SIFCO Industries, Inc.

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SIFCO Industries, Inc.

970 East 64th Street
Cleveland, Ohio 44103
U.S.A.
Telephone: (216)881-8600
Fax: (216)432-6281
Web site: http://www.sifco.com

Public Company
Incorporated: 1913 as the Steel Improvement Company
Employees: 800
Sales: $106.14 million (2000)
Stock Exchanges: American
Ticker Symbol: SIF
NAIC: 331221 Rolled Steel Shape Manufacturing; 331316 Aluminum Extruded Product Manufacturing; 332313 Plate Work Manufacturing; 332111 Iron and Steel Forging; 332112 Nonferrous Forging; 332813 Electroplating, Plating, Polishing, Anodizing, and Coloring; 333319 All Other Miscellaneous Fabricated Metal Product Manufacturing

SIFCO Industries, Inc. specializes in repairing jet turbine components and supplying parts to the aerospace market. The company is half-owned by descendants of C.H. Smith, who took over the company in the 1920s. Although dwarfed by rivals AAR Corp. and Goodrich Corporation, SIFCO has played a pioneering role in the aerospace industry, being the first to successfully forge alloys of titanium and other space age metals. By 2000, two-thirds of SIFCO’s business was repair work; aircraft parts accounted for the rest.

Early 20th Century Origins

The Steel Improvement Company was founded in Cleveland, Ohio in 1913. Its five principals formed the company to market new scientific principles in the 4,000 year-old art of heat-treating metals. Three years later, Steel Improvement merged with an adjacent business—the Forest City Machine Company—which was a supplier of hardware for power lines. The new entity was called the Steel Improvement and Forge Company.

The new automobile and aircraft industries, as well as ships and military armaments, provided a ready market for the company during World War I. Peacetime profits, however, were scarce.

In 1920, the company’s bankers encouraged C.H. Smith to leave Alcoa’s pioneering aluminum forge to work as Steel Improvement’s sales manager. Upon his arrival at the company, Smith attempted to make the company less dependent on the highly competitive auto industry. He found new business as a supplier to makers of valves, air compressors, and forklifts. But his greatest success came in improving high-stress components (specifically, still-plugs) for the oil industry. Steel Improvement used a new forging, rather than casting, process with nickel-based alloys to create still-plugs that could withstand the heat, pressure, and corrosion in oil refining equipment. This created a hugely successful new line of business.

Smith was promoted to the position of company president in 1925. One of his first tasks was to relocate the growing company’s facilities to a site near downtown Cleveland—a site that the company would occupy for more than 70 years. The new plant opened in 1928.

New Lines of Business in the Depression Years

Steel Improvement nonetheless suffered in the Great Depression. It did pick up two new lines of business, though: forging mass-produced golf club heads, and creating specialized parts for the nascent aircraft industry. This latter area of endeavor took off, so to speak, during World War II. In 1939, the Thompson Products Company (later a part of TRW) contracted Steel Improvement to make forgings for its British client, the Bristol Aeroplane Company (later a part of Rolls-Royce pic).

Meanwhile, Steel Improvement had already been making parts for military equipment, including high-strength torpedo propellers. By the end of the war, the company was also producing turbine wheels for aircraft turbosuperchargers and jet engines.

Charles Smith, Jr. (”Charlie”) was named as the company’s president and chief officer at the age of twenty-two, following the sudden death of his father in December 1942. At the time, Charles Jr. had been attending the Massachusetts Institute of Technology and had already previously worked in various departments at Steel Improvement—apparently being groomed for a leadership position.

Postwar Pioneering

Steel Improvement was involved in pioneering metallurgy research projects after World War II. The company became the first to successfully forge titanium in 1949. Six years later, it was forging molybdenum alloys, which were used in rocket nozzles. Both projects were arranged by GE. At the same time, Steel Improvement was also supplying parts for the Canadian firm A.V. Roe Ltd.—a subsidiary of Britain’s Hawker Siddely, Ltd.—who was developing a jet fighter for the Canadian military.

Steel Improvement sold its Canadian operations in 1954 and bought the neighboring Champion Forge Co.—a company which acted as supplier to the Cleveland Pneumatic Tool Company, a leader in landing gear for large planes. Some of the equipment obtained from Champion Forge was used to start plants in South America. The first was created in 1958 in cooperation with Industrias Kaiser Argentina; Steel Improvement only took a 5 percent equity share in this venture. SIFCO do Brasil, launched the next year in partnership with Cia Mechanica e Importadoro, S.A., would become the Southern Hemisphere’s largest producer of forgings. In 1961, Steel Improvement helped design a large forge in India, earning a two and a half percent holding in Bharat Forge Company, Ltd. as a commission.

Steel Improvement bought Minneapolis-based Custom Tool and Manufacturing Company in 1957, whose machining capabilities extended the new parent company’s opportunities for state-of-the-art aerospace engineering. Steel Improvement’s research and development extended to new methods of titanium fabrication, electroplating, and electrochemical machining (ECM).

Steel Improvement was privately and closely owned until December 1956, when some shareholders sold a portion of their holdings. Additional new shares were issued in August 1957.

A New Name and New Opportunities: 1969 Through the 1980s

At the beginning of the year 1969, Steel Improvement changed its name to SIFCO Industries, Inc. The company then ventured into the aluminum forging business through the 1969 acquisition of Schick Products on the West Coast. Schick produced aluminum hand tools in addition to aircraft forgings; however, the company was ultimately unable to find a market for them. A more successful venture, also launched in 1969, was the purchase of an Avon, Ohio plant that would become SIFCO Bearings. Another enduring line of business begun in the late 1960s was the repair of jet turbine components for airlines—beginning with Northwest in Minneapolis—where SIFCO located its turbine component repair facilities.

The company began listing on the American Stock Exchange in September 1969, seven months after changing its name. Leadership was restructured soon after. Executive vice president Toby Milnes became president and chief operating officer, while Smith became chairman of the board and chief executive officer.

SIFCO built a high volume forge (Presforge) in 1979. The same year, it bought a small Michigan company specializing in cold forging. In 1980, a dedicated facility was built in Tampa, Florida to handle turbine blade repair work. SIFCO Turbine Component Services (STCS) was spun off as a separate company, with Westinghouse Electric Corporation taking a 35 percent share. Work on a facility in Cork, Ireland began in 1983.

Tough Times in the Mid- and Late 1980s

Kevin O’Donnell, who had become SIFCO’s president and chief operating officer in 1976 and was a company veteran since 1947, was named CEO in February 1983. Eventually, upon his shoulders fell the job of dismantling the company’s high-volume automotive forging operations, which the company shed in the late 1980s due to lowered demand and competition from abroad and from alternate materials. Crain’s noted that forging had accounted for 75 percent of revenue and 84 percent of operating income in 1982; four years later, it accounted for only about 50 percent of revenue and just 3 percent of profits. SIFCO’s total revenues were $72 million in 1982 and just $61 million in 1986. An acrimonious, four-week strike at SIFCO’s Cleveland forge accompanied the downsizing, which left SIFCO with a total of 550 employees in 1990.

The company also closed or sold all of its interests in Brazil and India, as well as the cold forge (Coldforge) and bearings operations. SIFCO then looked to its aerospace business for growth, expanding its subassembly and replacement parts manufacturing. It also continued to contribute to advanced aerospace programs, such as the Space Shuttle.

SIFCO posted a $2.4 million loss in fiscal 1988 but boasted a $4.5 million profit the next year. Its stock price more than doubled during the year.

Jeffrey P. Gotschall, a grandson of the company founder, was named president in 1989, and CEO the next year upon Kevin O’Donnell’s retirement. At that point, the Smith family owned about half of SIFCO’s stock.

Company Perspectives:

SIFCO Industries, Inc. is dedicated to serving the technical needs of the aerospace industry in the production, repair, coating, machining and marketing of jet engines and aerospace components. We are committed to the absolute satisfaction of our customers worldwide through competitive pricing, total service, comprehensive technology and superior quality.

Recovery in the 1990s

The recession that crippled the airline industry in the early 1990s affected SIFCO as well. Defense orders continued to fall after the end of the Cold War; more layoffs followed. The company did seek to capitalize on its areas of expertise during that time. SIFCO launched a new forging joint venture with the People’s Republic of China in January 1990. In June 1992, SIFCO acquired Selectrons Ltd. of Waterbury Connecticut, a competitor in metal-plating equipment. SIFCO later sued this company’s former owner for fraud, alleging he sold his customer list to another competitor before the transaction.

SIFCO lost $440,000 on sales of $57.6 million for the 1992 fiscal year, after earning $2.8 million on $65.3 million in 1991 revenues. There was clearly a need for further restructuring. Uniquely, a 10-member commission of employees was created in 1994 to decide where cuts needed to be made at SIFCO’s Ohio forge. A consulting firm was also brought in. By the end of the year, 35 jobs had been eliminated while the company worked on increasing efficiency, thus putting the company in the black again. SIFCO also benefited from its customers reducing the number of suppliers on their vendor lists.

A number of smaller competitors went out of business during the downturn; SIFCO had survived. In 1995, SIFCO took over some forgings work from Wyman-Gordon Co., which was closing an outdated plant in Massachusetts. The $400 million company had a reputation for technological leadership.

The recovery of the commercial airline business in the mid-1990s was good for SIFCO, which benefited from new orders at Boeing Co. By 1996, SIFCO was reporting record sales, which surpassed $100 million in fiscal 1997. Aerospace components sales rose 46 percent.

SIFCO in the New Millennium

SIFCO then expanded its facilities in Ireland and Florida, but did not realize expected sales growth. Income for the fiscal year ending September 30, 2000 was $2.4 million, down from 1999’s $3.8 million; sales fell to $106.1 million from $115.5 million.

A $7.5 million turbine blade repair joint venture with Rolls-Royce pic, a leading jet engine producer, was announced in March 2001. Aimed at clients in the Americas, work was to initially be completed at SIFCO’s Tampa facilities.

Principal Subsidiaries

SIFCO Custom Machine; SIFCO Holdings Inc.; SIFCO Irish Holdings Ltd.; SIFCO Selective Plating (France); SIFCO Selective Plating, Ltd. (U.K.).

Principal Divisions

SIFCO Selective Plating; Turbine Component Services and Repair; Aerospace Component Manufacturing.

Principal Operating Units

Turbine Component Services and Repair; Aerospace Component Manufacturing.

Principal Competitors

AAR Corp.; Goodrich Corporation; Kellstrom Industries, Inc.; LDC Inc.

Key Dates:

1913:: Steel Improvement formed to exploit metal working science.
1920:: C.H. Smith joins Steel Improvement.
1939:: Steel Improvement begins production of airplane parts.
1949:: Titanium forging pioneered.
1958:: Brazilian venture is begun.
1969:: Company changes name to SIFCO Industries, Inc.; lists on American stock exchange.
1980:: New turbine repair center built in Tampa.
1991:: Industry-wide recession affects revenues.
1996:: Restructured SIFCO posts record sales.