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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended 9/30/97 Commission file number 1-5978
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SIFCO Industries, Inc., and Subsidiaries
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Ohio 34-0553950
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
970 East 64th Street, Cleveland Ohio 44103
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code (216) 881-8600
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Shares, $1 Par Value American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
(TITLE OF CLASS)
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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
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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.
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STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES OF
THE REGISTRANT. (THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO
THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF
SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF FILING.)
As of December 6, 1997 -- $72,150,098
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INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE (APPLICABLE ONLY TO CORPORATE
REGISTRANTS.)
As of November 30, 1997 -- 5,160,249
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DOCUMENTS INCORPORATED BY REFERENCE: LIST THE FOLLOWING DOCUMENTS IF
INCORPORATED BY REFERENCE AND THE PART OF THE FORM 10-K INTO WHICH THE DOCUMENT
IS INCORPORATED: (1) ANY ANNUAL REPORT TO SECURITY HOLDERS; (2) ANY PROXY OR
INFORMATION STATEMENT; AND (3) ANY PROSPECTUS FILED PURSUANT TO RULE 424(b) OR
(C) UNDER THE SECURITIES ACT OF 1933. (THE LISTED DOCUMENTS SHOULD BE CLEARLY
DESCRIBED FOR IDENTIFICATION PURPOSES.)
Portions of the 1997 Annual Report to Shareholders (Part I, III, IV)
Portions of the Proxy Statement for Annual Meeting of Shareholders on
January 27, 1998 (Part I,II,III)
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PART I
ITEM 1. BUSINESS
THE COMPANY
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SIFCO Industries, Inc., an Ohio corporation (the "Company"), 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
metal-working processes, services and products produced primarily to the
specific design requirements of its customers. The processes include forging,
heat treating, welding, machining and electroplating; and the products include
forgings, machined forgings and other machined metal parts, remanufactured
component parts for turbine engines, and electroplating solutions and equipment.
The Company engages in international technology transfer and also has marketing
expertise to provide worldwide sourcing and distribution of overseas
manufacturers. The Company's operations are conducted in two segments: (1)
Turbine Component Services and Repair and (2) Aerospace Component Manufacturing.
TURBINE COMPONENT SERVICES AND REPAIR
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The Company's Turbine Component Services and Repair segment consists of
the repair and remanufacture of jet engine and industrial turbine components;
precision machining for aerospace applications, including subassemblies and
finished replacement parts; and equipment, solutions and contract services in
selective electroplating for aerospace, defense and industrial markets.
AEROSPACE COMPONENT MANUFACTURING
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The Company's Aerospace Component Manufacturing segment consists of the
production and some finishing of forgings in numerous alloys for application in
the aerospace and several sophisticated industrial markets, utilizing a variety
of processes, including conventional and near-net shape hot forging and cold
forging techniques. The Company's forged products include: OEM and aftermarket
parts for aircraft engines; structural airframe components; and land-based gas
turbine engine parts; construction, ordnance and nuclear power components;
valves and other parts for oil drilling and mining equipment; and low and high
pressure closures for boilers.
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COMPETITION; PRINCIPAL CUSTOMERS; BACKLOG
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There is active competition among many companies, large and small, in
every one of the services and products offered by the Company. The Company,
however, believes that it offers a wider variety of services than most of its
competitors and is more experienced than most in meeting the exact requirements
and technical specifications of its customers, particularly those in the
aerospace and turbine components repair markets. In addition, the Company has
the ability to use its management and marketing expertise to provide worldwide
sourcing and selling capabilities.
There is excess capacity in many segments of the forging industry which
the Company believes has the effect of increasing competition and limits the
ability to raise prices. The Company feels, however, that its focus on quality
and customer service help to give it an advantage in the markets it serves.
Defense orders can be quite volatile year to year. The decline in
defense spending that occurred in the early nineties negatively impacted both
sales and income of the Company. The growth in the commercial aerospace business
and the turbine component service and repair business since that time has
reduced the impact of defense spending on the Company, with defense business
accounting for 11% to 15% of the Company's sales over the last few years.
The performance of the domestic and international air transport
industries directly and significantly impact our performance. The restructuring
and down turn in the airline industry, in the early nineties, negatively
impacted the sales and income of the Company by increasing price competition for
the available business. Recently there has been a strong resurgence in the
performance of the worldwide airlines industry. The Air Transport Association
predicts a continuation of record profit levels for the industry. Although
historically related, there can be no assurance that record profits for the air
transport industry will translate directly into the particular performance of
the Company.
A reduction in the number of airlines could result in fewer new
aircraft being ordered as the remaining airlines purchase the used aircraft from
the airlines no longer in business. On the other hand, older aircraft require
repairs more frequently than newer aircraft, and this could have a positive
effect on the Company. The airline industry's long term outlook is still for
continued growth in air travel which would suggest the need for newer aircraft
and growth in the requirement for repairs. The Company is not able to quantify
the interplay of these factors.
The Company believes it can partially compensate for these factors
mentioned above by its efforts to broaden its product lines and develop new
geographic markets, customers and technologies.
The identity and rankings of the Company's principal customers vary
from year to year, and the Company relies on its ability to adapt its services
and operations to changing requirements rather than on any high volume
production of a particular item or group of items for a particular
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customer or customers. Sales to the Company's three largest customers were
approximately $9.0 million, $6.5 million and $5.0 million, respectively. Sales
to the Company's next two largest customers were $3.2 million and $2.0 million.
The first and last of the aforementioned companies serve the aerospace market
and the remaining three the airline transportation market. The Company believes
that the total loss of sales of its largest customer or two or more of the four
remaining customers mentioned above would result in a materially adverse impact
on the business and income of the Company. Although there is no assurance that
this will continue, historically as one or more major customers have reduced
their purchases, one or more other customers have increased purchases avoiding a
materially adverse impact on the business or financial results of the Company.
No material part of the Company's business is seasonal.
Information concerning the Company's business, backlog and its
reportable business segments as set forth on pages 5, 6 and 16, respectively, of
the 1997 Annual Report to Shareholders is incorporated herein by reference.
RESEARCH AND DEVELOPMENT; PATENTS; RAW MATERIALS
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The forging, machining, development of remanufacturing processes, or
other preparation of prototype parts to customers' specifications for use in
their research and development of new parts or designs has been an ordinary
portion of the Company's business. Apart from such work, the Company has spent
no material amount of time or money on research and development activities; and
the accounting records of the Company do not differentiate between work on
orders for customer research and development and work on other customer orders.
The Company uses in its business various trademarks, trade names,
patents, trade secrets and licenses. A number of these licenses are important to
the Company and a loss of them could have a negative impact on the Company.
The Company has many sources for the raw materials, primarily high
quality steel, investment castings and chemicals essential to this business.
Suppliers of such materials are located in many areas throughout the country.
The Company does not depend on a single source for the supply of its materials
and believes that its sources are adequate for its business.
ENVIRONMENTAL REGULATIONS
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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.
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EMPLOYEES
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The number of the Company's employees increased from 684 at the
beginning of the fiscal year to 770 at the end of the fiscal year.
ITEM 2. PROPERTIES
The Company's fixed assets include the plants described below and a
substantial quantity of machinery and equipment, most of which is general
purpose machinery and equipment using special jigs, tools and fixtures and in
many instances having automatic control features and special adaptions. The
Company's plants, machinery and equipment are in good operating condition, are
well-maintained and substantially all of its facilities are in regular use. The
Company considers the present level of fixed assets capitalized as of September
30, 1997 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 segment has seven plants with
a total of 271 thousand square feet. Five of these plants with a total of 227
thousand square feet are for the repair and remanufacture jet engine and
industrial turbine components. Three of these plants are located in Cork,
Ireland (126 thousand square feet), one in Minneapolis, Minnesota (59 thousand
square feet) and one in Tampa, Florida (42 thousand square feet). A portion of
the Minneapolis plant is also the site of the Company's machining operations.
Selective Plating has two plants, one of which is located in
Independence, Ohio (34 thousand square feet), and a leased facility in Redditch,
England (10 thousand square feet).
The Company also leases space for sales offices and/or its contract
plating services in Norfolk, Virginia; Hartford (East Windsor), Connecticut; Los
Angeles (San Dimas), California; and Tacoma, Washington.
Selective Plating also leases sales office space in Saint-Maur, France.
The Aerospace Component Manufacturing segment has one plant of 223
thousand square feet located in Cleveland, Ohio. This facility is also the site
of the Company's corporate headquarters.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The information required by Item 5 is incorporated herein by reference
to pages 1, 7 and 11 of the Annual Report to Shareholders for the year ended
September 30, 1997. As of November 1, 1997, the Company had 776 shareholders of
record.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 is incorporated herein by reference
to page 7 of the Annual Report to Shareholders for the year ended September 30,
1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required by Item 7 is incorporated herein by reference
to pages 5 and 6 of the Annual Report to Shareholders for the year ended
September 30, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by Item 8 are incorporated herein by
reference to pages 8 through 16, inclusive, of the Annual Report to Shareholders
for the year ended September 30, 1997.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT
The information required by Item 10 as to Directors of the Registrant,
is incorporated herein by reference to the information set forth on pages 4
through 6 of the Proxy Statement for the Annual Meeting of Shareholders to be
held January 27, 1998.
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT
The Executive Officers of the Company are elected annually to serve
for one-year terms or until their successors are elected and qualified. The
officers listed below were elected January 28, 1997.
Name Age Title and Business Experience
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Charles H. Smith, Jr. (1) 77 Director since 1941; Chairman of the Board; Mr. Smith
previously served the Company as its Chief Executive
Officer from January 1943 until February 1983.
Jeffrey P. Gotschall (1) 49 Director since October 1986; Chief Executive Officer
since July 1990; President since October 1989 and Chief
Operating Officer from October 1986 to July 1990;
Mr. Gotschall previously served the Company from October
1986 through September 1989 as Executive Vice President
and from May 1985 through February 1989 as President of
SIFCO Turbine Component Services.
George D. Gotschall (1) 77 Director from 1950 to 1958 and continuously since 1962;
Mr. Gotschall is Assistant Secretary of the Company and
previously served the Company until February 1983 as Vice
President--International and Treasurer.
Richard A. Demetter 57 Vice President-Finance since January 1979; Chief Financial
Officer since January 1984, and previously Controller from
November 1976 to January 1984.
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PART III (CONTINUED)
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT
(continued)
EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT (CONTINUED)
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Name Age Title and Business Experience
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Hudson D. Smith (1) 46 Director since 1988. Treasurer of the Company
since 1983; Vice President and General
Manager of SIFCO Forge Group since February
1995; General Manager of SIFCO Forge Group's
Cleveland Operations from October 1989
through January 1995; Group General Sales
Manager of SIFCO Forge Group from July 1985
through September 1989.
Timothy V. Crean 48 Managing Director of the SIFCO Turbine
Components Group since October 1995, and
Managing Director of SIFCO Turbine
Components, Ltd. since November 1986.
Mara L. Babin, Esq. 47 Secretary since July 1980, and General
Counsel since 1985, Ms. Babin is a partner in
the law firm of Squire, Sanders & Dempsey and
has been an attorney with the firm since
1975.
(1) Charles H. Smith, Jr. and George D. Gotschall are brothers-in-law.
Hudson D. Smith is the son of Charles H. Smith, Jr. Jeffrey P. Gotschall is the
son of George D. Gotschall.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by
reference to pages 10 through 15 of the Proxy Statement for the Annual Meeting
of Shareholders to be held January 27, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by
reference to the information set forth on pages 2 through 8 of the Proxy
Statement for the Annual Meeting of Shareholders to be held January 27, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
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The following consolidated financial statements and related notes of
the Registrant and its subsidiaries contained on pages 8 through 16, inclusive,
of the Annual Report to Shareholders for the year ended September 30, 1997, are
incorporated herein by reference.
Consolidated Balance Sheets - September 30, 1997 and 1996.
Consolidated Statements of Income for the Years Ended September 30,
1997, 1996 and 1995.
Consolidated Statements of Shareholders' Equity for the Years Ended
September 30, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the Years Ended September
30, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements for the Years Ended
September 30, 1997, 1996 and 1995.
Report of Independent Public Accountants.
(a) (2) Financial Statement Schedules:
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Report of Independent Public Accountants on the Financial Statement
Schedules.
Schedule II -- Allowance for Doubtful Accounts for the Years
Ended September 30, 1997, 1996 and 1995.
All schedules, other than Schedules II are omitted since the
information is not required or is otherwise furnished.
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PART IV (continued)
(a) (3) Exhibits:
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** (3) Second Amended Articles of Incorporation, as amended,
and Amended Code of Regulations.
*** (4) Instruments defining the rights of security
holders. Reference is made to Exhibit (3) above and
to Note 2, page 10 of the 1986 Annual Report to
Shareholders.
**** (9) Voting Trust Agreement, as amended.
(10) Material Contracts:
*****) (a) 1989 Stock Option Plan
# (b) Incentive Compensation Plan, as amended and restated
# (c) Deferred Compensation Program, as amended and
restated
****) (d) Form of Indemnification Agreement between the
Registrant and each of its Directors and Executive
Officers
*) (e) 1994 Phantom Stock Plan
(13) 1997 Annual Report to Shareholders
***** (21) Subsidiaries of the Registrant
(23) Consent of Arthur Andersen LLP
(24) Powers of Attorney
*) Incorporated herein by reference to Exhibit A to the
Proxy Statement for the Annual Meeting of
Shareholders held January 31, 1995.
**) Incorporated herein by reference to Form 10-K,
September 30, 1986
***) Incorporated herein by reference to Form 10-K,
September 30, 1987
****) Incorporated herein by reference to Form 10-K,
September 30, 1988
*****) Incorporated herein by reference to Form 10-K,
September 30, 1989
# Incorporated herein by reference to Form 10-K,
September 30, 1995
(27) Financial Data Schedule
(99) Report of Independent Public Accountants On The
Financial Statement Schedule II
(b) (1) Reports on Form 8-K
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No reports on Form 8-K were filed during the last quarter of
the fiscal year ended September 30, 1997.
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SIGNATURES
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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.
By: /*/ Richard A. Demetter
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Richard A. Demetter
Chief Accounting Officer
Date: December 15, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed below on December 18, 1997 by the following
persons on behalf of the Registrant in the capacities indicated.
/*/ Charles H. Smith, Jr. /*/ Richard S. Gray
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Charles H. Smith, Jr. Richard S. Gray
Chairman of the Board; Director
Director
/*/ Jeffrey P. Gotschall /*/ William R. Higgins
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Jeffrey P. Gotschall William R. Higgins
President; Chief Executive Officer; Director
Director
/*/ Richard A. Demetter /*/ David V. Ragone
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Richard A. Demetter David V. Ragone
Vice President-Finance; Chief Financial Officer Director
/*/ George D. Gotschall /*/ Thomas J. Vild
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George D. Gotschall Thomas J. Vild
Assistant Secretary; Director Director
/*/ Hudson D. Smith /*/ J. Douglas Whelan
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Hudson D. Smith J. Douglas Whelan
Treasurer; Director Director
/*/ Richard A. Demetter
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(Attorney in Fact)
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