1
Exhibit 13
[LOGO]
SIFCO INDUSTRIES, INC
ANNUAL
REPORT
1999
2
[LOGO]
SIFCO INDUSTRIES, INC
Corporate Headquarters
970 East 64th Street
Cleveland, Ohio 44103 -1694
Phone: (216) 881-8600
Fax: (216) 432-6281
SIFCO Industries, Inc., is dedicated to meeting the technical needs of the
aerospace industry in the production, repair, coating, machining and marketing
of jet engine and other aerospace components. SIFCO serves 90% of the world's
airlines through a growing network of manufacturing service and distribution
centers in the United States, Europe and the Far East. The Company is committed
to the satisfaction of its customers worldwide through competitive pricing,
total service, comprehensive technology and superior quality.
TABLE OF CONTENTS
Financial Highlights.............................. 1
Shareholders' Letter.............................. 2
Turbine Component Services & Repair............... 4
Aerospace Component Manufacturing................. 4
Management's Discussion and Analysis.............. 5
Consolidated Statements of Income................. 7
Consolidated Balance Sheets....................... 8
Consolidated Statements of Cash Flows............. 9
Consolidated Statements of
Shareholders' Equity............................ 10
Notes to Consolidated
Financial Statements............................ 11
Summarized Quarterly Results...................... 14
Safe Harbor Statement............................. 16
Report of Independent Public
Accountants....................................... 16
Company Directors & Officers...................... 17
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SIFCO'S REVENUE SOURCES TODAY
[PICTURE]
TURBINE COMPONENT
SERVICES & REPAIR
"We fix parts from the
turbine section of
aerospace and land-based
gas turbine engines"
70% of 1999 Sales
AEROSPACE
COMPONENT
MANUFACTURING
"We make parts for a wide
variety of commercial
and military aircraft,
including helicopters "
30% of 1999 Sales
FINANCIAL HIGHLIGHTS OF 1999
----------------------------
Years Ended September 30 1999 1998 1997 1996 1995
==============================================================================================================================
Net sales $ 115,490 $ 123,175 $ 108,790 $ 85,420 $ 68,134
Operating income 4,105 11,609 9,123 4,694* 3,067
Income tax (provision) benefit (332) (2,324) (2,047) 914 (255)
Net income 3,773 9,285 7,076 5,608 2,812
Net income per share (basic) .73 1.80 1.38 1.10 .55
Net income per share (diluted) .72 1.78 1.36 1.09 .55
Cash dividends per share .20 .20 .15 .10
Shareholders' equity 50,046 49,890 40,568 35,957 30,805
Shareholders' equity per
share at year end 9.64 9.65 7.86 7.01 6.05
Return on beginning
shareholders' equity 7.6% 22.9% 19.7% 18.2% 10.3%
Long-term debt 12,985 16,500 11,716 10,575 10,875
Long-term debt to equity percent 25.9% 33.1% 28.9% 29.4% 35.3%
Working capital 30,258 30,252 24,520 20,860 16,671
Current ratio 2.6 2.4 2.3 2.2 2.2
Net property, plant and equipment 31,392 32,582 24,714 23,200 23,460
Total assets 86,461 90,884 74,444 67,970 60,682
Shares outstanding
at year end 5,193 5,170 5,160 5,127 5,092
Stock price range (high-low) 15 - 7 27 1/8 - 11 5/8 21 1/4 - 9 5/8 10 1/4 - 3 3 /4 5 9/1 - 2 15/16
(*)Includes reversal of restructuring charge to income of $1,512
Dollars in thousands, except per share amounts
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[LOGO] SIFCO
TO OUR SHAREHOLDERS
IN FISCAL 1999, NET SALES REACHED THEIR SECOND- HIGHEST LEVEL IN SIFCO'S 86-YEAR
HISTORY.
In fiscal 1999, net sales reached their second-highest level in SIFCO's
86- year history. We are nevertheless disappointed that our financial
performance was below fiscal 1998's, which admittedly was a hard act to follow.
We had invested substantially in people, facilities, and equipment to increase
our operating capabilities and efficiencies, improve our profit margins, and
fortify our competitive position in the aerospace industry. Continual investment
is necessary to cope with the cycles that have been as much a part of our
industry as SIFCO itself has been since the beginning of aviation early this
century. Success in this business demands skillful piloting through the
industry's valleys on the way to its peaks.
In our annual report a year ago, we tempered our excitement about fiscal
1998's record financial performance by noting that we stood "at the threshold of
a challenging future." Our investments in fiscal 1998 would help maintain
growth, profitability, and a good return for our shareholders, but because there
was evidence that commercial aircraft manufacturing was near its cyclical peak,
the softer part of our business cycle would characterize 1999. Industrywide
efforts were underway to reduce cycle times and, in turn, reduce inventories. As
we were implementing and refining synchronous (or "flow") manufacturing
techniques to reduce our own cycle times and inventories, our priority was to
prepare for the downturn and position the company to take advantage of the
upturn. It is important to note that SIFCO has made diligent efforts to maintain
its commitment to serve the global aerospace market. As a result of this
commitment and our efforts to satisfy the needs of international customers,
sales from our overseas operations were $54 million, or 47 percent of the
Company's total sales, compared to $48 million, or 39 percent, last year. Our
offshore facilities now account for 44 percent of our total asset base.
Our Turbine Component Repair Group sales increased slightly, but profit
margins shrank because the business mix this year contained more lower-margin
replacement parts than higher-margin repair services, and operating income
decreased 42 percent from the prior year. Diversification into new products has
contributed nearly 50 percent to our sales growth over the past three years.
Customer deferrals and stretch-outs mark the soft part of our business cycle,
but also free up resources to prepare for serving the industry's demands when
business firms up again.
Delivering higher quality repairs in less time is the purpose of our
investments in new repair technology and processes. Our
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IN OUR 86 - YEAR HISTORY WE HAVE NEVER SEEN A CHALLENGE THAT WE COULD NOT MEET.
investments in fiscal 1998 gave us 25 percent more capacity during 1999. This
increased our fixed costs, of course, and as business softened we could not
cover these costs to the extent we wanted.
As expected, sales slowed in our Aerospace Component Manufacturing Group.
This Group is as strong as ever in its niche markets, but as in the Turbine
Component Repair Group, despite long-term supply agreements with many of our
major customers, deferrals, stretch-outs, and other timing issues can have a
major effect on year-to-year comparisons. Some customers have been modifying
their internal operations to reduce cycle times and inventories. This has
delayed orders, preventing another record year. In light of positive booking
trends, however, we believe the manufacturing segment of our business is
approaching the bottom of its cycle and should begin to rebound in fiscal 2000.
We focused our attention in fiscal 1999 on expanding our participation in
new products and services and increasing our market share. The more we fortify
our niches this way, the less affected we should be by cyclical shifts in the
industry. We work hard to foster interdependence with the aerospace industry
OEMs so they can rely on us as the experts in our particular field. Top-notch
quality and service are the key to our prosperity. The $11 million in capital
expenditures in fiscal 1998 took care of most of our capital needs for 1999 and
2000. They helped us achieve our objectives for fiscal 1999, namely, to increase
market share and efficiency. Reaching those objectives, however, only partially
relieves our disappointment over the cyclical obstacles to a second consecutive
record year. Still, in our 86-year history we have never seen a challenge that
we could not meet, so we remain committed to our long-term growth plans, with a
strong balance sheet to help us weather temporarily weak business conditions. We
firmly believe that our investments in new technology and facility expansions
will lead to earnings improvements in fiscal 2000 as volume increases and our
mix of business becomes more profitable. We are confident in our ability to
convert additional business into returns for shareholders.
We will continue to report our progress to you and appreciate your
continued loyalty and support. If you have any questions or comments, please
call our Cleveland headquarters at 216-881-8600, or visit our website at
www.sifco.com.
Sincerely,
Charles H. Smith, Jr., Chairman of the Board
Jeffrey P. Gotschall, President & CEO
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TURBINE COMPONENT SERVICES AND REPAIR GROUP (TCSR)
================================================================================
SIFCO's Turbine Component Repair Group is a world-class provider of repairs for
blades, vanes, and other components in the hot sections of gas turbine engines.
Repairing turbine blades and vanes demands capable personnel with sophisticated
equipment incorporating the latest technology. Specialized processes such as
electron beam welding, fluoride ion cleaning, laser drilling, and diffusion
bonding are routine operations in the Repair Group's facilities. The continual
development of new repair procedures broadens the service offering for engines
already in use and for new generations of engines that will be used by more and
more customers worldwide.
SIFCO's prominence in the repair industry is a result of years of hard work and
the interdependence that has developed naturally between the Repair Group and
OEMs. By keeping the Repair Group's knowledge and expertise on the cutting edge,
the Group is a strong and cost-effective competitor and a highly valued provider
of information and resources to our customers around the world.
The Repair Group increased its capacity by 25 percent in 1998 to accommodate
demand and anticipate growth over the next several years. The extra capacity
reduced lead times and turntimes and continues to facilitate ongoing quality
improvements and product diversification. Volume did not meet expectations for
1999, but the company is well prepared for the industry's next cyclical upturn.
SIFCO's Repair Group facilities are organized around product families for
improved efficiency and equipment utilization.
================================================================================
The Turbine Component Services and Repair segment has seven plants. Three
of these plants are located in Cork, Ireland, one is in Minneapolis, Minnesota
and one is in Tampa, Florida. A portion of the Minneapolis plant is also the
site of the Company's machining operations. The remaining two plants, which are
involved in selective plating, are located in Independence, Ohio and Redditch,
England. The Company also leases space for sales offices and/or its contract
plating services in Norfolk, Virginia; Hartford (East Windsor), Connecticut; Los
Angeles, (San Dimas), California; Tacoma, Washington; and Saint-Maur, France.
The Aerospace Component Manufacturing segment has one plant located in
Cleveland, Ohio. This facility is also the site of the Company's corporate
headquarters.
================================================================================
AEROSPACE COMPONENT MANUFACTURING GROUP
================================================================================
The Aerospace Component Manufacturing Group produces forged and finished OEM
components in a wide variety of alloys for the aerospace industry. Nearly all
major commercial, civilian, and military aircraft (including helicopters)
contain original or spare components manufactured by SIFCO. In other words,
without SIFCO, it just doesn't fly.
The Manufacturing Group excels at turning difficult-to-shape materials into
intricate shapes of exacting design, even in small volumes, to provide products
that meet the critical specifications of aerospace customers. The Manufacturing
Group has earned an unparalleled reputation for meeting quality requirements and
obtaining timely approval of new developments.
Throughout fiscal 1999, the Manufacturing Group continued to implement and
refine its Synchronous Manufacturing project, a major redesign and upgrade of
factory processes so that all fabrication capabilities are aligned and tuned for
increases in efficiency. Shorter lead times, shorter cycle times, lower
inventories, and increased capacity for new orders and new products are the
objective of this undertaking, which will maintain SIFCO's position in this
industry.
Already, processes that used to take three months can now be completed in two
weeks, with lower raw material, work-in-process and finished goods inventories.
In fiscal 1999, raw material and finished goods inventories each decreased $1
million, and work-in-process inventory decreased over $2.5 million. Continuous
process improvement is well suited to our manufacturing operations and we will
continue to realize new levels of efficiency in fiscal 2000.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF BUSINESS
================================================================================
OPERATIONS 1997-1999
1997 In 1997 net sales rose to $108.8 million from $85.4 million in 1996,
and was our first $100 million sales year. This represents an
increase of 27% from the prior year's sales. Income before income
taxes rose to $9.1 million from $4.7 million or 94% and net income
per share was $1.36 compared to $1.09 in 1996.
Net income for 1996 and the fourth quarter of 1996 were increased by
unusual circumstances involving nonrecurring items which include a
valuation reserve established in 1994 for deferred taxes that was
reversed because of improved profitability. This reserve reversal
added $.25 per share to net income. In addition, a tax benefit from
the closing and consolidation of certain foreign operations to
improve the Company's effectiveness in selected markets added $.10
per share to net income.
Turbine Component Services and Repair sales rose to $69.3 million
from $58.7 million in 1996 or 18%. Income from operations before
corporate and interest expense rose to $9.0 million from $5.9 million
or 53%. Increased activity from airline repair customers and a better
product mix were the primary source of the improved operating
performance.
Aerospace Component Manufacturing sales increased 46% to $39.6
million from $27.1 million last year. Income from operations before
corporate and interest expense was $3.5 million, an increase of 106%
from $1.7 million last year as a result of the higher operating
levels and improved efficiencies.
The Company's total new orders for fiscal 1997 increased to $112.4
million compared to $99.7 million in 1996. The following is a
breakout by business segment: Turbine Component Services and Repair,
$69.0 million and $64.0 million, respectively; and Aerospace
Component Manufacturing, $43.4 million and $35.7 million,
respectively.
The Company's backlog as of September 30, 1997 and 1996 was $44.9
million and $42.9 million, respectively. The following is a breakout
of the backlog by business segment: Turbine Component Services and
Repair, $11.6 million and $13.4 million, respectively; and Aerospace
Component Manufacturing, $33.3 million and $29.5 million,
respectively. Approximately 3% of 1997's backlog is on hold and 9% is
scheduled for delivery beyond fiscal 1998.
1998 In 1998 net sales increased 13% to a record $123.2 million from
$108.8 million in 1997. Income before income taxes rose to $11.6
million from $9.1 million, an increase of 27% over the prior year.
Net income per diluted share was $1.78 versus $1.36 in 1997.
Turbine Component Services and Repair sales rose to $80.0 million
from $69.3 million in 1997, or 15%. Income from operations before
corporate and interest expense rose to $10.0 million from $9.0
million, or 11%. Margins in 1998 were negatively impacted as compared
to 1997 by the mix of engine repairs performed.
Aerospace Component Manufacturing sales increased 9% to $43.3 million
from $39.6 million in 1997. Income from operations before corporate
and interest expense rose to $5.0 million from $3.5 million, an
increase of 43%. The segment benefited from a $.3 million LIFO
reserve reversal in 1998 compared to a charge of $.4 million in 1997.
The Company's total new orders for fiscal 1998 increased to $120.7
million from $112.4 million in 1997. The following is a breakout by
business segment: Turbine Component Services and Repair, $77.8
million and $69.0 million, respectively; and Aerospace Component
Manufacturing, $42.9 million and $43.4 million, respectively.
The Company's backlog as of September 30, 1998 and 1997 was $41.3
million and $44.9 million, respectively. Approximately 4% of 1998's
backlog is on hold and 8% is scheduled for delivery beyond fiscal
1999. The following is a breakout by business segment: Turbine
Component Services and Repair, $7.7 million and $11.6 million,
respectively; and Aerospace Component Manufacturing, $33.6 million
and $33.3 million, respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF BUSINESS (continued)
================================================================================
1999 In 1999 net sales decreased 6.2% to $115.5 million from
$123.2 million in 1998 but were still the second highest in
SIFCO's 86-year history. Income before income taxes declined
to $4.1 million or 65% from last year's $11.6 million. Net
income per diluted share was $.72 compared to $1.78 last
year.
Turbine Component Services and Repair sales rose slightly to
a record $81.1 million from $80.0 million last year. Income
from operations before corporate and interest expense
declined to $5.8 million from $10.0 million last year. While
sales rose overall, there was a higher mix of lower margin
business and a shift of business between some facilities
resulting in unabsorbed overheads that were not offset by the
increase in volume at others. Repair volume for the older
engine types fell off as many of the older planes powered by
these engines were retired from the fleet.
Aerospace Component Manufacturing sales decreased
approximately 21% to $34.3 million from $43.3 million last
year. Income from operations before corporate and interest
expense decreased to $1.2 million from $5.0 million last
year. The segment benefited from a $0.3 million LIFO reversal
in both 1999 and 1998. Whereas 1998 was a cyclical peak in
the aircraft industry, 1999 began the cyclical decline.
Boeing has slowed its build rate and has already procured the
forgings for the aircraft it is building now. Almost all
customers have instituted inventory reduction plans under
which they order fewer parts at a time, due to reduced
manufacturing cycle times. Many industry analysts feel that
the current decline will be much shorter than in the past
with recovery expected in the second half of 2000 and rising
through 2001 for large commercial aircraft.
The Company's total new orders for fiscal 1999 declined to
$115.4 million from $120.7 million in 1998. The following is
a breakout by business segment: Turbine Component Services
and Repair $82.0 million and $77.8 million, respectively; and
Aerospace Component Manufacturing $33.4 million and $42.9
million, respectively.
The Company's backlog as of September 30, 1999 and 1998 was
$39.5 million and $41.3 million, respectively. Approximately
3% of 1999's backlog is on hold and 13.2% is scheduled for
delivery beyond fiscal 2000. The following is a breakout by
business segment: Turbine Component Services and Repair $7.4
million and $7.7 million, respectively; and Aerospace
Component Manufacturing $32.1 million and $33.6 million,
respectively.
Based on the results of studies to date, the Company does not
believe that the Year 2000 issue will have an adverse effect
YEAR on its financial condition or results of operations. Our
2000 review includes: business applications which are supported by
ISSUE internal MIS employees, standard commercial programs on local
PCs, manufacturing and building equipment and a survey of
major customers and vendors for compliance. The problems
detected to date have been manageable and correctable. The
review and any changes required will be completed before
December 1999. The Company estimates its total cost to be
compliant at approximately $150,000, excluding the cost of
Company information technology employees.
The Company's Year 2000 program is based on various
assumptions and expectations that cannot be assured. The cost
estimate does not include costs associated with addressing
and resolving issues as a result of the failure of third
parties to become Year 2000 compliant. The Company's
contingency plans include identification of alternate
suppliers of key products and services used in manufacturing
and support functions. Still, having no precedent for a Year
2000 problem, it is impractical for the Company to determine
what impact, if any, would occur to the Company's business if
third parties did not address their Year 2000 issues.
The Company's long-term debt as a percentage to equity at the
FINANCIAL compared to 33.1% in 1998. As of September 30, 1999 the
POSITION Company had no outstanding balance against its $6 million
revolving credit agreement which expires March 31, 2001. The
Company feels it has adequate financing available to meet its
needs through the foreseeable future.
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SIFCO Industries, Inc., and subsidiaries
CONSOLIDATED STATEMENTS OF INCOME For the years ended September 30
($000 omitted except for per share data)
================================================================================
1999 1998 1997
==================================================================================================
NET SALES $ 115,490 $ 123,175 $ 108,790
COSTS AND EXPENSES:
Cost of goods sold (Note 1) 97,772 97,587 85,049
Selling, general and administrative expenses 12,827 13,240 14,224
Interest income (277) (220) (132)
Interest expense 1,276 1,305 1,141
Other (income) expense, net (Note 1) (213) (346) (615)
- --------------------------------------------------------------------------------------------------
111,385 111,566 99,667
- --------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 4,105 11,609 9,123
INCOME TAX (PROVISION) BENEFIT (NOTE 3) (332) (2,324) (2,047)
- --------------------------------------------------------------------------------------------------
NET INCOME $ 3,773 $ 9,285 $ 7,076
- --------------------------------------------------------------------------------------------------
NET INCOME PER SHARE (BASIC) $ .73 $ 1.80 $ 1.38
NET INCOME PER SHARE (DILUTED) $ .72 $ 1.78 $ 1.36
The accompanying notes are an integral part of these consolidated statements.
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SIFCO Industries, Inc., and subsidiaries
CONSOLIDATED BALANCE SHEETS September 30
($000 omitted except for per share data)
================================================================================
1999 1998
=============================================================================================================
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,487 $ 3,503
Receivables, less allowance for doubtful accounts
of $722 in 1999 and $774 in 1998 22,192 20,073
Inventories (Note 1) 23,935 27,639
Refundable income taxes 354
Prepaid expenses and other current assets 1,365 552
- -------------------------------------------------------------------------------------------------------------
Total current assets 49,333 51,767
PROPERTY, PLANT AND EQUIPMENT AT COST (NOTES 1 AND 2):
Land 867 855
Buildings 18,935 18,627
Machinery and equipment 57,292 56,326
- -------------------------------------------------------------------------------------------------------------
77,094 75,808
Less accumulated depreciation and amortization 45,702 43,226
- -------------------------------------------------------------------------------------------------------------
31,392 32,582
- -------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Funds held by trustee for capital project 677 922
Goodwill, net of amortization (Note 1) 3,632 3,748
Deferred charges and other (Note 1) 1,427 1,865
- -------------------------------------------------------------------------------------------------------------
5,736 6,535
- -------------------------------------------------------------------------------------------------------------
$ 86,461 $ 90,884
- -------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
1999 1998
=============================================================================================================
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 2) $ 1,415 $ 1,400
Accounts payable 11,094 12,192
Accrued salaries and wages 1,074 1,456
Accrued workers' compensation 696 801
Other accrued expenses 4,796 5,098
Accrued income taxes (Note 3) -- 568
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 19,075 21,515
LONG-TERM DEBT, NET OF CURRENT MATURITIES (NOTE 2) 12,985 16,500
- -------------------------------------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES (NOTE 1) 4,355 2,979
- -------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (NOTE 2):
Serial preferred shares, no par value, authorized 1,000,000 shares in 1999
and 1998 Common shares, par value $1 per share, authorized 10,000,000
shares, issued
and outstanding 5,192,607 shares in 1999 and 5,170,384 shares in 1998 5,193 5,170
Capital in excess of par value 6,352 6,198
Accumulated other comprehensive income (loss) (2,749) 8
Earnings retained for use in the business 41,250 38,514
- -------------------------------------------------------------------------------------------------------------
Total shareholders' equity 50,046 49,890
- -------------------------------------------------------------------------------------------------------------
$ 86,461 $ 90,884
- -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
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SIFCO Industries, Inc., and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended September 30
($000 omitted)
================================================================================
1999 1998 1997
==========================================================================================================================
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net income $ 3,773 $ 9,285 $ 7,076
Adjustments to reconcile net
income to net cash provided
by (used for) operating activities:
Depreciation and amortization 4,589 4,055 3,681
Loss on disposal of property, plant and equipment 71 21 370
Deferred income taxes 335 (152) (482)
- -------------------------------------------------------------------------------------------------------------------------
8,768 13,209 10,645
NET CASH PROVIDED BY (USED FOR) CHANGES
IN OPERATING ASSETS AND LIABILITIES:
Receivables (2,119) 443 (2,587)
Inventories 3,704 (7,793) (2,057)
Accrued or refundable income taxes (922) 340 421
Prepaid expenses and other current assets (813) 137 (62)
Accounts payable (1,098) 1,695 1,095
Accrued salaries and wages (382) 177 305
Accrued workers' compensation and other accrued expenses (407) (370) 1,337
- -------------------------------------------------------------------------------------------------------------------------
(2,037) (5,371) (1,548)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities 6,731 7,838 9,097
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (4,902) (11,313) (6,613)
Decrease (increase) in funds held by
trustee for capital project 245 (922)
Other (2,030) (462) (1,513)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities (6,687) (12,697) (8,126)
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES:
Proceeds from additional borrowings -- 16,300 6,000
Repayment of borrowings (3,500) (11,372) (6,103)
Grants received from Irish government agency 1,440 436 --
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (2,060) 5,364 (103)
Increase (decrease) in cash and cash equivalents (2,016) 505 868
Cash and cash equivalents, beginning of year 3,503 2,998 2,130
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 1,487 $ 3,503 $ 2,998
- -------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements
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SIFCO Industries, Inc., and subsidiaries
CONSOLIDATED STATEMENTS OF For the years ended September 30
SHAREHOLDERS' EQUITY ($000 omitted except for per share data)
================================================================================
Accumulated Earnings
Other Retained
Common Capital in Comprehensive for Use
Shares Excess of Income in the Comprehensive
$1 Par Value Par Value (Loss) Business Income
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE - September 30, 1996 $ 5,127 $ 5,978 $ 892 $ 23,960
Net income -- -- -- 7,076 7,076
Foreign currency translation adjustment -- -- (1,847) (1,847)
-------
Comprehensive income -- -- -- -- 5,229
-------
Shares issued to Employees' Thrift Plan 4 51 -- --
Shares issued to vendors as payment for services 3 29 -- --
Stock options exercised, net of shares surrendered 26 43 -- --
Dividends declared ($.15 per share) -- -- -- (774)
- ------------------------------------------------------------------------------------------------------------
BALANCE - September 30, 1997 5,160 6,101 (955) 30,262
Net income -- -- -- 9,285 9,285
Foreign currency translation adjustment -- -- 963 -- 963
-------
Comprehensive income -- -- -- -- 10,248
-------
Shares issued to Employees' Thrift Plan 3 49 -- --
Shares issued to vendors as payment for services 2 53 -- --
Stock options exercised, net of shares surrendered 5 (5) -- --
Dividends declared ($.20 per share) -- -- -- (1,033)
- ------------------------------------------------------------------------------------------------------------
BALANCE - September 30, 1998 5,170 6,198 8 38,514
Net income -- -- -- 3,773 3,773
Foreign currency translation adjustment -- -- (2,757) -- (2,757)
-------
Comprehensive income -- -- -- -- 1,016
-------
Shares issued to Employees' Thrift Plan 6 51 -- --
Shares issued to vendors as payment for services 4 48 -- --
Stock options exercised, net of shares surrendered 13 55 -- --
Dividends declared ($.20 per share) -- -- -- (1,037)
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BALANCE - September 30, 1999 $ 5,193 $ 6,352 $ (2,749) $ 41,250
- ------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements.
STOCK PRICES BY QUARTERS (AMEX)
(Unaudited)
1999 1998
================================================================
High Low High Low
First Quarter 15 11 3 /8 24 18 1/2
Second Quarter 14 7 /8 7 5 /8 25 5/8 18 1/2
Third Quarter 9 1 /4 7 3 /16 27 1/8 20 1/8
Fourth Quarter 9 1/8 7 22 7/8 11 5/8
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SIFCO Industries, Inc., and
subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1999, 1998 and 1997
================================================================================
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
B. INVENTORY VALUATION:
Inventories are stated at the lower of cost or market and include the cost of
material, labor and factory overhead.
Inventories entering into the determination of cost of sales are summarized as
follows:
($000 omitted)
1999 1998
===================================================================
Last-in, first-out cost $ 7,077 $11,376
First-in, first-out or average cost 16,858 16,263
- -------------------------------------------------------------------
$23,935 $27,639
- -------------------------------------------------------------------
Under the average cost method of accounting, LIFO inventories would have been
$3,789,000 and $4,060,000 higher than reported at September 30, 1999 and 1998,
respectively. The inventories at September 30, 1999 and 1998, respectively,
consisted of raw materials and supplies of $6,780,000 and $8,008,000, and
finished goods and work-in-process of $17,155,000 and $19,631,000.
C. DEPRECIATION POLICY:
For financial reporting purposes, the Company provides for depreciation of plant
and equipment, principally by the straight-line method, at annual rates
sufficient to amortize the cost over each asset's expected useful life. For tax
purposes, the Company uses various accelerated methods and provides for the
related deferred taxes. The principal rates of depreciation for financial
reporting purposes are: buildings 2% to 5% and machinery and equipment 5% to
33-1/3%.
D. GOODWILL:
Goodwill of $4,637,000, less accumulated amortization of $1,005,000 and $889,000
at September 30, 1999 and 1998, respectively, represents the excess of cost over
the net assets of acquired companies, and is being amortized over 40 years. The
Company uses an undiscounted cash flow method to periodically review the value
of goodwill and other tangible assets and believes such assets are realizable.
E. PENSIONS AND THRIFT PLANS:
The Company and its subsidiaries sponsor defined benefit pension plans covering
most of its employees. The Company also contributes to two multi-employer
defined contribution plans for certain union employees. The Company's funding
policy for domestic defined benefit plans is based on an actuarially determined
cost method allowable under Internal Revenue Service regulations. Foreign plans
are funded in accordance with the requirements of regulatory bodies governing
the plan.
At September 30, 1999, the Company adopted SFAS No. 132, "Employers' Disclosure
about Pensions and Other Postretirement Benefits,"which standardizes the
disclosure requirements for pensions and other postretirement benefits. This
statement does not change the measurement or recognition of these plans.
Net pension expense for the defined benefit plans for 1999, 1998, and 1997
consisted of the following components:
($000 omitted)
1999 1998 1997
========================================================================================
Service cost $ 906 $ 779 $ 665
Interest cost 967 951 852
Expected return on plan assets (1,122) (872)
Amortization of transition
(asset) obligation (13) (13) (13)
Amortization of prior service cost (2) (2) (2)
Amortization of net loss (gain) (79) (39) (26)
- ----------------------------------------------------------------------------------------
Net pension cost of defined benefit plans 657 666 604
Defined contribution plans 43 42 43
- ----------------------------------------------------------------------------------------
Total Pension Expense $ 700 $ 708 $ 647
- ----------------------------------------------------------------------------------------
The status of all significant defined domestic and foreign benefit plans was as
follows (in thousands):
Benefit Obligations: 1999 1998
==================================================================
Benefit obligation at
beginning of year $ 14,002 $ 12,468
Service cost 906 779
Interest cost 967 951
Participant contributions 183 166
Amendments for union contracts 540
Actuarial loss (gain) (339) (181)
Benefits paid (524) (272)
Currency translation adjustment (289) 91
- ------------------------------------------------------------------
Benefit obligation at end of year $ 15,446 $ 14,002
Plan Assets: 1999 1998
==================================================================
Plan assets at beginning of year $ 16,515 $ 13,649
Actual return on plan assets 1,569 2,317
Employer contributions 333 558
Participant contributions 183 166
Benefits paid (513) (284)
Currency translation adjustment (353) 109
- ------------------------------------------------------------------
Plan assets at end of year $ 17,734 $ 16,515
==================================================================
11
14
NOTES CONTINUED
Reconciliation of Funded Status: 1999 1998
==================================================================
Plan assets in excess of projected
benefit obligations $ 2,288 $ 2,513
Unrecognized net loss (gain) (4,443) (3,735)
Unrecognized prior service cost 471 (71)
Unrecognized transition
obligation (asset) (49) (63)
Currency translation adjustment 14
- ------------------------------------------------------------------
Net amount recognized in the
balance sheet $(1,719) $(1,356)
==================================================================
The net pension liability recognized in the balance sheet was composed of (in
thousands):
1999 1998
Deferred charges and other $ 123 $ 111
Other long-term liabilities (1,842) (1,541)
- ------------------------------------------------------------------
Net amount recognized $(1,719) $(1,430)
==================================================================
Weighted-average assumptions used for defined benefit plans:
1999 1998 1997
==========================================================================
Discount rate for liabilities 7.4% 6.7% 7.3%
Discount rate for expense 6.8% 7.1% 7.5%
Expected return on assets 8.1% 8.1% 8.3%
Rate of compensation increase 4.0% 3.8% 4.0%
All nonunion employees of the Company and its domestic subsidiaries are
eligible to participate in the Company's thrift plan. The total costs for 1999,
1998 and 1997 were $80,000, $82,000, and $71,000, respectively.
The Company's Irish subsidiary sponsors a tax-advantaged profit sharing
program for all of its employees, which was adopted in 1999. Employer
contributions and elective employee contributions are invested in common stock
of the Company without being subject to personal income taxes if held for at
least three years. Employees have the option of taking a cash taxable
distribution. The total cost of the plan for 1999 was $156,000.
F. NET INCOME PER SHARE:
Effective October 1, 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share." In accordance with SFAS No. 128,
the Company's basic net income per share amounts have been computed based on the
average number of common shares outstanding. Net income per share amounts
include the effect of the Company's outstanding stock options under the treasury
stock method. In accordance with SFAS No. 128, net income per share and
weighted-average shares outstanding have been restated to conform to this
statement for all periods presented. The weighted-average number of common
shares and common share equivalents were as follows:
BASIC DILUTED
----- -------
1999 5,180,776 5,227,935
1998 5,164,114 5,228,431
1997 5,141,497 5,183,935
G. DEFERRED CHARGES AND OTHER:
The Company has classified in Deferred Charges and Other the net unamortized
cost of a 10-year non-competition agreement with the former owner of an acquired
company. This amounted to $2,000,000 less accumulated amortization of $1,450,000
and $1,250,000 as of September 30, 1999 and 1998, respectively.
H. CASH FLOW:
The Company considers all highly liquid short-term investments with original
maturities of three months or less to be cash equivalents.
Gross interest paid amounted to $1,295,000 , $1,200,000, and $1,272,000, in
1999, 1998 and 1997, respectively. Income taxes paid were $1,246,000,
$2,105,000, and $1,578,000, in 1999, 1998 and 1997, respectively.
I. OTHER INCOME:
Other income is comprised primarily of grant income from Irish government
agencies, foreign exchange gains and losses, and royalty and fee income.
J. OTHER LONG-TERM LIABILITIES:
The Company receives grants and subsidies from the Republic of Ireland as an
incentive to invest in manufacturing facilities in that country. These grants
and subsidies require that the Company maintain operations in that country for
10 years in order to qualify for the full value of the benefits received.
The Company's liability for the unearned portion of these items amounted to
$3,241,000 and $2,412,000 at September 30, 1999 and 1998, respectively, and is
included in other long-term liabilities.
K. COMPREHENSIVE INCOME:
Effective October 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement requires the disclosure of comprehensive
income, which includes net income and other comprehensive income items
previously included within separate components of shareholders' equity. For the
Company, this consists of foreign currency translation adjustments. Since the
undistributed earnings of the Company's foreign subsidiaries are intended to be
permanently reinvested, taxes have not been provided for currency translation
adjustments. The adoption of SFAS No. 130 did not have a material effect on the
Company's primary financial statements, but did affect the presentation of the
accompanying Consolidated Statements of Shareholders' Equity.
L. MANAGEMENT ESTIMATES:
The Company prepares its financial statements in accordance with generally
accepted accounting principles, which require management to make estimates and
assumptions that affect amounts reported in the financial statements for the
reporting period. Actual results could differ from those estimates and
assumptions. These estimates and assumptions are revised as necessary.
12
15
NOTES CONTINUED
================================================================================
2. DEBT
Long-term debt as of September 30, 1999 and 1998 consisted of:
($000 omitted)
1999 1998
=================================================================
Variable Rate Industrial Development
Revenue Improvement
and Refunding Bonds $ 3,900 $ 4,100
Notes payable to bank, due in
quarterly installments of $300,000 10,500 11,700
Note payable to bank, due
October 31, 1999, interest
payable quarterly, at rates based
upon LIBOR and DIBOR -- 1,000
Note payable under revolving credit
agreement, at the base rate -- 1,100
- -----------------------------------------------------------------
14,400 17,900
Less - current maturities 1,415 1,400
- -----------------------------------------------------------------
$12,985 $16,500
=================================================================
In April 1998, the Company restructured its credit facilities. It reduced the
previously existing $9 million revolving credit agreement to $6 million which is
the current amount available at September 30, 1999. The revolving credit
agreement bears interest at the bank's base rate, and also replaced the $5.144
million term loan with a 10-year, $12 million term loan. The term loan is
repayable in quarterly payments of $0.3 million. The term loan bears interest at
a fixed rate of 7.24%, subject to adjustment if certain loan covenants are not
maintained.
The average balance outstanding against the revolving credit agreement was
$2.2 million, $4.3 million and $4.8 million during 1999, 1998 and 1997,
respectively. The balances outstanding under the revolving credit agreement have
been classified as long-term debt. A commitment fee of 1/4% is incurred on the
remaining unused balance.
In 1998, the Company obtained a $4.1 million, 15-year, Industrial Development
bond. The proceeds of the bond of $1.6 million and the balance of the funds are
being used to expand the Turbine Component Services and Repair facility in
Tampa, Florida. The interest rate is reset weekly, based on prevailing
tax-exempt money market rates. The first principal payment is $200,000 and
increases each year until the final payment of $355,000 in 2013. The principal
payment increases by $15,000 and $5,000 in the second and third year,
respectively, and by $10,000 in the following seven years. The bonds are secured
by the property and equipment of the facility, and backed by an irrevocable
letter of credit.
Among other covenants, the Company is required to maintain a minimum tangible
net worth (as defined) of $30.0 million, increasing by 50% of net income
subsequent to September 30, 1997. Tangible net worth exceeded the required
minimum by $12.1 million at September 30, 1999.
3. FEDERAL INCOME TAX AND OTHER
The provision for income taxes in the accompanying Consolidated Statements of
Income differs from the statutory rate as follows:
($000 omitted)
1999 1998 1997
==================================================================================
Income before income taxes $ 4,105 $ 11,609 $ 9,123
Less - State and local income taxes 6 57 20
- ----------------------------------------------------------------------------------
$ 4,099 $ 11,552 $ 9,103
==================================================================================
Tax provision at statutory rate $ 1,393 $ 3,928 $ 3,095
Tax effect of -
Foreign tax rate differential (975) (1,569)
Other (92) (92) 48
- ----------------------------------------------------------------------------------
Provision for federal and
foreign income taxes 326 2,267 2,027
Add - State and local income taxes 6 57 20
- ----------------------------------------------------------------------------------
$ 332 $ 2,324 $ 2,047
==================================================================================
The provision for income taxes differs from amounts currently payable or
refundable due to certain items reported for financial statement purposes in
periods which differ from those in which they are reported for tax purposes.
Income tax provision is made up of the following components:
($000 omitted)
1999 1998 1997
==================================================================================
Current federal and foreign
income taxes $ (9) $ 2,419 $ 2,509
Deferred federal income taxes 335 (152) (482)
State and local income taxes 6 57 20
- ----------------------------------------------------------------------------------
$ 332 $ 2,324 $ 2,047
==================================================================================
Deferred tax assets and liabilities are comprised of the following:
($000 omitted)
1999 1998
==================================================================
Deferred tax assets:
Employee benefits $ 1,531 $ 1,545
Doubtful accounts 180 106
Inventory and property reserves 324 392
Investment valuation reserve 511 511
Foreign taxes credits 161 161
Other 398 440
- ------------------------------------------------------------------
3,105 3,155
Deferred tax liabilities:
Depreciation 1,243 1,044
Personal property taxes 225 139
- ------------------------------------------------------------------
1,468 1,183
- ------------------------------------------------------------------
Deferred tax assets less liabilities 1,637 1,972
Valuation allowance (161) (161)
- ------------------------------------------------------------------
Net deferred tax assets $ 1,476 $ 1,811
==================================================================
Cumulative undistributed earnings of foreign subsidiaries for which no U.S.
federal deferred income tax liabilities have been recorded were approximately
$27,117,000 at September 30, 1999.
13
16
NOTES CONTINUED
================================================================================
4. SUMMARIZED QUARTERLY RESULTS
OF OPERATIONS (UNAUDITED):
($000 omitted)
1999 QUARTER ENDED
Dec 31 March 31 June 30 Sept 30 Total
Net Sales $ 29,525 $ 30,281 $ 30,535 $ 25,149 $115,490
Cost of Goods Sold 25,080 25,343 25,958 21,391 97,772
Net Income 879 1,098 908 888 3,773
Net Income Per Share
Basic $ .17 $ .21 $ .18 $ .17 $ .73
Diluted $ .17 $ .21 $ .17 $ .17 $ .72
($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 Goods Sold 23,212 24,681 25,434 24,260 97,587
Net Income 2,427 2,369 2,136 2,353 9,285
Net Income Per Share
Basic $ .47 $ .46 $ .41 $ .46 $ 1.80
Diluted $ .47 $ .45 $ .41 $ .45 $ 1.78
5. STOCK OPTIONS
Under the 1995 Stock Option Plan, 200,000 shares were reserved for incentive
stock options granted to key employees of the Company. Recipients of the grants
may purchase common shares at not less than fair market value no later than ten
years from date of the grant. As of September 30, 1999, none were available for
future grant. Options also remained outstanding under previous stock option
plans for which authority to issue additional grants has expired.
Option activity relating to these plans during the last three years was as
follows:
OPTIONS
====================================================================
OUTSTANDING SEPTEMBER 30, 1996 (67,250 exercisable) 185,500
Granted -0-
Exercised (40,500)
Expired or cancelled -0-
- --------------------------------------------------------------------
OUTSTANDING SEPTEMBER 30, 1997 (62,500 exercisable) 145,000
Granted 10,000
Exercised (6,750)
Expired or cancelled -0-
- --------------------------------------------------------------------
OUTSTANDING SEPTEMBER 30, 1998 (83,250 exercisable) 148,250
Granted 80,000
Exercised (15,750)
Expired or cancelled (7,500)
- --------------------------------------------------------------------
OUTSTANDING SEPTEMBER 30, 1999 (97,500 exercisable) 205,000
====================================================================
The following table provides additional information regarding options
outstanding as of September 30, 1999:
OPTION OPTIONS OPTIONS REMAINING LIFE
EXERCISE PRICE OUTSTANDING EXERCISABLE OF OPTION (YRS)
============================================================
3.75 10,000 10,000 3.1
4.25 100,000 75,000 6.1
6.50 10,000 10,000 2.1
12.88 75,000 -0- 9.1
20.38 10,000 2,500 8.3
- ------------------------------------------------------------
Total 205,000 97,500
============================================================
During 1999 and 1998, options were exercised at an aggregate price of $99,000
and $42,000, respectively.
During 1999, the Company adopted a Long-Term Incentive Plan. The aggregate
number of stock options which may be awarded under the Plan in each fiscal year
shall be 1.5% of the total outstanding shares at September 30, 1998 up to a
maximum of 5% of such total outstanding shares.
In 1997, the Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Black-Scholes option pricing model was used to determine that
the pro forma impact of compensation expense from incentive stock options
granted was immaterial for all years presented.
The Company also has a 1994 Phantom Stock Plan. Grantees under the Plan are
credited with dividend equivalent units. Upon discontinuance of participation in
the Plan, the grantee is normally paid in cash, although shares may be issued at
the Company's discretion. The benefit under the Plan is based upon the
difference between the market price (as defined) at the date of discontinuance
and the award price for vested award units, plus the market value (as defined)
of dividend equivalent units.
As of September 30, 1999 and 1998, award units outstanding under the Phantom
Stock Plan, which includes awards still outstanding under two previous versions
of the Plan (for which authority to make additional awards has expired), were
111,663 and 124,063 at prices ranging from $3.55 to $20.31, plus 10,122 and
8,103 dividend equivalent units, respectively. Expense (income) relating to the
Plan was -0- in 1999, $(288,000) in 1998, and $1,292,000 in 1997.
14
17
NOTES CONTINUED
================================================================================
6. BUSINESS SEGMENTS
The Turbine Component Services and Repair segment consists primarily of turbine
component remanufacturing, precision contract machining, subassemblies, and
finished parts; selective electroplating equipment, solutions and services. The
Aerospace Component Manufacturing segment consists primarily of domestically
produced forgings and semi-finished components principally for the aerospace
industry.
No one customer accounted for 10% or more of sales in 1999 or 1997. One
customer in 1998, an aircraft engine manufacturer, accounted for approximately
11% of sales. Intersegment sales are accounted for at cost.
Corporate expenses represent expenses which are not of an operating nature and
therefore not allocated to business segments. Corporate assets are principally
cash, cash equivalents and receivables.
The following table summarizes certain information regarding segments of the
Company's operations for the years ended September 30, 1999, 1998 and 1997:
($000 omitted)
1999 1998 1997
=========================================================================================
Net sales, inc. intersegment sales:
Turbine Component Services and Repair $ 81,145 $ 80,000 $ 69,259
Aerospace Component Manufacturing 34,345 43,250 39,628
Intersegment sales 0 (75) (97)
- -----------------------------------------------------------------------------------------
$ 115,490 $ 123,175 $ 108,790
=========================================================================================
Income (loss) from operations
before corporate expenses
and interest expense:
Turbine Component Services and Repair $ 5,844 $ 9,991 $ 8,999
Aerospace Component Manufacturing 1,155 4,954 3,539
-----------------------------------------------------------------------------------------
6,999 14,945 12,538
Corporate expenses (1,895) (2,251) (2,406)
Interest expense, net (999) (1,085) (1,009)
- -----------------------------------------------------------------------------------------
Income before income taxes $ 4,105 $ 11,609 $ 9,123
=========================================================================================
($000 omitted)
1999 1998 1997
=========================================================================================
Depreciation and amortization expense:
Turbine Component Services and Repair $ 3,971 $ 3,559 $ 3,225
Aerospace Component Manufacturing 618 496 456
- -----------------------------------------------------------------------------------------
$ 4,589 $ 4,055 $ 3,681
=========================================================================================
Capital expenditures:
Turbine Component Services and Repair $ 3,338 $ 8,495 $ 5,944
Aerospace Component Manufacturing 1,564 2,818 669
- -----------------------------------------------------------------------------------------
$ 4,902 $ 11,313 $ 6,613
=========================================================================================
Identifiable assets
Turbine Component Services and Repair $ 65,011 $ 64,682 $ 52,960
Aerospace Component Manufacturing 19,260 22,328 18,246
Corporate 2,190 3,874 3,238
- -----------------------------------------------------------------------------------------
$ 86,461 $ 90,884 $ 74,444
=========================================================================================
Foreign operations
Net sales $ 53,982 $ 47,866 $ 37,675
Operating profit 4,687 7,330 5,826
Identifiable assets 38,444 36,455 29,111
7. FOREIGN CURRENCY MANAGEMENT
The U.S. dollar is the functional currency for substantially all of the
Company's consolidated operations. For these operations, all gains
and losses from currency transactions are included in income
currently. For certain foreign equity investments, the functional
currency is the local currency. The cumulative translation effects for
equity investments using functional currencies other than the U. S.
dollar are included in the earnings retained for use in the business in
stockholders' equity.
The Company uses currency forwards and options, which typically expire
within one year, to hedge payments and receipts of currencies related to the
purchase and sale of goods overseas. Realized gains and losses on these
contracts are recognized in the same period as the hedged transactions.
At September 30, 1999, the Company had forward contracts to sell US
$6,000,000. These contracts mature in October 1999 and are fully covered by U.S.
dollar receivables at September 30, 1999.
15
18
SAFE HARBOR STATEMENT
This Annual Report contains various forward-looking statements and
includes assumptions concerning the Company's operations, future
results and prospects. These forward-looking statements are based
on current expectations and are subject to risk and uncertainties.
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. The Company provides the
following cautionary statement identifying important economic,
political and technological factors, among others, the absence of
which could cause the actual results or events to differ
materially from those set forth in or implied by the
forward-looking statements and related assumptions.
Such factors include the following: (1) continuation of the
current and projected future business environment, including
interest rates and capital and consumer spending; (2) competitive
factors and competitor responses to the Company's initiatives; (3)
successful development and market introductions of anticipated new
products; (4) stability of government laws and regulations,
including taxes; (5) stable governments and business conditions in
emerging economies; (6) successful penetration of emerging
economies; (7) continuation of the favorable environment to make
acquisitions, domestic and foreign, including regulatory
requirements and market values of candidates; (8) successful
identification and conversion of computer systems to address the
year 2000 issue by the Company, suppliers and vendors.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
SIFCO INDUSTRIES, INC.
We have audited the accompanying consolidated balance sheets of SIFCO
INDUSTRIES, INC. (an Ohio corporation) AND SUBSIDIARIES as of September 30, 1999
and 1998, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended September
30, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of SIFCO Industries,
Inc. and Subsidiaries as of September 30, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1999, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
October 26, 1999.
16
19
================================================================================
DIRECTORS
Maurice Foley
Director, AerFi Group plc
Shannon, Ireland
George D. Gotschall
Assistant Secretary
SIFCO Industries, Inc.
Jeffrey P. Gotschall
President & Chief Executive Officer
SIFCO Industries, Inc.
Richard S. Gray
Retired President
Enterprise Development, Inc.
Cleveland, Ohio
William R. Higgins
CEO
Applied Fiber Systems
Clearwater, Florida
David V. Ragone
Partner
Ampersand Ventures
Wellesley, Massachusetts
Charles H. Smith, Jr.
Chairman of the Board
SIFCO Industries, Inc.
Hudson D. Smith
Treasurer, SIFCO Industries, Inc.
President, SIFCO Forge Group
Thomas J. Vild
Vild & Associates
Chagrin Falls, Ohio
J. Douglas Whelan
President & Chief Operating Officer
Wyman-Gordon Company
North Grafton, Massachusetts
- --------------------------------------------------------------------------------
OFFICERS
Charles H. Smith, Jr.
Chairman of the Board
Jeffrey P. Gotschall
President & Chief Executive Officer
Richard A. Demetter
Vice President-Finance and Chief
Financial Officer
Timothy V. Crean
Executive Vice President
George D. Gotschall
Assistant Secretary
Hudson D. Smith
Treasurer
Mara L. Babin
Secretary & General Counsel
Partner
Squire, Sanders & Dempsey
- --------------------------------------------------------------------------------
AUDITORS
Arthur Andersen LLP
200 Public Square, Suite 1800
Cleveland, Ohio 44114-2803
LEGAL COUNSEL
Squire, Sanders & Dempsey
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
TRANSFER AGENT &
REGISTRAR
National City Bank
Corporate Trust Operations
P. O. Box 92301
Cleveland, Ohio 44193-0900
Phone: 1-800-622-6757
DIVIDEND REINVESTMENT
SIFCO Industries maintains a dividend reinvestment program that enables
shareholders topurchase additional shares of SIFCO stock without fees or service
charges. To participate in this program, or for answers to any questions on your
dividend investment account, contact the SIFCO corporate office.
FORM 10-K REQUESTS
A copy of the Company's current form 10-K annual report as filed with the
Securities and Exchange Commission is available without charge to shareholders
upon written request to the corporate secretary.
ANNUAL MEETING
The annual meeting of shareholders of SIFCO Industries, Inc. will be held at the
National City Bank, East Ninth Street and Euclid Avenue, Cleveland, Ohio, at
10:30 AM on January 25, 2000.
LISTING
SIFCO's common stock is listed on the American Stock Exchange, symbol SIF.
17
20
[LOGO]
SIFCO
INDUSTRIES, INC.
970 East 64th Street, Cleveland, Ohio 44103-1694
Phone: (216) 881-8600 Fax: (216) 432-6281
or visit our home page: www.sifco.com