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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-Q þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2005oro
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934For the transition period from  to
 Commission file number 1-5978 SIFCO Industries, Inc.   Ohio
    
    34-0553950(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)970 East 64th Street, Cleveland Ohio
    
    44103(Address of principal executive offices)
    
    (Zip Code)
 (216) 881-8600     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 þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Act).
Yes o No þ The number of the Registrants Common Shares outstanding at April 30, 2005 was 5,188,891.




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TABLE OF CONTENTS  Part I. Financial InformationItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls And ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 2. Change in Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSIGNATURESEX-31.1 CertificationEX-31.2 CertificationEX-32.1 CertificationEX-32.2 Certification    Table of Contents  
 Part I.Financial Information 
 Item 1. Financial Statements SIFCO Industries, Inc. and Subsidiaries
Consolidated Condensed Statements of Operations
(Unaudited)
(Amounts in thousands, except per share data) Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net
sales
    
    $
    19,843
    
    
    $
    22,794
    
    
    $
    38,924
    
    
    $
    43,633Operating expenses:Cost of goods
sold
    
    
    18,243
    
    
    
    20,414
    
    
    
    36,644
    
    
    
    38,466Selling, general
and
administrative
expenses
    
    
    3,154
    
    
    
    2,910
    
    
    
    6,176
    
    
    
    5,838Total
operating
expenses
    
    
    21,397
    
    
    
    23,324
    
    
    
    42,820
    
    
    
    44,304Operating
loss
    
    
    (1,554
    )
    
    
    (530
    )
    
    
    (3,896
    )
    
    
    (671
    )Interest
income
    
    
    (15
    )
    
    
    (13
    )
    
    
    (51
    )
    
    
    (26
    )Interest
expense
    
    
    25
    
    
    
    198
    
    
    
    255
    
    
    
    403Foreign currency
exchange loss (gain),
net
    
    
    (230
    )
    
    
    (36
    )
    
    
    71
    
    
    
    148Other income,
net
    
    
    (1
    )
    
    
    (39
    )
    
    
    (6,511
    )
    
    
    (53
    )Income
(loss)
before
income
tax
provision
    
    
    (1,333
    )
    
    
    (640
    )
    
    
    2,340
    
    
    
    (1,143
    )Income tax provision
    
    
    23
    
    
    
    26
    
    
    
    1,338
    
    
    
    33Net
income
(loss)
    
    $
    (1,356
    )
    
    $
    (666
    )
    
    $
    1,002
    
    
    $
    (1,176
    )Net income (loss) per
share
(basic)
    
    $
    (0.26
    )
    
    $
    (0.13
    )
    
    $
    0.19
    
    
    $
    (0.23
    )Net income (loss) per
share
(diluted)
    
    $
    (0.26
    )
    
    $
    (0.13
    )
    
    $
    0.19
    
    
    $
    (0.23
    )Weighted-average
number of common
shares (basic)
    
    
    5,225
    
    
    
    5,226
    
    
    
    5,220
    
    
    
    5,226Weighted-average
number of common
shares (diluted)
    
    
    5,233
    
    
    
    5,226
    
    
    
    5,227
    
    
    
    5,226
 See notes to unaudited consolidated condensed financial statements. 2




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SIFCO Industries, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
(Amounts in thousands, except per share data) March 31,
    
    
    September 30,2005
    
    
    2004(unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    2,063
    
    
    $
    5,578Receivables, net
    
    
    15,959
    
    
    
    17,720Inventories
    
    
    10,635
    
    
    
    7,845Deferred income taxes
    
    
    
    
    
    
    575Prepaid expenses and other current assets
    
    
    1,688
    
    
    
    1,132Assets held for sale
    
    
    
    
    
    
    4,231Total current assets
    
    
    30,345
    
    
    
    37,081Property, plant and equipment, net
    
    
    19,521
    
    
    
    19,882Other assets
    
    
    2,820
    
    
    
    2,796Total assets
    
    $
    52,686
    
    
    $
    59,759LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    2
    
    
    $
    4,569Accounts payable
    
    
    10,301
    
    
    
    9,354Accrued liabilities
    
    
    6,875
    
    
    
    7,129Total current liabilities
    
    
    17,178
    
    
    
    21,052Long-term debt, net of current maturities
    
    
    1,137
    
    
    
    5,797Other long-term liabilities
    
    
    8,122
    
    
    
    8,108Shareholders equity:Serial preferred shares, no par value, authorized 1,000 shares
    
    
    
    
    
    
    Common shares, par value $1 per share, authorized 10,000 shares; issued
5,249 and 5,257 shares at March 31, 2005 and September 30, 2004,
respectively; outstanding 5,229 and 5,214 shares at March 31, 2005
and September 30, 2004, respectively
    
    
    5,249
    
    
    
    5,257Additional paid-in capital
    
    
    6,384
    
    
    
    6,497Retained earnings
    
    
    23,338
    
    
    
    22,336Accumulated other comprehensive loss
    
    
    (8,466
    )
    
    
    (8,867
    )Unearned compensation  restricted common shares
    
    
    (122
    )
    
    
    (166
    )Common shares held in treasury at cost, 20 and 43 shares at March 31,
2005 and September 30, 2004, respectively
    
    
    (134
    )
    
    
    (255
    )Total shareholders equity
    
    
    26,249
    
    
    
    24,802Total liabilities and shareholders equity
    
    $
    52,686
    
    
    $
    59,759
 See notes to unaudited consolidated condensed financial statements. 3




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SIFCO Industries, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(Amounts in thousands) Six Months EndedMarch,2005
    
    
    2004Cash flows from operating activities:Net income (loss)
    
    $
    1,002
    
    
    $
    (1,176
    )Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:Depreciation and amortization
    
    
    1,656
    
    
    
    1,753Loss (gain) on disposal of property, plant
and equipment
    
    
    (6,308
    )
    
    
    10Deferred income taxes
    
    
    575
    
    
    
    Share transactions under employee stock
plan
    
    
    44
    
    
    
    53Asset impairment charges
    
    
    21
    
    
    
    Changes in operating assets and liabilities:Receivables
    
    
    1,761
    
    
    
    872Inventories
    
    
    (2,790
    )
    
    
    (169
    )Prepaid expenses and other current
assets
    
    
    (391
    )
    
    
    (585
    )Other assets
    
    
    (24
    )
    
    
    (262
    )Accounts payable
    
    
    947
    
    
    
    133Accrued liabilities
    
    
    (254
    )
    
    
    799Other long-term
liabilities
    
    
    113
    
    
    
    142Net cash provided by (used for)
operating activities
    
    
    (3,648
    )
    
    
    1,570Cash flows from investing activities:Capital expenditures
    
    
    (1,365
    )
    
    
    (1,326
    )Proceeds from disposal of property, plant
and equipment
    
    
    10,598
    
    
    
    50Reimbursement of equipment
expenditures
    
    
    
    
    
    
    750Other
    
    
    128
    
    
    
    147Net cash provided by (used for)
investing activities
    
    
    9,361
    
    
    
    (379
    )Cash flows from financing activities:Proceeds from revolving credit
agreement
    
    
    13,202
    
    
    
    27,169Repayments of revolving credit
agreement
    
    
    (15,185
    )
    
    
    (26,651
    )Repayments of long-term debt
    
    
    (7,245
    )
    
    
    (600
    )Net cash used for financing
activities
    
    
    (9,228
    )
    
    
    (82
    )Increase (decrease) in cash and cash equivalents
    
    
    (3,515
    )
    
    
    1,109Cash and cash equivalents at the beginning of the
period
    
    
    5,578
    
    
    
    4,524Cash and cash equivalents at the
end of the period
    
    $
    2,063
    
    
    $
    5,633Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    (294
    )
    
    $
    (352
    )Cash recovered from (paid for) income taxes,
net
    
    
    (615
    )
    
    
    34
 See notes to unaudited consolidated condensed financial statements. 4




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SIFCO Industries, Inc. and Subsidiaries
Notes to Unaudited Consolidated Condensed Financial Statements
(Amounts in thousands, except per share data) 1.Summary of Significant Accounting Policies A. Principles of Consolidation The unaudited consolidated condensed financial statements included herein include the accounts of
SIFCO Industries, Inc. and its wholly-owned subsidiaries (the Company). All significant
intercompany accounts and transactions have been eliminated. In the opinion of management, all
adjustments, which include only normal recurring adjustments necessary for a fair presentation of
the results of operations, financial position, and cash flows for the periods presented, have been
included. These unaudited consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and related notes included in the Companys
fiscal 2004 Annual Report on Form 10-K. The results of operations for any interim period are not
necessarily indicative of the results to be expected for other interim periods or the full year.
Certain prior period amounts have been reclassified in order to conform to current period
classifications. B. Stock-Based Compensation The Company employs the disclosure-only provisions of Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). 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 periods. The pro forma information is as follows: Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss) as reported
    
    $
    (1,356
    )
    
    $
    (666
    )
    
    $
    1,002
    
    
    $
    (1,176
    )Less: Stock-based compensation expense
determined under fair value based method for
all awards
    
    
    14
    
    
    
    28
    
    
    
    28
    
    
    
    55Pro forma net income (loss) as if the fair value
based method had been applied to all
awards
    
    $
    (1,370
    )
    
    $
    (694
    )
    
    $
    974
    
    
    $
    (1,231
    )Net income (loss) per share:Basic  as reported
    
    $
    (0.26
    )
    
    $
    (0.13
    )
    
    $
    0.19
    
    
    $
    (0.23
    )Basic  pro forma
    
    $
    (0.26
    )
    
    $
    (0.13
    )
    
    $
    0.19
    
    
    $
    (0.24
    )Diluted  as reported
    
    $
    (0.26
    )
    
    $
    (0.13
    )
    
    $
    0.19
    
    
    $
    (0.23
    )Diluted  pro forma
    
    $
    (0.26
    )
    
    $
    (0.13
    )
    
    $
    0.19
    
    
    $
    (0.24
    )
 C. New Accounting Standards In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 123 (revised 2004), Accounting for Stock-Based Compensation.
This Statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its
related implementation guidance. This Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or services. It also
addresses transactions in which an entity incurs liabilities in exchange for goods or services that
are based on the fair value of the entitys equity instruments or that may be settled by the
issuance of those equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment transactions. This
Statement does not change the accounting guidance for share-based payment transactions with parties
other than employees provided in Statement 123 as originally issued and EITF Issue No. 96-18,
Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services. This Statement does not address the accounting for
employee share ownership plans, which are subject to AICPA Statement of Position 93-6, Employers
Accounting for Employee Stock Ownership Plans. According to the U.S. Securities and Exchange
Commissions Staff Accounting Bulletin No. 107, SFAS No. 123 (revised 2004) is effective for the 5




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Companys fiscal year 2006. The Company does not expect the adoption of this statement in fiscal
year 2006 to have a material impact on the Companys financial position or results of operations. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets- an amendment of
Accounting Principles Bulletin (APB) Opinion No. 29, Accounting for Nonmonetary Transactions.
The guidance in APB Opinion No. 29, is based on the principle that exchanges of nonmonetary assets
should be measured based on the fair value of the assets exchanged. The guidance in that Opinion,
however, included certain exceptions to that principle. SFAS No. 153, amends Opinion No. 29 to
eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with
a general exception for exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the entity are expected
to change significantly as a result of the exchange. SFAS No. 153 is effective for fiscal periods
beginning after June 15, 2005. The Company does not expect the adoption of this statement in fiscal
year 2005 to have a material impact on the Companys financial position or results of operations. In November 2004, the FASB issued SFAS No. 151, Inventory Costs  an amendment of Accounting
Research Bulletin No. 43, Chapter 4, Inventory Pricing. SFAS No. 151 was issued to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that ...under some
circumstances, items such as idle facility expense, excessive spoilage, double freight, and
rehandling costs may be so abnormal as to require treatment as current period charges... This
Statement requires that those items be recognized as current-period charges regardless of whether
they meet the criterion of so abnormal. In addition, this Statement requires that allocation of
fixed production overheads to the costs of conversion be based on the normal capacity of the
production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005.
The Company does not expect the adoption of this statement in fiscal year 2006 to have a material
impact on the Companys financial position or results of operations. 2.Inventories Inventories consist of: March 31,
    
    
    September 30,2005
    
    
    2004Raw materials and
supplies
    
    $
    4,122
    
    
    $
    2,566Work-in-process
    
    
    3,567
    
    
    
    2,821Finished goods
    
    
    2,946
    
    
    
    2,458Total
inventories
    
    $
    10,635
    
    
    $
    7,845
 Inventories are stated at the lower of cost or market. Cost is determined using the last-in,
first-out (LIFO) method for 53% and 31% of the Companys inventories at March 31, 2005 and
September 30, 2004, respectively. Cost is determined using the specific identification method for
approximately 20% and 27% of the Companys inventories at March 31, 2005 and September 30, 2004,
respectively. The first-in, first-out (FIFO) method is used for the remainder of the
inventories. If the FIFO method had been used for the inventories for which cost is determined
using the LIFO method, inventories would have been $3,931 and $3,518 higher than reported at March
31, 2005 and September 30, 2004, respectively. 3.Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss Total comprehensive income (loss) is as follows: Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
(loss)
    
    $
    (1,356
    )
    
    $
    (666
    )
    
    $
    1,002
    
    
    $
    (1,176
    )Foreign currency
translation
adjustment
    
    
    (47
    )
    
    
    32
    
    
    
    137
    
    
    
    163Unrealized gain on
interest rate swap
agreement
    
    
    
    
    
    
    46
    
    
    
    125
    
    
    
    124Currency exchange
contract
adjustment
    
    
    (1,190
    )
    
    
    (176
    )
    
    
    166
    
    
    
    (124
    )Minimum pension
liability
adjustment
    
    
    (27
    )
    
    
    
    
    
    
    (27
    )
    
    
    Total comprehensive
income
(loss)
    
    $
    (2,620
    )
    
    $
    (764
    )
    
    $
    1,403
    
    
    $
    (1,013
    )
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The components of accumulated other comprehensive loss are as follows: March 31,
    
    
    September 30,2005
    
    
    2004Foreign currency translation
adjustment
    
    $
    (6,615
    )
    
    $
    (6,752
    )Interest rate swap agreement
adjustment
    
    
    
    
    
    
    (125
    )Currency exchange contract
adjustment
    
    
    787
    
    
    
    621Minimum pension liability
adjustment
    
    
    (2,638
    )
    
    
    (2,611
    )Total accumulated other
comprehensive loss
    
    $
    (8,466
    )
    
    $
    (8,867
    )
 4.Business Segments The Company identifies reportable segments based upon distinct products manufactured and services
provided. The Turbine Component Services and Repair Group (Repair Group) consists primarily of
the repair and remanufacture of aerospace and industrial turbine engine components. The Repair
Group is also involved in precision component machining for aerospace applications. The Aerospace
Component Manufacturing 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 Applied Surface Concepts (formerly named Metal Finishing) Group is a provider of
specialized selective electrochemical metal finishing processes and services used to apply metal
coatings to a selective area of a component. The Companys reportable segments are separately
managed. Segment information is as follows: Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales:Turbine Component Services and Repair
Group
    
    $
    9,863
    
    
    $
    12,278
    
    
    $
    18,675
    
    
    $
    24,002Aerospace Component Manufacturing Group
    
    
    6,743
    
    
    
    7,862
    
    
    
    14,156
    
    
    
    14,318Applied Surface Concepts Group
    
    
    3,237
    
    
    
    2,654
    
    
    
    6,093
    
    
    
    5,313Consolidated net sales
    
    $
    19,843
    
    
    $
    22,794
    
    
    $
    38,924
    
    
    $
    43,633Operating income (loss):Turbine Component Services and Repair
Group
    
    $
    (722
    )
    
    $
    (683
    )
    
    $
    (2,568
    )
    
    $
    (1,137
    )Aerospace Component Manufacturing Group
    
    
    (625
    )
    
    
    603
    
    
    
    (839
    )
    
    
    967Applied Surface Concepts Group
    
    
    425
    
    
    
    189
    
    
    
    444
    
    
    
    417Corporate unallocated expenses
    
    
    (632
    )
    
    
    (639
    )
    
    
    (933
    )
    
    
    (918
    )Consolidated operating loss
    
    
    (1,554
    )
    
    
    (530
    )
    
    
    (3,896
    )
    
    
    (671
    )Interest expense, net
    
    
    10
    
    
    
    185
    
    
    
    204
    
    
    
    377Foreign currency exchange loss (gain),
net
    
    
    (230
    )
    
    
    (36
    )
    
    
    71
    
    
    
    148Other income, net
    
    
    (1
    )
    
    
    (39
    )
    
    
    (6,511
    )
    
    
    (53
    )Consolidated income (loss) before income tax
provision
    
    $
    (1,333
    )
    
    $
    (640
    )
    
    $
    2,340
    
    
    $
    (1,143
    )
 7




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5.Retirement Benefit Plans The Company and certain of its subsidiaries sponsor defined benefit pension plans covering most of
its employees. The components of net periodic benefit cost of the Companys defined benefit plans
are as follows: Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Service
cost
    
    $
    180
    
    
    $
    154
    
    
    $
    358
    
    
    $
    306Interest
cost
    
    
    363
    
    
    
    348
    
    
    
    724
    
    
    
    694Expected return on
plan
assets
    
    
    (425
    )
    
    
    (384
    )
    
    
    (848
    )
    
    
    (766
    )Amortization of
transition
asset
    
    
    (2
    )
    
    
    (3
    )
    
    
    (5
    )
    
    
    (5
    )Amortization of prior
service cost
    
    
    33
    
    
    
    33
    
    
    
    66
    
    
    
    66Amortization of net
(gain) loss
    
    
    26
    
    
    
    5
    
    
    
    52
    
    
    
    9Net periodic
benefit
cost
    
    $
    175
    
    
    $
    153
    
    
    $
    347
    
    
    $
    304
 Through March 31, 2005, the Company has made $611 of contributions to its defined benefit pension
plans. The Company anticipates contributing an additional $587 to fund its defined benefit pension
plans during the balance of fiscal 2005, resulting in total projected contributions of $1,198 in
fiscal 2005. 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Managements Discussion and Analysis of Financial Condition and Results of Operations may contain
various forward-looking statements and includes assumptions concerning the Companys operations,
future results and prospects. These forward-looking statements are based on current expectations
and are subject to risk and uncertainties. In connection with the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, the Company provides this cautionary statement
identifying important economic, political and technological factors, among others, the absence or
effect of which could cause the actual results or events to differ materially from those set forth
in or implied by the forward-looking statements and related assumptions. Such factors include the
following: (1) future business environment, including capital and consumer spending; (2)
competitive factors, including the ability to replace business which may be lost due to increased
direct involvement by the turbine engine manufacturers in turbine component service and repair
markets; (3) successful procurement of certain repair materials and new repair process licenses
from turbine engine manufacturers and/or the Federal Aviation Administration; (4) fluctuating
foreign currency (primarily the euro) exchange rates; (5) metals and commodities price increases
and the Companys ability to recover such price increases; (6) successful development and market
introductions of new products, including an advanced coating technology and the continued
development of industrial turbine repair processes; (7) regressive pricing pressures on the
Companys products and services, with productivity improvements as the primary means to maintain
margins; (8) success with the further development of strategic alliances with certain turbine
engine manufacturers for turbine component repair services; (9) the impact on business conditions,
and on the aerospace industry in particular, of global terrorism threat; (10) 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;
(11) continued reliance on several major customers for revenues; (12) the Companys ability to
continue to have access to its revolving credit facility, including the Companys ability to (i)
continue to comply with the terms of its credit agreements, including financial covenants, (ii)
continue to enter into amendments to its credit agreement containing financial covenants, which it
and its bank lender find mutually acceptable, or (iii) continue to obtain waivers from its bank
lender with respect to its compliance with the covenants contained in its credit agreement; (13)
the impact of changes in defined benefit pension plan actuarial assumptions on future
contributions; and (14) stable governments, business conditions, laws, regulations and taxes in
economies where business is conducted. 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 metal finishing. The products include forgings,
machined forged parts and other machined metal parts, remanufactured component parts for turbine
engines, and selective electrochemical metal finishing solutions and equipment. 8




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A. Results of Operations Six Months Ended March 31, 2005 Compared with Six Months Ended March 31, 2004 Net sales in the first six months of fiscal 2005 decreased 10.8% to $38.9 million, compared with
$43.6 million in the comparable period in fiscal 2004. Net income in the first six months of
fiscal 2005 was $1.0 million, compared with a net loss of $1.2 million in the comparable period in
fiscal 2004. Turbine Component Services and Repair Group (Repair Group) Net sales in the first six months of fiscal 2005 decreased 22.2% to $18.7 million, compared with
$24.0 million in the comparable fiscal 2004 period. Component manufacturing and repair net sales
decreased $3.3 million to $15.6 million in the first six months of fiscal 2005, compared with $19.0
million in the comparable fiscal 2004 period. Demand for precision component machining and for
component repairs for large aerospace turbine engines decreased, while the demand for component
repairs for industrial turbine engines and small aerospace turbine engines increased in the first
six months of fiscal 2005, compared with the comparable fiscal 2004 period. The decrease in demand
for component repairs for large aerospace turbine engines impacted virtually all models of such
engines. Net sales associated with the demand for replacement parts, which often complement
component repair services provided to customers, decreased $2.0 million to $3.1 in the first six
months of fiscal 2005, compared with $5.1 million in the comparable fiscal 2004 period. During the first six months of fiscal 2005, the Repair Groups selling, general and administrative
expenses decreased $0.3 million to $2.2 million, or 11.6% of net sales, from $2.5 million, or 10.3%
of net sales, in the comparable fiscal 2004 period. Included in the $2.2 million of selling,
general and administrative expenses in the first six months of fiscal 2005 were $0.2 million
related to severance charges. The remaining selling, general and administrative expenses in the
first six months of fiscal 2005 were $2.0 million, or 10.6% of net sales. The Repair Groups operating loss in the first six months of fiscal 2005 increased $1.4 million to
$2.6 million from $1.1 million in the comparable fiscal 2004 period. Operating results decreased in
the first six months of fiscal 2005 principally due to the negative impact on margins of decreased
sales volumes for component manufacturing and repair services, which was partially offset by
stronger margins on sales of replacement parts. The stronger margins on sales of replacement parts
was attributable to both improved market prices for such components as well as certain replacement
part sales consisting of inventory that had been previously written down. During fiscal 2004, the euro strengthened against the U.S. dollar. The euro continued to be strong
in relation to the U.S. dollar during the first six months of fiscal 2005. The Repair Groups
non-U.S. operation has most of its sales denominated in U.S. dollars while a significant portion of
its operating costs are denominated in euros. Therefore, as the euro strengthens, costs denominated
in euros are negatively impacted. During the first six months of fiscal 2005, the Repair Group
hedged most of its exposure to the euro thereby mitigating the negative impact on its operating
results in that period. If it had not hedged such exposure, the impact on the Repair Groups
operating results in the first six months of fiscal 2005 would have been higher operating costs of
approximately $0.9 million related to its non-U.S. operations, when compared to the comparable
fiscal 2004 period. The Repair Groups backlog as of March 31, 2005, was $4.6 million, compared with $4.4 million as of
September 30, 2004. At March 31, 2005, $3.9 million of the total backlog is scheduled for delivery
over the next twelve months and $0.7 million was on hold. All orders are subject to modification or
cancellation by the customer with limited charges. The Repair Group believes that the backlog may
not be indicative of actual sales for any succeeding period. Aerospace Component Manufacturing Group (ACM Group) Net sales in the first six months of fiscal 2005 decreased 1.1% to $14.2 million, compared with
$14.3 million in the comparable period of fiscal 2004. For purposes of the following discussion,
the ACM Group considers aircraft that can accommodate less than 100 passengers to be small aircraft
and those that can accommodate 100 or more passengers to be large aircraft. Net sales of airframe
components for small aircraft were $6.7 million in the first six months of both fiscal 2005 and
2004. Net sales of turbine engine components for small aircraft, which consist primarily of net
sales of turbine engine components for business and regional jets, as well as military transport
and surveillance aircraft, increased $0.1 million to $5.4 million in the first six months of fiscal
2005 compared with $5.3 million in the comparable period in fiscal 2004. Net sales of airframe
components for large aircraft were $1.0 million in the first six months of both fiscal 2005 and
2004. Net sales of turbine engine components for large aircraft were $0.5 million in the first six
months of both fiscal 2005 and 2004. A decrease in the ACM Groups net sales volumes during the
first six months of fiscal 2005 was offset by an increase in the ACM Groups selling prices due to
increases in raw material prices in the market place, the majority of which was passed through to
the ACM Groups customers. 9




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The ACM Groups airframe and turbine engine component products have both military and commercial
applications. Net sales of airframe and turbine engine components that solely have military
applications were $6.0 million in the first six months of fiscal 2005, compared with $6.7 million
in the comparable period in fiscal 2004. Selling, general and administrative expenses in the first six months of fiscal 2005 were $1.1
million, or 8.0% of net sales, compared with $0.8 million, or 5.9% of net sales, in the first six
months of fiscal 2004. The $0.3 million increase in first six months of fiscal 2005 was principally
due to an increase in administrative and sales salaries resulting from the full year impact of
certain positions that were vacant in the first six months of fiscal 2004 as well as the absence in
fiscal 2005 of a bad debt recovery that occurred in the first six months of fiscal 2004. The ACM Groups operating loss in the first six months of fiscal 2005 was $0.8 million, compared
with operating income of $1.0 million in the same period in fiscal 2004. Operating results were
negatively impacted in the first six months of fiscal 2005, compared with the same period in fiscal
2004, due to the negative impact on margins resulting from lower sales volumes as well as by (i) an
increase in raw material prices partially offset by scrap material sales; (ii) an increase in
energy costs; (iii) an increase in spending on manufacturing supplies and other related expenses;
and (iv) an increase in the LIFO provision due principally to the increased cost of raw material
steel being experienced within the ACM Groups industry. The ACM Groups backlog as of March 31, 2005 was $32.1 million, compared with $23.6 million as of
September 30, 2004. At March 31, 2005, $26.0 million of the total backlog was scheduled for
delivery over the next twelve months and $6.1 million was scheduled for delivery beyond the next
twelve months. It is important to note a fundamental shift that has occurred in fiscal 2005 with
respect to the ordering pattern of the ACM groups customers. With raw material lead times now
being extended, customers are placing orders further in advance, which is one reason for the
increase in the ACM Groups backlog as of March 31, 2005. All orders are subject to modification or
cancellation by the customer with limited charges. The ACM Group believes that the backlog may not
be indicative of actual sales for any succeeding period. Applied Surface Concepts (formerly named Metal Finishing) Group Net sales of the Applied Surface Concepts Group increased 14.7% to $6.1 million in the first six
months of fiscal 2005, compared with net sales of $5.3 million in the first six months of fiscal
2004. In the first six months of fiscal 2005, product net sales, consisting of selective
electrochemical finishing equipment and solutions, increased 0.7% to $3.0 million, compared with
$2.9 million in the same period in fiscal 2004. In the first six months of fiscal 2005, customized
selective electrochemical finishing contract service net sales increased 35.1% to $3.0 million,
compared with $2.2 million in the same period in fiscal 2004. In the first six months of fiscal
2005, net sales increased to customers in the oil and gas exploration industry, the power
generation industry and the aerospace industry compared with the same period in fiscal 2004. These
net sales gains were partially offset in the first six months of fiscal 2005 by net sales decreases
to the military, the electronics industry and the pulp and paper industry compared with the same
period in fiscal 2004. Selling, general and administrative expenses in the first six months of fiscal 2005 were $1.9
million, or 31.9% of net sales, compared with $1.6 million, or 30.4% of net sales, in the first six
months of fiscal 2004. The increase in selling, general and administrative expenses is principally
attributable to a $0.2 million increase in compensation and employee benefit expenses consisting
primarily of severance benefits incurred as a result of a reorganization of personnel that occurred
in the first six months of fiscal 2005. The Applied Surface Concepts Groups operating income was $0.4 million in the first six months of
both fiscal 2005 and 2004. The Applied Surface Concepts Group essentially had no backlog at March 31, 2005. Corporate Unallocated Expenses Corporate unallocated expenses, consisting of corporate salaries and benefits, legal and
professional and other corporate expenses, were $0.9 million in the first six months of both fiscal
2005 and 2004. A $0.3 million decrease in legal and professional expenses was offset by a $0.3
million increase in compensation and employee benefit expenses consisting primarily of severance
benefits incurred as a result of a reorganization of personnel. 10




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Other/General Interest expense was $0.3 million in the first six months of fiscal 2005 compared with $0.4 million
in the first six months of fiscal 2004. The following table sets forth the weighted average
interest rates and weighted average outstanding balances under the Companys credit agreements in
the first six months of fiscal years 2005 and 2004. Weighted Average
    
    
    Weighted AverageInterest Rate
    
    
    Outstanding BalanceSix Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,Credit Agreement
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Industrial development variable rate demand
revenue bond
    
    
    1.8
    %
    
    
    1.2
    %
    
    $1.2 million
    
    $3.0 millionTerm note
    
    
    7.7
    %
    
    
    9.5
    %
    
    $1.5 million
    
    $5.4 millionRevolving credit agreement
    
    
    5.4
    %
    
    
    4.5
    %
    
    $1.3 million
    
    $2.5 million
 Currency exchange loss was $0.1 million in the first six months of both fiscal 2005 and 2004. This
loss is the result of the impact of currency exchange rate fluctuations on the Companys monetary
assets and liabilities that are not denominated in U.S. dollars. During the first six months of
fiscal 2005, the euro strengthened in relation to the U.S. dollar. Other income includes a $0.1 million gain on the sale of a building and land that was part of the
Repair Groups Tampa, Florida operation and a $6.2 million gain on the sale of a building and land
that was part of the Repair Groups Irish operations. Both properties were included in assets held
for sale at September 30, 2004. Three Months Ended March 31, 2005 Compared with Three Months Ended March 31, 2004 Net sales in the second quarter of fiscal 2005 decreased 12.9% to $19.8 million, compared with
$22.8 million in the comparable period in fiscal 2004. Net loss in the second quarter of fiscal
2005 was $1.4 million, compared with a net loss of $0.7 million in the comparable period in fiscal
2004. Turbine Component Services and Repair Group (Repair Group) Net sales in the second quarter of fiscal 2005 decreased 19.7% to $9.9 million, compared with $12.3
million in the comparable fiscal 2004 period. Component manufacturing and repair net sales
decreased $1.5 million to $8.0 million in the second quarter of fiscal 2005, compared with $9.5
million in the comparable fiscal 2004 period. Demand for precision component machining and for
component repairs for large aerospace turbine engines decreased, while the demand for component
repairs for industrial turbine engines and small aerospace turbine engines increased in the second
quarter of fiscal 2005, compared with the comparable fiscal 2004 period. The decrease in demand for
component repairs for large aerospace turbine engines impacted virtually all models of such
engines. Net sales associated with the demand for replacement parts, which often complement
component repair services provided to customers, decreased $1.0 million to $1.9 in the second
quarter of fiscal 2005, compared with $2.8 million in the comparable fiscal 2004 period. During the second quarter of fiscal 2005, the Repair Groups selling, general and administrative
expenses decreased $0.1 million to $1.0 million, or 10.1% of net sales, from $1.1 million, or 9.3%
of net sales, in the comparable fiscal 2004 period. Included in the $1.0 million of selling,
general and administrative expenses in the second quarter of fiscal 2005 were $0.1 million related
to severance charges. The remaining selling, general and administrative expenses in the second
quarter of fiscal 2004 were $0.9 million, or 9.6% of net sales. The Repair Groups operating loss was $0.7 million in the second quarters of both fiscal 2005 and
2004. Operating results in the second quarter fiscal 2005 were negatively impacted by lower
margins, resulting from decreased sales volumes, for component manufacturing and repair services,
which was offset by stronger margins on sales of replacement parts. The stronger margins on sales
of replacement parts was attributable to both improved market prices for such components as well as
certain replacement part sales consisting of inventory that had been previously written down. During fiscal 2004, the euro strengthened against the U.S. dollar. The euro continued to be strong
in relation to the U.S. dollar during the second quarter of fiscal 2005. The Repair Groups
non-U.S. operation has most of its sales denominated in U.S. dollars while a significant portion of
its operating costs are denominated in euros. Therefore, as the euro strengthens, costs denominated
in euros are negatively impacted. During the second quarter of fiscal 2005, the Repair Group hedged
most 11




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of its exposure to the euro thereby mitigating the negative impact on its operating results in
that period. If it had not hedged such exposure, the impact on the Repair Groups operating results
in the second quarter of fiscal 2005 would have been higher operating costs of approximately $0.4
million related to its non-U.S. operations, when compared to the comparable fiscal 2004 period. Aerospace Component Manufacturing Group (ACM Group) Net sales in the second quarter of fiscal 2005 decreased 14.2% to $6.7 million, compared with $7.9
million in the comparable period of fiscal 2004. For purposes of the following discussion, the ACM
Group considers aircraft that can accommodate less than 100 passengers to be small aircraft and
those that can accommodate 100 or more passengers to be large aircraft. Net sales of airframe
components for small aircraft decreased $0.1 million to $3.2 million in the second quarter of
fiscal 2005, compared with $3.3 million in the comparable period in fiscal 2004. Net sales of
turbine engine components for small aircraft, which consist primarily of net sales of turbine
engine components for business and regional jets, as well as military transport and surveillance
aircraft, decreased $0.8 million to $2.6 million in the second quarter of fiscal 2005, compared
with $3.4 million in the comparable period in fiscal 2004. Net sales of airframe components for
large aircraft were $0.5 million in the second quarter of both fiscal 2005 and 2004. Net sales of
turbine engine components for large aircraft decreased $0.1 million to $0.2 million in the second
quarter of fiscal 2005, compared with $0.3 million in the comparable period in fiscal 2004. The ACM Groups airframe and turbine engine component products have both military and commercial
applications. Net sales of airframe and turbine engine components that solely have military
applications were $2.9 million in the second quarter of fiscal 2005, compared with $3.5 million in
the comparable period in fiscal 2004. Selling, general and administrative expenses in the second quarter of fiscal 2005 were $0.6
million, or 8.9% of net sales, compared with $0.4 million, or 4.5% of net sales, in the second
quarter of fiscal 2004. The $0.2 million increase in second quarter of fiscal 2005 was principally
due to an increase in administrative and sales salaries resulting from the full quarter impact of
certain positions that were vacant in the second quarter of fiscal 2004 as well as the absence in
fiscal 2005 of a bad debt recovery that occurred in the second quarter of fiscal 2004. The ACM Groups operating loss in the second quarter of fiscal 2005 was $0.6 million, compared with
operating income of $0.6 million in the same period in fiscal 2004. Operating results were
negatively impacted in the second quarter of fiscal 2005 compared with the same period in fiscal
2004 due to the negative impact on margins resulting from lower sales volumes as well as by (i) an
increase in energy costs; (ii) an increase in spending on manufacturing supplies; and (iii) an
increase in the LIFO provision due principally to the increased cost of raw material steel being
experienced within the ACM Groups industry. Applied Surface Concepts (formerly named Metal Finishing) Group Net sales of the Applied Surface Concepts Group increased 22.0% to $3.2 million in the second
quarter of fiscal 2005, compared with net sales of $2.7 million in the second quarter of fiscal
2004. In the second quarter of fiscal 2005, product net sales, consisting of selective
electrochemical finishing equipment and solutions, increased 9.0% to $1.7 million, compared with
$1.5 million in the same period in fiscal 2004. In the second quarter of fiscal 2005, customized
selective electrochemical finishing contract service net sales increased 45.4% to $1.5 million,
compared with $1.0 million in the same period in fiscal 2004. In the second quarter of fiscal 2005,
net sales increased to customers in the oil and gas exploration industry, the automotive industry
and the aerospace industry compared with the same period in fiscal 2004. These net sales gains were
partially offset in the second quarter of fiscal 2005 by net sales decreases to the military and
the electronics industry, compared with the same period in fiscal 2004. Selling, general and administrative expenses in the second quarter of fiscal 2005 were $0.9
million, or 28.5% of net sales, compared with $0.8 million, or 29.1% of net sales, in the second
quarter of fiscal 2004. The increase in selling, general and administrative expenses is principally
attributable to a $0.1 million increase in temporary and professional service expenses. The Applied Surface Concepts Groups operating income in the second quarter of fiscal 2005 was $0.4
million, compared with $0.2 million in the same period in fiscal 2004. Corporate Unallocated Expenses Corporate unallocated expenses, consisting of corporate salaries and benefits, legal and
professional and other corporate expenses, were $0.6 million in the second quarter of both fiscal
2005 and 2004. A $0.3 million decrease in legal and professional expenses was offset by a $0.3
million increase in compensation and employee benefit expenses consisting primarily of severance
and benefits incurred as a result of a reorganization of personnel. 12




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Other/General Interest expense was nominal in the second quarter of fiscal 2005, compared with $0.2 million in
the second quarter of fiscal 2004. The following table sets forth the weighted average interest
rates and weighted average outstanding balances under the Companys credit agreements in the second
quarter of fiscal years 2005 and 2004. Weighted Average
    
    
    Weighted AverageInterest Rate
    
    
    Outstanding BalanceThree Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,Credit Agreement
    
    2005
    
    
    2004
    
    
    2005
    
    2004Industrial development variable rate demand
revenue bond
    
    
    N/A
    
    
    
    1.2
    %
    
    $
    0
    
    
    $3.0 millionTerm note
    
    
    N/A
    
    
    
    9.5
    %
    
    $
    0
    
    
    $5.2 millionRevolving credit agreement
    
    
    5.9
    %
    
    
    4.5
    %
    
    $
    0.5
    million
    
    $2.6 million
 Currency exchange gain was $0.2 million in the second quarter of fiscal 2005, compared with a
nominal amount in the comparable period in fiscal 2004. This gain is the result of the impact of
currency exchange rate fluctuations on the Companys monetary assets and liabilities that are not
denominated in U.S. dollars. During the second quarter of fiscal 2005, the euro weakened in
relation to the U.S. dollar. B. Liquidity and Capital Resources Cash and cash equivalents decreased to $2.1 million at March 31, 2005 from $5.6 million at
September 30, 2004. In October 2004, the American Jobs Creation Act of 2004 (Act) was enacted.
The Act contains a one-time provision allowing earnings of controlled foreign companies to be
repatriated, at a reduced tax rate, during the tax year that includes October 2004 or during the
subsequent tax year. The Company received a dividend from its non-U.S. subsidiaries during the
first six months of fiscal 2005 in the amount of $13.4 million and the funds were principally used
to reduce the Companys outstanding indebtedness. The Companys operating activities consumed cash of $3.7 million in the first six months of fiscal
2005, compared with $1.5 million generated in the first six months of fiscal 2004. The $3.7 million
of cash used for operating activities in first six months of fiscal 2005 is primarily due to an
operating loss of $3.9 million and an increase in inventories of $2.8 million, partially offset by
a $1.8 million decrease in accounts receivable and a $0.9 million increase in accounts payable. The
change in these components of working capital was due to factors resulting from normal business
conditions of the Company, including (i) sales levels, (ii) collections from customers, (iii) the
relative timing of payments to suppliers, and (iv) inventory levels required to support customer
demand in general and, in particular, the significant extension of raw material lead times
currently experienced by the ACM Group. Capital expenditures were $1.4 million in the first six months of fiscal 2005, compared with $1.3
million in the first six months of fiscal 2004. Fiscal 2005 capital expenditures consist of $0.5
million by the ACM Group, $0.3 million by the Applied Surface Concepts Group and $0.6 million by
the Repair Group. Capital expenditures in the first six months of fiscal 2005 consisted primarily
of equipment to expand and diversify both the ACM Groups manufacturing and machining capabilities
and the Repair Groups repair capabilities. The Company anticipates that total fiscal 2005 capital
expenditures will approximate $3.0 million. During the first quarter of fiscal 2005, the Company paid off the remaining $2.7 million
outstanding balance of its 15-year industrial development variable rate demand revenue bond, which
was issued to expand the Repair Groups Tampa, Florida facility that was sold during the first
quarter of fiscal 2005 and was included in assets held for sale at September 30, 2004. During the first quarter of fiscal 2005, the Company paid off the remaining $4.5 million
outstanding balance of its term note. At March 31, 2005, the Company has a $6.0 million revolving credit agreement, subject to
sufficiency of collateral, that expires on April 1, 2006 and bears interest at the banks base rate
plus 0.50%. The interest rate was 6.25% at March 31, 2005. A 0.375% commitment fee is incurred on
the unused balance of the revolving credit agreement. At March 31, 2005, $1.1 million was outstanding under the revolving credit agreement and the Company had $4.7 million
available under its $6.0 million revolving credit agreement. The Companys revolving credit
agreement is secured by substantially all of the 13




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Companys assets located in the U.S., a guarantee
by its U.S. subsidiaries and a pledge of 65% of the Companys ownership interest in its non-U.S.
subsidiaries. Under its credit agreement, the Company is subject to certain customary covenants. These include,
without limitation, covenants (as defined) that require maintenance of certain specified financial
ratios, including a minimum tangible net worth level and a fixed charge coverage ratio. In February
2005, the Company entered into an agreement with its bank to amend the fixed charge coverage ratio
as of December 31, 2004 and for future periods. The Company was in compliance with all applicable
covenants at March 31, 2005. During the first quarter of fiscal 2005, the Company completed the sale of a building and land that
was part of its Repair Groups Irish operations and was included in assets held for sale at
September 30, 2004. The net proceeds from the sale of these assets were $8.0 million and the assets
that were sold had a net book value of approximately $1.8 million. The Company believes that cash flows from its operations together with existing cash reserves and
the funds available under its revolving credit agreement will be sufficient to meet its working
capital requirements through the end of fiscal year 2005. However, no assurances can be given as to
the sufficiency of the Companys working capital to support the Companys operations. If the
existing cash reserves, cash flow from operations and funds available under the revolving credit
agreement are insufficient; if working capital requirements are greater than currently estimated;
and/or if the Company is unable to satisfy the covenants set forth in its credit agreement, the
Company may be required to adopt one or more alternatives, such as reducing or delaying capital
expenditures, restructuring indebtedness, selling assets or operations, or issuing additional
shares of capital stock in the Company. There can be no assurance that any of these actions could
be accomplished, or if so, on terms favorable to the Company, or that they would enable the Company
to continue to satisfy its working capital requirements. C. Recently Issued Accounting Standards In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 123 (revised 2004), Accounting for Stock-Based Compensation".
This Statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees", and its
related implementation guidance. This Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or services. It also
addresses transactions in which an entity incurs liabilities in exchange for goods or services that
are based on the fair value of the entitys equity instruments or that may be settled by the
issuance of those equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment transactions. This
Statement does not change the accounting guidance for share-based payment transactions with parties
other than employees provided in Statement 123 as originally issued and EITF Issue No. 96-18,
Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services". This Statement does not address the accounting for
employee share ownership plans, which are subject to AICPA Statement of Position 93-6, Employers
Accounting for Employee Stock Ownership Plans". According to the U.S. Securities and Exchange
Commissions Staff Accounting Bulletin No. 107, SFAS No. 123 (revised 2004) is effective for the
Companys fiscal year 2006. The Company does not expect the adoption of this statement in fiscal
year 2006 to have a material impact on the Companys financial position or results of operations. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets- an amendment of
Accounting Principles Bulletin (APB) Opinion No. 29, Accounting for Nonmonetary Transactions".
The guidance in APB Opinion No. 29, is based on the principle that exchanges of nonmonetary assets
should be measured based on the fair value of the assets exchanged. The guidance in that Opinion,
however, included certain exceptions to that principle. SFAS No. 153, amends Opinion No. 29 to
eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with
a general exception for exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the entity are expected
to change significantly as a result of the exchange. SFAS No. 153 is effective for fiscal periods
beginning after June 15, 2005. The Company does not expect the adoption of this statement in fiscal
year 2005 to have a material impact on the Companys financial position or results of operations. In November 2004, the FASB issued SFAS No. 151, Inventory Costs- an amendment of Accounting
Research Bulletin No. 43, Chapter 4, Inventory Pricing". SFAS No. 151 was issued to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted
material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that ...under some
circumstances, items such as idle facility expense, excessive spoilage, double freight, and
rehandling costs may be so abnormal as to require treatment as current period charges... This
Statement requires that those items be recognized as current-period charges regardless of whether
they meet the criterion of so abnormal. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be
based on the normal capacity of the production facilities. SFAS No. 151 is effective for fiscal
years beginning after June 15, 2005. The Company does not 14




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expect the adoption of this statement in
fiscal year 2006 to have a material impact on the Companys financial position or results of
operations. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk In the ordinary course of business, the Company is subject to foreign currency and interest risk.
The risks primarily relate to the sale of the Companys products and services in transactions
denominated in non-U.S. dollar currencies (primarily the euro and British pound); the payment in
local currency of wages and other costs related to the Companys non-U.S. operations (primarily the
euro); 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 during
the first six months of fiscal 2005, and does not expect inflation to be a significant factor in
the balance of fiscal 2005. A. Foreign Currency Risk The U.S. dollar is the functional currency for all of the Companys U.S. operations and its Irish
subsidiary. 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 rate of exchange at the
end of the period and revenues and expenses are translated using average rates of exchange.
Foreign currency translation adjustments are reported as a component of accumulated other
comprehensive loss. Foreign currency transaction gains and losses are included in earnings. During the first six months of fiscal 2005, the euro continued to be strong in relation to the U.S.
dollar. The Repair Groups non-U.S. operation has a significant portion of its operating costs
denominated in euros, and therefore, as the euro strengthens, such costs are negatively impacted.
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. During the first six
months of fiscal 2005, the Company hedged most of its exposure to the euro. At March 31, 2005,
the Company had forward exchange contracts outstanding for durations of up to six months to
purchase euros aggregating U.S. $9.6 million at euro to U.S. dollar exchange rates ranging from
1.1989 to 1.2010. 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 March 31, 2005
are denominated, would result in approximately a $1.0 million decline or increase, respectively, in
the value of the forward exchange contracts. Factors that could impact the effectiveness of the
Companys hedging efforts include accuracy of expenditure estimates, volatility of currency markets
and the cost and availability of hedging instruments. The Company will continue to evaluate its
foreign currency risk, if any, and the effectiveness of using similar hedges in the future to
mitigate such risk. At March 31, 2005, the Companys assets and liabilities denominated in the British pound and the
euro were as follows (amounts in thousands): British Pound
    
    
    EuroCash and cash equivalents
    
    
    225
    
    
    
    260Accounts receivable
    
    
    420
    
    
    
    814Accounts payable and accrued liabilities
    
    
    162
    
    
    
    1,442
 B. Interest Rate Risk The Companys primary interest rate risk exposure results from the variable interest rate
mechanisms associated with the Companys revolving credit agreement. If interest rates were to
increase 100 basis points (1%) from March 31, 2005, and assuming no changes in the amount
outstanding under the revolving credit agreement, the additional interest expense to the Company
would be nominal. 
 Item 4. Controls And Procedures The Company carried out an evaluation, under the supervision and with the participation of the
Companys management, including the Chairman and Chief Executive Officer of the Company and Chief
Financial Officer of the Company, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) as of the end of the
period covered by this report. Based upon that evaluation, the Chairman and Chief
Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures are effective 15




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in timely alerting them to material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Companys periodic SEC filings. There has been no significant change in our internal control over financial reporting that occurred
during the period covered by this report that has materially affected, or that is reasonably likely
to materially affect our internal control over financial reporting. 
 Part II.Other Information 
 Item 1. Legal Proceedings No change. 
 Item 2. Change in Securities and Use of Proceeds No change. 
 Item 3. Defaults Upon Senior Securities None. 
 Item 4. Submission of Matters to a Vote of Security Holders At the Annual Meeting of Shareholders held on January 25, 2005, there were a total of 4,771,828
shareholders voting either in person or by proxy. The shareholders:  A.
    Elected six directors to the Companys Board of Directors, Jeffrey P. Gotschall, Michael
S. Lipscomb, P. Charles Miller, Jr., Alayne L. Reitman, Hudson D. Smith and J. Douglas
Whelan, to serve on the Board of Directors until the Companys Annual Meeting in 2006.The results of the voting for directors were as follows: Name
    
    Votes For
    
    
    Votes WithheldJeffrey P. Gotschall
    
    
    4,745,077
    
    
    
    26,750Michael S. Lipscomb
    
    
    4,739,977
    
    
    
    31,850P. Charles Miller, Jr.
    
    
    4,747,352
    
    
    
    24,475Alayne L. Reitman
    
    
    4,744,182
    
    
    
    27,645Hudson D. Smith
    
    
    4,745,113
    
    
    
    26,714J. Douglas Whelan
    
    
    4,741,098
    
    
    
    30,729
  B.
    Ratified Grant Thornton LLP as the independent auditors of the Company to audit the books
and accounts of the Company for the fiscal year ending September 30, 2005. There were
4,731,729 votes cast for the appointment, 3,691 votes cast against the appointment and
36,408 abstentions. 
 Item 5. Other Information None. 
 Item 6. Exhibits (a) 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 No.
    
    Description3.1
    
    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
 16




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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 reference4.2
    
    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 reference4.5
    
    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, filed as Exhibit
4.5 of the Companys Form 10-K dated September 30, 2002, and incorporated
herein by reference4.6
    
    Consolidated Amendment No. 2 to Amended and Restated Credit Agreement, Amended
and Restated Reimbursement Agreement and Promissory Note dated February 13,
2003 between SIFCO Industries, Inc. and National City Bank, filed as Exhibit
4.6 of the Companys Form 10-Q dated December 31, 2002, and incorporated
herein by reference4.7
    
    Consolidated Amendment No. 3 to Amended and Restated Credit Agreement, Amended
and Restated Reimbursement Agreement and Promissory Note dated May 13, 2003
between SIFCO Industries Inc. and National City Bank, filed as Exhibit 4.7 of
the Companys Form 10-Q dated March 31, 2003, and incorporated herein by
reference4.8
    
    Consolidated Amendment No. 4 to Amended and Restated Credit Agreement, Amended
and Restated Reimbursement Agreement and Promissory Note dated July 28, 2003
between SIFCO Industries, Inc. and National City Bank, filed as Exhibit 4.8 of
the Companys Form 10-Q dated June 30, 2003, and incorporated herein by
reference4.9
    
    Consolidated Amendment No. 5 to Amended and Restated Credit Agreement, Amended
and Restated Reimbursement Agreement and Promissory Note dated November 26,
2003 between SIFCO Industries, Inc. and National City Bank4.10
    
    Amendment No. 6 to Amended and Restated Credit Agreement dated March 31, 2004
between SIFCO Industries, Inc. and National City Bank, filed as Exhibit 4.10
of the Companys Form 10-Q dated March 31, 2004, and incorporated herein by
reference4.11
    
    Consolidated Amendment No. 7 to Amended and Restated Credit Agreement, Amended
and Restated Reimbursement Agreement and Promissory Note dated May 14, 2004
between SIFCO Industries, Inc. and National City Bank, filed as Exhibit 4.11
of the Companys Form 10-Q dated March 31, 2004, and incorporated herein by
reference4.12
    
    Consolidated Amendment No. 8 to Amended and Restated Credit Agreement, Amended
and Restated Reimbursement Agreement and Promissory Note effective June 30,
2004 between SIFCO Industries, Inc. and National City Bank, filed as Exhibit
4.12 of the Companys Form 10-Q dated June 30, 2004, and incorporated herein
by reference4.13
    
    Consolidated Amendment No. 9 to Amended and Restated Credit Agreement, Amended
and Restated Reimbursement Agreement and Promissory Note effective November
12, 2004 between SIFCO Industries, Inc. and National City Bank, filed as
Exhibit 4.13 to the Companys Form 10-K dated December 17, 2004 and
incorporated herein by reference4.14
    
    Amendment No. 10 to Amended and Restated Credit Agreement effective December
31, 2004 between SIFCO Industries, Inc. and National City Bank9.1
    
    Voting Trust Extension Agreement dated January 14, 2002, filed as Exhibit 9.1
of the Companys Form 10-K dated September 30, 2002, and incorporated herein
by reference9.2
    
    Voting Trust Agreement dated January 15, 1997, filed as Exhibit 9.2 of the
Companys Form 10-K dated September 30, 2002, and incorporated herein by
reference10.1
    
    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
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##### Table of Contents



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 reference10.3
    
    SIFCO Industries, Inc. 1998 Long-term Incentive Plan, filed as Exhibit 10.3 of
the Companys form 10-Q dated June 30, 2004, and incorporated herein by
reference10.4
    
    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 reference10.5
    
    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 reference10.6
    
    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 reference10.7
    
    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 reference10.8
    
    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 reference10.9
    
    Change in Control Severance Agreement between the Company and Timothy V.
Crean, dated July 30, 2002, filed as Exhibit 10.9 of the Companys Form 10-K
dated September 30, 2002, and incorporated herein by reference10.10
    
    Change in Control Severance Agreement between the Company and Jeffrey P.
Gotschall, dated July 30, 2002, filed as Exhibit 10.10 of the Companys Form
10-K dated September 30, 2002, and incorporated herein by reference10.11
    
    Form of Restricted Stock Agreement, filed as Exhibit 10.11 of the Companys
Form 10-K dated September 30, 2002, and incorporated herein by reference10.12
    
    Form of Tender, Condition of Tender, Condition of Sale and General Conditions
of Sale dated June 30, 2004, filed as Exhibit 10.12 of the Companys Form 8-K
dated October 14, 2004, and incorporated herein by reference10.13
    
    Separation Agreement and Release between Hudson D. Smith and SIFCO Industries,
Inc., effective January 31, 2005, filed as Exhibit 10.13 of the Companys Form
8-K dated February 8, 2005, and incorporated herein by reference*31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) / 15d-14(a)*31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) / 15d-14(a)*32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350*32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
 18




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereto duly authorized. SIFCO Industries, Inc.(Registrant)Date: May 11, 2005
    
    /s/
    
    Jeffrey P. GotschallJeffrey P. GotschallChairman of the Board andChief Executive OfficerDate: May 11, 2005
    
    /s/
    
    Frank A. CappelloFrank A. CappelloVice President-Finance andChief Financial Officer(Principal Financial Officer)
 19