EX-13 2 l87664aex13.txt EXHIBIT 13 1 Exhibit 13 Backed by over 88 years of industrial experience, the diamond "S" trademark can be found on critical aircraft components manufactured throughout this century. It can still be found on parts such as landing gears of the classic Vought F4U Corsair and the latest generation 737-800 manufactured by Boeing. [SIFCO LOGO] In 1993, a new corporate logo was designed by SIFCO employees to promote greater unity in our marketing identity and to illustrate the significant growth in SIFCO's business from manufacturing to turbine component services and repair. SIFCO engineers describe it as depicting an airfoil cross-section, while the more poetic among us claim it symbolizes man's flight from earthly bounds. While we admit that the interpretation of any abstraction can be open to debate, our graphic was selected to represent the technical as well as the personal points of view, and embodies our pride in a company firmly rooted in tradition and poised for future growth. It serves as the hallmark of SIFCO's commitment to customers -- a commitment that promises the best-engineered manufactured products and the most personal and timely service available anywhere worldwide. TABLE OF CONTENTS Financial Highlights.............................1 Letter to Our Shareholders.......................2 Management's Discussion and Analysis of Business................................4 Consolidated Statements of Income................6 Consolidated Balance Sheets......................7 Consolidated Statements of Cash Flows............8 Consolidated Statements of Shareholders' Equity...........................9 Notes to Consolidated Financial Statements..........................10 Safe Harbor Statement...........................15 Report of Independent Public Accountants........15 Shareholder Information.........................16 -------------------------------------------------------------------------------- STOCK PRICES BY QUARTERS (AMEX) (UNAUDITED) 2000 1999 ================================================================================ HIGH LOW High Low First Quarter 7 11/16 6 9/16 15 11 3/8 Second Quarter 7 1/4 5 5/8 14 7/8 7 5/8 Third Quarter 7 1/4 5 5/8 9 1/4 7 3/16 Fourth Quarter 7 5/8 5 1/8 9 1/8 7 -------------------------------------------------------------------------------- 2 [Sifco Logo] SIFCO Industries, Inc., is dedicated to meeting the technical needs of the aerospace industry in the production, repair, coating, machining and marketing of jet engine and other aerospace components. SIFCO serves the world's airlines through a network of manufacturing and service centers in the United States and abroad. The Company is committed to the satisfaction of its customers worldwide through competitive pricing, total service, comprehensive technology and superior quality. The Company's operations consist of two business segments: TURBINE COMPONENT SERVICES AND REPAIR "WE FIX PARTS FROM THE TURBINE SECTION OF AEROSPACE AND LAND-BASED GAS TURBINE ENGINES." 67% OF 2000 SALES AEROSPACE COMPONENT MANUFACTURING "WE MAKE PARTS FOR A WIDE VARIETY OF COMMERCIAL AND MILITARY AIRCRAFT, INCLUDING HELICOPTERS." 33% OF 2000 SALES --------------------------- FINANCIAL HIGHLIGHTS ---------------------------
Years Ended September 30 2000 1999 1998 1997 1996 (Amounts in thousands, except per share data) ================================================================================================================================== STATEMENT OF INCOME DATA Net sales $ 106,138 $ 115,490 $ 123,175 $ 108,790 $ 85,420 Income before income tax provision 2,479 4,105 11,609 9,123 4,694(*) Income tax (provision) benefit (57) (332) (2,324) (2,047) 914 Net income 2,422 3,773 9,285 7,076 5,608 Net income per share (basic) .47 .73 1.80 1.38 1.10 Net income per share (diluted) .47 .72 1.78 1.36 1.09 Cash dividends per share .20 .20 .20 .15 .10 SHARES OUTSTANDING AT YEAR END 5,134 5,193 5,170 5,160 5,127 BALANCE SHEET DATA Working capital $ 28,676 $ 31,924 $ 32,102 $ 26,235 $ 22,048 Property, plant and equipment, net 29,009 31,392 32,582 24,714 23,200 Total assets 80,500 88,662 93,011 76,159 70,043 Long-term debt, net of current maturities 11,962 12,985 16,500 11,716 10,575 Total shareholders' equity 45,500 50,046 49,890 40,568 35,957 Shareholders' equity per share at year end 8.86 9.64 9.65 7.86 7.01 FINANCIAL RATIOS Return on beginning shareholders' equity 4.8% 7.6% 22.9% 19.7% 18.2% Long-term debt to equity percent 26.3% 25.9% 33.1% 28.9% 29.4% [Current ratio 2.6 2.6 2.5 2.3 2.2 STOCK PRICE RANGE (HIGH-LOW) $7 11/16-5 1/8 $ 15 - 7 $27 1/8-11 5/8 $21 1/4-9 5/8 $10 1/4-3 3/4
(*)Includes reversal of restructuring charge to income of $1,512 1 3 [SIFCO LOGO] ================================================================================ Fiscal 2000 brought both disappointment and encouragement. Although the investments we have made over the past few years have not yet realized their full potential, we are pleased that our fourth quarter results show positive strides toward our objectives. While our net sales fell by 8.1% in the fiscal year, our fourth quarter sales showed an increase of 5.4%. Similar results are reflected in pre-tax income (which decreased 39.6% for the year, but increased 14.6% for the fourth quarter), net income (which decreased 35.8% for the year, but increased 8% for the fourth quarter), and earnings per diluted share (which decreased from $.72 to $.47 for the year, but increased from $.17 to $.19 for the fourth quarter). Most promising is our 7.8% growth in backlog for the year, which suggests a much more favorable market environment for SIFCO's products and services. The annual revenue from our largest business segment, SIFCO's Turbine Component Services and Repair Group, was down 12.3% from 1999. The sales growth that we anticipated in 1998 when we expanded our facilities in Ireland and Tampa did not yet materialize. Repair volume for the older engine types fell off as many of the older planes powered by these engines were retired from the fleet. The reduction in Repair Group revenue for the year can be related principally to the decline in the demand for JT8D and JT9D engine overhaul, which is attributable to the retirement or reduced utilization of older model aircraft, such as the 737-100/200, the 747-100/200, the 727, and the DC-9. This trend is expected to continue. We recognize that the JT8D and JT9D market is mature; however, newer models of these engines will continue to require repairs in the future. The balance of the shortfall in revenue can be linked to reduced volume of CFM56 and RB211 engine overhaul repairs, a reduction in the sales volume of replacement parts, and the continued encroachment of the engine manufacturers into the repair marketplace. For fiscal 2000, reduced sales volumes of both repair services and replacement parts correspondingly reduced the Repair Group's operating income. The margin on replacement-part sales decreased in fiscal 2000 while the further weakening of the euro improved the Repair Group's margin on its sales of repair services. The Repair Group is responding to these changes by tailoring resources to throughput and accelerating its introduction of products and services for the newer engine types, such as PW4000, Trent, AE3007 and BR700. The Repair Group continues to access new markets for its technology applications. Further, the Repair Group continues to explore opportunities in the field of repairing land-based, industrial gas turbines utilized in the generation of electric power. The Aerospace Component Manufacturing Group's net sales increased 1.8% in fiscal 2000, but the rise in build rates for regional and business jets drove fourth-quarter revenues up 30.5% from their prior-year level. The ACM Group is a major supplier of components for the Rolls-Royce AE3007 engines used on the popular Embraer 135 and 145 regional jets. If not for the decline in raw material costs, which were 2 4 ================================================================================ passed on to customers through reduced selling prices, fiscal 2000 sales would have increased 4.9% on the same number of units. Through its e-commerce activity, the ACM Group was able to add another major aerospace customer to its list of world-class customers, and it received new orders for over 100 components that it had not previously manufactured. While the cost for the construction of tooling and related expenditures for these new components impacted fiscal 2000, the expected revenues from the sales of these components should benefit future years. Despite lower net sales and net income for the year, we continued to strengthen our balance sheet. Total debt decreased to $13.4 million from $14.4 million, while cash and cash equivalents increased to $4.7 million from $2.0 million. Total shareholders' equity declined $4.5 million, net of $2.4 million of net income. This decline is primarily due to a $5.6 million foreign currency translation adjustment as we reduced the reported carrying value of our assets in Ireland to reflect the declining value of the euro relative to the U.S. dollar and $1.0 million of dividends. Our current ratio remained strong at 2.6, and we feel we have the necessary resources to meet marketplace challenges. On a personal note, an expression of gratitude must be extended to Richard Demetter, who retired this past year after 23 years of service with the Company. His thoroughness guided us through many business cycles during his tenure. Our new Vice President and Chief Financial Officer is Frank Cappello, who assumed that role in February 2000. We are very pleased to have Frank on our team as we face the business challenges of the aerospace industry. As we focus on fiscal 2001, we are encouraged by the stronger outlook for the aerospace industry. We are confident that our investments will improve our financial results as the markets we serve continue to evolve and that our strong balance sheet and commitment to growth will provide positive returns for our shareholders. We thank you for your continued loyalty and support. Sincerely, /s/ C. H. Smith, Jr. /s/ Jeffrey P. Gotschall Chairman of the Board President and Chief Executive Officer 3 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF BUSINESS ================================================================================ RESULTS OF OPERATIONS FISCAL YEAR 1999 COMPARED WITH FISCAL YEAR 1998 In 1999 net sales decreased 6.2% to $115.5 million from $123.2 million in 1998 but were still the second highest in the Company's 86-year history. Income before income taxes declined to $4.1 million or 65% from $11.6 million in 1998. Net income per diluted share was $.72 compared to $1.78 in 1998. Turbine Component Services and Repair sales rose slightly to a record $81.1 million from $80.0 million in 1998. Operating income declined to $5.7 million from $9.6 million in 1998. While sales rose overall, there was a higher mix of lower margin business and a shift of business between some facilities resulting in unabsorbed overheads that were not offset by the increase in volume at other facilities. Repair volume for the older engine types fell off as many of the older planes powered by these engines were retired from the fleet. Aerospace Component Manufacturing sales decreased approximately 21% to $34.3 million from $43.3 million in 1998. Operating income decreased to $1.1 million from $5.0 million in 1998. The segment benefited from a $0.3 million LIFO reversal in both 1999 and 1998. Whereas 1998 was a cyclical peak in the aircraft industry, 1999 began the cyclical decline. Boeing slowed its build rate and already procured the forgings for the aircraft it was building. Almost all customers instituted inventory reduction plans under which they order fewer parts at a time, due to reduced manufacturing cycle times. Many industry analysts feel that the decline will be much shorter than in the past with recovery expected in the second half of 2000 and rising through 2001 for large commercial aircraft. The Company's total new orders for fiscal 1999 declined to $115.4 million from $120.7 million in 1998. The following is a breakout by business segment: Turbine Component Services and Repair $82.0 million and $77.8 million, respectively; and Aerospace Component Manufacturing $33.4 million and $42.9 million, respectively. The Company's backlog as of September 30, 1999 and 1998 was $39.5 million and $41.3 million, respectively. Approximately 3% of 1999's backlog is on hold and 13.2% is scheduled for delivery beyond fiscal 2000. The following is a breakout by business segment: Turbine Component Services and Repair $7.4 million and $7.7 million, respectively; and Aerospace Component Manufacturing $32.1 million and $33.6 million, respectively. FISCAL YEAR 2000 COMPARED WITH FISCAL YEAR 1999 In 2000, net sales decreased 8.1% to $106.1 million from $115.5 million in 1999. Net income per diluted share was $.47 compared to $.72 in 1999. TURBINE COMPONENT SERVICES AND REPAIR GROUP ("REPAIR GROUP") The Repair Group, which accounted for 67% of the Company's business in 2000, had net sales of $71.2 million, down 12.3% from the $81.1 million level in 1999. The net sales growth that was anticipated when we expanded our repair facilities in 1998 has not materialized. The primary contributor to the decline in repair sales volume has been the reduced demand for the overhaul of older model JT8D and JT9D engines as many of the older model 737-100/200, 727, 747-100/200 and DC-9 aircraft, powered by these engines, have experienced reduced utilization or were retired from their respective fleets. Also contributing to the reduction in repair sales was the reduced volume of repairs to the CFM56 (GE/Snecma) and RB211 (Rolls-Royce) engines as a result of the further encroachment of the jet engine manufacturers into the repair marketplace. Revenues associated with the demand for replacement parts that complement the repair services provided to customers was also down in 2000 because of the reduced repair volumes in general. Operating income in fiscal 2000 declined to $3.4 million, or 4.8% of net sales, from $5.7 million, or 7.0% of net sales, in 1999. While repair sales were down in 2000 compared to 1999, margins on such sales were up slightly as a direct result of the further weakening of the euro in relation to the U.S. dollar. The vast majority of the Repair Group's U.S. and non-U.S. sales are denominated in U.S. dollars. At the same time, over 50% of the Group's operations are located in Ireland and related costs are denominated in local currency that is tied directly to the euro. Consequently, as the euro declines, costs are favorably impacted when measured and reported in equivalent U.S. currency. A decline in the availability of used replacement parts that can be refurbished required the Repair Group to procure higher cost new OEM replacement parts. As a result, not only did the Repair Group experience a general reduction in sales volume, the Repair Group also was impacted by lower margins on replacement parts sales due to higher replacement part costs in fiscal 2000. During 2000, selling, general and administrative and other income/expenses for the Repair Group were generally comparable to 1999. 4 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF BUSINESS (continued) -------------------------------------------------------------------------------- AEROSPACE COMPONENT MANUFACTURING GROUP ("ACM GROUP") Net sales for fiscal 2000 increased 1.8% to $35.0 million, compared with $34.3 million for fiscal 1999. The sales increase is net of a reduction in selling price of $1.1 million caused by a decline in the market price of titanium during fiscal 2000 that was passed on to customers. The increase in sales is attributable to a rise in the build rates for business and regional jet aircraft during the latter part of fiscal 2000, offset in part by a reduction in the large aircraft build cycle from its peak in 1999. The ACM Group's operating income in fiscal 2000 was $1.5 million, or 4.3% of net sales, compared with $1.1 million, or approximately 3.2% of net sales in fiscal 1999. The operating income benefited in fiscal 2000 from the decline in the market price of titanium. In addition, the Group benefited from a $0.8 million and $0.3 million LIFO reversal in fiscal 2000 and 1999, respectively. During fiscal 2000 this benefit was partially offset by an increase in tooling expenditures of $0.7 million. The increase is attributable to construction of new tooling to support new programs, as well as increases in die maintenance costs as a result of the full year impact of the Group's implementation of its Synchronous Manufacturing project in fiscal 1999. The objectives of the Synchronous Manufacturing project include shorter lead times, shorter cycle times, lower inventories and increased capacity for new orders and new products. Selling, general and administrative expenses for fiscal 2000 declined $0.2 million to $2.0 million, compared to $2.2 million in fiscal 1999. The decline in selling, general and administrative expenses is primarily attributable to lower benefit costs. OTHER/GENERAL Corporate unallocated expenses of $1.9 million in both 2000 and 1999, consist of corporate salaries and benefits, legal and professional and other corporate expenses. Net interest expense for 2000 is down 17.6% to $0.8 million from $1.0 million in 1999, primarily due to the Company's reduction of its outstanding debt obligations through the use of its operating cash flows. The Company's backlog as of September 30, 2000 and 1999 was $42.6 million and $39.5 million, respectively. Approximately 2.8% of 2000's backlog is on hold and 6.2% is scheduled for delivery beyond fiscal 2001. The following is a breakout by business segment: Repair Group: $9.1 million and $7.4 million, respectively; and ACM Group: $33.5 million and $32.1 million, respectively. FINANCIAL POSITION The Company's long-term debt as a percentage to equity at the end of the year was 26.3% compared to 25.9% in 1999. As of September 30, 2000 the Company had a $0.4 million outstanding balance against its $6.0 million revolving credit agreement which expires March 31, 2002. The Company feels it has adequate financing available to meet its liquidity needs through the foreseeable future. 5 7 SIFCO Industries, Inc., and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME Years ended September 30 (Amounts in thousands, except per share data) ================================================================================
2000 1999 1998 ================================================================================================== NET SALES $ 106,138 $ 115,490 $ 123,175 OPERATING EXPENSES: Cost of goods sold 90,732 97,772 97,587 Selling, general and administrative expenses 12,357 12,827 13,240 -------------------------------------------------------------------------------------------------- Total operating expenses 103,089 110,599 110,827 -------------------------------------------------------------------------------------------------- Operating Income 3,049 4,891 12,348 INTEREST INCOME (196) (277) (220) INTEREST EXPENSE 1,019 1,276 1,305 OTHER INCOME, NET (253) (213) (346) -------------------------------------------------------------------------------------------------- Income before income tax provision 2,479 4,105 11,609 INCOME TAX PROVISION 57 332 2,324 -------------------------------------------------------------------------------------------------- Net income $ 2,422 $ 3,773 $ 9,285 ================================================================================================== NET INCOME PER SHARE (BASIC) $ .47 $ .73 $ 1.80 NET INCOME PER SHARE (DILUTED) $ .47 $ .72 $ 1.78 WEIGHTED-AVERAGE NUMBER OF COMMON SHARES (BASIC) 5,169 5,181 5,164 WEIGHTED-AVERAGE NUMBER OF COMMON SHARES (DILUTED) 5,203 5,228 5,228
See accompanying notes to consolidated financial statements. 6 8 SIFCO Industries, Inc., and Subsidiaries CONSOLIDATED BALANCE SHEETS September 30 (Amounts in thousands, except per share data) ================================================================================
2000 1999 -------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 4,687 $ 2,022 Receivables, less allowance for doubtful accounts of $765 in 2000 and $722 in 1999 19,743 22,192 Inventories 19,878 23,935 Refundable income taxes --- 354 Deferred income taxes 1,486 1,666 Prepaid expenses and other current assets 656 1,365 -------------------------------------------------------------------------------------------------- Total current assets 46,450 51,534 PROPERTY, PLANT AND EQUIPMENT AT COST: Land 859 867 Buildings 18,493 18,935 Machinery and equipment 55,724 57,292 -------------------------------------------------------------------------------------------------- 75,076 77,094 Less - accumulated depreciation and amortization 46,067 45,702 -------------------------------------------------------------------------------------------------- Property, plant and equipment, net 29,009 31,392 OTHER ASSETS: Funds held by trustee for capital project 530 677 Goodwill and other intangible assets, net 3,866 4,182 Other assets 645 877 -------------------------------------------------------------------------------------------------- Total other assets 5,041 5,736 -------------------------------------------------------------------------------------------------- Total assets $ 80,500 $ 88,662 ================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 1,420 $ 1,415 Accounts payable 10,263 11,629 Accrued salaries and wages 1,251 1,074 Accrued workers' compensation 731 696 Accrued income taxes 81 --- Other accrued liabilities 4,028 4,796 -------------------------------------------------------------------------------------------------- Total current liabilities 17,774 19,610 LONG-TERM DEBT, NET OF CURRENT MATURITIES 11,962 12,985 OTHER LONG-TERM LIABILITIES 5,264 6,021 SHAREHOLDERS' EQUITY: Serial preferred shares, no par value, authorized 1,000 shares Common shares, par value $1 per share, authorized 10,000 shares; issued 5,205 shares in 2000 and 5,193 shares in 1999; outstanding 5,134 shares in 2000 and 5,193 shares in 1999 5,205 5,193 Additional paid-in-capital 6,413 6,352 Accumulated other comprehensive loss (8,310) (2,749) Retained earnings 42,641 41,250 Common shares held in treasury at cost, 71 shares in 2000 (449) --- -------------------------------------------------------------------------------------------------- Total shareholders' equity 45,500 50,046 -------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 80,500 $ 88,662 ==================================================================================================
See accompanying notes to consolidated financial statements. 7 9 SIFCO Industries, Inc., and subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended September 30 (Amounts in thousands) ================================================================================
2000 1999 1998 ---------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,422 $ 3,773 $ 9,285 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 4,587 4,589 4,055 Loss on disposal of property, plant and equipment --- 71 21 Deferred income taxes 176 335 (152) CHANGES IN OPERATING ASSETS AND LIABILITIES: Receivables 2,449 (2,119) 443 Inventories 4,057 3,704 (7,793) Accrued or refundable income taxes 435 (922) 340 Prepaid expenses and other current assets 709 (813) 137 Other assets 232 238 248 Accounts payable (1,366) (840) 1,972 Accrued salaries and wages 177 (382) 177 Accrued workers' compensation and other accrued liabilities (733) (407) (370) Other long-term liabilities (753) (1,711) (196) ---------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 12,392 5,516 8,602 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (4,633) (4,902) (11,313) Decrease (increase) in funds held by trustee for capital project 147 245 (922) Other (2,743) 1,920 955 ---------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (7,229) (2,737) (11,280) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from additional borrowings 397 --- 16,300 Repayment of borrowings (1,415) (3,500) (11,372) Repurchase of common shares (449) --- --- Dividends (1,031) (1,037) (1,033) ---------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing activities (2,498) (4,537) 3,895 ---------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 2,665 (1,758) 782 Cash and cash equivalents, beginning of year 2,022 3,780 2,998 ---------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 4,687 $ 2,022 $ 3,780 ================================================================================================================ Supplemental disclosure of cash flow information: Cash paid for interest $ 1,021 $ 1,295 $ 1,200 Cash paid for income taxes, net 62 1,246 2,105
See accompanying notes to consolidated financial statements. 8 10 CONSOLIDATED STATEMENTS OF SIFCO Industries, Inc., and Subsidiaries SHAREHOLDERS' EQUITY Years ended September 30 (Amounts in thousands, except per share data) ================================================================================
----------------------------------------------------------------------------------------------------------------------------------- ACCUMULATED COMMON ADDITIONAL OTHER SHARES TOTAL COMMON PAID-IN COMPREHENSIVE RETAINED HELD IN SHAREHOLDERS' SHARES CAPITAL INCOME (LOSS) EARNINGS TREASURY EQUITY ----------------------------------------------------------------------------------------------------------------------------------- BALANCE - September 30, 1997 $ 5,160 $ 6,101 $ (955) $ 30,262 $ --- $ 40,568 Comprehensive income: Net income --- --- --- 9,285 --- 9,285 Foreign currency translation adjustment --- --- 963 --- --- 963 -------- Total comprehensive income 10,248 Shares issued to Defined Contribution Plan 3 49 --- --- --- 52 Shares issued to vendor as payment for services 2 53 --- --- --- 55 Stock options exercised, net of shares surrendered 5 (5) --- --- --- --- Dividends declared ($.20 per share) --- --- --- (1,033) --- (1,033) ----------------------------------------------------------------------------------------------------------------------------------- BALANCE - September 30, 1998 $ 5,170 $ 6,198 $ 8 $ 38,514 $ --- $ 49,890 Comprehensive income: Net income --- --- --- 3,773 --- 3,773 Foreign currency translation adjustment --- --- (2,757) --- --- (2,757) -------- Total comprehensive income 1,016 Shares issued to Defined Contribution Plan 6 51 --- --- --- 57 Shares issued to vendor as payment for services 4 48 --- --- --- 52 Stock options exercised, net of shares surrendered 13 55 --- --- -- 68 Dividends declared ($.20 per share) --- --- --- (1,037) --- (1,037) ----------------------------------------------------------------------------------------------------------------------------------- BALANCE - September 30, 1999 $ 5,193 $ 6,352 $ (2,749) $ 41,250 $ --- $ 50,046 Comprehensive loss: Net income --- --- --- 2,422 --- 2,422 Foreign currency translation adjustment --- --- (5,561) --- --- (5,561) -------- Total comprehensive loss (3,139) Shares issued to Defined Contribution Plan 1 5 --- --- --- 6 Shares issued to vendor as payment for services 6 42 --- --- --- 48 Stock options exercised 5 14 --- --- --- 19 Shares repurchased and held in treasury --- --- --- --- (449) (449) Dividends declared ($.20 per share) --- --- --- (1,031) --- (1,031) ----------------------------------------------------------------------------------------------------------------------------------- BALANCE - September 30, 2000 $ 5,205 $ 6,413 $ (8,310) $ 42,641 $ (449) $ 45,500 ===================================================================================================================================
See accompanying notes to consolidated financial statements. 11 SIFCO Industries, Inc., and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL September 30, 2000, 1999, and 1998 STATEMENTS (Amounts in thousands, except share and per share data) ================================================================================ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. DESCRIPTION OF BUSINESS: SIFCO Industries, Inc., an Ohio Corporation, and its subsidiaries (the "Company") engage in the production and sale of a variety of metalworking processes, services and products produced primarily to the specific design requirements of its customers. The processes include forging, heat treating, coating, welding, machining and electroplating; and the products include forgings, machined forged parts and other machined metal parts, remanufactured component parts for turbine engines, and electroplating solutions and equipment. B. PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. C. CASH EQUIVALENTS: The Company considers all highly liquid short-term investments with original maturities of three months or less to be cash equivalents. D. INVENTORY VALUATION: Inventories are stated at the lower of cost or market. Inventory costs include material, direct labor and factory overhead. Cost is determined by the last-in, first-out (LIFO) method for approximately 31% and 30% of inventories at September 30, 2000 and 1999, respectively. The first-in, first-out (FIFO) method is used for the remainder of inventories. E. DEPRECIATION: The Company provides for depreciation of property, plant and equipment, principally by the straight-line method, at annual rates sufficient to amortize the cost over each asset's expected useful life. The principal rates of depreciation for financial reporting purposes are: buildings 2% to 5% and machinery and equipment 5% to 33-1/3%. F. GOODWILL AND OTHER INTANGIBLE ASSETS: Goodwill and other intangible assets primarily represent the excess of cost over the net assets of acquired companies. Goodwill is amortized using the straight-line method over 40 years. Also included is a 10-year, non-competition agreement with the former owner of an acquired company. This asset is being amortized using the straight-line method over 10 years. At September 30, 2000 and 1999, accumulated amortization of goodwill and other intangible assets was $2,770 and $2,455, respectively. The Company uses an undiscounted cash flow method to periodically review the value of goodwill and other intangible assets and believes such assets are realizable. G. NET INCOME PER SHARE: The Company's net income per basic share amounts have been computed based on the average number of common shares outstanding. Net income per diluted share amounts reflect the effect of the Company's outstanding stock options under the treasury stock method. H. OTHER INCOME: Other income is comprised primarily of grant income from Irish government agencies, foreign exchange gains and losses, and royalty and fee income. I. USE OF ESTIMATES: Accounting principles generally accepted in the United States require management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent liabilities, at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the period in preparing these consolidated financial statements. Actual results could differ from these estimates. J. REVENUE RECOGNITION: Sales are generally recognized when products are shipped or services are provided to customers. K. NEW ACCOUNTING STANDARD: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement, as amended by SFAS No. 138, is effective for fiscal years beginning after June 15, 2000. The standard establishes accounting and reporting standards for derivative instruments and for hedging activities. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded in earnings or other comprehensive income, based on whether the instrument is designated as part of a hedge transaction and, if so, the type of hedge transaction. The Company is required to adopt this statement in the first quarter of fiscal 2001. The Company believes that the adoption of SFAS No. 133 will not have a material impact on its financial position or results of operations. L. RECLASSIFICATIONS: Certain amounts in prior years have been reclassified to conform to the 2000 consolidated financial statement presentation. 2. INVENTORIES Inventories consist of: 2000 1999 ================================================================================ Raw materials and supplies $ 4,380 $ 6,780 Finished goods and work-in-progress 15,498 17,155 -------------------------------------------------------------------------------- Total inventories $19,878 $23,935 ================================================================================ If the FIFO method had been used for the entire Company, inventories would have been $2,979 and $3,789 higher than reported at September 30, 2000 and 1999, respectively. 10 12 NOTES CONTINUED (Amounts in thousands, except share and per share data) ================================================================================ 3. LONG-TERM DEBT Long-term debt consists of: 2000 1999 ================================================================================ Term note payable to bank $ 9,300 $10,500 Revolving credit agreement 397 --- Industrial development variable rate demand revenue bonds 3,685 3,900 -------------------------------------------------------------------------------- Total debt 13,382 14,400 Less - current maturities 1,420 1,415 -------------------------------------------------------------------------------- Total long-term debt $11,962 $12,985 ================================================================================ The term note is unsecured and payable in quarterly installments of $300 through February 1, 2005 with the remaining balance of $3,900 due May 1, 2005. The term note has a variable interest rate which, after giving effect to an interest rate swap agreement with the same bank, becomes an effective fixed rate of 7.74% and is subject to adjustment if certain loan covenants are not maintained. The interest rate swap agreement has a notional amount equal to the amount owed under the term note and bears interest at a fixed rate of 5.99%. The Company has an unsecured $6,000 revolving credit agreement which expires on March 31, 2002 and bears interest at the bank's base rate. The interest rate was 9.5% at September 30, 2000. The average balance outstanding against the revolving credit agreement was $212, $2,205, and $4,300 during 2000, 1999 and 1998, respectively. A commitment fee of 1/4% is incurred on the remaining unused balance. The Company has a $4,100, 15-year, Industrial Development bond outstanding, the net proceeds of which are being used at the Turbine Component Services and Repair facility in Tampa, Florida. The interest rate is reset weekly, based on prevailing tax-exempt money market rates (5.6% at September 30, 2000). The bond requires annual principal payments ranging from $220 in 2001 to $355 in 2013. The bonds are guaranteed by a letter of credit, which is secured by the property and equipment of the facility. Under its various credit agreements, the Company is subject to certain customary covenants. These include, without limitation, a minimum tangible net worth level (as defined). At September 30, 2000 the Company was in compliance with such covenants. 4. INCOME TAXES Income tax provision consists of the following: 2000 1999 1998 ================================================================================ Current U.S. federal and non-U.S income tax provision (benefit) $ (108) $ (9) $ 2,419 Deferred U.S. federal income tax provision (benefit) 176 335 (152) State and local income tax provision (benefit) (11) 6 57 -------------------------------------------------------------------------------- Income tax provision $ 57 $ 332 $ 2,324 ================================================================================ The income tax provision differs from amounts currently payable or refundable due to certain items reported for financial statement purposes in periods which differ from those in which they are reported for tax purposes. The income tax provision in the accompanying Consolidated Statements of Income differs from the statutory rate as follows: 2000 1999 1998 ================================================================================ Income before income tax provision $2,479 $4,105 $11,609 Less-U.S., state and local income tax provision (benefit) (11) 6 57 -------------------------------------------------------------------------------- Income before federal income tax provision $2,490 $4,099 $11,552 ================================================================================ Income tax provision at U.S. federal statutory rate $ 847 $1,393 $ 3,928 Tax effect of: Non-U.S. tax rate differential (792) (975) (1,569) Other 13 (92) (92) -------------------------------------------------------------------------------- U.S. federal and non-U.S income tax provision 68 326 2,267 Add-U.S., state and local income tax provision (benefit) (11) 6 57 -------------------------------------------------------------------------------- Income tax provision $ 57 $ 332 $ 2,324 ================================================================================ Deferred tax assets and liabilities consist of the following: 2000 1999 ================================================================================ Deferred tax assets: Employee benefits $1,308 $1,531 Doubtful accounts 151 180 Inventory and property reserves 355 324 Investment valuation reserve 511 511 Foreign taxes credits 161 161 Other 370 398 -------------------------------------------------------------------------------- Total deferred tax assets 2,856 3,105 Deferred tax liabilities: Depreciation 1,220 1,243 Personal property taxes 175 225 -------------------------------------------------------------------------------- Total deferred tax liabilities 1,395 1,468 -------------------------------------------------------------------------------- Deferred tax assets less liabilities 1,461 1,637 Valuation allowance (161) (161) -------------------------------------------------------------------------------- Net deferred tax assets $1,300 $1,476 ================================================================================ The realization of the Company's net deferred tax assets is dependent upon the generation of future U.S. taxable income. Management believes it is more likely than not that the Company will generate sufficient future U.S. taxable income to fully utilize the established net deferred tax assets. Cumulative undistributed earnings of non-U.S. subsidiaries for which no U.S. federal deferred income tax liabilities have been recorded were approximately $25,000 at September 30, 2000. 11 13 NOTES CONTINUED (Amounts in thousands, except share and per share data) ================================================================================ 5. RETIREMENT BENEFIT PLANS: The Company and certain of its U.S. subsidiaries sponsor defined benefit pension plans covering most of its employees. The Company's funding policy for U.S. defined benefit plans is based on an actuarially determined cost method allowable under Internal Revenue Service regulations. Non-U.S. plans are funded in accordance with the requirements of regulatory bodies governing the plan. At September 30, 1999, the Company adopted SFAS No. 132, "Employers' Disclosure about Pensions and Other Postretirement Benefits," which standardizes the disclosure requirements for pensions and other postretirement benefits. Net pension expense for the Company-sponsored defined benefit plans for 2000, 1999, and 1998 consists of the following: 2000 1999 1998 ================================================================================ Service cost $ 886 $ 906 $ 779 Interest cost 1,153 967 951 Expected return on plan assets (1,317) (1,122) (1,010) Amortization of transition (asset) obligation 12 (13) (13) Amortization of prior service cost 42 (2) (2) Amortization of net gain (132) (79) (39) -------------------------------------------------------------------------------- Net pension expense for defined benefit plans $ 644 $ 657 $ 666 ================================================================================ The status of all significant U.S. and non-U.S. defined benefit plans is as follows: Benefit Obligations: 2000 1999 ================================================================================ Benefit obligation at beginning of year $ 15,446 $ 14,002 Service cost 886 906 Interest cost 1,153 967 Participant contributions 187 183 Amendments for union contracts --- 540 Actuarial gain (1,061) (339) Benefits paid (1,395) (524) Currency translation adjustment (620) (289) -------------------------------------------------------------------------------- Benefit obligation at end of year $ 14,596 $ 15,446 ================================================================================ Plan Assets: 2000 1999 ================================================================================ Plan assets at beginning of year $ 17,734 $ 16,515 Actual return on plan assets 1,941 1,569 Employer contributions 466 333 Participant contributions 187 183 Benefits paid (1,395) (513) Currency translation adjustment (789) (353) -------------------------------------------------------------------------------- Plan assets at end of year $ 18,144 $ 17,734 ================================================================================ Plans in which Plans in which Assets Exceed Accumulated Accumulated Benefits Benefits Exceed Assets -------------------- -------------------- Reconciliation of Funded Status: 2000 1999 2000 1999 ================================================================================ Plan assets in excess of projected benefit obligations $ 3,941 $ 3,256 $ (393) $ (968) Unrecognized net gain (3,917) (3,226) (1,999) (1,217) Unrecognized prior service cost 640 391 (211) 80 Unrecognized transition asset (7) (8) (53) (41) Currency translation adjustment 94 14 --- --- -------------------------------------------------------------------------------- Net amount recognized in the balance sheet $ 751 $ 427 $(2,656) $(2,146) ================================================================================ The net amounts are recorded in other long-term liabilities. Assumptions used for defined benefit plans consist of: 2000 1999 1998 ================================================================================ Discount rate for liabilities 7.8% 7.4% 6.7% Expected return on assets 8.6% 8.1% 8.1% Rate of compensation increase 4.0% 4.0% 3.8% The Company also contributes to two U.S. multi-employer defined contribution plans for certain union employees. The Company's contributions to these plans in 2000, 1999 and 1998 were $46, $43 and $42, respectively. All nonunion employees of the Company and its U.S. subsidiaries are eligible to participate in the Company's defined contribution plan. The total cost for 2000, 1999 and 1998 was $85, $80, and $82, respectively. The Company's Irish subsidiary sponsors, for all of its employees, a tax-advantaged profit sharing program which was adopted in 1999. Company discretionary contributions and employee elective contributions are invested in common stock of the Company without being subject to personal income taxes if held for at least three years. Employees have the option of taking a cash taxable distribution. The total cost of the plan for 2000 and 1999 was $-0- and $156, respectively. 12 14 NOTES CONTINUED (Amounts in thousands, except share and per share data) ================================================================================ 6. GOVERNMENT GRANTS The Company receives grants and subsidies from the Republic of Ireland as an incentive to invest in facilities and training in that country. These grants and subsidies generally require that the Company maintain operations for ten years in order to qualify for the full value of benefits received. These grants are recorded as deferred credits when awarded and are subsequently amortized into income over the period in which such grants are required to be earned. The unamortized portion of these grants amounted to $2,656 and $3,241 at September 30, 2000 and 1999, and is included in other long-term liabilities. Grant revenue of $513, $620 and $662 for 2000, 1999 and 1998, respectively, is included in other income, net. These grants may be repayable in certain circumstances, principally the sale of related assets or discontinuance of operations. The contingent liability for such possible repayments was $4,545 and $3,330 at September 30, 2000 and 1999, respectively. 7. STOCK OPTIONS During 1999, the Company adopted the 1998 Long-Term Incentive Plan. The aggregate number of stock options which may be granted under the Plan in each fiscal year is limited to 1.5% of the total outstanding shares at September 30, 1998 up to a maximum of 5% of such total outstanding shares. Options also remain outstanding under two previous stock option plans for which authority to issue additional grants has expired. Recipients of the grants may purchase common shares at not less than fair market value no later than ten years from date of the grant. Options issued under all plans generally vest at a rate of 25% per year. Option activity relating to these plans during the last three years was as follows: 2000 1999 1998 ================================================================================ Options at beginning of year 205,000 148,250 145,000 Weighted average exercise price $ 8.28 $ 5.67 $ 4.68 Options granted during the year 76,000 80,000 10,000 Weighted average exercise price $ 7.08 $ 12.88 $ 20.38 Options exercised during the year (5,000) (15,750) (6,750) Weighted average exercise price $ 3.75 $ 6.26 $ 6.16 Options canceled during the year --- (7,500) --- Weighted average exercise price $ --- $ 10.00 $ --- Options at end of year 276,000 205,000 148,250 Weighted average exercise price $ 8.03 $ 8.28 $ 5.67 Options exercisable at end of year 138,750 97,500 83,250 Weighted average exercise price $ 6.14 $ 4.84 $ 4.84 The following table provides additional information regarding options outstanding as of September 30, 2000: OPTION OPTIONS OPTIONS REMAINING LIFE EXERCISE PRICE OUTSTANDING EXERCISABLE OF OPTIONS (YRS) ================================================================================ 3.75 5,000 5,000 2.1 4.25 100,000 100,000 5.1 6.50 10,000 10,000 1.1 6.81 5,000 --- 9.4 6.94 55,000 --- 9.1 7.63 16,000 --- 9.1 12.88 75,000 18,750 8.1 20.38 10,000 5,000 7.3 -------------------------------------------------------------------------------- Total 276,000 138,750 ================================================================================ The Company employs the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation." The pro forma impact of compensation expense from incentive stock options granted was immaterial for all years presented. The Company had three Phantom Stock Plans as of September 30, 1999. The benefit under the Plans is based upon the difference between the market price (as defined) and award price, at the distribution valuation date, multiplied by the vested award units; plus the market value (as defined) of dividend equivalent units. On April 26, 1999, the Company's Board of Directors formally approved an amendment to the three Plans to better reflect the intended long-term nature of such plans. The principal modification was to change the definition of market price. The market price was previously defined as the average of the high and low market price for the Company's common shares during the 10 days prior to the distribution valuation date. The modified market price is defined as the average of the month-end market prices for the Company's common shares during the 36-month period prior to the distribution valuation date. The impact, as of April 26, 1999, of changing the definition of market price was to increase the Company's obligation under the three Plans by approximately $591. Because a controlling number of Board members agreed, during the quarter ended March 31, 1999, to make such Plan amendments, the Company accounted for the Plans, as modified, during such quarter. During 2000, all remaining participants in the Company's three Phantom Stock Plans elected to discontinue participation in the Plans. Therefore, all such participants received full and final distributions from the Plans aggregating approximately $919 during 2000. Consequently, as of September 30, 2000, there were no award units outstanding under any of these Phantom Stock Plans, and the Company has no further obligation under such Plans. As of September 30, 1999 and 1998, award units outstanding under the Phantom Stock Plans were 111,663 and 124,063 at award prices ranging from $3.55 to $20.31, plus 10,122 and 8,103 dividend equivalent units, respectively. Expense (income) relating to the Plans was, -0- in 2000 and 1999, and $(288) in 1998. 8. SUMMARIZED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED AND RESTATED) 2000 Quarter Ended -------------------------------------------- Dec 31 March 31 June 30 Sept 30 Net sales $25,345 $28,182 $26,097 $26,514 Cost of goods sold: Previously reported 21,447 23,160 22,989 23,136 Restated 21,447 23,493 22,656 23,136 Net income: Previously reported 484 1,088 (109) 959 Restated 484 934 45 959 Net income per share Basic: Previously reported $ .09 $ .21 $ (.02) $ .19 Restated $ .09 $ .18 $ .01 $ .19 Diluted: Previously reported $ .09 $ .21 $ (.02) $ .19 Restated $ .09 $ .18 $ .01 $ .19 1999 Quarter Ended -------------------------------------------- Dec 31 March 31 June 30 Sept 30 Net sales $29,525 $30,281 $30,535 $25,149 Cost of goods sold 25,080 25,343 25,958 21,391 Net income 879 1,098 908 888 Net income per share Basic $ .17 $ .21 $ .18 $ .17 Diluted $ .17 $ .21 $ .17 $ .17 The Company restated its results for the second and third quarters of fiscal 2000 for an inventory valuation adjustment at its Aerospace Component Manufacturing Group that reduced net income for the second quarter by $154 and increased net income for the third quarter by $154. Such restatement had no effect on net income for the entire fiscal year. 13 15 NOTES CONTINUED (Amounts in thousands, except share and per share data) ================================================================================ 9. CONTINGENCIES In the normal course of business, the Company is involved in pending legal actions. The Company cannot reasonably estimate future costs, if any, related to these matters. Although it is possible that the Company's future operating results could be affected by future cost of litigation, it is management's belief at this time that such costs will not have a material adverse effect on the Company's consolidated financial position or results of operations. 10. FOREIGN CURRENCY MANAGEMENT The U.S. dollar is the functional currency for substantially all of the Company's consolidated operations. For these operations, all gains and losses from currency transactions are included in income currently. For certain foreign equity investments, the functional currency is the local currency. The cumulative translation effects for equity investments using functional currencies other than the U. S. dollar are included in accumulated other comprehensive loss in shareholders' equity. The Company uses currency forwards and options, which typically expire within one year, to hedge payments and receipts of currencies related to the purchase and sale of goods overseas. Realized gains and losses on these contracts are recognized in the same period as the hedged transactions. At September 30, 2000, the Company had forward contracts to sell U.S. $3,500. These contracts mature in October and November of 2000 and are fully covered by U.S. dollar receivables at September 30, 2000. 11. BUSINESS SEGMENTS Reportable segments are identified by the Company based upon distinct products manufactured and services provided. The Turbine Component Services and Repair ("Repair") segment consists primarily of turbine component remanufacturing, precision contract machining, subassemblies, and finished parts; selective electroplating equipment, solutions and services. The Aerospace Component Manufacturing ("ACM") segment consists primarily of domestically produced forgings and semi-finished components principally for the aerospace industry. The Company's reportable segments are separately managed. Two customers accounted for 17% and 12%, respectively, of the Company's consolidated net sales in 2000. The customer that accounted for 17% of such sales was supplied by both of the Company's business segments, while the customer that accounted for 12% of such sales was supplied by the Company's Repair segment. One customer of the Company's Repair segment accounted for 13% of consolidated net sales in 1999. One customer supplied by both of the Company's business segments accounted for 15% of the Company's consolidated net sales in 1998. Unallocated amounts represent expenses which are not of an operating nature and therefore not allocated to business segments. Corporate assets are principally cash, cash equivalents and receivables. The following table summarizes certain information regarding segments of the Company's operations for the years ended September 30, 2000, 1999, and 1998: 2000 1999 1998 ================================================================================ Net sales, inc. intersegment sales: Turbine Component Services and Repair $ 71,180 $ 81,145 $ 80,000 Aerospace Component Manufacturing 34,958 34,345 43,250 Intersegment sales --- --- (75) -------------------------------------------------------------------------------- Consolidated net sales $106,138 $115,490 $123,175 ================================================================================ Operating income: Turbine Component Services and Repair $ 3,425 $ 5,689 $ 9,630 Aerospace Component Manufacturing 1,491 1,097 4,969 Corporate unallocated expenses (1,867) (1,895) (2,251) -------------------------------------------------------------------------------- Consolidated operating income 3,049 4,891 12,348 Interest expense, net 823 999 1,085 Other income, net (253) (213) (346) -------------------------------------------------------------------------------- Consolidated income before income tax provision $ 2,479 $ 4,105 $ 11,609 ================================================================================ Depreciation and amortization expense: Turbine Component Services and Repair $ 3,908 $ 3,971 $3,559 Aerospace Component Manufacturing 679 618 496 -------------------------------------------------------------------------------- Consolidated depreciation and amortization expense $ 4,587 $ 4,589 $ 4,055 ================================================================================ Capital expenditures: Turbine Component Services and Repair $ 4,118 $ 3,338 $ 8,495 Aerospace Component Manufacturing 515 1,564 2,818 -------------------------------------------------------------------------------- Consolidated capital expenditures $ 4,633 $ 4,902 $ 11,313 ================================================================================ Identifiable assets: Turbine Component Services and Repair $ 55,614 $ 65,011 $ 64,682 Aerospace Component Manufacturing 18,408 19,260 22,328 Corporate 6,478 4,391 5,795 -------------------------------------------------------------------------------- Consolidated total assets $ 80,500 $ 88,662 $ 92,805 ================================================================================ Foreign operations: Net sales $ 46,402 $ 53,982 $ 47,866 Operating income 2,824 4,687 7,330 Identifiable assets 29,768 38,444 36,455 14 16 ================================================================================ SAFE HARBOR STATEMENT This Annual Report contains various forward-looking statements and includes assumptions concerning the Company's operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to risk and uncertainties. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company provides the following cautionary statement identifying important economic, political and technological factors, among others, the absence of which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. Such factors include the following: (1) future business environment, including capital and consumer spending; (2) competitive factors, including the ability to replace business which may be lost due to OEM encroachment into turbine component services and repair markets; (3) successful procurement of new repair process licenses; (4) the impact of fluctuations in foreign currency (euro) exchange rates on the results of operations; (5) successful development and market introductions of new products; (6) stability of government laws and regulations, including taxes; and (7) stable governments and business conditions in economies where business is conducted. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF SIFCO INDUSTRIES, INC. We have audited the accompanying consolidated balance sheets of SIFCO Industries, Inc. (an Ohio corporation) and subsidiaries as of September 30, 2000 and 1999, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended September 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SIFCO Industries, Inc. and subsidiaries as of September 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Cleveland, Ohio, October 27, 2000. 15 17 SHAREHOLDER INFORMATION ========================================================================================================= DIRECTORS Maurice Foley William R. Higgins Hudson D. Smith Director, AerFi Group plc Chief Executive Officer Treasurer, SIFCO Industries, Inc. Shannon, Ireland Applied Fiber Systems President, SIFCO Forge Group Clearwater, Florida George D. Gotschall Thomas J. Vild Assistant Secretary David V. Ragone Vild & Associates SIFCO Industries, Inc. Partner Chagrin Falls, Ohio Ampersand Ventures Jeffrey P. Gotschall Wellesley, Massachusetts J. Douglas Whelan President and Chief Executive Officer Retired President and SIFCO Industries, Inc. Charles H. Smith, Jr. Chief Operating Officer Chairman of the Board Wyman-Gordon Company Richard S. Gray SIFCO Industries, Inc. North Grafton, Massachusetts Retired President Enterprise Development, Inc. Cleveland, Ohio ========================================================================================================= OFFICERS Charles H. Smith, Jr. Timothy V. Crean Mara L. Babin Chairman of the Board Executive Vice President Secretary and General Counsel Partner Jeffrey P. Gotschall George D. Gotschall Squire, Sanders & Dempsey President and Chief Executive Officer Assistant Secretary Frank A. Cappello Vice President-Finance Hudson D. Smith and Chief Financial Officer Treasurer =========================================================================================================
AUDITORS DIVIDEND REINVESTMENT Arthur Andersen LLP SIFCO Industries maintains a 200 Public Square, Suite 1800 dividend reinvestment program that Cleveland, Ohio 44114-2803 enables shareholders to purchase additional shares of SIFCO stock without fees or service charges. To participate in this program, or for answers to any questions on your dividend investment account, contact the SIFCO corporate office. GENERAL COUNSEL FORM 10-K REQUESTS Squire, Sanders & Dempsey A copy of the Company's current form 10-K 4900 Key Tower annual report as filed with the 127 Public Square Securities and Exchange Commission is Cleveland, Ohio 44114-1304 available without charge to shareholders upon request to Investor Relations, SIFCO Industries, Inc. ANNUAL MEETING TRANSFERAGENT The annual meeting of shareholders of AND REGISTRAR SIFCO Industries, Inc. will be held at National City Bank National City Bank, East Ninth Street and Corporate Trust Operations Euclid Avenue, Cleveland, Ohio, at P. O. Box 92301 10:30 AM on January 30, 2001. Cleveland, Ohio 44193-0900 Phone: 1-800-622-6757 LISTING The common stock of SIFCO Industries, Inc. is listed on the American Stock Exchange under the symbol SIF. 16 18 [SIFCO LOGO] 970 East 64th Street, Cleveland, Ohio 44103-1694 Phone: (216) 881-8600 Fax: (216) 432-6281 www.sifco.com