Annual Report and Form 10-K
Fiscal Year 2008
2
To our Shareholders:
Ninety-five years ago in 1913, five Clevelanders started a company dedicated to the
emerging field of improving the properties of metals through the use of thermal heat
treatment. They called this company The Steel Improvement Company. This was the
birth of SIFCO Industries, Inc. Over the years we have witnessed considerable changes in
technology, society, and infrastructure. We, too, have changed, yet we are proud to
continue improving the properties of metal through forging, heat treatment, and coating.
In fiscal 2008 we continued to drive toward our objective of sustained profitability for
SIFCO Industries, Inc. Our operating income, after adjusting for the affect of LIFO
accounting, was the second highest in our 95 year history, and an improvement over the
previous fiscal year partially due to the strength of the aerospace markets that we serve, as
well as the continued pursuit of operational excellence.
Our company is divided into the following operating groups:
Aerospace Component Manufacturing (“ACM”) Group – this is our largest
business segment with sales in fiscal 2008 of $72 million, which was an increase of
20% from our previous fiscal year. The ACM Group provides forged components
for a wide variety of aerospace applications. The Group’s forged components can be
found on a variety of commercial airliners, business and military jets, and
helicopters, all of which are placed in service by manufacturers including Boeing,
Airbus, Embraer, Cessna, Lockheed Martin, Northrop Grumman, Sikorsky and Bell.
In addition, the Group is excited to be a supplier of forged components for new
programs from Boeing (787 Dreamliner), Bell/Boeing (V22 tilt-rotor), and Lockheed
Martin (F35 joint strike fighter). The ACM Group enters fiscal 2009 with a slightly
smaller backlog than the previous year, which we believe is primarily the result of
the reduced material lead times compared to a year ago. Based on the ACM Group’s
view of the marketplace, we believe that the aerospace and defense market will
remain steady for the foreseeable future. The ACM Group continues to implement
lean initiatives it calls SMART (Streamlined Manufacturing Activities to Reduce
Time/Cost). These initiatives have great traction and are certainly building
momentum. The major goals of these initiatives include: improved on-time delivery,
manufacturing cycle-time reductions and more efficient operations, all of which will
improve the ACM Group’s competitiveness.
Turbine Component Services and Repair (“Repair”) Group – this business
segment consists of a turbine engine component repair operation in Minneapolis,
Minnesota that serves the market for small turbine engine component repairs. This
operation is aligned with original equipment manufacturers to develop repairs for
small turbine engines used to power aircraft with less than 100 passengers as well as
a wide range of helicopters. The Group’s operation possesses a full range of repair
capabilities including super-alloy brazing, thermal spraying, and advanced coating
for high temperature applications.
The Repair Group’s performance in fiscal was 2008 disappointing. While net sales
grew 10%, the operation experienced an operating loss primarily driven by start-up
costs for the launch of a sophisticated new component repair program for a newer
generation turboprop engine. The Repair Group is concentrating on continued
operational improvements to mitigate the impact of start-up expenses and to return to
acceptable performance.
Applied Surface Concepts (“ASC”) Group – this business segment provides a
unique tank-less plating process for selectively plating surfaces on complicated parts.
We believe our ASC Group is the largest supplier in the selective plating market
segment and has a global footprint with operations in North America and Europe and
a world-wide network of independent distributors.
The ASC Group’s coating capabilities can be found on a variety of applications such
as the coating of drill bits used to explore for new oil deposits on deep sea platforms
and the coating of landing gear for both helicopter and fixed wing commercial and
military aircraft. While fiscal 2008 net sales of the Group grew a modest 5% from
the previous year, operating income grew 30% due to the beneficial impact on
operating margins of the increase in net sales and improvements in our selling,
general and administration structure. The ASC Group is continuing to enhance its
strategic position relative to its competition by bolstering its technical talent and
capabilities in both North America and Europe.
During fiscal 2008, we continued to improve the strength of our already healthy balance
sheet. At September 30, 2008, we had over $10 million of cash on hand and no material
amount of debt. With the strength of our balance sheet and recent financial results, we are
well positioned to act quickly and take advantage of strategic opportunities in our
marketplace.
We recognize that the unprecedented turmoil in the financials markets may bring new
challenges for SIFCO, but we are confident that our financial strength and operational
dexterity will enable us to weather this economic storm. We again thank our dedicated
employees for their service, our valued customers for their business and encouragement,
and our loyal shareholders for their support.
Jeffrey P. Gotschall
Chairman of the Board and
Chief Executive Officer
2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2008
or
/ /
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from _________________ to _____________________
Commission file number 1-5978
SIFCO Industries, Inc.
(Exact name of registrant as specified in its charter)
Ohio
(State or other jurisdiction of incorporation or organization)
970 East 64th Street, Cleveland Ohio
(Address of principal executive offices)
34-0553950
(I.R.S. Employer Identification No.)
44103
(Zip Code)
(Registrant’s telephone number, including area code)
(216) 881-8600
Securities Registered Pursuant to Section 12(b) of the Act:
Common Shares, $1 Par Value
(Title of each class)
American Stock Exchange
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Securities Exchange Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Exchange Act.
Yes No X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act. Yes No X
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
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company (as defined in Rule 12b-2 of the Securities Exchange Act).
large accelerated filer ____ accelerated filer ____ non-accelerated filer X smaller reporting company ____
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ___ No X
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price
at which the common equity was last sold, as of the last business day of the registrant’s most recently completed second fiscal
quarter is $33,733,963.
The number of the Registrant’s Common Shares outstanding at October 31, 2008 was 5,294,716.
Documents incorporated by reference: Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be
held on January 27, 2009 (Part III).
Item 1. Business
A.
The Company
PART I
SIFCO Industries, Inc. (“SIFCO” or “Company”), an Ohio corporation, 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 and services include forging, heat-treating,
coating, welding, machining and selective electrochemical finishing; and the products include forged components,
machined forged parts and other machined metal components, remanufactured components for aerospace turbine engines,
and selective electrochemical finishing solutions and equipment. The Company’s operations are conducted in three
business segments: (1) Aerospace Component Manufacturing Group, (2) Turbine Component Services and Repair Group
and (3) Applied Surface Concepts Group.
B.
Principal Products and Services
1. Aerospace Component Manufacturing Group
The Company’s Aerospace Component Manufacturing Group (“ACM Group”) has a single operation in Cleveland, Ohio.
This segment of the Company’s business consists principally of the manufacture of forged components for aerospace
applications. As a part of the ACM Group’s manufacturing process, the business performs forging, heat-treating and
precision component machining.
Operations
The Company’s ACM Group is a manufacturer of forged components ranging in size from 2 to 500 pounds (depending on
configuration and alloy), primarily in various steel and titanium alloys, utilizing a variety of processes for applications
principally in the aerospace industry. The ACM Group’s forged products include: original equipment manufacturers
(“OEM”) and aftermarket components for aircraft and land-based turbine engines; structural airframe components; aircraft
landing gear components; wheels and brakes; critical rotating components for helicopters; and commercial/industrial
products. The ACM Group also provides heat-treatment, surface-treatment, non-destructive testing and select machining of
forged components.
The ACM Group generally has multiple sources for its raw materials, which consist primarily of high quality metals
essential to this business. Suppliers of such materials are located throughout North and South America and Europe. In
general, because of tight aerospace grade steel capacity and the limited supply of titanium, raw material lead times have
increased in recent years. However, lead times for certain grades have recently shortened. The ACM Group generally does
not depend on a single source for the supply of its materials. Due to the scarcity of certain raw materials, some material is
provided by a limited number of suppliers; however, the ACM Group believes that its sources are adequate for its business.
The business is ISO 9001:2000 registered and AS 9100:2001 certified. In addition, the ACM Group’s chemical
etching/milling, non-destructive testing, and heat-treating facilities are NADCAP (National Aerospace and Defense
Contractors Accreditation Program) accredited.
Industry
The performance of the domestic and international air transport industry directly and significantly impacts the performance
of the ACM Group. The air transport industry’s long-term outlook is for continued, steady growth. Such outlook suggests
the need for additional aircraft and, therefore, growth in the requirement for airframe and turbine engine components. The
air transport industry is currently benefiting from several favorable trends including: (i) projected growth in air traffic, (ii)
the major replacement and refurbishment cycles driven by the desire for more fuel efficient aircraft and fleet commonality,
and (iii) the increased use of wide-body aircraft. The ACM Group also supplies new and spare components for military
aircraft. As a result of continued military initiatives, there has been increased demand for both new and spare components
for military customers. However, the current global economic crisis has created significant reductions in available capital
and liquidity from banks and other providers of credit. Therefore, this crisis may adversely affect the ability of the ACM
Group’s customers to fulfill their obligations, and a continued deterioration in the global economy could result in reduced
demand for the products and services that it provides. The ACM Group’s current outlook for the air transport industry
continues to remain favorable in the near term, and it believes that it is poised to take advantage of the resulting
improvement in order demand from the airframe and engine manufacturers should it occur. However, the ACM Group is
also beginning to see some of its key customers extend/delay their required delivery schedules. It is difficult to determine at
this time what the long-term impact of these factors may be on the demand for products provided by the ACM Group.
Competition
While there has been some consolidation in the forging industry, the ACM Group believes there is limited opportunity to
increase prices, other than for the pass-through of raw material steel and titanium alloys price increases. The ACM Group
believes, however, that its demonstrated aerospace expertise along with focus on quality, customer service, SMART
(Streamlined Manufacturing Activities to Reduce Time/Cost) initiatives, as well as offering a broad range of capabilities
provide it with an advantage in the primary markets it serves. The ACM Group competes with both U.S. and non-U.S.
suppliers of forgings. As customers are establishing new facilities throughout the world, the ACM Group will continue to
encounter non-U.S. competition. The ACM Group believes it can expand its markets by (i) broadening its product lines
through investment in equipment that expands its manufacturing capabilities and (ii) developing new customers in markets
whose participants require similar technical competence and service (as the aerospace industry) and are willing to pay a
premium for quality.
Customers
During fiscal 2008, the ACM Group had three customers, various business units of Rolls-Royce Corporation, United
Technologies Corporation and Textron, Inc., which accounted for 16%, 12% and 11%, respectively, of the ACM Group’s
net sales. The net sales to these three customers and the direct subcontractors to these three customers accounted for 54% of
the ACM Group’s net sales in 2008. The ACM Group believes that the loss of sales to such customers would result in a
materially adverse impact on the business and income of the ACM Group. However, the ACM Group has maintained a
business relationship with these four customers for well over ten years and is currently conducting business with some of
them under multi-year agreements. Although there is no assurance that this will continue, historically as one or more major
customers have reduced their purchases, the ACM Group has generally been successful in replacing such reduced
purchases, thereby avoiding a material adverse impact on the ACM Group. The ACM Group attempts to rely on its ability
to adapt its services and operations to changing requirements of the market in general and its customers in particular. No
material part of the ACM Group’s business is seasonal.
Backlog of Orders
The ACM Group’s backlog as of September 30, 2008 decreased to $76.6 million, of which $63.8 million is scheduled for
delivery during fiscal 2009, compared with $82.8 million as of September 30, 2007, of which $66.6 million was scheduled
for delivery during fiscal 2008. It is important to note that the delivery lead times for certain aerospace grades of steel and
titanium alloy raw materials have continued to shorten and the ACM Group believes that such lead time reduction has
resulted in a fundamental shift in the ordering pattern of its customers. A likely consequence of such a shift is that
customers are not placing orders as far in advance as they previously did resulting in a reduction, relative to comparable
prior year periods, in the ACM Group’s backlog. Accordingly, such backlog reduction is not necessarily completely
indicative of actual sales expected for any succeeding period. All orders are subject to modification or cancellation by the
customer with limited charges.
2. Turbine Component Services and Repair Group
The Company’s Turbine Component Services and Repair Group (“Repair Group”) has a single operation in Minneapolis,
Minnesota. This segment of the Company’s business consists principally of the repair and remanufacture of small
aerospace turbine engine components. As a part of the repair and remanufacture process, the business performs precision
component machining and applies high temperature-resistant coatings to turbine engine components.
Operations
The Repair Group requires the procurement of licenses/authority, which certify that the Group has obtained approval to
perform certain proprietary repair processes. Such approvals are generally specific to an engine and its components, a repair
process, and a repair facility/location. Without possession of such approvals, a company would be precluded from
competing in the aerospace turbine engine component repair business. Approvals are issued by either the original
equipment manufacturers (“OEM”) of aerospace turbine engines or the Federal Aviation Administration (“FAA”).
In general, the Company considers aerospace turbine engines that (i) possess a thrust of less than 17,500 pounds and/or (ii)
are used to power aircraft that carry fewer than 100 passengers to be small aerospace turbine engines. Historically, the
Repair Group has elected to procure approvals primarily from the OEMs and currently maintains proprietary repair process
approvals issued by certain of the primary small engine OEMs (e.g. Pratt & Whitney, Rolls-Royce, Turbomeca, and
Hamilton Sundstrand). In exchange for being granted an OEM approval, the Repair Group is obligated, in most cases, to
pay royalties to the OEM for each type of component repair that it performs utilizing the OEM-approved proprietary repair
2
process. The Repair Group continues to be successful in procuring FAA repair process approvals. There is generally no
royalty payment obligation associated with the use of a repair process approved by the FAA. To procure an OEM or FAA
approval, the Repair Group is required to demonstrate its technical competence in the process of repairing such turbine
engine components.
The development of remanufacturing and repair processes is an ordinary part of the Repair Group business. The Repair
Group continues to invest time and money on research and development activities. The Company’s research and
development activities in repair processes and high temperature resistant coatings applied to super-alloy materials have
applications in the small aerospace turbine engine markets. Operating costs related to such activities are expensed during
the period in which they are incurred. The Group’s research and development expense was $0.5 million in fiscal 2008.
The Repair Group generally has multiple sources for its raw materials, which consist primarily of investment castings and
industrial coating materials essential to this business. Certain items are procured directly from the OEM, or from OEM-
certified suppliers, to satisfy repair process requirements. Suppliers of such materials are located throughout North
America and Europe. Although certain raw materials may be provided by a limited number of suppliers, the Repair Group
generally does not depend on a single source for the supply of its materials and management believes that its sources are
adequate for its business.
Industry
The performance of the air transport industry directly and significantly impacts the performance of the Repair Group. The
air transport industry’s long-term outlook is for continued, steady growth. Such outlook suggests the need for additional
aircraft and, therefore, growth in the requirement for aerospace turbine engines and related engine repairs. The air transport
industry is currently benefiting from several favorable longer term trends including: (i) projected growth in air traffic, (ii)
the beginning of major replacement and refurbishment cycles driven by the desire for more fuel efficient aircraft and fleet
commonality, and (iii) the increased use of regional aircraft. It is difficult to determine what the long-term impact of these
factors may be on air travel and the demand for services and products provided by the Repair Group. Management’s current
outlook for the air transport industry continues to remain favorable in the near term.
Competition
In recent years, while the absolute number of competitors has decreased as a result of industry consolidation and vertical
integration, competition in the turbine engine component repair business has nevertheless increased, principally due to the
increased direct involvement of the aerospace turbine engine manufacturers in the turbine engine overhaul and component
repair businesses. With the presence of the OEMs in the market, there has been a general reluctance on the part of the
OEMs to issue, to independent component repair companies, its approvals for the repair of its newer model engines and
related components. The Company believes that the Repair Group will, more likely than not, become more dependent in the
future on (i) its ability to successfully procure and market FAA approved licenses and related repair processes and/or (ii)
close collaboration with engine manufacturers.
Customers
The identity and ranking of the Repair Group’s principal customers can vary from year to year. The Repair Group attempts
to rely on its ability to adapt its services and operations to changing requirements of the market in general and its customers
in particular, rather than relying on high volume production of a particular item or group of items for a particular customer
or customers. During fiscal 2008, the Repair Group had two customers, consisting of various business units of United
Technologies Corporation and Rolls-Royce Corporation, which accounted for 37% and 15%, respectively, of the Repair
Group’s net sales from continuing operations. Although there is no assurance that this will continue, historically as one or
more major customers have reduced their purchases, the business has generally been successful in replacing such reduced
purchases, thereby avoiding a material adverse impact on the business. No material part of the Repair Group’s business is
seasonal.
Backlog of Orders
The Repair Group’s backlog from continuing operations as of September 30, 2008 increased to $4.5 million, of which $2.3
million is scheduled for delivery during fiscal 2009 and $2.2 million is on hold, compared with $4.2 million as of September
30, 2007, of which $1.5 million was scheduled for delivery during fiscal 2008 and $2.7 million was on hold. All orders are
subject to modification or cancellation by the customer with limited charges. The Repair Group believes that the backlog
may not necessarily be indicative of actual sales for any succeeding period.
3
3. Applied Surface Concepts Group
The Company’s Applied Surface Concepts Group (“ASC Group”) provides surface enhancement technologies principally
related to selective electrochemical finishing and anodizing. Principal product offerings include (i) the sale of metal plating
solutions and equipment required for selective electrochemical finishing and (ii) providing selective electrochemical
finishing contract services.
Operations
Selective electrochemical finishing of a part or component is done without the use of an immersion tank. A wide variety of
pure metals and alloys, principally determined by the customer’s design requirements, can be used for applications
including corrosion protection, wear resistance, anti-galling, increased lubricity, increased hardness, increased electrical
conductivity, and re-sizing. SIFCO Process® metal solutions include: cadmium, cobalt, copper, nickel, tin and zinc. In
addition, precious metal solutions such as gold, iridium, palladium, platinum, rhodium, and silver are also provided to
customers. The ASC Group has also developed a number of alloy-plating solutions such as nickel-cobalt solutions that can
be used as a more environmentally friendly replacement for a chrome plating solution or a zinc-nickel solution that can be
used as a more environmentally friendly replacement for a cadmium plating solution.
The ASC Group can either (i) supply selective electrochemical finishing chemicals and equipment to customers desiring to
perform selective electrochemical finishing in-house or (ii) provide manual or semi-automated contract selective
electrochemical finishing services at either the customer’s site or at one of the Group’s facilities. The Group operates four
U.S. facilities in geographic areas strategically located in proximity to its major customers (Cleveland, Ohio / Hartford,
Connecticut / Norfolk, Virginia / Houston, Texas) and three in Europe (Birmingham, England / Paris, France / Rattvik,
Sweden). The scope of selective electrochemical finishing work includes part salvage and repair, part refurbishment, and
new part enhancement. Selective electrochemical finishing solutions are produced in the Cleveland, Ohio and Birmingham,
England facilities.
The ASC Group generally has multiple sources for its raw materials, which consist primarily of industrial chemicals and
metal salts and, therefore, does not depend on a single source for the supply of key raw materials. Management believes
that its sources of raw materials are adequate to support its business.
The ASC Group sells its products and services under recognized industry brand names including: SIFCO Process®, Dalic®,
USDL® and Selectron®, all of which are specified in military and industrial specifications. The ASC Group’s
manufacturing operations have ISO 9001:2001 and AS 9100A certifications. In addition, two of its facilities are NADCAP
(National Aerospace and Defense Contractors Accreditation Program) certified. Two of the service centers are FAA
approved repair shops. Other ASC Group approvals include ABS (American Bureau of Ships), ARR (American Railroad
Registry), JRS (Japan Registry of Shipping), and KRS (Korean Registry of Shipping).
Industry
Selective electrochemical finishing occupies a niche within the broader metal finishing industry. The ASC Group’s
selective electrochemical finishing process is used to provide functional, engineered finishes rather than decorative finishes,
and it serves many markets including aerospace, medical, electric power generation, and oil and gas. In its planning and
decision making processes, management of the ASC Group monitors and evaluates precious metal prices, global
manufacturing activity, internal labor capacity, technological developments in surface enhancement, and the exploration
and production activities relative to oil and gas products. The diversity of industries served helps to mitigate the impact of
economic cycles on the ASC Group.
Competition
Although the Company believes that the ASC Group is the largest selective electrochemical finishing company in the
world, there are several companies globally that manufacture and sell selective electrochemical finishing solutions and
equipment and/or provide contract selective electrochemical finishing services. The ASC Group seeks to differentiate itself
through its technical support and research and development capabilities. The ASC Group also competes with other surface
enhancement technologies such as welding and metal spray.
Customers
The ASC Group has a customer base of over 1,000 customers. However, approximately 10 customers, who operate in a
variety of industries, accounted for approximately 34% the Group’s fiscal 2008 net sales. During fiscal 2008, the ASC
4
Group had one customer, Halliburton Company, which accounted for 13% of the ASC Group’s net sales. No material part
of the ASC Group’s business is seasonal.
Backlog of Orders
Due to the nature of its business (i.e. shorter lead times for its products and services) the ASC Group had no material
backlog at September 30, 2008 and 2007.
4. General
For financial information concerning the Company’s reportable segments see Management’s Discussion and Analysis of
Financial Condition and Results of Operations included in Item 7 and Note 11 of Notes to Consolidated Financial
Statements included in Item 8.
C.
Environmental Regulations
In common with other companies engaged in similar businesses, the Company is 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.
D.
Employees
The number of the Company’s employees increased from approximately 340 at the beginning of fiscal year 2008 to
approximately 360 employees at the end of fiscal 2008. The increase was principally a result of the additional employees
hired to support the growth in the Company’s businesses in general and the ACM Group in particular. The Company is a
party to collective bargaining agreements with certain employees located at its Cleveland, Ohio and Minneapolis,
Minnesota facilities. The ACM Group union contract expires in May 2010 (effective since May 2005) and the Repair
Group union contract expires July 2009 (effective since July 2005). Management considers its relations with the
Company’s employees to be good.
E.
Non-U.S. Operations
The Company’s products and services are distributed and performed in U.S. as well as non-U.S. markets. The Company
commenced its operations in Ireland in 1981 and ceased such operations in 2007. The Company commenced its operations
in the United Kingdom and France as a result of an acquisition of a business in 1992. The Company commenced its
operations in Sweden as a result of an acquisition of a business in 2006. Wholly-owned subsidiaries operate the Company’s
service and distribution facilities in the United Kingdom, France and Sweden.
Financial information about the Company’s U.S. and non-U.S. operations is set forth in Note 11 to the Consolidated
Financial Statements included in Item 8.
As of September 30, 2008, a significant portion (approximately 50%) of the Company’s cash and cash equivalents are in
the possession of its non-U.S. subsidiaries and relate to undistributed earnings of these non-U.S. subsidiaries. Distributions
from the Company’s non-U.S. subsidiaries to the Company may be subject to statutory restrictions, adverse tax
consequences or other limitations.
Item 2. Properties
The Company’s property, plant and equipment include the facilities described below and a substantial quantity of
machinery and equipment, most of which consists of industry specific machinery and equipment using special jigs, tools
and fixtures and in many instances having automatic control features and special adaptations. In general, the Company’s
property, plant and equipment are in good operating condition, are well maintained and substantially all of its facilities are
in regular use. The Company considers its investment in property, plant and equipment as of September 30, 2008 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 Group operates a single facility in Minneapolis, Minnesota
with a total of 59,000 square feet and that is involved in the repair and remanufacture of small aerospace
5
turbine engine components. In addition, the Repair Group owns a building and land located in Cork, Ireland
(59,000 square feet) that (i) is subject to a long-term lease arrangement with PAS Technologies Ireland, the
acquirer of the Repair Group’s industrial turbine engine component repair business in fiscal 2007, and (ii) is
being marketed for sale as of September 30, 2008.
• The Aerospace Component Manufacturing Group operates in a single, owned 240,000 square foot facility
located in Cleveland, Ohio. This facility is also the site of the Company’s corporate headquarters.
• The Applied Surface Concepts Group is headquartered in an owned 34,000 square foot facility in Cleveland,
Ohio. The Group leases space aggregating 52,000 square feet for sales offices and/or for its contract
selective electrochemical finishing services in Norfolk, Virginia; Hartford, Connecticut; Houston, Texas;
Paris, France; and Birmingham, England. The Group also operates in an owned 3,000 square foot facility in
Rattvik, Sweden.
Item 3. Legal Proceedings
In the normal course of business, the Company may be involved in ordinary, routine legal actions. The Company cannot
reasonably estimate future costs, if any, related to these matters but does not believe any such matters are material to its
financial condition or results of operations. The Company maintains various liability insurance coverages to protect its
assets from losses arising out of or involving activities associated with ongoing and normal business operations; however, it
is possible that the Company’s future operating results could be affected by future cost of litigation.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of the Company’s 2008 fiscal year.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
The Company’s Common Shares are traded on the American Stock Exchange under the symbol “SIF”. The following table
sets forth, for the periods indicated, the high and low sales price for the Company’s Common Shares as reported by the
American Stock Exchange.
Years Ended September 30,
2008
2007
High
Low
High
Low
First Quarter……………………………...
Second Quarter…………………………..
Third Quarter…………………………….
Fourth Quarter…………………………...
$ 23.20 $ 14.60 $ 7.30 $ 4.15
16.78
15.40
10.95
9.80
10.08
7.60
10.91
21.29
25.50
4.51
8.61
13.50
6
Performance Graph
Set forth below is a graph comparing the returns to shareholders of the Company's Common Shares to the returns
to shareholders of the S&P Composite – 500 Stock Index and the S&P Aerospace/Defense Group. The graph assumes (i)
that the value of the investment in the Common Shares, the S&P Composite – 500 Stock Index and the S&P
Aerospace/Defense Group was $100 on September 30, 2003 and (ii) the reinvestment of dividends.
Comparison of Five-Year Return Performance of
SIFCO Industries, Inc., the S&P 500 Index
and the S&P Aerospace/Defense Group
SIFCO Stock Price vs. S&P 500 and S&P
Aerospace/Defense Index
$900.00
$800.00
$700.00
$600.00
$500.00
$400.00
$300.00
$200.00
$100.00
$0.00
9/30/03
3/31/04
9/30/04
3/31/05
9/30/05
3/31/06
9/30/06
3/31/07
9/30/07
3/31/08
9/30/08
S&P 500
SIFCO
S&P Aerospace/Defense
Dividends and Shares Outstanding
The Company has not declared or paid any cash dividends within the last two (2) fiscal years and does not anticipate paying
any such dividends in the foreseeable future. The Company currently intends to retain all of its earnings for the operation
of its businesses. The Company’s ability to declare or pay cash dividends is limited by its credit agreement covenants. At
October 31, 2008, there were approximately 644 shareholders of record of the Company’s Common Shares, as reported by
National City Corporation, the Company’s Transfer Agent and Registrar, which maintains it corporate offices at National
City Center, 1900 East Ninth Street, Cleveland, Ohio 44101-0756.
7
Item 6. Selected Financial Data
The following table sets forth selected consolidated financial data of the Company. The data presented below should be read in
conjunction with the audited Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Item 8.
Years Ended September 30,
2008
2007
2006
2005
2004
(Amounts in thousands, except per share data)
Statement of Operations Data
Net sales…………………………...….……………….. $
Income (loss) from continuing operations before
income tax provision………………………………
Income tax provision……………………...……………
Income (loss) from continuing operations………….….
Income (loss) from continuing operations per
share (basic)……………………………………..
Income (loss) from continuing operations per
share (diluted)…………………………………...
Income (loss) from discontinued operations, net of tax..
Net income (loss)……………………………………....
Net income (loss) per share (basic)………………..
Net income (loss) per share (diluted)………….…..
Cash dividends per share……………………………….
Shares Outstanding at Year End…………………….
Balance Sheet Data
Working capital………………………………..………
Property, plant and equipment, net…………………….
Total assets…………………………………….………
Long-term debt, net of current maturities……………..
Other long-term liabilities……………………………...
Total shareholders’ equity……………………..………
Shareholders’ equity per share………………………...
Financial Ratios
Return on beginning shareholders’ equity…………......
Long-term debt to equity percent…………..…………..
Current ratio…………………………………..………..
101,391
$
87,255
$
68,606
$
52,863 $
53,798
8,820
3,277
5,543
1.05
1.04
287
5,830
1.10
1.09
---
5,295
10,255
1,483
8,772
(35)
14
(49)
(2,424)
541
(2,965)
(3,298)
75
(3,373)
1.67
(0.01)
(0.57)
(0.65)
1.66
(2,044)
6,728
1.28
1.27
---
(0.01)
1,009
960
0.18
0.18
---
(0.57)
2,769
(196)
(0.04)
(0.04)
---
(0.65)
(2,573)
(5,946)
(1.14)
(1.14)
---
5,281
5,222
5,222
5,214
$
34,315
10,253
60,149
269
5,745
40,679
7.68
$
32,350
10,570
60,889
2,986
5,613
36,778
6.96
$
15,011
14,059
48,775
427
5,939
25,183
4.82
$
9,619 $
18,744
49,523
10
8,645
22,398
4.29
16,029
19,882
59,759
5,797
8,108
24,802
4.76
15.9%
0.7%
3.6
26.7%
8.1%
3.1
4.3%
1.7%
1.9
(0.8)%
---
1.5
(19.6)%
23.4 %
1.8
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, may
contain 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 this cautionary statement identifying important economic, political and technological factors, among
others, the absence or effect of which could cause the actual results or events to differ materially from those set forth in or
implied by the forward-looking statements and related assumptions. Such factors include the following: (1) future business
environment, including capital and consumer spending; (2) competitive factors, including the ability to replace business
which may be lost; (3) successful development of turbine repair processes and/or the procurement of new repair process
licenses from turbine engine manufacturers and/or the Federal Aviation Administration; (4) metals and commodities price
increases and the Company’s ability to recover such price increases; (5) successful development and market introductions
of new products and services; (6) regressive pricing pressures on the Company’s products and services, with productivity
improvements as the primary means to maintain margins; (7) the impact on business conditions, and on the aerospace
industry in particular, of the global terrorism threat; (8) continued reliance on consumer acceptance of regional and business
aircraft powered by more fuel efficient turboprop engines vs. regional and business aircraft powered by turbofan engines;
(9) continued reliance on several major customers for revenues; (10) the Company’s ability to continue to have access to its
revolving credit facility and to comply with the terms of its credit agreement, including financial covenants, (11) the impact
on future contributions to the Company’s defined benefit pension plan due to changes in actuarial assumptions and the
8
market value of plan assets; and (12) stable governments, business conditions, laws, regulations and taxes in the economic
environments where business is conducted.
The Company and its subsidiaries engage in the production and sale of a variety of metalworking processes, services and
products produced primarily to the specific design requirements of its customers. The processes and services include
forging, heat-treating, coating, welding, machining and selective electrochemical finishing. The products include forged
components, machined forged parts and other machined metal parts, remanufactured component parts for turbine engines,
and selective electrochemical finishing solutions and equipment. The Company’s operations are conducted in three
business segments: (1) Aerospace Component Manufacturing Group, (2) Turbine Component Services and Repair Group,
and (3) Applied Surface Concepts Group. The Company endeavors to plan and evaluate its businesses’ operations while
taking into consideration certain factors including the following – (i) the projected build rate for commercial, business and
military aircraft as well as the engines that power such aircraft, (ii) the projected maintenance, repair and overhaul
schedules for commercial, business and military aircraft as well as the engines that power such aircraft, and (iii) anticipated
exploration and production activities relative to oil and gas products, etc.
A.
Results of Operations
1. Fiscal Year 2008 Compared with Fiscal Year 2007
Net sales from continuing operations in fiscal 2008 increased 16.2% to $101.4 million, compared with $87.3 million in the
comparable period in fiscal 2007.
Income from continuing operations before income taxes in fiscal 2008 was $8.8 million, compared with $10.3 million in
the comparable period in fiscal 2007. Included in the $8.8 million of income from continuing operations before income
taxes in fiscal 2008 was (i) $0.5 million of expense related to the business settlement of a product dispute that originated in
fiscal 2007, (ii) $0.8 million of expense related to the impairment of a long-lived asset, and (iii) a LIFO provision of $1.7
million. Included in the $10.3 million of income from continuing operations before income taxes in fiscal 2007 was (i) $0.1
million of expense related to the business settlement of a product dispute that originated in fiscal 2007 and (ii) a LIFO
provision of $0.3 million.
Income (loss) from discontinued operations, net of tax, which includes both the industrial turbine repair business that was
sold in fiscal 2007 and the large aerospace turbine engine component repair business that was sold in fiscal 2006, was
income of $0.3 million in fiscal 2008, compared with a $2.0 million loss in the comparable period in fiscal 2007. Included
in the $2.0 million loss from discontinued operations in fiscal 2007 were (i) grant income of $2.1 million and (ii) a loss of
approximately $0.8 million from the divestiture in fiscal 2007 of a business and certain related assets, as explained more
fully in Notes 4 and 9, respectively, to the Consolidated Financial Statements.
Net income in fiscal 2008 was $5.8 million, compared with $6.7 million in the comparable period in fiscal 2007.
Aerospace Component Manufacturing Group (“ACM Group”)
Net sales in fiscal 2008 increased 20.0% to $72.0 million, compared with $60.0 million in the comparable period of fiscal
2007. For purposes of the following discussion, the ACM Group considers aircraft that can accommodate less than 100
passengers to be small aircraft and those that can accommodate 100 or more passengers to be large aircraft. Net sales of
airframe components for small aircraft increased $7.6 million to $38.2 million in fiscal 2008, compared with $30.6 million
in the comparable period in fiscal 2007. Net sales of turbine engine components for small aircraft, which consist primarily
of business and regional jets, as well as military transport and surveillance aircraft, increased $1.8 million to $19.9 million
in fiscal 2008, compared with $18.1 million in the comparable period in fiscal 2007. Net sales of airframe components for
large aircraft increased $0.5 million to $7.6 million in fiscal 2008, compared with $7.1 million in the comparable period in
fiscal 2007. Net sales of turbine engine components for large aircraft increased $1.3 million to $3.0 million in fiscal 2008,
compared with $1.7 million in the comparable period in fiscal 2007. Commercial product sales and other revenues were
$3.3 million and $2.5 million in fiscal 2008 and 2007, respectively.
The ACM Group’s airframe and turbine engine component products have both military and commercial applications. Net
sales of airframe and turbine engine components that solely have military applications were $33.4 million in fiscal 2008,
compared with $25.7 million in the comparable period in fiscal 2007. This increase is attributable in part to increased
military spending due to ongoing wartime demand such as for additional military helicopters and related replacement
components.
9
The ACM Group’s selling, general and administrative expenses increased $1.2 million to $4.9 million, or 6.8% of net sales,
in fiscal 2008, compared with $3.7 million, or 6.1% of net sales, in the comparable period in fiscal 2007. The $1.2 million
increase in selling, general and administrative expenses in fiscal 2008 was principally due to a $0.6 million payment to a
customer that was made to achieve an amicable settlement related to a product dispute that originated in fiscal 2007, of
which $0.1 million was expensed in fiscal 2007, and that the Company agreed to make as a business gesture of good faith
and cooperation without admission of liability. The remaining selling, general and administrative expenses in fiscal 2008
and 2007 were $4.4 million, or 6.1% of net sales, and $3.6 million, or 6.0% of net sales, respectively. The remaining $0.8
million increase in selling, general and administrative expenses in fiscal 2008 compared to the same period in fiscal 2007
was principally due to (i) a $0.3 million increase in variable selling cost principally due to the increase in net sales, (ii) a
$0.2 million increase in compensation and related expenses, and (iii) a $0.1 million increase in bad debt expense.
During the fourth quarter of fiscal 2008, the ACM group recorded $0.8 million of expense related the impairment of a long-
lived asset.
The ACM Group’s operating income in fiscal 2008 was $9.9 million, compared with $10.3 million in the comparable
period in fiscal 2007. Included in the $9.9 million of operating income in fiscal 2008 were the aforementioned $1.3 million
of expenses related to the amicable settlement of a product dispute and the impairment of a long-lived asset. The $11.2
million of operating income in fiscal 2008, before these $1.3 million of expenses, reflected an improvement relative to
fiscal 2007 principally due to the positive impact on margins resulting from higher production and sales volumes in the
fiscal 2008, which allowed the ACM Group to leverage its fixed operating cost structure over more units of production and
sales. The positive impact of the improved leverage of its fixed operating cost were partially offset by the negative impact
of (i) a $1.4 million increase in the LIFO provision and (ii) higher variable labor costs recognized in fiscal 2008, compared
to the same period in fiscal 2007.
Turbine Component Services and Repair Group (“Repair Group”)
During fiscal 2008, net sales, which consist principally of component repair services (including precision component
machining and industrial coating) for small aerospace turbine engines, increased 10.8% to $14.3 million, compared with
$12.9 million in the comparable fiscal 2007 period.
During fiscal 2008, the Repair Group’s selling, general and administrative expenses from continuing operations were $1.3
million, or 9.2% of net sales, compared with $1.4 million, or 10.5% of net sales, in the comparable fiscal 2007 period.
Included in selling, general and administrative expenses during both fiscal 2008 and 2007 was $0.1 million of bad debt
recoveries and, therefore, the remaining selling, general and administrative expenses were $1.4 million, or 9.9% of net
sales, and $1.5 million, or 11.2% of net sales, during such periods.
The Repair Group’s operating results from continuing operations were a loss of $0.3 million in fiscal 2008 compared with
income of $0.7 million, in the comparable fiscal 2007 period. Included in the $0.3 million operating loss during fiscal 2008
were (i) the aforementioned $0.1 million of bad debt recovery, (ii) $0.1 million of income from the sale of previously
reserved inventory, and (iii) $0.1 million of income related to the renegotiation of a vendor obligation. Despite these
favorable items, the reason that operating results did not improve with the higher volumes during fiscal 2008 is due
principally to startup costs related to the production launch of a new component repair program and a change in product
sales mix to less favorable margin products.
Applied Surface Concepts Group (“ASC Group”)
Net sales increased 5.3% to $15.1 million, compared with $14.3 million in the comparable fiscal 2007 period. In fiscal
2008, product net sales, consisting of selective electrochemical metal finishing equipment and solutions, increased $0.4
million to $7.5 million, compared with $7.1 million in the same period in fiscal 2007. In fiscal 2008, customized selective
electrochemical metal finishing contract service net sales increased $0.3 million to $7.4 million, compared with $7.1
million in the same period in fiscal 2007. A portion of the ASC Group’s business is conducted in Europe and is
denominated in local European currencies, which have strengthened in relation to the US dollar resulting in a favorable
currency impact on net sales in fiscal 2008 of approximately $0.3 million.
The ASC Group’s selling, general and administrative expenses decreased $0.1 million to $4.3 million, or 28.7% of net
sales, in fiscal 2008, compared with $4.4 million, or 31.0% of net sales in the comparable fiscal 2007 period. The
$0.1 million decrease in selling, general and administrative expenses in fiscal 2008 was principally due to a reduction in
10
compensation and benefit related expenses attributable to certain salaried support positions that have either been eliminated
or, if not eliminated, have not yet been replaced.
The ASC Group’s operating income in fiscal 2008 was $1.3 million, compared with $1.0 million in the same period in
fiscal 2007. This $0.3 million increase in operating income is principally due to (i) a decrease in selling, general and
administrative expenses discussed above and (ii) improved operating margins due to higher sales. These gains were
partially offset by (i) rising precious metals commodity costs that could not be fully passed on to customers and (ii) higher
compensation expense due to the hiring of additional operations personnel.
Corporate Unallocated Expenses
Corporate unallocated expenses, consisting of corporate salaries and benefits, legal and professional and other corporate
expenses, were $2.0 million in fiscal 2008, compared with $1.7 million in the same period in fiscal 2007. The $0.3 million
increase in fiscal 2008 is principally due to an increase in legal and professional expenses related to (i) the Company’s
long-term strategic planning efforts, including its incentive compensation planning, (ii) its efforts required to achieve initial
Sarbanes-Oxley compliance in fiscal 2008, and (iii) professional tax consulting services. These increases were partially
offset by a decrease in incentive expense.
Other/General
Interest expense from continuing operations was $0.1 million and $0.2 million in fiscal 2008 and 2007, respectively. The
following table sets forth the weighted average interest rates and weighted average outstanding balances under the
Company’s revolving credit agreement in fiscal years 2008 and 2007.
Credit Agreement
2008
Revolving credit agreement……………………….
6.8%
2007
8.8%
2008
2007
$1.4 million
$1.4 million
Weighted Average
Interest Rate
Year Ended September 30,
Weighted Average
Outstanding Balance
Year Ended September 30,
The Company believes that inflation did not materially affect its results of operations in fiscal 2008 or fiscal 2007, and does
not expect inflation to be a significant factor in fiscal 2009.
2. Fiscal Year 2007 Compared With Fiscal Year 2006
In fiscal 2007, the Company and its Irish subsidiary, SIFCO Turbine Components Limited (“SIFCO Turbine”), which is a
part of the Company’s Turbine Component Services and Repair Group, completed the sale of its industrial turbine engine
component repair business and certain related assets (“Industrial Repair Business”). In addition, in fiscal 2006, the
Company and SIFCO Turbine completed the sale of its large aerospace turbine engine component repair business and
certain related assets (“Large Aero Business”). The combined results of the Company’s Industrial Repair and Large Aero
Businesses are reported as discontinued operations in the accompanying Consolidated Statements of Operations.
Net sales from continuing operations in fiscal 2007 increased 27.2% to $87.3 million, compared with $68.6 million in fiscal
2006.
Income from continuing operations in fiscal 2007 was income of $8.8 million, compared with a loss of $0.1 million in
fiscal 2006. Income from discontinued operations, net of tax, which includes both the Industrial Repair and Large Aero
Businesses, was a loss of $2.0 million in fiscal 2007, compared to income of $1.0 million in fiscal 2006. Included in the
$2.0 million loss from discontinued operations in fiscal 2007 was (i) $2.1 million of grant income related to the expiration
of certain grants, as explained more fully in Note 4 to the Consolidated Financial Statements in Item 8 and (ii) a loss of
approximately $0.8 million from the divestiture of the Industrial Repair Business, as explained more fully in Note 9 to the
Consolidated Financial Statements in Item 8. Included in the $1.0 million of income from discontinued operations in fiscal
2006 was a gain of approximately $4.4 million from the divestiture of the Large Aero Business, as explained more fully in
Note 9 to the Consolidated Financial Statements in Item 8.
Net income in fiscal 2007 was $6.7 million, compared with $1.0 million in fiscal 2006.
11
Aerospace Component Manufacturing Group (“ACM Group”)
Net sales in fiscal 2007 increased 36.5% to $60.0 million, compared with $43.9 million in fiscal 2006. The significant
increase in the ACM Group’s net sales in fiscal 2007 was due to a combination of (i) an increase in volumes resulting from
the general strength of demand in the markets which the Company serves and (ii) an increase in product prices principally
reflecting the pass-through to customers of the increase in raw material prices incurred by the Company. For purposes of
the following discussion, the ACM Group considers aircraft that can accommodate less than 100 passengers to be small
aircraft and those that can accommodate 100 or more passengers to be large aircraft. Net sales of airframe components for
small aircraft increased $7.2 million to $30.6 million in fiscal 2007, compared with $23.4 million in fiscal 2006. Net sales
of turbine engine components for small aircraft, which consist primarily of net sales of turbine engine components for
business and regional jets, as well as military transport and surveillance aircraft, increased $6.5 million to $18.1 million in
fiscal 2007, compared with $11.6 million in fiscal 2006. Net sales of airframe components for large aircraft increased $2.7
million to $7.1 million in fiscal 2007, compared with $4.4 million in fiscal 2006. Net sales of turbine engine components
for large aircraft decreased $0.1 million to $1.7 million in fiscal 2007, compared with $1.8 million in fiscal 2006.
Commercial product and non-product sales were $2.5 million and $2.7 million in fiscal 2007 and 2006, respectively.
Included in net sales in fiscal 2007 was $0.7 million related principally to certain product pricing adjustments that were
agreed to and recorded in the fourth quarter of fiscal 2007 and that related to customer shipments that occurred during the
prior two quarters of fiscal 2007. Such pricing adjustments resulted principally from the finalization, during the fourth
quarter of fiscal 2007, of certain ACM Group customer negotiations that were initiated during the first half of fiscal 2007.
Of the $0.7 million in fourth quarter pricing adjustments, $0.5 million related to net sales in the third quarter of fiscal 2007
and $0.1 million related to net sales in the second quarter of fiscal 2007.
The ACM Group’s airframe and turbine engine component products have both military and commercial applications. Net
sales of airframe and turbine engine components that solely have military applications were $25.7 million in fiscal 2007,
compared with $20.5 million in fiscal 2006. This increase is attributable in part to increased military spending due to
ongoing wartime demand such as for additional military helicopters and related replacement components.
During fiscal 2007, the ACM Group’s selling, general and administrative expense increased $0.5 million to $3.7 million, or
6.1% of net sales, compared with $3.2 million, or 7.3% of net sales, in fiscal 2006. The $0.5 million increase in fiscal 2007
was principally due to (i) an increase in the ACM Group’s compensation expense, including incentive compensation,
resulting from the hiring of certain additional personnel to support the growth in the ACM Group’s business and (ii)
variable selling costs resulting from the overall significant increase in net sales and operating income during fiscal 2007
compared with fiscal 2006.
The ACM Group’s operating income in fiscal 2007 was $10.3 million, compared with $1.7 million in fiscal 2006.
Operating results improved significantly in fiscal 2007 compared with fiscal 2006 due primarily to the positive impact on
margins resulting from significantly higher production and net sales volumes in fiscal 2007. The improved margins are due
principally to (i) operating efficiencies and the related absorption of the ACM Group’s relatively high fixed operating costs
over more units of production and sales in fiscal 2007, (ii) improvements in product pricing and (iii) a $1.2 million
reduction in the LIFO provision in fiscal 2007 compared with fiscal 2006.
Turbine Component Services and Repair Group (“Repair Group”)
Net sales from continuing operations in fiscal 2007, which consist principally of component repair services (including
precision component machining and industrial coating) for small aerospace turbine engines, increased 4.9% to $12.9
million, compared with $12.3 million in fiscal 2006.
During fiscal 2007, the Repair Group’s selling, general and administrative expenses from continuing operations decreased
$0.2 million to $1.4 million or 10.5% of net sales, compared with $1.6 million, or 12.7% of net sales, in fiscal 2006.
Included in the $1.6 million of selling, general and administrative expenses in fiscal 2006 were $0.1 million of severance
and related charges.
The Repair Group’s operating income from continuing operations in fiscal 2007 was $0.7 million, compared with $0.2
million in fiscal 2006. The improvement in operating income is principally attributable to (i) the aforementioned reduction
in selling, general and administrative expenses, (ii) the relative product sales mix - with a larger portion of sales being
higher margin product with a lower raw material/higher value-added content and (iii) the consumption of lower cost and/or
previously written down inventory.
12
Applied Surface Concepts Group (“ASC Group”)
Net sales of the ASC Group increased 16.2% to $14.3 million in fiscal 2007, compared with net sales of $12.3 million in
fiscal 2006. In fiscal 2007, product net sales, consisting of selective electrochemical finishing equipment and solutions,
increased 11.4% to $7.1 million, compared with $6.3 million in fiscal 2006. In fiscal 2007, customized selective
electrochemical finishing contract service net sales increased 21.5% to $7.1 million, compared with $5.8 million in fiscal
2006.
During fiscal 2007, the ASC Group’s selling, general and administrative expenses decreased $0.3 million to $4.4 million, or
31.0% of net sales, compared with $4.7 million, or 38.4% of net sales, in fiscal 2006. The principal reason for the $0.3
million decrease in selling, general and administrative expenses in fiscal 2007 as compared to fiscal 2006 was the reduction
in headcount and related expenses, which was partially offset by $0.1 million of severance and related charges incurred in
fiscal 2007.
The ASC Group’s operating income in fiscal 2007 was $1.0 million, compared with an operating loss of $0.6 million in
fiscal 2006. Operating results improved principally due to (i) the positive impact on margins of the significantly higher net
sales volumes in fiscal 2007, while maintaining a relatively fixed cost structure, compared with fiscal 2006 and (ii) the
aforementioned $0.3 million reduction in selling, general and administrative expenses.
Corporate Unallocated Expenses
Corporate unallocated expenses, consisting of corporate salaries and benefits, legal and professional and other corporate
expenses, were $1.7 million in fiscal 2007 compared $1.6 million in fiscal 2006. During fiscal 2007, a $0.3 million
reduction in compensation expense due principally to a management restructuring (after the sale of the Large Aero Business
of the Repair Group’s business that occurred in fiscal 2006) was offset by a $0.4 million increase in incentive expense
related to payments earned as a result of (i) the successful completion of certain strategic initiatives and (ii) the Company’s
significantly improved operating results in fiscal 2007. Legal and professional expenses related to the sale of the
Company’s Industrial Repair Business that were charged to corporate unallocated expenses in the first two quarters of fiscal
2007 were reclassified in the third quarter of fiscal 2007 to loss on sale of business, which is included in income (loss) from
discontinued operations, net of tax.
Other/General
Interest expense from continuing operations was $0.2 million in fiscal 2007, compared with a nominal amount in fiscal
2006. The following table sets forth the weighted average interest rates and weighted average outstanding balances under
the Company’s credit agreements in fiscal years 2007 and 2006.
Credit Agreement
Revolving credit agreement……………………….
Debt purchase agreement (1)..…………………….
Weighted Average
Interest Rate
Year Ended September 30,
Weighted Average
Outstanding Balance
Year Ended September 30,
2007
8.8%
N/A
2006
8.4%
4.6%
2007
2006
$1.4 million
N/A
$0.7 million
$0.7 million
(1) Debt purchase agreement was with an Irish bank and was paid off during the third quarter of fiscal 2006. Interest
expense related to this debt is included in income (loss) from discontinued operations.
During fiscal 2007, in addition to recognizing at statutory rates the utilization of $3.6 million of the Company’s available
U.S. net operating loss carry forwards, the Company (i) provided $1.8 million of U.S. deferred income taxes on the
undistributed earnings of its non-U.S. subsidiaries that are available for distribution as of September 30, 2007; (ii) reversed
a substantial portion of the valuation allowance previously established against its net deferred tax assets and, accordingly,
recognized a U.S. deferred income tax benefit of approximately $3.0 million, as explained more fully in Note 6 to the
Consolidated Financial Statements in Item 8; and (iii) recognized the benefit of the excess tax basis of the Company’s
property, plant and equipment of $0.7 million. The Company’s total non-U.S. income tax provision was $0.1 million.
13
B. Liquidity and Capital Resources
Cash and cash equivalents increased to $10.4 million at September 30, 2008, compared with $5.5 million at September 30,
2007. At September 30, 2008, $5.5 million of the Company’s cash and cash equivalents are in the possession of its non-
U.S. subsidiaries. Distributions from the Company’s non-U.S. subsidiaries to the Company may be subject to statutory
restriction, adverse tax consequences or other limitations.
The Company’s operating activities provided $9.7 million of cash (of which $9.8 million was provided by continuing
operations) in fiscal 2008, compared with $4.4 million of cash used by operating activities (of which $1.1 million was used
for continuing operations) in fiscal 2007. The $9.8 million of cash provided by operating activities of continuing operations
in fiscal 2008 was primarily due to (i) $11.0 million of income from continuing operations before such non-cash items as
depreciation expense, asset impairment charges, LIFO provision and deferred taxes and (ii) a $3.4 million decrease in
inventory, excluding the $1.7 million increase in the LIFO reserve. These sources of cash were offset principally by (i) a
$1.3 million decrease in other long-term liabilities, (ii) a $1.4 million decrease in accounts payable and accrued liabilities
and (iii) a $1.3 million increase in refundable income taxes. The changes in the components of working capital were due to
factors resulting from normal business conditions of the Company, including (i) the ACM Group’s response to the
increased demand in its business as measured by its sales levels, (ii) the ACM Group’s efforts to improve the optimization
of its inventory levels during such periods of increased demand, (iii) collections from customers, (iv) the relative timing of
payments to suppliers and (v) the amount of progress payments made for projected income tax obligations. The change in
other long-term liabilities is principally attributable to the funding of a U.S. defined benefit pension plan.
Capital expenditures, all of which were from continuing operations, were $2.0 million in fiscal 2008 compared with $1.4
million (of which $0.9 million were from continuing operations) in fiscal 2007. Capital expenditures during fiscal 2008
consist of $1.1 million by the ACM Group, $0.4 million by the ASC Group and $0.5 million by the Repair Group. The
Company anticipates that capital expenditures will be within the range of $3.0 to $4.0 million in fiscal 2009 to support the
projected growth in the Company’s businesses.
At September 30, 2008, the Company had an $8.0 million revolving credit agreement with a bank, subject to sufficiency of
collateral, which expires on July 1, 2009 and bears interest at the bank’s base rate. The interest rate was 5.00% at
September 30, 2008. A 0.35% commitment fee is incurred on the unused balance of the revolving credit agreement. At
September 30, 2008, no amount was outstanding and the Company had $7.9 million available under its $8.0 million
revolving credit agreement. The Company’s revolving credit agreement is secured by substantially all of the Company’s
assets located in the U.S. and a guarantee by its U.S. subsidiaries. Under its revolving credit agreement with the bank, the
Company is subject to certain customary covenants. These include, without limitation, covenants (as defined) that require
maintenance of certain specified financial ratios, including a minimum tangible net worth level and a minimum EBITDA
level. The Company was in compliance with all applicable covenants at September 30, 2008.
In December 2008, the Company entered into an agreement with its bank to extend the maturity date of its revolving credit
agreement from July 1, 2009 to October 1, 2010.
The Company believes that cash flows from its operations together with existing cash reserves and the funds available
under its revolving credit agreement will be sufficient to meet its working capital requirements through the end of fiscal
year 2009.
C. Off-Balance Sheet Arrangements
The Company does not have any obligations that meet the definition of an off-balance sheet arrangement and that have, or
are reasonably likely to have, a material effect on the Company’s financial condition or results of operations.
14
D. Other Contractual Obligations
The following table summarizes the Company’s outstanding contractual obligations and other commercial commitments at
September 30, 2008 and the effect such obligations are expected to have on liquidity and cash flow in future periods.
Other Contractual Obligations
Total
Payments Due by Period
(Amounts in thousands)
>1 up to
3 years
Less than
1 year
>3 up to
5 years
More than
5 years
Debt obligations………...…….. $
Capital lease obligations………
Operating lease obligations…...
9 $
398
1,354
2
129
493
$
$
3
241
697
4
28
164
$
---
---
---
Total…………..…….….... $
1,761
$
624
$
941
$
196
$
---
Excluded from the foregoing Other Contractual Obligations table are open purchase orders at September 30, 2008 for raw
materials and supplies required in the normal course of business. Included in other long-term liabilities in the Company’s
balance sheet as of September 30, 2008 is $1.6 million of liabilities related to the Company’s defined benefit pension plans.
The Company is expected to fund $0.4 million of pension obligations in fiscal 2009.
E. Outlook
The Company’s Repair and ACM Groups’ businesses continue to be heavily dependent upon the strength of the
commercial airlines as well as aircraft and related engine manufacturers. Consequently, the performance of the domestic
and international air transport industry directly and significantly impacts the performance of the Repair and ACM Groups’
businesses.
The financial condition of many airlines in the U.S. and throughout the world, while showing improvement, continues to be
weak. The U.S. airline industry has received U.S. government assistance, while some airlines have entered and/or
proceeded through the bankruptcy reorganization process, and others continue to pursue major restructuring initiatives,
which appear to have had a positive impact on operating results in recent periods. Modest improvements in the commercial
airlines and the continuation of relatively strong demand in the aircraft and related engine industries have been
complemented by relatively strong U.S. military spending for aircraft and related components. The air transport industry’s
long-term outlook has been one of continued, steady growth. Such outlook suggests the need for additional aircraft and,
therefore, growth in the requirement for airframe and engine components as well as aerospace turbine engine repairs. The
air transport industry is currently benefiting from several favorable trends including: (i) projected growth in air traffic, (ii)
major replacement and refurbishment cycles driven by the desire for more fuel efficient aircraft and fleet commonality, and
(iii) the increased use of wide-body aircraft. However, the current global economic crisis has created significant reductions
in available capital and liquidity from banks and other providers of credit. Therefore, this crisis may adversely affect the
ability of the Company’s customers and lenders to fulfill their obligations, and a continued deterioration in the global
economy could result in reduced demand for the products and services that the Company provides. While Management’s
current outlook for the air transport industry continues to remain favorable in the near term, the Company is beginning to
see some of its key customers extend/delay their required delivery schedules.
It is difficult to determine the potential long-term impact that the aforementioned factors may have on air travel and the
demand for the products and services provided by the Company. Lack of continued improvement could result in credit risk
associated with serving the financially troubled airlines and/or their suppliers. All of these consequences, to the extent that
they may occur, could negatively impact the Company’s net sales, operating profits and cash flows. However, in light of
the current business environment, the Company believes that cash on-hand, funds available under its revolving credit
agreement, and anticipated funds generated from operations will be adequate to meet its liquidity needs through the
foreseeable future.
15
F. Critical Accounting Policies and Estimates
Allowances for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of certain
customers to make required payments. The Company evaluates the adequacy of its allowances for doubtful accounts each
quarter based on the customers’ credit-worthiness, current economic trends or market conditions, past collection history,
aging of outstanding accounts receivable and specific identified risks. As these factors change, the Company’s allowances
for doubtful accounts may change in subsequent periods. Historically, losses have been within management’s expectations
and have not been significant.
Inventories
The Company maintains allowances for obsolete and excess inventory. The Company evaluates its allowances for obsolete
and excess inventory each quarter. Each business segment maintains formal policies, which require at a minimum that
reserves be established based on an analysis of the age of the inventory. In addition, if the Company learns of specific
obsolescence, other than that identified by the aging criteria, an additional reserve will be recognized as well. Specific
obsolescence may arise due to a technological or market change, or based on cancellation of an order. Management’s
judgment is necessary in determining the realizable value of these products to arrive at the proper allowance for obsolete
and excess inventory.
Impairment of Long-Lived Assets
The Company reviews the carrying value of its long-lived assets, including property, plant and equipment, at least annually
or when events and circumstances warrant such a review. This review is performed using estimates of future undiscounted
cash flows, which include proceeds from disposal of assets. If the carrying value of a long-lived asset is greater than the
estimated undiscounted future cash flows, and if such excess carrying value is determined to be permanent, then the long-
lived asset is considered impaired and an impairment charge is recorded for the amount by which the carrying value of the
long-lived asset exceeds its fair value.
The Company has a significant amount of property, plant and equipment. The determination as to whether events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable involves judgment. The
Company believes that its estimate of future undiscounted cash flows is a critical accounting estimate because (i) it requires
the Company to make assumptions about future results and (ii) the recognition of an impairment charge could have a
material impact on the Company’s financial position and results of operations.
In projecting future undiscounted cash flows, the Company relies on internal budgets and forecasts, and projected proceeds
upon disposal of long-lived assets. The Company’s budgets and forecasts are based on historical results and anticipated
future market conditions, such as the general business climate and the effectiveness of competition.
The Company believes that its estimates of future undiscounted cash flows and fair value are reasonable; however, changes
in estimates of such undiscounted cash flows and fair value could change the Company’s estimates of fair value. Further,
actual results can differ significantly from assumptions used by the Company in making its estimates. Future changes in
the Company’s estimates could result in future impairment charges.
Deferred Tax Valuation Allowance
The Company accounts for deferred taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”, whereby the
Company recognizes an income tax benefit related to its consolidated net losses and other temporary differences between
financial reporting basis and tax reporting basis. At September 30, 2008, the Company’s net deferred tax liability before
any valuation allowance was $1.3 million.
At September 30, 2006, the income tax benefit related to its consolidated net losses and other temporary differences
between financial reporting basis and tax reporting basis was offset by a valuation allowance of $4.6 million based on an
assessment of the Company’s ability to realize such benefits. In assessing the Company’s ability to realize its deferred tax
assets, management considered the scheduled reversal of deferred tax liabilities, projected future taxable income and tax
planning strategies. During fiscal 2007, the Company reversed a substantial majority of the valuation allowance based on
the Company’s determination that, at that time, it was more likely than not that the benefit would be realized through future
taxable income.
16
G. Impact of Newly Issued Accounting Pronouncements
In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards
No. 161 (“SFAS No. 161”), “Disclosure about Derivative Instruments and Hedging Activities —an amendment of SFAS
No. 133”. The objective of this Statement is to enhance disclosures about an entity’s derivative and hedging activities and
thereby improve the transparency of financial reporting. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for
under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an
entity’s financial position, financial performance, and cash flows. This Statement is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008. The Company currently has no hedging
arrangements in place.
In December 2007, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 110. This
guidance continues to allow companies, in certain circumstances, to utilize a simplified method in determining the expected
term of stock option grants when calculating the compensation expense to be recorded under Statement of Financial
Accounting Standards (SFAS) No. 123(R), “Share-Based Payment”. The simplified method can be used after December 31,
2007 only if a company’s stock option exercise experience does not provide a reasonable basis upon which to estimate the
expected option term. Because the Company’s stock option exercise experience does not provide a reasonable basis upon
which to estimate the expected option term, the Company will continue use the simplified method in determining the
expected term of the stock options granted to date.
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements—an
amendment of ARB No. 51”. The objective of this Statement is to improve the relevance, comparability, and transparency
of the financial information that a reporting entity provides in its consolidated financial statements by establishing
accounting and reporting standards that require expanded disclosure related to the ownership interests in subsidiaries held
by parties other than the parent. Such ownership interest(s) shall be clearly identified, labeled, and presented in the
consolidated financial statement and shall provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. This Statement applies to all for-profit entities that
prepare consolidated financial statements, but will affect only those entities that have an outstanding non-controlling
interest in one or more subsidiaries or that deconsolidate a subsidiary. This Statement is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2008. At present, the Company has no current
non-controlling ownership in any of its subsidiaries.
In December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS No. 141R), “Business Combinations”. The
objective of this Statement is to improve the relevance, representational faithfulness, and comparability of the information
that a reporting entity (the acquirer) provides in its financial reports about a business combination and its effects. To
accomplish that, this Statement establishes principles and requirements for how the acquirer (i) recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the
acquired entity (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain
purchase and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. This Statement applies to all transactions or other events in which an
entity obtains control of one or more businesses. This Statement applies to all business entities, but does not apply to (i) the
formation of a joint venture, (ii) the acquisition of an asset or a group of assets that does not constitute a business, (iii) a
combination between entities or businesses under common control, or (iv) a combination between not-for-profit
organizations or the acquisition of a for-profit business by a not-for-profit organization. This Statement applies
prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
In the ordinary course of business, the Company is subject to foreign currency and interest rate risk. The risks primarily
relate to the sale of the Company’s products in transactions denominated in non-U.S. dollar currencies (the euro, pound
sterling and the Swedish krona); the payment in local currency of wages and other costs related to the Company’s non-U.S.
operations; and changes in interest rates on the Company’s long-term debt obligations. The Company does not hold or
issue financial instruments for trading purposes.
17
A. Foreign Currency Risk
The U.S. dollar is the functional currency for all of the Company’s U.S. operations. For these operations, all gains and
losses from completed currency transactions are included in income currently. For the Company’s non-U.S. subsidiaries,
the functional currency is the local currency. Assets and liabilities are translated into U.S. dollars at the rate of exchange at
the end of the period and revenues and expenses are translated using average rates of exchange. Foreign currency
translation adjustments are reported as a component of accumulated other comprehensive loss.
Historically, the Company has been able to mitigate the impact of foreign currency risk by means of hedging such risk
through the use of foreign currency exchange contracts, which typically expire within one year. However, such risk is
mitigated only for the periods for which the Company has foreign currency exchange contracts in effect, and only to the
extent of the U.S. dollar amounts of such contracts. At September 30, 2008, the Company had no forward exchange
contracts outstanding. The Company will continue to evaluate its foreign currency risk, if any, and the effectiveness of
using similar hedges in the future to mitigate such risk.
At September 30, 2008, the Company’s assets and liabilities denominated in the pound sterling, the euro and Swedish krona
were as follows (amounts in thousands):
Pound Sterling
Euro Swedish Krona
Cash and cash equivalents………...……….
Accounts receivable……………………….
Accounts payable………………………….
Accrued liabilities…………………………
21
176
83
62
318
480
74
397
843
1,405
69
2,679
B. Interest Rate Risk
The Company’s primary interest rate risk exposure results from the variable interest rate mechanisms associated with the
Company’s long-term debt consisting of a revolving credit agreement with a U.S. bank. If interest rates were to increase or
decrease 100 basis points (1%) from the September 30, 2008 rate, and assuming no change in the amount outstanding under
the revolving credit agreement, annual interest expense to the Company would be nominally impacted. The Company’s
sensitivity analyses of the effects of changes in interest rates do not consider the impact of a potential change in the level of
variable rate borrowings or derivative instruments outstanding that could take place if these hypothetical conditions prevail.
The Company is not a party to any hedging or other interest rate risk management agreements.
18
[This Page Intentionally Left Blank]
19
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
SIFCO Industries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of SIFCO Industries, Inc. (an Ohio Corporation) and
Subsidiaries as of September 30, 2008 and 2007, and the related consolidated statements of operations, shareholders’ equity
and cash flows for each of the three years in the period ended September 30, 2008. 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 the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial
position of SIFCO Industries, Inc. and Subsidiaries as of September 30, 2008 and 2007, and the results of their operations
and their cash flows for each of the three years in the period ended September 30, 2008 in conformity with accounting
principles generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole.
Schedule II is presented for purposes of additional analysis and is not a required part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
As discussed in Note 7 to the consolidated financial statements, effective September 30, 2007, the Company adopted
Financial Accounting Standards Board (“FASB”) Statement No. 158, “Employers’ Accounting for Defined Benefit and
Other Postretirement Plans, an Amendment of FASB Statements No. 87, 88, 106 and 132(R)”.
/s/ GRANT THORNTON LLP
Cleveland, Ohio
December 14, 2008.
20
SIFCO Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
Years Ended September 30,
2007
2008
2006
Net sales…………………………………………….….……….…..…..
Operating expenses:
Cost of goods sold……………………………….………….……….
Selling, general and administrative expenses…….………………….
Loss (gain) on disposal or impairment of operating assets………….
$
101,391
$
87,255
$
68,606
79,161
12,495
757
65,835
11,173
(137)
57,662
11,106
89
Total operating expenses……………………….…………….…..
92,413
76,871
68,857
Operating income (loss).….…..……………………..….…….
8,978
10,384
Interest income………………………………………………….……....
Interest expense………………………………………………….……...
Foreign currency exchange loss (gain), net……………………….….....
Other income, net……………………………..……………...................
Income (loss) from continuing operations before income
tax provision…………………………………....................
Income tax provision………………………………..….……………….
Income (loss) from continuing operations………………...…
Income (loss) from discontinued operations, net of tax
(24)
149
35
(2)
8,820
3,277
5,543
287
(4)
167
(20)
(14)
10,255
1,483
8,772
(251)
(52)
77
6
(247)
(35)
14
(49)
(2,044)
1,009
Net income………………...……………………………….....
$
5,830
$
6,728
Income (loss) per share from continuing operations
Basic…………………………………………………………. $
Diluted……………………………………………………….. $
Income (loss) per share from discontinued operations, net of tax
Basic…………………………………………………………. $
Diluted……………………………………………………….. $
Net income per share
Basic…………………………………………………………. $
Diluted…….…………………….……………........................ $
Weighted-average number of common shares (basic)………...…..……
Weighted-average number of common shares (diluted)……….….……
$
$
$
$
$
$
1.05
1.04
0.05
0.05
1.10
1.09
5,291
5,340
1.67
1.66
(0.39)
(0.39)
1.28
1.27
5,246
5,286
$
$
$
$
$
$
$
960
(0.01)
(0.01)
0.19
0.19
0.18
0.18
5,222
5,227
See notes to consolidated financial statements.
21
SIFCO Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands, except per share data)
September 30,
$
ASSETS
Current assets:
Cash and cash equivalents………………..……………………..………….. $
Receivables, net….………………………..……………………..………….
Inventories………………………………….……………………....……….
Refundable income taxes…………………..………………………..………
Deferred income taxes…………………..………………………..…………
Prepaid expenses and other current assets…..…………………………..…..
Assets held for sale………………………………………………………...
Total current assets………………..…………………..………..…….
Property, plant and equipment:
Land……………………………………..…………………………………..
Buildings………………………………..………………….……..………....
Machinery and equipment……………..……………………..……………..
Accumulated depreciation………..……………………..………….……….
Property, plant and equipment, net..……...……………..……………
Other assets …..………………………..……………………..…………….…..
2008
10,440
19,130
11,730
1,309
1,541
463
3,158
47,771
578
9,933
34,110
44,621
34,368
10,253
2,125
2007
5,510
19,473
16,897
---
2,423
370
3,189
47,862
580
9,727
33,234
43,541
32,971
10,570
2,457
Total assets……..…………………………………....……………
$
60,149
$
60,889
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt…..……………………..…………….. $
Accounts payable……………………..……………………..………………
Accrued liabilities…………………..…………………………..…………...
$
94
8,310
5,052
87
9,735
5,690
Total current liabilities………..…………………………..…………...
13,456
15,512
Long-term debt, net of current maturities……..………………..………………
Deferred income taxes………………………………………………………….
Other long-term liabilities………………..………………………..…..……….
Shareholders’ equity:
Serial preferred shares, no par value, authorized 1,000 shares…...………....
Common shares, par value $1 per share, authorized 10,000 shares; issued
and outstanding 5,295 shares in 2008 and 5,281 shares in 2007……….
Additional paid-in capital………………..………………………..………...
Retained earnings……………………..…………………………..………...
Accumulated other comprehensive loss……..…………………..….……....
269
3,295
2,450
2,986
3,655
1,958
---
---
5,295
6,399
35,658
(6,673)
5,281
6,352
29,828
(4,683)
Total shareholders’ equity……..…………………………..………….
40,679
36,778
Total liabilities and shareholders’ equity…..…………..……….…. $
60,149
$
60,889
See notes to consolidated financial statements.
22
SIFCO Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in thousands)
Years Ended September 30,
2008
2007
2006
Cash flows from operating activities:
Net income……...….……………………………….……..……………………. $
Loss (income) from discontinued operations, net of tax………………………..
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation and amortization…………………….………….........................
Loss (gain) on disposal of property, plant and equipment………………........
Deferred income taxes………………………………………………………...
Share transactions under employee stock plan…………….............................
Asset impairment charges…………………………………….........................
Changes in operating assets and liabilities:
Receivables…………………………………………………………………
Inventories………………………………………………………………….
Refundable income taxes…………..……………………………………….
Prepaid expenses and other current assets………………………………….
Other assets……………………………………………………………........
Accounts payable…………………………………………...........................
Accrued liabilities…………………………………………………………..
Other long-term liabilities………………………………………………….
5,830
(287)
$
6,728
2,044
$
960
(1,009)
1,483
1
1,184
60
757
(58)
5,124
(1,311)
(110)
(184)
(650)
(705)
(1,337)
1,447
(141)
1,208
88
---
(3,512)
(9,197)
8
11
888
(148)
371
(915)
1,407
(1,061)
34
139
289
(2,946)
(279)
---
79
3
2,408
204
(792)
Net cash provided by (used for) operating activities of continuing
operations………………………………………………………...
Net cash used for operating activities of discontinued operations…...
9,797
(62)
(1,120)
(3,248)
(564)
(1,317)
Cash flows from investing activities:
Capital expenditures……………………………………......................................
Proceeds from disposal of property, plant and equipment……………………....
Acquisition of business………………………………………………………….
Other………………………………………………………..................................
Net cash used for investing activities of continuing operations……...
Net cash provided by investing activities of discontinued operations..
Cash flows from financing activities:
Proceeds from revolving credit agreement……………………………………...
Repayments of revolving credit agreement……………………………………..
Proceeds from other indebtedness..……………………………………………...
Repayments of long-term debt……………………………..................................
Repayments of capital lease obligations……………...........................................
Net cash provided by (used for) financing activities of continuing
operations………………………………………………………...
Net cash used for financing activities of discontinued operations……
Increase in cash and cash equivalents…………………..…………………………..
Cash and cash equivalents at beginning of year……………………………………
Effect of exchange rate changes on cash and cash equivalents…………………….
(2,012)
1
---
---
(2,011)
---
21,029
(23,629)
---
---
(109)
(2,709)
---
5,015
5,510
(85)
(874)
63
---
118
(693)
3,228
32,091
(29,908)
180
(236)
(75)
2,052
---
219
4,744
547
(1,141)
1,150
(434)
139
(286)
7,533
18,416
(17,999)
287
(297)
---
407
(1,913)
3,860
884
---
Cash and cash equivalents at end of year……….....………………
$
10,440
$
5,510
$
4,744
Supplemental disclosure of cash flow information:
Cash paid for interest……………………………………………………………
Cash paid for income taxes, net…………………………………………………
$
$
(172) $
(3,598) $
(107) $
(635) $
(131)
(523)
See notes to consolidated financial statements.
23
SIFCO Industries, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
(Amounts in thousands)
Common
Shares
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Unearned
Compensation
Common
Shares
Held in
Treasury
Total
Shareholders’
Equity
Balance – September 30, 2005
$ 5,228
$ 6,282 $ 22,140
$ (11,149) $ (60) $ (43)
$ 22,398
Comprehensive income:
Net income……………………….……….
Foreign currency translation adjustment….
Currency exchange contract adjustment….
Minimum pension liability adjustment, net
of tax…..................................................
Total comprehensive income.……..
---
---
---
---
---
---
960
---
---
---
75
288
---
---
---
---
---
---
960
75
288
---
---
---
1,324
---
---
1,324
2,747
Stock option expense…………………………....
Share transactions under employee stock plans...
---
(6)
78
(37)
---
---
---
---
---
60
---
43
78
60
Balance – September 30, 2006
$ 5,222 $ 6,323 $ 23,100 $ (9,462)
$ --- $ ---
$ 25,183
Comprehensive income:
Net income………………………………...
Foreign currency translation adjustment…..
Minimum pension liability adjustment, net
of tax…..................................................
Total comprehensive income.……..
Adjustment to initially apply SFAS No. 158,
net of tax as of September 30, 2007…………
Stock option expense…………………………....
Share transactions under employee stock plans...
---
---
---
---
6,728
---
---
2,285
---
---
---
---
6,728
2,285
---
---
---
2,819
---
---
2,819
11,832
---
---
59
---
32
(3)
---
---
---
(325)
---
---
---
---
---
---
---
---
(325)
32
56
Balance – September 30, 2007
$ 5,281 $ 6,352 $ 29,828 $ (4,683)
$ --- $ ---
$ 36,778
Comprehensive income:
Net income………………………………...
Foreign currency translation adjustment…..
Pension liability adjustment, net of tax…....
Total comprehensive income.……..
---
---
---
---
---
---
5,830
---
---
---
(500)
(1,490)
---
---
---
---
---
---
5,830
(500)
(1,490)
3,840
50
11
Stock option and performance share expense…...
Share transactions under employee stock plans....
---
14
50
(3)
---
---
---
---
---
---
---
---
Balance – September 30, 2008
$ 5,295
$ 6,399 $ 35,658
$ (6,673)
$ --- $ ---
$ 40,679
See notes to consolidated financial statements.
24
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended September 30, 2008, 2007 and 2006
(Dollars in thousands, except share and per share data)
1. Summary of Significant Accounting Policies
A. DESCRIPTION OF BUSINESS
SIFCO Industries, Inc. and Subsidiaries (the “Company”) are 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 and services include forging, heat-treating, coating, welding, machining and selective electrochemical
finishing; and the products include forged components, machined forged parts and other machined metal parts,
remanufactured components for turbine engines, and selective electrochemical finishing solutions and equipment. The
Company’s operations are conducted in three business segments: (1) Aerospace Component Manufacturing Group, (2)
Turbine Component Services and Repair Group and (3) Applied Surface Concepts Group.
B. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been eliminated. The U.S. dollar is the
functional currency for all the Company’s U.S. operations. For these operations, all gains and losses from completed
currency transactions are included in income currently. Effective October 1, 2006, the functional currency of the Irish
subsidiary is the euro because a substantial majority of the subsidiary’s transactions subsequent to September 30, 2006 are
denominated in euros. Prior to October 1, 2006, the functional currency of the Irish subsidiary was the U.S. dollar because a
substantial majority of the subsidiary’s transactions prior to October 1, 2006 were denominated in U.S. dollars. For the
Company’s other non-U.S. subsidiaries, the functional currency is the local currency. Assets and liabilities are translated
into U.S. dollars at the rates of exchange at the end of the period, and revenues and expenses are translated using average
rates of exchange. Foreign currency translation adjustments are reported as a component of accumulated other
comprehensive loss in the consolidated statements of shareholders’ equity.
C. CASH EQUIVALENTS
The Company considers all highly liquid short-term investments with original maturities of three months or less to be cash
equivalents.
D. CONCENTRATIONS OF CREDIT RISK
Receivables are presented net of allowance for doubtful accounts of $583 and $603 at September 30, 2008 and 2007
respectively. During fiscal 2008 and 2007, $257 and $214 of accounts receivable were written off against the allowance for
doubtful accounts, respectively. Bad debt expense totaled $254, $147 and $121 in fiscal 2008, 2007 and 2006, respectively.
Most of the Company’s receivables represent trade receivables due from manufacturers of turbine engines and aircraft
components and turbine engine overhaul companies located throughout the world, including a significant concentration of
U.S. based companies. Approximately 42% of the Company’s net sales in 2008 were to four (4) of its largest customers,
with an additional 12% of combined net sales to various direct subcontractors to those four (4) customers. No other single
group or customer represents greater than 5% of total net sales in 2008. The Company performs ongoing credit evaluations
of its customers’ financial conditions. The Company believes its allowance for doubtful accounts is sufficient based on the
credit exposures outstanding at September 30, 2008.
E. INVENTORY VALUATION
Inventories are stated at the lower of cost or market. Cost is determined by the Company’s ACM Group using the last-in,
first-out (“LIFO”) method for approximately 76% and 80% of the Company’s inventories at September 30, 2008 and 2007,
respectively. Cost is determined using the specific identification method for approximately 8% and 7% of the Company’s
inventories at September 30, 2008 and 2007, respectively. The first-in, first-out (“FIFO”) method is used to value the
remainder of the Company’s inventories.
The Company maintains allowances for obsolete and excess inventory. The Company evaluates its allowances for obsolete
and excess inventory each quarter. Each business segment maintains formal policies, which require at a minimum that
reserves be established based on an analysis of the age of the inventory. In addition, if the Company learns of specific
obsolescence, other than that identified by the aging criteria, an additional reserve will be recognized as well. Specific
obsolescence may arise due to a technological or market change, or based on cancellation of an order.
25
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
F. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is generally computed using the straight-line and the double
declining balance methods. Depreciation is provided in amounts sufficient to amortize the cost of the assets over their
estimated useful lives. Depreciation provisions are based on estimated useful lives: (i) buildings, including building
improvements - 5 to 50 years and (ii) machinery and equipment, including office and computer equipment - 3 to 20 years.
The Company reviews the carrying value of its long-lived assets, including property, plant and equipment, at least annually
or when events and circumstances warrant such a review. This review is performed using estimates of future undiscounted
cash flows, which include proceeds from disposal of assets. If the carrying value of a long-lived asset is greater than the
estimated undiscounted future cash flows, and if such excess carrying value is determined to be permanent, then the long-
lived asset is considered impaired and an impairment charge is recorded for the amount by which the carrying value of the
long-lived asset exceeds its fair value. Asset impairment charges of $757 were recorded in the fourth quarter of fiscal 2008
related to certain machinery and equipment of the Company’s ACM Group. The machinery and equipment was determined
to be permanently impaired and, therefore, the carrying value of such assets was reduced to its net realizable value.
G. NET INCOME PER SHARE
The Company’s net income per basic share has been computed based on the weighted-average number of common shares
outstanding. Net income per diluted share reflects the effect of the Company’s outstanding stock options under the treasury
stock method. However, during periods of operating losses, outstanding stock options are not included in the calculation of
net loss per diluted share because such inclusion would be anti-dilutive.
H. REVENUE RECOGNITION
The Company recognizes revenue in accordance with the relevant portions of the Securities and Exchange Commission’s
Staff Accounting Bulletins No. 101, “Revenue Recognition in Financial Statements” and No. 104, “Revenue Recognition”.
Revenue is generally recognized when products are shipped or services are provided to customers.
I. IMPACT OF RECENTLY ADOPTED ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 (“FIN 48”),
“Accounting for Uncertainty in Income Taxes” – an interpretation of FASB Statement No. 109, “Accounting for Income
Taxes”. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and
provides guidance on the recognition, derecognition, and measurement of benefits related to an entity’s uncertain tax
position(s). FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 in fiscal 2008
did not have a material impact on the Company’s financial position, cash flows and results of operations. As such, the
Company has not recorded any liabilities for uncertain tax positions or any related interest and penalties. If the Company
had recorded any such liabilities or any related interest and penalties, it would have classified the interest on uncertain tax
benefits as interest expense and income tax penalties as selling, general and administrative expenses.
J. IMPACT OF NEWLY ISSUED ACCOUNTING STANDARDS
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (“SFAS No. 161”), “Disclosure
about Derivative Instruments and Hedging Activities —an amendment of SFAS No. 133”. The objective of this Statement
is to enhance disclosures about an entity’s derivative and hedging activities and thereby improve the transparency of
financial reporting. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related
interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial
performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. The Company currently has no hedging arrangements in place.
In December 2007, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 110. This
guidance continues to allow companies, in certain circumstances, to utilize a simplified method in determining the expected
term of stock option grants when calculating the compensation expense to be recorded under SFAS No. 123(R), “Share-
Based Payment”. The simplified method can be used after December 31, 2007 only if a company’s stock option exercise
experience does not provide a reasonable basis upon which to estimate the expected option term. Because the Company’s
stock option exercise experience does not provide a reasonable basis upon which to estimate the expected option term, the
Company will continue to use the simplified method in determining the expected term of the stock options granted to date.
26
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements—an
amendment of ARB No. 51”. The objective of this Statement is to improve the relevance, comparability, and transparency
of the financial information that a reporting entity provides in its consolidated financial statements by establishing
accounting and reporting standards that require expanded disclosure related to the ownership interests in subsidiaries held
by parties other than the parent. Such ownership interest(s) shall be clearly identified, labeled, and presented in the
consolidated financial statement and shall provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. This Statement applies to all for-profit entities that
prepare consolidated financial statements, but will affect only those entities that have an outstanding non-controlling
interest in one or more subsidiaries or that deconsolidate a subsidiary. This Statement is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2008. At present, he Company has no non-
controlling ownership in any of its subsidiaries.
In December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS No. 141R), “Business Combinations”. The
objective of this Statement is to improve the relevance, representational faithfulness, and comparability of the information
that a reporting entity (the acquirer) provides in its financial reports about a business combination and its effects. To
accomplish that, this Statement establishes principles and requirements for how the acquirer (i) recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the
acquired entity (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain
purchase and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. This Statement applies to all transactions or other events in which an
entity obtains control of one or more businesses. This Statement applies to all business entities, but does not apply to (i) the
formation of a joint venture, (ii) the acquisition of an asset or a group of assets that does not constitute a business, (iii) a
combination between entities or businesses under common control, or (iv) a combination between not-for-profit
organizations or the acquisition of a for-profit business by a not-for-profit organization. This Statement applies
prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.
K. USE OF ESTIMATES
Accounting principles generally accepted in the United States require management to make a number of estimates and
assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent liabilities, at the date
of the consolidated financial statements, and the reported amounts of revenues and expenses during the period in preparing
these financial statements. Actual results could differ from those estimates.
L. DERIVATIVE FINANCIAL INSTRUMENTS
The Company has from time-to-time utilized foreign currency exchange contracts as part of the management of its foreign
currency risk exposure. The Company has no financial instruments held for trading purposes. All financial instruments are
put into place to hedge specific exposure. To qualify as a hedge, the item to be hedged must expose the Company to
foreign currency risk and the hedging instrument must effectively reduce that risk. If the financial instrument is designated
as a cash flow hedge, the effective portions of changes in the fair value of the financial instrument are recorded in
accumulated other comprehensive loss in the shareholders’ equity section of the consolidated balance sheets. Ineffective
portions of changes in the fair value of the financial instrument, to the extent they may exist, are recognized in the
consolidated statements of operations.
Historically, the Company has been able to mitigate the impact of foreign currency risk by means of hedging such risk
through the use of foreign currency exchange contracts, which typically expire within one year. However, such risk is
mitigated only for the periods for which the Company has foreign currency exchange contracts in effect, and only to the
extent of the U.S. dollar amounts of such contracts. At September 30, 2008 and 2007, the Company had no forward
exchange contracts outstanding.
M. RESEARCH AND DEVELOPMENT
Research and development costs from continuing operations are expensed as incurred. Research and development expense
from continuing operations was approximately $672, $880 and $622 in fiscal 2008, 2007 and 2006, respectively.
27
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
N. ACCUMULATED OTHER COMPREHENSIVE LOSS
Comprehensive income is included on the Consolidated Statements of Shareholders’ Equity. The components of
accumulated other comprehensive loss as shown on the Consolidated Balance Sheets at September 30 are as follows:
2008
2007
2006
Foreign currency translation adjustment…………... $
SFAS No. 158 net pension liability, net of tax…….
Minimum pension liability adjustment, net of tax…
(4,858)
(1,815)
---
$
(4,358)
(325)
---
$
(6,643)
---
(2,819)
Total accumulated other comprehensive loss…..
$
(6,673)
$
(4,683)
$
(9,462)
O. RECLASSIFICATIONS
Certain amounts in prior years may have been reclassified to conform to the 2008 consolidated financial statement
presentation.
2. Inventories
Inventories at September 30 consist of:
Raw materials and supplies……….………..…….
Work-in-process………………….………………
Finished goods………………………………...…
$
2008
3,792
5,574
2,364
$
2007
7,579
6,433
2,885
Total inventories……...………….….….…. $
11,730
$
16,897
If the FIFO method had been used for the entire Company, inventories would have been $8,903 and $7,191 higher than
reported at September 30, 2008 and 2007, respectively.
3. Accrued Liabilities
Accrued liabilities at September 30 consist of:
2008
2007
Accrued employee compensation and benefits….…..
Accrued workers’ compensation………..…………...
Accrued income taxes…………………..…….….…..
Accrued utilities……………………………………..
Accrued royalties…………………………………….
Accrued legal and professional……………….……...
Other accrued liabilities…………………..…….…....
$
1,836
1,107
221
388
162
331
1,007
$
2,199
1,190
358
306
394
252
991
Total accrued liabilities………………….…....
$
5,052
$
5,690
4. Government Grants
The Company received grants from certain government entities as an incentive to invest in facilities, research and
employees. The Company has historically elected to treat capital and employment grants as a contingent obligation and
does not commence amortizing such grants into income until such time that it is more certain that the Company will not be
required to repay a portion of these grants. Capital grants are amortized into income over the estimated useful lives of the
related assets. Employment grants are amortized into income over five years.
Certain grants that were subject to repayment expired during fiscal 2007. Therefore, the Company will not be required to
repay such grants and, accordingly, the Company recognized grant income of $2,143 in income (loss) from discontinued
operations, net of tax, during fiscal 2007 in the accompanying consolidated statement of operations.
28
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
The unamortized portion of deferred grant revenue is recorded in other long-term liabilities at September 30, 2008 and
September 30, 2007, which amounted to $442 and $421, respectively. The majority of the Company’s grants are
denominated in euros. The Company adjusts its deferred grant revenue balance in response to currency exchange rate
fluctuations for as long as such grants are treated as obligations.
5. Long-Term Debt
Long-term debt at September 30 consists of:
Revolving credit agreement…..…………………..…………….
Capital lease obligations...…..……………………..……...........
Other………………………………………………………..…..
$
Less – current maturities………………………………..………
$
2008
---
354
9
363
94
2007
2,600
463
10
3,073
87
Total long-term debt………..………………..…………..
$
269
$
2,986
At September 30, 2008, the Company had an $8,000 revolving credit agreement with a bank subject to sufficiency of
collateral that expires on July 1, 2009 and bears interest at the bank’s base rate. The interest rate was 5.00% and 8.25% at
September 30, 2008 and 2007, respectively. The daily average balance outstanding against the revolving credit agreement
was $1,406 and $1,363 during 2008 and 2007, respectively. A commitment fee of 0.35% is incurred on the unused balance.
At September 30, 2008, the Company had $7,955 available under its $8,000 revolving credit agreement. The Company’s
revolving credit agreement is secured by substantially all of the Company’s assets located in the United States of America
and a guarantee by its U.S. subsidiaries.
In December 2008, the Company entered into an agreement with its bank to extend the maturity date of its revolving credit
agreement from July 1, 2009 to October 1, 2010.
Under its revolving credit agreement with the bank, the Company is subject to certain customary covenants. These include,
without limitation, covenants (as defined) that require maintenance of certain specified financial ratios, including a
minimum tangible net worth level and a minimum EBITDA level. The Company was in compliance with all applicable
covenants at September 30, 2008.
6. Income Taxes
The components of income (loss) from continuing operations before income tax provision are as follows:
Years Ended September 30,
2008
2007
2006
U.S…………….…….………….………………..……….… $
Non-U.S…………….……………………………...……..…
8,282
538
$
9,876
379
$
155
(190)
Income (loss) from continuing operations before
income tax provision………….................................
$
8,820
$
10,255
$
(35)
29
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
The income tax provision consists of the following:
Current income tax provision:
U.S. federal …….…...………………………………..…. $
U.S. state and local………………………………………
Non-U.S…...………………………………….………….
Total current tax provision………...………………….
Deferred income tax provision (benefit):
U.S. federal………………………………………………
U.S. state and local………………………………………
Non-U.S………………………………………………….
Total deferred tax provision………………..................
Years Ended September 30,
2008
2007
2006
1,550
336
210
2,096
1,066
163
(48)
1,181
$
95
115
65
275
$
---
---
14
14
1,276
(83)
15
1,208
---
---
---
---
Income tax provision……………………….…... $
3,277
$
1,483
$
14
The income tax provision differs from amounts currently payable or refundable due to certain items reported for financial
statement purposes in periods that differ from those in which they are reported for tax purposes. The income tax provision
in the accompanying consolidated statements of operations differs from amounts determined by using the statutory rate as
follows:
Years Ended September 30,
2007
2008
2006
Income (loss) from continuing operations before income
tax provision…...………………………………………….....
Less-U.S. state and local income tax provision………..……...
Income (loss) from continuing operations before U.S. and
non-U.S. income tax provision…………………………
$
$
Income tax provision (benefit) at U.S. federal statutory rate…. $
Tax effect of:
Business expenses not deductible for tax…………………...
Recognition of excess tax basis of assets…...………………
Undistributed earnings of non-U.S. subsidiaries……………
Reversal of deferred tax valuation allowance………………
State and local income taxes………………………………...
Other…………………………….….……………………….
$
$
$
8,820
499
8,321
2,829
27
---
11
---
499
(89)
$
$
$
10,255
32
10,223
3,476
265
(704)
1,837
(2,999)
32
(424)
Income tax provision………………………………….. $
3,277
$
1,483
$
(35)
---
(35)
(12)
---
---
---
---
---
26
14
30
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
Deferred tax assets and liabilities at September 30 consist of the following:
Deferred tax assets:
Net U.S. operating loss carryforwards…….……………….…....…
Net non-U.S. operating loss carryforwards………………….……..
Employee benefits…………………………………………….……
Inventory reserves………………….…………….……………..….
Asset impairment reserve…………………………………………..
Allowance for doubtful accounts…………………...………………
Foreign tax credits…………………………………..……………...
Net state operating loss carry forwards…………………………….
Alternative minimum tax credit carry forwards……………………
Other……………………………………………………………….
$
Total deferred tax assets…………………………..…………
2008
2007
$
---
622
433
621
366
136
2,822
9
---
77
5,086
290
575
---
926
122
154
2,667
110
290
148
5,282
Deferred tax liabilities:
Depreciation……………………………………………….………..
Unremitted foreign earnings……………………………….……….
Employee benefits…………………………………………………..
(1,819)
(4,541)
---
(1,561)
(4,136)
(301)
Total deferred tax liabilities…………………………………
(6,360)
(5,998)
Net deferred tax liabilities………………………………….………….
Valuation allowance…………………………………………………...
(1,274)
(480)
(716)
(516)
Net deferred tax liabilities…………………………………...
$
(1,754)
$
(1,232)
At September 30, 2008 the Company has U.S. state as well as non-U.S. tax loss carryforwards of approximately $95 and
$5,869, respectively. The non-U.S. tax loss carryforwards do not expire.
During fiscal 2007, the Company recorded a decrease of $4,092 in the valuation allowance against its net deferred tax
assets. In assessing the Company’s ability to realize its net deferred tax assets, management considers whether it is more
likely than not that some portion or all of its net deferred tax assets may not be realized. Management considered the
scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this
assessment. Future reversal of the remaining valuation allowance may be achieved either when the tax benefit is realized or
when it has been determined that it is more likely than not that the benefit will be realized through future taxable income.
$2,999 of the valuation allowance reversal was recognized in the Company’s fiscal 2007 income tax provision. $958 of the
valuation allowance reversal related to the Company’s pension liabilities and, therefore, was recognized through other
comprehensive income. The Company’s discontinued operations recognized $36 and $135 reductions of the valuation
allowance against its net deferred tax assets in fiscal years 2008 and 2007, respectively.
Cumulative undistributed earnings of non-U.S. subsidiaries for which no U.S. deferred federal income tax liabilities have
been established were approximately $2,140 at September 30, 2008. The incremental U.S. federal income tax related to
any repatriation of these cumulative foreign earnings is indeterminable currently. The incremental foreign withholding
taxes associated with a repatriation of all such earnings would approximate $56.
The Company is subject to income taxes in the U.S. federal jurisdiction, and various state, local and non-U.S. jurisdictions.
The Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations for the years prior
to fiscal year 2002.
31
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
7. Retirement Benefit Plans
The Company and certain of its subsidiaries sponsor defined benefit pension plans covering most of its employees. The
Company’s funding policy for U.S. defined benefit pension plans is based on an actuarially determined cost method
allowable under Internal Revenue Service regulations. Prior to August 1, 2006, non-U.S. defined benefit pension plans
were funded in accordance with the requirements of regulatory bodies governing the plans. One of the Company’s U.S.
defined benefit pension plans, which plan covers substantially all non-union employees of the Company’s U.S. operations
who were hired prior to March 1, 2003, was frozen in 2003. Consequently, although the plan otherwise continues, the plan
ceased the accrual of additional pension benefits for service subsequent to March 1, 2003.
In 2006, the Company’s Irish subsidiary advised the trustees of its two non-U.S. defined benefit pension plans that the
Company would cease making contributions to such plans effective August 1, 2006. The trustees subsequently advised the
Company that the trustees would wind-up both defined benefit pension plans during fiscal 2007. As of September 30, 2008,
the trustees have advised the Company that the wind-up process for both such plans is complete with no further obligation
on the part of the Company or its Irish subsidiary. For financial reporting purposes, the Company’s actions with respect to
these two non-U.S. plans resulted in (i) the curtailment of both plans in fiscal 2006, (ii) no net curtailment gain or loss
being recognized in the accompanying consolidated statement of operations for fiscal 2006, and (iii) all required settlement
distributions being made to plan participants as of September 30, 2008.
The Company uses a July 1 measurement date for its U.S. defined benefit pension plans. For 2008 and 2007, the
Company’s defined benefit plans had accumulated benefit obligations of $16,282 and $18,789. Net pension expense for the
Company-sponsored defined benefit pension plans consists of the following:
Years Ended September 30,
2008
2007
2006
Service cost………………………………………..…………... $
Interest cost…………………………………….……….……...
Expected return on plan assets………………….……………..
Amortization of prior service cost…………….…….…………
Amortization of net (gain) loss……………………...…………
$
242
951
(1,430)
132
(71)
280
990
(1,195)
132
105
$
945
1,463
(1,616)
132
(51)
Net pension expense (income) for defined benefit plan…... $
(176)
$
312
$
873
The status of all U.S. and non-U.S. defined benefit pension plans at September 30 is as follows:
Benefit obligations:
Benefit obligations at beginning of year………………...….……. $
Service cost……………………………..……….………………..
Interest cost…………………………..…………….……………..
Actuarial (gain) loss………………..…………….………….……
Benefits paid………………………..………….………………....
Plan terminations………………………………………………....
Currency translation adjustments..…..…………..……………….
2008
2007
18,789
242
951
(115)
(441)
(3,141)
(3)
$
27,031
280
990
(1,478)
(621)
(8,177)
764
Benefit obligations at end of year……..……..……………. $
16,282
$
18,789
Plan assets:
Plan assets at beginning of year………..……..………………….. $
Actual return on plan assets….………..………….……………....
Employer contributions………………..………..………………..
Benefits paid…………………………..……….….……………...
Plan terminations………………………………………………....
Currency translation adjustments………..…….…………………
19,899
(1,174)
1,564
(441)
(3,141)
(3)
$
24,905
2,046
982
(621)
(8,177)
764
Plan assets at end of year………..…….…………………... $
16,704
$
19,899
32
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
Reconciliation of Funded Status:
Plan assets in excess of (less than) projected benefit obligations... $
Amounts recognized in accumulated other comprehensive loss:
Plans in which
Assets Exceed Benefit
Obligations at
September 30,
2008
2007
Plans in which
Benefit Obligations
Exceed Assets at
September 30,
2008
2007
2,014
$
2,330
$
(1,592)
$
(1,220)
Net loss (gain)………………………………………………...
Prior service cost……………………………………………...
Contribution between measurement date and fiscal year-end…….
(1,070)
340
---
(1,571)
433
---
3,544
106
---
1,484
145
205
Net amount recognized in the consolidated balance sheets.….
$
1,284
$
1,192
$
2,058
$
614
Amounts recognized in the Consolidated Balance Sheets are:
Other assets…………………………………………………………. $
Other long-term liabilities………………………...…………………
Accumulated other comprehensive loss – pretax…..…………..…...
2,014
---
(730)
$
2,330
---
(1,138)
$
---
(1,592)
3,650
$
---
(1,016)
1,630
Net amount recognized in the consolidated balance sheets.…… $
1,284
$
1,192
$
2,058
$
614
As of September 30, 2007, the Company adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)” and the related requirement
to recognize the funded status of its defined benefit pension plans as an asset or liability in the consolidated balance sheet.
The adoption resulted in (i) an increase of $1,138 to other assets, (ii) an increase of $1,630 to other long-term liabilities,
(iii) an increase of $167 to deferred tax assets and (iv) an increase of $325 to accumulated other comprehensive loss.
The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic
benefit costs during 2009 are as follows:
Plans in which
Assets Exceed
Benefit
Obligations
Plans in which
Benefit
Obligations
Exceed Assets
Net loss (gain)……………………………………………...... $
Prior service cost…………………..……….………………..
(99)
93
Total……………..……….………………………………... $
(6)
$
$
150
40
190
Where applicable, the following weighted-average assumptions were used in developing the benefit obligation and the net
pension expense for defined benefit pension plans:
Discount rate for liabilities……………………………………...
Discount rate for expenses……………………………………...
Expected return on assets………….……….…………………...
Rate of compensation increase……………….…………………
6.7%
6.3%
8.7%
---
6.3%
6.3%
8.2%
---
6.3%
5.5%
7.2%
1.0%
Years Ended September 30,
2008
2006
2007
33
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
The following table sets forth the asset allocation of the Company’s defined benefit pension plan assets:
September 30, 2008
Equity securities………
Debt securities………...
Other securities……….
$
Asset
Amount
10,612
5,893
199
% Asset
Allocation
64%
35%
1%
September 30, 2007
% Asset
Allocation
54%
30%
16%
Asset
Amount
10,659
5,928
3,312
$
Total…………………
$
16,704
100%
$
19,899
100%
Investment objectives of the Company’s defined benefit plans’ assets are to (i) optimize the long-term return on the plans’
assets while assuming an acceptable level of investment risk, (ii) maintain an appropriate diversification across asset classes
and among investment managers, and (iii) maintain a careful monitoring of the risk level within each asset class. Asset
allocation objectives are established to promote optimal expected returns and volatility characteristics given the long-term
time horizon for fulfilling the obligations of the Company’s defined benefit pension plans. Selection of the appropriate
asset allocation for the plans’ assets was based upon a review of the expected return and risk characteristics of each asset
class.
External consultants assist the Company with monitoring the appropriateness of the investment strategy and the related
asset mix and performance. To develop the expected long-term rate of return assumptions on plan assets, generally the
Company uses long-term historical information for the target asset mix selected. Adjustments are made to the expected
long-term rate of return assumptions when deemed necessary based upon revised expectations of future investment
performance of the overall investments markets.
The Company expects to make contributions of $353 to its defined benefit pension plans during fiscal 2009. The following
benefit payment amounts are expected to be paid in the future:
Years Ending
September 30,
Projected
Benefit
Payments
$
2009…………………………….
2010…………………………….
2011…………………………….
2012…………………………….
2013…………………………….
2014-2018………………………
1,088
775
876
955
1,535
6,257
The Company also contributes to a U.S. multi-employer retirement plan for certain union employees. The Company’s
contributions to the plan in 2008, 2007 and 2006 were $44, $43 and $48, respectively.
Substantially all non-union U.S. employees of the Company and its U.S. subsidiaries are eligible to participate in the
Company’s U.S. defined contribution plan. The Company makes non-discretionary, regular matching contributions to this
plan equal to an amount that represents up to 5% of eligible participant compensation. The Company’s regular matching
contribution expense for this defined contribution plan in 2008, 2007 and 2006 was $273, $229 and $221, respectively. This
defined contribution plan provides that the Company may also make an additional discretionary matching contribution
during those periods in which the Company achieves certain performance levels. The Company’s additional discretionary
matching contribution expense in 2008, 2007 and 2006 was $211, $158 and $0, respectively.
The Company’s United Kingdom subsidiary sponsors a defined contribution plan for certain of its employees. The
Company contributes annually 5% of eligible employees’ compensation, as defined. Total contribution expense in 2008,
2007 and 2006 was $19, $24 and $31, respectively.
The Company’s Swedish subsidiary sponsors three defined contribution plans for its employees. The Company contributes
annually a percentage of eligible employees’ compensation, as defined. Total contribution expense in 2008, 2007 and 2006
was $24, $21 and $24, respectively.
34
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
8. Stock-Based Compensation
The Company awarded stock options under its shareholder approved 1995 Stock Option Plan (“1995 Plan”) and 1998
Long-term Incentive Plan (“1998 Plan”). Under the 1995 Plan, the initial aggregate number of stock options that were
available to be granted was 200,000. The aggregate number of stock options that were available to be granted under the
1998 Plan in any fiscal year was limited to 1.5% of the total outstanding common shares of the Company as of September
30, 1998, up to a maximum of 5% of such total outstanding shares, subject to adjustment for forfeitures. At September 30,
2008, no further options may be awarded under either the 1995 Plan or the 1998 Plan. Option exercise price is not less than
fair market value on date of grant and options are exercisable no later than ten years from date of grant. Options issued
under all plans generally vest at a rate of 25% per year.
Option activity is as follows:
Years Ended September 30,
2007
2008
2006
Options at beginning of year………………………….………...
Weighted average exercise price…………………………….
Options exercised during the year……………………………...
Weighted average exercise price………………………….....
Options canceled during the year……………………….………
Weighted average exercise price…………………………….
Options at end of year…………………………………………..
Weighted average exercise price…………………………….
Options exercisable at end of year……………………………...
Weighted average exercise price…………………………….
110,500
$ 4.46
(17,250)
$ 3.69
---
$ ---
93,250
$ 4.60
86,750
$ 4.67
261,000
$ 6.55
(113,000)
$ 8.91
(37,500)
$ 5.59
110,500
$ 4.46
92,500
$ 4.61
278,000
$ 6.40
---
$ ---
(17,000)
$ 4.14
261,000
$ 6.55
205,750
$ 7.32
As of September 30, 2008 and 2007, there was $4 and $18, respectively, of total unrecognized compensation cost related to
the unvested stock options granted under the Company’s stock option plans. That cost is expected to be recognized over a
weighted average period of less than one year as of September 30, 2008.
The following table provides additional information regarding options outstanding as of September 30, 2008:
Option
Exercise Price
Options
Outstanding
Options
Exercisable
Options Vested or
Expected to Vest
$ 3.50
$ 3.74
$ 4.69
$ 5.50
$ 6.81
$ 6.94
Total
20,000
23,750
15,000
27,000
5,000
2,500
20,000
17,250
15,000
27,000
5,000
2,500
93,250
86,750
20,000
23,750
15,000
27,000
5,000
2,500
93,250
Weighted average
remaining term………….
Aggregate intrinsic value..
4.2 years
$ 320
4.0 years
$ 291
4.2 years
$ 320
35
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
On October 1, 2005, the Company adopted SFAS No. 123R (revised 2004), “Share-Based Payment”. This Statement
focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment
transactions. SFAS No. 123R (revised 2004) requires all equity instrument-based payments to employees, including grants
of employee stock options, to be recognized in the income statement based on their fair values. The Company adopted this
statement using the modified prospective method and, accordingly, prior period results have not been restated. Under this
method, the Company is required to record compensation expense for all equity instrument-based awards granted after the
date of adoption and for the unvested portion of previously granted equity instrument-based awards that remain outstanding
at the date of adoption. Total compensation expense recognized in fiscal years 2008, 2007 and 2006 was $12, $32 and $78,
respectively. No tax benefit was recognized for this compensation expense.
In the first quarter of fiscal 2008, the Company adopted the SIFCO Industries, Inc. 2007 Long-Term Incentive Plan (“2007
Plan”), which plan was approved by the Company’s shareholders at its 2008 Annual Meeting on January 29, 2008. The
aggregate number of shares that may be awarded under the 2007 Plan is 250,000, subject to an adjustment for the forfeiture
of any issued shares. In addition, shares that may be awarded are subject to individual award limitations. The shares
awarded under the 2007 Plan may be made in multiple forms including stock options, stock appreciation rights, restricted or
unrestricted stock, and performance related shares. Any such awards are exercisable no later than ten years from date of
grant.
In the second quarter of fiscal 2008, the Company granted performance shares under the 2007 Plan. The performance
shares awarded in fiscal 2008 provide for the issuance of the Company’s common shares upon the Company achieving
certain defined financial performance objectives during a three year award period ending September 30, 2010. The ultimate
number of common shares of the Company that may be earned pursuant to an award will range from a minimum of no
shares to a maximum of 150% of the initial number of performance shares awarded, depending on the Company’s
achievement of its financial performance objectives. Compensation expense for the performance shares awarded during
fiscal 2008 is being accrued at 50% of the target level and, during each future reporting period, such expense may be
subject to adjustment based upon the Company’s subsequent estimate of the number of common shares that it expects to
issue upon the completion of the performance period. The performance shares were valued at the closing market price of
the Company’s common shares on the date of grant, and the vesting of such shares is determined at the end of the
performance period. In fiscal 2008, compensation expense related to the performance shares awarded under the 2007 Plan
was $38. As of September 30, 2008, there was $153 of total unrecognized compensation cost related to the performance
shares awarded under the 2007 Plan. The Company expects to recognize this cost over the next 2.0 years.
The following is a summary of activity related to performance shares:
Outstanding at September 30, 2007…………………………………
Performance shares awarded…………………..................................
Number of
Shares
---
35,000
Outstanding at September 30, 2008…………………………………
35,000
9. Asset Divestiture
Weighted
Average Fair
Value at Date
of Grant
---
10.94
10.94
$
$
In June, 2007, the Company and its Irish subsidiary, SIFCO Turbine Components Limited (“SIFCO Turbine”), completed
the sale of its industrial turbine engine component repair business to PAS Technologies Inc. The industrial turbine engine
component repair business operated in SIFCO Turbine’s Cork, Ireland facility. Net cash proceeds from the sale of the
business and certain related assets, after approximately $300 of third party transaction charges, were approximately $4,400.
The assets that were sold had a net book value of approximately $4,700 (accounts receivable, $2,100; inventory, $400; and
machinery and equipment, $2,200). The Company’s Repair Group recognized a loss of approximately $800 on disposal of
these assets in 2007, which loss is included in income (loss) from discontinued operations, net of tax. Upon completion of
this transaction, the Company no longer maintains a turbine engine component repair operation in Ireland. SIFCO Turbine
retained ownership of the Cork, Ireland facility (subject to a long-term lease arrangement with PAS Technologies Ireland
(“PAS”)) and substantially all existing liabilities of the business. The long-term lease agreement that the Company entered
into with PAS included below market lease rates during the initial five-year term of the lease and, accordingly, the
36
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
Company recorded a loss of approximately $500 associated with such below market lease. Such loss is included in the
aforementioned $800 loss on disposal of assets. The Company agreed to guarantee the performance by SIFCO Turbine of
all of its obligations under the applicable business purchase agreement. At September 30, 2008 and 2007, assets held for
sale in the Consolidated Balance Sheets consist of SIFCO Turbine’s Cork Ireland facility. The Company expects to dispose
of this asset within the next 12 months.
In May, 2006, the Company and SIFCO Turbine completed the sale of the large aerospace portion of its turbine engine
component repair business and certain related assets to SR Technics. Historically, the large aerospace portion of SIFCO
Turbine’s turbine engine component repair business was operated in portions of two facilities located in Cork, Ireland, one
of which was sold as part of this transaction. Net proceeds from the sale of the business and certain related assets, after
approximately $800 of third party transaction charges, were $8,950 and the assets that were sold had a net book value of
approximately $4,500. The Company’s Repair Group recognized a gain of approximately $4,400 on disposal of these
assets in 2006, which gain is included in income (loss) from discontinued operations, net of tax. SIFCO Turbine retained
substantially all existing liabilities of the business and the Company agreed to guarantee the performance by SIFCO
Turbine of all of its obligations under an applicable asset purchase agreement.
In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets”, the financial results of both the large aerospace and industrial turbine engine component repair
businesses, which together make up essentially all of SIFCO Turbine’s operations, are reported as discontinued operations
for all periods presented in the Consolidated Statements of Operations. The financial results included in discontinued
operations were as follows:
2008
2007
2006
Net sales………………………………………………….
Income (loss) before income tax provision ….…………..
Income (loss) from discontinued operations, net of tax….
$ ---
370
287
$ 5,996
(2,149)
(2,044)
$ 18,382
1,530
1,009
10. Contingencies
In the normal course of business, the Company may be involved in ordinary, routine legal actions. The Company cannot
reasonably estimate future costs, if any, related to these matters but does not believe any such matters are material to its
financial condition or results of operations. The Company maintains various liability insurance coverages to protect its
assets from losses arising out of or involving activities associated with ongoing and normal business operations, although it
is possible that the Company’s future operating results could be affected by future cost of litigation.
The Company leases various facilities and equipment under capital and operating leases expiring at various dates. At
September 30, 2008, minimum rental commitments under non-cancelable leases are as follows:
Year ending September 30,
Capital
Leases
Operating
Leases
2009…………….…………………………………………..... $
2010…………….…………………………………………….
2011…………….…………………………………………….
2012…………….…………………………………………….
Thereafter…………………………………………………….
Total minimum lease payments…………………………..
Less - amount representing interest…………………….........
Present value of net minimum lease payments………………
Less - current maturities……………………………………..
Long-term capital lease obligation……………………….
$
129
124
117
28
---
398
44
354
92
262
$
$
493
404
293
164
---
1,354
37
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
The Company recorded capital leases of equipment totaling $553 in 2007. Amortization of the cost of equipment under
capital leases is included in depreciation expense. At September 30, assets recorded under capital leases consist of the
following:
Machinery and equipment………………………………………
Accumulated depreciation….…………………………………..
$
2008
553
(232)
2007
553
(110)
$
11. Business Segments
The Company identifies reportable segments based upon distinct products manufactured and services performed. The
Aerospace Component Manufacturing Group consists of the production, heat-treatment, surface-treatment, non-destructive
testing, and some machining of forged components in various steel alloys utilizing a variety of processes for application
principally in the aerospace industry. The Turbine Component Services and Repair Group consists primarily of the repair
and remanufacture of small aerospace and industrial turbine engine components. The Repair Group is also involved in
precision component machining and industrial coatings for turbine engine applications. The Applied Surface Concepts
Group is a provider of specialized selective electrochemical metal finishing processes and services used to apply metal
coatings to a selective area of a component. The Company’s reportable segments are separately managed.
One customer of all three of the Company’s segments accounted for 14%, 13% and 15% of the Company’s consolidated net
sales from continuing operations in fiscal 2008, 2007 and 2006, respectively. Another customer of two of the Company’s
segments in fiscal 2008 and 2006 and all three of the Company’s segments in fiscal 2007 accounted for 13%, 13% and 12%
of the Company’s consolidated net sales from continuing operations in 2008, 2007 and 2006, respectively. The combined
net sales to these two customers, two other customers and to the direct subcontractors to these four customers accounted for
54% and 50% of the Company’s consolidated net sales from continuing operations in 2008 and 2007, respectively.
Geographic net sales from continuing operations are based on location of customer. The United States of America is the
single largest country for unaffiliated customer sales, accounting for 75%, 77% and 77% of consolidated net sales from
continuing operations in fiscal 2008, 2007 and 2006, respectively. No other single country represents greater than 10% of
consolidated net sales from continuing operations in 2008, 2007 and 2006. Net sales from continuing operations to
unaffiliated customers located in various European countries accounted for 10%, 8%, and 12% of consolidated net sales in
2008, 2007 and 2006, respectively.
Corporate unallocated expenses represent expenses that are not of a business segment operating nature and, therefore, are
not allocated to the business segments for reporting purposes. Corporate identifiable assets consist primarily of cash and
cash equivalents.
38
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
The following table summarizes certain information regarding segments of the Company’s continuing operations:
Years Ended September 30,
2008
2007
2006
Net sales:
Aerospace Component Manufacturing Group…….……………….. $
Turbine Component Services and Repair Group…….……………..
Applied Surface Concepts Group…………………..………………
71,980
14,336
15,075
$
59,993
12,942
14,320
Consolidated net sales…………...…………………..…….……. $
101,391
$
87,255
Operating income (loss):
Aerospace Component Manufacturing Group………………..……. $
Turbine Component Services and Repair Group………………..….
Applied Surface Concepts Group………………………..…………
Corporate unallocated expenses….…………..……….…..………..
Consolidated operating income (loss)…………………………...
Interest expense, net…………………………..…………..…………....
Foreign currency exchange loss (gain), net….…..…………………….
Other income, net…………………..………..…………........................
$
9,892
(304)
1,341
(1,951)
8,978
125
35
(2)
10,338
704
1,030
(1,688)
10,384
163
(20)
(14)
Consolidated income (loss) from continuing operations before
income tax provision………...….……………………………
$
8,820
$
10,255
Depreciation and amortization expense:
Aerospace Component Manufacturing Group…….……………….. $
Turbine Component Services and Repair Group…….……………..
Applied Surface Concepts Group………..………………..………..
$
636
467
380
614
495
338
Consolidated depreciation and amortization expense……..……
$
1,483
$
1,447
Capital expenditures:
Aerospace Component Manufacturing Group…....……………....... $
Turbine Component Services and Repair Group…....……………...
Applied Surface Concepts Group……………..……………………
$
1,162
457
393
Consolidated capital expenditures..………..…………………...
$
2,012
$
461
90
323
874
Identifiable assets:
Aerospace Component Manufacturing Group….....………..……… $
Turbine Component Services and Repair Group….....………..……
Applied Surface Concepts Group…………………………………..
Corporate………………..……………..……………..………….….
30,587
9,273
6,903
13,386
$
34,895
10,910
7,083
8,001
Consolidated total assets………….…………………….……….. $
60,149
$
60,889
Non-U.S. operations:
Net sales from continuing operations.………..……….……………
Operating income (loss) from continuing operations………………
Identifiable assets (excluding cash) of continuing operations……...
$
$
5,373
593
2,805
4,515
365
2,689
$
$
$
$
$
$
$
$
$
$
$
43,941
12,340
12,325
68,606
1,673
246
(559)
(1,611)
(251)
25
6
(247)
(35)
643
475
289
1,407
161
278
702
1,141
22,802
14,605
6,543
4,825
48,775
3,569
(182)
2,033
39
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
12. Summarized Quarterly Results of Operations (Unaudited)
Dec. 31
2008 Quarter Ended
March 31
June 30
Sept. 30
Net sales………………………………………………….
Cost of goods sold…………….........................................
$ 23,061 $ 26,099 $ 27,333 $ 24,898
20,669
19,691
17,824
20,977
Income from continuing operations before income
tax provision ………..…...…………..………………...
Income tax provision ………..…………………………..
Income from continuing operations……………………...
Income (loss) from discontinued operations, net of tax…
Net income ……..………………………………………..
1,745
630
1,115
(43)
1,072
Income per share from continuing operations:
Basic…………………………………………………...
Diluted………………………........................................
Income (loss) per share from discontinued operations:
Basic…………………………………………………...
Diluted………………………........................................
Net income (loss) per share:
Basic……………………………………………….......
Diluted………………………........................................
0.21
0.21
(0.01)
(0.01)
0.20
0.20
3,529
1,366
2,163
(264)
1,899
0.41
0.40
(0.05)
(0.05)
0.36
0.36
3,103
1,035
2,068
91
2,159
0.39
0.39
0.02
0.02
0.41
0.40
443
246
197
503
700
0.04
0.04
0.09
0.09
0.13
0.13
2007 Quarter Ended
Dec. 31 March 31
June 30
Sept. 30
Net sales………………………………………………….
Cost of goods sold…………….........................................
$ 19,136 $ 21,520
15,728
14,955
$ 24,022 $ 22,577
16,717
18,435
Income from continuing operations before income tax
provision………………………………………….......
Income tax provision…………………………………….
Income from continuing operations……………………...
Income (loss) from discontinued operations, net of tax…
Net income……………………………………………….
Income per share from continuing operations:
Basic…………………………………………………...
Diluted…………………………………………………
Income (loss) per share from discontinued operations:
Basic…………………………………………………...
Diluted………………………........................................
Net income per share:
Basic…………………………………………………...
Diluted…………………………………………………
1,603
31
1,572
605
2,177
0.30
0.30
0.12
0.12
0.42
0.42
3,077
81
2,996
(970)
2,026
2,513
618
1,895
(1,532)
363
3,062
753
2,309
(147)
2,162
0.57
0.57
0.36
0.36
0.44
0.43
(0.19)
(0.19)
(0.29)
(0.29)
(0.03)
(0.03)
0.39
0.38
0.07
0.07
0.41
0.40
40
SIFCO Industries, Inc. and Subsidiaries
Valuation and Qualifying Accounts
Years Ended September 30, 2008, 2007 and 2006
(Amounts in thousands)
Schedule II
Balance at
Beginning
of Period
Additions
(Reductions)
Charged to
Expense
Additions
(Reductions)
Charged to
Other
Accounts
Deductions
Year Ended September 30, 2008
Deducted from asset accounts
Allowance for doubtful accounts…………
Return and allowance reserve…………….
Inventory obsolescence reserve…………..
Inventory LIFO reserve…………………..
Asset impairment reserve………………...
Valuation allowance for deferred taxes…..
$ 603 $ 254
13
86
1,712
---
(36)
29
1,469
7,191
318
516
$ (17) $ (257) (a)
(b)
(c)
(18)
(494)
---
(89)
---
(d)
(24)
---
---
---
---
Balance
at End of
Period
$ 583
---
1,061
8,903
229
480
Accrual for estimated liability
Workers’ compensation reserve………….
1,190
250
---
(333)
(e)
1,107
Year Ended September 30, 2007
Deducted from asset accounts
Allowance for doubtful accounts…………
Return and allowance reserve…………….
Inventory obsolescence reserve…………..
Inventory LIFO reserve…………………..
Asset impairment reserve………………...
Valuation allowance for deferred taxes…..
$ 668 $ 147
(34)
423
331
---
(4,092)
63
1,149
6,860
493
4,608
$ 2
---
1
---
---
---
$ (214)
---
(104)
---
(175)
---
(a)
(b)
(c)
(d)
$ 603
29
1,469
7,191
318
516
Accrual for estimated liability
Workers’ compensation reserve………….
1,247
167
---
(223)
(e)
1,190
Year Ended September 30, 2006
Deducted from asset accounts
Allowance for doubtful accounts…………
Return and allowance reserve…………….
Inventory obsolescence reserve…………..
Inventory LIFO reserve…………………..
Asset impairment reserve………………...
Valuation allowance for deferred taxes…..
Accrual for estimated liability
$ 682 $ 121 $ ---
---
1
---
---
---
(30)
167
2,737
289
(459)
143
1,353
4,122
1,371
5,067
$ (135)
(50)
(372)
---
(1,167)
---
(a)
(b)
(c)
(d)
$ 668
63
1,149
6,860
493
4,608
Workers’ compensation reserve………….
1,203
275
---
(372)
(e)
1,247
(a) Accounts determined to be uncollectible, net of recoveries
(b) Actual returns received
(c) Inventory sold or otherwise disposed
(d) Equipment sold or otherwise disposed
(e) Payment of workers’ compensation claims
41
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), disclosure controls and
procedures are controls and procedures designed to provide reasonable assurance that information required to be disclosed
in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported on a timely basis,
and that such information is accumulated and communicated to management, including the Company’s Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Company’s
disclosure controls and procedures include components of the Company’s internal control over financial reporting. In
designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls
and procedures.
Management of the Company, under the supervision and with the participation of the Chief Executive Officer and Chief
Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15(e) as of September 30, 2008 (the “Evaluation Date”).
Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation
Date, the Company’s disclosure controls and procedures were not effective due solely to the material weakness in the
Company’s internal control over financial reporting as described below in “Management’s Report on Internal Control over
Financial Reporting.” In light of this material weakness, the Company performed additional analysis as deemed necessary
to ensure that the consolidated financial statements were prepared in accordance with U.S. generally accepted accounting
principles. Accordingly, notwithstanding the existence of the material weakness described below, management has
concluded that the consolidated financial statements in this Form 10-K fairly present, in all material respects, the
Company's financial position, results of operations and cash flows for the periods presented.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rules 13a-15(f). Under the supervision of the Chief Executive Officer and Chief Financial
Officer, management conducted an evaluation of the effectiveness of the Company’s internal control over financial
reporting as of September 30, 2008 based on (i) the framework set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in “Internal Control-Integrated Framework” and “Internal Control over Financial
Reporting – Guidance for Smaller Public Companies” and (ii) The U.S. Securities and Exchange Commission (“SEC”)
Guidance Regarding Management’s Report on Internal Control Over Financial Reporting. Based on that evaluation,
management has concluded that the Company did not maintain effective internal control over financial reporting solely as a
result of the following material weakness:
• Missing and/or ineffective controls were noted in the area of the Company’s management information systems
related principally to (i) logical access/security, (ii) program change management and (iii) segregation of duties.
While none of the individual deficiencies noted in these areas appear to rise to the level of a material weakness,
based on the nature and interrelationship of the noted deficiencies, management believes that such deficiencies,
when considered in the aggregate, do create a reasonable possibility that a material misstatement to the Company’s
financial statements could occur and not be detected in a timely manner and, therefore, a material weakness in
internal controls over financial reporting does exist as of September 30, 2008.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding
controls over financial reporting. Management’s report was not subject to attestation by the Company’s registered public
accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in
this annual report.
Changes in Internal Control over Financial Reporting and other Remediation
Management previously identified a material weakness with respect to the Company’s accounting for income taxes in 2007
and addressed this material weakness by identifying and implementing additional enhancements to the related control
procedures, which included the hiring of a qualified third party to assist in the calculation of the Company’s fiscal quarter
42
and year end tax provision and related disclosures. The Company believes that the remediation steps implemented during
the end of fiscal 2007 and continuing into fiscal 2008 have adequately eliminated the internal control deficiency in
accounting for income taxes.
The noted material weaknesses in the effectiveness of the Company’s internal controls with respect to its existing
management information system (i.e. logical access/security, program change management and segregation of duties) were
not all remediated at this time because Company management believes that (i) the relevant risk associated with not
remediating such controls at this time is not deemed to be “high” and (ii) the cost/benefit analysis does not justify
remediating such controls at this time given the fact that the Company is in the process of evaluating a new management
information system (to be implemented in the next 12-24 months) and plans to incorporate the remediation of a majority of
the deficiencies noted above as part of the new management information system.
There was no significant change in our internal control over financial reporting that occurred during the fourth fiscal quarter
ended September 30, 2008 that has materially affected, or that is reasonably likely to materially affect our internal control
over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The following table sets forth certain information regarding the executive officers of the Company.
Name
Age
Title and Business Experience
Jeffrey P. Gotschall
60
Frank A. Cappello
50
Chairman of the Board since 2001; Director of the Company since 1986;
Chief Executive Officer since 1990; President from 1989 to 2002; Chief
Operating Officer from 1986 to 1990; Executive Vice President from 1986
to 1989; and from 1985 to 1989, President of SIFCO Turbine Component
Services.
Vice President-Finance and Chief Financial Officer since 2000. Prior to
joining the Company, Mr. Cappello was employed by ASHTA Chemicals
Inc, a commodity chemical manufacturer, from August 1990 to December
1991 and from June 1992 to February 2000, last serving as Vice President
Finance and Administration and Chief Financial Officer; and previously by
KPMG LLP, last serving as a Senior Manager in its Assurance Group.
The Company incorporates herein by reference the information required by this item as to the Directors, procedures for
recommending Director nominees and the Audit Committee appearing under the captions “Proposal to Elect Six (6)
Directors”, “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance and Board of
Director Matters” of the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission
on or about December 15, 2008.
The Directors of the Company are elected annually to serve for one-year terms or until their successors are elected and
qualified.
The Company has adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-K under the Securities
Exchange Act of 1934, as amended. The Code of Ethics is applicable to, among other people, the Company’s Chief
Executive Officer, Chief Financial Officer, who is the Company’s Principal Financial Officer, and to the Corporate
Controller, who is the Company’s Principal Accounting Officer. The Company’s Code of Ethics is available on its website:
www.sifco.com.
Item 11. Executive Compensation
The Company incorporates herein by reference the information appearing under the captions “Compensation Discussion
and Analysis”, “Executive Compensation”, “Compensation Committee Report”, “Compensation Committee Interlocks and
43
Insider Participation” and “Director Compensation” of the Company’s definitive Proxy Statement to be filed with the
Securities and Exchange Commission on or about December 15, 2008.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The following table sets forth information regarding Common Shares to be issued under the Company’s equity
compensation plans as of September 30, 2008.
Plan Category
Number of
Securities to
be issued
upon
Exercise of
Outstanding
Options
Number of
Securities to
be issued
upon
Meeting
Performance
Objectives
Weighted-
Average
Exercise
Price of
Outstanding
Options
Number of
Securities
Remaining
Available for
Future
Issuance
Under Equity
Compensation
Plans
Equity compensation plans approved by security
holders:
1998 Long-term Incentive Plan (1)..……………
1995 Stock Option Plan (2)..……………………
2007 Long-term Incentive Plan (3)..……………
69,500
23,750
---
---
---
35,000
$ 4.90
3.74
N/A
---
---
215,000
Total…………………………………………
93,250
35,000
$ 4.60
215,000
(1) Under the 1998 Long-term Incentive Plan the aggregate number of stock options that were available to be granted in
any fiscal year was limited to 1.5% of the total outstanding Common Shares of the Company at September 30, 1998, up to a
cumulative maximum of 5% of such total outstanding shares, subject to adjustment for forfeitures. No further options may
be awarded under this plan. During 2008, 3,500 options granted under the 1998 Long-term Incentive Plan were exercised.
(2) Under the 1995 Stock Option Plan the initial aggregate number of stock options that were available to be granted was
200,000. No further options may be awarded under this plan. During 2008, 13,750 options granted under the 1995 Stock
Option Plan were exercised.
(3) Under the 2007 Long-term Incentive Plan the aggregate number of common shares that are available to be granted is
250,000 shares, with a further limit of no more than 50,000 shares to any one person in any twelve-month period.
For additional information concerning the Company’s equity compensation plans, refer to the discussion in Note 8 to the
Consolidated Financial Statements.
The Company incorporates herein by reference the beneficial ownership information appearing under the captions
“Outstanding Shares and Voting Rights” and “Stock Ownership of Executive Officers, Director and Nominees” of the
Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission on or about December 15,
2008.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The Company incorporates herein by reference the information required by this item appearing under the captions
“Corporate Governance and Board of Director Matters” and “Certain Relationships and Related Transactions” of the
Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission on or about December 15,
2008.
Item 14. Principal Accounting Fees and Services
The Company incorporates herein by reference the information required by this item appearing under the caption “Principal
Accounting Fees and Services” of the Company’s definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or about December 15, 2008.
44
Item 15. Exhibits, Financial Statement Schedules
(a) (1) Financial Statements:
PART IV
The following Consolidated Financial Statements; Notes to the Consolidated Financial Statements and the Reports
of Independent Registered Public Accounting Firm are included in Item 8.
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the Years Ended September 30, 2008, 2007 and 2006
Consolidated Balance Sheets - September 30, 2008 and 2007
Consolidated Statements of Cash Flows for the Years Ended September 30, 2008, 2007 and 2006
Consolidated Statements of Shareholders’ Equity for the Years Ended September 30, 2008, 2007 and 2006
Notes to Consolidated Financial Statements - September 30, 2008, 2007 and 2006
(a) (2) Financial Statement Schedules:
The following financial statement schedule is included in Item 8:
Schedule II – Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulations of the Securities and
Exchange Commission are not required under the related regulations, are inapplicable, or the information has been
included in the Notes to the Consolidated Financial Statements.
(a)(3) Exhibits:
The following exhibits are filed with this report or are incorporated herein by reference to a prior filing in
accordance with Rule 12b-32 under the Securities and Exchange Act of 1934. (Asterisk denotes exhibits filed with
this report)
Exhibit
No.
3.1
3.2
4.1
4.2
4.3
Description
Third Amended Articles of Incorporation of SIFCO Industries, Inc., filed as Exhibit 3(a) of the Company’s
Form 10-Q dated March 31, 2002, and incorporated herein by reference
SIFCO Industries, Inc. Amended and Restated Code of Regulations dated January 29, 2002, filed as
Exhibit 3(b) of the Company’s Form 10-Q dated March 31, 2002, and incorporated herein by reference
Amended and Restated Credit Agreement Between SIFCO Industries, Inc. and National City Bank dated
April 30, 2002, filed as Exhibit 4(b) of the Company’s Form 10-Q dated March 31, 2002, and incorporated
herein by reference
Consolidated Amendment No. 1 to Amended and Restated Credit Agreement, Amended and Restated
Reimbursement Agreement and Promissory Note dated November 26, 2002 between SIFCO Industries,
Inc. and National City Bank, filed as Exhibit 4.5 of the Company’s Form 10-K dated September 30, 2002,
and incorporated herein by reference
Consolidated Amendment No. 2 to Amended and Restated Credit Agreement, Amended and Restated
Reimbursement Agreement and Promissory Note dated February 13, 2003 between SIFCO Industries, Inc.
and National City Bank, filed as Exhibit 4.6 of the Company’s Form 10-Q dated December 31, 2002, and
incorporated herein by reference
45
Exhibit
No.
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
Description
Consolidated Amendment No. 3 to Amended and Restated Credit Agreement, Amended and Restated
Reimbursement Agreement and Promissory Note dated May 13, 2003 between SIFCO Industries Inc. and
National City Bank, filed as Exhibit 4.7 of the Company’s Form 10-Q dated March 31, 2003, and
incorporated herein by reference
Consolidated Amendment No. 4 to Amended and Restated Credit Agreement, Amended and Restated
Reimbursement Agreement and Promissory Note dated July 28, 2003 between SIFCO Industries, Inc. and
National City Bank, filed as Exhibit 4.8 of the Company’s Form 10-Q dated June 30, 2003, and
incorporated herein by reference
Consolidated Amendment No. 5 to Amended and Restated Credit Agreement, Amended and Restated
Reimbursement Agreement and Promissory Note dated November 26, 2003 between SIFCO Industries,
Inc. and National City Bank, filed as Exhibit 4.9 of the Company’s Form 10-K dated September 30, 2002,
and incorporated herein by reference
Amendment No. 6 to Amended and Restated Credit Agreement dated March 31, 2004 between SIFCO
Industries, Inc. and National City Bank, filed as Exhibit 4.10 of the Company’s Form 10-Q dated March
31, 2004, and incorporated herein by reference
Consolidated Amendment No. 7 to Amended and Restated Credit Agreement, Amended and Restated
Reimbursement Agreement and Promissory Note dated May 14, 2004 between SIFCO Industries, Inc. and
National City Bank, filed as Exhibit 4.11 of the Company’s Form 10-Q dated March 31, 2004, and
incorporated herein by reference
Consolidated Amendment No. 8 to Amended and Restated Credit Agreement, Amended and Restated
Reimbursement Agreement and Promissory Note effective June 30, 2004 between SIFCO Industries, Inc.
and National City Bank, filed as Exhibit 4.12 of the Company’s Form 10-Q dated June 30, 2004, and
incorporated herein by reference
Consolidated Amendment No. 9 to Amended and Restated Credit Agreement, Amended and Restated
Reimbursement Agreement and Promissory Note effective November 12, 2004 between SIFCO Industries,
Inc. and National City Bank, filed as Exhibit 4.13 to the Company’s Form 10-K dated September 30, 2004,
and incorporated herein by reference
Amendment No. 10 to Amended and Restated Credit Agreement dated as of February 4, 2005 but effective
as of December 31, 2004 between SIFCO Industries, Inc. and National City Bank, filed as Exhibit 4.14 to
the Company’s Form 10-Q dated December 31, 2004, and incorporated herein by reference
4.12
Amendment No. 11 to Amended and Restated Credit Agreement dated May 19, 2005 between SIFCO
Industries, Inc. and National City Bank, filed as Exhibit 4.15 to the Company’s Form 10-Q/A dated March
31, 2005, and incorporated herein by reference
4.13
Amendment No. 12 to Amended and Restated Credit Agreement dated August 10, 2005 between SIFCO
Industries, Inc. and National City Bank, filed as Exhibit 4.16 to the Company’s Form 10-Q dated June 30,
2005, and incorporated herein by reference
4.14 Amendment No. 13 to Amended and Restated Credit Agreement dated November 23, 2005 between
SIFCO Industries, Inc. and National City Bank, filed as Exhibit 4.19 to the Company’s Form 10-K dated
September 30, 2005, and incorporated herein by reference
4.15 Amendment No. 14 to Amended and Restated Credit Agreement dated February 10, 2006 between SIFCO
Industries, Inc. and National City Bank, filed as Exhibit 4.20 to the Company’s Form 10-Q dated
December 31, 2005, and incorporated herein by reference
4.16 Amendment No. 15 to Amended and Restated Credit Agreement dated August 14, 2006 between SIFCO
Industries, Inc. and National City Bank, filed as Exhibit 4.21 to the Company’s Form 10-Q dated June 30,
2006, and incorporated herein by reference
46
Exhibit
No.
4.17
4.18
4.19
4.20
Description
Amendment No. 16 to Amended and Restated Credit Agreement dated November 29, 2006 between
SIFCO Industries, Inc. and National City Bank, filed as Exhibit 4.22 to Company’s Form 10-K dated
September 30, 2006, and incorporated herein by reference.
Amendment No. 17 to Amended and Restated Credit Agreement dated February 5, 2007 between SIFCO
Industries, Inc. and National City Bank, filed as Exhibit 4.23 to the Company’s Form 10-Q dated
December 31, 2006 and incorporated herein by reference
Amendment No. 18 to Amended and Restated Credit Agreement dated May 10, 2007 between SIFCO
Industries, Inc. and National City Bank, filed as Exhibit 4.24 to the Company’s Form 10-Q dated March
31, 2007 and incorporated herein by reference
Amendment No. 19 to Amended and Restated Credit Agreement dated February 8, 2008 between SIFCO
Industries, Inc. and National City Bank, filed as Exhibit 4.20 to the Company’s Form 10-Q dated
December 31, 2007 and incorporated herein by reference
4.21* Amendment No. 20 to Amended and Restated Credit Agreement dated December 12, 2008 between
SIFCO Industries, Inc. and National City Bank, filed as Exhibit 4.21 to the Company’s Form 10-K dated
September 30, 2008
9.1
Voting Trust Agreement dated January 30, 2007, filed as Exhibit 9.3 of the Company’s Form 10-Q dated
December 31, 2006, and incorporated herein by reference
10.2
SIFCO Industries, Inc. 1998 Long-term Incentive Plan, filed as Exhibit 10.3 of the Company’s form 10-Q
dated June 30, 2004, and incorporated herein by reference
10.3
SIFCO Industries, Inc. 1995 Stock Option Plan, filed as Exhibit 10(d) of the Company’s Form 10-Q dated
March 31, 2002, and incorporated herein by reference
10.4
Change in Control Severance Agreement between the Company and Frank Cappello, dated September 28,
2000, filed as Exhibit 10(g) of the Company’s Form 10-Q dated December 31, 2000, and incorporated
herein by reference
10.5
10.6
10.7
10.8
Change in Control Severance Agreement between the Company and Remigijus Belzinskas, dated
September 28, 2000, filed as Exhibit 10 (i) of the Company’s Form 10-Q dated December 31, 2000, and
incorporated herein by reference
Change in Control Severance Agreement between the Company and Jeffrey P. Gotschall, dated July 30,
2002, filed as Exhibit 10.10 of the Company’s Form 10-K dated September 30, 2002, and incorporated
herein by reference
Separation Pay Agreement between Frank A. Cappello and SIFCO Industries, Inc. dated December 16,
2005, filed as Exhibit 10.14 of the Company’s Form 10-K dated September 30, 2005, and incorporated
herein by reference
Agreement for the Purchase of the Assets of the Large Aerospace Business of SIFCO Turbine Components
Limited dated March 16, 2006 between SIFCO Turbine Components Limited, SIFCO Industries, Inc, and
SR Technics Airfoil Services Limited, as amended on April 19, 2006, May 2, 2006, May 5, 2006, May 9,
2006, and May 10, 2006, filed as Exhibit 10.15 of the Company’s Form 10-Q dated March 31, 2006, and
incorporated herein by reference
10.9
Separation Agreement and Release Without Prejudice between the Company and Timothy V. Crean, dated
November 28, 2006 filed as Exhibit 99.1 of the Company’s Form 8-K dated November 30, 2006, and
incorporated herein by reference
10.10 Amendment No. 1 to Change in Control Severance Agreement between the Company and Frank Cappello,
dated February 5, 2007, filed as Exhibit 10.17 of the Company’s Form 10-Q dated December 31, 2006 and
incorporated herein by reference
47
Exhibit
No.
Description
10.11 Amendment No. 1 to Change in Control Severance Agreement between the Company and Remigijus
Belzinskas, dated February 5, 2007, filed as Exhibit 10.18 of the Company’s Form 10-Q dated December
31, 2006 and incorporated herein by reference
10.12 Business Purchase Agreement dated as of May 7, 2007 between PAS Technologies Inc. (Parent), PAS
Turbines Ireland Limited (Buyer), SIFCO Industries Inc. (Shareholder), and SIFCO Turbine Components
Limited (Company), filed as Exhibit 10.19 of the Company’s Form 10-Q dated June 30, 2007 and
incorporated herein by reference
10.13
SIFCO Industries, Inc. 2007 Long-Term Incentive Plan, filed as Exhibit A of the Company’s Proxy and
Notice of 2008 Annual Meeting to Shareholders dated December 14, 2007, and incorporated herein by
reference
14.1
Code of Ethics, filed as Exhibit 14.1 of the Company’s form 10-K dated September 30, 2003, and
incorporated herein by reference
*21.1
Subsidiaries of Company
*23.1 Consent of Independent Registered Public Accounting Firm
*31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) / 15d-14(a)
*31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) / 15d-14(a)
*32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
*32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
48
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.
SIGNATURES
SIFCO Industries, Inc.
By: /s/ Frank A.Cappello
Frank A. Cappello
Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer)
Date: December 15, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below on
December 15, 2008 by the following persons on behalf of the Registrant in the capacities indicated.
/s/ Jeffrey P. Gotschall
Jeffrey P. Gotschall
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ Hudson D. Smith
Hudson D. Smith
Director
/s/ Frank N. Nichols
Frank N. Nichols
Director
/s/ P. Charles Miller
P. Charles Miller
Director
/s/ Alayne L. Reitman
Alayne L. Reitman
Director
/s/ J. Douglas Whelan
J. Douglas Whelan
Director
/s/ Frank A. Cappello
Frank A. Cappello
Vice President-Finance
and Chief Financial Officer
(Principal Financial Officer)
/s/ Remigijus H. Belzinskas
Remigijus H. Belzinskas
Corporate Controller
(Principal Accounting Officer)
49
SHAREHOLDER INFORMATION
DIRECTORS
AUDITORS
Jeffrey P. Gotschall
Chairman of the Board and
Chief Executive Officer
Frank N. Nichols
Retired Group Vice President,
Parker Hannifin Corporation Aerospace Group
P. Charles Miller, Jr.
Chairman of the Board,
Chief Executive Officer,
Duramax Marine LLC
Alayne L. Reitman
Formerly Vice President – Finance and
Chief Financial Officer,
The Tranzonic Companies, Inc.
Hudson D. Smith
President
Forged Aerospace Sales, LLC
J. Douglas Whelan
Retired President and Chief Operating Officer,
Wyman-Gordon Company
OFFICERS
Jeffrey P. Gotschall
Chairman of the Board and
Chief Executive Officer
Frank A. Cappello
Vice President - Finance and
Chief Financial Officer
Remigijus H. Belzinskas
Corporate Controller
Grant Thornton LLP
Certified Public Accountants
800 Halle Building
1228 Euclid Avenue
Cleveland, Ohio 44115
GENERAL COUNSEL
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
COMPANY INFORMATION
Included with this Annual Report is a copy of
SIFCO Industries, Inc.’s Form 10-K filed with
the Securities and Exchange Commission for the
year ended September 30, 2008. Additional
copies of the Company’s Form 10-K and other
information are available to shareholders upon
written request to:
Investor Relations
SIFCO Industries, Inc.
970 East 64th Street
Cleveland, Ohio 44103
We also
www.sifco.com.
invite you
to visit our website:
ANNUAL MEETING
The annual meeting of shareholders of SIFCO
Industries, Inc. will be held at National City
Bank, East Ninth Street and Euclid Avenue,
Cleveland, Ohio, at 10:30 a.m. on January 27,
2009.
50
970 East 64th Street, Cleveland, Ohio 44103-1694
Phone: (216) 881-8600 Fax: (216) 432-6281
www.sifco.com