-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DB8AgFdl9Ipnp/5ObeRMjO6CGByd4LDyEB0Y2heBHVWigj9N55qfYRrhNJnBmxWp B8tstMtV/I5ssij3Prgoyw== 0000950152-98-009760.txt : 19981228 0000950152-98-009760.hdr.sgml : 19981228 ACCESSION NUMBER: 0000950152-98-009760 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIFCO INDUSTRIES INC CENTRAL INDEX KEY: 0000090168 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT ENGINES & ENGINE PARTS [3724] IRS NUMBER: 340553950 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-05978 FILM NUMBER: 98773830 BUSINESS ADDRESS: STREET 1: 970 E 64TH ST CITY: CLEVELAND STATE: OH ZIP: 44103 BUSINESS PHONE: 2168818600 MAIL ADDRESS: STREET 1: 970 EAST 64TH STREET CITY: CLEVELAND STATE: OH ZIP: 44103 FORMER COMPANY: FORMER CONFORMED NAME: STEEL IMPROVEMENT & FORGE CO DATE OF NAME CHANGE: 19690520 10-K 1 SIFCO INDUSTRIES, INC. ANNUAL REPORT FORM 10-K 1 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 9/30/98 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. 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 2, 1998 -- $41,712,842 - -------------------------------------------------------------------------------- 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, 1998 -- 5,171,227 - -------------------------------------------------------------------------------- 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 1998 Annual Report to Shareholders (Part I, III, IV) Portions of the Proxy Statement for Annual Meeting of Shareholders on January 26, 1999 (Part I,II,III) 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. 1 3 COMPETITION; PRINCIPAL CUSTOMERS; BACKLOG ----------------------------------------- There is active competition among many companies, large and small, in every one of the services and products offered by the Company. The Company, however, believes that it offers a wider variety of services than most of its competitors and is more experienced than most in meeting the exact requirements and technical specifications of its customers, particularly those in the aerospace and turbine components repair markets. In addition, the Company has the ability to use its management and marketing expertise to provide worldwide sourcing and selling capabilities. There is excess capacity in many segments of the forging industry which the Company believes has the effect of increasing competition and limits the ability to raise prices. The Company feels, however, that its focus on quality, customer service and offering a broader range of capabilities help to give it an advantage in the markets it serves. Defense orders can be quite volatile year to year. The decline in defense spending that occurred in the early nineties negatively impacted both sales and income of the Company. The growth in the commercial aerospace business and the turbine component service and repair business since that time has reduced the impact of defense spending on the Company. The performance of the domestic and international air transport industries directly and significantly impact our performance. The restructuring and down turn in the airline industry in the early nineties negatively impacted the sales and income of the Company by increasing price competition for the available business. Recently there has been a strong resurgence in the performance of the worldwide airlines industry. Although historically related, there can be no assurance that record profits for the air transport industry will translate directly into the particular performance of the Company. A reduction in the number of airlines could result in fewer new aircraft being ordered as the remaining airlines purchase the used aircraft from the airlines no longer in business. On the other hand, older aircraft require repairs more frequently than newer aircraft, and this could have a positive effect on the Company. The airline industry's long term outlook is still for continued growth in air travel which would suggest the need for newer aircraft and growth in the requirement for repairs. The Company is not able to quantify the interplay of these factors. The Company believes it can partially compensate for these factors mentioned above by its efforts to broaden its product lines and develop new geographic markets, customers and technologies. The identity and rankings of the Company's principal customers vary from year to year, and the Company relies on its ability to adapt its services and operations to changing requirements rather than on any high volume production of a particular item or group of items for a particular customer or customers. Sales to the Company's three largest customers were approximately $13.9 million, $6.6 million and $4.1 million, respectively. The first company serves the aircraft engine market and the remaining two the airline transportation market. The Company believes that the total loss of sales of its largest customer or two of the remaining customers mentioned above would result in a materially adverse impact on the business and income of the Company. Although there is no assurance that this will continue, historically as one or more major customers have reduced their purchases, one or more other customers have increased purchases avoiding a materially adverse impact on the business or financial results of the Company. 2 4 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 6, 7 and 15, respectively, of the 1998 Annual Report to Shareholders 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, 1998 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. 3 5 EMPLOYEES --------- The number of the Company's employees increased from 770 at the beginning of the fiscal year to 863 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, 1998 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. 4 6 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 11 of the Annual Report to Shareholders for the year ended September 30, 1998. As of December 2, 1998, the Company had 711 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, 1998. 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 6 and 7 of the Annual Report to Shareholders for the year ended September 30, 1998. 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, 1998. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements required by Item 8 are incorporated herein by reference to pages 8 through 15, inclusive, of the Annual Report to Shareholders for the year ended September 30, 1998. ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 5 7 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 5 of the Proxy Statement for the Annual Meeting of Shareholders to be held January 26, 1999. EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT ------------------------------------------------------ The Executive Officers of the Company are elected annually to serve for one-year terms or until their successors are elected and qualified. The officers listed below were elected January 28, 1997.
Name Age Title and Business Experience - ---- --- ----------------------------- Charles H. Smith, Jr. (1) 78 Director since 1941; Chairman of the Board; Mr. Smith previously served the Company as its Chief Executive Officer from January 1943 until February 1983. Jeffrey P. Gotschall (1) 50 Director since October 1986; Chief Executive Officer since July 1990; President since October 1989 and Chief Operating Officer from October 1986 to July 1990; Mr. Gotschall previously served the Company from October 1986 through September 1989 as Executive Vice President and from May 1985 through February 1989 as President of SIFCO Turbine Component Services. George D. Gotschall (1) 78 Director from 1950 to 1958 and continuously since 1962; Mr. Gotschall is Assistant Secretary of the Company and previously served the Company until February 1983 as Vice President--International and Treasurer. Richard A. Demetter 58 Vice President-Finance since January 1979; Chief Financial Officer since January 1984, and previously Controller from November 1976 to January 1984.
6 8
PART III (CONTINUED) ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT (continued) EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT (CONTINUED) - ------------------------------------------------------------------ Name Age Title and Business Experience - ---- --- ----------------------------- Hudson D. Smith (1) 47 Director since 1988. Treasurer of the Company since 1983; President of SIFCO Forge Group since January 1998; Vice President and General Manager of SIFCO Forge Group from January 1995 through January 1997; General Manager of SIFCO Forge Group's Cleveland Operations from October 1989 through January 1995; Group General Sales Manager of SIFCO Forge Group from July 1985 through September 1989. Timothy V. Crean 50 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. 48 Secretary since July 1980, and General Counsel since 1985. Ms. Babin is a partner in the law firm of Squire, Sanders & Dempsey L.L.P. and has been an attorney with the firm since 1975. (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 5 through 11 of the Proxy Statement for the Annual Meeting of Shareholders to be held January 26, 1999. 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 11 of the Proxy Statement for the Annual Meeting of Shareholders to be held January 26, 1999. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 7 9 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Financial Statements: -------------------- The following consolidated financial statements and related notes of the Registrant and its subsidiaries contained on pages 8 through 15, inclusive, of the Annual Report to Shareholders for the year ended September 30, 1998, are incorporated herein by reference. Consolidated Balance Sheets - September 30, 1998 and 1997. Consolidated Statements of Income for the Years Ended September 30, 1998, 1997 and 1996. Consolidated Statements of Shareholders' Equity for the Years Ended September 30, 1998, 1997 and 1996. Consolidated Statements of Cash Flows for the Years Ended September 30, 1998, 1997 and 1996. Notes to Consolidated Financial Statements for the Years Ended September 30, 1998, 1997 and 1996. 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, 1998, 1997 and 1996. All schedules, other than Schedules II are omitted since the information is not required or is otherwise furnished. 8 10 PART IV (continued) (a) (3) Exhibits: --------- ** (3) Second Amended Articles of Incorporation, as amended, and Amended Code of Regulations. *** (4) Instruments defining the rights of security holders. Reference is made to Exhibit (3) above and to Note 2, page 10 of the 1986 Annual Report to Shareholders. **** (9) Voting Trust Agreement, as amended. (10) Material Contracts: *****) (a) 1989 Stock Option Plan # (b) Incentive Compensation Plan, as amended and restated # (c) Deferred Compensation Program, as amended and restated ****) (d) Form of Indemnification Agreement between the Registrant and each of its Directors and Executive Officers *) (e) 1994 Phantom Stock Plan (13) 1998 Annual Report to Shareholders ***** (21) Subsidiaries of the Registrant (23) Consent of Arthur Andersen LLP (24) Powers of Attorney *) Incorporated herein by reference to Exhibit A to the Proxy Statement for the Annual Meeting of Shareholders held January 31, 1995. **) Incorporated herein by reference to Form 10-K, September 30, 1986 ***) Incorporated herein by reference to Form 10-K, September 30, 1987 ****) Incorporated herein by reference to Form 10-K, September 30, 1988 *****) Incorporated herein by reference to Form 10-K, September 30, 1989 # Incorporated herein by reference to Form 10-K, September 30, 1995 (27) 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, 1998, 1997 and 1996. (b) (1) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the last quarter of the fiscal year ended September 30, 1998. 9 11 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. /*/ Richard A. Demetter ----------------------- Richard A. Demetter Chief Accounting Officer Date: December 21, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below on December 21, 1998 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 /*/ Richard A. Demetter ----------------------- Richard A. Demetter (Attorney in Fact) 10 EX-13 2 EXHIBIT 13 1 EXHIBIT 13 FINANCIAL HIGHLIGHTS OF 1998
Years Ended September 30 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------ Net sales $ 123,175 $ 108,790 $85,420 $ 68,134 $ 61,429 Operating income 11,609 9,123 4,694(*) 3,067 24 Net gain on disposal of investments -- -- -- -- 246 Income tax (provision) benefit (2,324) (2,047) 914 (255) (215) Net income 9,285 7,076 5,608 2,812 55 Net income per share (basic) 1.80 1.38 1.10 .55 .01 Net income per share (diluted) 1.78 1.36 1.09 .55 .01 Cash dividends per share .20 .15 .10 -- -- Shareholders' equity 49,890 40,568 35,957 30,805 27,270 Shareholders' equity per share at year end 9.65 7.86 7.01 6.05 5.39 Return on beginning shareholders' equity 22.9% 19.7% 18.2% 10.3% 0.2% Long-term debt 16,500 11,716 10,575 10,875 6,975 Long-term debt to equity percent 33.1% 28.9% 29.4% 35.3% 25.6% Working capital 30,252 24,520 20,860 16,671 9,675 Current ratio 2.4 2.3 2.2 2.2 1.6 Net property, plant and equipment 32,582 24,714 23,200 23,460 21,476 Total assets 90,884 74,444 67,970 60,682 55,784 Shares outstanding at year end 5,170 5,160 5,127 5,092 5,062 Stock price range (high-low) 27-1/8-11-5/8 21-1/4-9-5/8 10-1/4-3-3/4 5-9/16-2-15/16 4-3/4-2-9/16
(*)Includes reversal of restructuring charge to income of $1,512 Dollars in thousands, except per share amounts 1 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF BUSINESS ================================================================================ OPERATIONS 1996-1998 1996 In 1996, net sales increased to $85.4 million from $68.1 million, or approximately 25%, with Turbine Component Services and Repair increasing 24% and Aerospace Component Manufacturing increasing 27%. Defense-related sales increased to $11.0 million from $9.3 million in 1995. Income before income taxes was $4.7 million compared with $3.1 million in 1995. The Company completed the restructuring of the Aerospace Component Manufacturing business in the second quarter of fiscal 1995 and income before income taxes for fiscal 1995, as well as the second quarter, includes the reversal to income of $1.5 million of the restructuring reserve. Turbine Component Services and Repair sales increased $11.3 million to $58.7 million from $47.4 million in 1995. Defense-related sales were $1.2 million, an increase from $.7 million in 1995. Turbine Component Services and Repair income from operations before corporate and interest expense increased to $5.9 million from $3.6 million in 1995. Increased activity from airline repair customers was the primary source of the increase. Aerospace Component Manufacturing sales increased $5.8 million to $27.1 million from $21.3 million in 1995. Defense-related sales were $9.8 million compared with $8.6 million in 1995. Aerospace Component Manufacturing's income from operations before corporate and interest expense increased to $1.7 million from $.6 million in 1995, excluding the reversal to income in 1995 of the $1.5 million of the restructuring reserve mentioned above. The Company's total new orders for fiscal 1996 increased to $99.7 million from $72.0 million in 1995. Defense orders increased to $17.8 million from $11.5 million last year. Backlog at September 30, 1996 and 1995 was $42.9 million and $28.6 million, respectively. 1997 In 1997 net sales rose to $108.8 million from $85.4 million in 1996, which is our first $100 million sales year. This represents an increase of 27% from last year's sales. Income before income taxes rose to $9.1 million from $4.7 million last year or 94%. Net income per share was $1.36 compared to $1.09 last year. Net income for 1996 and the fourth quarter of 1996 were increased by unusual circumstances involving non-recurring items which include a valuation reserve established in 1994 for deferred taxes that was reversed because of improved profitability. This reserve reversal added $.25 per share to net income. In addition, a tax benefit from the closing and consolidation of certain foreign operations to improve the Company's effectiveness in selected markets added $.10 per share to net income. Turbine Component Services and Repair sales rose to $69.3 million from $58.7 million last year or 18%. Income from operations before corporate and interest expense rose to $9.0 million from $5.9 million or 53%. Increased activity from airline repair customers and a better product mix were the primary source of the improved operating performance. Aerospace Component Manufacturing sales increased 46% to $39.6 million from $27.1 million last year. Income from operations before corporate and interest expense was $3.5 million, an increase of 106% from $1.7 million last year as a result of the higher operating levels and improved efficiencies. The Company's total new orders for fiscal 1997 increased to $112.4 million compared 6 3 ================================================================================ 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 last 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 last year, 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. YEAR Based on the assessment efforts to date, the Company does not 2000 believe that the Year 2000 issue will have a material adverse ISSUE effect on its financial condition or results of operations. The Company anticipates that it will remediate its Year 2000 risks and be able to conduct normal operations without having to establish a Year 2000 contingency plan. The Company estimates its cost to be compliant at approximately $100,000, excluding the cost of Company information technology employees. However, the Year 2000 problem is unique and 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. It would be impractical for the Company to address all potential Year 2000 problems of Third Parties that, if uncorrected, could have a material adverse impact on the Company's business. FINANCIAL The Company's long-term debt as a percentage to equity at the end POSITION of the year was 33.1% compared to 28.9% in 1997. As of September 30, 1998 the Company had $1.1 million outstanding against its $5 million revolving credit agreement which expires March 31, 2001. The Company feels it has adequate credit availability to meet its requirements in the coming year. 7 4 CONSOLIDATED STATEMENTS OF INCOME SIFCO INDUSTRIES, INC., AND SUBSIDIARIES For the years ended September 30 ($000 omitted except for per share data) ================================================================================
- ---------------------------------------------------------------------------------------------------------- 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------- NET SALES $123,175 $108,790 $85,420 COSTS AND EXPENSES: Cost of goods sold (Note 1) 97,587 85,049 67,714 Selling, general and administrative expenses 13,240 14,224 12,335 Interest income (220) (132) (120) Interest expense 1,305 1,141 1,141 Other (income) expense, net (Note 1) (346) (615) (344) -------- -------- ------- 111,566 99,667 80,726 -------- -------- ------- INCOME BEFORE INCOME TAXES 11,609 9,123 4,694 INCOME TAX (PROVISION) BENEFIT (NOTE 3) (2,324) (2,047) 914 -------- -------- ------- NET INCOME 9,285 $ 7,076 $ 5,608 ======== ======== ======= NET INCOME PER SHARE (BASIC) $ 1.80 $ 1.38 $ 1.10 NET INCOME PER SHARE (DILUTED) $ 1.78 $ 1.36 $ 1.09
The accompanying notes are an integral part of these consolidated statements. 8 5 CONSOLIDATED BALANCE SHEETS SIFCO INDUSTRIES, INC., AND SUBSIDIARIES September 30 ($000 omitted except for per share data) ================================================================================
- ------------------------------------------------------------------------------------------------------------------ 1998 1997 - ------------------------------------------------------------------------------------------------------------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3,503 $ 2,998 Receivables, less allowance for doubtful accounts of $774 in 1998 and $829 in 1997 20,073 20,516 Inventories (Note 1) 27,639 19,846 Prepaid expenses and other current assets 552 689 ------- ------- Total current assets 51,767 44,049 ------- ------- PROPERTY, PLANT AND EQUIPMENT AT COST (NOTES 1 AND 2): Land 855 855 Buildings 18,627 15,251 Machinery and equipment 56,326 47,631 ------- ------- 75,808 63,737 Less accumulated depreciation and amortization 43,226 39,023 ------- ------- 32,582 24,714 ------- ------- OTHER ASSETS: Funds held by trustee for capital project 922 -- Goodwill, net of amortization (Note 1) 3,748 3,864 Deferred charges and other (Note 1) 1,865 1,817 ------- ------- 6,535 5,681 ------- ------- $90,884 $74,444 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt (Note 2) $ 1,400 $ 1,256 Accounts payable 12,192 10,497 Accrued salaries and wages 1,456 1,279 Accrued workers' compensation 801 594 Other accrued expenses 5,098 5,675 Accrued income taxes (Note 3) 568 228 ------- ------- Total current liabilities 21,515 19,529 ------- ------- LONG-TERM DEBT, NET OF CURRENT MATURITIES (NOTE 2) 16,500 11,716 ------- ------- OTHER LONG-TERM LIABILITIES (NOTE 1) 2,979 2,631 ------- ------- SHAREHOLDERS' EQUITY (NOTE 2): Serial preferred shares, no par value, authorized 1,000,000 shares in 1998 and 1997 -- -- Common shares, par value $1 per share, authorized 10,000,000 shares, issued and outstanding 5,170,384 shares in 1998 and 5,159,708 shares in 1997 5,170 5,160 Capital in excess of par value 6,198 6,101 Earnings retained for use in the business 38,522 29,307 ------- ------- Total shareholders' equity 49,890 40,568 ------- ------- $90,884 $74,444 ======= =======
The accompanying notes are an integral part of these consolidated statements. 9 6 CONSOLIDATED STATEMENTS OF CASH FLOWS SIFCO INDUSTRIES, INC., AND SUBSIDIARIES For the years ended September 30 ($000 omitted) ================================================================================
- ------------------------------------------------------------------------------------------------------------------ 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------ NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Net income $ 9,285 $ 7,076 $ 5,608 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 4,055 3,681 3,566 Loss on disposal of property, plant and equipment 21 370 90 Deferred income taxes (152) (482) (1,177) -------- -------- ------- 13,209 10,645 8,087 NET CASH PROVIDED BY (USED FOR) CHANGES IN OPERATING ASSETS AND LIABILITIES: Receivables 443 (2,587) (2,808) Inventories (7,793) (2,057) (4,504) Accrued or refundable income taxes 340 421 (220) Prepaid expenses and other current assets 137 (62) (82) Accounts payable 1,695 1,095 2,738 Accrued salaries and wages 177 305 316 Other accrued expenses (370) 1,337 319 -------- -------- ------- (5,371) (1,548) (4,241) -------- -------- ------- Net cash provided by (used for) operating activities 7,838 9,097 3,846 NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES: Purchase of property, plant and equipment (11,313) (6,613) (3,388) Decrease (increase) in funds held by trustee for capital project (922) -- 472 Other (462) (1,513) (169) -------- -------- ------- Net cash provided by (used for) investing activities (12,697) (8,126) (3,085) -------- -------- ------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES: Proceeds from additional borrowings 16,300 6,000 2,200 Repayment of borrowings (11,372) (6,103) (2,300) Grants received from Irish government agency 436 -- -- -------- -------- ------- Net cash provided by (used for) financing activities 5,364 (103) (100) -------- -------- ------- Increase (decrease) in cash and cash equivalents 505 868 661 Cash and cash equivalents, beginning of year 2,998 2,130 1,469 Cash and cash equivalents, end of year $ 3,503 $ 2,998 $ 2,130 ======== ======== =======
The accompanying notes are an integral part of these consolidated statements. 10 7 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY SIFCO INDUSTRIES, INC., AND SUBSIDIARIES For the years ended September 30 ($000 omitted except for per share data) ================================================================================
Earnings Retained Common Capital in for Use Shares Excess of in the $1 Par Value Par Value Business - --------------------------------------------------------------------------------------------------------------------- BALANCE - September 30, 1995 $5,092 $ 5,873 $ 19,840 Net income -- -- 5,608 Shares issued to Employees' Thrift Plan 7 30 -- Shares issued to vendors as payment for services 11 29 -- Stock options exercised, net of shares surrendered 17 46 -- Foreign currency translation adjustment -- -- (83) Dividends declared ($.10 per share) -- -- (513) - --------------------------------------------------------------------------------------------------------------------- BALANCE - September 30, 1996 $5,127 $ 5,978 $ 24,852 Net income -- -- 7,076 Shares issued to Employees' Thrift Plan 4 51 -- Shares issued to vendors as payment for services 3 29 -- Stock options exercised, net of shares surrendered 26 43 -- Foreign currency translation adjustment -- -- (1,847) Dividends declared ($.15 per share) -- -- (774) - --------------------------------------------------------------------------------------------------------------------- BALANCE - September 30, 1997 $5,160 $ 6,101 $ 29,307 Net income -- -- 9,285 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) -- Foreign currency translation adjustment -- -- 963 Dividends declared ($.20 per share) -- -- (1,033) BALANCE - September 30, 1998 $5,170 $ 6,198 $ 38,522
The accompanying notes are an integral part of these consolidated statements. STOCK PRICES BY QUARTERS (AMEX) (Unaudited)
1998 1997 --------------------------------------------------------- High Low High Low --------------------------------------------------------- First Quarter 24 18-1/2 11-3/8 9-5/8 Second Quarter 25-5/8 18-1/2 12-1/2 10 Third Quarter 27-1/8 20-1/8 14-7/8 10-1/4 Fourth Quarter 22-7/8 11-5/8 21-1/4 14-1/8
11 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIFCO INDUSTRIES, INC., AND SUBSIDIARIES September 30, 1998, 1997 and 1996 ================================================================================ 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) 1998 1997 ---- ---- Last-in, first-out cost $11,376 $ 7,324 First-in, first-out or average cost 16,263 12,522 ------- ------- $27,639 $19,846 ======= =======
Under the average cost method of accounting, LIFO inventories would have been $4,060,000 and $4,372,000 higher than reported at September 30, 1998 and 1997, respectively. The inventories at September 30, 1998 and 1997, respectively, consisted of raw materials and supplies of $8,008,000 and $6,032,000, and finished goods and work-in-process of $19,631,000 and $13,814,000. 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 $889,000 and $773,000 at September 30, 1998 and 1997, 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 domestic subsidiaries sponsor five pension plans covering substantially all United States employees. Two of the plans are multi-employer defined contribution plans. Three of the plans are single employer defined benefit plans. The Company's funding policy for defined benefit plans is based on an actuarially determined cost method allowable under Internal Revenue Service regulations. The defined contribution plans are funded monthly. Pension costs charged to operations for these plans were $42,000 in 1998, $43,000 in 1997, and $32,000 in 1996. Net pension expense for the defined benefit plans for 1998, 1997, and 1996 consisted of the following components:
($000 omitted) 1998 1997 1996 ---- ---- ---- Service cost - benefits earned during the year $ 496 $ 416 $ 398 Interest cost on projected benefit obligation 786 705 652 Actual return on plan assets (1,931) (1,504) (1,042) Net amortization and deferral 1,112 763 318 ------- ------- ------- Total Expense $ 463 $ 380 $ 326 ======= ======= =======
Assumptions used in accounting for the defined benefit pension plans as of September 30, 1998, 1997, and 1996 were: Weighted average discount rate used for ending liabilities 7.00% 7.50% 7.75% Weighted average discount rate used for expense 7.50% 7.75% 7.50% Rate of increase in compensation levels 4.00% 4.00% 4.00% Expected long-term investment rate 8.50% 8.50% 8.50%
The following table sets forth the funded status of the defined benefit plans and the amounts shown in the Consolidated Balance Sheets as of September 30, 1998 and 1997:
Plans with Assets Plans with Accum- in Excess of ulated Benefit Accumulated Obligations in Benefit Obligations Excess of Assets ($000 omitted) 1998 1997 1998 1997 ---- ---- ---- ---- Plan assets at fair value, primarily listed stocks, funds, and bonds $ 11,700 $ 9,798 $ 1,130 $ 961 Actuarial present value of the benefit obligation Vested (7,099) (6,829) (1,215) (1,003) Non-vested (623) (411) (144) (144) -------- ------- ------- ------- Accumulated benefit obligation (7,722) (7,240) (1,359) (1,147) Projected effect of future salary increases (1,957) (1,808) -- -- -------- ------- ------- ------- Total projected benefit obligation (9,679) (9,048) (1,359) (1,147) -------- ------- ------- ------- Plan assets over (under) projected benefit obligation 2,021 750 (229) (186) Unrecognized prior service cost (156) (167) 84 81 Unrecognized net (gain) loss (3,307) (1,875) 137 63 Additional liability -- -- (266) (224) Unrecognized transition (asset) obligation (99) (135) 45 80 -------- ------- ------- ------- Pension liability at end of year (1,541) (1,427) (229) (186) ======== ======= ======= =======
The employees in Ireland are covered by a pension plan, the cost of which currently is accrued and fully funded. 12 9 NOTES CONTINUED ================================================================================ All non-union employees of the Company and its domestic subsidiaries are eligible to participate in the Company's thrift plan. The total costs for 1998, 1997 and 1996 were $82,000, $71,000, and $60,000, respectively. 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 ----- ------- 1998 5,164,114 5,228,431 1997 5,141,497 5,183,935 1996 5,112,287 5,124,075
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 $1,250,000 and $1,050,000 as of September 30, 1998 and 1997, 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 $1,200,000, $1,272,000, and $1,194,000, in 1998, 1997 and 1996, respectively. Income taxes paid were $2,105,000 $1,578,000, and $35,000, in 1998, 1997 and 1996, 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 $2,412,000 and $2,227,000 at September 30, 1998 and 1997, respectively, and is included in other long-term liabilities. K. MANAGEMENT ESTIMATES: The Company prepares its financial statements in accordance with generally accepted accounting principles, which requires management to make estimates and assumptions that affect amounts reported in the financial statements for the reporting period. Actual results could differ from those estimates and assumptions. These estimates and assumptions are revised as necessary. 2. DEBT Long-term debt as of September 30, 1998 and 1997 consisted of:
($000 omitted) 1998 1997 ---- ---- Variable Rate Industrial Development Revenue Improvement and Refunding Bonds $ 4,100 $ 1,900 Notes payable to bank, due in quarterly installments of $300,000 11,700 5,572 Note payable to bank, due October 31, 1999, interest payable quarterly, at rates based upon LIBOR and DIBOR 1,000 1,000 Note payable under revolving credit agreement, at the base rate 1,100 4,500 ------- ------- 17,900 12,972 Less - current maturities 1,400 1,256 ------- ------- $16,500 $11,716 ======= =======
In April 1998, the Company restructured its credit facilities. It reduced the previously existing $9 million revolving credit agreement to $5 million, which 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 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 $4.3 million, $4.8 million and $5.4 million during 1998, 1997 and 1996, 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 addition, the Company has a $1.15 million credit facility, which is used for an irrevocable letter of credit that secures the $1 million loan from an Irish bank due October 31, 1999. The loan has a variable interest rate based on a combination of LIBOR and DIBOR (Dublin Interbank Rates) rates. The Company obtained a $4.1 million, 15-year, Industrial Development bond. The proceeds of the bonds were used to refund the existing Industrial Development 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 $10.8 million at September 30, 1998. The $1 million note payable to the bank has a variable interest rate based on a combination of both LIBOR and DIBOR (Dublin Interbank Rates) rates. The average effective rates of 1998, 1997, and 1996 were 7.0%, 6.7%, and 6.7%, respectively. 13 10 NOTES CONTINUED ================================================================================ 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:
($000 omitted) 1998 1997 1996 ---- ---- ---- Income before taxes $11,609 $ 9,123 $ 4,694 Less - State and local income taxes 57 20 -- ------- ------- ------- $11,552 $ 9,103 $ 4,694 ======= ======= ======= Tax provision at statutory rate $ 3,928 $ 3,095 $ 1,596 Tax effect of - Foreign tax rate differential (1,569) (1,116) (777) Valuation allowance -- -- (1,304) Deductible permanent book to tax difference -- -- (511) Other (92) 48 82 ------- ------- ------- Provision (benefit) for federal and foreign income taxes 2,267 2,027 (914) Add - State and local income taxes 57 20 -- ------- ------- ------- $ 2,324 $ 2,047 $ (914) ======= ======= =======
The provision (benefit) for income taxes differs from amounts currently payable or refundable due to certain items reported for financial statement purposes in periods which differ from those in which they are reported for tax purposes. Income tax provision (benefit) is made up of the following components:
($000 omitted) 1998 1997 1996 ---- ---- ---- Current federal and foreign income taxes $ 4,078 $ 3,686 $ 263 Deferred federal income taxes (1,811) (1,659) (1,177) State and local income taxes 57 20 -- ------- ------- ------- $ 2,324 $ 2,047 $ (914) ======= ======= =======
Deferred tax assets and liabilities are comprised of the following:
($000 omitted) 1998 1997 ---- ---- Deferred tax assets: Employee benefits $1,545 $1,460 Doubtful accounts 106 153 Inventory and property reserves 392 355 Investment valuation reserve 511 511 Foreign taxes credits 161 161 Other 440 257 ------ ------ 3,155 2,897 Deferred tax liabilities: Depreciation 1,044 950 Personal property taxes 139 127 ------ ------ 1,183 1,077 ------ ------ Deferred tax assets less liabilities 1,972 1,820 Valuation allowance (161) (161) ------ ------ Net deferred tax assets $1,811 $1,659 ====== ======
Cumulative undistributed earnings of foreign subsidiaries for which no U.S. federal deferred income tax liabilities have been recorded were approximately $25,557,000 at September 30, 1998. 4. SUMMARIZED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
($000 omitted) 1998 Quarter Ended Dec 31 March 31 June 30 Sept 30 Total Net Sales $29,898 $30,949 $31,957 $30,371 $123,175 Cost of Sales 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 ($000 omitted) 1997 Quarter Ended Dec 31 March 31 June 30 Sept 30 Total Net Sales $23,761 $27,122 $29,999 $27,908 $108,790 Cost of Sales 18,909 21,757 23,260 21,123 85,049 Net Income 1,098 1,426 2,009 2,543 7,076 Net Income Per Share Basic $ .21 $ .28 $ .39 $ .50 $ 1.38 Diluted $ .21 $ .28 $ .38 $ .49 $ 1.36
5. STOCK OPTIONS Under the 1995 Stock Option Plan, 200,000 shares are reserved for incentive stock option grants to key employees of the Company. Recipients of the grants may purchase common shares at not less than fair market value no later than ten years from date of the grant. 110,000 options were granted in fiscal 1996 at a price of $4.25 and 10,000 options were granted in fiscal 1998 at a price of $20.38. All remained outstanding at September 30, 1998. 35,000 options issued under previous stock option plans (for which authority to issue additional grants has expired) at prices ranging from $3.75 to $8.08 remained outstanding at September 30, 1998. During 1998 and 1997, 6,750 and 40,500 options were exercised at an aggregate price of approximately $42,000 and $236,000, respectively. In 1997, the Company adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." The Black-Scholes option pricing model was used to determine that the pro forma impact of compensation expense from incentive stock options granted was immaterial. 14 11 NOTES CONTINUED ================================================================================ The Company also has a 1994 Phantom Stock Plan. Grantees under the Plan are credited with dividend equivalent units. Upon discontinuance of participation in the Plan, the grantee is normally paid in cash, although shares may be issued at the Company's discretion. The benefit under the Plan is based upon the difference between the market price at the date of discontinuance and the award price for vested award units, plus the market value of dividend equivalent units. As of September 30, 1998 and 1997, award units outstanding under the Phantom Stock Plan, which includes awards still outstanding under two previous versions of the Plan (for which authority to make additional awards has expired), were 124,063 and 124,563 at prices ranging from $3.55 to $20.31, plus 8,103 and 7,854 dividend equivalent units, respectively. Expense (income) relating to the Plan was ($288,000) in 1998, $1,292,000 in 1997, and $580,000 in 1996. 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 and imported forgings principally for the aerospace industry. One customer in 1998, an aircraft engine manufacturer, accounted for approximately 11% of sales. No one customer accounted for 10% or more of sales in 1997 and 1996. 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, 1998, 1997 and 1996:
($000 omitted) 1998 1997 1996 ---- ---- ---- Net sales, inc. intersegment sales: Turbine Component Services and Repair $ 80,000 $ 69,259 $58,692 Aerospace Component Manufacturing 43,250 39,628 27,121 Intersegment sales (75) (97) (393) -------- -------- ------- $123,175 $108,790 $85,420 ======== ======== ======= Income from operations before corporate expenses and interest expense: Turbine Component Services and Repair $ 9,991 $ 8,999 $ 5,933 Aerospace Component Manufacturing 4,954 3,539 1,666 -------- -------- ------- 14,945 12,538 7,599 Corporate expenses (2,251) (2,406) (1,884) Interest expense, net (1,085) (1,009) (1,021) -------- -------- ------- Income before income taxes $ 11,609 $ 9,123 $ 4,694 ======== ======== ======= ($000 omitted) 1998 1997 1996 ---- ---- ---- Depreciation and amortization expense: Turbine Component Services and Repair $ 3,559 $ 3,225 $ 2,947 Aerospace Component Manufacturing 496 456 619 ------- ------- ------- $ 4,055 $ 3,681 $ 3,566 ======= ======= ======= Capital expenditures: Turbine Component Services and Repair $ 8,495 $ 5,944 $ 2,733 Aerospace Component Manufacturing 2,818 669 655 ------- ------- ------- $11,313 $ 6,613 $ 3,388 ======= ======= ======= Identifiable assets Turbine Component Services and Repair $64,682 $52,960 $51,087 Aerospace Component Manufacturing 22,328 18,246 14,309 Corporate 3,874 3,238 2,574 ------- ------- ------- $90,884 $74,444 $67,970 ======= ======= ======= Foreign operations Net sales $47,866 $37,675 $27,522 Operating profit 7,330 5,826 2,584 Identifiable assets 36,455 29,111 24,116
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, 1998, the Company had forward contracts to sell US$3,750,000. These contracts mature in October 1998 and are fully covered by U.S. dollar receivables at September 30, 1998. 15 12 ================================================================================ 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, 1998 and 1997, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended September 30, 1998. 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Cleveland, Ohio, October 27, 1998. 16 EX-23 3 EXHIBIT 23 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 27,1998, 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 15,1998. EX-24 4 EXHIBIT 24 1 Exhibit 24 SIFCO INDUSTRIES, INC, ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY The undersigned, an officer or director or both an officer and director, of SIFCO Industries, Inc. (the "Company"), an Ohio corporation, which anticipates filing with the Securities and Exchange Commission, Washington, D.C., under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K (which together with any and all amendments thereto is hereinafter called the "Form 10-K"), does hereby constitute and appoint Charles H. Smith, Jr., Jeffrey P. Gotschall, Richard A. Demetter, and Mara L. Babin, and any one of them, with full power of substitution and resubstitution, as attorneys or attorney to execute and file on behalf of the undersigned in his capacity as an officer and/or director of the Company, the Form 10-K, with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at Cleveland, Ohio, this 17th day of December, 1998. /s/ Charles H. Smith, Jr. -------------------------- 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 18th day of December, 1998. /s/ George D. Gotschall -------------------------- 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 17th day of December, 1998. /s/ Richard S. Gray -------------------------- 4 Exhibit 24 SIFCO INDUSTRIES, INC, ANNUAL REPORT ON FORM 10-K POWER OF ATTORNEY The undersigned, an officer or director or both an officer and director, of SIFCO Industries, Inc. (the "Company"), an Ohio corporation, which anticipates filing with the Securities and Exchange Commission, Washington, D.C., under the Securities Exchange Act of 1934, as amended, an Annual Report on Form 10-K (which together with any and all amendments thereto is hereinafter called the "Form 10-K"), does hereby constitute and appoint Charles H. Smith, Jr., Jeffrey P. Gotschall, Richard A. Demetter, and Mara L. Babin, and any one of them, with full power of substitution and resubstitution, as attorneys or attorney to execute and file on behalf of the undersigned in his capacity as an officer and/or director of the Company, the Form 10-K, with full power and authority to do and perform any and all acts and things whatsoever required or necessary to be done in the premises, as fully as to all intents and purposes as he could do if personally present, hereby ratifying and approving the acts of said attorneys and any of them and any such substitution. Executed at Clearwater, Florida, this 18th day of December, 1998. /s/ William R. Higgins -------------------------- 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 Wellesley, MA, this 17th day of December, 1998. /s/ David V. Ragone -------------------------- 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 Chagrin Falls, Ohio, this 17th day of December, 1998. /s/ Thomas J. Vild -------------------------- 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 Grafton, MA, this 17th day of December, 1998. /s/ J. Douglas Whelan -------------------------- 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 21 day of December, 1998. /s/ JEFFREY P. GOTSCHALL -------------------- Jeffrey P. Gotschall 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 21 day of December, 1998. /s/ HUDSON D. SMITH --------------- Hudson D. Smith EX-27 5 EXHIBIT 27
5 0000090168 SIFCO INDUSTRIES, INC. 1,000 YEAR SEP-30-1998 OCT-01-1997 SEP-30-1998 3,503 0 20,073 0 27,639 51,767 32,582 0 90,884 21,515 0 0 0 5,170 44,720 90,884 0 123,175 97,587 110,827 (346) 0 1,085 11,609 2,324 9,285 0 0 0 9,285 1.80 1.78
EX-99 6 EXHIBIT 99 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 27, 1998. 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 22, 1998. 11 2 SCHEDULE II SIFCO INDUSTRIES, INC. AND SUBSIDIARIES ALLOWANCES FOR DOUBTFUL ACCOUNTS FOR THE YEARS ENDED SEPTEMBER 30 1998, 1997, AND 1996 ($000 omitted)
1998 1997 1996 ---- ---- ---- BALANCE BEGINNING OF PERIOD $ 829 $ 709 $ 726 Additions Charged to Costs and Expenses 83 184 43 Deductions - Accounts determined to be uncollectible (152) (32) (117) Recoveries of fully reserved accounts 8 -- 68 Exchange rate changes and other 6 (32) (11) ----- ----- ----- BALANCE END OF PERIOD $ 774 $ 829 $ 709 ===== ===== =====
-----END PRIVACY-ENHANCED MESSAGE-----