Annual Report and Form 10-K
Fiscal Year 2010
To our Shareholders:
Fiscal 2010 continued to be a year of transition for SIFCO Industries, Inc. (“SIFCO”). The
turbulence caused by the global economic downturn, while somewhat lessened in 2010, was still
very evident. As a result, due to a softening in the demand for our products and services, net
sales were lower by 11% in fiscal 2010 compared to fiscal 2009. However, due to anticipation
of continued weak economic conditions and the expected impact on our business, the operating
units managed to navigate through the turbulence. With the anticipated softening in sales, cost
management was a priority in fiscal 2010. Due to prudent measures taken at the operating units,
operating performance remained level in fiscal 2010. Pretax return on sales, excluding the
impact of LIFO accounting, was 10.3% in fiscal 2010.
Our company’s businesses are divided into the following operating groups:
Aerospace Component Manufacturing (“ACM”) Group – this is our largest business
segment with sales in fiscal 2010 of $62 million. The ACM Group is a world-wide forged
product supplier of critical aerospace components. The ACM Group’s forged components
can be found on a variety of commercial airliners, business and military jets, and
helicopters. The ACM Group services all of the major prime aerospace customers either
directly or through sub-tiers including Boeing, Airbus, Embraer, Cessna, Lockheed Martin,
Northrop Grumman, Sikorsky and Bell. The support of these primes is also achieved
through Supply Chain Management of components for both engines and APU’s with Rolls
Royce and Hamilton Sundstrand.
The ACM Group has continued to see steady military aviation demand on the Sikorsky H-
60 Blackhawk, Lockheed C-130 Hercules, Bell/Boeing V-22 Osprey and numerous other
platforms. The ACM Group has also continued to win additional business on the F-35
Joint Strike Fighter with multiple customers including Goodrich, Rolls-Royce and
Hamilton Sundstrand. In addition, in 2010 the civil aviation market has begun a slow
recovery in the wake of the global economic downturn. With content on new platforms
such as the Boeing 787 and Airbus A380 along with legacy civil platforms, the ACM group
stands well positioned to grow along with the recovery.
The ACM Group’s decision to invest in a new 35,000 pound forging hammer cell during
the economic downturn has provided the increased size capability necessary to expand its
share in the markets that it serves. This unit, and its related support equipment, was placed
into service during 2010.
Finally, the ACM Group remains committed to the culture of continuous improvement
driven by its SMART (Streamlined Manufacturing Activities to Reduce Time/Cost)
initiative. With SMART firmly in-place, the ACM group continues to improve quality, on-
time delivery, manufacturing cycle-time and operational efficiency through the use of
LEAN, Six Sigma, Theory of Constraints and Reliability Centered Maintenance.
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 component repairs for small turbine
engines used to power aircraft with less than 100 passengers as well as a wide range of
helicopters. The Repair Group’s operation possesses a full range of component repair
capabilities including super-alloy brazing, thermal spraying, and advanced coating for high
temperature applications.
Due to extensive cost reductions, the Repair Group’s operating performance remained
almost level in fiscal 2010 despite 23% lower sales compared to fiscal 2009. In addition to
the weak global economic conditions causing a reduction in the demand for turbine engine
component repairs in general, net sales volume and operating results were negatively
impacted as a result of a major customer electing to absorb its component repair
requirements within its internal operations due to reduced demand. Throughout the year,
the Repair Group concentrated on improving its operational efficiency with the intended
goal of improving its on-time delivery while managing its cost structure. Key operational
performance measures of “turn-around-time” and “on-time delivery” continued to be major
areas of focus in 2010.
New multiple-year contracts were awarded during 2010. In addition, several new turbine
engine component repairs were approved by customers that will further bolster our vast
array of capabilities. These new capabilities, along with improved on-time delivery
performance are expected to result in improved operating performance for the Repair
Group.
Applied Surface Concepts (“ASC”) Group – this business segment develops,
manufactures and sells selective plating products and provides contract services for
component repair, refurbishment, and OEM applications. The ASC Group provides a
unique electroplating process to selectively plate surfaces on a wide variety of items. We
believe our ASC Group is the world’s 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 drills used to explore for new oil deposits on deep sea platforms and coating of
landing gear for both helicopter and fixed wing commercial and military aircraft. The
general weakness in the world-wide economy negatively impacted the ACM Group
throughout fiscal 2010 by reducing demand and causing precious metal products to be
replaced with more economical alternatives. Net sales for the ASC Group declined 11% in
fiscal 2010 compared with fiscal 2009. In fiscal 2010, the ASC Group implemented cost
containment measures, while at the same time continued to invest in its core technical
talent and capabilities to enhance its strategic position relative to its competition in both
North America and Europe. In fiscal 2010, its research and development team developed
and introduced new environmentally-friendly selective plating technologies to replace
hexavalent chromium. We believe that the ASC Group is poised for a relatively quick
recovery when the industrial economic climate improves.
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Continuing the strong performance of recent years, we successfully improved the strength of our
balance sheet during this period of lower revenues. Cash and short-term investments increased
9% in Fiscal 2010 to $21.7 million and inventories were reduced 17%. Cash flow from
operations was a solid $9.9 million, which helped facilitate the completion of several significant
capital expenditure projects during the fiscal year. As a result, outstanding borrowings remained
essentially at zero. Lastly, we were able to once again pay a cash dividend to our valued
shareholders. The declared dividend of $0.15 per share represents a 50% increase over the fiscal
2009 dividend.
Cash is the fuel that powers our strategic growth engine. We plan to use our cash to fund high-
returning internal and external growth opportunities. Our strong balance sheet and consistently
positive financial results, coupled with a seasoned management team, position us to take full
advantage of these opportunities.
As the recent global economic downturn has taught everyone – nothing is for certain. However,
we continue to remain cautiously optimistic about both the short and long-term outlook for the
aerospace industry. We are confident that our financial strength, as well as our operational
efficiency and effectiveness, will enable us to overcome the challenges that may present
themselves.
We again thank our dedicated associates 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
Michael S. Lipscomb
President and Chief Executive Officer
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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, 2010
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)
NYSE AMEX
(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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes [ ] 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 [ ] smaller reporting company [ X ]
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 $56,346,363.
The number of the Registrant’s Common Shares outstanding at October 31, 2010 was 5,258,574.
Documents incorporated by reference: Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be
held on January 20, 2011 (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. The products include forged components, machined
forged parts and other machined metal components, remanufactured component parts for aerospace turbine engines, and
selective electrochemical finishing solutions and equipment. The Company’s operations are conducted in three business
segments: (i) Aerospace Component Manufacturing Group, (ii) Turbine Component Services and Repair Group and (iii)
Applied Surface Concepts Group.
B.
Principal Products and Services
1. Aerospace Component Manufacturing Group
The 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 with capability ranging in size from 2 to 1,100
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. 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 as well as government defense spending directly
and significantly impact 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. After the more recent periods of negative operating results in the global
commercial airline industry that was due in large part to the global economic downturn, the financial condition of the
global commercial airline industry has improved. This improvement is due to strong demand in both air freight and
passenger traffic resulting principally from improvements in both business and consumer confidence levels, which
improvements can be attributed to the subsiding of the global economic downturn. The air transport industry has recently
benefited 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) relatively stable
fuel prices. There has been recent improvement in aircraft capacity utilization due to the increase in air freight and
passenger traffic, which is driving demand for additional capacity. Aircraft capacity is returning to the market at about the
same pace as the growth in demand for such capacity. The ACM Group believes this pattern should continue with the
long-term steady growth projected by the air transport industry. The ACM Group also supplies new and spare components
for military aircraft, including helicopters. Military spending has continued to be strong and level in recent years. As a
result of military initiatives, there has been continuing demand for both new and spare components for military customers.
The ACM Group’s current outlook for the air transport industry is cautiously optimistic while the military segment remains
stable, yet subject to potential changes in defense spending decisions. 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. Lack of continued
improvement in the global economy could result in credit risk associated with serving the airlines and/or their suppliers.
However, the ACM Group believes that it is poised to take advantage of improvement in order demand from the
commercial airframe and engine manufacturers if and when it may occur.
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, some of which are significantly larger than the ACM Group. As customers establish 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 2010, the ACM Group had two customers, various business units of Rolls-Royce Corporation and United
Technologies Corporation, which accounted for 24% and 12%, respectively, of the ACM Group’s net sales. The net sales to
these two customers, and the direct subcontractors to these two customers, accounted for 66% of the ACM Group’s net
sales in fiscal 2010. 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 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, 2010 increased to $71.2 million, of which $55.0 million is scheduled for
delivery during fiscal 2011, compared with $70.6 million as of September 30, 2009, of which $52.1 million was scheduled
for delivery during fiscal 2010. All orders are subject to modification or cancellation by the customer with limited charges.
Delivery lead times for certain raw materials (e.g. aerospace grades of steel and titanium alloy) continue to lengthen due to
increased demand and the ACM Group believes that such lead time increase may ultimately result in a fundamental shift in
the ordering pattern of its customers. The ACM Group believes that a likely consequence of such a shift is that customers
may be placing orders further in advance than they more recently did, which may result in an increase, relative to
comparable prior year periods, in the ACM Group’s backlog. Accordingly, such backlog increase, to the extent it may
occur, is not necessarily indicative of actual sales expected for any succeeding period. Due principally to the overall weak
global economic conditions and the related impact such conditions have continued to have on commercial aviation, the
ACM Group continued to experience a decrease in fiscal 2010, in orders for products that principally support commercial
aircraft.
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 certifies that the Repair 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
2
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 Canada, 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
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’s 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 Repair Group’s research and development expense was $0.4 million in both
fiscal 2010 and 2009.
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. After the more
recent periods of negative operating results in the global commercial airline industry that was due in large part to the global
economic downturn, the financial condition of the global commercial airline industry has improved. This improvement is
due to strong demand in both air freight and passenger traffic resulting principally from improvements in both business and
consumer confidence levels, which improvements can be attributed to the subsiding of the global economic downturn. The
air transport industry has recently benefited from several favorable 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) relatively stable fuel prices. It is difficult to determine at this time what the long-term impact of these
factors may be on air travel and the demand for products and services provided by the Repair Group. However, a lack of
continued improvement in the global economy could result in further reduced demand for the products and services that the
Repair Group provides. Management’s current outlook for the air transport industry continues to remain cautiously
optimistic 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, approvals for the repair of their 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
3
or customers. During fiscal 2010, the Repair Group had three customers, consisting of various business units of Safran
Group, United Technologies Corporation, and Rolls-Royce Corporation, which accounted for 29%, 24% and 17%,
respectively, of the Repair Group’s net sales. 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 as of September 30, 2010 decreased to $3.1 million, of which $1.8 million is scheduled for
delivery during fiscal 2011 and $1.3 million is on hold, compared with $3.4 million as of September 30, 2009, of which $2.3
million was scheduled for delivery during fiscal 2010 and $1.1 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. 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 development,
production and 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 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 a nickel-cobalt solution that can be used as a more
environmentally friendly replacement for a chromium plating solution, or a zinc-nickel solution that can be used as a more
environmentally friendly replacement for a cadmium plating solution. In fiscal 2010, the ASC Group completed
development of a new aluminum anodizing seal and a conversion coating solution as replacements for hexavalent
chromium solutions.
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 maintains 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
9001:2008 and AS 9100B 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
4
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 world’s largest selective electrochemical finishing company,
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 25% of the ASC Group’s fiscal 2010 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, 2010 and 2009.
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 12 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 decreased from approximately 310 at the beginning of fiscal 2010 to
approximately 300 employees at the end of fiscal 2010. The Company is party to a collective bargaining agreement with
certain employees located at its ACM Group’s Cleveland, Ohio facility. The ACM Group’s union contract expires in May
2015 (effective since May 2010). The Company was also party to a collective bargaining agreement with certain employees
located at its Repair Group’s Minneapolis, Minnesota facility that expired in July 2009 and was extended for 60 days until
September 2009. As of September 30, 2010 the Repair Group is operating without a collective bargaining agreement.
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 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 12 to the consolidated
financial statements included in Item 8.
As of September 30, 2010, a portion of the Company’s cash and cash equivalents and short-term investments are in the
possession of its non-U.S. subsidiaries and relate to undistributed earnings of these non-U.S. subsidiaries. Distributions
5
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, 2010 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 Repair Group operates a single, owned facility in Minneapolis, Minnesota with a total of 59,000 square feet
and is involved in the repair and remanufacture of small aerospace turbine engine components.
• The ACM 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 ASC 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 ASC Group also operates in an owned 3,000 square foot facility in Rattvik, Sweden.
• The Company owns a building located in Cork, Ireland (59,000 square feet) that is subject to a long-term lease
arrangement with the acquirer of the Repair Group’s industrial turbine engine component repair business that was
sold in fiscal 2007.
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 and 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.
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 NYSE AMEX exchange (“NYSE AMEX”) under the symbol “SIF”.
The following table sets forth, for the periods indicated, the high and low closing sales price for the Company’s Common
Shares.
Years Ended September 30,
2010
2009
High
Low
High
Low
First Quarter……………………………...
Second Quarter…………………………..
Third Quarter…………………………….
Fourth Quarter…………………………...
$ 16.25 $ 13.18 $ 7.85
7.60
12.30
11.37
10.11
14.76
9.40
17.07
17.25
12.13
$ 4.10
4.92
5.94
9.34
Dividends and Shares Outstanding
The Company declared a special cash dividend of $0.15 per Common Share in fiscal 2010 but does not necessarily
anticipate paying regular dividends on an annual basis in the future. The Company currently intends to retain all of its
earnings for the operation and growth of its businesses. The Company’s ability to declare or pay cash dividends is limited
by its credit agreement covenants. At October 31, 2010, there were approximately 664 shareholders of record of the
Company’s Common Shares, as reported by Computershare, Inc., the Company’s Transfer Agent and Registrar, which
maintains its U.S. corporate offices at 250 Royall Street, Canton, MA 02021.
6
Common Share Repurchase
During fiscal 2010, the Company invested $0.7 million to repurchase 66,093 common shares under a stock repurchase
program initiated in June 2010, at which time the Company indicated that it was prepared to invest up to $1.0 million to
repurchase its shares. The common shares were repurchased (i) during the period from June 7, 2010 through September 13,
2010, (ii) at a price range of $9.88 to $10.99 per share and (iii) at an average volume of 1,120 common shares per day
transacted.
Reference Part III, Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters” for information related to the Company’s equity compensation plans.
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,
2010
2009
2008
2007
2006
(Amounts in thousands, except per share data)
83,270
$
93,888
$
101,391
$
87,255
$
68,606
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……..……………………………………....
Net income per share (basic)………………………
Net income per share (diluted)………….…………
Cash dividends per share……………………………….
8,394
3,032
5,362
1.01
1.00
---
5,362
1.01
1.00
0.15
12,327
4,480
7,847
1.48
1.47
188
8,035
1.52
1.51
0.10
Shares Outstanding at Year End…………………….
5,259
5,298
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
1.67
1.66
(2,044)
6,728
1.28
1.27
---
(35)
14
(49)
(0.01)
(0.01)
1,009
960
0.18
0.18
---
5,281
5,222
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…………………………………..………..
35,632
20,749
69,650
35
6,883
48,039
9.13
$
35,540
16,940
65,770
154
6,207
45,245
8.54
$
34,315
10,253
60,149
269
2,450
40,679
7.68
$
32,350
10,570
60,889
2,986
1,958
36,778
6.96
$
15,011
14,059
48,775
427
5,838
25,183
4.82
11.9%
0.1%
3.9
19.8%
0.3%
3.9
15.9%
0.7%
3.6
26.7%
8.1%
3.1
4.3%
1.7%
1.9
7
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) the impact on business
conditions, and on the demand for product in the aerospace industry in particular, of the global economic downturn,
including the reduction in available capital and liquidity from banks and other providers of credit; (2) future business
environment, including capital and consumer spending; (3) competitive factors, including the ability to replace business
which may be lost; (4) successful development of turbine component repair processes and/or procurement of new repair
process licenses from turbine engine manufacturers and/or the Federal Aviation Administration; (5) metals and
commodities price increases and the Company’s ability to recover such price increases; (6) successful development and
market introduction of new products and services (7) regressive pricing pressures on the Company’s products and services,
with productivity improvements as the primary means to maintain margins; (8) continued reliance on consumer acceptance
of regional and business aircraft powered by more fuel efficient turboprop engines; (9) continued reliance on military
spending, in general, and/or several major customers, in particular, for revenues; (10) the impact on future contributions the
Company’s defined benefit pension plans due to changes in actuarial assumptions, government regulations and the market
value of plan assets; and (11) stable governments, business conditions, laws, regulations and taxes in economies 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, precision component machining, and selective electrochemical metal finishing. The
products include forged components, machined forged components, other machined metal components, 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 2010 Compared with Fiscal Year 2009
Net sales in fiscal 2010 decreased 11.3% to $83.3 million, compared with $93.9 million in fiscal 2009. Income from
continuing operations in fiscal 2010 was $5.4 million, compared with $7.8 million in fiscal 2009. Included in the
$5.4 million of income from continuing operations in fiscal 2010 was LIFO expense of $0.2 million. Included in the
$7.8 million of income from continuing operations in fiscal 2009 was LIFO income of $1.6 million. Income from
discontinued operations, net of tax, was $0.2 million in fiscal 2009. Net income in fiscal 2010 was $5.4 million, compared
with $8.0 million in fiscal 2009.
Aerospace Component Manufacturing Group (“ACM Group”)
Net sales in fiscal 2010 decreased 9.5% to $62.1 million, compared with $68.6 million in fiscal 2009. 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. The ACM Group produces turbine engine
components for small aircraft such as business and regional jets, military transport and surveillance aircraft. Turbine engine
components are also produced for armored military vehicles powered by small turbine engines. Net sales comparative
information for fiscal 2010 and 2009, respectively, is as follows:
8
Net Sales
Year Ended
September 30,
2010
2009
Increase
(Decrease)
Airframe components for small aircraft………………….. $
Small turbine engine components………………………...
Airframe components for large aircraft…………………..
Turbine engine components for large aircraft…………….
Commercial product sales and other revenue…………….
36.3
20.7
3.4
0.8
0.9
$ 38.5
21.0
4.6
2.2
2.3
$
(2.2)
(0.3)
(1.2)
(1.4)
(1.4)
Total………………………………………………… $
62.1
$
68.6
$
(6.5)
The decrease in net sales of airframe components for both small and large aircraft, as well as turbine engine components for
large aircraft, during fiscal 2010, compared with fiscal 2009, is principally due to a decrease in the sales volumes of such
components to customers. Such volume declines were caused by the overall weak global economic conditions that resulted
in reduced build rates of commercial aircraft. The decrease in net sales of small turbine engine components during fiscal
2010, compared with fiscal 2009, is primarily attributable to declines in the production and delivery of armored military
vehicles that are powered by small turbine engines. This decrease is partially offset by an increase in sales of turbine
engine components for small aircraft such as military transport and surveillance aircraft. The decline in commercial product
net sales is due to volume decline caused by the overall weak global economic conditions.
The ACM Group’s airframe and turbine engine component products have both military and commercial applications. Net
sales of such components that solely have military applications were $33.9 million in fiscal 2010, compared with $35.0
million in fiscal 2009. Ongoing wartime demand, such as for additional military helicopters and related replacement
components, is the primary driver of net sales of the components that have military applications, as well as net sales of
components that have both military and commercial applications.
The ACM Group’s selling, general and administrative expenses decreased $0.1 million to $4.1 million, or 6.5% of net sales,
in fiscal 2010, compared with $4.2 million, or 6.1% of net sales, in fiscal 2009. The decrease in selling, general and
administrative expenses is principally due to (i) lower variable selling expenses as a result of both lower net sales and lower
sales representative commission rates as well as (ii) lower expenses associated with uncollectible accounts receivable in
fiscal 2010, compared with fiscal 2009. This was partially offset by higher employee incentive expense and consulting
costs related to the implementation of a company-wide management information system.
The ACM Group’s operating income decreased $3.5 million to $9.9 million in fiscal 2010, compared with $13.4 million in
fiscal 2009. The following is a comparison of operating income on both a LIFO and FIFO basis:
Operating Income
Year Ended
September 30,
2010
2009
Increase
(Decrease)
Operating income………………………………........................
LIFO expense (income)………………………….......................
$
9.9
0.2
$ 13.4
(1.6)
$
(3.5)
1.8
Operating income without LIFO expense (income)………........ $
10.1
$
11.8
$
(1.7)
Operating income was negatively impacted to a modest degree by the raw material component of manufacturing costs
being approximately 40.4% of net sales in fiscal 2010, compared with 39.9% of net sales in fiscal 2009, due primarily to
product mix.
Operating income in fiscal 2010, compared with fiscal 2009, was negatively impacted by lower production levels, due to
lower net sales volumes. The lower production levels resulted in the ACM Group’s fixed manufacturing cost structure
being allocated to fewer units of production resulting in higher per unit overhead expenses. This negative impact was
partially offset by the following changes in certain other components of the ACM Group’s manufacturing expenditures in
fiscal 2010, compared with fiscal 2009:
9
Manufacturing expenditures
Overhead:
Year Ended
September 30,
2010
2009
Increase
(Decrease)
Utilities…………………………………………………….
Repairs, maintenance and supplies………………………...
Depreciation……………………………………………….
Tooling…………………………………………………….
$
3.4
2.7
1.0
1.2
$ 4.2
3.1
0.8
1.6
$
(0.8)
(0.4)
0.2
(0.4)
Manufacturing costs benefited in fiscal 2010, compared with fiscal 2009, from (i) a 21.3% decline in the ACM Group’s
price paid for natural gas as a result of global economic conditions, (ii) a 9.4% decline in the volume of natural gas
consumed as a result of the aforementioned lower production levels, and (iii) a decrease in expenditures for repairs and
maintenance and production supplies also due primarily to the lower production levels. Depreciation expense was higher in
fiscal 2010, compared with fiscal 2009, due to the effect of recent capital expenditures for equipment.
Turbine Component Services and Repair Group (“Repair Group”)
During fiscal 2010, net sales, which consist principally of component repair services (including precision component
machining and industrial coating) for small aerospace turbine engines, decreased 22.5% to $8.9 million, compared with
$11.5 million in fiscal 2009. The Repair Group’s decrease in net sales volumes is due to (i) a component repair program
being on hold subject to the original equipment manufacturer’s (”OEM”) evaluation / redesign of the repair, (ii) the overall
weak global economic conditions and (iii) a larger customer consolidating its sources for component repair.
During fiscal 2010, the Repair Group’s selling, general and administrative expenses were $1.2 million, or 13.8% of net
sales, compared with $1.3 million, or 11.0% of net sales, in fiscal 2009.
The Repair Group’s operating results were essentially breakeven in fiscal 2010, compared with an operating income of $0.1
million in fiscal 2009. A decrease in operating income principally attributable to the negative impact on margins from
decreased sales volumes that occurred in fiscal 2010, compared to fiscal 2009, was partially offset by lower manufacturing
labor and benefits costs due to a reduction in manufacturing employee wage rates and benefit levels.
Applied Surface Concepts Group (“ASC Group”)
Net sales in fiscal 2010 decreased 10.8% to $12.2 million, compared with $13.7 million in fiscal 2009. For purposes of the
following discussion, (i) product net sales consist of selective electrochemical metal finishing equipment and solutions and
(ii) contract service net sales consist of customized selective electrochemical metal finishing services. Net sales
comparative information for fiscal 2010 and 2009, respectively, is as follows:
Net Sales
Year Ended
September 30,
2010
2009
Increase
(Decrease)
Product………………………………................................... $
Contract service…………………………………………….
Other………………………………………………………..
6.1
5.9
0.2
$ 7.0
6.5
0.2
$
(0.9)
(0.6)
---
Total……………………………………………………
$
12.2
$
13.7
$
(1.5)
The decrease in product net sales in fiscal 2010 is primarily due to the loss of two (2) customers, one due to a product
redesign and the other due to a change in its production methods. Partially offsetting these declines in product net sales is
an increase in product net sales to customers in the aerospace industry. The overall weak global economic conditions,
particularly a decrease in demand from the ASC Group’s customers in the oil /gas and the power generation industries,
negatively impacted contract service net sales in fiscal 2010, compared with fiscal 2009. A portion of the ASC Group’s
business is conducted in Europe and is denominated in local European currencies. Fluctuations in the exchange rates
between the local European currencies and the U.S. dollar did not have a significant impact on net sales in fiscal 2010.
The ASC Group’s selling, general and administrative expenses were $4.4 million, or 36.1% of net sales, in fiscal 2010,
compared with $4.2 million, or 30.3% of net sales in fiscal 2009. The increase in selling, general and administrative
expenses is principally attributable to (i) higher depreciation and consulting costs related to the implementation of a
10
company-wide management information system during fiscal 2010; (ii) higher expenses associated with uncollectible
accounts receivable; and (iii) higher sales and marketing expenses. These increases were partially offset by decreases in
expenditures for legal and professional services, incentive and research and development.
The ASC Group’s operating income in fiscal 2010 was $0.2 million, compared with $0.8 million in fiscal 2009. The
decrease in operating income is principally due to the negative impact on margins from decreased net sales volumes that
occurred in fiscal 2010, compared with fiscal 2009, without a corresponding decrease in selling, general and administrative
expenses. This negative impact was partially offset by the following changes in certain other components of the ASC
Group’s operating expenditures in fiscal 2010, compared with fiscal 2009:
Operating expenditures
Year Ended
September 30,
2010
2009
Increase
(Decrease)
Material……………………………...…………………………. $
Compensation and benefits………………...……………...........
$
2.2
2.8
$
3.2
3.0
(1.0)
(0.2)
Operating costs benefited in fiscal 2010, compared with fiscal 2009, from (i) a decline in the ASC Group’s material cost
due primarily to the aforementioned decline in product sales and a product mix change away from products that contain
precious metals and (ii) a decrease in expenditures for compensation and benefits due primarily to lower healthcare costs
and a reduction in the number of employees.
Corporate Unallocated Expenses
Corporate unallocated expenses, consisting of corporate salaries and benefits, legal and professional and other expenses that
are not related to and, therefore, not allocated to the business segments, were $2.2 million in fiscal 2010, compared with
$1.9 million in fiscal 2009 principally due to the following changes in certain components of these expenses:
Corporate Unallocated Expenses
2010
2009
Increase
(Decrease)
Compensation and benefit expenses……………........................ $
Consulting expenses……………………………........................
Ireland facility expenses………………………………………..
$
1.0
0.3
0.2
0.8
---
0.4
$
0.2
0.3
(0.2)
Year Ended
September 30,
The increase in corporate unallocated expenses in fiscal 2010 compared to the same period in fiscal 2009 is principally due
to (i) higher consulting expenses associated with the Company’s Chief Executive Officer (full year in fiscal 2010) and (ii)
an increase in compensation and related benefit expenses due principally to higher incentive compensation and salary
retirement plan expenses. These expenses were partially offset by a decrease in depreciation expense related to the activity
of leasing the Cork, Ireland facility. Such activity was included in discontinued operations during the first nine months of
fiscal 2009, the period during which such facility was classified as held for sale. In the fourth quarter of fiscal 2009, such
facility was no longer classified as held for sale and, therefore, a $0.2 million higher aggregate depreciation expense was
recorded to account for both fiscal 2009 depreciation expense as well as prior period “catch-up” depreciation.
Other/General
Interest expense was nominal in both fiscal 2010 and 2009 principally because there were no amounts outstanding under
the Company’s revolving credit agreement during either period.
Other income, net consists principally of $0.4 million of rental income earned from the lease of the Cork, Ireland facility.
The Company believes that inflation did not materially affect its results of operations in either fiscal 2010 or 2009, and does
not expect inflation to be a significant factor in fiscal 2011.
11
2. Fiscal Year 2009 Compared with Fiscal Year 2008
Net sales in fiscal 2009 decreased 7.4% to $93.9 million, compared with $101.4 million in fiscal 2008.
Income from continuing operations in fiscal 2009 was $7.8 million, compared with $5.5 million in fiscal 2008. Included in
the $7.8 million of income from continuing operations in fiscal 2009 was LIFO income of $1.6 million. Included in the
$5.5 million of income from continuing operations in fiscal 2008 was (i) $0.5 million of expense related to an amicable
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) LIFO expense of $1.7 million. Income from discontinued operations, net of tax, was
$0.2 million in fiscal 2009, compared with $0.3 million in fiscal 2008. Net income in fiscal 2009 was $8.0 million,
compared with $5.8 million in fiscal 2008.
Aerospace Component Manufacturing Group (“ACM Group”)
Net sales in fiscal 2009 decreased 4.6% to $68.6 million, compared with $72.0 million in fiscal 2008. 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 $0.3 million to $38.5 million in fiscal 2009, compared with $38.2 million in fiscal 2008. 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 $1.1 million to $21.0 million in fiscal 2009, compared with $19.9 million in
fiscal 2008. Net sales of airframe components for large aircraft decreased $3.0 million to $4.6 million in fiscal 2009,
compared with $7.6 million in fiscal 2008. Net sales of turbine engine components for large aircraft decreased $0.8 million
to $2.2 million in fiscal 2009, compared with $3.0 million in fiscal 2008. Commercial product sales and other revenues
were $2.3 million and $3.3 million in fiscal 2009 and 2008, respectively. The decline in net sales of airframe and turbine
engine components for large aircraft is primarily attributable to the overall weak global economic conditions and the related
impact such conditions have had on commercial aviation.
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 $35.0 million in fiscal 2009,
compared with $33.6 million in fiscal 2008. 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.
The ACM Group’s selling, general and administrative expenses decreased $0.7 million to $4.2 million, or 6.1% of net sales,
in fiscal 2009, compared with $4.9 million, or 6.8% of net sales, in fiscal 2008. Included in selling, general and
administrative expenses in fiscal 2008 was $0.5 million related to the payment to a customer that (i) was made to achieve
an amicable business settlement of a product dispute and (ii) 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 were $4.4 million, or 6.1% of net sales. The remaining $0.2 million decrease in selling, general and
administrative expenses in fiscal 2009 compared with fiscal 2008 was principally due to a $0.1 million decrease in variable
selling cost principally due to the decrease in net sales.
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 2009 was $13.4 million, compared with $9.9 million in fiscal 2008.
Operating results in fiscal 2009 were favorably impacted by (i) an approximate $3.3 million reduction in the LIFO expense
in fiscal 2009, compared with fiscal 2008, (ii) lower expenditures for natural gas principally due to lower consumption and
(iii) the negative impact in fiscal 2008, of the aforementioned $0.5 million settlement expense and $0.8 million impairment
expense. These improvements were partially offset by the negative impact of (i) higher manufacturing labor and benefits
expense due to higher average levels of employment and (ii) an increase in other manufacturing overhead costs incurred in
fiscal 2009, compared with fiscal 2008.
Turbine Component Services and Repair Group (“Repair Group”)
During fiscal 2009, net sales, which consist principally of component repair services (including precision component
machining and industrial coating) for small aerospace turbine engines, decreased 19.6% to $11.5 million, compared with
$14.3 million in fiscal 2008. The Repair Group’s decrease in net sales is primarily due to the overall weak global economic
conditions.
During fiscal 2009, the Repair Group’s selling, general and administrative expenses were $1.3 million, or 11.0% of net
sales, compared with $1.3 million, or 9.2% of net sales, in fiscal 2008.
12
The Repair Group’s operating income in fiscal 2009 was $0.1 million, compared with an operating loss of $0.3 million in
fiscal 2008. Operating results in fiscal 2009 were positively impacted principally by (i) an increase in selling prices, (ii)
$0.1 million of income related to the favorable settlements of certain obligations and (iii) the improved management of
operating expenses, principally labor costs. Although sales volumes were higher in fiscal 2008, operating results were
negatively impacted in fiscal 2008 by startup costs related to the production launch of a new component repair program.
As discussed in the Company’s Form 8-K filed on January 20, 2009, the Company explored strategic alternatives for the
Repair Group for the purpose of enhancing shareholder value. The Company conducted an orderly and comprehensive
review and evaluation of strategic alternatives available to it, including a divestiture of the Repair Group.
Applied Surface Concepts Group (“ASC Group”)
Net sales decreased 9.0% to $13.7 million in fiscal 2009, compared with $15.1 million in fiscal 2008. In fiscal 2009,
product net sales, consisting of selective electrochemical metal finishing equipment and solutions, decreased $0.4 million to
$7.1 million, compared with $7.5 million in fiscal 2008. In fiscal 2009, customized selective electrochemical metal
finishing contract service net sales decreased $0.9 million to $6.5 million, compared with $7.4 million in fiscal 2008. The
overall weak global economic conditions, particularly in the oil and gas industry, negatively impacted the ASC Group’s net
sales in fiscal 2009. A portion of the ASC Group’s business is conducted in Europe and is denominated in local European
currencies, which have weakened in relation to the US dollar, resulting in an unfavorable currency impact on net sales in
fiscal 2009 of approximately $1.0 million.
The ASC Group’s selling, general and administrative expenses decreased $0.2 million to $4.1 million, or 30.3% of net
sales, in fiscal 2009, compared with $4.3 million, or 28.7% of net sales, in fiscal 2008. The decrease in selling, general and
administrative expenses in fiscal 2009 was principally due to a reduction in compensation and benefit related expenses
attributable to the elimination of certain positions and the temporary reduction of employee compensation.
The ASC Group’s operating income in fiscal 2009 was $0.8 million, compared with $1.3 million in fiscal 2008. This
decrease in operating income was principally due to the effect of lower net sales without a corresponding decrease in
operating expenses.
Corporate Unallocated Expenses
Corporate unallocated expenses, consisting of corporate salaries and benefits, legal and professional and other corporate
expenses, were $1.9 million in fiscal 2009, compared with $2.0 million in fiscal 2008. The $0.1 million net decrease in
fiscal 2009 is principally due to a $0.4 million decrease in legal and professional expenses in fiscal 2009, compared with
fiscal 2008. This decrease was partially offset by $0.2 million of depreciation expense recorded in the fourth quarter of
fiscal 2009 related to an asset that was classified as held for sale, beginning in fiscal 2008 and through the third quarter of
fiscal 2009, for which no depreciation expense was required to be recorded while it was classified as held for sale.
Other/General
Interest expense from continuing operations was $0.1 million in both fiscal 2009 and 2008. 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 2009 and 2008.
Credit Agreement
2009
Revolving credit agreement……………………….
N/A
2008
6.8%
2009
N/A
2008
$1.4 million
Weighted Average
Interest Rate
Year Ended September 30,
Weighted Average
Outstanding Balance
Year Ended September 30,
B. Liquidity and Capital Resources
Cash and cash equivalents decreased to $18.7 million at September 30, 2010, compared with $19.9 million at September
30, 2009, while short-term investments increased to $3.0 million at September 30, 2010, compared with zero at September
30, 2009. At September 30, 2010, $6.1 million of the Company’s cash and cash equivalents and short-term investments 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.
13
The Company’s operating activities provided $9.9 million of cash in fiscal 2010, compared with $14.5 million of cash
provided by operating activities (of which $14.7 million was provided by continuing operations) in fiscal 2009. The
$9.9 million of cash provided by operating activities in fiscal 2010 was primarily due to (i) net income of $5.4 million,
(ii) $2.5 million from the impact of such non-cash items as depreciation expense, deferred taxes and LIFO expense and
(iii) a $1.1 million decrease in inventory. These changes in the components of working capital were due primarily to factors
resulting from normal business conditions of the Company, including (i) the relative timing of collections from customers,
(ii) the collection of refundable income taxes and (iii) the relative timing of payments to suppliers and tax authorities.
Capital expenditures were $6.7 million in fiscal 2010 compared with $5.3 million in fiscal 2009. Capital expenditures
during fiscal 2010 consisted of $6.1 million by the ACM Group, $0.4 million by the ASC Group and $0.2 million by the
Repair Group. In addition to the $6.7 million expended during fiscal 2010, $0.5 million has been committed as of
September 30, 2010. The Company anticipates that total fiscal 2011 capital expenditures will be within the range of $4.0 to
$5.0 million and will relate principally to the further enhancement of production and product offering capabilities across all
three of the Company’s business groups.
During fiscal 2010, the Company invested $0.7 million to repurchase its common shares under a stock repurchase program
initiated in June 2010, at which time the Company indicated that it was prepared to invest up to $1.0 million to repurchase
its shares.
In the fourth quarter of fiscal 2010, the Company declared a special cash dividend of $0.15 per common share, which will
result in a cash expenditure of $0.8 million during first quarter of fiscal 2011.
At September 30, 2010, the Company had an $8.0 million revolving credit agreement with a bank, subject to sufficiency of
collateral, which expires on January 1, 2012 and bears interest at the bank’s base rate plus 0.50%. The interest rate was
3.25% at September 30, 2010. A 0.35% commitment fee is incurred on the unused balance of the revolving credit
agreement. At September 30, 2010, 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, 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 2011.
C. Off-Balance Sheet Arrangements
The Company does not have any obligations that meet the definition of an off-balance sheet arrangement that have had, or
are reasonably likely to have, a material effect on the Company’s financial condition or results of operations.
D. Other Contractual Obligations
The following table summarizes the Company’s outstanding contractual obligations and other commercial commitments at
September 30, 2010 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
Up to
1 year
>3 up to
5 years
More than
5 years
Debt obligations………...…….. $
Capital lease obligations………
Operating lease obligations…...
5
145
1,188
$
$
2
117
456
$
3
28
474
---
---
258
$
---
---
---
Total…………..…….….... $
1,338
$
575
$
505
$
258
$
---
14
Excluded from the foregoing Other Contractual Obligations table are open purchase orders at September 30, 2010 for raw
materials and supplies required in the normal course of business. Excluded from the foregoing Other Contractual
Obligations table is a $0.1 million liability for uncertain tax positions as the Company is unable to determine at this time if
and/or when this amount, or any portion thereof, may become payable. Included in other long-term liabilities in the
Company’s consolidated balance sheet as of September 30, 2010 is $6.1 million of liabilities related to the Company’s
defined benefit pension plans. The Company is expected to make contributions of approximately $0.6 million to fund its
defined benefit pension plans in fiscal 2011.
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 the aircraft and related engine manufacturers. The ACM group is also dependent on the
military aerospace industry. Consequently, the performance of the domestic and international air transport industry as well
as government defense spending directly and significantly impacts the performance of the Repair and ACM Groups’
businesses.
After the recent two year period of negative operating results in the global commercial airline industry that was due in large
part to the global economic downturn, the financial condition of the global commercial airline industry improved in 2010
with a return to profitability. This return to profitability is due to strong demand in both air freight and passenger traffic
resulting principally from improvements in both business and consumer confidence levels. The improved confidence levels
can be attributed to the subsiding of the global economic downturn. During fiscal 2010, both air freight and passenger
traffic returned to pre-recession levels.
The Company supplies new and spare components for military aircraft. Military spending has continued to be strong and
level in recent years. As a result of continued military initiatives, there has been strong demand for both new and spare
components for military customers. The 2011-12 defense budget includes the planned elimination of certain military
aircraft. These eliminations are countered by the new programs being supported - such as the tanker program, the F-35 and
V-22.
The air transport industry’s long-term outlook is for continued, steady growth. Such longer-term outlook suggests the need
for additional aircraft and, therefore, growth in the requirement for airframe and engine components as well as aerospace
turbine engine component repairs. The air transport industry has recently benefited 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) relatively stable fuel prices. Recent improvement in aircraft capacity
utilization is due to the increase in air freight and passenger traffic, which is driving demand for additional capacity. While
aircraft capacity was reduced sharply in 2009, it has returned to the market at about the same pace as the growth in demand
for such capacity. The Company believes this pattern should continue with the long-term steady growth projected by the
air transport industry. The Company’s current outlook for the air transport industry is cautiously optimistic while the
military segment remains stable, yet subject to potential changes in defense spending decisions. However, the Company
believes that it is poised to take advantage of the resulting improvement in order demand from the commercial airframe and
engine manufacturers if and when it may occur.
It is difficult to determine, at this time, 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 in the
global economy could result in credit risk associated with serving the 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, short-term
investments, 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.
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
15
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 involves judgment and is performed using estimates
of future undiscounted cash flows, which include proceeds from disposal of assets and which the Company considers a
critical accounting estimate. If the carrying value of a long-lived asset is greater than the estimated undiscounted future
cash flows, 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.
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, which could result in future
impairment charges.
Defined Benefit Pension Plan Expense
The Company maintains three defined benefit pension plans in accordance with the requirements of the Employee
Retirement Income Security Act of 1974 (“ERISA”). The amounts recognized in the consolidated financial statements for
pension benefits under these three defined benefit pension plans are determined on an actuarial basis utilizing various
assumptions. The discussion that follows provides information on the significant assumptions/elements associated with
these defined benefit pension plans.
One significant assumption in determining net pension expense is the expected return on plan assets. The Company
determines the expected return on plan assets principally based on (i) the expected return for the various asset classes in the
respective plans’ investment portfolios and (ii) the targeted allocation of the respective plans’ assets. The expected return
on plan assets is developed using historical asset return performance as well as current and anticipated market conditions
such as inflation, interest rates and market performance. Should the actual rate of return differ materially from the
assumed/expected rate, the Company could experience a material adverse effect on the funded status of its plans and,
accordingly, on its related future net pension expense.
Another significant assumption in determining the net pension expense is the discount rate. The discount rate for each plan
is determined, as of the fiscal year end measurement date, using prevailing market spot-rates (from an appropriate yield
curve) with maturities corresponding to the expected timing/date of the future defined benefit payment amounts for each of
the respective plans. Such corresponding spot-rates are used to discount future years’ projected defined benefit payment
amounts back to the fiscal year end measurement date as a present value. A composite discount rate is then developed for
each plan by determining the single rate of discount that will produce the same present value as that obtained by applying
the annual spot-rates. The discount rate may be further revised if the market environment indicates that the above
methodology generates a discount rate that does not accurately reflect the prevailing interest rates as of the fiscal year end
measurement date
Deferred Tax Valuation Allowance
The Company accounts for deferred taxes in accordance with the provisions of the Accounting Standards Codification
(“ASC”) guidance related to 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
16
September 30, 2010 and 2009, the Company’s net deferred tax liability before any valuation allowance was $0.4 million
and a nominal amount, respectively.
G. Impact of Newly Issued Accounting Standards
In February 2010, the Financial Accounting Standards Board (“FASB”), issued an Accounting Standard Update (“ASU”)
No. 2010-09, which addresses certain implementation issues related to an entity’s requirement to perform and disclose
subsequent events procedures. The ASU (i) exempts entities that file their financial statements with the SEC from
disclosing the date through which subsequent events procedures have been performed and (ii) clarifies the circumstances in
which an entity’s financial statements would be considered restated and the entity would therefore be required to update its
subsequent events evaluation. The guidance provided by the FASB became effective immediately upon issuance, and the
Company has adopted its disclosure requirements within this Form 10-K for the year ended September 30, 2010.
In January 2010, the FASB issued ASU No. 2010-06 to improve disclosures about fair value measurements, which amends
the ASC related to fair value measurements and disclosures. This amendment to the ASC will add new requirements for
disclosures about transfers into and out of fair value hierarchy Levels 1, 2 and 3 and separate disclosures about purchases,
sales, issuances and settlements relating to fair value hierarchy Level 3 measurements. The ASU also clarifies existing fair
value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value.
Further, the ASU amends guidance on employers’ disclosure requirements for plan assets for defined benefit pensions and
other postretirement benefit plans. Under the new guidance it is required that disclosures be provided by classes of assets
instead of by major categories of assets. This ASU is effective for the first reporting period beginning after December 15,
2009, except for the requirement to provide fair value hierarchy Level 3 activity of purchases, sales, issuances and
settlements on a gross basis, which will be effective for fiscal years beginning on or after December 15, 2010, and for
interim periods within those fiscal years. The Company does not expect the adoption of this guidance to have a material
impact on its consolidated financial statements and disclosures.
17
[This Page Intentionally Left Blank]
18
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, 2010 and 2009, and the related consolidated statements of operations, shareholders’ equity
and cash flows for each of the three years in the period ended September 30, 2010. Our audits of the basic financial
statements included the financial statement schedule appearing under Schedule II. These financial statements and financial
statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule 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, 2010 and 2009, and the results of their operations
and their cash flows for each of the three years in the period ended September 30, 2010 in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ GRANT THORNTON LLP
Cleveland, Ohio
December 15, 2010
19
SIFCO Industries, Inc. and Subsidiaries
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
Net sales…………………………………………….….……….…..…..
Operating expenses:
Cost of goods sold……………………………….………….……….
Selling, general and administrative expenses…….………………….
Loss (gain) on disposal or impairment of operating assets………….
Years Ended September 30,
2010
2009
2008
$
83,270
$
93,888
$
101,391
63,529
11,860
(34)
69,947
11,465
---
79,161
12,495
757
Total operating expenses……………………….…………….…..
75,355
81,412
92,413
Operating income……...….…..……………………..….…….
7,915
12,476
8,978
Interest income………………………………………………….……....
Interest expense………………………………………………….……...
Foreign currency exchange loss (gain) …..……………………….….....
Other income, net……………………………..……………...................
Income from continuing operations before income
tax provision…………………………………....................
Income tax provision………………………………..….……………….
Income from continuing operations………...……………...…
Income from discontinued operations, net of tax……………………….
(57)
71
(23)
(470)
8,394
3,032
5,362
---
(16)
67
217
(119)
12,327
4,480
7,847
188
Net income………………...……………………………….....
$
5,362
$
8,035
Income per share from continuing operations
Basic…………………………………………………………. $
Diluted……………………………………………………….. $
Income 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)……….….……
$
$
$
$
$
$
1.01
1.00
---
---
1.01
1.00
5,300
5,344
1.48
1.47
0.04
0.04
1.52
1.51
5,295
5,325
$
$
$
$
$
$
$
(24)
149
35
(2)
8,820
3,277
5,543
287
5,830
1.05
1.04
0.05
0.05
1.10
1.09
5,291
5,340
See notes to consolidated financial statements.
20
SIFCO Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
(Amounts in thousands, except per share data)
September 30,
$
ASSETS
Current assets:
Cash and cash equivalents………………..……………………..………….. $
Short-term investments……………………………………………………...
Receivables, net….………………………..……………………..………….
Inventories………………………………….……………………....……….
Refundable income taxes…………………..………………………..………
Deferred income taxes…………………..………………………..…………
Prepaid expenses and other current assets…..…………………………..…..
Total current assets………………..…………………..………..…….
Property, plant and equipment:
Land……………………………………..…………………………………..
Buildings………………………………..………………….……..………....
Machinery and equipment……………..……………………..……………..
Accumulated depreciation………..……………………..………….……….
Property, plant and equipment, net..……...……………..……………
Other assets …..………………………..……………………..…………….…..
2010
18,671
3,020
17,182
6,272
692
1,502
627
47,966
579
13,642
44,350
58,571
37,822
20,749
935
2009
19,875
---
17,010
7,568
889
1,651
601
47,594
578
14,748
38,785
54,111
37,171
16,940
1,236
Total assets……..…………………………………....……………
$
69,650
$
65,770
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt…..……………………..…………….. $
Accounts payable……………………..……………………..………………
Accrued liabilities…………………..…………………………..…………...
$
108
7,939
4,287
101
7,629
4,324
Total current liabilities………..…………………………..…………...
12,334
12,054
Long-term debt, net of current maturities……..………………..………………
Deferred income taxes………………………………………………………….
Other long-term liabilities………………..………………………..…..……….
35
2,359
6,883
154
2,110
6,207
Shareholders’ equity:
Serial preferred shares, no par value, authorized 1,000 shares…...………....
Common shares, par value $1 per share, authorized 10,000 shares; issued
5,325 shares in 2010 and 5,298 shares in 2009; outstanding 5,259
shares in 2010 and 5,298 shares in 2009……………………………….
Additional paid-in capital………………..………………………..………...
Retained earnings……………………..…………………………..………...
Accumulated other comprehensive loss……..…………………..….……....
Common shares held in treasury at cost, 66 shares in 2010, no shares in
---
---
5,325
6,983
47,733
(11,310)
5,298
6,490
43,160
(9,703)
2009…………………………………………………………………….
(692)
---
Total shareholders’ equity……..…………………………..………….
48,039
45,245
Total liabilities and shareholders’ equity…..…………..……….…. $
69,650
$
65,770
See notes to consolidated financial statements.
21
SIFCO Industries, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Amounts in thousands)
Years Ended September 30,
2010
2009
2008
Cash flows from operating activities:
Net income……...….……………………………….……..……………………. $
Income from discontinued operations, net of tax………………………………..
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
5,362
---
$
8,035
(188)
$
5,830
(287)
Depreciation and amortization…………………….………….........................
(Gain) loss on disposal of property, plant and equipment……………….........
LIFO (income) provision……………………………………………………...
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………………………………………………….
Net cash provided by operating activities of continuing operations…
Net cash used for operating activities of discontinued operations…...
1,895
(34)
175
436
519
---
(218)
1,090
197
(32)
299
321
(280)
148
9,878
---
Cash flows from investing activities:
Capital expenditures……………………………………......................................
Purchase of short-term investments……………………………………………..
Proceeds from disposal of property, plant and equipment……………………....
(6,747)
(3,039)
55
1,825
(5)
(1,583)
580
94
---
2,128
5,726
420
(136)
4
(746)
(765)
(644)
14,745
(191)
(5,256)
---
5
1,483
1
1,712
1,184
60
757
(58)
(3,412)
(1,311)
(110)
(184)
(650)
(705)
(1,337)
9,797
(62)
(2,012)
---
1
Net cash used for investing activities of continuing operations……...
(9,731)
(5,251)
(2,011)
Cash flows from financing activities:
Proceeds from revolving credit agreement……………………………………...
Repayments of revolving credit agreement……………………………………..
Repayments of long-term debt……………………………..................................
Dividends paid…..………………………………………………………………
Repurchase of common shares…………………………………………………..
Repayments of capital lease obligations……………...........................................
---
---
---
(529)
(692)
(109)
Net cash used for financing activities of continuing operations……..
(1,330)
---
---
(2)
---
---
(106)
(108)
(Decrease) increase in cash and cash equivalents…………………..………………
Cash and cash equivalents at beginning of year……………………………………
Effect of exchange rate changes on cash and cash equivalents…………………….
(1,183)
19,875
(21)
9,195
10,440
240
21,029
(23,629)
---
---
---
(109)
(2,709)
5,015
5,510
(85)
Cash and cash equivalents at end of year……….....………………… $
18,671
$
19,875
$
10,440
Supplemental disclosure of cash flow information:
Cash paid for interest……………………………………………………………
Cash paid for income taxes, net…………………………………………………
$
$
(58) $
(2,070) $
(52) $
(4,061) $
(172)
(3,598)
See notes to consolidated financial statements.
22
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
Common
Shares
Held in
Treasury
Total
Shareholders’
Equity
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
Stock option expense…………………………...........
Share transactions under employee stock plans..........
---
14
50
(3)
---
---
---
---
---
---
50
11
Balance – September 30, 2008
$ 5,295
$ 6,399
$ 35,658
$ (6,673) $ ---
$ 40,679
Comprehensive income:
Net income………………………………..........
Foreign currency translation adjustment………
Pension liability adjustment, net of tax………..
Total comprehensive income.………….
---
---
---
---
---
---
8,035
---
(4)
---
212
(3,242)
---
---
---
8,035
212
(3,246)
5,001
Dividend declared……………………………………
Stock option and performance share expense….........
Share transactions under employee stock plans..........
---
---
3
---
82
9
(529)
---
---
---
---
---
---
---
---
(529)
82
12
Balance – September 30, 2009
$ 5,298
$ 6,490
$ 43,160
$ (9,703) $ ---
$ 45,245
Comprehensive income:
Net income………………………………..........
Foreign currency translation adjustment………
Pension liability adjustment, net of tax…..........
Total comprehensive income.…………
---
---
---
---
---
---
5,362
---
---
---
(1,079)
(528)
---
---
---
5,362
(1,079)
(528)
3,755
Dividend declared……………………………………
Performance share expense….....................................
Repurchase of common shares………………………
Share transactions under employee stock plans..........
---
---
---
27
---
325
---
168
(789)
---
---
---
---
---
---
---
---
---
(692)
---
(789)
325
(692)
195
Balance – September 30, 2010
$ 5,325
$ 6,983
$ 47,733
$ (11,310) $ (692)
$ 48,039
See notes to consolidated financial statements.
23
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Years ended September 30, 2010, 2009 and 2008
(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 metal
finishing. The products include forged components, machined forged parts and other machined metal parts, remanufactured
components for turbine engines, and selective electrochemical metal finishing solutions and equipment. The Company’s
operations are conducted in three business segments: (i) Aerospace Component Manufacturing Group, (ii) Turbine
Component Services and Repair Group and (iii) 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, 2009, the functional currency of the
Company’s Irish subsidiary was changed from the euro to the U.S. dollar. A substantial majority of the Irish subsidiary’s
transactions, as well as its largest monetary asset, are denominated in U.S. dollars and, accordingly, the Company
determined that such transactions should be reflected in U.S. dollars. The impact of making this change was not material to
any year within the accompanying consolidated financial statements prior to October 1, 2009. The functional currency for
the Company’s other non-U.S. subsidiaries 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. SHORT-TERM INVESTMENTS
In general, short-term investments have a maturity of three months to one year at the date of purchase. Short-term
investments classified as held-to-maturity are recorded at cost, which approximates fair value.
E. CONCENTRATIONS OF CREDIT RISK
Receivables are presented net of allowance for doubtful accounts of $582 and $633 at September 30, 2010 and 2009,
respectively. During fiscal 2010 and 2009, $236 and $141 of accounts receivable were written off against the allowance for
doubtful accounts, respectively. Bad debt expense totaled $185, $195 and $254 in fiscal 2010, 2009 and 2008, 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 44% of the Company’s net sales in fiscal 2010 were to four (4) of its largest
customers, with an additional 17% of combined net sales to various direct subcontractors to these customers. No other
single group or customer represents greater than 5% of total net sales in fiscal 2010. 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, 2010.
F. 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 58% and 63% of the Company’s inventories at September 30, 2010 and 2009,
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 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 identifies specific obsolescence,
other than that identified by the aging criteria, an additional reserve will be recognized. Specific obsolescence and excess
reserve requirements may arise due to technological or market changes, or based on cancellation of an order. The
24
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
Company’s reserves for obsolete and excess inventory were $1,212 and $1,319 at September 30, 2010 and 2009,
respectively.
G. 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; (ii) machinery and equipment, including office and computer equipment - 3 to 30 years, (iii)
software 1-10 years and (iv) leasehold improvements 3-5 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, 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 fiscal 2008 related to certain machinery and equipment of the Company’s ACM Group.
The machinery and equipment was determined to be impaired and, therefore, the carrying value of such assets was reduced
to its net realizable value.
H. 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.
I. REVENUE RECOGNITION
The Company recognizes revenue in accordance with the relevant portions of the guidance provided by the United States
Securities and Exchange Commission (“SEC”) related to revenue recognition in financial statements. Revenue is generally
recognized when products are shipped or services are provided to customers.
J. IMPACT OF RECENTLY ADOPTED ACCOUNTING
In February 2010, the Financial Accounting Standards Board (“FASB”), issued an Accounting Standard Update (“ASU”)
No. 2010-09, which addresses certain implementation issues related to an entity’s requirement to perform and disclose
subsequent events procedures. The ASU (i) exempts entities that file their financial statements with the SEC from
disclosing the date through which subsequent events procedures have been performed and (ii) clarifies the circumstances in
which an entity’s financial statements would be considered restated and the entity would therefore be required to update its
subsequent events evaluation. The guidance provided by the FASB became effective immediately upon issuance, and the
Company has adopted its disclosure requirements for the year ended September 30, 2010.
The FASB issued a technical amendment to employers’ disclosure requirement for plan assets for defined benefit pensions
and other postretirement benefit plans, which is integrated into ASC 715-20-50, Compensation – Retirement Benefits –
Defined Benefit Pension Plans – General Disclosure. The objective is to provide users of financial statements with an
understanding of (i) how investment allocation decisions are made, (ii) major categories of plan assets held by the plans,
(iii) how fair value of plan assets are measured, (iv) the effect of fair value measurements on changes in plan assets during a
period and (v) significant concentrations of risk within plan assets. Company has adopted its disclosure requirements for the
year ended September 30, 2010.
K. IMPACT OF NEWLY ISSUED ACCOUNTING STANDARDS
In January 2010, the FASB issued ASU No. 2010-06 to improve disclosures about fair value measurements, which amends
the Accounting Standard Codification (“ASC”) related to fair value measurements and disclosures. This amendment to the
ASC will add new requirements for disclosures about transfers into and out of fair value hierarchy Levels 1, 2 and 3 and
separate disclosures about purchases, sales, issuances and settlements relating to fair value hierarchy Level 3
measurements. The ASU also clarifies existing fair value disclosures about the level of disaggregation and about inputs
and valuation techniques used to measure fair value. Further, the ASU amends guidance on employers’ disclosure
requirements for plan assets for defined benefit pensions and other postretirement benefit plans. Under the new guidance it
is required that disclosures be provided by classes of assets instead of by major categories of assets. This ASU is effective
for the first reporting period beginning after December 15, 2009, except for the requirement to provide fair value hierarchy
Level 3 activity of purchases, sales, issuances and settlements on a gross basis, which will be effective for fiscal years
25
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
beginning on or after December 15, 2010, and for interim periods within those fiscal years. The Company does not expect
the adoption of this guidance to have a material impact on its consolidated financial statements and disclosures.
L. USE OF ESTIMATES
Accounting Principles Generally Accepted in the U.S. (“GAAP”) requires 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.
M. 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 risk 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, 2010 and 2009, the Company had no forward
exchange contracts outstanding.
N. RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. Research and development expense was approximately $661,
$705 and $672 in fiscal 2010, 2009 and 2008, respectively.
O. 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:
2010
2009
2008
Foreign currency translation adjustment………….................................. $
Net pension liability adjustment, net of income tax benefit of $3,484,
$3,180 and $1,105, respectively………………………………………...
(5,725)
$
(4,646)
$
(4,858)
(5,585)
(5,057)
(1,815)
Total accumulated other comprehensive loss……………………….. $
(11,310)
$
(9,703)
$
(6,673)
P. INCOME TAXES
The Company files a consolidated U.S. federal income tax return and tax returns in various state and local jurisdictions.
The Company’s non-U.S. subsidiaries also file tax returns in various jurisdictions, including Ireland, the United Kingdom,
France and Sweden. The Company has not provided U. S. deferred income taxes on certain cumulative earnings of non-
U.S. subsidiaries that have been reinvested indefinitely. A U.S. deferred income tax provision has been made for the
balance of the earnings of the non-U.S. subsidiaries.
The Company accounts for income taxes in accordance with the guidance related to accounting for income taxes, as
amended. Deferred income taxes are (i) provided for the temporary difference between the financial reporting basis and tax
basis of the Company’s assets and liabilities and (ii) measured using the enacted tax rates that are assumed to be in effect
when the differences reverse. Deferred tax assets result principally from recording certain expenses in the financial
statements in excess of amounts currently deductible for tax purposes. Deferred tax liabilities result principally from tax
depreciation in excess of book depreciation and unremitted foreign earnings.
The Company maintains a valuation allowance against its deferred tax assets when management believes it is more likely
than not that all or a portion of a deferred tax asset may not be realized. Changes in valuation allowances are included in
the income tax provision in the period of change. In determining whether a valuation allowance is warranted, the Company
26
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
evaluates factors such as prior earnings history, expected future earnings, carry-back and carry-forward periods and tax
strategies that could potentially enhance the likelihood of the realization of a deferred tax asset.
Q. RECLASSIFICATIONS
Certain amounts in prior years may have been reclassified to conform to the 2010 consolidated financial statement
presentation.
2. Short-Term Investments
At September 30, 2010, short-term investments consist of corporate debt instruments that are due in less than one year, are
intended to be held until maturity and amount to $3,020, which approximates fair value.
3. Inventories
Inventories at September 30 consist of:
Raw materials and supplies……….………..…….
Work-in-process………………….………………
Finished goods………………………………...…
$
2010
1,846
2,624
1,802
$
2009
2,539
2,350
2,679
Total inventories……...………….….….…. $
6,272
$
7,568
If the FIFO method had been used for the entire Company, inventories would have been $7,495 and $7,320 higher than
reported at September 30, 2010 and 2009, respectively.
4. Accrued Liabilities
Accrued liabilities at September 30 consist of:
Accrued employee compensation and benefits…..
Accrued workers’ compensation………..……….
Accrued utilities………………………………….
Accrued dividends……………………………….
Other accrued liabilities…………………..……...
$
$
2010
1,642
945
336
789
575
2009
1,764
1,260
261
529
510
Total accrued liabilities……………………
$
4,287
$
4,324
5. Government Grants
In previous periods the Company received grants from certain government entities as an incentive to invest in facilities,
research and employees. Capital grants are amortized into income over the estimated useful lives of the related assets.
Employment grants are amortized into income over five years. The unamortized portion of deferred grant revenue is
recorded in other long-term liabilities at September 30, 2010 and 2009, which amounted to $401 and $454, 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.
27
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
6. Long-Term Debt
Long-term debt at September 30 consists of:
2010
2009
Revolving credit agreement…..…………………..…………….
Capital lease obligations...…..……………………..……...........
Other………………………………………………………..…..
$
Less – current maturities………………………………..………
$
---
138
5
143
108
Total long-term debt………..………………..…………..
$
35
$
---
248
7
255
101
154
At September 30, 2010, the Company had an $8,000 revolving credit agreement with a bank subject to sufficiency of
collateral that expires on January 1, 2012 and bears interest at the bank’s base rate plus 0.50%. The interest rate was 3.25%
at both September 30, 2010 and 2009. There was no balance outstanding against the revolving credit agreement in either
fiscal 2010 or 2009. A commitment fee of 0.35% is incurred on the unused balance. At September 30, 2010 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 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, 2010.
7. Income Taxes
The components of income from continuing operations before income tax provision are as follows:
Years Ended September 30,
2010
2009
2008
U.S…………….…….………….………………..……….….
Non-U.S…………….……………………………...……..….
$
8,045
349
$
12,253
74
$
8,282
538
Income from continuing operations before income tax
provision…………........................................................
$
8,394
$
12,327
$
8,820
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,
2010
2009
2008
$
1,967
320
103
2,390
582
84
(24)
642
$
3,209
512
150
3,871
423
161
25
609
1,550
336
210
2,096
1,066
163
(48)
1,181
Income tax provision……………………….…...........
$
3,032
$
4,480
$
3,277
28
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
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,
2009
2010
2008
Income from continuing operations before income tax
provision…...………………………………………….........
Less-U.S. state and local income tax provision………..……...
$
8,394
404
Income from continuing operations before U.S. and non-
U.S. federal income tax provision…………..................
$
7,990
Income tax provision at U.S. federal statutory rates………….. $
Tax effect of:
Business expenses not deductible for tax…………………..
Undistributed earnings of non-U.S. subsidiaries…………...
State and local income taxes……………………………….
Other…………………………….….……………………....
2,716
13
(18)
412
(91)
$
$
$
$
$
$
12,327
673
11,654
3,979
(177)
(91)
631
138
8,820
499
8,321
2,829
27
11
499
(89)
Income tax provision………………………………….. $
3,032
$
4,480
$
3,277
Deferred tax assets and liabilities at September 30 consist of the following:
Deferred tax assets:
Net non-U.S. operating loss carryforwards………………….…….. $
Employee benefits…………………………………………….……
Inventory reserves………………….…………….……………..….
Asset impairment reserve…………………………………………..
Allowance for doubtful accounts…………………...………………
Foreign tax credits…………………………………..……………...
Other……………………………………………………………….
Total deferred tax assets…………………………..…………
2010
2009
$
645
2,331
614
352
158
3,099
148
7,347
626
2,019
705
348
175
3,055
59
6,987
Deferred tax liabilities:
Depreciation……………………………………………….………..
Unremitted foreign earnings……………………………….……….
Other………………………………………………………………...
(2,810)
(4,839)
(91)
(2,129)
(4,850)
---
Total deferred tax liabilities………………………………….
(7,740)
(6,979)
Net deferred tax liabilities………………………………….………….
Valuation allowance…………………………………………………...
(393)
(464)
8
(467)
Net deferred tax liabilities…………………………………...
$
(857)
$
(459)
At September 30, 2010 the Company has non-U.S. tax loss carryforwards of approximately $6,107. The non-U.S. tax loss
carryforwards do not expire.
The Company recognized reductions of the valuation allowance against its net deferred tax assets in fiscal years 2010 and
2009 of $3 and $13, respectively.
29
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
Cumulative undistributed earnings of non-U.S. subsidiaries for which no U.S. deferred federal income tax liabilities have
been established were approximately $1,837 at September 30, 2010. 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 $49.
The Company reported liabilities for uncertain tax positions, which includes any related interest and penalties, in fiscal
2010 and 2009 of $63 and $58, respectively. The Company classifies interest and penalties on uncertain tax positions as
income tax expense. A summary of activity related to the Company’s uncertain tax position is as follows:
Balance at beginning of year………………...….…………………... $
Increase due to tax positions taken in prior years……………………
Balance at end of year……..……..………………………………….
$
2010
58
5
63
The Company is subject to income taxes in the U.S. federal jurisdiction, and various state, local and non-U.S. jurisdictions.
In 2010, the Internal Revenue Service completed an audit of the Company’s federal income tax return for fiscal 2007, the
outcome of which resulted in $92 of additional taxes being owed by the Company. With few exceptions, 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.
8. 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 its defined benefit pension plans is based on an actuarially determined cost method
allowable under Internal Revenue Service regulations. One of the Company’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.
Prior to October 1, 2008, the Company used a July 1 measurement date for its defined benefit pension plans. For fiscal
2009, the measurement date changed from July 1 to September 30 as required under the amended guidance from the FASB
related to employers’ accounting for defined benefit pension and other postretirement benefit plans. The Company
previously adopted the amended guidance of the FASB related to the requirement to recognize the funded status of the
Company’s defined benefit pension plans as an asset or liability in the consolidated balance sheet. The net impact, as of
October 1, 2008, of the measurement date change was a nominal charge to retained earnings. As of September 30, 2010 and
2009, the Company’s defined benefit pension plans had accumulated benefit obligations of $21,889 and $19,600,
respectively. Net pension expense (income) for the Company-sponsored defined benefit pension plans consists of the
following:
Years Ended September 30,
2010
2009
2008
Service cost………………………………………..…………... $
Interest cost…………………………………….……….……...
Expected return on plan assets………………….……………..
Amortization of prior service cost…………….…….…………
Amortization of net (gain) loss……………………...…………
$
302
1,050
(1,411)
142
537
269
1,067
(1,490)
140
54
$
242
951
(1,430)
132
(71)
Net pension expense (income) for defined benefit plan…... $
620
$
40
$
(176)
30
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
The status of all defined benefit pension plans at September 30 is as follows:
Benefit obligations:
Benefit obligations at beginning of year………………...….……. $
Service cost……………………………..……….………………..
Interest cost…………………………..…………….……………..
Amendments……………………………………………………...
Actuarial loss………………..…………….………….…………..
Benefits paid………………………..………….………………....
2010
2009
19,600
302
1,050
---
1,486
(549)
$
16,282
337
1,334
65
2,543
(961)
Benefit obligations at end of year……..……..……………. $
21,889
$
19,600
Plan assets:
Plan assets at beginning of year………..……..………………….. $
Actual return on plan assets….………..………….……………....
Employer contributions………………..………..………………..
Benefits paid…………………………..……….….……………...
15,388
1,484
330
(549)
$
16,704
(1,094)
739
(961)
Plan assets at end of year………..…….…………………... $
16,653
$
15,388
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,
2010
2009
Plans in which
Benefit Obligations
Exceed Assets at
September 30,
2010
2009
910
$
1,208
$
(6,146) $
(5,420)
Net loss (gain)………………………………………………...
Prior service cost……………………………………………...
344
132
(49)
225
8,437
63
7,953
112
Net amount recognized in the consolidated balance sheets.….
$
1,386
$
1,384
$
2,354
$
2,645
Amounts recognized in the consolidated balance sheets are:
Other assets……………………………………………………….. $
Other long-term liabilities………………………...……………….
Accumulated other comprehensive loss – pretax…..…………..….
$
910
---
476
1,208
---
176
$
$
---
(6,146)
8,500
---
(5,420)
8,065
Net amount recognized in the consolidated balance sheets.…. $
1,386
$
1,384
$
2,354
$
2,645
The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic
benefit costs during fiscal 2011 are as follows:
Plans in which
Assets Exceed
Benefit
Obligations
Plans in which
Benefit
Obligations
Exceed Assets
Net loss …….……………………………………………...... $
Prior service cost…………………..……….………………..
Total……………..……….………………………………... $
---
93
93
$
$
699
24
723
31
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
Where applicable, the following weighted-average assumptions were used in developing the benefit obligation and the net
pension expense for defined benefit pension plans:
Years Ended September 30,
2010
2008
2009
Discount rate for liabilities……………………………………...
Discount rate for expenses……………………………………...
Expected return on assets………….……….…………………...
4.9%
5.5%
8.5%
5.4%
6.6%
8.7%
6.7%
6.3%
8.7%
The Company classifies and discloses pension plan assets in one of the following three categories: (i) Level 1 - quoted
market prices in active markets for identical assets; (ii) Level 2 - observable market based inputs or unobservable inputs
that are corroborated by market data or (iii) Level 3 - unobservable inputs that are not corroborated by market data. The
following table sets forth the asset allocation of the Company’s defined benefit pension plan assets and summarizes the fair
values and levels within the fair value hierarchy for such plan assets as of September 30, 2010:
Asset
Amount
% Asset
Allocation
Level 1
Level 2
Level 3
Funds invested in equity securities:
U.S. companies…………………………… $
Non-U.S. companies………........................
Total equity securities………………….
Funds invested in debt securities:
U.S. companies……………………...........
Non-U.S. companies………………..........
Total debt securities……………………
8,543
1,250
9,793
6,613
176
6,789
51%
8%
59%
40%
1%
41%
Other securities………………………………..
71
< 1 %
$
--- $
---
8,543 $
1,250
---
---
---
---
71
4,703
176
1,910
---
---
---
Total plan assets at fair value…………............ $
16,653
100%
$
71 $
14,672 $
1,910
Changes in the fair value of the Company’s Level 3 investments during the year ending September 30, 2010 were as
follows:
Balance at beginning of year………………...….…………………............ $
Actual return on plan assets………………………………………………..
Purchases and sales of plan assets, net…………………………………….
2010
1,654
247
10
Balance at end of year……..……..………………………………………..
$
1,911
Investment objectives relative to the assets of the Company’s defined benefit pension plans 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 categories and among investment managers, and (iii) maintain a careful monitoring of the risk
level within each asset category. 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 category in relation to the anticipated timing of future plan benefit payment
obligations. The Company has a long-term strategic objective for the allocation of plan assets. However, the Company
realizes that actual allocations at any point in time will likely vary from this strategic objective due principally to (i) the
impact of market conditions on plan asset values and (ii) required cash contributions to and distribution from the plans. The
“Asset Allocation Range” anticipates this fluctuation and provides flexibility for the investment managers to vary around
the objective without a mandatory immediate rebalancing.
32
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
U.S. equities…...……………………..
Non-U.S. equities…………….............
U.S. debt securities………..................
Non-U.S. debt securities......................
Other securities…………...………….
Strategic
Objective
50%
7%
42%
0%
1%
Asset
Allocation
Range
30% to 70%
0% to 20%
20% to 70%
0% to 10%
0% to 60%
Total………………………………...
100%
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 approximately $622 to its defined benefit pension plans during fiscal 2011.
The Company has carryover balances from previous periods that may be available for use as a credit to reduce the amount
of contributions that the Company is required to make to certain of its defined benefit pension plans in fiscal 2011. The
Company’s ability to elect to use such carryover balances will be determined based on the actual funded status of each
defined benefit pension plan relative to the plan’s minimum regulatory funding requirements. The following defined
benefit payment amounts are expected to be made in the future:
Years Ending
September 30,
Projected
Benefit
Payments
$
2011…………………………….
2012…………………………….
2013…………………………….
2014…………………………….
2015…………………………….
2016-2020………………………
784
891
2,076
1,311
1,237
7,356
The Company also contributes to a U.S. multi-employer retirement plan for certain union employees. The Company’s
contributions to the plan in 2010, 2009 and 2008 were $44, $57 and $44, 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 2010, 2009 and 2008 was $304, $283 and $273, 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 2010, 2009 and 2008 was $171, $196 and $211, 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 2010,
2009 and 2008 was $26, $24 and $19, respectively.
The Company’s Swedish subsidiary sponsors defined contribution plans for its employees. The Company contributes
annually a percentage of eligible employees’ compensation, as defined. Total contribution expense in 2010, 2009 and 2008
was $6, $5 and $7, respectively.
33
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
9. Stock-Based Compensation
In previous periods, 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.
As of September 30, 2009, no further options may be granted 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 both plans generally vest at a rate of 25% per year.
Option activity is as follows:
Years Ended September 30,
2009
2010
2008
Options at beginning of year………………………….………...
Weighted average exercise price…………………………….
Options reinstated during the year……………………………...
Weighted average exercise price………………………….....
Options exercised 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…………………………….
92,000
$ 4.53
---
$ ---
(32,000)
$ 4.90
60,000
$ 4.33
60,000
$ 4.33
93,250
$ 4.60
2,000
$ 3.74
(3,250)
$ 6.20
92,000
$ 4.53
92,000
$ 4.53
110,500
$ 4.46
---
$ ---
(17,250)
$ 3.69
93,250
$ 4.60
86,750
$ 4.67
As of September 30, 2010 and 2009, there was no unrecognized compensation cost related to the stock options granted
under the Company’s stock option plans.
The following table provides additional information regarding options outstanding as of September 30, 2010:
Option
Exercise Price
Options
Outstanding
Options
Exercisable
$ 3.50
$ 3.74
$ 5.50
Total
15,000
23,000
22,000
15,000
23,000
22,000
60,000
60,000
Options
Vested or
Expected
to Vest
15,000
23,000
22,000
60,000
Weighted average remaining
term…………….....................
Aggregate intrinsic value……
3.1 years
$ 453
3.1 years
$ 453
3.1 years
$ 453
Total compensation expense related to stock options recognized in fiscal years 2010, 2009 and 2008 was zero, $3 and $12,
respectively. No tax benefit was recognized for this compensation expense.
The Company has also awarded performance shares under its 2007 Long-Term Incentive Plan (“2007 Plan”). The Company
adopted the 2007 Plan in fiscal 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.
34
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
The performance shares that have been awarded under the 2007 Plan generally provide for the issuance of the Company’s
common shares upon the Company achieving certain defined financial performance objectives during a period up to three
years following the making of such award. 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 level of the Company’s achievement of its financial performance objectives.
Compensation expense is being accrued at (i) 100% of the target levels for recipients of the performance shares awarded
during fiscal 2010, (ii) 0% to 50% of the target levels for recipients of the performance shares awarded during fiscal 2009
and (iii) approximately 70% of the target levels for recipients of the performance shares awarded during fiscal 2008.
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. Compensation expense related to all performance
shares awarded under the 2007 Plan was $325, $80 and $38 during fiscal 2010, 2009 and 2008, respectively. As of
September 30, 2010, 2009 and 2008 there was $389, $85 and $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 two (2) years.
The following is a summary of activity related to performance shares:
Outstanding at September 30, 2009…………………………………
Performance shares awarded…………………..................................
Performance shares forfeited...………………..................................
Number of
Shares
75,500
36,200
(4,500)
Weighted
Average Fair
Value at Date
of Grant
$
8.29
15.75
10.33
Outstanding at September 30, 2010…………………………………
107,200
$
10.72
10. Asset Divestiture
Prior to fiscal 2008, the Company and its Irish subsidiary, SIFCO Turbine Components Limited (“SIFCO Turbine”),
completed the sale of its industrial turbine engine component repair business, which operated in SIFCO Turbine’s Cork,
Ireland facility. Upon completion of this transaction, the Company no longer maintains any operations in Ireland. SIFCO
Turbine retained ownership of the Cork, Ireland facility subject to a long-term lease arrangement with the acquirer of the
business.
SIFCO Turbine’s Cork, Ireland facility was classified as held for sale in the consolidated balance sheets during fiscal 2008
and up through June 30, 2009. The Company attempted to sell this facility since the beginning of fiscal 2008, with the
intention and expectation that it would dispose of this asset within the requisite period of time to allow for classification as
an asset held for sale. However, while the Company will continue its effort to sell the facility, due to the current global
economic downturn, the Company reassessed it expectations during the fourth quarter of fiscal 2009 and determined that it
is more likely than not that it will be unable to sell the Cork, Ireland facility during the next 12 month period. Accordingly,
such asset no longer qualifies for classification as held for sale and, at September 30, 2009, this asset was reclassified to
property, plant and equipment and included in corporate identifiable assets (see Note 12). As a result of this reassessment,
during fiscal 2009, the Company recorded aggregate depreciation expense related to the Cork, Ireland facility of $230, of
which $113 related to fiscal 2009 and $117 represented depreciation related to periods prior to fiscal 2009 during which
time this asset was classified as held for sale.
In accordance with the guidance as it relates to accounting for the impairment or disposal of long-lived assets, the portion of
the Company’s financial results related principally to the activity of leasing the Cork, Ireland facility, which makes up
essentially all of SIFCO Turbine’s activity, were reported in fiscal 2009 and 2008 as discontinued operations in the
accompanying consolidated statements of operations. Due to the aforementioned reassessment of the status of the Cork,
Ireland facility during fiscal 2009, such leasing activity is no longer considered to be a discontinued operation.
35
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
The financial results included in discontinued operations were as follows:
Net sales…………………………………………………………
Income before income tax provision ….………………………...
Income from discontinued operations, net of tax………………..
11. Contingencies
2009
2008
$
---
247
188
$
---
370
287
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 and 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.
The Company leases various facilities and equipment under capital and operating leases expiring at various dates. The
Company recorded rent expense of $546, $544, and $624 in fiscal 2010, 2009 and 2008, respectively. At September 30,
2010, minimum rental commitments under non-cancelable leases are as follows:
Year ending September 30,
Capital
Leases
Operating
Leases
2011…………….…………………………………………..... $
2012…………….…………………………………………….
2013…………….…………………………………………….
2014…………….…………………………………………….
Thereafter…………………………………………………….
Total minimum lease payments…………………………..
Less - amount representing interest…………………….........
Present value of net minimum lease payments………………
Less - current maturities……………………………………..
Long-term capital lease obligation……………………….
$
117
28
---
---
---
145
7
138
106
32
$
$
457
327
146
128
130
1,188
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….…………………………………..
$
2010
523
(356)
2009
553
(317)
$
36
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
12. 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 20%, 15% and 13% of the Company’s consolidated net
sales in fiscal 2010, 2009 and 2008, respectively. Another customer of all three of the Company’s segments accounted for
12%, 14% and 14% of the Company’s consolidated net sales in fiscal 2010, 2009 and 2008, respectively. The combined net
sales to these two customers, and to the direct subcontractors to these two customers, accounted for 54%, 48% and 38% of
the Company’s consolidated net sales in 2010, 2009 and 2008, respectively.
Geographic net sales are based on location of customer. The United States of America is the single largest country for
unaffiliated customer sales, accounting for 75% of consolidated net sales in each of fiscal 2010, 2009 and 2008. No other
single country represents greater than 10% of consolidated net sales in 2010, 2009 and 2008. Net sales to unaffiliated
customers located in various European countries accounted for 10%, 9%, and 10% of consolidated net sales in 2010, 2009
and 2008, respectively. Net sales to unaffiliated customers located in various Asian countries accounted for 9%, 11%, and
7% of consolidated net sales in 2010, 2009 and 2008, 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, short-term investments and the Company’s Cork, Ireland facility (see Note 10).
37
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:
Net sales:
Aerospace Component Manufacturing Group…….……………….. $
Turbine Component Services and Repair Group…….……………..
Applied Surface Concepts Group…………………..………………
Years Ended September 30,
2010
2009
2008
62,098
8,933
12,239
$
$
68,640
11,529
13,719
71,980
14,336
15,075
Consolidated net sales…………...…………………..…….……. $
83,270
$
93,888
$
101,391
Operating income (loss):
Aerospace Component Manufacturing Group………………..……. $
Turbine Component Services and Repair Group………………..….
Applied Surface Concepts Group………………………..…………
Corporate unallocated expenses….…………..……….…..………..
Consolidated operating income………………………….............
Interest expense, net…………………………..…………..…………....
Foreign currency exchange loss (gain), net….…..…………………….
Other income, net…………………..………..…………........................
$
9,855
(36)
249
(2,153)
7,915
14
(23)
(470)
13,376
144
817
(1,861)
12,476
51
217
(119)
Consolidated income from continuing operations before income
tax provision………...….…………………………………….
$
8,394
$
12,327
Depreciation and amortization expense:
Aerospace Component Manufacturing Group…….……………….. $
Turbine Component Services and Repair Group…….……………..
Applied Surface Concepts Group………..………………..………..
Corporate unallocated expenses….…………..……….…..………...
$
1,047
335
403
110
809
408
362
246
$
$
$
9,892
(304)
1,341
(1,951)
8,978
125
35
(2)
8,820
628
467
380
8
Consolidated depreciation and amortization expense……..…….. $
1,895
$
1,825
$
1,483
LIFO expense (income) for the Aerospace Component Manufacturing
Group…………………………………………………………….
$
175
$
(1,583)
$
1,712
Capital expenditures:
Aerospace Component Manufacturing Group…....……………....... $
Turbine Component Services and Repair Group…....……………...
Applied Surface Concepts Group……………..……………………
$
6,094
174
479
4,394
259
603
Consolidated capital expenditures..………..…………………..... $
6,747
$
5,256
Identifiable assets:
Aerospace Component Manufacturing Group….....………..……… $
Turbine Component Services and Repair Group….....………..……
Applied Surface Concepts Group…………………………………..
Corporate………………..……………..……………..………….….
31,617
4,642
6,037
27,354
$
28,314
4,566
6,225
26,665
Consolidated total assets………….…………………….……….. $
69,650
$
65,770
Non-U.S. operations:
Net sales .………..……….………………………………………… $
Operating income (loss) from continuing operations………………
Identifiable assets (excluding cash) of continuing operations……...
$
4,560
(162)
4,286
4,898
43
5,487
$
$
$
$
$
1,162
457
393
2,012
30,587
9,273
6,903
13,386
60,149
5,373
593
2,805
38
SIFCO Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)
13. Summarized Quarterly Results of Operations (Unaudited)
Dec. 31
2010 Quarter Ended
June 30
March 31
Sept. 30
Net sales………………………………………………….
Cost of goods sold…………….........................................
Income before income tax provision ……………………
Income tax provision ………..…………………………..
Net income ……..………………………………………..
Net income (loss) per share:
Basic……………………………………………….......
Diluted………………………........................................
Net sales………………………………………………….
Cost of goods sold…………….........................................
$ 21,302 $ 19,886 $ 19,481 $ 22,601
17,325
15,188
15,735
15,281
3,192
1,179
2,013
0.38
0.38
1,478
474
1,004
0.19
0.19
1,507
523
984
0.18
0.18
2,217
856
1,361
0.26
0.26
Dec. 31 March 31
2009 Quarter Ended
June 30
Sept. 30
$ 23,537 $ 25,941 $ 23,548 $ 20,862
15,463
19,812
16,517
18,155
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……………………………………………….
2,441
903
1,538
92
1,630
3,396
1,296
2,100
294
2,394
4,101
1,484
2,617
(198)
2,419
Income per share from continuing operations:
Basic…………………………………………………...
Diluted…………………………………………………
0.29
0.29
0.40
0.40
0.49
0.49
Income (loss) per share from discontinued operations:
Basic…………………………………………………...
Diluted………………………........................................
0.02
0.02
0.06
0.06
(0.04)
(0.04)
Net income per share:
Basic…………………………………………………...
Diluted…………………………………………………
0.31
0.31
0.45
0.45
0.46
0.45
2,389
797
1,592
---
1,592
0.30
0.30
---
---
0.30
0.30
39
SIFCO Industries, Inc. and Subsidiaries
Valuation and Qualifying Accounts
Years Ended September 30, 2010, 2008 and 2007
(Amounts in thousands)
Schedule II
Balance at
Beginning
of Period
Additions
(Reductions)
Charged to
Expense
Additions
(Reductions)
Charged to
Other
Accounts
Deductions
$ 633 $ 185 $ --- $ (236) (a)
---
1,319
7,320
933
467
---
162
175
---
(3)
---
---
---
---
---
---
(269)
---
---
---
(c)
Balance at
End of
Period
$ 582
---
1,212
7,495
933
464
Year Ended September 30, 2010
Deducted from asset accounts
Allowance for doubtful accounts…………
Return and allowance reserve…………….
Inventory obsolescence reserve…………..
Inventory LIFO reserve…………………..
Asset impairment reserve………………...
Deferred tax valuation allowance ………..
Accrual for estimated liability
Workers’ compensation reserve………….
1,260
51
---
(366)
(e)
945
Year Ended September 30, 2009
Deducted from asset accounts
Allowance for doubtful accounts…………
Return and allowance reserve…………….
Inventory obsolescence reserve…………..
Inventory LIFO reserve…………………..
Asset impairment reserve………………...
Deferred tax valuation allowance ………..
$ 583
---
1,061
8,903
981
480
Accrual for estimated liability
$ 195 $ (4) $ (141) (a)
---
---
---
---
---
---
283
(1,583)
---
(13)
---
(25)
---
(48)
---
(c)
(d)
$ 633
---
1,319
7,320
933
467
Workers’ compensation reserve………….
1,107
512
---
(359)
(e)
1,260
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………………...
Deferred tax valuation allowance ………..
$ 603
29
1,469
7,191
318
516
$ 254
13
86
1,712
757
(36)
$ (17) $ (257) (a)
(b)
(c)
(18)
(494)
---
(94)
---
(d)
$ 583
---
1,061
8,903
981
480
(24)
---
---
---
---
Accrual for estimated liability
Workers’ compensation reserve………….
1,190
250
---
(333)
(e)
1,107
(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
40
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, 2010 (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, to the best of its knowledge, 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, 2010 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, 2010.
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 rules of the SEC that permit smaller reporting companies to provide only management’s report
in this annual report.
Changes in Internal Control over Financial Reporting and other Remediation
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
41
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 completing the implementation of
a new management information system (implementation expected to be completed in the next three 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, 2010 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
62
Michael S. Lipscomb
64
James P. Woidke
48
Frank A. Cappello
52
Chairman of the Board since 2001; director of the Company since 1986;
Chief Executive Officer from 1990 to August 2009; 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.
President and Chief Executive officer since August 2009 and a director of
the Company since April 2010. Mr. Lipscomb previously served as a
director of the Company from 2002 to 2006. Mr. Lipscomb is also currently
the Chief Executive Officer of Aviation Component Solutions. Prior to
joining the Company, Mr. Lipscomb was Chairman, President and Chief
Executive Officer of Argo-Tech Corporation from 1994 to 2007, President
from 1990 to 1994, Executive V.P. and Chief Operating Officer from 1988
to 1990, and Vice President of Operations from 1986, when Argo-Tech was
formed, to 1988. Mr. Lipscomb joined TRW’s corporate staff in 1981 and
was appointed Director of Operations for the Power Accessories Division in
1985. Mr. Lipscomb previously served as a director of Argo-Tech and AT
Holdings Corporation from 1990 to 2007. He serves on the boards of Ruhlin
Construction Company and Altra Holdings, Inc. He is a former board
member of the Aerospace Industries Association and General Aviation
Manufacturers Association.
Chief Operating Officer since March 2010. Prior to the assumption of his
new role, Mr. Woidke served as General Manager of SIFCO’s Aerospace
Component Manufacturing Group since March, 2006. Prior to joining the
Company, Mr. Woidke was the Director of Engineering and Quality as well
as Business Unit Manager for Anchor Manufacturing Group from 2003 to
2006. From 1993 to 2003, Mr. Woidke held a number of different positions
with Lake Erie Screw Corporation, last serving as Director of Manufacturing
Operations. Mr. Woidke currently serves on the board of Forging Industry
Educational and Research Foundation (FIERF).
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.
42
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 Seven (7)
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 SEC on or about December 15, 2010.
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 Operating 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
Insider Participation” and “Director Compensation” of the Company’s definitive Proxy Statement to be filed with the SEC
on or about December 15, 2010.
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, 2010.
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)..……………
37,000
23,000
---
---
---
107,200
$ 4.69
3.74
N/A
---
---
142,800
Total…………………………………………
60,000
107,200
$ 4.33
142,800
(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 granted under this plan. During fiscal 2010, 30,000 options granted under the 1998 Long-term Incentive Plan were
exercised.
(2) Under the 1995 Stock Option Plan the aggregate number of stock options that were available to be granted was 200,000.
No further options may be granted under this plan. During 2010, 2,000 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.
43
For additional information concerning the Company’s equity compensation plans, refer to the discussion in Note 9 to the
Consolidated Financial Statements.
The Company incorporates herein by reference the beneficial ownership information appearing under the captions “Stock
Ownership of Certain Beneficial Owners” and “Stock Ownership of Executive Officers, Director and Nominees” of the
Company’s definitive Proxy Statement to be filed with the SEC on or about December 15, 2010.
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” of the Company’s definitive Proxy Statement to be filed with the
SEC on or about December 15, 2010.
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 SEC on or about December
15, 2010.
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 Report
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, 2010, 2009 and 2008
Consolidated Balance Sheets - September 30, 2010 and 2009
Consolidated Statements of Cash Flows for the Years Ended September 30, 2010, 2009 and 2008
Consolidated Statements of Shareholders’ Equity for the Years Ended September 30, 2010, 2009 and 2008
Notes to Consolidated Financial Statements - September 30, 2010, 2009 and 2008
(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
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
44
Exhibit
No.
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
Description
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
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,
2003, 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
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
45
Exhibit
No.
4.13
4.14
4.15
4.16
4.17
4.18
4.19
4.20
4.21
4.22
9.1
9.2
10.1
10.2
10.3
Description
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
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
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
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
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
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 and incorporated herein by reference
Amendment No. 21 to Amended and Restated Credit Agreement dated February 10, 2010 between
SIFCO Industries, Inc. and PNC Bank, National Association (successor to National City Bank), filed as
Exhibit 4.22 to the Company’s Form 10-Q dated December 31, 2009 and incorporated herein by
reference
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
Voting Trust Extension Agreement (effectively) dated January 31, 2010, filed as Exhibit 9.2 of the
Company’s Form 10-Q dated December 31, 2009, and incorporated herein by reference
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
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
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/A dated December 31, 2000, and
incorporated herein by reference
46
Exhibit
No.
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
Description
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/A dated December 31, 2000,
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
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
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
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
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
Letter Agreement between the Company and Jeffrey P. Gotschall, dated August 12, 2009 filed as
Exhibit 10.1 of the Company’s Form 8-K dated August 12, 2009 and incorporated herein by reference
Interim Chief Executive Officer Agreement, dated as of August 31, 2009, by and among SIFCO
Industries, Inc., Aviation Component Solutions and Michael S. Lipscomb and incorporated herein by
reference
Amended and Restated Change in Control and Severance Agreement, between James P. Woidke and
SIFCO Industries, Inc., dated April 27, 2010 filed as Exhibit 10.15 of the Company’s Form 8-K dated
April 30, 2010, 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
47
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, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below on
December 15, 2010 by the following persons on behalf of the Registrant in the capacities indicated.
/s/ Jeffrey P. Gotschall
Jeffrey P. Gotschall
Chairman of the Board
/s/ Michael S. Lipscomb
Michael S. Lipscomb
President and Chief Executive Officer
(Principal Executive Officer)
Director
/s/ Alayne L. Reitman
Alayne L. Reitman
Director
/s/ Mark J. Silk
Mark J. Silk
Director
/s/ Donald C. Molten, Jr.
Donald C. Molten, Jr.
Director
/s/ Frank A. Cappello
Frank A. Cappello
Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer)
/s/ Hudson D. Smith
Hudson D. Smith
Director
/s/ Frank N. Nichols
Frank N. Nichols
Director
/s/ Remigijus H. Belzinskas
Remigijus H. Belzinskas
Corporate Controller
(Principal Accounting Officer)
48
SHAREHOLDER INFORMATION
DIRECTORS
Jeffrey P. Gotschall
Chairman of the Board
Michael S. Lipscomb
President and Chief Executive Officer
Frank N. Nichols
Retired Group Vice President,
Parker Hannifin Corporation Aerospace Group
Donald C. Molten, Jr.
Associate Headmaster – University School
Alayne L. Reitman
Formerly Vice President – Finance and
Chief Financial Officer,
The Tranzonic Companies, Inc.
Hudson D. Smith
President
Forged Aerospace Sales, LLC
Mark J. Silk
President and Chief Executive Officer
Tri-Star Electronics International, Inc.
OFFICERS
Michael S. Lipscomb
President and
Chief Executive Officer
James P. Woidke
Chief Operating Officer
Frank A. Cappello
Vice President - Finance and
Chief Financial Officer
Remigijus H. Belzinskas
Corporate Controller
AUDITORS
Grant Thornton LLP
Certified Public Accountants
800 Halle Building
1228 Euclid Avenue
Cleveland, Ohio 44115
GENERAL COUNSEL
Benesch Friedlander Coplan & Aronoff LLP
200 Public Square, Suite 2300
Cleveland, Ohio 44114-2378
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, 2010. 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, 200 Public Square,
Suite 2300, Cleveland, Ohio, at 10:30 a.m. on
January 20, 2011.
49
970 East 64th Street, Cleveland, Ohio 44103-1694
Phone: (216) 881-8600 Fax: (216) 432-6281
www.sifco.com