consolidated total assets $ 80,500 $ 88,662 $ 92,805
============================================================================================
Foreign operations:
Net sales $ 46,402 $ 53,982 $ 47,866
Operating income 2,824 4,687 7,330
Identifiable assets 29,768 38,444 36,455
</TABLE>
14
<PAGE> 16
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) future business environment,
including capital and consumer spending; (2) competitive factors, including the
ability to replace business which may be lost due to OEM encroachment into
turbine component services and repair markets; (3) successful procurement of new
repair process licenses; (4) the impact of fluctuations in foreign currency
(euro) exchange rates on the results of operations; (5) successful development
and market introductions of new products; (6) stability of government laws and
regulations, including taxes; and (7) stable governments and business conditions
in economies where business is conducted.
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, 2000
and 1999, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended September
30, 2000. 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 auditing standards generally
accepted in the United States. 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, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2000, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
October 27, 2000.
15
<PAGE> 17
SHAREHOLDER INFORMATION
================================================================================
<TABLE>
<CAPTION>
DIRECTORS
<S> <C> <C>
Maurice Foley William R. Higgins Hudson D. Smith
Director, AerFi Group plc Chief Executive Officer Treasurer, SIFCO Industries, Inc.
Shannon, Ireland Applied Fiber Systems President, SIFCO Forge Group
Clearwater, Florida
George D. Gotschall Thomas J. Vild
Assistant Secretary David V. Ragone Vild & Associates
SIFCO Industries, Inc. Partner Chagrin Falls, Ohio
Ampersand Ventures
Jeffrey P. Gotschall Wellesley, Massachusetts J. Douglas Whelan
President and Chief Executive Officer Retired President and
SIFCO Industries, Inc. Charles H. Smith, Jr. Chief Operating Officer
Chairman of the Board Wyman-Gordon Company
Richard S. Gray SIFCO Industries, Inc. North Grafton, Massachusetts
Retired President
Enterprise Development, Inc.
Cleveland, Ohio
</TABLE>
================================================================================
<TABLE>
<CAPTION>
OFFICERS
<S> <C> <C>
Charles H. Smith, Jr. Timothy V. Crean Mara L. Babin
Chairman of the Board Executive Vice President Secretary and General Counsel
Partner
Jeffrey P. Gotschall Squire, Sanders & Dempsey
President and Chief Executive Officer George D. Gotschall
Assistant Secretary
Frank A. Cappello
Vice President-Finance Hudson D. Smith
and Chief Financial Officer Treasurer
</TABLE>
================================================================================
AUDITORS
Arthur Andersen LLP
200 Public Square, Suite 1800
Cleveland, Ohio 44114-2803
GENERAL COUNSEL
Squire, Sanders & Dempsey
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
TRANSFER AGENT AND 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 to purchase 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 request to Investor Relations, SIFCO Industries, Inc.
ANNUAL MEETING
The annual meeting of shareholders of SIFCO Industries, Inc. will be held at
National City Bank, East Ninth Street and Euclid Avenue, Cleveland, Ohio, at
10:30 AM on January 30, 2001.
LISTING
The common stock of SIFCO Industries, Inc. is listed on the American Stock
Exchange under the symbol SIF.
16
<PAGE> 18
[SIFCO INDUSTRIES, INC. LOGO]
970 EAST 64TH STREET, CLEVELAND, OHIO 44103-1694
PHONE: (216) 881-8600 FAX: (216) 432-6281
WWW.SIFCO.COM
