-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JY+3WJF0GSyAU+q208mcvu+m2pmaTl1t8CRZ7OuEs4rVWUJqUlykeojM69t0T1S2 G+W0Rou9Qvo6Fzm+ptuULg== 0000950152-02-009269.txt : 20021213 0000950152-02-009269.hdr.sgml : 20021213 20021213085541 ACCESSION NUMBER: 0000950152-02-009269 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIFCO INDUSTRIES INC CENTRAL INDEX KEY: 0000090168 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT ENGINES & ENGINE PARTS [3724] IRS NUMBER: 340553950 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05978 FILM NUMBER: 02856266 BUSINESS ADDRESS: STREET 1: 970 E 64TH ST CITY: CLEVELAND STATE: OH ZIP: 44103 BUSINESS PHONE: 2168818600 MAIL ADDRESS: STREET 1: 970 EAST 64TH STREET CITY: CLEVELAND STATE: OH ZIP: 44103 FORMER COMPANY: FORMER CONFORMED NAME: STEEL IMPROVEMENT & FORGE CO DATE OF NAME CHANGE: 19690520 10-K 1 l97786ae10vk.txt SIFCO INDUSTRIES, INC. 10-K/FISCAL YEAR END 9-30 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, 2002 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 34-0553950 ______________________________________ ____________________________________ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 970 East 64th Street, Cleveland Ohio 44103 ________________________________________ ____________________________________ (Address of principal executive offices) (Zip Code) (216) 881-8600 ________________________________________ (Registrant's telephone number, including area code) Securities Registered Pursuant to Section 12(b) of the Act: Common Shares, $1 Par Value American Stock Exchange ________________________________________ ____________________________________ (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of Common Shares held by non-affiliates of the Registrant as of November 18, 2002 computed on the basis of the last reported sale price per share of $2.90 of such stock on the American Stock Exchange, was $8,890,510. Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the 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, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter is $17,269,079. The number of the Registrant's Common Shares outstanding at November 18, 2002 was 5,127,733. Documents incorporated by reference: Portions of the Proxy Statement for Annual Meeting of Shareholders on January 28, 2003 (Part III). PART I ITEM 1. BUSINESS A. THE COMPANY SIFCO Industries, Inc. ("Company"), an Ohio corporation, was incorporated in 1916. The executive offices of the Company are located at 970 East 64th Street, Cleveland, Ohio 44103, and its telephone number is (216) 881-8600. The Company is engaged in the production and sale of a variety of metalworking processes, services and products produced primarily to the specific design requirements of its customers. The processes and services include forging, heat-treating, coating, welding, machining and selective electrochemical finishing; and the products include forged parts, machined forgings and other machined metal parts, remanufactured component parts for turbine engines, and selective electrochemical finishing solutions and equipment. The Company's operations are conducted in three business segments: (1) Turbine Component Services and Repair Group, (2) Aerospace Component Manufacturing Group and (3) Metal Finishing Group. B. PRINCIPAL PRODUCTS AND SERVICES 1. Turbine Component Services and Repair Group The Company's Turbine Component Services and Repair Group ("Repair Group") business is headquartered in Cork, Ireland. This business consists principally of the repair and remanufacture of jet engine (aerospace) and heavy industrial turbine ("HIT") engine components. The business also performs machining and applies high temperature-resistant coatings to new turbine hardware. Operations The aerospace portion of the Repair Group requires the procurement of licenses/authority, which certify that the Company has obtained approval to perform certain proprietary repair processes. Such approvals are generally specific to an engine and its components, a process and a repair facility/location. Without possession of such approvals, a company would be precluded from competing in the aerospace turbine component repair business. Approvals are issued by either the original equipment manufacturers ("OEM") of jet engines or the Federal Aviation Administration ("FAA"). Historically, the aerospace portion of the Repair Group has elected to procure approvals primarily from the OEM and currently maintains a variety of OEM proprietary repair process approvals issued by each of the primary OEM (i.e. General Electric, SNECMA, Pratt & Whitney, Rolls-Royce). In exchange for being granted an OEM approval, the Repair Group is obligated to pay a royalty to the OEM for each component repair that it performs utilizing the OEM approved proprietary repair process. The aerospace portion of Repair Group continues to be successful in procuring FAA repair process approvals. There is 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 components. The development of remanufacturing and repair processes is an ordinary part of the Repair Group. The Repair Group continues to invest time and money on research and development activities. One such activity is the development of an advanced coating technology. At the present time, a small portion of the Company's repair business is dependent on advanced coating processes and it believes that it can continue to access such capabilities on a subcontract basis when required. However, the Company believes that such requirements will likely increase in the future. While there is a patented advanced coating technology available for the Company to acquire, it has chosen not to do so because it believes that the cost/benefit justification for having that particular advanced coating capability (in-house) does not exist at this time. Instead, the Company, as part of a research group with several other parties, is in the process of researching and developing an equivalent/alternative, cost effective coating technology. Operating costs related to such activities are expensed during the period in which they are incurred. The Company has recognized the evolution of the HIT market. The Company's technologies have had many years of evolution in the jet engine (aerospace) sector. The application of similar technologies to the HIT sector has resulted in benefits to the operator. The Company has recently invested capital in both the United States and Ireland in new equipment that facilitates the repair and remanufacture of these larger (than aerospace) HIT components. Entry to this sector significantly increases the market size for the application of the Company's technologies. 2 The Repair Group generally has multiple, yet limited sources for its raw materials, consisting primarily of investment castings essential to this business. Certain items are procured directly from the OEM to satisfy repair process requirements. Suppliers of such materials are located in many areas throughout North America and Europe. 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 domestic and international air transport industry directly and significantly impacts the performance of the Repair Group. Historically, the air transport industry's long-term outlook has for many years been for continued, steady growth. Such outlook suggested the long-term need for additional aircraft and growth in the requirement for aircraft and turbine engine repairs. The events of September 11, 2001 resulted in an immediate reduction in the demand for passenger travel both in the U.S. and internationally. Aircraft manufacturers have announced reductions in forecasted aircraft deliveries in the next few years as a result of reduced demand, and many airlines have cancelled or rescheduled deliveries of new aircraft to which they had previously committed. In addition, the financial condition of many airlines in the U.S. and throughout the world is weak. The U.S. airline industry has made requests for U.S. government assistance while some airlines have entered bankruptcy proceedings, and others have announced major restructuring initiatives, including significant reductions in service and the grounding of aircraft These factors resulted in a decrease in orders for engine component repairs in the most recent fiscal year, which in turn negatively impacted the Repair Group's net sales, operating results and cash flows. It is difficult to determine at this time what the long-term impact of these events will be on air travel and the demand for services and products provided by the Repair Group. While the world's fleet of aircraft has been growing, it has also been in transition. Several older models of certain aircraft (727, 737-100/200, 747-100/200 and DC-9) and the engines (JT8D and JT9D) that power such aircraft have either been retired from use or their in-flight service intervals are being reduced. In addition, as a direct result of the previously mentioned reduced demand for commercial flight miles, airlines have accelerated the timing of such retirements. As a result, the overall demand for repairs to such older model engines has significantly decreased. At the same time, newer generation aircraft (newer generation 737-700/800/900 and 747-400; 767, A320, A330, A340, etc.) and engines (CFM56, PW4000, Trent, etc.) are being introduced with newer technology required to both operate and maintain such engines. The introduction of such newer generation engines has in general reduced the frequency with which engines and related components need to be repaired. The longer times between repairs has been attributed to improved technology, including the improved ability to monitor an engine's condition while still in operation. However, the newer engine is more costly to repair due to the increased number of components and associated technology. Recent years have seen the installation of numerous power turbines as means of increasing the available electric power to residential, commercial and industrial consumers. The high cost of HIT unit installation and maintenance has provided the Repair Group with the opportunity to bring value to this significant market. HIT units are dispersed throughout the world. The uses for such units can vary. However, the principal use is for generating electricity for multiple applications. HIT units operate in different modes. Some units operate on a continuous base loading at a percentage of their maximum output, while other units may operate at maximum output during specific periods of electric power shortages (e.g. power blackouts, peak demand periods, etc.). The latter units are called peak power systems. In general, HIT units are managed either by a government entity, electric power utility, or independent power producer ("IPP"). IPP's originated principally in response to deregulation of the organizations that operate electric power utilities. Electric power deregulation has created greater competition and therefore, more economical electric power for the end user. Repair and remanufacture of HIT unit components is a growing element of cost management in the HIT industry. The Repair Group's experience, knowledge and technology in the more demanding aerospace market augers well for its entry to HIT market. Competition In recent years, while the absolute number of competitors has decreased as a result of industry consolidation and vertical integration, competition in the component repair business has nevertheless increased, principally due to the increasing direct involvement of the engine manufacturer into the engine overhaul and component repair businesses. With the entry of the OEM into the market, there has been a general reluctance on the part of the OEM to issue, to the independent component repair companies, its approvals for the repair of its newer model engines and related components. However, if an OEM repair process approval is not available, the Repair Group has, in many cases, been successful in procuring, and subsequently marketing to its customers, FAA approvals and related repair processes. It appears that the Repair Group will, more likely than not, become more dependent on its ability to successfully procure and market FAA approved licenses and related repair processes in the future and/or on close collaboration with engine manufacturers. However, the Repair Group 3 believes it has partially compensated for these factors by its success in broadening its product lines and developing new geographic markets and customers, most recently by expanding into the repair of HIT engine components. Repair and remanufacture of HIT engine components has evolved through the need for the operator of electric power utilities to improve the economics of its HIT unit operations. To participate in the HIT sector, it is necessary to have a proven record of application of the appropriate technologies. Most competitors involved in the HIT component repair sector are either the OEM or entities that have a history of application of component repairs in the aerospace sector. Metallurgical analysis of component material removed from an HIT engine determines the precise nature of the necessary technologies to be used to return the component to service. The determination of qualification to repair such components is the responsibility of the HIT unit owner/operator. Several OEM such as ABB, General Electric, Siemens, Alstom, Fiat, etc. participate to varying degrees in the repair and remanufacture of HIT components. The Repair Group's broad product capability (multiple OEM types) and technology base augurs well for continued growth in the sector. Customers The identity and ranking of the Repair Group's principal customers can vary from year to year. The Repair Group attempts to rely on its ability to adapt its services and operations to changing requirements of the market in general and its customers in particular, rather than relying on high volume production of a particular item or group of items for a particular customer or customers. During fiscal 2002, the Repair Group had two customers that accounted for 12% and 9% of the segment's net sales, Fiat Avio and Lufthansa AG, respectively. 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, 2002 decreased to $5.3 million, of which $4.2 million is scheduled for delivery during fiscal 2003 and $1.1 million is on hold, compared with $7.8 million as of September 30, 2001, of which $6.2 million was scheduled for delivery during fiscal 2002 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. 2. Aerospace Component Manufacturing Group Operations The Company's Aerospace Component Manufacturing Group ("ACM Group") is a manufacturer of medium-sized forged parts ranging in size from 2 to 400 pounds (depending on configuration and alloy) in various alloys utilizing a variety of processes for application in the aerospace and other industrial markets. The ACM Group's forged products include: OEM and aftermarket components for aircraft and land-based turbine engines; structural airframe components; components for aircraft landing gear, wheels and brakes; critical rotating components for helicopters; and commercial/industrial products. The ACM Group also provides heat-treatment and some machining of forged parts. The forging, machining, or other preparation of prototype parts to customers' specifications, which may require research and development of new parts or designs, is an ordinary part of the ACM Group. The ACM Group has many sources for its raw materials, consisting primarily of high quality metals essential to this business. Suppliers of such materials are located in many areas throughout North America and Europe. The ACM Group does not depend on a single source for the supply of its materials and believes that its sources are adequate for its business. The business is ISO 9002-1994 registered and AS9100-1999 certified. In addition, the ACM Group's heat-treating facilities are NADCAP (National Aerospace and Defense Contractors Accreditation Program) certified. Industry The performance of the domestic and international air transport industries directly and significantly impacts the performance of the ACM Group. Historically, the air transport industry's long-term outlook has for many years been for continued steady growth. Such outlook suggested the long-term need for additional aircraft and growth in the requirement for aircraft and turbine engines. The events of September 11, 2001 resulted in an immediate reduction in the demand for passenger travel both in the U.S. and internationally. Aircraft manufacturers have announced reductions in forecasted 4 aircraft deliveries in the next few years as a result of reduced demand, and many airlines have cancelled or rescheduled deliveries of new aircraft to which they had previously committed. In addition, the financial condition of many airlines in the U.S. and throughout the world is weak. The U.S. airline industry has made requests for U.S. government assistance while some airlines have entered bankruptcy proceedings, and others have announced major restructuring initiatives, including significant reductions in service and the grounding of aircraft These factors resulted in a decrease in orders for airframe and engine components in the most recent fiscal year, which in turn negatively impacted the ACM Group's net sales, operating results and cash flows. The ACM business also supplies new and spare components for military aircraft. Increases in military component net sales have partially offset the decreases in commercial aerospace components. Competition There is excess capacity in many segments of the forging industry. The ACM Group believes this limits the ability to raise prices. The ACM Group believes, however, that its focus on quality, customer service and offering a broad range of capabilities help to give it an advantage in the primary markets it serves. The ACM Group believes it can broaden its product lines by developing new customers in markets which require similar technical competence, quality and service as the aerospace industry. Customers During fiscal 2002, the ACM Group segment had one customer, Rolls-Royce Corporation, which accounted for 25% of the segment's net sales. The ACM Group believes that the total loss of sales to such customer 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 this customer for well over ten years and is currently conducting business with it under a multi-year contract. 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 business. 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 Company's ACM Group's business is seasonal. Backlog of Orders The ACM Group's backlog as of September 30, 2002 decreased to $24.9 million, of which $21.9 million is scheduled for delivery during fiscal 2003 and $0.1 million is on hold, compared with $28.0 million as of September 30, 2001, of which $24.8 million was scheduled for delivery during fiscal 2002 and $0.2 million was on hold. All orders are subject to modifications or cancellation by the customer with limited charges. The ACM Group believes that the backlog may not necessarily be indicative of actual sales for any succeeding period. 3. Metal Finishing Business Group The Company's Metal Finishing Group is a provider of specialized electrochemical technologies, including the electroplating process called "brush plating", as well as anodizing and electropolishing systems, which are used to apply metal coatings and finishes to a selective area of a component. The Metal Finishing Group's SIFCO Selective Plating business provides (i) equipment and metal solutions to customers to do their own in-house selective electrochemical finishing and (ii) provides custom selective electrochemical finishing on a contract service basis to customers who choose to outsource the work. Operations A variety of metals, determined by the customer's design requirements, can be brush plated onto metal surfaces. Metals available using SIFCO Process solutions include: cadmium, cobalt, copper, nickel, tin and zinc. Precious metal solutions such as gold, iridium, palladium, platinum, rhodium, and silver are also available. The Metal Finishing Group has also developed a number of alloy-plating solutions including: nickel-cobalt, nickel-tungsten, cobalt-tungsten, and tin-zinc. It also offers a complete line of functional chromic, sulfuric, hard coat, phosphoric and boric-sulfuric anodizing finishes and electropolishing. The Metal Finishing Group's process has a wide range of both manufacturing and repair applications to functionally enhance, protect or restore the underlying component. The process is considered environmentally friendlier than traditional plating methods because it does not require the use of tanks and, therefore, it requires smaller amounts of solutions and generates less waste. 5 While the Metal Finishing Group offers the equipment and solutions to customers so that they can conduct their own selective electrochemical finishing operations, it also offers to provide services to customers that either do not want to invest in the equipment, do not want to have responsibility for hazardous materials, or who have decided to outsource non-core operations. Selective electrochemical finishing services occur either at one of the Group's job shop service facilities or at the customer's site by highly trained service technicians. Service center facilities are located within a six-hour drive of most major industrial locations in the United States and in Europe. The Metal Finishing Group generally has multiple, yet limited sources for its raw materials, consisting primarily of various industrial chemicals and metal salts, as well as graphite anodes and other electronic components for equipment manufactured by the Group. There are multiple sources for all these materials and the Metal Finishing Group generally does not depend on a single source for the supply of its materials, so Management believes that its sources are adequate for its business. The Metal Finishing Group sells its products and services under the following brand names: SIFCO Process(R), Dalic(R), USDL(R) and Selectron(R), all of which are specified in military and industrial specifications. The business has ISO-9002-1994 certification and is AS 9000 compliant at its primary U.S. facility. In addition, both of its European facilities have ISO-9002-1994 certification. All of its other regional service centers are ISO-9002-1994 compliant, and in addition a certain facility is NADCAP (National Aerospace and Defense Contractors Accreditation Program) certified. Three of the service centers are FAA approved repair shops. Other Metal Finishing Group approvals include ABS (American Bureau of Ships), ARR (American Railroad Registry), FAA (Federal Aviation Administration), JRS (Japan Registry of Shipping), and KRS (Korean Registry of Shipping). The Group anticipates that during fiscal 2003 it will upgrade its U.S. and European facility certifications to ISO-9001-2000, as well as obtain AS-9100 and NADCAP certifications for certain facilities. Industry While the Metal Finishing Group fits into the broad metal finishing industry, it fills a very specific niche where either engineering demands for finishing only selective areas of a component or scheduling requirements preclude other metal finishing options. The Metal Finishing Group's process is used to provide functional, engineering finishes, as opposed to decorative, in a variety of industries, including aerospace, heavy machinery, medical, petroleum exploration, electric power generation, pulp and paper, printing and railroad. The diversity of industries served helps to mitigate the impact of economic cycles on the business. Competition Brush plating technology was developed in the 1940's in France and virtually everyone involved in this industry draws their formulations from the same core technology. The industry is fragmented into numerous product and service suppliers, resulting in a highly competitive environment. The Metal Finishing Group attempts to differentiate itself from the competition by creating high value applications for larger, technically demanding customers. The Metal Finishing Group believes that it is the largest supplier of selective electrochemical finishing supplies and service in the world and the only supplier with strong technical and product development capabilities. Customers The Metal Finishing Group has a customer base of over 1,000 customers. However, approximately 25 customers, all of whom come from a variety of industries, account for approximately 50% of the Group's annual sales. In fiscal 2002, no one customer accounted for 10% or more of the Group's net sales. No material part of the Metal Finishing Group's business is seasonal. Backlog of Orders The Metal Finishing Group essentially had no backlog at September 30, 2002 and 2001. 4. General For financial information concerning the Company's reportable business segments see Note 13 of Notes to Consolidated Financial Statements. 6 C. ENVIRONMENTAL REGULATIONS In common with other companies engaged in similar businesses, the Company has been required to comply with various laws and regulations relating to the protection of the environment. The costs of such compliance have not had, and are not presently expected to have, a material effect on the capital expenditures, earnings or competitive position of the Company and its subsidiaries under existing regulations and interpretations. D. EMPLOYEES The number of the Company's employees decreased from 780 at the beginning of fiscal year 2002 to 643 at the end of fiscal year 2002. The Company is a party to collective bargaining agreements with its hourly employees located at the Cleveland, Ohio; Minneapolis, Minnesota; and Cork, Ireland facilities. Management considers its relations with the Company's employees to be good. E. NON-U.S. OPERATIONS The Company's products and services are distributed and performed in U.S. as well as non-U.S. markets. The Company commenced its operations in Ireland in 1981. The Company commenced its operations in the United Kingdom and France as a result of an acquisition of a business in 1992. Wholly owned subsidiaries operate service and distribution facilities in Ireland, United Kingdom and France. Financial information about the Company's U.S. and non-U.S. operations is set forth in Note 13 to the Consolidated Financial Statements. As of September 30, 2002, essentially all of the Company's cash and cash equivalents are in the possession of its non-U.S. subsidiaries and relate to undistributed earnings of these non-U.S. subsidiaries. The Company considers the undistributed earnings, accumulated prior to October 1, 2000, of its non-U.S. subsidiaries to be indefinitely reinvested in operations outside the U.S. During fiscal 2002, the Company received a distribution of $2.5 million from one of its non-U.S. subsidiaries' fiscal 201 earnings. During the first quarter of fiscal 2003, the Company intends to receive an additional distribution of $1.5 million from its non-U.S. subsidiaries' fiscal 2001 earnings. ITEM 2. PROPERTIES The Company's property, plant and equipment include the plants described below and a substantial quantity of machinery and equipment, most of which is industry specific machinery and equipment using special jigs, tools and fixtures and in many instances having automatic control features and special adaptions. 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, 2002 suitable and adequate given the current product offerings for the respective business segments' operations in the current business environment. The square footage numbers set forth in the following paragraphs are approximations: - The Turbine Component Services and Repair Group has five (5) facilities with a total of 264,000 square feet that are involved in the repair and remanufacture of jet engine and industrial turbine components. Three of these plants are located in Cork, Ireland (137,000 square feet), one in Minneapolis, Minnesota (59,000 square feet) and one in Tampa, Florida (68,000 square feet). A portion of the Minneapolis plant is also the site of some of the Repair Group's machining operations. All of these facilities are owned. - The Aerospace Component Manufacturing Group operates in a single owned 262,000 square foot facility located in Cleveland, Ohio. This facility is also the site of the Company's corporate headquarters. - The Metal Finishing Group is headquartered in an owned 30,000 square foot plant in Independence, Ohio. The Metal Finishing Group operates a leased 6,000 square foot plant in Redditch, England. The Metal Finishing Group also leases space for sales offices and/or for its contract selective electrochemical finishing services in Norfolk, Virginia; Hartford (East Windsor), Connecticut; Los Angeles (San Dimas), California; Tacoma (Fife), Washington; Houston, Texas; and Paris (Saint Maur Cedex), France (totaling approximately 31,000 square feet). 7 ITEM 3. LEGAL PROCEEDINGS In the normal course of business, the Company may, from time to time, be involved in pending legal actions. To the knowledge of the Company, the only pending legal actions existing as of September 30, 2002, in which the Company was a defendant, consist of the following: - In September 2000, a former employee ("Plaintiff") filed a complaint in the Cuyahoga County Court of Common Pleas alleging certain wrongdoing on the part of the Company, including wrongful termination of the Plaintiff. The Plaintiff seeks unspecified compensatory and punitive damages. Plaintiff voluntarily dismissed the suit without prejudice during 2001. The Plaintiff re-filed the complaint in August 2002. The Company believes that the allegations are without merit and intends to vigorously defend its position. - In October 2001, a former employee ("Plaintiff") filed a complaint in the Cuyahoga County Court of Common Pleas alleging certain wrongdoing on the part of the Company, including wrongful termination of the Plaintiff. In November 2002, the Plaintiff agreed to dismiss this claim in conjunction with entering into a settlement agreement with the Company, the financial impact of which is included in corporate unallocated expenses in the 2002 Consolidated Statements of Operations. In addition to the matters noted above, in the normal course of business, the Company maybe involved in other pending legal actions. The Company cannot reasonably estimate future costs related to these matters and other matters that may arise, if any. 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 affect on the Company's consolidated financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the Company's 2002 fiscal year. 8 EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information regarding the executive officers of the Company. Name Age Title and Business Experience - ---- --- ----------------------------- Jeffrey P. Gotschall (1) 54 Chairman of the Board since August 2001; Director of the Company since 1986; Chief Executive Officer since 1990; President from 1989 to 2002; Chief Operating Officer from 1986 to 1990; Executive Vice President from 1986 to 1989; and from 1985 to 1989, President of SIFCO Turbine Component Services. Timothy V. Crean 54 President and Chief Operating Officer since August 2002; Executive Vice-President of SIFCO Industries, Inc. from 1998 to 2002; Managing Director of the SIFCO Turbine Components Services and Repair Group from 1995 to 2002, and Managing Director of SIFCO Turbine Components, Ltd. from 1986 to 2002. Frank A. Cappello 44 Vice President-Finance and Chief Financial Officer since February 2000, when he initially joined the Company. 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 KPMG LLP, last serving as a Senior Manager in its Assurance Group. Hudson D. Smith (1) 51 Director of the Company since 1988. Mr. Smith has served as Treasurer of the Company since 1983 and President of the Aerospace Component Manufacturing Group since 1998. Mr. Smith previously served as Vice President and General Manager of SIFCO Forge Group from 1995 to 1997; General Manager of SIFCO Forge Group's Cleveland Operations from 1989 to 1995 and Group General Sales Manager of SIFCO Forge Group from 1985 to 1989. Carolyn J. Buller, Esq. 47 Secretary and General Counsel since November 2000. Ms. Buller is a partner in the law firm of Squire, Sanders & Dempsey LLP, and has been an attorney with the firm since 1981. Remigijus H. Belzinskas 46 Corporate Controller since June 2000, when he initially joined the Company. Prior to joining the Company, Mr. Belzinskas was employed by Signature Brands, Inc., a manufacturer and distributor of consumer products, from August 1990 to December 1999, serving as Corporate Controller; and previously by KPMG LLP, last serving as a Senior Manager in its Assurance Group. (1) Hudson D. Smith and Jeffrey P. Gotschall are cousins. 9 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Company's Common Shares are traded on the American Stock Exchange under the symbol "SIF". The following table sets forth, for the periods indicated, the high and low sales price for the Company's Common Shares as reported by the American Stock Exchange.
YEARS ENDED SEPTEMBER 30, ------------------------- 2002 2001 ---- ---- HIGH LOW HIGH LOW ---- --- ---- --- First Quarter................................. $ 5.70 $ 4.50 $ 6.38 $ 4.56 Second Quarter................................ 5.95 4.55 5.88 4.55 Third Quarter................................. 5.94 5.15 6.05 4.40 Fourth Quarter................................ 5.15 2.85 7.45 4.60
The Company has not declared or paid any cash dividends within the last two (2) fiscal years and does not anticipate paying any such dividends in the foreseeable future. The Company currently intends to retain all of its earnings for the operation and expansion of its businesses. At November 18, 2002, there were approximately 740 shareholders of record of the Company's Common Shares, as reported by National City Corporation, the Company's Transfer Agent and Registrar, which maintains its corporate offices at National City Center, 1900 East Ninth Street, Cleveland, Ohio 44101-0756. ITEM 6. SELECTED CONSOLIDATED 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, ------------------------- 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- (AMOUNTS IN THOUSAND, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA Net sales.............................................. $ 80,033 $ 105,633 $ 106,138 $ 115,490 $ 123,175 Income (loss) before income tax provision benefit)..... (13,448) 4,668 2,479 4,105 11,609 Income tax provision (benefit)......................... (462) 1,694 57 332 2,324 Net income (loss)...................................... (12,986) 2,974 2,422 3,773 9,285 Net income (loss) per share (basic).................... (2.49) 0.58 0.47 0.73 1.80 Net income (loss) per share (diluted).................. (2.49) 0.58 0.47 0.72 1.78 Cash dividends per share............................... -- -- 0.20 0.20 0.20 SHARES OUTSTANDING AT YEAR END......................... 5,258 5,237 5,134 5,193 5,170 BALANCE SHEET DATA Working capital........................................ $ 19,525 $ 36,943 $ 28,676 $ 31,924 $ 32,102 Property, plant and equipment, net..................... 29,106 29,383 29,009 31,392 32,582 Total assets........................................... 67,339 86,596 80,500 88,662 93,011 Long-term debt, net of current maturities.............. 11,093 15,107 11,962 12,985 16,500 Total shareholders' equity............................. 36,735 49,374 45,500 50,046 49,890 Shareholders' equity per share......................... 6.99 9.43 8.86 9.64 9.65 FINANCIAL RATIOS Return on beginning shareholders' equity............... (26.3)% 6.5% 4.8% 7.6% 22.9% Long-term debt to equity percent....................... 30.2% 30.6% 26.3% 25.9% 33.1% Current ratio.......................................... 2.3 3.3 2.6 2.6 2.5
10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SIFCO Industries, Inc. and its subsidiaries engage in the production and sale of a variety of metalworking processes, services and products produced primarily to the specific design requirements of its customers. The processes and services include forging, heat-treating, coating, welding, machining and selective electrochemical finishing. The products include forgings, machined forged parts and other machined metal parts, remanufactured component parts for turbine engines, and selective electrochemical finishing solutions and equipment. RESULTS OF OPERATIONS FISCAL YEAR 2002 COMPARED WITH FISCAL YEAR 2001 In fiscal 2002, net sales decreased 24.2% to $80.0 million from $105.6 million in 2001. Net loss for the year ended September 30, 2002 was $13.0 million, or $2.49 per diluted share, compared with net income of $3.0 million, or $0.58 per diluted share, in fiscal 2001. TURBINE COMPONENT SERVICES AND REPAIR GROUP ("REPAIR GROUP") The Repair Group, which accounted for 45.7% of the Company's business in fiscal 2002, had net sales of $36.5 million, down 32.8% from the $54.4 million level in 2001. Component repair sales were down approximately $11.4 million in fiscal 2002 compared to fiscal 2001. Demand for component repairs for virtually all models of large jet engines, especially the older model JT8D engines, was down in fiscal 2002 compared to fiscal 2001. The continued retirement and reduced utilization of older generation aircraft that negatively impacted the Company in fiscal 2001 was accelerated/exacerbated during fiscal 2002 as a direct consequence of the September 11, 2001 terrorist attacks on the United States, as many airlines chose to reduce capacity by retiring many of the older aircraft in their fleets. In addition, the impact of the terrorist attacks on the commercial airline industry in general has also resulted in the reduced demand for component repairs for the CFM-56 (General Electric /Snecma), RB211 and Tay (both Rolls-Royce) engines due to reduced commercial flight demand, which determines the need for such repairs. However, higher demand for component repairs for smaller jet engines and heavy industrial turbine engines partially offset the decline in demand for component repairs for the large jet engines. Revenues associated with the demand for replacement parts, which complement component repair services provided to customers, were down approximately $6.5 million in fiscal 2002 compared to fiscal 2001 due principally to the reduced component repair volumes in general. During fiscal 2002, the Repair Group's selling, general and administrative expenses increased $1.9 million to $7.8 million, or 21.4% of net sales, from $5.9 million, or 10.9% of net sales, in fiscal 2001. Included in the $7.8 million of selling, general and administrative expenses for fiscal 2002 were $1.9 million of charges related to goodwill and equipment impairments, $0.9 million of restructuring charges, and a $0.3 million increase in a reserve related to a vendor dispute. The remaining $4.7 million of selling, general and administrative expenses for fiscal 2002 represented 12.9% of net sales and reflected an $0.8 million reduction in the Repair Group's provision for doubtful accounts, when compared to fiscal 2001. Operating income (loss) in fiscal 2002 decreased $14.1 million to an $11.5 million loss from $2.6 million of income in fiscal 2001. Included in the decreased operating results for fiscal 2002 were charges aggregating $6.1 million, $1.8 million of which were incurred in the fourth quarter, related to the impairment of inventory ($3.3 million), the impairment of goodwill ($0.7 million), the impairment of equipment ($1.2 million), and the $0.9 million of restructuring charges. During fiscal 2002, the Repair Group performed evaluations of its existing operations primarily in light of the current and anticipated impacts of the September 11, 2001 terrorist attacks on its business. The principal result of these evaluation processes was the decision to optimize/rationalize the Repair Group's multiple operations by reducing its capacity for the repair of certain components, principally related to older generation JT8D turbine engines, and the Repair Group's decision to optimize the size of its workforce. As a result of these decisions, the Repair Group recognized, during fiscal 2002, the aforementioned charges. In addition, the Repair Group increased by $0.3 million, the reserve related to a vendor dispute. The remaining $7.7 million decrease in operating results during fiscal 2002, compared to fiscal 2001, was primarily due to the negative impact on margins of the significantly reduced sales volumes for component repair services and related replacement parts. The restructuring actions taken by the Repair Group in fiscal 2002 are expected to have a positive impact on fiscal 2003 operating costs when compared to fiscal 2002. The Repair Group will continue to evaluate the need for additional optimization/rationalization of operations if and to the extent that the demand for component repair services may not recover in the future. 11 AEROSPACE COMPONENT MANUFACTURING GROUP ("ACM GROUP") Net sales for fiscal 2002 decreased 18.9% to $33.2 million, compared with $40.9 million in fiscal 2001. Approximately $6.4 million of this decrease in net sales is attributable to a decrease in the number of AE series new generation jet engines built by Rolls-Royce Corporation for business and regional jets, as well as military transport and surveillance aircraft, as a direct consequence of reduced flight schedules, cancellation of aircraft orders, workforce reductions, and declining financial performance of the airline industry as a consequence of the September 11, 2001 terrorist attacks on the United States. As a further consequence of the overall decline in the airline industry, net sales of commercial aircraft airframe components declined approximately $2.9 million in fiscal 2002, compared with fiscal 2001. Net sales in fiscal 2002 were also negatively impacted by a $1.0 million reduction in selling prices to the ACM Group's largest customer, Rolls-Royce Corporation, that was implemented during the first quarter of fiscal 2002. Net sales of non-aerospace related components in fiscal 2002 declined approximately $0.7 million, compared with fiscal 2001. These decreases in net sales were partially offset by an approximately $3.3 million net increase in shipments of military airframe and engine components in fiscal 2002, compared with fiscal 2001. Selling, general and administrative expenses in fiscal 2002 were $3.3 million. The primary factor impacting the ACM Group's selling, general and administrative expenses in fiscal 2002 is a $0.9 million charge incurred in connection with the settlement, during the second quarter of fiscal 2002, of an employment action and a related claim that the Company had filed against its insurance carrier for its failure to provide coverage. Selling, general and administrative expenses before this legal accrual was $2.4 million in fiscal 2002, compared with $2.2 million in fiscal 2001. Selling, general and administrative expenses were negatively impacted in fiscal 2002 by a $0.2 million increase in the ACM Group's provision for doubtful accounts and a $0.1 million increase in employee benefit expenses, offset by lower travel and other discretionary expenses. The ACM Group's operating loss in fiscal 2002 was $0.3 million, compared with operating income of $3.5 million in fiscal 2001. The ACM Group's operating results in fiscal 2002 were impacted by the $0.9 million legal accrual discussed above. In fiscal 2002, the ACM Group's operating income before legal accrual was $0.6 million, or 1.7% of net sales, compared with $3.5 million, or 8.5% of net sales, in fiscal 2001. The ACM Group's operating results in fiscal 2002 were also negatively impacted by a $1.0 million reduction in selling prices to Rolls-Royce Corporation, its largest customer, that was implemented during the first quarter of fiscal 2002 and is expected to affect future periods. Operating results were negatively impacted in 2002 by a $0.2 million LIFO provision, compared with a $0.1 benefit in 2001. The remaining $1.6 million decrease in operating income in fiscal 2002, compared with fiscal 2001, was primarily due to the negative impact on operating income of the reduced operating levels in 2002. Operating results as a percentage of net sales was negatively impacted in fiscal 2002 by the interplay between overall lower net sales in relation to fixed manufacturing costs. This was offset in part by lower material cost in 2002 due to product mix consisting of a greater percentage of products made from lower cost materials than in 2001. Fiscal 2002 operating results also benefited from lower utilization of outside services, such as heat-treating, as in-house capabilities were sufficient to support such requirements. During fiscal 2002, the ACM Group took a number of actions, including a salary freeze, cutbacks in discretionary spending and other cost containment and cost reduction actions, to mitigate, in part, the impact of significantly reduced revenues. METAL FINISHING GROUP Net sales were $10.3 million in both fiscal 2002 and 2001. In fiscal 2002 product net sales, consisting of selective electrochemical finishing equipment and solutions, declined 7.2% to $5.9 million, compared with $6.4 million in fiscal 2001. Product net sales continued the decline that began in the first quarter of fiscal 2002 due to the overall weakness in most markets served by the Metal Finishing Group, including aerospace, power generation, petroleum, steel, and railroad industries. In fiscal 2002, contract service net sales increased 12.9% to $4.2 million, compared with $3.8 million in fiscal 2001. Overall, declines in net sales to commercial customers were offset by increased sales to military customers. Selling, general and administrative expenses were $2.9 million in both fiscal 2002 and 2001. In fiscal 2002, selling, general and administrative expenses benefited from lower advertising, travel and commissions expenditures, offset by higher compensation and employee benefit expenses. The Metal Finishing Group does not necessarily anticipate experiencing similar levels of expenditures for advertising and travel in future periods as economic conditions within the industries served by the Metal Finishing Group improve. The Metal Finishing Group's operating income in fiscal 2002 was $1.5 million, or 14.5% of net sales, compared with $1.7 million, or 16.7% of net sales, in fiscal 2001. Operating income in fiscal 2002, compared with fiscal 2001, was negatively impacted by a shift in sales mix to higher contract service sales, which generate a lower margin than product sales. Additionally, a shift in the mix of contract service sales toward smaller contracts also negatively impacted operating results. 12 Operating income in fiscal 2002 was also negatively impacted by additional fixed costs associated with a new service facility that opened in fiscal 2002 that has not reached full operating levels. CORPORATE UNALLOCATED EXPENSES Corporate unallocated expenses, consisting of corporate salaries and benefits, legal and professional and other corporate expenses, were $1.9 million in both fiscal 2002 and 2001. Corporate unallocated expenses were favorably impacted in 2002 by $0.2 million of lower expenses related to management incentive and public company expenses. During 2002, additional staffing, employee benefit and general insurance expenses totaling $0.2 million, partially offset the favorable decreases. The decrease in management incentive expense is attributable to the financial performance of the Company, while the decline in public company expenses is in part the result of the reduction in the size of the Company's Board of Directors. OTHER/GENERAL Interest income was $0.3 million in fiscal 2002, compared with $0.5 million in fiscal 2001. The reduction in interest income is attributable to lower average cash and cash equivalent balances outstanding and lower interest rates during 2002, compared with 2001. Interest expense in fiscal 2002 was $0.8 million, compared with $1.2 million in fiscal 2001. The decrease in interest expense is attributable to overall lower borrowings outstanding under the Company's revolving credit agreement, as well as lower interest rates. Foreign currency exchange gain was minimal in fiscal 2002, compared with a foreign currency exchange loss of $0.6 million in fiscal 2001. Effective October 1, 2001, the Company changed the functional currency of its Irish subsidiary from the local currency to the U.S. dollar. The functional currency was changed because a substantial majority of the subsidiary's transactions are now denominated in U.S. dollars. Other expense increased $0.6 million in fiscal 2002, compared with fiscal 2001, as a result of a $0.8 million provision recorded in 2002 to adjust the amount of the unamortized portion of deferred grant revenue for a possible future repayment obligation due to the Company's recently reduced employment levels. See Note 4 to the Consolidated Financial Statements for further discussion. This provision was partially offset by an increase in the amount of nonrefundable research and other grants received during fiscal 2002, compared with fiscal 2001, as well as a one-time gain from the sale of the ACM Group's interest in certain natural gas wells. The Company's fiscal 2002 income tax benefit of $0.5 million consists primarily of anticipated tax refunds from the carryback of a non-U.S. operating loss. In the fourth quarter of fiscal 2002, the Company recognized a $2.6 million valuation allowance against its net U.S. deferred income tax assets, which were primarily recorded during the first three quarters of fiscal 2002. In assessing the Company's ability to realize its net deferred tax assets, management considered whether it is more likely than not that some portion or all of its net deferred tax assets may not be realized. Management considered the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Future reversal of the valuation allowance will be achieved either when the tax benefit is realized or when it has been determined that is more likely than not that the benefit will be realized through future taxable income. FISCAL YEAR 2001 COMPARED WITH FISCAL YEAR 2000 In 2001, net sales decreased 0.5% to $105.6 million from $106.1 million in 2000. Net income increased 22.8% to $3.0 million, or $0.58 per diluted share, in 2001 from $2.4 million, or $0.47 per diluted share, in 2000. TURBINE COMPONENT SERVICES AND REPAIR GROUP ("REPAIR GROUP") The Repair Group, which accounted for 51% of the Company's business in fiscal 2001, had net sales of $54.4 million, down 11.8% from $61.7 million in fiscal 2000. Repair volumes for older model engine types continued the decline that the Company experienced during fiscal 2000. As the Company expected, demand for repairs to the older model JT8D (Pratt & Whitney) engines continue to decline due to the continued retirement and reduced utilization of older model aircraft. In addition, there was a reduced volume of repairs to the CFM-56 (General Electric/SNECMA) and RB211 (Rolls-Royce) engines principally as a result of the increased direct involvement of the jet engine manufacturers into the repair marketplace. However, the Repair Group was able to show stronger repair volumes with respect to the Tay (Rolls-Royce) and PW4000 (Pratt & Whitney) engines, which represent some of the Group's newer programs. Revenue associated with the demand for replacement parts that complement the repair services provided to customers were also down in fiscal 2001 because of the reduced repair volumes in general. 13 During fiscal 2001, the Repair Group's selling, general and administrative expenses increased to $5.9 million, or 10.9% of net sales, from $5.6 million, or 9.1% of net sales in fiscal 2000. During fiscal 2001, the Repair Group recorded an increase in bad debt expense of $0.8 million, when compared to fiscal 2000, of which $0.2 million was recorded in the fourth quarter of fiscal 2001. The increase in bad debt expense was partially offset by the positive impact of a weaker Euro as discussed below. Operating income in fiscal 2001 increased to $2.6 million, or 4.8% of net sales, from $2.3 million, or 3.8% of net sales, in fiscal 2000. Reduced sales volumes for repair services again adversely impacted the Repair Group's operating income. During fiscal 2001, the Repair Group's operating income was also negatively impacted by an increase in its reserve for obsolete replacement parts inventory of $0.7 million, when compared to 2000, of which $0.6 million was recorded in the fourth quarter of fiscal 2001. These negative impacts were partially offset by the positive impact of improved margins on the sales of replacement parts. Lower costs in 2001 for used replacement parts that could be refurbished, resulted in improved margins on the sale of replacement parts. However, the overwhelming contributor to the Repair Group's sustained operating profit, in spite of its reduced sales volumes and additional reserve provisions, has been the positive impact on the Group's margins of the further weakening of the Euro in relation to the U.S. dollar during fiscal 2001, when compared to fiscal 2000. Such positive impact accounted for approximately $2.5 million in operating income. The vast majority of the Repair Group's U.S. and non-U.S. sales are denominated in the U.S. dollars. At the same time, over 50% of the Group's operations are located in Ireland and the majority of its related costs are denominated in local currency that is tied directly to the Euro. Consequently, as the Euro declines, such costs are favorably impacted when measured and reported in equivalent U.S. currency. AEROSPACE COMPONENT MANUFACTURING GROUP ("ACM GROUP") Net sales for fiscal 2001 increased 17% to $40.9 million, compared with $35.0 million in fiscal 2000. The sales increase is net of a reduction in selling price of approximately $1.0 million caused by a decline in the market price of a key raw material that was passed on to customers in the second half of fiscal 2000. The increase in net sales is primarily attributable to an increase in the number of AE series new generation jet engines built by Rolls-Royce Corporation for business and regional jets, as well as transport and surveillance aircraft. Net sales in 2001 also benefited from an increase in shipments of components for military aircraft, as well as airframe components sold to commercial aircraft manufacturers. Selling, general and administrative expenses for fiscal 2001 increased $0.3 million to $2.2 million, compared to $1.9 million in fiscal 2000. The increase in fiscal 2001 is primarily attributable to lower selling, general and administrative expense recognized in fiscal 2000 due to a nonrecurring reevaluation of the Company's obligation to provide certain medical benefits to a small number of individuals who retired prior to 1993. The ACM Group's operating income in 2001 was $3.5 million, or 8.5% of net sales, compared with $1.5 million, or 4.3% of net sales in 2000. The overall higher net sales level generated $0.8 million of operating income. In addition, the Group's operating income in 2001 benefited by $1.2 million as a result of improved efficiencies resulting from higher production volumes. The operating income in 2001 also benefited by $0.4 million due to process improvements and $0.4 million in lower tooling costs. LIFO benefit was $0.1 million and $0.8 million in 2001 and 2000, respectively. Operating income as a percentage of net sales also benefited in fiscal 2001 from the decline in the market price of a key raw material in the second half of fiscal 2000. METAL FINISHING GROUP Net sales for fiscal 2001 increased 8.6% to $10.3 million, compared with $9.5 million in fiscal 2000. Contract service sales volumes increased $0.5 million, or 19%, representing 36% of total sales, in fiscal 2001 when compared to fiscal 2000. Solution sales increased $0.1 million, or 3%, representing 45% of total sales, in 2001 when compared to 2000. Operating income in fiscal 2001 increased to $1.7 million, or 16.7% of net sales, from $1.1 million, or 11.2% of net sales, in fiscal 2000. Margins improved in fiscal 2001, when compared to fiscal 2000, due principally to product mix, both in terms of increased sales and a higher margin in the contract services area as well as a shift within solutions sales to more of a higher margin precious metal solutions. In addition, the Metal Finishing Group realized some production efficiencies on increased sales and fiscal 2000 had a nonrecurring charge of $0.1 million related to employee benefits. During fiscal 2001, the Metal Finishing Group's selling, general and administrative expenses of $2.9 million were generally comparable to fiscal 2000 in amount, but represented a lower percentage of net sales. 14 CORPORATE UNALLOCATED EXPENSES Corporate unallocated expenses, consisting of corporate salaries and benefits, legal and professional and other corporate expenses were $1.9 million in 2001 and 2000. Corporate unallocated expenses were favorably impacted by $0.2 million of lower expenses related to consulting, defined contribution plan administration costs, public company expenses and actuarially determined defined benefit pension plan costs. This was offset by $0.2 million in higher management incentive expense and legal and professional expenses. OTHER/GENERAL Interest income increased to $0.5 million in 2001, compared with $0.2 in 2000, primarily due to the increase in cash and cash equivalents in fiscal 2001, offset in part by lower interest rates. Interest expense was $1.2 million in 2001, compared with $1.0 million in fiscal 2000. Interest expense was negatively impacted by higher average borrowings under the Company's revolving credit agreement, offset in part by lower interest rates. Other expense was $0.6 million in fiscal 2001, compared with other income of $0.3 million in 2000. $0.8 million of this change is due to foreign currency transaction losses, of which $1.0 million occurred in the fourth quarter of 2001. These exchange losses result from the impact of the strengthening Euro, principally in the fourth quarter of 2001, on the carrying values of certain net monetary assets of the Company's non-U.S. subsidiaries. In addition, the amount of grant income from Irish government agencies recognized by the Company's Irish subsidiary declined $0.1 million to $0.4 million in 2001, compared with $0.5 million 2000. During fiscal 2001, U.S. income taxes were provided on the undistributed fiscal 2001 earnings of non-U.S. subsidiaries in anticipation that distributions from such earnings, to the extent they may occur, would result in an additional income tax liability. The Company's consolidated income tax provision of $1.7 million results in an effective tax rate of 36.3% in 2001, compared to 2.3% in 2000. Expenses not deductible for tax purposes resulted in an effective tax rate higher than the statutory rate. The Company's fiscal 2000 income tax provision of $0.1 million consists of a U.S. income tax benefit of $0.4 million on a U.S. loss of $1.2 million, offset by a non-U.S. income tax provision of $0.5 million on non-U.S. income of $3.7 million. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased to $7.6 million at September 30, 2002 from $13.8 million at September 30, 2001. At present, essentially all of the Company's cash and cash equivalents are in the possession of its non-U.S. subsidiaries and relate to undistributed earnings. During fiscal 2002, the Company received a distribution of $2.5 million from one of its non-U.S. subsidiaries. This distribution was utilized to repay a portion of the outstanding balance under the Company's revolving credit agreement. Cash flow activity for fiscal 2002 is presented in the Consolidated Statements of Cash Flows. Cash was provided by a $2.9 million decrease in the ACM Group's accounts receivable due to lower sales, net of a $0.1 million increase in its allowance for doubtful accounts in response to higher levels of credit risk resulting from the current economic environment. Cash was further provided by a $1.1 million decrease in the Repair Group's accounts receivable due to lower sales, as well as by a $0.2 million decrease in the Metal Finishing Group's accounts receivable. ACM Group inventories decreased by $2.5 million in fiscal 2002, while the Repair Group's inventories decreased $1.6 million and the Metal Finishing Group's inventory increased $0.1 million in fiscal 2002. The overall decline in inventory levels is attributable to lower sales levels experienced during fiscal 2002. The $2.6 million decrease in consolidated accounts payable is attributable to lower overall operating expenses and inventory purchases due to lower net sales during fiscal 2002. The $1.9 million increase in consolidated accrued liabilities is caused by a $2.0 million reclassification of the unamortized portion of deferred grant revenue from other long-term liabilities; the establishment of a $0.9 million legal accrual and an $0.8 million severance accrual in connection with staff reductions. These increases were offset in part by payment in fiscal 2002 of $1.0 million of fiscal 2001 employee incentives, $0.5 million payment of fiscal 2001 income taxes, net of refunds, and lower overall operating expenses in fiscal 2002, compared with fiscal 2001. Working capital was $19.5 million at September 30, 2002, compared with $36.9 million at September 30, 2001. The current ratio was 2.3 and 3.3 at September 30, 2002 and 2001, respectively. 15 Capital expenditures were $5.0 million in fiscal 2002, compared with $4.1 million in fiscal 2001. Fiscal 2002 capital expenditures consisted of equipment that will expand and diversify the Repair Group's repair capabilities, including HIT component repair; provide other new equipment and upgrade existing equipment. At September 30, 2002, the Company has no material outstanding commitments for capital expenditures. The Company anticipates that fiscal 2003 capital expenditures will not exceed $3.5 million and will be concentrated in the Repair Group. At September 30, 2002, the Company has a term note with a bank payable in quarterly installments of $0.3 million through February 1, 2005, with the remaining balance of $3.9 million 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%, which is subject to adjustment based upon the level of certain financial ratios. The outstanding balance of the term note at September 30, 2002 was $6.9 million. The Company has at September 30, 2002, a $10.0 million revolving credit agreement with a bank that expires on March 31, 2004 and bears interest at the bank's base rate. The interest rate was 4.75% at September 30, 2002. A commitment fee of 0.25% is incurred on the remaining unused balance. At September 30, 2002 the Company had $7.6 million available against its $10.0 million revolving credit agreement. The Company also has outstanding at September 30, 2002, a 15-year industrial development bond, which was issued with an original face amount of $4.1 million and was used to expand the Repair Group's Tampa, Florida facility. The interest rate is reset weekly, based on prevailing tax-exempt money market rates. Interest rate at September 30, 2002 was 1.9%. The outstanding balance of the industrial development bond at September 30, 2002 was $3.2 million. Under its credit agreements, the Company is subject to certain customary covenants. These include, without limitation, covenants (as defined) that limit the amount of annual capital expenditures and require the maintenance of certain specified financial ratios, including a minimum tangible net worth level, a maximum liability to tangible net worth ratio and an interest coverage ratio. On November 26, 2002 the Company entered into an agreement with its bank to amend certain provisions of its credit agreements. The amendment waives (i) the interest coverage ratio covenant for the periods ended September 30, 2002, December 31, 2002 and March 31, 2003; (ii) the minimum tangible net worth covenant for the period ending September 30, 2002; and (iii) the capital expenditure limitation for the period ended September 30, 2002. The amendment modifies certain financial covenants and the interest rate-pricing grid. As a consequence, the term note's three-month LIBOR based borrowing rate increases to 8.24% effective November 26, 2002. Also, as a result of this amendment the commitment fee on the unused balance of the revolving credit agreement was increased to 0.375%. Taking into consideration the effect of this waiver, the Company was in compliance with all applicable covenants at September 30, 2002. The Company's long-term debt as a percentage of equity at September 30, 2002 and 2001 was 30.2% and 30.6%, respectively. At September 30, 2002 the Company had $7.6 million available against its $10.0 million revolving credit agreement. During fiscal 2002, the Company repurchased 29,300 of its Common Shares. The total number of shares repurchased under the Company's 100,000 Common Share repurchase program, approved by the Board of Directors, is 100,000. No dividends were declared during fiscal 2002. OUTLOOK As the Company noted in 2001, its business is heavily dependent upon the strength of the commercial airlines as well as the aircraft and related engine manufacturers. Consequently, the performance of the domestic and international air transport industry directly and significantly impacts the performance of the Repair and ACM Groups' businesses. The air transport industry's long-term outlook has, for many years, been one of continued growth. Such outlook suggested the need for additional aircraft and growth in the requirement for aircraft and engine repairs. The events of September 11, 2001 resulted in an immediate reduction in the demand for passenger travel both in the U.S. and internationally. Aircraft manufacturers have announced reductions in forecasted aircraft deliveries in the next few years as a result of reduced demand, and many airlines cancelled or rescheduled deliveries of new aircraft to which they had previously committed. In addition, the financial condition of many airlines in the U.S. and throughout the world is weak. The U.S. airline industry has made requests for U.S. government assistance, while some airlines have entered bankruptcy proceedings, and others have announced major restructuring initiatives, including significant reductions in service and grounding of aircraft. This reduction in the demand for passenger travel and aircraft deliveries, and the increase in the 16 number of idle aircraft, the number of which is skewed heavily toward older models, resulted in a decrease in orders and, therefore, negatively impacted the ACM and Repair Groups' net sales, operating results, and cash flows in fiscal 2002. This was due to the concentration of the ACM Group providing new parts for aircrafts and engines, and the Repair Group providing replacement parts and component repair services for the engines that power these aircraft. Declines in the commercial airline, aircraft and related engine industries have been partially offset by increases in U.S. military spending for aircraft and related components. The ACM business supplies new and spare components for military aircraft. Increases in military component demand have partially offset the decreases in commercial aerospace component net sales. The recent establishment of the Department of Homeland Security may result in additional demand for military aircraft and related components. It is difficult to determine at this time what the long-term impact of these events will be on air travel and the demand for the services and products provided by the Company. These factors could result in a further decrease in orders for new and after-market commercial aerospace products and services; an increase in credit risk associated with doing business with the financially troubled airlines and their suppliers; and an increase in slow moving and/or obsolete replacement parts inventory related to older model engines that are experiencing reduced usage. All of these consequences, to the extent that they 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 that cash on-hand, funds available under its revolving credit agreement and anticipated funds generated from operations will be adequate to meet its liquidity needs through the foreseeable future. RECENTLY ISSUED ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". This standard is effective for fiscal years beginning after December 15, 2001. The Company adopted this standard on October 1, 2002, the first quarter of the Company's fiscal year 2003. The standard changes financial accounting and reporting for acquired goodwill and indefinite life intangible assets. Under SFAS No. 142, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value based test. The adoption will result in no further amortization of goodwill. Amortization of goodwill during the year ended September 30, 2002 was $0.1 million, or $0.02 per share (diluted). Other than the cessation of goodwill amortization, the Company does not expect the adoption of this standard to have an impact on the Company's financial position or results of operations. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This standard addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement cost. The standard applies to legal obligations associated with the retirement of long-lived assets that result from acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. This standard requires entities to record the fair value of a liability for an asset retirement obligation in the period incurred. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company will adopt this standard in fiscal 2003. The Company does not expect the adoption of this standard to have a material impact on the Company's financial position or results of operations. In September 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement superceded SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of" and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", related to the disposal of a segment of a business. This statement amends certain provisions of Accounting Research Bulletin No. 51, "Consolidated Financial Statements". SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company will adopt this standard in fiscal 2003. The Company does not expect the adoption of this standard to have a material impact on the Company's financial position or results of operations. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This standard addresses financial accounting and reporting for costs associated with exit or disposal activities and replaces Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (including Certain Costs Incurred in a Restructuring)" ("EITF No. 94-3"). SFAS No. 146 requires that a liability for costs associated with an exit or disposal activity to be recognized when the liability is incurred. Under EITF No. 94-3, a liability for exit costs as defined in EITF No. 94-3 is recognized at the date of an entity's commitment to an exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. 17 FORWARD-LOOKING STATEMENTS This discussion may contain various forward-looking statements and includes assumptions concerning the Company's operation, future results and prospects. These forward-looking statements are based on current expectations and are subject to risk and uncertainties. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company provides this cautionary statement identifying important economic, political and technological factors, among others, the absence or effect of which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. Such factors include the following: (1) future business environment, including capital and consumer spending; (2) competitive factors, including the ability to replace business which may be lost due to increased direct involvement by the jet engine manufacturers in turbine component services and repair markets; (3) successful procurement of new repair process licenses; (4) fluctuating foreign currency (primarily Euro) exchange rates; (5) successful development and market introductions of new products, including an advanced coating technology and the continued development of HIT repair processes; (6) regressive pricing pressures on the Company's products and services, with productivity improvements as the primary way to maintain margins; (7) success with the further development of strategic alliances with certain turbine engine manufacturers for turbine component repair services; (8) the long-term impact on the aerospace industry of the September 11, 2001 terrorist attacks on the United States, including collection risks due to failure of airlines/engine over-haul companies and other aerospace related industries, the reduced number of aircraft in service, and the accelerated declining use of older model jet engines such as the JT8D; (9) successful replacement of declining demand for repair services for turboprop engine components with component repair services for small turbofan engines utilized in the business and regional aircraft markets; (10) continued reliance on several major customers for revenues, as the company's five largest customers account for approximately 35% of its total net sales, (11) stability of government laws and regulations, including taxes; and (12) stable governments and business conditions in economies where the Company's business is conducted. ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK In the ordinary course of business, the Company is subject to foreign currency and interest rate risk. The risks primarily relate to the sale of the Company's products in transactions denominated in non-U.S. dollar currencies (primarily the Euro); the payment in local currency, of wages and other costs related to the Company's non-U.S. operations; and changes in interest rates on the Company's long-term debt obligations. The Company does not hold or issue financial instruments for trading purposes. The Company believes that inflation has not materially affected its results of operations in 2002, and does not expect inflation to be a significant factor in fiscal 2003. FOREIGN CURRENCY RISK The U.S. dollar is the functional currency for all of the Company's U.S. operations. Effective October 1, 2001, the Company changed the functional currency of its Irish subsidiary from the local currency to the U.S. dollar. The functional currency was changed because a substantial majority of the subsidiary's transactions are now denominated in U.S. dollars. For these operations, all gains and losses from completed currency transactions are included in income currently. For the Company's other non-U.S. subsidiaries, the functional currency is the local currency. Assets and liabilities are translated using average rates of exchange. Foreign currency translation adjustments are reported as a component of accumulated other comprehensive loss. Historically, the Company has been able to mitigate the impact of foreign currency risk by means of hedging such risk through the use of foreign currency exchange contracts. 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, 2002, the Company had several forward exchange contracts outstanding for durations of up to nine months to purchase Euros aggregating U.S. $10.9 million. A ten percent appreciation or depreciation of the value of the U.S. dollar relative to the currencies in which the forward exchange contracts outstanding at September 30, 2002 are denominated, would result in a $1.2 million decline or increase, respectively, in the value of the forward exchange contracts. The Company will continue to evaluate its foreign currency risk, if any, and the effectiveness of using similar hedges in the future to mitigate such risk. 18 INTEREST RATE RISK The Company's primary interest rate risk exposure results from the variable interest rate mechanisms associated with the Company's long-term debt consisting of a term note payable to the Company's bank, a revolving credit agreement and industrial development variable rate demand revenue bonds. These interest rate exposures are managed in part by an interest rate swap agreement to fix the interest rate of the term note payable to the Company's bank. If interest rates were to increase 100 basis points (1%) from September 30, 2002 rates, and assuming no changes in the amounts outstanding under the revolving credit agreement and industrial development variable rate demand revenue bonds, the additional annual interest expense to the Company would be approximately $0.1 million. The Company's sensitivity analyses of the effects of changes in interest rates do not consider the impact of a potential change in the level of variable rate borrowings or derivative instruments outstanding that could take place if these hypothetical conditions prevail. 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of SIFCO Industries, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheet of SIFCO Industries, Inc. (an Ohio Corporation) and Subsidiaries as of September 30, 2002, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year then ended. 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 audit. The financial statements of SIFCO Industries, Inc. and Subsidiaries as of September 30, 2001 and for each of the two years in the period ended September 30, 2001 were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated October 26, 2001. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides 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, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. /s/ GRANT THORNTON LLP Cleveland, Ohio October 29, 2002, (except for the last paragraph of Note 5, as to which the date is November 26, 2002) REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE II To the Board of Directors and Shareholders of SIFCO Industries, Inc. and Subsidiaries In connection with our audit of the consolidated financial statements of SIFCO Industries, Inc. and Subsidiaries referred to in our report dated October 29, 2002, which is incorporated in this Form 10-K, we have also audited Schedule II for the year ended September 30, 2002. In our opinion, this 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. The financial statements of SIFCO Industries, Inc. and Subsidiaries as of September 30, 2001 and for each of the two years in the period ended September 30, 2001, were audited by other auditors who have ceased operations and whose report dated October 26, 2001, stated that the information in Schedule II as of September 30, 2001 and for each of the two years in the period ended September 30, 2001 is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. /s/ GRANT THORNTON LLP Cleveland, Ohio October 29, 2002 20 The following is a copy of a previously issued Report of Independent Public Accountants. The predecessor auditors (who have ceased operations) have not revised this report. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 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, 2001 and 2000, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended September 30, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express and 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, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2001, in conformity with accounting principles generally accepted in the United States. /s/ ARTHUR ANDERSEN LLP Cleveland, Ohio, October 26, 2001. The following is a copy of a previously issued Report of Independent Public Accountants on the Financial Statement Schedule. The predecessor auditors (who have ceased operations) have not revised this report. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON THE FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Shareholders of SIFCO Industries, Inc.: We have audited in accordance with auditing stands generally accepted in the United States, the consolidated financial statements included in SIFCO Industries, Inc. and Subsidiaries' annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated October 26, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index of financial statement schedules is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly sates in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP Cleveland, Ohio, October 26, 2001. 21 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED SEPTEMBER 30, ------------------------- 2002 2001 2000 ---- ---- ---- Net sales ......................................................... $ 80,033 $ 105,633 $ 106,138 Operating expenses: Cost of goods sold ........................................... 76,331 86,761 90,732 Selling, general and administrative expenses ................. 15,952 12,960 12,357 ------------------------------------- Total operating expenses ................................ 92,283 99,721 103,089 ------------------------------------- Operating income (loss) ............................ (12,250) 5,912 3,049 Interest income ................................................... (258) (530) (196) Interest expense .................................................. 838 1,189 1,019 Foreign currency exchange loss (gain) net ......................... (34) 568 (207) Other expense (income) net ........................................ 652 17 (46) ------------------------------------- Income (loss) before income tax provision (benefit) ..... (13,448) 4,668 2,479 Income tax provision (benefit) .................................... (462) 1,694 57 ------------------------------------- Net income (loss) .................................. $ (12,986) $ 2,974 $ 2,422 ===================================== Net income (loss) per share (basic) ............................... $ (2.49) $ 0.58 $ 0.47 Net income (loss) per share (diluted) ............................. $ (2.49) $ 0.58 $ 0.47 Weighted-average number of common shares (basic) .................. 5,219 5,144 5,169 Weighted-average number of common shares (diluted) ................ 5,236 5,165 5,203
See notes to consolidated financial statements. 22 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, ------------- 2002 2001 ---- ---- ASSETS ------ Current Assets: Cash and cash equivalents $ 7,583 $ 13,787 Receivables ............................................................ 14,505 18,705 Inventories ............................................................ 10,701 18,013 Refundable income taxes ................................................ 423 -- Deferred income taxes -- 1,709 Prepaid expenses and other current assets .............................. 1,501 578 ----------------------- Total current assets ......................................... 34,713 52,792 Property, plant and equipment: Land ................................................................... 859 859 Buildings .............................................................. 19,402 19,063 Machinery and equipment ................................................ 59,763 58,723 ----------------------- 80,024 78,645 Less - accumulated depreciation ........................................ 50,918 49,262 ----------------------- Property, plant and equipment, net ........................... 29,106 29,383 Other assets: Funds held by trustee for capital project .............................. -- 92 Goodwill and other intangible assets, net .............................. 2,574 3,558 Other assets ........................................................... 946 771 ----------------------- Total other assets ............................................ 3,520 4,421 ----------------------- Total assets ............................................ $ 67,339 $ 86,596 ======================= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Current maturities of long-term debt ................................... $ 1,440 $ 1,430 Accounts payable ....................................................... 4,130 6,717 Accrued liabilities .................................................... 9,618 7,702 ----------------------- Total current liabilities ..................................... 15,188 15,849 Long-term debt, net of current maturities ................................... 11,093 15,107 Other long-term liabilities ................................................. 4,323 6,266 Shareholders' equity: Serial preferred shares, no par value, authorized 1,000 shares ......... -- -- Common shares, par value $1 per share, authorized 10,000 shares; issued 5,358 shares in 2002 and 5,308 shares in 2001; outstanding 5,258 shares in 2002 and 5,237 shares in 2001 ....... 5,358 5,308 Additional paid-in capital ............................................. 6,936 6,783 Retained earnings ...................................................... 32,629 45,615 Accumulated other comprehensive loss ................................... (7,034) (7,423) Unearned compensation - restricted common shares ....................... (562) (460) Common shares held in treasury at cost, 100 shares in 2002 and 71 shares in 2001 ................................................. (592) (449) ----------------------- Total shareholders' equity .................................... 36,735 49,374 ----------------------- Total liabilities and shareholders' equity ........... $ 67,339 $ 86,596 =======================
See notes to consolidated financial statements. 23 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
YEARS ENDED SEPTEMBER 30, ------------------------- 2002 2001 2000 ---- ---- ---- Cash flows from operating activities: Net income (loss) ..................................................... $ (12,986) $ 2,974 $ 2,422 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ............................... 4,706 4,368 4,632 Loss on disposal of property, plant and equipment ........... (7) 160 -- Deferred income taxes ....................................... 15 1,286 176 Asset impairment charges .................................... 5,160 -- -- Changes in operating assets and liabilities: Receivables ................................................. 4,200 1,205 575 Inventories ................................................. 4,054 2,081 2,177 Refundable income taxes ..................................... (423) -- 354 Prepaid expenses and other current assets ................... (923) 84 606 Other assets ................................................ (563) (119) 229 Accounts payable ............................................ (2,588) (2,268) 1,341 Accrued liabilities ......................................... 1,916 176 (1,873) Other long-term liabilities ................................. 28 (886) (168) ------------------------------------- Net cash provided by operating activities ............. 2,589 9,061 10,471 Cash flows from investing activities: Capital expenditures ........................................ (5,043) (4,082) (4,652) Decrease in funds held by trustee for capital project ....... 92 438 147 Proceeds from sale of property, plant and equipment ......... 105 -- -- Other ....................................................... 99 44 (404) ------------------------------------- Net cash used for investing activities ................ (4,747) (3,600) (4,909) Cash flows from financing activities: Proceeds from revolving credit agreement .................... 24,735 30,132 9,286 Repayments of revolving credit agreement .................... (27,309) (25,557) (8,889) Repayments of long-term debt ................................ (1,430) (1,420) (1,415) Repurchase of common shares ................................. (143) -- (449) Cash dividends declared ..................................... -- -- (1,031) Issuance of common shares ................................... -- 13 73 Share transactions under restricted stock program ........... 101 -- -- ------------------------------------- Net cash provided by (used for) financing activities .. (4,046) 3,168 (2,425) ------------------------------------- Increase (decrease) in cash and cash equivalents ........................... (6,204) 8,629 3,137 Cash and cash equivalents at beginning of year ............................. 13,787 4,687 2,022 Effect of exchange rate changes on cash and cash equivalents ............... -- 471 (472) ------------------------------------- Cash and cash equivalents at end of year .............. $ 7,583 $ 13,787 $ 4,687 ===================================== Supplemental disclosure of cash flow information: Cash paid for interest ................................................ $ (845) $ (1,082) $(1,021) Cash recovered (paid) for income taxes, net ........................... (573) 460 (62)
See notes to consolidated financial statements. 24 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (AMOUNTS IN THOUSDANDS, EXCEPT PER SHARE DATA)
ACCUMULATED ADDITIONAL OTHER COMMON PAID-IN RETAINED COMPREHENSIVE SHARES CAPITAL EARNINGS INCOME (LOSS) ------ ------- -------- ------------- BALANCE - SEPTEMBER 30, 1999 $ 5,193 $ 6,352 $ 41,250 $ (2,749) Comprehensive income (loss): Net income......................................... -- -- 2,422 -- Foreign currency translation adjustment............ -- -- -- (5,561) Total comprehensive loss........................ Shares issued to Defined Contribution Plan............. 1 5 -- -- Shares issued to vendor as payment for services 6 42 -- -- Stock options exercised................................ 5 14 -- -- Shares repurchased and held in treasury................ -- -- -- -- Dividends declared ($0.20 per share)................... -- -- (1,031) -- - --------------------------------------------------------------------------------------------------------- BALANCE - SEPTEMBER 30, 2000 $ 5,205 $ 6,413 $ 42,641 $ (8,310) Comprehensive income (loss): Net income......................................... -- -- 2,974 -- Foreign currency translation adjustment............ -- -- -- 1,191 Unrealized loss on interest rate swap agreement, net of income tax benefit of $156................ -- -- -- (304) Total comprehensive income...................... Shares issued to vendor as payment for services........ 3 10 -- -- Shares issued under restricted stock plan.............. 100 360 -- -- - --------------------------------------------------------------------------------------------------------- BALANCE - SEPTEMBER 30, 2001 $ 5,308 $ 6,783 $ 45,615 $ (7,423) Comprehensive income (loss): Net loss........................................... -- -- (12,986) -- Foreign currency translation adjustment............ -- -- -- 112 Currency exchange contract adjustment.............. -- -- -- 1,035 Unrealized loss on interest rate swap agreement, net of income tax provision of $156.............. -- -- -- (254) Minimum pension liability adjustment............... -- -- -- (504) Total comprehensive loss........................ Shares repurchased and held in treasury................ -- -- -- -- Share transactions under restricted stock plan......... 50 153 -- -- - --------------------------------------------------------------------------------------------------------- BALANCE - SEPTEMBER 30, 2002 $ 5,358 $ 6,936 $ 32,629 $ (7,034) =========================================================================================================
SHARES TOTAL UNEARNED HELD IN SHAREHOLDERS' COMPENSATION TREASURY EQUITY ------------- -------- ------ BALANCE - SEPTEMBER 30, 1999 $ -- $ -- $ 50,046 Comprehensive income (loss): Net income......................................... -- -- 2,422 Foreign currency translation adjustment............ -- -- (5,561) --------- Total comprehensive loss........................ (3,139) Shares issued to Defined Contribution Plan............. -- -- 6 Shares issued to vendor as payment for services........ -- -- 48 Stock options exercised................................ -- -- 19 Shares repurchased and held in treasury................ -- (449) (449) Dividends declared ($0.20 per share)................... -- -- (1,031) - --------------------------------------------------------------------------------------------------- BALANCE - SEPTEMBER 30, 2000 $ -- $ (449) $ 45,500 Comprehensive income (loss): Net income......................................... -- -- 2,974 Foreign currency translation adjustment............ -- -- 1,191 Unrealized loss on interest rate swap agreement, net of income tax benefit of $156................ -- -- (304) --------- Total comprehensive income 3,861 Shares issued to vendor as payment for services........ -- -- 13 Shares issued under restricted stock plan.............. (460) -- -- - --------------------------------------------------------------------------------------------------- BALANCE - SEPTEMBER 30, 2001 $ (460) $ (449) $ 49,374 Comprehensive income (loss): Net loss........................................... -- -- (12,986) Foreign currency translation adjustment............ -- -- 112 Currency exchange contract adjustment.............. -- -- 1,035 Unrealized loss on interest rate swap agreement, net of income tax provision of $156.............. -- -- (254) Minimum pension liability adjustment............... -- -- (504) --------- Total comprehensive loss........................ ( 12,597) Shares repurchased and held in treasury................ -- (143) (143) Share transactions under restricted stock plan......... (102) -- 101 - --------------------------------------------------------------------------------------------------- BALANCE - SEPTEMBER 30, 2002 $ (562) $ (592) $ 36,735 ===================================================================================================
See notes to consolidated financial statements. 25 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. DESCRIPTION OF BUSINESS SIFCO Industries, Inc. and Subsidiaries (the "Company") are engaged in the production and sale of a variety of metalworking processes, services and products produced primarily to the specific design requirements of its customers. The processes and services include forging, heat-treating, coating, welding, machining and selective electrochemical finishing and the products include forgings, machined forged parts and other machined metal parts, remanufactured component parts for turbine engines, and selective electrochemical finishing solutions and equipment. B. PRICIPLES 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 cost includes material, direct labor and factory overhead. Cost is determined by the last-in, first-out (LIFO) method for approximately 35% of inventories at September 30, 2002 and 2001. The first-in, first-out (FIFO) method is used for the remainder of inventories. E. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation and amortization are generally computed using the straight-line method, except for certain divisions, which use the declining balance method. Depreciation and amortization are provided in amounts sufficient to amortize the cost of the assets over their estimated useful lives. Depreciation and amortization provisions are based on estimated useful lives: buildings and building improvements: 5 to 50 years and machinery and equipment, including office and computer equipment: 3 to 20 years. F. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and other intangible assets represent the excess of cost over the net assets of acquired companies. Goodwill is amortized using the straight-line method over 40 years. Other intangible assets include a 10-year non-competition agreement with the former owner of an acquired company. This asset, which became fully amortized during 2002, was amortized using the straight-line method over 10 years. The Company uses an undiscounted cash flow method to periodically review the value of goodwill and other intangible assets. As a result of such review during 2002, the Company recognized a $733 net write-down of goodwill. The Company believes that the balance of its goodwill and other intangible assets are realizable. At September 30, 2002 and 2001, accumulated amortization of goodwill and other intangible assets was $881 and $3,179, respectively. G. NET INCOME PER SHARE The Company's net income per basic share has been computed based on the 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. H. REVENUE RECOGNITION The Company recognizes revenue in accordance with the Securities and Exchange Commission's Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements". Revenues are generally recognized when products are shipped or services are provided to customers. 26 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) I. NEW ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". This standard is effective for fiscal years beginning after December 15, 2001. The Company adopted this standard on October 1, 2002, the first quarter of the Company's fiscal year 2003. The standard changes financial accounting and reporting for acquired goodwill and indefinite life intangible assets. Under SFAS No. 142, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value based test. The adoption will result in no further amortization of goodwill. Amortization of goodwill during the year ended September 30, 2002 was $93, or $0.02 per share (diluted). Other than the cessation of goodwill amortization, the Company does not expect the adoption of this standard to have an impact on the Company's financial position or results of operations. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This standard addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement cost. The standard applies to legal obligations associated with the retirement of long-lived assets that result from acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. This standard requires entities to record the fair value of a liability for an asset retirement obligation in the period incurred. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company will adopt this standard in fiscal 2003. The Company does not expect the adoption of this standard to have a material impact on the Company's financial position or results of operations. In September 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement superceded SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of" and the accounting and reporting provisions of Accounting Principals Board Opinion No. 30, "Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring events and Transactions", related to the disposal of a segment of a business. This statement amends certain provisions of Accounting Research Bulletin No. 51, "Consolidated Financial Statements". SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company will adopt this standard in fiscal 2003. The Company does not expect the adoption of this standard to have a material impact on the Company's financial position or results of operation. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This standard addresses financial accounting and reporting for costs associated with exit or disposal activities and replaces Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (including Certain Costs Incurred in a Restructuring)" ("EITF No. 94-3"). SFAS No. 146 requires that a liability for costs associated with an exit or disposal activity to be recognized when the liability is incurred. Under EITF No. 94-3, a liability for exit costs as defined in EITF No. 94-3 is recognized at the date of an entity's commitment to an exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. J. USE OF ESTIMATES Accounting principles generally accepted in the United States require management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent liabilities, at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the period in preparing these financial statements. Actual results could differ from those estimates. K. CONCENTRATIONS OF CREDIT RISK Receivables are presented net of allowance for doubtful accounts of $1,250 and $1,422 at September 30, 2002 and 2001, respectively. Bad debt expense totaled $481, $1,098 and $220 in fiscal 2002, 2001 and 2000, respectively. Most of the Company's receivables represent trade receivables due from manufacturers of turbine engines and aircraft components, airlines, and turbine engine overhaul companies located throughout the world, including a significant concentration of U.S. based companies. Approximately 35% of the Company's sales in 2002 were to its 5 largest customers. 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, 2002. However, certain customers have filed for bankruptcy protection in the last several years and it is possible that additional credit losses could be incurred if other customers seek bankruptcy protection. 27 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) L. DERIVATIVE FINANCIAL INSTRUMENTS The Company entered into an interest rate swap agreement and several foreign exchange rate contracts as part of the management of its interest rate and foreign currency exchange rate exposures. The Company has no financial instruments held for trading purposes. All financial instruments are put into place to hedge specific exposure. To qualify as a hedge, the item to be hedged must expose the Company to interest rate or foreign currency exchange 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 income (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. The Company uses an interest rate swap agreement to reduce risks related to variable-rate debt, which is subject to changes in the market rates of interest. These are designated as cash flow hedges. During 2002, the Company held one interest rate swap agreement with a notional amount of $6,900 at September 30, 2002. Cash flows related to the interest rate swap agreements are included in interest expense. The Company's interest rate swap agreement and its variable-rate term debt are based upon three-month LIBOR. During 2002, the interest rate swap agreement qualified as a fully effective cash flow hedge against the Company's variable-rate term note interest risk. M. RESEARCH AND DEVELOPMENT Research and development costs are expensed as incurred. Research and development expense was approximately $500, $400 and $400 for the years ended September 30, 2002, 2001 and 2000, respectively. N. RECLASSIFICATIONS Certain amounts in prior years have been reclassified to conform to the 2002 Consolidated Financial Statement presentation. 2. INVENTORIES Inventories consist of:
2002 2001 ---- ---- Raw materials and supplies ......................... $ 3,411 $ 5,714 Work-in-process .................................... 3,525 5,905 Finished goods ..................................... 3,765 6,394 -------------------- Total inventories .............................. $ 10,701 $ 18,013 ====================
If the FIFO method had been used for the entire Company, inventories would have been $3,114 and $2,884 higher than reported at September 30, 2002 and 2001, respectively. 3. ACCRUED LIABILITIES Accrued liabilities consist of:
2002 2001 ---- ---- Accrued employee compensation and benefits ......... $ 1,609 $ 2,076 Accrued workers' compensation ...................... 1,029 1,497 Accrued severance .................................. 752 -- Accrued income taxes ............................... 415 975 Accrued royalties .................................. 973 916 Accrued legal and professional ..................... 1,388 375 Unamortized portion of deferred grant revenue ...... 2,005 -- Other accrued liabilities .......................... 1,447 1,863 -------------------- Total accrued liabilities ...................... $ 9,618 $ 7,702 ====================
28 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 4. GOVERNMENT GRANTS The Company receives grants from certain government entities as an incentive to invest in facilities, research and employees. Certain of these grants require that the Company maintain operations for up to ten years in order to qualify for the full value of the benefits received. These amounts are recorded as deferred revenue when received. Capital grants are amortized into income over the estimated useful lives of the related assets. Employment grants are amortized into income over five years. Training, research, marketing and other grants are recognized as income when received. During 2002, the Company's workforce was impacted through attrition and staff reductions such that employment levels were reduced to amounts that are expected to remain, for the foreseeable future, below certain minimum levels as stipulated in certain employment related grant agreements. In certain circumstances, such employment level reductions may trigger an obligation for repayment of certain employment related grants. Accordingly, the Company recognized in 2002 a $770 provision to adjust the amount of the unamortized portion of deferred grant revenue. The unamortized portion of deferred grant revenue was $2,645 and $1,892 at September 30, 2002 and 2001, respectively. As of September 30, 2002, $2,005 is included in accrued liabilities, and $640 is included in other long-term liabilities. As of September 30, 2001, $1,892 is included in other long-term liabilities. The Company recognized net grant expense of $422 in 2002 and grant revenue of $406 and $513 in 2001 and 2000, respectively, which is included in other expense (income), net. Prior to expiration, a grant may be repayable in certain circumstances, principally upon the sale of related assets, or discontinuation or reduction of operations. The contingent liability for such potential repayments was $4,902 and $4,794 at September 30, 2002 and 2001, respectively. 5. LONG TERM DEBT Long-term debt consists of:
2002 2001 ---- ---- Term note payable to bank .................................... $ 6,900 $ 8,100 Revolving credit agreement ................................... 2,398 4,972 Industrial development variable rate demand revenue bonds .... 3,235 3,465 -------------------- Total debt ............................................... 12,533 16,537 Less - current maturities .................................... 1,440 1,430 -------------------- Total long-term debt ..................................... $ 11,093 $ 15,107 ====================
The term note is 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 based upon the level of certain financial ratios. The effective interest rate at September 30, 2002 was 7.74%. 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 a $10,000 revolving credit agreement with a bank, which expires on March 31, 2004 and bears interest at the bank's base rate. The interest rate was 4.75% at September 30, 2002. The average balance outstanding against the revolving credit agreement was $2,241 and $3,779 during 2002 and 2001, respectively. A commitment fee of 0.25% is incurred on the unused balance. At September 30, 2002, the Company had $7,557 available against its $10,000 revolving credit agreement. The Company has a 15-year industrial development bond outstanding, with an original face amount of $4,100, which was used to expand the Turbine Component Services and Repair Group's Tampa, Florida facility. The interest rate is reset weekly, based on prevailing tax-exempt money market rates (1.9% at September 30, 2002). The industrial development bond requires annual principal payments ranging from $240 in 2003 to $355 in 2013. 29 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) All of the Company's long-term debt is secured by substantially all of the Company's domestic assets, a guarantee by its domestic subsidiaries and a pledge of 65% of the Company's ownership interest in its non-U.S. subsidiaries. Under its various credit agreements, the Company is subject to certain customary covenants. These include, without limitation, covenants (as defined) that limit the amount of annual capital expenditures, and require the maintenance of certain specified financial ratios, including a minimum tangible net worth level, a maximum liability to tangible net worth ratio, and an interest coverage ratio. On November 26, 2002 the Company entered into an agreement with its bank to amend certain provisions of its credit agreements. The amendment waives (i) the interest coverage ratio covenant for the periods ended September 30, 2002, December 31, 2002 and March 31, 2003; (ii) the minimum tangible net worth covenant for the period ended September 30, 2002. The amendment modifies certain financial covenants and the interest rate-pricing grid. As a consequence, the term note's borrowing rate increases to 8.24% effective November 26, 2002. Also, as a result of this amendment the commitment fee on the unused balance of the revolving credit agreement was increased to 0.37%. Taking into consideration the effect of this waiver, the company was in compliance with all applicable covenants at September 30, 2002. 6. INCOME TAXES The components of income (loss) before income tax provision (benefit) are as follows;
2002 2001 2000 ---- ---- ---- U.S ............................................................ $ (8,369) $ 519 $ (1,192) Non-U.S ........................................................ (5,079) 4,149 3,671 ---------------------------------- Income (loss) before income tax provision (benefit) ... $ (13,448) $ 4,668 $ 2,479 ==================================
The income tax provision (benefit) consists of the following:
2002 2001 2000 ---- ---- ---- Current income tax provision (benefit): U.S. federal .............................................. $ (114) $ (117) $ (564) State and local ........................................... -- 36 (11) Non-U.S ................................................... (477) 489 456 ---------------------------------- Total current tax provision (benefit) ................. (591) 408 (119) Deferred U.S. federal income tax provision ..................... 129 1,286 176 ---------------------------------- Income tax provision (benefit) ........................ $ (462) $ 1,694 $ 57 ==================================
The income tax provision (benefit) 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. 30 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The income tax provision (benefit) in the accompanying Consolidated Statements of Operations differs from the statutory rate as follows:
2002 2001 2000 ---- ---- ---- Income (loss) before income tax provision (benefit) .................... $ (13,448) $ 4,668 $ 2,479 Less-U.S., state and local income tax provision (benefit) .............. -- 36 (11) ------------------------------------- Income (loss) before federal income tax provision (benefit) ..... (13,448) 4,632 2,490 ===================================== Income tax provision (benefit) at U.S. federal statutory rate .......... (4,572) 1,575 847 Tax effect of: U.S. losses for which no U.S. federal tax benefit has been recognized ................................................... 2,598 -- -- Non-U.S. tax rate differential .................................... -- -- (792) Non-US losses for which no-U.S. federal tax benefit has been recognized ................................................... 1,251 -- -- Other ............................................................. 261 83 13 ------------------------------------- U.S. federal and non-U.S. income tax provision (benefit) ............... (462) 1,658 68 Add - U.S., state and local income tax provision (benefit) ............. -- 36 (11) ------------------------------------- Income tax provision (benefit) .................................. $ (462) $ 1,694 $ 57 =====================================
Deferred tax assets and liabilities consist of the following:
2002 2001 ---- ---- Deferred tax assets: Net U.S. operating loss carryfowards .............. $ 1,903 $ -- Employee benefits ................................. 1,143 1,445 Investment valuation reserve ...................... 511 511 Inventory and property reserves ................... 473 536 Doubtful accounts ................................. 263 305 Foreign tax credits ............................... 161 161 Interest rate swap ................................ 190 156 Additional pension liability ...................... 171 -- --------------------- Total deferred tax assets ................... 4,815 3,114 Deferred tax liabilities: Depreciation ...................................... 1,687 1,438 Unremitted foreign earnings ....................... 368 934 Personal property taxes ........................... 27 29 Other ............................................. 10 381 --------------------- Total deferred tax liabilities .............. 2,092 2,782 --------------------- Deferral tax assets net of liabilities ............... 2,723 332 Valuation allowance .................................. (2,723) (161) --------------------- Net deferred tax assets ..................... $ -- $ 171 =====================
31 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) At September 30, 2002, the Company has a U.S. federal tax loss carryfoward of $5,597. The U.S. federal tax loss carryforward expires in 2022. At September 30, 2002, the Company recognized an additional $2,562 valuation allowance against its U.S. net deferred tax assets, which were primarily recorded during the first three quarters of fiscal 2002. In assessing the Company's ability to realize its net deferred tax assets, management considers whether it is more likely than not that some portion or all of its net deferred tax assets may not be realized. Management considered the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Future reversal of the valuation allowance may be achieved either when the tax benefit is realized or when it has been determined that it is more likely than not that the benefit will be realized through future taxable income. The Company considers the undistributed earnings, accumulated prior to October 1, 2000, of its non-U.S. subsidiaries to be indefinitely reinvested in operations outside the U.S. Distribution of these non-U.S. subsidiary earnings would be subject to U.S. income taxes. Cumulative undistributed earnings of non-U.S. subsidiaries for which no U.S. federal deferred income tax liabilities have been established were approximately $25,000 at September 30, 2002. During 2001, the Company provided $934 for U.S. income taxes on the undistributed earnings of non-U.S. subsidiaries accumulated in fiscal 2001. 7. 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 pension 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 plans. Net pension expense for the Company-sponsored defined benefit plans for 2002, 2001 and 2000 consists of the following:
2002 2001 2000 ---- ---- ---- Service cost ........................................... $ 899 $ 813 $ 886 Interest cost .......................................... 1,255 1,180 1,153 Expected return on plan assets ......................... (1,445) (1,483) (1,317) Amortization of transition obligation (asset) .......... (11) (11) 12 Amortization of prior service cost ..................... 42 42 42 Amortization of net gain ............................... (104) (262) (132) -------------------------------- Net pension expense for defined benefit plans ..... $ 636 $ 279 $ 644 ================================
32 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The status of all significant U.S. and non-U.S. defined benefit plans is as follows:
2002 2001 ---- ---- Benefit Obligations: Benefit obligation at beginning of year ...................... $ 17,327 $ 14,596 Service cost ................................................. 899 813 Interest cost ................................................ 1,257 1,180 Participant contributions .................................... 193 180 Amendments ................................................... 898 -- Actuarial loss (gain) ........................................ 1,071 1,997 Benefits paid ................................................ (1,890) (1,581) Currency translation adjustment .............................. 369 142 ----------------------- Benefit obligation at end of year ....................... $ 20,124 $ 17,327 =======================
2002 2001 ---- ---- Plan Assets: Plan assets at beginning of year ............................. $ 16,571 $ 18,144 Actual return (loss) on plan assets .......................... (823) (915) Employer contributions ....................................... 743 592 Participant contributions .................................... 193 180 Benefits paid ................................................ (1,890) (1,581) Currency translation adjustment .............................. 305 151 ----------------------- Plan assets at end of year .............................. $ 15,099 $ 16,571 =======================
PLANS IN WHICH PLANS IN WHICH ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFITS EXCEED BENEFITS ASSETS -------- ------ 2002 2001 2002 2001 ---- ---- ---- ---- RECONCILIATION OF FUNDED STATUS: Plan assets in excess of (less than) projected benefit obligations .... $ 1,391 $ 2,454 $(6,416) $(3,210) Unrecognized net (gain) loss .......................................... (1,176) (1,939) 3,150 503 Unrecognized prior service cost ....................................... 896 326 343 57 Unrecognized transition asset ......................................... -- -- (38) (49) Currency translation adjustment ....................................... -- -- 76 10 ----------------------------------------- Net amount recognized in the Consolidated Balance Sheets .......... $ 1,111 $ 841 $(2,885) $(2,689) ========================================= AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS ARE: Other assets .......................................................... $ -- $ -- $ 731 $ 387 Other long-term liabilities ........................................... 1,111 841 (4,120) (3,076) Accumulated other comprehensive loss .................................. -- -- 504 -- ----------------------------------------- Net amount recognized in the Consolidated Balance Sheets .......... $ 1,111 $ 841 $(2,885) $(2,689) =========================================
33 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Assumptions used for defined benefit plans consist of:
2002 2001 2000 ---- ---- ---- Discount rate for liabilities ........... 6.6% 7.1% 7.8% Expected return on assets ............... 8.4% 8.4% 8.6% Rate of compensation increase ........... 3.9% 4.0% 4.0%
The Company also contributes to a U.S. multi-employer retirement plan for certain union employees. The Company's contributions to the plan in 2002, 2001 and 2000 were $55, $47 and $46, respectively. All non-union employees of the Company and its U.S. subsidiaries are eligible to participate in the Company's defined contribution plan. The Company's matching contribution expense for 2002, 2001 and 2000 was $79, $77 and $85, respectively. The Company's Irish subsidiary sponsors, for all of its employees, a tax-advantage profit sharing program. Company discretionary contributions and employee elective contributions are invested in Common Shares of the Company without being subject to personal income taxes if held for at least three years. Employees have the option of taking a taxable cash distribution. There was no contribution expense in 2002, 2001 and 2000. The Company's Irish subsidiary also sponsors, for certain of its employees hired after October 1, 2000, a defined contribution plan. The Company contributes annually 5.5% of eligible employee compensation, as defined. Total contribution expense in 2002 and 2001 was $23 and $10, respectively. 8. STOCK-BASED COMPENSATION The Company awards stock options under its shareholder approved 1998 Long-term Incentive Plan. The aggregate number of stock options that may be granted in any fiscal year is 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. At September 30, 2002, there are an additional 48,519 options available for award under the 1998 Long-term Incentive Plan. At September 30, 2002, the Company also had options outstanding that were awarded under two previous plans, which authority to award additional options has expired. Option exercise price is not less than fair market value on date of grant and options are exercisable no later than ten years from date of grant. Options issued under all plans generally vest at a rate of 25% per year. Option activity during the last three years is as follows:
2002 2001 2000 ---- ---- ---- Options at beginning of year ......................... 344,000 276,000 205,000 Weighted average exercise price ................... $ 7.36 $ 8.03 $ 8.28 Options granted during the year ...................... 77,500 77,000 76,000 Weighted average exercise price ................... $ 5.50 $ 4.75 $ 7.08 Options exercised during the year .................... -- -- (5,000) Weighted average exercise price ................... $ -- $ -- $ 3.75 Options canceled during the year ..................... (31,500) (9,000) -- Weighted average exercise price ................... $ 10.85 $ 5.70 $ -- Options at end of year ............................... 390,000 344,000 276,000 Weighted average exercise price ................... $ 6.71 $ 7.36 $ 8.03 Options exercisable at end of year ................... 210,250 174,000 138,750 Weighted average exercise price ................... $ 7.02 $ 7.16 $ 6.14
34 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) The following table provides additional information regarding options outstanding as of September 30, 2002:
OPTIONS OPTIONS OPTIONS REMAINING LIFE OF EXERCISE PRICE OUTSTANDING EXERCISABLE OPTIONS (YEARS) - -------------- ----------- ----------- --------------- $ 3.75 5,000 5,000 0.1 $ 4.25 100,000 100,000 3.1 $ 4.69 59,000 14,750 8.1 $ 5.16 10,000 2,500 3.1 $ 5.50 77,500 -- 9.6 $ 6.81 5,000 2,500 7.4 $ 6.94 42,500 21,250 7.1 $ 7.63 16,000 8,000 2.1 $12.88 75,000 56,250 6.1 ----------------------------------- Total 390,000 210,250 ===================================
The Company employs the disclosure-only provisions of Statement of Financial Accounting Standards No.123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Pro forma information regarding net income and earnings per share is required by this standard. This information is required to be determined as if the Company had accounted for its stock options granted subsequent to September 30, 1995 under the fair value method of that standard. The fair value of options granted for fiscal years ending September 30, 2002, 2001 and 2000, reported below, has been estimated at the date of grant using a Black-Scholes options pricing model with the following weighted average assumptions:
2002 2001 2000 ---- ---- ---- Risk-free interest rate ........... 3.35% 6.08% 6.13% Dividend yield .................... 0.00% 0.00% 0.00% Volatility factor ................. 43.89% 38.47% 39.44% Expected life of stock options .... 7.0 YEARS 8.4 years 7.1 years
Based upon the preceding assumptions, the weighted average fair value of stock options granted during fiscal years 2002, 2001 and 2000 was $2.77, $2.63, and $3.55 per share, respectively. The following pro forma information regarding net income and earnings per share was determined as if the Company had accounted for its stock options under the fair value method prescribed by SFAS No. 123. For purposes of pro forma disclosure, the estimated fair value of the stock options is amortized over the options' vesting period. The pro forma information is as follows:
2002 2001 2000 ---- ---- ---- Pro forma net income (loss) ................. $ (13,157) $ 2,821 $ 2,223 Pro forma net income (loss) per share: Basic ................................. $ (2.52) $ 0.55 $ 0.43 Diluted ............................... $ (2.52) $ 0.55 $ 0.43
35 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Under the Company's restricted stock program, Common Shares of the Company may be granted at no cost to certain officers and key employees. These shares vest over either a four or five-year period, with either 25% or 20% vesting each year, respectively. Under the terms of the program, participants will not be entitled to dividends nor voting rights until the shares have vested. Upon issuance of Common Shares under the program, unearned compensation equivalent to the market value at the date of award is charged to shareholders' equity and subsequently amortized to expense over the vesting periods. In fiscal 2002 and 2001, the Company awarded 50,000 four-year vesting and 100,000 five-year vesting restricted Common Shares, respectively. Compensation expense related to the amortization of unearned compensation was $100 and $0 in 2002 and 2001, respectively. 9. SUMMARIZED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
2002 QUARTER ENDED ------------------ DEC. 31 MARCH 31 JUNE 30 SEPT. 30 ------- -------- ------- -------- Net sales .................... $ 20,338 $ 20,747 $ 20,167 $ 18,781 Cost of goods sold ........... 21,071 18,410 17,489 19,361 Net loss ..................... (3,690) (1,333) (451) (7,512) Net loss per share: Basic ...................... $ (0.71) $ (0.26) $ (0.09) $ (1.44) Diluted .................... $ (0.71) $ (0.26) $ (0.09) $ (1.44)
2001 QUARTER ENDED ------------------ DEC. 31 MARCH 31 JUNE 30 SEPT. 30 ------- -------- ------- -------- Net sales .................... $ 25,185 $ 27,726 $ 27,676 $ 25,046 Cost of goods sold ........... 20,854 23,073 22,170 20,664 Net income ................... 302 995 1,509 168 Net income per share: Basic ...................... $ 0.06 $ 0.19 $ 0.29 $ 0.03 Diluted .................... $ 0.06 $ 0.19 $ 0.29 $ 0.03
10. CONTINGENCIES The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. 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 the 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. 11. FOREIGN CURRENCY MANAGEMENT The U.S. dollar is the functional currency for all the Company's U.S. operations. Effective October 1, 2001, the Company changed the functional currency of its Irish subsidiary from the local currency to the U.S. dollar. The functional currency was changed because a substantial majority of the subsidiary's transactions are now denominated in U.S. dollars. For the U.S. and Ireland operations, all gains and losses from completed currency transactions are included in income currently. For the Company's other non-U.S. subsidiaries, the functional currency is the local currency. Assets and liabilities are translated into U.S. dollars at the rates of exchange at the end of the period and revenues and expenses are translated using average rates of exchange. Foreign currency translation adjustments are reported as a component of accumulated other comprehensive income (loss) in the Consolidated Statements of Shareholders' Equity. 36 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 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, 2002, the Company has several forward exchange contracts outstanding for duration's of up to nine months to purchase Euros aggregating U.S. $10,850. 12. ASSET IMPAIRMENT AND OTHER CHARGES During fiscal 2002, the Company's Repair Group performed evaluations of its existing operations in light of the current and anticipated impacts on its business of the September 11, 2001 terrorist attacks on the United States. The principal result of these evaluation processes was the decision to optimize the Repair Group's multiple operations by reducing certain of its capacity for the repairing of components related to older generation jet engines, principally JT8D. Consequently, the Repair Group recognized asset impairment charges of $4,088 and $1,072, during the first and fourth quarters of fiscal 2002, respectively. These charges include a goodwill write-off of $733 in the first quarter of fiscal 2002 and inventory write-downs of $2,708 and $551, along with equipment write-downs of $647 and $521, in the first and fourth quarters of fiscal 2002, respectively. As a direct consequence of the September 11, 2001 terrorist attacks on the United States, the demand for JT8D jet engine repair services experienced an accelerated and substantial decline during the first quarter of fiscal 2002. This decline in demand continued during the balance of fiscal 2002. Because of the foregoing and as a result of the Repair Group's decision to reduce certain of its capacity for the repair of components, the recoverability of the carrying value of certain assets was adversely affected. Consequently, the inventory write-down, recorded in cost of goods sold in the Consolidated Statements of Operations, in the first and fourth quarters of fiscal 2002 was determined to be appropriate. The write-off of goodwill was based on an analysis of projected undiscounted cash flows, which were no longer deemed adequate to support the value of goodwill associated with the Repair Group. The equipment write-downs relate to items that have been or are expected to be disposed, or will experience reduced utilization as a consequence of the Repair Group's decision to reduce certain of its capacity for the repair of components. The realization of these assets was determined based on estimated net realizable value. Both the goodwill write-off and the equipment write-downs were recorded in selling, general and administrative expenses in the Consolidated Statements of Operations. In addition, during fiscal 2002, the Repair Group incurred charges related to severance and other employee benefits to be paid to approximately 76 personnel associated with the reduction of certain of its capacity for the repairing of components. Such charges were $33, $154 and $752 and were recorded in selling, general and administrative expenses in the Consolidated Statements of Operations in the first, second and fourth quarters of fiscal 2002, respectively. As of September 30, 2002, $187 of payments has been made for these expenses and all but approximately 12 personnel have been terminated. 13. BUSINESS SEGMENTS The Company identifies reportable segments based upon distinct products manufactured and services performed. The Turbine Component Services and Repair Group ("Repair Group") consists primarily of the repair and remanufacture of jet engine (aerospace) and heavy industrial turbine engine components. The Repair Group is also involved in precision component machining for aerospace applications. The Aerospace Component Manufacturing Group ("ACM Group") consists of the production, heat treatment and some machining of forgings in various alloys utilizing a variety of processes for application in the aerospace industry. The Metal Finishing Group is a provider of specialized selective electrochemical finishing processes for anodizing and electropolishing, which are 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 13% and 18% of the Company's consolidated net sales in 2002 and 2001, respectively. In 2000, two customers accounted for 17% and 12%, respectively, of the Company's consolidated net sales. The Repair and ACM Groups supplied the customer that accounted for 17% of such sales, while the Company's Repair Group supplied the customer that accounted for 12% of such sales. Geographic net sales are based on location of customer. The U.S. is the single largest country for unaffiliated customer sales, accounting for 70% of consolidated net sales in fiscal 2002. No other single country represents greater than 10% of consolidated net sales. Net sales to unaffiliated customers located in various European countries in fiscal 2002 accounted for 21.9% of consolidated net sales. 37 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) 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. The following table summarizes certain information regarding segments of the Company's operations for the year ended September 30, 2002, 2001 and 2000.
2002 2001 2000 ---- ---- ---- Net sales: Turbine Component Services and Repair Group ...................... $ 36,539 $ 54,406 $ 61,658 Aerospace Component Manufacturing Group .......................... 33,164 40,891 34,958 Metal Finishing Group ............................................ 10,330 10,336 9,522 ----------------------------------- Consolidated net sales ....................................... $ 80,033 $ 105,633 $ 106,138 =================================== Operating income (loss): Turbine Component Services and Repair Group ...................... $ (11,514) $ 2,609 $ 2,355 Aerospace Component Manufacturing Group .......................... (287) 3,476 1,491 Metal Finishing Group ............................................ 1,495 1,724 1,070 Corporate unallocated expenses ................................... (1,944) (1,897) (1,867) ----------------------------------- Consolidated operating income (loss) ......................... (12,250) 5,912 3,049 Interest expense, net .............................................. 580 659 823 Foreign currency exchange loss (gain), net ......................... (34) 568 (207) Other expense (income), net ........................................ 652 17 (46) ----------------------------------- Consolidated income (loss) before income tax provision (benefit) .................................................. $ (13,448) $ 4,668 $ 2,479 =================================== Depreciation and amortization expense: Turbine Component Services and Repair Group ...................... $ 3,626 $ 3,242 $ 3,461 Aerospace Component Manufacturing Group .......................... 680 679 689 Metal Finishing Group ............................................ 400 447 482 ----------------------------------- Consolidated depreciation and amortization expense ........... $ 4,706 $ 4,368 $ 4,632 =================================== Capital Expenditures: Turbine Component Services and Repair Group ...................... $ 4,598 $ 3,325 $ 4,121 Aerospace Component Manufacturing Group .......................... 396 705 472 Metal Finishing Group ............................................ 49 52 59 ----------------------------------- Consolidated capital expenditures ............................ $ 5,043 $ 4,082 $ 4,652 =================================== Identifiable assets: Turbine Component Services and Repair Group ...................... $ 36,339 $ 41,641 $ 47,367 Aerospace Component Manufacturing Group .......................... 15,647 21,360 18,408 Metal Finishing Group ............................................ 7,735 8,047 8,247 Corporate ........................................................ 7,618 15,548 6,478 ----------------------------------- Consolidated total assets .................................... $ 67,339 $ 86,596 $ 80,500 =================================== Non-U.S. operations (primarily the Company's Ireland operations): Net sales ........................................................ $ 23,872 $ 38,224 $ 46,402 Operating income (loss) .......................................... (4,842) 3,964 2,824 Identifiable assets (excluding cash) ............................. 23,239 23,579 29,768
38 SCHEDULE II SIFCO INDUSTRIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS - ALLOWANCE FOR DOUBTFUL ACCOUNTS FOR THE YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000 (AMOUNTS IN THOUSANDS)
2002 2001 2000 ---- ---- ---- Balance beginning of period ................................. $ 1,422 $ 765 $ 722 Additions-charged to costs and expenses ..................... 481 1,098 220 Addition - reallocation of Corporate Reserves ............... -- 433 -- Deductions-accounts determined to be uncollectible .......... (654) (930) (140) Recoveries of fully reserved accounts ....................... 2 32 23 Exchange rate changes and other ............................. (1) 24 (60) ---------------------------------- Balance end of period ....................................... $ 1,250 $ 1,422 $ 765 ==================================
39 ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On June 25, 2002, the Board of Directors of SIFCO Industries, Inc. adopted the recommendation of its Audit Committee that Arthur Andersen LLP be dismissed as the Company's auditors and that Grant Thornton LLP be engaged to serve as the Company's independent public accountants. Please see the Company's Current Report on Form 8-K dated June 27, 2002 filed with the Securities and Exchange Commission. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT The Company incorporates herein by reference the information appearing under the captions "Proposal to Elect Six Directors" and "Stock Ownership of Officers, Directors and Nominees" and "Organization and Compensation of the Board of Directors" of the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission on or about December 13, 2002. The Directors of the Company are elected annually to serve for one-year terms or until their successors are elected and qualified. Information concerning executive officers of the Company is contained in Part I of this report under the caption "Executive Officers of the Registrant". ITEM 11. EXECUTIVE COMPENSATION The Company incorporates herein by reference the information appearing under the captions "Executive Compensation", "Report of the Compensation Committee" and "Performance Graph" of the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission on or about December 13, 2002. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
NUMBER OF SECURITIES NUMBER OF REMAINING SECURITIES TO WEIGHTED AVAILABLE FOR BE ISSUED UPON AVERAGE FUTURE ISSUANCE EXERCISE OF EXERCISE PRICE UNDER EQUITY OUTSTANDING OF OUTSTANDING COMPENSATION PLAN CATEGORY OPTIONS OPTIONS PLANS ------------- ------- ------- ----- Equity compensation plans approved by security holders: 1998 Long-term Incentive Plan .............................. 210,000 $ 12.45 48,519(1) 1995 Stock Option Plan ..................................... 175,000 6.98 -- 1989 Key Employee Stock Option Plan ........................ 5,000 3.75 -- Equity compensation plans not approved by security holders (2) ... -- -- -- ------------------------------------------------------ Total 390,000 $ 6.71 48,519 ======================================================
(1) Under the 1998 Long-term Incentive Plan the aggregate number of stock options that may be granted in any fiscal year is 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. (2) Under the Company's restricted stock program, Common Shares may be granted at no cost to certain officers and key employees. These shares vest over either a four or five-year period, with either 25% or 20% vesting each year, respectively. Under the terms of the program, participants will not be entitled to dividends nor voting rights until the shares have vested. In fiscal 2002 and 2001, the Company awarded 50,000 four-year vesting and 100,000 five-year vesting restricted Common Shares, respectively. 40 For additional information concerning the Company's equity compensation plans, refer to the discussion in Note 8 to the Consolidated Financial Statements. The Company incorporates herein by reference the information appearing under the caption "Outstanding Shares and Voting Rights" of the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission on or about December 13, 2002. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. ITEM 14. CONTROLS AND PROCEDURES Within 90 days of the filing of this report, an evaluation was performed by the Company's Chief Executive Officer and the Chief Financial Officer of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2002. No significant changes in the Company's internal controls or in other factors have occurred that could significantly affect controls subsequent to September 30, 2002. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1)FINANCIAL STATEMENTS: The following Consolidated Financial Statements; Notes to the Consolidated Financial Statements and the Reports of Independent Certified Public Accountants are included in Item 8. Report of Independent Certified Public Accountants Report of Independent Certified Public Accountants on the Financial Statement Schedule Copy of Report of Independent Public Accountants (who have ceased operations) Copy of Report of Independent Public Accountants (who have ceased operations) on the Financial Statement Schedule Consolidated Statements of Operations for the Years Ended September 30, 2002, 2001 and 2000 Consolidated Balance Sheets - September 30, 2002 and 2001 Consolidated Statements of Cash Flows for the Years Ended September 30, 2002, 2001 and 2000 Consolidated Statements of Shareholders' Equity for the Years Ended September 30, 2002, 2001 and 2000 Notes to Consolidated Financial Statements - September 30, 2002, 2001 and 2000 (a)(2)FINANCIAL STATEMENT SCHEDULES: The following financial statement schedule is included in Item 8: Schedule II - Valuation and Qualifying Accounts - Allowance for Doubtful 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. 41 (a)(3) EXHIBITS: The following exhibits are filed with this report or are incorporated herby 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 Description ------- ----------- No. --- 3.1 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 3.2 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 4.1 Amended and Restated Reimbursement Agreement dated April 30, 2002 Between SIFCO Industries, Inc. and National City Bank, filed as Exhibit 4(a) of the Company's Form 10-Q dated March 31, 2002, and incorporated herein by reference 4.2 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 4.3 Promissory Note (Term Note) dated April 14, 1998 Between SIFCO Industries, Inc. and National City Bank, filed as Exhibit 4(c) of the Company's Form 10-Q dated March 31, 2002, and incorporated herein by reference 4.4 Loan Agreement Between Hillsborough County Industrial Development Authority and SIFCO Industries, Inc., dated as of May 1, 1998, filed as Exhibit 4(d) of the Company's Form 10-Q dated March 31, 2002, and incorporated herein by reference *4.5 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 *9.1 Voting Trust Extension Agreement dated January 14, 2002 *9.2 Voting Trust Agreement dated January 15, 1997 10.1 1989 Key Employee Stock Option Plan, filed as Exhibit B of the Company's Form S-8 dated January 9, 1990 and incorporated herein by reference 10.2 Deferred Compensation Program for Directors and Executive Officers (as amended and restated April 26, 1984), filed as Exhibit 10(b) of the Company's Form 10-Q dated March 31, 2002, and incorporated herein by reference 10.3 SIFCO Industries, Inc. 1998 Long-term Incentive Plan, filed as Appendix A of the Company's Schedule 14A dated December 21, 1998, and incorporated herein by reference 10.4 SIFCO Industries, Inc. 1995 Stock Option Plan, filed as Exhibit 10(d) of the Company's Form 10-Q dated March 31, 2002, and incorporated herein by reference 10.5 Change in Control Severance Agreement between the Company and Frank Cappello, dated September 28, 2000, filed as Exhibit 10(g) of the Company's Form 10-Q dated December 31, 2000 and incorporated herein by reference 10.6 Change in Control Severance Agreement between the Company and Hudson Smith, dated September 28, 2000, filed as Exhibit 10 (h) of the Company's Form 10-Q dated December 31, 2000 and incorporated herein by reference 42 10.7 Change in Control Severance Agreement between the Company and Remigijus Belzinskas, dated September 28, 2000, filed as Exhibit 10 (i) of the Company's Form 10-Q dated December 31, 2000 and incorporated herein by reference 10.8 Change in Control Agreement between the Company and Frank Cappello, dated November 9, 2000, filed as Exhibit 10 (j) of the Company's Form 10-Q dated December 31, 2000 and incorporated herein by reference *10.9 Change in Control Severance Agreement between the Company and Timothy V. Crean, dated July 30, 2002 *10.10 Change in Control Severance Agreement between the Company and Jeffrey P. Gotschall, dated July 30, 2002 *10.11 Form of Restricted Stock Agreement 16.1 Letter from Arthur Andersen LLP to the Securities and Exchange Commission dated June 27, 2002, filed as Exhibit 16 of the Company's Form 8-K dated June 27, 2002 and incorporated by reference *21.1 Subsidiaries of the Company *23.1 Consent of Grant Thornton LLP *99.1 Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 *99.2 Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (a)(4) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the last quarter of the fiscal year ended September 30, 2002. 43 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIFCO Industries, Inc. and Subsidiaries By: /s/ Frank A. Cappello ------------------------- Vice President-Finance and Chief Financial Officer (Principal Financial Officer) Date: December 13, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below on December 13, 2002 by the following persons on behalf of the Registrant in the capacities indicated. /s/ Jeffrey P. Gotschall /s/ Alayne L. Reitman -------------------------- --------------------------- Jeffrey P. Gotschall Alayne L. Reitman Chairman of the Board and Director Chief Executive Officer /s/ Hudson D. Smith /s/ J. Douglas Whelan -------------------------- --------------------------- Hudson D. Smith J. Douglas Whelan Treasurer, Director and Director President of Aerospace Component Manufacturing Group /s/ Michael S. Lipscomb /s/ Remigijus H. Belzinskas -------------------------- --------------------------- Michael S. Lipscomb Remigijus H. Belzinskas Director Corporate Controller (Principal Accounting Officer) /s/ P. Charles Miller, Jr. -------------------------- P. Charles Miller Director 44 CERTIFICATIONS I, Jeffrey P. Gotschall, certify that: 1. I have read this annual report on Form 10-K of SIFCO Industries, Inc. 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions); a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 13, 2002 /s/ Jeffrey P. Gotschall ------------------------ Jeffrey P. Gotschall Chairman of the Board and Chief Executive Officer 45 CERTIFICATIONS I, Frank A. Cappello, certify that: 1. I have read this annual report on Form 10-K of SIFCO Industries, Inc. 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions); a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: December 13, 2002 /s/ Frank A. Cappello --------------------- Frank A. Cappello Vice President - Finance and Chief Financial Officer 46 EX-4.5 3 l97786aexv4w5.txt EXHIBIT 4.5 EXHIBIT 4.5 CONSOLIDATED AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT, AMENDED AND RESTATED REIMBURSEMENT AGREEMENT AND PROMISSORY NOTE This Consolidated Amendment No. 1 to Amended and Restated Credit Agreement, Amended and Restated Reimbursement Agreement, and Promissory Note (this "AMENDMENT"), dated as of November 26, 2002, is entered into by and between SIFCO INDUSTRIES, INC. (the "BORROWER") and NATIONAL CITY BANK (the "BANK") for the purposes amending and supplementing the documents and instruments referred to below. WITNESSETH: WHEREAS, Borrower and Bank are parties to an Amended and Restated Credit Agreement made as of April 30, 2002, as amended by Letter Agreement dated August 1, 2002 (as amended, the "CREDIT AGREEMENT" providing for $10,000,000 of revolving credits; all terms used in the Credit Agreement being used herein with the same meaning); and WHEREAS, Borrower and Bank are parties to an Amended and Restated Reimbursement Agreement made as of April 30, 2002, as amended by Letter Agreement dated August 1, 2002 (as amended, the "REIMBURSEMENT AGREEMENT" pursuant to which a Letter of Credit was issued in the initial stated amount of $4,225,280; all terms used in the Reimbursement Agreement being used herein with the same meaning); and WHEREAS, Borrower and Bank are parties to Promissory Note made as of April 14, 1998 (the "TERM NOTE" providing for a $12,000,000 term loan; all terms used in the Term Note being used herein with the same meaning); and WHEREAS, Borrower and Bank desire to waive and amend certain provisions of the Credit Agreement, Reimbursement Agreement and Term Note to, among other things, (a) waive certain financial covenants applicable thereto, (b) modify the interest rate pricing grids and (c) amend certain financial covenants therein; and NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: SECTION I - AMENDMENTS TO CREDIT AGREEMENT A. Section 2A.04(b) of the Credit Agreement is hereby amended to read as follows: (b) computed, so long as the Subject Commitment remains in effect, in accordance with the pricing grid set forth below:
Pre-tax Interest Coverage Commitment Fee - ------------------------- -------------- >10x 0.25% >7.5x to 10x 0.25% >5.0x to 7.5x 0.25% >2.5x to 5.0x 0.25% 1.0X TO 2.5X 0.375% (BOLD REFLECTS CURRENT PRICING)
B. The pricing grid set forth in Subsection 2B.11(a) of the Credit Agreement is hereby amended to read as follows:
Pre-Tax Interest Coverage LIBOR Margin - ------------------------- ------------ >10x 1.25% >7.5x to 10x 1.50% >5.0x to 7.5x 1.75% >2.5x to 5.0x 2.00% 1.0X TO 2.5X 2.25% (BOLD REFLECTS CURRENT PRICING)
1 SECTION II - AMENDMENTS TO REIMBURSEMENT AGREEMENT A. Section 2(a) of the Reimbursement Agreement is hereby amended to revise the pricing grid therein to read as follows:
Pre-Tax Interest Coverage Annual Commitment Fee - ------------------------- --------------------- >10x 1.00% >7.5x to 10x 1.25% >2.5X TO 7.5X 1.50% (BOLD REFLECT CURRENT PRICING)
B. Subsection 7(c)(EBITDA TO INTEREST EXPENSE) is hereby WAIVED for the periods ending September 30, 2002, December 31, 2002 and March 31, 2003. Effective with the period ending June 30, 2003, the ratio of EBITDA TO INTEREST EXPENSE shall be 2.00 TO 1.00 at June 30, 2003 and 3.00 TO 1.00 at September 30, 2003 and thereafter. Asset Impairment charges for fiscal 2002 will not be included in this calculation. C. Subsection 7(d) (TANGIBLE NET WORTH) is hereby WAIVED for the period ending September 30, 2002. Effective with the period ending December 31, 2002, the required minimum Tangible Net Worth shall be $31,000,000 plus 50% of net income for such fiscal year. D. Subsection 7(e) (TOTAL LIABILITIES TO TANGIBLE NET WORTH) is hereby amended such that the ratio shall be 1.00 TO 1.00 at September 30, 2002 and 1.10 to 1.00 at December 31, 2002 and thereafter. E. Subsection 7(f) (CAPITAL EXPENDITURES) is hereby WAIVED for the period ending September 30, 2002. Effective with the period ending December 31, 2002, CAPITAL EXPENDITURES in any fiscal year shall not exceed a maximum amount of $3,500,000. SECTION III - AMENDMENTS TO PROMISSORY NOTE A. Section (c) of the Promissory Note is hereby amended to revised the pricing grid therein as follows:
Pre-Tax Interest Coverage LIBOR Rate - ------------------------- ---------- >10x LIBOR + 1.25% >7.5x to 10x LIBOR + 1.50% >5.0x to 7.5x LIBOR + 1.75% >2.5x to 5.0x LIBOR + 2.00% 1.0X TO 2.5X LIBOR + 2.25% (BOLD REFLECTS CURRENT PRICING)
SECTION IV - REPRESENTATIONS AND WARRANTIES Borrower hereby represents and warrants to Bank that (A) none of the representations and warranties made in the Credit Agreement, the Reimbursement Agreement or the Promissory Note (collectively, the "Loan Documents") has ceased to be true and complete in any material respect as of the date hereof; and (B) as of the date hereof no "Default" has occurred that is continuing under the Loan Documents. SECTION V - ACKNOWLEDGMENTS CONCERNING OUTSTANDING LOANS Borrower acknowledges and agrees that, as of the date hereof, all of Borrower's outstanding loan obligations to Bank are owed without any offset, deduction, defense, claim or counterclaim of any nature whatsoever. Borrower authorizes Bank to share all credit and financial information relating to Borrower with each of Bank's parent company and with any subsidiary or affiliate company of such Bank or of such Bank's parent company. 2 SECTION VI - REFERENCES On and after the effective date of this Amendment, each reference in the Credit Agreement, the Reimbursement Agreement or the Term Note to "this Agreement", "hereunder", "hereof", or words of like import referring to the Credit Agreement, Reimbursement Agreement or Term Note shall mean and refer to the Credit Agreement, Reimbursement Agreement and Term Note as amended hereby. The Loan Documents, as amended by this Amendment, are and shall continue to be in full force and effect and are hereby ratified and confirmed in all respects. To the extent any amendment set forth in any previous amendment is omitted from this Amendment, the same shall be deemed eliminated as between Borrower and the other parties hereto as of the date hereof. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Bank under the Loan Documents or constitute a waiver of any provision of the Loan documents except as specifically set forth herein. SECTION VII - COUNTERPARTS AND GOVERNING LAW This Amendment may be executed in any number of counterparts, each counterpart to be executed by one or more of the parties but, when taken together, all counterparts shall constitute one agreement. This Amendment, and the respective rights and obligations of the parties hereto, shall be construed in accordance with and governed by Ohio law. IN WITNESS WHEREOF, the Borrower and the Bank have caused this Amendment to be executed by their authorized officers as of the date and year first above written. SIFCO INDUSTRIES, INC. NATIONAL CITY BANK By: /s/ Frank A.Cappello By: /s/ Terry A. Wolford -------------------- -------------------- Name: Frank A. Cappello Name: Terry A. Wolford Title: Vice Present - Finance and Title: Vice President Chief Financial Officer 3 EX-9.1 4 l97786aexv9w1.txt EXHIBIT 9.1 EXHIBIT 9.1 VOTING TRUST EXTENSION AGREEMENT THIS AGREEMENT entered into by and among those holders of Common Shares of SIFCO Industries, Inc. executing and delivering this Agreement ("Shareholders") and JANICE G. CARLSON and CHARLES H. SMITH, III, as Trustees and their successors in trust (said named Trustees and their successors being hereinafter called the "Trustees"); WITNESSES As of February 1, 1997 certain shareholders of SIFCO Industries, Inc. (the "Company") entered into a Voting Trust Agreement (the "Trust Agreement") with respect to their shares of Common Stock in the Company; and Pursuant to Section 14 of the Trust Agreement, the term of Trust Agreement may be extended for an additional period not to exceed ten years upon the concurrence of the holders of Trust Certificates representing not less than 85% of the 2,002,947 shares deposited under the Trust Agreement, (after giving effect to stock dividends issued subsequent to the date of the Trust Agreement, the "Trust Shares"); and The shareholders constituting the holders of Trust Certificates representing not less than 85% of the Trust Shares, wish to extend the term of the Trust Agreement, on the terms and conditions set forth therein, for an additional five (5) years from January 31, 2002. NOW, THEREFORE, each Shareholder of the Company who becomes a party hereto agrees with each of the other such Shareholders for himself and his heirs, administrators, successors and assigns as follows: 1. Extension of Trust Agreement. The Trust Agreement shall be extended, unless sooner terminated on the terms and conditions set forth therein, to January 31, 2007, upon the occurrence prior to January 31, 2002 of the earlier of either: (a) the execution of this Agreement by the holders of not less than 1,702,5005 shares of Common Stock of the Company, such number representing not less than 85% of the Trust Shares, or (b) the presentation to the Company of a certificate signed by the Secretary of the meeting, certifying that at a meeting duly called and held for the purpose of considering an extension, at a place in Cuyahoga County, Ohio, specified in a notice given either by the Trustees or a Trust Certificate holder, not less than ten (10) nor more than thirty (30) days prior to such meeting to each Trust Certificate holder under the Trust Agreement, the holders of Trust Certificates representing not less than eighty-five (85) percent of the Trust Shares voted in favor of this extension. 2. Defined Terms. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Trust Agreement. 3. Execution. This Extension Agreement may be executed in any number of counterparts, each of which, when executed, shall be deemed to be an original and all of which together shall constitute but one and the same instrument. This Extension Agreement shall inure to the benefit of, and be binding upon, all persons executing it and their respective heirs, executors, administrators, legatees and assigns. IN WITNESS WHEREOF, the Trustees have executed and delivered this Extension Agreement and the Shareholders have become parties hereto in the manner herein before provided. TRUSTEES: /s/ Janice G. Carlson /s/ Charles H. Smith, III - --------------------- ------------------------- Janice G. Carlson Charles H. Smith, III 1 VOTING TRUST EXTENSION AGREEMENT TO JANUARY 31, 2007
NUMBER SHAREHOLDER OF SHARES SIGNATURE DATE - ----------- --------- --------- ---- C. H. Smith, Jr. 243,367 /s/ C. H. Smith, Jr 1/14/02 ------------------------- ------- Florence Smith 3,600 /s/ Florence Smith 1/14/02 ------------------------- ------- C. H. Smith Sr. Foundation 75,463 C. H. Smith, Jr., President /s/ C. H. Smith, Jr. 1/14/02 ------------------------- ------- Charles H. Smith, III 59,337 /s/ C.H. Smith, III 1/12/02 ------------------------- ------- Hilda Smith 3,575 /s/ Hilda Smith 1/12/02 ------------------------- ------- Jennifer Smith (Cust) 4,963 /s/ Charles H. Smith, III 1/12/02 ------------------------- ------- Jennifer C. Smith (TTEE) 14,250 /s/ Charles H. Smith, III 1/12/02 ------------------------- ------- Jason Smith (Cust) 4,838 /s/ Charles H. Smith, III 1/12/02 ------------------------- ------- C. Jason Smith (TTEE) 14,250 /s/ Charles H. Smith, III 1/12/02 ------------------------- ------- Hudson D. Smith 73,344 /s/ Hudson D. Smith 1/07/02 ------------------------- ------- Deborah Ann Smith 4,255 /s/ Deborah Smith 1/07/02 ------------------------- ------- Hudson D. Smith, Jr. 4,576 /s/ Hudson D. Smith, Jr. 1/07/02 ------------------------- ------- Hudson D. Smith, Jr. (TTEE) 15,000 /s/ Hudson D. Smith 1/07/02 ------------------------- ------- Cynthia R. Smith (Cust) 4,576 /s/ Hudson D. Smith 1/07/02 ------------------------- ------- Cynthia R. Smith (TTEE) 15,200 /s/ Hudson D. Smith 1/07/02 ------------------------- ------- C. Halle Smith (Cust) 4,576 /s/ Hudson D. Smith 1/07/02 ------------------------- ------- C. Halle Smith (TTEE) 15,200 /s/ Hudson D. Smith 1/07/02 ------------------------- -------
2 VOTING TRUST EXTENSION AGREEMENT TO JANUARY 31, 2007
NUMBER SHAREHOLDER OF SHARES SIGNATURE DATE - ----------- --------- --------- ---- Deborah Morris 61,741 /s/ Deborah Morris 12/25/01 ------------------------- -------- Robert J. Morris, Jr. 225 /s/ Robert J. Morris, Jr 12/25/01 ------------------------- -------- Robert J. Morris, III 18,863 /s/ Robert J. Morris, III 12/25/01 ------------------------- -------- Skylar D. Morris (Cust) 2,250 /s/ Robert J. Morris, III 12/25/01 ------------------------- -------- Ryan C. Morris 11,738 /s/ Ryan C. Morris 12/25/01 ------------------------- -------- Ryan C. Morris (TTEE) 7,125 /s/ Deborah Morris 12/25/01 ------------------------- -------- Kaitlin Morris (Cust) 100 /s/ Ryan C. Morris 12/25/01 ------------------------- -------- Adam Morris 4,613 /s/ Adam Morris 12/25/01 ------------------------- -------- Adam Morris (TTEE) 14,250 /s/ Deborah Morris 12/25/01 ------------------------- -------- Molly D. Morris (Cust) 4,613 /s/ Deborah Morris 12/25/01 ------------------------- -------- Molly D. Morris (TTEE) 14,250 /s/ Deborah Morris 12/25/01 ------------------------- --------
3 VOTING TRUST EXTENSION AGREEMENT TO JANUARY 31, 2007
NUMBER SHAREHOLDER OF SHARES SIGNATURE DATE - ----------- --------- --------- ---- Phyllis S. Gotschall TTEE 304,677 /s/ Phyllis S. Gotschall 12/22/01 ------------------------ -------- George D. Gotschall TTEE 94,088 /s/ Phyllis S. Gotschall 12/22/01 ------------------------ -------- /s/ Jeffrey P. Gotschall 12/13/01 ------------------------ -------- Family Annuity TR #1 43,500 /s/ Phyllis S. Gotschall 12/22/01 ------------------------ -------- /s/ Jeffrey P. Gotschall 12/13/01 ------------------------ -------- Family Annuity TR #2 43,500 /s/ Phyllis S. Gotschall 12/22/01 ------------------------ -------- Jeffrey P. Gotschall 104,700 /s/ Jeffrey P. Gotschall 12/2/01 ------------------------ -------- Dianne Gotschall 400 /s/ Dianne Gotschall 12/2/01 ------------------------ -------- Judith A. Gotschall 10,375 /s/ Judith A. Gotschall 12/9/01 ------------------------ -------- Andrew C. Gotschall 10,375 /s/ Andrew C. Gotschall1 2/14/01 ------------------------ -------- Charles H. Gotschall (Cust) 10,375 /s/ Jeffrey P. Gotschall 12/13/01 ------------------------ -------- Craig Ramsey 7,400 /s/ Craig Ramsey 12/13/01 ------------------------ -------- Alison Ramsey 7,400 /s/ Alison Ramsey 12/13/01 ------------------------ --------
4 VOTING TRUST EXTENSION AGREEMENT TO JANUARY 31, 2007
NUMBER SHAREHOLDER OF SHARES SIGNATURE DATE - ----------- --------- --------- ---- Janice G. Carlson 66,099 /s/ Janice G. Carlson 12/26/01 ---------------------- -------- Christie L. Lennen 10,375 /s/ Christie L. Lennen 12/10/01 ---------------------- -------- David E. Fulcher 10,375 /s/ David E. Fulcher 12/21/01 ---------------------- -------- Laura G. Gifford 58,844 /s/ Laura G. Gifford 12/04/01 ---------------------- -------- Robert V. Gifford, Jr. (Cust) 7,000 /s/ Laura G. Gifford 12/04/01 ---------------------- -------- Robert V. Gifford, Jr. (TTEE) 9,450 /s/ Laura G. Gifford 12/04/01 ---------------------- -------- Terry G. Gifford (Cust) 7,800 /s/ Laura G. Gifford 12/04/01 ---------------------- --------
5 VOTING TRUST EXTENSION AGREEMENT TO JANUARY 31, 2007
NUMBER SHAREHOLDER OF SHARES SIGNATURE DATE - ----------- --------- --------- ---- National City Bank, and its successors, as trustee of Fund A-1 under the trust agreement between Rhea D. Smith and National City Bank as trustee dated December 8, 1981 as amended and restated on September 16, 1989 112,356 /s/ Maurice Condon, Jr 2/17/01 ---------------------- -------- National City Bank, and its successors, as trustee of Fund B under the trust agreement between Rhea D. Smith and National City Bank as trustee dated December 8, 1981 as amended and restated on September 16, 1989 41,313 /s/ Maurice Condon, Jr 12/17/01 ---------------------- -------- National City Bank TTEE U/A FRW/CHS #33-3443034 171,202 /s/ Maurice Condon, Jr 12/17/01 ---------------------- -------- National City Bank TTEE U/A FRW/PSG #33-3443026 171,207 /s/ Maurice Condon, Jr 12/17/01 ---------------------- --------
6 EX-9.2 5 l97786aexv9w2.txt EXHIBIT 9.2 EXHIBIT 9.2 VOTING TRUST AGREEMENT THIS AGREEMENT executed this 15th day of January 1997 effective as of the 1 st day of February 1997 (hereinafter referred to as the "Effective Date"), by and between those holders of Common Shares of SIFCO Industries, Inc. who sign this Agreement (hereinafter sometimes collectively called the "Signing Shareholders" and individually called "Signing Shareholder"), and JANICE CARLSON and CHARLES H. SMITH, III, as Trustees and their successors in trust (said named Trustees and their successors being hereinafter called the "Trustees"); WITNESSES THAT: WHEREAS, each Signing Shareholder represents that he (the masculine pronoun wherever used in this Agreement being intended to include the feminine) owns the number of Common Shares of the Company set opposite his signature below and deems it to be in his best interest to renew, continue and extend the Voting Trust Agreement in effect with respect to his shares of the Company and maintain on deposit hereunder the certificates evidencing his ownership of said shares in order to continue the stability of management of the Company which the Signing Shareholders believe should be continued for the benefit and protection of the Company and its present and future shareholders; NOW, THEREFORE, the Signing Shareholders hereof agree each with the others, and each for himself and his heirs, administrators, successors and assigns as follows: 1. Deposit of Share Certificates. As with the Voting Trust Agreements in the past, each Signing Shareholder will continue to have their Common Shares of the Company on deposit with the Trustees a certificate or certificates (hereinafter called "share certificates") for the number of Common Shares of the Company set opposite his signature below, so endorsed or accompanied by such instrument or instruments of transfer as to maintain ownership of said shares in theTrustees; and shall likewise deposit hereunder each and every share certificate for Common Shares of the Company which he may hereafter acquire. 2. Delivery of Trust Certificates. The Trustees have heretofore, and from time to time in the future, upon the deposit with the Trustees by a Signing Shareholder of new share certificates acquired by him, and upon his payment of any and all transfer taxes required in connection therewith, the Trustees will deliver, or cause to be delivered, to such Signing Shareholder voting trust certificates (hereinafter called "Trust Certificates") for the number of Common Shares so deposited in substantially the form shown in Exhibit A, attached hereto and made a part hereof. 3. Transfer of Trust Certificates. Each Trust Certificate issued hereunder and the interest in shares represented thereby shall be transferable only upon the books of the Trustees by the registered holder in person or by attorney upon surrender of the same properly endorsed or accompanied by a properly executed instrument of transfer and upon payment of any transfer taxes payable on such transfer, and in accordance with rules established for that purpose by the Trustees. Each transfer so made shall vest in the transferee all right and interest of the transferor in and under the Trust Certificate and this Agreement with respect to the number of shares which the endorsement or transfer evidences; and thereupon the Trustees will deliver, or cause to be delivered, to the person or persons entitled, a new Trust Certificate or Certificates for the number or numbers of interests in Common Shares of the Company indicated by the endorsement or instrument of transfer. Until such transfer, the Trustees may treat the registered holder of a Trust Certificate as the owner thereof for all purposes whatsoever. The transfer books for the Trust, Certificates may be closed by the Trustees at any time prior to the payment or distribution of dividends or for any other purpose. Each transferee of a Trust Certificate issued hereunder shall by the acceptance of a Trust Certificate become a party hereto with like effect as though a Signing Shareholder and shall be embraced within the meaning of the terms "Trust Certificate holder" or "holder of a Trust Certificate" wherever used herein. 4. Lost Trust Certificate. The holder of any Trust Certificate shall immediately notify the Trustees of any loss, destruction or mutilation of the same, and the Trustees may, in their discretion, cause a new Trust Certificate to be issued to such holder for the same number of shares either upon the surrender of the mutilated certificate or, in the case of loss or destruction, upon satisfactory proof thereof and the giving of a bond in such form and amount and with such sureties, if any, as the Trustees may require. 5. Title and Rights of Trustees. Title to all Common Shares of the Company deposited hereunder shall remain vested in the Trustees, and title to any new shares deposited hereunder may be transferred to the Trustees or their nominees on the books of the Company, provided that as holders of such shares the Trustees assume no liability as shareholders of the Company, their interest therein and hereunder being as Trustees only. Nonetheless the Trustees shall, in respect of all shares so held by them, possess and be entitled to exercise, in their discretion, all rights of common shareholders of every kind and character, including, but not limited to, the right to receive dividends on said shares, the right to vote by proxy or otherwise such shares and to take part in or consent in writing or otherwise to any corporate or shareholders' action, including, but not limited to, the adoption of any amended Articles of Incorporation or regulations of the Company or any amendment to such Articles or regulations, the election of directors of the Company, the dissolution of the Company, the 1 merger or consolidation of the Company with any other corporation, the sale or other disposition of all, or substantially all, of the assets of the Company or the creation of any new class of shares having priority over the Common Shares in respect of dividends or liquidating distributions or otherwise; except that they shall not sell, pledge, hypothecate, mortgage or place a lien or charge upon any of the shares deposited hereunder or subject hereto. 6. Dividend and Comparable Rights of Trust Certificate Holder. The registered holder of each Trust Certificate shall be entitled to receive as soon as practicable after the receipt by the Trustees of each dividend on the shares hereunder, the amount of the dividend so received by the Trustees in cash or in kind upon the number of Common Shares specified in each Trust Certificate; provided that the Trustees may, in their discretion, authorize and empower the Company or its dividend disbursing agent to make payment or distribution of such dividend directly to the registered holders of the outstanding Trust Certificates. However, in the event that the Company shall issue any voting shares of the Company by way of a stock split or a stock dividend then such voting shares so issuable with respect to all shares held by the Trustees shall be received and held by the Trustees and shall be deemed for all the purposes of this Agreement to have been deposited hereunder, and the Trustees shall issue to each registered holder of a Trust Certificate an additional Trust Certificate evidencing his appropriate interest in the number of voting shares so received and held. For the purposes of this Agreement, no shares having voting rights only in certain events (such as, but not limited to, the occurrence of a default in the payment of preferential dividends) shall be deemed to be voting shares. 7. Subscription Rights. In case any stock or other securities of the Company are offered for subscription to the holders of shares of the Company deposited hereunder, the Trustees, promptly upon receipt of notice of such offer, shall mail or deliver a copy thereof to each registered holder of a Trust Certificate. If at least five (5) days prior to the last day on which such subscription can be made, the Trustee shall receive a request from any Trust Certificate holder to subscribe in his behalf for a stated amount of such stock or securities, together with the sum of money required to pay for the same, the Trustees shall make such subscription and the necessary payment, and upon receiving from the Company the stock or securities so subscribed for, shall issue to such Trust Certificate holder a new Trust Certificate in respect thereof if the same be voting shares, but if the same not be voting shares the Trustees shall mail or deliver the stock or securities received from the Company to the Trust Certificate holder in whose behalf the subscription is made or may instruct the Company to make delivery thereof directly to said Trust Certificate holder; provided, however, that if the aggregate amount of such stock or securities which the Trustees shall be so requested to subscribe for shall exceed the total amount which the Trustees have the right to subscribe for as shareholders of the Company under the terms of the Company's offer, then the Trustees shall first, on behalf of each requesting Trust Certificate holder, subscribe for that amount which, under the terms of the Company's offer, he would have had the right to subscribe for if he had held directly the number of shares represented by his Trust Certificate or Certificates; and any balance of such stock or securities then additionally available for subscription by the Trustees shall be subscribed for on behalf of each additionally requesting Trust Certificate holder in the proportion which the amount of his additional request bears to the total amount of additional requests received by the Trustees. 8. Dissolution of Company. In the event of the dissolution or total or partial liquidation of the Company, whether voluntary or involuntary, the Trustees shall receive the moneys, securities, rights or property to which the holders of shares of the Company deposited hereunder are entitled and shall distribute the same among the registered holders of the Trust Certificates in proportion to their interests as shown by the Trustees' books, or the Trustees may in their discretion deposit the same with any bank or trust company doing business in Cleveland, Ohio, with instructions to distribute the same as above provided, and upon such deposit all further obligations or liabilities of the Trustees in respect of the moneys, securities, rights or property so deposited shall cease. 9. Reorganization of Company. In the event the Company is merged into or consolidated with another corporation or all or substantially all of the assets of the Company are transferred to another corporation, then and thereafter the term "Company" for all purposes of this Agreement shall be taken to include such other corporation, and the Trustees shall receive and hold under this Agreement any. voting. shares of such other corporation received on account of the stock held hereunder prior to such merger, consolidation or transfer. Trust Certificates issued and outstanding under this Agreement at the time of such merger, consolidation, or transfer may remain outstanding or the Trustees may, in their discretion, substitute for such Trust Certificates new Trust Certificates in appropriate form, the term "shares" as used herein shall be taken to include any stock which may be received by the Trustees in lieu of all or any part of the shares of the Company theretofore deposited hereunder. 10. Action by Trustees. No action will be taken without the agreement of both Trustees. In the event the Trustees are unable to come to agreement, the issue will be decided by a vote of all the Trust Certificate holders, with a simple majority necessary for passage. 11. Receipts and Safekeeping. George D. Gotschall, or such other person, either corporate or individual, as the Trustees may from time to time appoint for the purpose, shall have the authority and responsibility as agent of the Trustees for receiving and safekeeping share certificates, securities and other property or money deposited with or from time to time held by the Trustees. Such person shall also be responsible for issuing Voting Trust Certificates to the shareholders and notifying the Company's transfer agent of any changes of records with respect to dividends. 12. Privileges and Responsibilities of Trustees. In voting the shares deposited hereunder or in doing any act with respect to the control or management of the Company or its affairs or in otherwise acting hereunder, the Trustees shall 2 exercise their best judgment; but they assume no responsibility in respect to any action taken by them or their agents, and no Trustee shall incur any responsibility for any error or deed of commission or omission except for his own willful misconduct. No Trustee shall be required to give any bond or other security for the discharge of his duties. Any Trustee may act as a director or officer of the Company or of any affiliated company and may vote for himself as such director or officer, and he or any company or firm with which he may be connected as shareholder, director, officer or partner or otherwise may contract with the Company or with any company or firm affiliated with it or be or become pecuniarily interested in any matter or action to which the same may be a party or in which the same may in any way be interested as fully as though he were not a Trustee. Any Trustee may be a holder of or interested in Trust Certificates issued hereunder. 13. Successor Trustees. Each Signing Shareholder shall, after his signature, add the last initial of the ancestor of such Signing Shareholder who was a child of Charles H. Smith, Sr. A Trustee may only be removed by a writing signed by a majority in interest of the Certificate holders who are issue (including children by adoption), spouse or spouse of issue of the same child of Charles H. Smith, Sr. as the original named Trustee or the Trustee with respect to whom the Trustee is a successor. Any Trustee may resign in writing. Any such resignation or removal shall take effect at a time fixed in the writing not less than thirty (30) days after the same is delivered to the other Trustees or Trustee, or at such earlier time as shall be accepted by all of the Trustees. Upon any such resignation, removal or the death or incapacity of a Trustee to act, the vacancy so occurring shall be filled by a person elected by the majority in interest of the Certificate holders who are issue (including children by adoption), spouse or spouse of issue of the same child of Charles H. Smith, Sr. as the original named Trustee. Such election shall be made at a meeting called by the remaining Trustees or Trustee for that purpose by notice given to each Certificate holder eligible to vote not less than ten (10) nor more than thirty (30) days prior thereto. Each and every successor Trustee elected in accordance with this paragraph shall have the powers, duties, privileges, responsibilities and authority of an original Trustee named herein. No Trustee shall be liable for the acts or omissions of any predecessor Trustee. 14. Period of Trust. This Agreement shall continue in force for a period of five (5) years from the date first above written unless sooner terminated as hereinafter provided, and may be extended for an additional period of not more than ten (10) years by depositing with the Trustees on or before the expiration of the original five (5) year period either (a) an agreement of extension, which may be executed in one instrument or in several counterparts, signed by the holders of Trust Certificates representing not less than eighty-five percent (85%) of the shares deposited hereunder, or (b) a certificate signed by the Secretary of the meeting, certifying that at a meeting duly called and held for the purpose of considering such extension, at a place in Cuyahoga County, Ohio, specified in a notice given either by the Trustees, or a Trust Certificate holder, not less than ten (10) nor more than thirty (30) days prior to such meeting to each Trust Certificate holder hereunder, the holders of Trust Certificates representing not less than eighty-five percent (85%) of the shares deposited hereunder voted in favor of said extension. Such extension of this Agreement shall be binding upon all Trust Certificate holders. Any Trust Certificate holder shall, during reasonable business hours, have access to the books of the Trustees containing the record of the name and addresses of Trust Certificate holders and the number of shares represented by their certificates. 15. Early Termination. At any time during the original five (5) year period, or any extension thereof, the Trustees may terminate this trust by notice to the certificate holders, which notice shall provide for the time and manner of delivery of certificates for shares of stock of the Company upon surrender of the Trust Certificates. 16. Partial Return of Shares. At any time or times before the termination of this trust, the Trustees may return any number of shares of the Company deposited with them to a Trust Certificate holder or holders free and clear of the trust, provided that the following procedure shall be observed. The Trustees shall first notify all the Trust Certificate holders in writing of the number of shares which they intend to return. Within thirty (30) days after the receipt of such notice, each Trust Certificate holder who wishes any of his shares to be returned to him shall surrender his Trust Certificate or Certificates to the Trustees for cancellation in an amount equivalent to the number of shares he wishes returned. If the total number of shares for which Trust Certificates are so surrendered within such thirty (30) days is not more than the total number of shares the Trustees have decided to return, they shall cancel each Trust Certificate so surrendered in an amount equivalent to the number of shares to be returned to the holder of that certificate and shall cause a stock certificate or certificates for that number of shares of stock of the Company to be issued and delivered to him or his nominee. If the total number of shares for which Trust Certificates are so surrendered within such thirty (30) days is more than the total number of shares the Trustees have decided to return, they shall cancel each Trust Certificate so tendered in an amount equivalent to that proportion of the number of shares requested by that holder which the number of shares they have decided to return bears to the total number of shares requested by all Trust Certificate holders who tender their Trust Certificates. In no event before termination of the trust shall the Trustees return any shares to a certificate holder who has not tendered his Trust Certificate for cancellation. 17. Amendments. If at any time the Trustees shall deem it desirable to amend this Agreement in any respect, they shall submit such amendment to the Trust Certificate holders for their approval at a meeting of such holders which shall be called for that purpose, notice of which shall be given not less than ten (10) nor more than thirty (30) days prior to such meeting, and shall state that the purpose of the meeting is to consider the amendment of this Agreement and shall be accompanied by a copy of the proposed amendment. If at such meeting the proposed amendment, or any modification thereof, shall be approved by the affirmative vote, given in person or by proxy, of the holders of Trust Certificates representing eighty-five percent (85%) or more of the shares then deposited under this Agreement, a certificate to that effect 3 shall bee signed by the Secretary of the meeting and filed with the Trustees. Upon such approval and the filing of said certificate, the amendment as so approved shall be and become a part of this Agreement and shall be binding upon all Trust Certificate holders with like force and effect as if originally incorporated herein. 18. Delivery of Shares on Termination. (a) Upon termination of this Agreement, whether by expiration of time or the act of the Trustees as hereinabove provided, the Trustees shall deliver to each Trust Certificate holder upon surrender of his Trust Certificates accompanied, if required by the Trustees, by properly executed transfers thereof to the Trustees and upon payment by such holder of any and all transfer taxes payable on such transfer, a certificate or certificates for Common Shares of the stock of the Company either registered in the name of the Trust Certificate holder or endorsed in blank or for transfer to the name of such holder or his nominee for the number of shares represented by the Trust Certificate or Certificates so surrendered. (b) In case, on or after the termination of this Agreement, the Trustees shall deposit with any bank or trust company in Cuyahoga County, Ohio , share certificates either properly endorsed in blank or registered in the names of holders of Trust Certificates hereunder, each for the number of Common Shares of the Company represented by a Trust Certificate outstanding, with authority in writing to the bank or trust company to deliver said share certificates in exchange for Trust Certificates when and as surrendered for exchange as hereinabove provided and shall give not less than ten (10) days notice thereof to all Trust Certificate holders affected thereby, then all further liability of the Trustees, and each of them, for the delivery of share certificates in exchange for Trust Certificates or otherwise hereunder shall cease. (c) At any annual or special meeting of the shareholders of the Company and after termination of this Agreement, the Trustees may, but shall not be required to, vote any shares of the Company then standing in their names on the books of the Company deliverable to the holders of Trust Certificates who shall not have presented their Trust Certificates for exchange as hereinabove provided. 19. Notice. Each notice provided for in this Agreement shall be in writing and signed by the person giving the same or his duly authorized representative, except that a parent or guardian may sign for a minor child, and a notice by the Trustees shall be signed by not less than a majority of the Trustees then qualified to act; and each such notice shall either be delivered personally to the person to whom it is addressed or shall be mailed to him, postage prepaid, to his last known residence address, provided that personal delivery to a parent or guardian of a minor child shall be sufficient delivery to the child, and further provided that a notice to any one Trustee shall be sufficient notice to all, unless only one Trustee has received the notice and that Trustee has the same initial after his signature as does the person giving the notice. 20. Partial Invalidity. The invalidity or nonenforceability of any term or provision of this Agreement or of the Trust Certificates shall not in any way impair or affect the balance thereof, which shall remain in full force and effect. 21. Ohio Law. This Agreement and the Trust Certificates shall be construed in accordance with and shall be governed by the laws of the State of Ohio. 22. Execution. This Agreement may be executed in any number of counterparts, each of which, when executed, shall be deemed to be an original and all of which together shall constitute but one and the same instrument; provided that this Agreement shall not become effective until and unless it shall have been so executed by the holders of at least 1,350,000 shares, and thereupon this Agreement shall inure to the benefit of, and be binding upon, all persons executing it and their respective heirs, executors, administrators, legatees and assigns. IN WITNESS WHEREOF, the Trustees have signed this Voting Trust Agreement as of the day and year first above written, and the Signing Shareholders have become parties hereto in the manner hereinbefore provided. /s/ Janice Carlson ------------------------- Janice Carlson /s/ Charles H. Smith, III ------------------------- Charles H. Smith, III 4 VOTING TRUST AGREEMENT FROM FEBRUARY 1, 1997 TO JANUARY 31, 2002
NUMBER SHAREHOLDER OF SHARES - ----------- --------- /s/ C.H. Smith, Jr. 273,267 CHS - ------------------------- C.H. Smith, Jr. /s/ Florence Smith 1,500 CHS - ------------------------- Florence Smith National City Bank, and its successors, as trustee of Fund A-1 under the trust agreement between Rhea D. Smith and National City Bank as trustee dated December 8, 1981 as amended and restated on September 16, 1989 By: /s/ E.J. Etowski, Jr. 112,354 CHS - ------------------------- Senior Vice President National City Bank, and its successors, as trustee of Fund B under the trust agreement between Rhea D. Smith and National City Bank as trustee dated December 8, 1981 as amended and restated on September 16 1989. By: /s/ E.J. Etowski, Jr. 41,313 CHS - ------------------------- Senior Vice President
5 VOTING TRUST AGREEMENT FROM FEBRUARY 1, 1997 TO JANUARY 31, 2002
NUMBER SHAREHOLDER OF SHARES - ----------- --------- /s/ C. H. Smith, III 57,237 CHS - --------------------------------------- C. H. Smith, III /s/ C. H. Smith, III 2,863 CHS - --------------------------------------- C. H. Smith, III, Cust UGMA Ohio fbo Jennifer C. Smith /s/ C. H. Smith, III Trustee 14,250 CHS - --------------------------------------- C. H. Smith, III, TTEE U/A dtd 09/16/89 fbo Jennifer C. Smith /s/ C. H. Smith, III 2,738 CHS - --------------------------------------- C.H. Smith, III, Cust UGMA Ohio fbo C. Jason Smith /s/ C. H. Smith, III Trustee 14,250 CHS - --------------------------------------- C. H. Smith, III, TTEE U/A dtd 09/16/89 fbo C. Jason Smith /s/ Hilda Decema Smith 1,575 CHS - --------------------------------------- Hilda Decema Smith
6 VOTING TRUST AGREEMENT FROM FEBRUARY 1, 1997 TO JANUARY 31, 2002
NUMBER SHAREHOLDER OF SHARES - ----------- --------- /s/ Deborah Potantus 59,741 CHS - ------------------------- Deborah Potantus /s/ Robert J. Morris, III 9,738 CHS - ------------------------- Robert J. Morris, III /s/ Deborah Potantus 7,125 CHS - ------------------------- Deborah Potantus, TTEE U/A dtd fbo Robert J. Morris, III /s/ Robert J. Morris III 250 CHS - ------------------------- Robert J. Morris, III, Cust UGMA Ohio fbo Skyler D. Morris /s/ Ryan C. Morris 2,613 CHS - ------------------------- Ryan C. Morris /s/ Deborah Potantus 14,250 CHS - ------------------------- Deborah Potantus TTEE U/A dtd 09/16/89 fbo Ryan C. Morris /s/ Deborah Potantus 2,613 CHS - ------------------------- Deborah Potantus, Cust UGMA Ohio fbo Adam J. Morris /s/ Deborah Potantus 14,250 CHS - ------------------------- Deborah Potantus, TTEE U/A dtd 09/16/89 fbo Adam J. Morris /s/ Deborah Potantus 2,613 CHS - ------------------------- Deborah Potantus, Cust UGMA Ohio fbo Molly D Morris /s/ Deborah Potantus 14,250 CHS - ------------------------- Deborah Potantus, TTEE /A dta 09/16/89 fbo Molly D. Morris
7 VOTING TRUST AGREEMENT FROM FEBRUARY 1, 1997 TO JANUARY 31, 2002
NUMBER SHAREHOLDER OF SHARES - ----------- --------- /s/ Robert J. Morris, Jr. 225 CHS - ------------------------- Robert J. Morris, Jr.
8 VOTING TRUST AGREEMENT FROM FEBRUARY 1, 1997 TO JANUARY 31, 2002
Number Shareholder of Shares - ----------- --------- /s/ Hudson D. Smith 67,250 CHS - ------------------- Hudson D. Smith /s/ Deborah Ann Smith 2,205 CHS - --------------------- Deborah Ann Smith /s/ Hudson D. Smith 2,426 CHS - ------------------- Hudson D. Smith, Cust for UGMA Ohio fbo Hudson D. Smith, Jr. /s/ Hudson D. Smith 15,000 CHS - ------------------- Hudson D. Smith, TTEE U/A dtd 09/16/89 fbo Hudson D. Smith /s/ Hudson D. Smith 2,426 CHS - ------------------- Hudson D. Smith, Cust UGMA Ohio fbo Cynthia Rhea Smith /s/ Hudson D. Smith 15,000 CHS - ------------------- Hudson D. Smith, TTEE U/A dtd 09/16/89 fbo Cynthia Rhea Smith /s/ Hudson D. Smith 2,426 CHS - ------------------- Hudson D. Smith, Cust UGMA Ohio fbo Christina Halle Smith /s/ Hudson D. Smith 15,000 CHS - ------------------- Hudson D. Smith, TTEE U/A dtd 09/16/89 fbo Christina Halle Smith signed on Jan. 7, 1997
9 VOTING TRUST AGREEMENT FROM FEBRUARY 1, 1997 TO JANUARY 31, 2002
Number Shareholder of Shares - ----------- --------- /s/ Phyllis S. Gotschall 433,719 PSG - ------------------------ Phyllis S. Gotschall, TTEE U/TR dtd 6/24/87 Phyllis S. Gotschall, Grantor /s/ George D. Gotschall 137,588 PSG - ----------------------- George D. Gotschall, TTEE, U/TR dtd 6/24/87 George D. Gotschall, Grantor /s/ Jeffrey P. Gotschall 87,755 PSG - ------------------------ Jeffrey P. Gotschall /s/ Dianne Gotschall 400 PSG - -------------------- Dianne Gotschall /s/ Judith A. Gotschall 3,375 PSG - ----------------------- Judith A. Gotschall /s/ Jeffrey P. Gotschall 3,375 PSG - ------------------------ Jeffrey P. Gotschall, Cust UGMA Ohio fbo Andrew C Gotschall /s/ Jeffrey P. Gotschall 3,375 PSG - ------------------------ Jeffrey P. Gotschall, Cust UGMA Ohio fbo Charles H. Gotschall /s/ Craig Ramsey 400 PSG - ---------------- Craig Ramsey /s/ Jeffrey P. Gotschall 400 PSG - ------------------------- Jeffrey P. Gotschall, Cust UGMA Ohio fbo Alison Ramsey
10 VOTING TRUST AGREEMENT FROM FEBRUARY 1, 1997 TO JANUARY 31, 2002
Number Shareholder of Shares - ----------- --------- /s/ Janice G. Carlson 59,099 PSG - --------------------- Janice G. Carlson /s/ Christie L. Fulcher 3,375 PSG - ---------------------- Christie L. Fulcher /s/ Janice G. Carlson 2,633 PSG - --------------------- Janice G. Carlson, Cust UGMA Ohio fbo David E. Fulcher /s/ Laura G. Gifford 51,844 PSG - -------------------- Laura G. Gifford /s/ Laura G. Gifford 9,450 PSG - -------------------- Laura G. Gifford, Cust UGMA Ohio fbo Robert V. Gifford, Jr.
11 VOTING TRUST AGREEMENT FROM FEBRUARY 1, 1997 TO JANUARY 31, 2002
Number Shareholder of Shares - ----------- --------- National City Bank TTEE U/A FRW/CHS #33-3443034 171,202 CHS By /s/ E.J. Etowski, Jr. - ------------------------ SENIOR VICE PRESIDENT National City Bank TTEE U/A 171,207 PSG FRW/PSG #33-3443026 By /s/ E.J. Etowski, Jr. - ------------------------ SENIOR VICE PRESIDENT
12 VOTING TRUST AGREEMENT FROM FEBRUARY 1, 1997 TO JANUARY 31, 2002
Number of Shareholder Shares - ----------- ------ Charles Henry Smith, Sr. Foundation 77,963 By /s/ C.H. Smith, Jr. - ---------------------- C.H. Smith, Jr., President /s/ Phyllis S. Gotschall - ------------------------ Phyllis S. Gotschall, Vice President /s/ Marilyn F. Scott - -------------------- Marilyn F. Scott, Vice President /s/ George D. Gotschall - ----------------------- George D. Gotschall, Secretary-Treasurer
13 SUMMARY VOTING TRUST CERTIFICATE DISTRIBUTION FEBRUARY 1, 1997
INDIVIDUAL SHARES SUBTOTAL TOTAL % - ---------- ------ -------- ------- C.H. Smith, Jr. 273,267 Florence Smith 1,500 National City Bank Fund A RDS 112,354 National City Bank Fund B RDS 41,313 FRW Trust, CHS 171,202 - ------------------------------------------------- Subtotal Beneficial Family 599,636 11.70% - -------------------------------------------------------------------------------- C.H. Smith, III 57,237 Hilda Smith 1,575 Jennifer C. Smith (Cust) 2,863 Jennifer C. Smith (TTEE) 14,250 C. Jason Smith (Cust) 2,738 C. Jason Smith (TTEE) 14,250 Deborah Potantus 59,741 Robert J. Morris, Jr. 225 Robert J. Morris, III 9,738 Robert J. Morris, III (TTEE) 7,125 Skyler D. Morris 250 Ryan C. Morris 2,613 Ryan C. Morris (TTEE) 14,250 Adam J. Morris (Cust) 2,613 Adam J. Morris (TTEE) 14,250 Molly D. Morris (Cust) 2,613 Molly D. Morris (TTEE) 14,250 Hudson D. Smith 67,250 Deborah Ann Smith 2,205 Hudson D. Smith, Jr. (Cust) 2,426 Hudson D. Smith, Jr. (TTEE) 15,000 Cynthia Rhea Smith (Cust) 2,426 Cynthia Rhea Smith (TTEE) 15,000 Christina Halle Smith (Cust) 2,426 Christina Halle Smith (TTEE) 15,000 - ------------------------------------------------- Subtotal Other Family 342,314 6.68% - -------------------------------------------------------------------------------- Total Smith Family 941,950 18.37% ================================================================================
14
INDIVIDUAL SHARES SUBTOTAL TOTAL % - ---------- ------ -------- ------- Phyllis S. Gotschall (TTEE) 433,719 George D. Gotschall (TTEE) 137,588 FRW Trust, PSG 171,207 Subtotal Beneficial Holdings 742,514 14.48% - -------------------------------------------------------------------------------- Jeffrey P. Gotshall 87,755 Janice G. Carlson 59,099 Laura G. Gifford 51,844 Dianne Gotschall 400 Chiistie L. Fulcher 3,375 David E. Fulcher (Cust) 2,633 Judith A. Gotschall 3,375 Andrew C. Gotschall (Cust) 3,375 Charles H. Gotschall (Cust) 3,375 Robert V. Gifford Jr. (Cust) 9,450 Craig Ramsey 400 Alison Ramsey (Cust) 400 Subtotal Other Family 225,481 4.40% - -------------------------------------------------------------------------------- Total Gotshall Family 967,995 18.88% ================================================================================
15 EX-10.9 6 l97786aexv10w9.txt EXHIBIT 10.9 EXHIBIT 10.9 SIFCO INDUSTRIES, INC. CHANGE IN CONTROL SEVERANCE AGREEMENT THIS AGREEMENT is made between SIFCO Industries, Inc. (the "Company"), and Timothy V. Crean (the "Executive"), dated as of the 30 day of July, 2002. 1. PURPOSE OF THIS AGREEMENT. The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change in Control (as defined in Section 2(c)) of the Company, and the uncertainties and risks that a Change in Control would pose for the Executive. To this end, the Board desires to encourage the Executive's full attention and dedication to the Company, currently and in the event of any threatened or pending Change in Control, and to provide the Executive with compensation and benefits arrangements upon a Change in Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other similar corporations. 2. DEFINITIONS. Whenever used herein, the following terms shall have the meanings set forth below: a.) "Beneficiary" means the person or entity designated by the Executive (on Exhibit B hereto) to receive payment of any benefits hereunder that are or may be payable after the Executive's death. The Executive may change his or her designation of Beneficiary by filing a revised Exhibit B with the Company prior to his or her death. b.) "Cause" means any of the following: (i) the Executive's engagement in unlawful acts intended to result in substantial personal enrichment to the Executive at the Company's expense; (ii) the Executive's engagement in a material breach of his or her responsibilities to the Company that results in a material injury to the Company other than any such breach resulting from the Executive's incapacity due to illness or injury or in connection with an actual or anticipated termination of employment with the Company by the Executive for Good Reason; or (iii) an act or acts by the Executive which have been found in an applicable court to constitute a felony. c.) "Change in Control" means any of the following events: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either (A) the then-outstanding common shares of the Company other than those held by the Voting Trust (the "Outstanding Company Common Shares") or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors other than that represented by shares held by the Voting Trust (the "Outstanding Company Voting Securities"); but for purposes of this subsection (i), the following acquisitions of voting securities shall not constitute a Change in Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2; or (ii) Individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; but any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding from the Incumbent Board, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or 1 (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Shares and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50%, respectively, of the then-outstanding common shares and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries), (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 50% or more of, respectively, the then-outstanding common shares of the corporation resulting from such Business Combination, or the combined voting power of the then-outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Disability" means an illness or injury which, in the opinion of the Board, renders the Executive unable or incompetent to perform the job responsibilities which the Executive held or the job duties to which the Executive was assigned at the time such illness or injury was incurred, on a full-time basis for at least six (6) consecutive months. (f) "Good Reason" means the occurrence of only one or more of the following events provided that the Executive specifically agrees in writing that such event shall constitute Good Reason: (i) there is a change in the Executive's status or position with the Company that, in the Executive's reasonable judgment, represents an adverse change from his or her status or position immediately before the Change in Control, including a change in the principal place of the Executive's employment that does not conform with the Company's present policies for executive relocation, but excluding required travel to an extent substantially consistent with the Executive's business travel obligations immediately before the Change in Control; (ii) the Executive is assigned any duties or responsibilities that, in the Executive's reasonable judgment, are inconsistent with the Executive's status or position immediately before the Change in Control; (iii) the Executive is subject to a layoff by the Company or the Executive's employment with the Company is involuntarily terminated other than for Cause by the Company or due to the Executive's Disability, death or retirement; (iv) there is a reduction by the Company in the Executive's total compensation as in effect at the time of the Change in Control (i.e., the Executive's base salary plus the most recent award that the Executive earned under the Company's Incentive Compensation Plan) or as the same may be increased from time to time; (v) the Company fails to continue in effect any compensation plan, employee benefit plan, or other plan, program or policy of the Company that is intended to materially benefit the Company's employees (each a "Plan"), in which the Executive was participating at the time of the Change in Control, other than as a result of the normal expiration of such Plan in accordance with its terms in effect at the time of the Change in Control; or (vi) the Company takes any action or fails to take any action that would: (A) adversely affect the Executive's continued participation in any Plan on at least as favorable a basis as was the case at the time of the Change in Control; (B) materially reduce the Executive's benefits in the future under any Plan; or (C) deprive the Executive of any material benefits that the Executive enjoyed at the time of the Change in Control; except to the extent that such action or inaction by the Company is required by the terms of the Plan as in effect immediately before the Change in Control or is necessary to comply with the applicable law, and except to the extent that the Company provides the Executive with substantially equivalent benefits; 2 (vii) there is a material violation by the Company of any agreement with the Executive; or (viii) without the Executive's consent, the Company fails to pay the Executive any portion of his or her current or deferred compensation within thirty (30) days after the Executive provides written notification to the Company that payment is past due. (g) A "Qualifying Termination" is deemed to have occurred for purposes of this Agreement if there is a Change in Control and, within two (2) years after the Change in Control, the Executive's employment with the Company is either involuntarily terminated by the Company without Cause or the Executive terminates employment with the Company for Good Reason (h) "Voting Trust" means that certain voting trust entered into by agreement dated as of February 1, 1997, as amended on February 1, 2002, into which Common Shares of the Company have been deposited and with respect to which, as of the date hereof, Janice Carlson and Charles H. Smith, III are trustees. 3. NOTICE OF CHANGE IN CONTROL. The Company shall provide the Executive with written notice of the occurrence of a Change in Control in accordance with Section 13(b) of this Agreement within two (2) weeks after such Change in Control. 4. NOTICE OF TERMINATION. (a) Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (b) For purposes of this Agreement, "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date (within thirty (30) days after that date) specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company, other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the disability effective date, as the case may be. 5. BENEFITS UPON TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL. In the event of a Qualifying Termination, the Executive shall receive the benefits described in Exhibit A attached hereto. 6. DEATH. Notwithstanding any provision of this Agreement to the contrary, if the Executive's employment is terminated by reason of the Executive's death, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement. 7. DISABILITY. Notwithstanding any provision of this Agreement to the contrary, if the Executive's employment is terminated by reason of the Executive's Disability, this Agreement shall terminate without further obligations to the Executive. 8. RETIREMENT. Notwithstanding any provision of this Agreement to the contrary, if the Executive's employment is terminated by reason of the Executive's retirement from the Company at or after age 65, this Agreement shall terminate without further obligations to the Executive. 9. CAUSE; OTHER THAN FOR GOOD REASON. Notwithstanding any provision of this Agreement to the contrary, if the Executive's employment shall be terminated by the Company for Cause or if the Executive's employment with the Company is terminated by the Executive for other than Good Reason, this Agreement shall terminate without further obligations to the Executive. 3 10. OTHER EMPLOYMENT; LEGAL REPRESENTATION. Any severance benefits described in Exhibit A hereto to which the Executive is entitled will not be reduced by any remuneration the Executive may receive from employment with another employer following a Qualifying Termination. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement. 11. NO TAX GROSS-UP PAYMENT. Notwithstanding anything to the contrary in this Agreement, if any portion of the compensation under the Agreement, or under any other agreement with or plan of the Company (in the aggregate "Total Payments"), would constitute an "excess parachute payment" under Section 280G of the Internal Revenue Code (the "Code"), then the payments to be made to the Executive under the Agreement shall be subject to the tax imposed by Section 4999 of the Code or any successor provision thereto unless the Company elects to reduce the payments to be made to the Executive under the Agreement because such reduction will provide a more favorable after-tax result for the Executive with respect to the excise taxes described in this Section. The calculation of such potential excise tax liability, as well as the method in which any compensation reduction is applied, shall be conducted and determined by the Company's independent accountants, whose determinations shall be binding on all parties. 12. SUCCESSORS. (a) This Agreement is personal to the Executive and shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c ) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 13. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: IF TO THE EXECUTIVE: Timothy V. Crean Cushineal, Ballymal, Waterfall, Cork, Ireland IF TO THE COMPANY: SIFCO INDUSTRIES, INC. 970 East 64th Street Cleveland, Ohio 44103 Attention: Jeff Gotschall or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communication shall be effective when actually received by the addressee. 4 (c ) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such federal, state, local and/or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 2(f) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. IN WITNESS WHEREOF, the undersigned have executed this Agreement effective as of the date first written above. SIFCO INDUSTRIES, INC. EXECUTIVE By: /s/ Jeffrey P. Gotschall /s/ Timothy V. Crean ------------------------ -------------------- Signature Title: Chairman of the Board and Timothy V. Crean Chief Executive Officer ---------------- ----------------------- Printed Name 5 EXHIBIT A TO CHANGE IN CONTROL SEVERANCE AGREEMENT BENEFITS (a) Severance. In the event the Executive becomes eligible for benefits under Section 5 of the Agreement, the Company shall pay to the Executive or the Executive's Beneficiary in a lump sum in cash within thirty (30) days after the Executive's Date of Termination an amount equal to: (i) $400,000 Dollars; (ii) the excess of (A) the actuarial equivalent of the benefit under any qualified defined benefit pension plan the Company may have (the "Retirement Plan"), and any supplemental retirement plan in which the Executive participates which the Executive would receive if the Executive's employment continued for two (2) years after the Date of Termination assuming for this purpose that all accrued benefits are fully vested, over (B) the actuarial equivalent of the Executive's actual benefit paid or payable, if any, under the Retirement Plan and the supplemental retirement plan as of the Date of Termination. (b). Welfare Benefits. In the event the Executive becomes eligible for benefits under Section 5 of the Agreement, for twenty-four (24 ) months after the Executive's Date of Termination, or such longer period as may be provided by the terms of the applicable welfare benefit plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the Company's welfare benefit plans, programs, practices and policies if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive welfare benefits under another employer-provided plan, the Company shall discontinue such benefits as of such eligibility date. In lieu of providing such benefits, the Company may elect, in its sole discretion, without the consent of the Executive, to pay in a single sum to the Executive an amount equal to the cash equivalent present value of the premiums to purchase such continued insurance coverage within thirty (30) days after the Executive's Date of Termination. (c) Enhanced Rights Regarding Stock Awards. All long-term stock incentive awards held by the Executive (whether in the form of options, phantom units, performance shares, restricted shares or other awards of whatever nature), shall fully vest and all restrictions and conditions shall be removed on the Date of Termination. (d) Retirement Benefits. All Retirement Plan, Thrift Plan and supplemental retirement plan benefits of the Executive shall fully vest if they are not otherwise fully vested on the Date of Termination 6 EXHIBIT B TO CHANGE IN CONTROL SEVERANCE AGREEMENT DESIGNATION OF BENEFICIARY Executive hereby designates the following individual to receive payment of any benefits under this Agreement that may be due or payable after the Executive's death: Therese M. Crean ---------------- Name of Beneficiary Wife ---- Relationship to Executive /s/ Timothy V. Crean -------------------- Signature of Executive August 2, 2002 -------------- Date 7 EX-10.10 7 l97786aexv10w10.txt EXHIBIT 10.10 EXHIBIT 10.10 SIFCO INDUSTRIES, INC. CHANGE IN CONTROL SEVERANCE AGREEMENT THIS AGREEMENT is made between SIFCO Industries, Inc. (the "Company"), and Jeffrey P. Gotschall (the "Executive"), dated as of the 30 day of July, 2002. 1. PURPOSE OF THIS AGREEMENT. The Board of Directors of the Company (the "Board") has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change in Control (as defined in Section 2(c)) of the Company, and the uncertainties and risks that a Change in Control would pose for the Executive. To this end, the Board desires to encourage the Executive's full attention and dedication to the Company, currently and in the event of any threatened or pending Change in Control, and to provide the Executive with compensation and benefits arrangements upon a Change in Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other similar corporations. 2. DEFINITIONS. Whenever used herein, the following terms shall have the meanings set forth below: (a) "Beneficiary" means the person or entity designated by the Executive (on Exhibit B hereto) to receive payment of any benefits hereunder that are or may be payable after the Executive's death. The Executive may change his or her designation of Beneficiary by filing a revised Exhibit B with the Company prior to his or her death. (b) "Cause" means any of the following: (i) the Executive's engagement in unlawful acts intended to result in substantial personal enrichment to the Executive at the Company's expense; (ii) the Executive's engagement in a material breach of his or her responsibilities to the Company that results in a material injury to the Company other than any such breach resulting from the Executive's incapacity due to illness or injury or in connection with an actual or anticipated termination of employment with the Company by the Executive for Good Reason; or (iii) an act or acts by the Executive which have been found in an applicable court to constitute a felony. (c) "Change in Control" means any of the following events: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either (A) the then-outstanding common shares of the Company other than those held by the Voting Trust (the "Outstanding Company Common Shares") or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors other than that represented by shares held by the Voting Trust (the "Outstanding Company Voting Securities"); but for purposes of this subsection (i), the following acquisitions of voting securities shall not constitute a Change in Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2; or (ii) Individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; but any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding from the Incumbent Board, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or 1 (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Shares and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50%, respectively, of the then-outstanding common shares and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries), (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 50% or more of, respectively, the then-outstanding common shares of the corporation resulting from such Business Combination, or the combined voting power of the then-outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Disability" means an illness or injury which, in the opinion of the Board, renders the Executive unable or incompetent to perform the job responsibilities which the Executive held or the job duties to which the Executive was assigned at the time such illness or injury was incurred, on a full-time basis for at least six (6) consecutive months. (f) "Good Reason" means the occurrence of only one or more of the following events provided that the Executive specifically agrees in writing that such event shall constitute Good Reason: (i) there is a change in the Executive's status or position with the Company that, in the Executive's reasonable judgment, represents an adverse change from his or her status or position immediately before the Change in Control, including a change in the principal place of the Executive's employment that does not conform with the Company's present policies for executive relocation, but excluding required travel to an extent substantially consistent with the Executive's business travel obligations immediately before the Change in Control; (ii) the Executive is assigned any duties or responsibilities that, in the Executive's reasonable judgment, are inconsistent with the Executive's status or position immediately before the Change in Control; (iii) the Executive is subject to a layoff by the Company or the Executive's employment with the Company is involuntarily terminated other than for Cause by the Company or due to the Executive's Disability, death or retirement; (iv) there is a reduction by the Company in the Executive's total compensation as in effect at the time of the Change in Control (i.e., the Executive's base salary plus the most recent award that the Executive earned under the Company's Incentive Compensation Plan) or as the same may be increased from time to time; (v) the Company fails to continue in effect any compensation plan, employee benefit plan, or other plan, program or policy of the Company that is intended to materially benefit the Company's employees (each a "Plan"), in which the Executive was participating at the time of the Change in Control, other than as a result of the normal expiration of such Plan in accordance with its terms in effect at the time of the Change in Control; or (vi) the Company takes any action or fails to take any action that would: (A) adversely affect the Executive's continued participation in any Plan on at least as favorable a basis as was the case at the time of the Change in Control; (B) materially reduce the Executive's benefits in the future under any Plan; or (C) deprive the Executive of any material benefits that the Executive enjoyed at the time of the Change in Control; except to the extent that such action or inaction by the Company is required by the terms of the Plan as in effect immediately before the Change in Control or is necessary to comply with the applicable law, and except to the extent that the Company provides the Executive with substantially equivalent benefits; 2 (vii) there is a material violation by the Company of any agreement with the Executive; or (viii) without the Executive's consent, the Company fails to pay the Executive any portion of his or her current or deferred compensation within thirty (30) days after the Executive provides written notification to the Company that payment is past due. (g) A "Qualifying Termination" is deemed to have occurred for purposes of this Agreement if there is a Change in Control and, within two (2) years after the Change in Control, the Executive's employment with the Company is either involuntarily terminated by the Company without Cause or the Executive terminates employment with the Company for Good Reason (h) "Voting Trust" means that certain voting trust entered into by agreement dated as of February 1, 1997, as amended on February 1, 2002, into which Common Shares of the Company have been deposited and with respect to which, as of the date hereof, Janice Carlson and Charles H. Smith, III are trustees. 3. NOTICE OF CHANGE IN CONTROL. The Company shall provide the Executive with written notice of the occurrence of a Change in Control in accordance with Section 13(b) of this Agreement within two (2) weeks after such Change in Control. 4. NOTICE OF TERMINATION. (a) Any termination by the Company for Cause, or by the Executive for Good reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (b) For purposes of this Agreement, "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date (within thirty (30) days after that date) specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company, other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the disability effective date, as the case may be. 5. BENEFITS UPON TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL. In the event of a Qualifying Termination, the Executive shall receive the benefits described in Exhibit A attached hereto. 6. DEATH. Notwithstanding any provision of this Agreement to the contrary, if the Executive's employment is terminated by reason of the Executive's death, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement. 7. DISABILITY. Notwithstanding any provision of this Agreement to the contrary, if the Executive's employment is terminated by reason of the Executive's Disability, this Agreement shall terminate without further obligations to the Executive. 8. RETIREMENT. Notwithstanding any provision of this Agreement to the contrary, if the Executive's employment is terminated by reason of the Executive's retirement from the Company at or after age 65, this Agreement shall terminate without further obligations to the Executive. 9. CAUSE; OTHER THAN FOR GOOD REASON. Notwithstanding any provision of this Agreement to the contrary, if the Executive's employment shall be terminated by the Company for Cause or if the Executive's employment with the Company is terminated by the Executive for other than Good Reason, this Agreement shall terminate without further obligations to the Executive. 10. OTHER EMPLOYMENT; LEGAL REPRESENTATION. Any severance benefits described in Exhibit A hereto to which the Executive is entitled will not be reduced by any remuneration the Executive may receive from employment with another employer following a Qualifying Termination. In no event shall the Executive be obligated to seek other 3 employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement. 11. NO TAX GROSS-UP PAYMENT. Notwithstanding anything to the contrary in this Agreement, if any portion of the compensation under the Agreement, or under any other agreement with or plan of the Company (in the aggregate "Total Payments"), would constitute an "excess parachute payment" under Section 280G of the Internal Revenue Code (the "Code"), then the payments to be made to the Executive under the Agreement shall be subject to the tax imposed by Section 4999 of the Code or any successor provision thereto unless the Company elects to reduce the payments to be made to the Executive under the Agreement because such reduction will provide a more favorable after-tax result for the Executive with respect to the excise taxes described in this Section. The calculation of such potential excise tax liability, as well as the method in which any compensation reduction is applied, shall be conducted and determined by the Company's independent accountants, whose determinations shall be binding on all parties. 12. SUCCESSORS. (a) This Agreement is personal to the Executive and shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c ) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 13. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: IF TO THE EXECUTIVE: Jeffrey P. Gotschall 25 Pine River Rd. Bentleyville, OH 44022 IF TO THE COMPANY: SIFCO INDUSTRIES, INC. 970 East 64th Street Cleveland, Ohio 44103 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communication shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such federal, state, local and/or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. 4 (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 2(f) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. IN WITNESS WHEREOF, the undersigned have executed this Agreement effective as of the date first written above. SIFCO INDUSTRIES, INC. EXECUTIVE By: /s/ Frank Cappello /s/ Jeffrey P. Gotschall ------------------ ------------------------ Signature Title: Vice.President - Finance and Jeffrey P. Gotschall Chief Financial Officer -------------------- ----------------------- Printed Name 5 EXHIBIT A TO CHANGE IN CONTROL SEVERANCE AGREEMENT BENEFITS (a) Severance. In the event the Executive becomes eligible for benefits under Section 5 of the Agreement, the Company shall pay to the Executive or the Executive's Beneficiary in a lump sum in cash within thirty (30) days after the Executive's Date of Termination an amount equal to: (i) $500,000 Dollars; (ii) the excess of (A) the actuarial equivalent of the benefit under any qualified defined benefit pension plan the Company may have (the "Retirement Plan"), and any supplemental retirement plan in which the Executive participates (the "SERP") which the Executive would receive if the Executive's employment continued for two (2) years after the Date of Termination assuming for this purpose that all accrued benefits are fully vested, over (B) the actuarial equivalent of the Executive's actual benefit paid or payable, if any, under the Retirement Plan and the SERP as of the Date of Termination. (b) Welfare Benefits. In the event the Executive becomes eligible for benefits under Section 5 of the Agreement, for twenty-four ( 24 ) months after the Executive's Date of Termination, or such longer period as may be provided by the terms of the applicable welfare benefit plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the Company's welfare benefit plans, programs, practices and policies if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families; provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive welfare benefits under another employer-provided plan, the Company shall discontinue such benefits as of such eligibility date. In lieu of providing such benefits, the Company may elect, in its sole discretion, without the consent of the Executive, to pay in a single sum to the Executive an amount equal to the cash equivalent present value of the premiums to purchase such continued insurance coverage within thirty (30) days after the Executive's Date of Termination. (c) Enhanced Rights Regarding Stock Awards. All long-term stock incentive awards held by the Executive (whether in the form of options, phantom units, performance shares, restricted shares or other awards of whatever nature), shall fully vest and all restrictions and conditions shall be removed on the Date of Termination. (d) Retirement Benefits. All Retirement Plan, Thrift Plan and SERP benefits of the Executive shall fully vest if they are not otherwise fully vested on the Date of Termination. 6 EXHIBIT B TO CHANGE IN CONTROL SEVERANCE AGREEMENT DESIGNATION OF BENEFICIARY Executive hereby designates the following individual to receive payment of any benefits under this Agreement that may be due or payable after the Executive's death: Dianne Gotschall ---------------- Name of Beneficiary Wife ---- Relationship to Executive /s/ Jeffrey P. Gotschall ------------------------ Signature of Executive August 3, 2002 -------------- Date 7 EX-10.11 8 l97786aexv10w11.txt EXHIBIT 10.11 EXHIBIT 10.11 RESTRICTED STOCK AGREEMENT This Agreement is made as of the 1st day of January, 2002, between SIFCO INDUSTRIES, INC. (the "Company") and _________________________ ("Employee"). 1. Grant. (a) Shares. Pursuant to the Company's Key Employee Share Ownership Program, the Employee has been granted the right to receive _________ ________________________ of the Company's common shares, subject to the restrictions set forth in this Agreement (the "Shares"). Title to the Shares will vest in the Employee in the number and as of the dates set forth below: Date Number of Shares (b) Issuance of and Dividends on Shares. Certificates for the Shares will be issued as soon as practicable after title to the Shares vests with the Employee. The Shares will be legended certificates, subject to the limitations set forth in paragraph 3 below. Prior to vesting of the Shares, the Employee will not be entitled to dividends or voting rights with respect to such Shares. 2. Forfeiture. In the event of the termination of the Employee's employment with the Company or its subsidiaries for any reason, the Employee shall forfeit the right to receive all Shares that have not yet vested under the program as of the date of the termination. 3. Securities Laws. The issuance of all Shares provided for herein have not been registered under the Securities Act of 1933. The Employee understands that the Shares are "restricted securities" as defined in Rule 144 of the Act and that any resale, transfer or other disposition of the Shares will be accomplished only in compliance with Rule 144 of the Act or other applicable rules and regulations thereunder. The Company will place on the certificates evidencing the Shares an appropriate legend reflecting the foregoing and may refuse to permit transfer of such certificates until it has been furnished with satisfactory evidence of no violation of the Act or the rules and regulations thereunder. 4. Assignment. This grant may not be assigned, transferred, pledged or hypothecated and shall not be assignable by operation of law. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and the Employee has executed this Agreement all as of the date first written above. SIFCO INDUSTRIES, INC. By ____________________________________ _______________________________________ EMPLOYEE 1 EX-21.1 9 l97786aexv21w1.txt EXHIBIT 21.1 EXHIBIT 21.1 SIFCO INDUSTRIES, INC. SUBSIDIARIES OF THE COMPANY SEPTEMBER 30, 2002
State of Jurisdiction Subsidiary of Incorporation ---------- ---------------- SIFCO Custom Machining Company Minnesota SIFCO Exports, Limited Ireland SIFCO Holdings, Inc. Delaware SIFCO Irish Holdings, Limited Ireland SIFCO Research and Development, Limited Ireland SIFCO Selective Plating France, SARL France SIFCO Selective Plating (UK), Limited United Kingdom SIFCO Turbine Components Limited Ireland
1 EX-23.1 10 l97786aexv23w1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated October 29, 2002, (except for the last paragraph of Note 5, as to which the date is November 26, 2002), included and incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statements, File Nos. 2-82001 and 33-32826. /s/ GRANT THORNTON LLP Cleveland, Ohio December 13, 2002 1 EX-99.1 11 l97786aexv99w1.txt EXHIBIT 99.1 EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of SIFCO Industries, Inc. ("Company") on Form 10-K for the year ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof ("Report"), I, Jeffrey P. Gotschall, Chairman and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Jeffrey P. Gotschall ------------------------ Jeffrey P. Gotschall Chairman of the Board and Chief Executive Officer December 13, 2002 1 EX-99.2 12 l97786aexv99w2.txt EXHIBIT 99.2 EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of SIFCO Industries, Inc. ("Company") on Form 10-K for the year ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof ("Report"), I, Frank A. Cappello, Vice President - Finance and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (3) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (4) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Frank A. Cappello --------------------- Frank A. Cappello Vice President - Finance and Chief Financial Officer December 13, 2002 1 -----END PRIVACY-ENHANCED MESSAGE-----