PROPOSAL 1 - TO ELECT SEVEN (7) DIRECTORS
Seven (7) directors
are to be elected at the 2013 Annual Meeting to hold office until the next annual meeting of shareholders and/or until their respective successors are elected and qualified. Shares represented by validly given proxies will be voted in favor of the
following persons to serve as directors unless the shareholder indicates to the contrary on the proxy. The seven (7) nominees receiving the most votes will be elected as directors at the 2013 Annual Meeting. Proxies cannot be voted for a
greater number of nominees than the number named in this Proxy Statement.
Each of the below nominees has consented
(i) to serve as a nominee, (ii) to being named as a nominee in this Proxy Statement and (iii) to serve as a director if elected. Although the Company does not contemplate that any of the nominees will be unavailable for election, if a
vacancy in the slate of nominees is occasioned by death or other unexpected occurrence, it is currently intended that the remaining directors will, by the vote of a majority of their number, designate a different nominee for election to the Board at
the 2013 Annual Meeting.
3
Board Recommendation
- The Board of Directors recommends that you vote
FOR
the
election of all nominees. Unless you instruct otherwise on your proxy card or in person, your proxy will be voted in accordance with the Boards recommendation.
Nominees for election to the Board of Directors
Set forth below for each
nominee for election as a director is a brief statement, including the age, principal occupation and business experience, and any directorships held. The members of the Nominating and Governance Committee have recommended the persons listed below as
nominees for the Board of Directors, all of whom presently are directors of the Company.
The Nominating and Governance
Committee reviews and evaluates individuals for nomination, to stand for election as a director, who are recommended to the Nominating and Governance Committee in writing by any of our shareholders pursuant to the procedure outlined below in the
section titled Process for Selecting and Nominating Directors on the same basis as candidates who are suggested by our current or past directors, executive officers, or other sources. In considering individuals for nomination to stand
for election, the Nominating and Governance Committee will consider: (1) the current composition of directors and how they function as a group; (2) the skills, experiences or background, and the personalities, strengths, and weaknesses of
current directors; (3) the value of contributions made by individual directors; (4) the need for a person with specific skills, experiences or background to be added to the Board; (5) any anticipated vacancies due to retirement or
other reasons; and (6) other factors which may enter into the nomination decision. The Nominating and Governance Committee endeavors to select nominees that contribute requisite skills and professional experiences in order to advance the
performance of the Board of Directors and establish a well rounded Board with diverse views that reflect the interests of our shareholders. The Nominating and Governance Committee considers diversity as one of a number of factors in identifying
nominees for directors, however, there is no formal policy in this regard. The Nominating and Governance Committee views diversity broadly to include diversity of experience, skills and viewpoint, in addition to traditional concepts of diversity
such as race and gender.
When considering an individual candidates suitability for the Board, the Nominating and
Governance Committee does not prescribe minimum qualifications or standards for directors, however, the Nominating and Governance Committee looks for directors who have personal characteristics, educational backgrounds and relevant experience that
would be expected to help further the goals of both the Board and the Company. The Nominating and Governance Committee will review the extent of the candidates demonstrated success in his or her chosen business, profession, or other career and
the skills that the candidate would be expected to add to the Board. The Nominating and Governance Committee may, in certain cases, conduct interviews with the candidate and/or contact references, business associates, other members of boards on
which the candidate serves or other appropriate persons to obtain additional information. The Nominating and Governance Committee will make its determinations on whether to nominate an individual candidate based on the Boards then-current
needs, the merits of that candidate and the qualifications of other available candidates. The types of key attributes and/or experience that the Nominating and Governance Committee believes the composite board membership needs to possess to ensure
the existence of a functionally effective board are: (i) proven leadership capabilities; (ii) familiarity with the organizational and operational requirements of medium and large sized manufacturing organizations; (iii) strategic
planning; (iv) experience in mergers and acquisitions and an understanding of financial markets; (v) experience in finance and accounting; (vi) familiarity with the aerospace, defense, energy and related industries and markets,
(vii) public company compensation matters and structure; (viii) service on the boards of directors of other companies both public and private; etc. The Nominating and Governance Committee believes that each of the nominees possess
certain of the key attributes that the Committee believes to be important for an effective board.
4
Jeffrey P. Gotschall
, 64, director of the Company since 1986, Chairman of the Board since 2001.
Mr. Gotschall previously served the Company as Chief Executive Officer from 1990 until his retirement in 2009 and served from 1989 to 2002 as President, from 1986 to 1990 as Chief Operating Officer, from 1986 through 1989 as Executive Vice
President and from 1985 through 1989 as President of SIFCO Turbine Component Services.
Michael S. Lipscomb
, 65, President and Chief
Executive Officer since 2009 and a director of the Company since 2010. Mr. Lipscomb also served as a director of the Company from 2002 to 2006. Mr. Lipscomb is currently the CEO of Aviation Component Solutions and the President and CEO of
Greenstar Management Corporation. Prior to joining the Company, Mr. Lipscomb was Chairman, President and CEO of Argo-Tech Corporation from 1994 to 2007, President from 1990 to 1994, Executive V.P. and Chief Operating Officer from 1988 to 1990,
and Vice President of Operations from 1986, when Argo-Tech was formed, to 1988. Mr. Lipscomb joined TRWs corporate staff in 1981 and was appointed Director of Operations for the Power Accessories Division in 1985. Mr. Lipscomb
previously served as a director of Argo-Tech and AT Holdings Corporation from 1990 to 2007. He serves on the boards of Ruhlin Construction Company and Altra Holdings, Inc. He is a former board member of the Aerospace Industries Association and
General Aviation Manufacturers Association.
John G. Chapman, Sr., CPA,
61, director of the Company since 2011. Mr. Chapman
retired in 2011 from his position as Strategic Relationship Management Partner & Senior Contracting Partner with the firm of Deloitte LLP in Cleveland, Ohio. Prior to those responsibilities, Mr. Chapman served as an audit partner for
Deloitte LLP, and its predecessor firm Touche Ross & Co. in Cleveland, Ohio starting in 1983. Mr. Chapman started in the Touche Ross & Co. Chicago, Illinois office in 1972. Mr. Chapman currently works as a
contracting consultant to Deloitte LLP. Mr. Chapman serves on the board of trustees for Playhouse Square Foundation in Cleveland, Ohio.
Donald C. Molten, Jr
., 55, director of the Company since 2010. Mr. Molten is the Associate Headmaster at University School. Prior
to joining University School in 2004, Mr. Molten was a Managing Director and Partner of Linsalata Capital Partners, a private equity firm that specializes in acquiring middle market companies. Mr. Molten is the former chairman of the
Tranzonic Companies, Inc. where he continues as a director. Mr. Molten also continues to serve on the board for U-Line Corporation, Inc., First Choice Packaging, Transpac, and Wellborn Forest Company. Mr. Molten formerly served
as director of Americas Body Company, CMS / Hartzell, Neff Motivation, Teleco and Degree Communications. Prior to joining Linsalata Capital Partners, Mr. Molten was a vice president of Key Equity Capital and its predecessor, Society
Venture Capital. His experience in equity and debt transactions and leveraged buyouts also includes seven years with The Northwestern Mutual Life Insurance Company.
Alayne L. Reitman,
48, director of the Company since 2002. Ms. Reitman currently serves as a Trustee of The Cleveland Museum of Natural History and is a member of the Audit Committee of Hawken
School. Ms. Reitman serves on the board of Embedded Planet LLC, a high-tech start-up company, where she previously served from 1999 to 2001 as President. Ms. Reitman previously served from 1993 to 1998 as Vice President and Chief Financial
Officer of the Tranzonic Companies, Inc.; and from 1991 to 1993 as Senior Financial Analyst for American Airlines. Ms. Reitman received an MBA degree from the Wharton School of the University of Pennsylvania.
5
Hudson D. Smith
, 61, director of the Company since 1988. Mr. Smith is currently the President of
Forged Aerospace Sales, LLC. Mr. Smith previously served the Company as Executive Vice President from 2003 through 2005; as Treasurer from 1983 through 2005; as President of SIFCO Forge Group from 1998 through 2003; as Vice President and
General Manager of SIFCO Forge Group from 1995 through 1997; as General Manager of SIFCO Forge Groups Cleveland Operations from 1989 through 1995; and as General Sales Manager of SIFCO Forge Group from 1985 through 1989. Refer to
Director Compensation below for a discussion of certain transactions between Mr. Smith and the Company.
Norman E. Wells,
Jr
., 64, is a Partner and Operating Executive of SFW Capital Partners, LLC (SFW). In that capacity, he serves on the board of Spectro, Inc., an SFW portfolio investment. Mr. Wells is also the Chairman of the Board of the Summa
Health System, a not-for-profit health care provider. Mr. Wells previously served as Chairman and CEO of Sovereign Specialty Chemicals, Inc. from 2002 to 2005; as CEO of Easco Aluminum, Inc. from 1996 until 1999; and as CEO of CasTech Aluminum
Group Inc. from 1991 to 1996. Mr. Wells also served on the boards of Dal-Tile International and Manchester Tank & Equipment Co. Mr. Wells has Bachelor of Science degrees in Metallurgical Engineering and Industrial Engineering from
the University of Washington and an MBA from Gonzaga University.
Each of the foregoing nominees was recommended by the
Nominating and Governance Committee. There are, and during the past ten years there have been, no legal proceedings material to an evaluation of the ability of any director or executive officer of the Company to act in such capacity or concerning
his or her integrity. There are no family relationships among any of the directors and executive officers except that Mr. J. P. Gotschall and Mr. H. D. Smith are cousins. In April, 2012, Mr. M. J. Silk resigned from the Board.
STOCK OWNERSHIP OF EXECUTIVE OFFICERS, DIRECTORS AND NOMINEES
The following table sets forth, as of October 31, 2012, the number of Common Shares of the Company beneficially owned by each director, nominee for director and named executive officer and all
directors and executive officers as a group, according to information furnished to the Company by such persons:
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Name of Beneficial Owner
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Amount and Nature
of
Beneficial Ownership (1)
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Percent
of Class
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Mark J. Silk (6)
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702,380
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13.15
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%
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Hudson D. Smith (2)(3)(5)
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280,385
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5.25
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%
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Jeffrey P. Gotschall (2)(3)(5)
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164,141
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3.07
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%
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Frank A. Cappello (4)
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48,474
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*
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Michael S. Lipscomb
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35,505
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*
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James P. Woidke (4)
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30,538
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*
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Donald C. Molten, Jr.
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6,292
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*
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Alayne L. Reitman
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5,192
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*
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John G. Chapman, Sr.
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1,312
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*
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Norman E. Wells, Jr.
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0
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*
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All Directors and Executive Officers as a Group (1)
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1,274,219
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23.86
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%
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*
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Common Shares owned are less than one percent of class.
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(1)
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Unless otherwise stated below, the named person owns all of such shares of record and has sole voting and investment power as to those shares
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6
(2)
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In the cases of Mr. J. P. Gotschall and Mr. H. D. Smith, includes 400 shares and 22,955 shares, respectively, owned by their spouses and any children or in
trust for them, their spouses and their lineal descendants.
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(3)
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Includes Voting Trust Certificates issued by the aforementioned (see page 3) Voting Trust representing an equivalent number of Common Shares held by such Trust as
follows: Mr. J. P. Gotschall 157,629 and Mr. H. D. Smith 275,893.
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(4)
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A portion of the total number of shares for the following persons represents the target number of shares related to performance-based awards which are outstanding as of
September 30, 2012 with respect to the 2007 LTIP: Mr. J. P. Woidke 20,400 shares and Mr. F. A. Cappello 15,800 shares. A portion of the total number of shares for the following person represents shares related to
performance-based awards which are vested as of September 30, 2012 with respect to the 2007 LTIP: Mr. J. P. Woidke 6,000 shares and Mr. F. A. Cappello 8,250 shares.
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(5)
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Mr. J. P. Gotschall and Mr. H. D. Smith are cousins.
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(6)
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Mr. M. J. Silk resigned from the Board on April 9, 2012.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a)
of the Securities Exchange Act of 1934 (Exchange Act) requires the Companys officers and directors, and persons who own more than ten percent (10%) of a registered class of the Companys equity securities, to file reports
of ownership and changes in ownership with the U.S. Securities and Exchange Commission (SEC). Officers, directors and greater than ten percent (10%) shareholders are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms they file.
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company during, or
with respect to, the fiscal year ended September 30, 2012, the Company believes that no director, officer, beneficial owner of more than ten percent (10%) of its outstanding Common Shares or any other person subject to Section 16(a)
of the Exchange Act failed to file on a timely basis during fiscal 2012 any reports required by 16(a) of the Exchange Act, except that one director reported one transaction subsequent to the date required for Form 4.
CORPORATE GOVERNANCE AND BOARD OF DIRECTORS MATTERS
Board of Directors
- The Companys Board of Directors held four (4) regularly scheduled meetings and three (3) special meetings during fiscal 2012. The Board of Directors
standing committees are the Audit, Compensation, and Nominating and Governance Committees. From time-to-time the Board may determine that it is appropriate to form a special committee of its independent directors to address a particular matter(s)
not specific to one of its standing committees. Directors are expected to attend Board meetings, our annual shareholders meeting, and the meetings of the committees on which he or she serves. During fiscal 2012 each director attended at least
75% of the total number of meetings of the Board and the committees on which he or she served. SIFCOs independent directors meet in executive session at each regularly scheduled Board meeting. All of the directors attended the Companys
2012 Annual Meeting of Shareholders.
Director Independence
- The members of the Board of Directors standing
committees are all independent directors as defined in Section 803 of the NYSE MKT Company Guide. The Board has affirmatively determined that Mr. D. C. Molten, Jr., Ms. A. L. Reitman, Mr. J. G. Chapman, Sr. and
Mr. Norman E. Wells, Jr. meet these standards of independence. There are no undisclosed transactions, relationships, or arrangements between the Company and any of such directors. The Board has affirmatively determined that Mr. J. P.
Gotschall, Mr. M. S. Lipscomb and Mr. H. D. Smith do not meet these standards of independence, are therefore not independent and, accordingly, are not members of any of the Boards standing committees. Should the need arise, the
Company is permitted under NYSE rules to maintain a board comprised of one-half independent directors, rather than a majority of independent directors, due to its status as a Smaller Reporting Company under SEC regulations.
7
Board Committees
Audit Committee
- The functions of the Audit Committee are to select, subject to shareholder ratification, the
Companys independent registered public accounting firm; to approve all non-audit related services performed by the Companys independent registered public accounting firm; to determine the scope of the audit; to discuss any special
problems that may arise during the course of the audit; and to review the audit and its findings for the purpose of reporting to the Board of Directors. Further, the Audit Committee receives a written statement delineating the relationship between
the independent registered public accounting firm and the Company and none of the members of the Audit Committee participated in the preparation of the Companys financial statements at any time during the past three (3) years. The members
of the Audit Committee are all independent directors as defined in Section 803 of the NYSE MKT Company Guide and SEC Rule 10A-3. Each member of the Audit Committee is financially literate and A. L. Reitman is designated as the Audit Committee
financial expert. None of the Audit Committee members serve on more than one (1) other public company audit committee. The Audit Committee, currently composed of A. L. Reitman (Chairperson), D. C. Molten, Jr., and J. G. Chapman, Sr., held four
(4) meetings during fiscal 2012. The Audit Committee operates under a written charter that is available on the Companys website at
www.sifco.com
.
Compensation Committee
- The functions of the Compensation Committee are to review and make recommendations to the Board to ensure that our executive compensation and benefit programs are
consistent with our compensation philosophy and corporate governance guidelines and, subject to the approval of the Board, to establish the executive compensation packages offered to directors and officers. Officers base salary, target annual
incentive compensation awards and granting of long-term equity-based incentive compensation, and the number of shares that should be subject to each equity instrument so granted, are set at competitive levels with the opportunity to earn competitive
pay for targeted performance as measured against a peer group of companies. The Compensation Committee is appointed by the Board, and consists entirely of directors who are independent directors as defined in Section 803 of the NYSE MKT Company
Guide. Our Compensation Committee, currently composed of D. C. Molten, Jr. (Chairperson), A. L. Reitman, and J. G. Chapman, Sr., held four (4) meetings during fiscal 2012 and conducted other committee discussions as a part of a regular board
meeting, some of which discussions were conducted without the CEO present. The Compensation Committee operates under a written charter that is available on the Companys website at
www.sifco.com
.
Nominating and Governance Committee
- The functions of the Nominating and Governance Committee are to recommend candidates
for the Board of Directors and address issues relating to (i) senior management performance and succession and (ii) the composition and procedures of the Board. The Nominating and Governance Committee is currently composed of J. G.
Chapman, Sr. (Chairperson), A. L. Reitman, and D. C. Molten, Jr. The members of the Nominating and Governance Committee are all independent directors as defined in Section 803 of the NYSE MKT Company Guide. The Nominating and Governance
Committee held one (1) meeting during fiscal 2012. Other functions of the Nominating and Governance Committee were fulfilled during sessions of the full Board of Directors. The Nominating and Governance Committee operates under a written
charter that is available on the Companys website at
www.sifco.com
.
Board Role in Risk
Oversight
- The Board reviews the Companys annual plan and strategic plan, which address, among other things, the risks and opportunities facing the Company. The Board also has overall responsibility for executive officer
succession planning, and discusses and reviews succession planning with the
8
frequency it deems to be appropriate, based on prevailing circumstances. Certain areas of oversight may be delegated to the relevant committees of the Board and the committees report back on
their deliberations. This oversight is enabled by reporting processes that are designed to provide visibility to the Board about the identification, assessment, monitoring and management of enterprise-wide risks. Management incorporates
enterprise-wide risk assessment of the Company as part of it annual planning process, including each of its business segments, and presents it to the Board for review as part of senior managements annual planning document. The principal areas
of this risk assessment include a review of strategic business, financial, operational, compliance and technology objectives and the potential risk for the Company. In addition, on an ongoing basis: (a) the Audit Committee maintains primary
responsibility for oversight of risks and exposures pertaining to the accounting, auditing and financial reporting processes of the Company; (b) the Compensation Committee maintains primary responsibility for risks and exposures associated with
oversight of the administration and implementation of our compensation policies; and (c) the Nominating and Governance Committee maintains primary responsibility for risks and exposures associated with corporate governance and succession
planning.
Process for Selecting and Nominating Directors -
In its role as the nominating body for
the Board, the Nominating and Governance Committee reviews the credentials of potential director candidates (including any potential candidates recommended by shareholders), conducts interviews and makes formal recommendations to the Board for the
annual and any interim election of directors. The Nominating and Governance Committee will consider shareholder nominations for directors at any time. Any shareholder desiring to have a nominee considered by the Nominating and Governance Committee
should submit such recommendation in writing to a member of the Nominating and Governance Committee or the Corporate Secretary of the Company, c/o SIFCO Industries, Inc., 970 East 64
th
Street, Cleveland, OH 44103. The recommendation letter should include the shareholders own name, address and the
number of shares owned and the candidates name, age, business address, residence address, and principal occupation, as well as the number of shares the candidate owns. The letter should provide all of the information that would need to be
disclosed in the solicitation of proxies for the election of directors under federal securities laws. Finally, the shareholder should also submit the recommended candidates written consent to be elected and commitment to serve if elected. The
Company may also require a candidate to furnish additional information regarding his or her eligibility and qualifications.
Compensation Committee Interlocks and Insider Participation -
None of the directors who served on the Compensation Committee
during fiscal 2012 was a current or former officer or an employee of the Company or had any relationship with the Company that would be required to be disclosed by the Company under applicable related party transaction requirements. During fiscal
2012, no executive officer of the Company served as a member of the board of directors or compensation committee of any entity that has one or more of its executive officers serving as a member of the Companys Board of Directors or
Compensation Committee and, therefore, there were no interlocking relationships (as described in Item 407(e)(iii) of SEC Regulation S-K) between members of the Compensation Committee and the Company. Mr. D. C. Molten, Jr., Ms. A. L.
Reitman, Mr. M. J. Silk and Mr. J. G. Chapman, Sr. served as the members of the Compensation Committee at varying times during fiscal 2012. Mr. M. J. Silk resigned as a director effective April 9, 2012.
Communications with the Board of Directors
Shareholders may communicate their concerns directly to the
entire Board of Directors or specifically to non-management directors of the Board. Such communication can be confidential or anonymous, if so designated, and may be submitted in writing to the following address: Board of Directors, SIFCO
Industries, Inc., c/o Ms. Megan L. Mehalko, Corporate Secretary, 970 E. 64
th
Street, Cleveland, Ohio 44103.
9
Code of Ethics
The Companys Code of Ethics applies to all of its
employees, including its Chief Executive Officer and its Chief Financial Officer. The Code of Ethics and all committee charters are posted in the Investor Relations portion of the Company website at
www.sifco.com
.
Certain Relationships and Related Transactions
- There were no transactions between the Company and its officers, directors or any
person related to its officers or directors, or with any holder of more than 5% of the Companys Common Shares, either during fiscal 2012 or up to the date of this proxy statement, except for the following relationships:
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Mr. H. D. Smith maintains a sales representative agreement that is in place with the Company and that is discussed below under the heading
Directors Compensation.
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Mr. M. L. Lipscomb is the President and CEO of Greenstar Management Corporation, which provided general management consulting services to one of
SIFCOs wholly-owned subsidiaries during fiscal 2012.
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The Company reviews all transactions between the
Company and any of its officers and directors. The Companys Code of Ethics, which applies to all employees, emphasizes the importance of avoiding situations or transactions in which personal interests may interfere with the best interests of
the Company or its shareholders. In addition, the Companys general corporate governance practice includes board-level discussion and assessment of procedures for discussing and assessing relationships, including business, financial, familial
and nonprofit, among the Company and its officers and directors, to the extent that they may arise. The Board reviews any transaction with an officer or director to determine, on a case-by-case basis, whether a conflict of interest exists. The Board
ensures that all directors voting on such a matter have no interest in the matter and discusses the transaction with counsel as the Board deems necessary. The Board will generally delegate the task of discussing, reviewing and approving transactions
between the Company and any of its related persons to the Audit Committee.
COMPENSATION DISCUSSION AND ANALYSIS
Executive Compensation Philosophy and Objectives
The Companys executive compensation philosophy is to position base
pay, target cash incentives and target equity incentives at slightly above the market median, so that we are able to attract and retain high performing executives. The Company defines its market as other manufacturing companies with
comparable revenues. In general, performance consistent with the Companys annual and long-term financial plans will result in total compensation at market median levels. Cash incentive and equity incentive programs are structured to provide
both downside risk and upside earning potential to reflect actual performance that may fall short of or exceed company performance targets. Cash incentive and equity incentive programs are intended to represent a meaningful portion of an
executives total compensation, ranging from 33% to over 50% of total compensation at target performance levels. Individual performance is the primary determining factor of an executives base salary. The performance of an executives
respective business unit is the primary driver of cash incentives earned within a framework that requires acceptable consolidated performance. The performance of the organization as a whole, which drives the growth of shareholder value over time,
determines the amount of equity incentives earned.
The Company recognizes the importance of maintaining sound principles for
the development and administration of our executive compensation and benefit programs. Specifically, our executive compensation and benefit programs are designed to meet the following objectives - (i) to compensate executive officers at levels that
ensure the Company attracts and retains key management employees throughout the organization; (ii) to provide executive officers with the opportunity to earn market-competitive pay for targeted performance; (iii) to link executives
compensation to established Company performance goals, which in turn link to shareholder return; (iv) to reward management for achieving the strategic plan through organic and acquisition driven earnings growth
10
over time, prudent use of capital, and for developing leaders through effective succession planning efforts; and (v) on occasion, to provide management with a special recognition
incentive to achieve certain extraordinary goals in response to changing market or operational conditions. The Company believes that a disciplined focus on these core principles will benefit the Company, and ultimately its shareholders, by ensuring
that it can attract and retain highly qualified executive officers who are committed to the Companys long-term success.
Role of the Compensation Committee
- The Compensation Committee has taken the following steps to ensure the Companys
executive compensation and benefit programs are consistent with the Companys compensation philosophy and corporate governance guidelines:
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The Compensation committee did not engage compensation consultants in fiscal 2012; however, they utilized studies and surveys of qualified independent
professionals to (i) assess the competitiveness of our overall executive compensation and benefits program and (ii) provide a high level and objective review of such programs. When the Company adopted its 2007 Long-Term Incentive Plan
(2007 LTIP), it utilized the services of Findley Davies, Inc. to assist in determining the appropriate value that the non-cash (equity) portion of executive officer compensation should bear relative to their respective base salaries. To
establish base salary and annual incentive compensation, the Company utilizes compensation survey data obtained through its membership in the Employers Resource Council. The source for such survey was the 2012 National Executive Compensation
Survey conducted by the Management Association of Illinois in cooperation with 18 other Employer Associations of America (EAA) members. There were in excess of 2,200 participating organizations, 47% of which were manufacturing companies and 53% of
which were services and other non-manufacturing companies. For executive officer compensation purposes, the Company used survey information for manufacturing companies with comparable revenues as its benchmarking reference point for determining
similarly situated companies;
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Developed executive officer compensation structures that target a competitive level of total compensation as measured against the third party
compensation surveys that include similarly situated companies noted above. The cash portion of executive officer compensation is targeted to generally be slightly above the market median of similarly situated companies, in recognition of the
Companys growth strategy. The value of the non-cash (equity) portion of executive officer compensation is generally intended to be equal to the market median;
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Maintained a practice of reviewing the performance and determining the total compensation earned, paid or awarded to the Company CEO independent of
input from the CEO;
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Obtained recommendations from the CEO relative to appropriate compensation packages for the Companys other named executive officers;
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Reviewed, on an annual basis, the performance of executive officers with assistance from the CEO and determined proper total compensation based on
performance and competitive levels as measured against similarly situated companies; and
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Maintained the practice of holding executive sessions (without management present) at every Committee meeting.
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Total Compensation
- The Company seeks to compensate its executive officers at competitive levels, through programs that emphasize
performance-based incentive compensation. To that end, total executive compensation is structured to ensure that there is a focus on the Companys financial performance and shareholder return. The Company believes its total executive
compensation is reasonable. Further, in light of its compensation philosophy, the Company believes that the total compensation package for its executive officers should continue to consist of base salary, annual (cash) incentive compensation awards,
long-term (equity) incentive compensation, and certain other benefits. With the exception of Mr. M. S. Lipscomb, who is a consultant, all named executive officers are employed on an at-will basis and, other than (i) the change
in control and severance agreements and (ii) a separation pay agreement, there are no other employment contracts.
11
Elements of Compensation
Base Salary
- When determining the amount of base salary for the Companys executive officers, the Compensation
Committee considers the salaries of personnel in similarly situated companies, as discussed above under the heading Role of the Compensation Committee. When making adjustments in base salaries, the Compensation Committee also considers
corporate financial performance and the performance of individual executive officers in fulfilling their respective defined responsibilities. For fiscal 2012, Mr. J. P. Gotschalls base salary was maintained at $220,000; Mr. J. P.
Woidkes base salary was increased from $244,700 to $261,800, and Mr. F. A. Cappellos base salary was increased from $177,600 to $182,900.
Mr. M. S. Lipscomb has been retained on a contract/consultancy basis with aggregate compensation being set at a rate of $2,500 per day. Mr. M. S. Lipscomb devotes approximately 50% of his time
to his responsibilities as President and Chief Executive Officer.
Annual Incentive Compensation
Executive officers have the opportunity to earn annual cash incentive awards. In years with strong financial and/or strategic performance, executive officers can earn cash incentive awards that would be considered competitive as compared
to similarly situated companies, as discussed above under the heading Role of the Compensation Committee.
Annual
incentive compensation awards are intended to reinforce the Companys strategic objectives and promote achievement of certain financial and/or strategic targets. Consistent with its compensation philosophy, the Companys annual incentive
compensation award payments to executive officers are contingent upon the achievement of specific performance target(s) during the applicable performance period. Specific annual performance targets may include (i) the achievement of certain
financial profitability criteria in relation to the Companys Annual Plan as approved by the Board of Directors, (ii) an executive officers performance relative to strategic objectives, (iii) utilization (disposition) of
performing (non-performing) Company assets or (iv) other similar criteria. These criteria may change from one period to another based on the particular strategic focus of the Company for that respective period as deemed appropriate by the
Compensation Committee. Each performance target may also have a minimum threshold and maximum payout level.
For fiscal 2012,
the principal financial performance target (used to determine 80% of annual incentive compensation) for both Mr. J. P. Woidke and Mr. F. A. Cappello was based on the achievement of the EBITDA amount in the Companys fiscal
2012 Annual Plan as approved by the Board of Directors. EBITDA is defined as Earnings Before Interest Taxes Depreciation and Amortization, subject to certain adjustments, which adjustments include (i) negating the impact of any changes in the
Companys LIFO inventory reserve and (ii) certain other nonrecurring income or expense amounts that generally do not reflect the current operating performance of the Company. A secondary financial performance target was the optimization of
working capital. The individual executive officers 2012 annual incentive compensation amounts were determined as follows:
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The consolidated target (unadjusted) EBITDA level that was established in the Companys fiscal 2012 Annual Plan was $23.7 million. The
Companys actual consolidated (unadjusted) EBITDA level achieved in fiscal 2012 was below the minimum threshold of the performance target. The Company also did not maintain its average working capital level within the fiscal 2012 Annual Plan
target range.
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In addition to the principal financial performance target(s) outlined above, both Mr. J. P. Woidke and Mr. F. A. Cappello also had certain
secondary performance objectives (used to determine 20% of annual incentive compensation). The secondary performance objectives that were outlined for Mr. J. P. Woidke and Mr. F. A. Cappello (i) were individualized and related to a
(non-financial) qualitative assessment of their individual contributions toward the achievement of the operating and strategic objectives of the Company and (ii) were subjectively evaluated principally at the discretion of the CEO on a
qualitative basis. Annual incentive compensation related to these secondary performance objectives is only paid if the Company also achieves its principal financial performance targets. The Company does not believe it would be beneficial or
meaningful to disclose more specific information related to these secondary performance objectives because the individual objectives relate to sensitive information about the internal operating and strategic objectives of the Company and disclosure
of the specific objectives could result in competitive harm to the Company. The nature of these secondary performance objectives, while providing an appropriate level of challenge for Mr. J. P. Woidke and Mr. F. A. Cappello, offer such
executives a reasonable likelihood of achieving their respective objectives provided they remain focused on, and the Company makes measurable progress relative to, both the annual operating plan and longer-term strategic plan.
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Because the Company achieved less than the minimum threshold of its principal financial performance target (i.e. EBITDA) in fiscal 2012, Mr. J. P.
Woidke and Mr. F. A Cappello earned no annual incentive compensation for fiscal 2012.
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In addition to
setting performance targets, the Compensation Committee also sets each executive officers target annual incentive compensation amount. This target annual incentive compensation amount is expressed as a percentage of each executive
officers base salary. In determining the target annual incentive compensation amount, the Committee references competitive survey sources as described above and targets the market median annual cash incentive opportunity. In addition, the
Compensation Committee may also consider various other factors, including the impact that the executive officers and other key employees are capable of and should have relative to achieving the Companys annual and strategic objectives.
For fiscal 2012, Mr. J. P. Woidke and Mr. F. A. Cappello had target annual incentive compensation amounts equal to
50% of base salary, with potential annual incentive compensation amounts ranging from 0% to 75% of base salary, subject to a minimum performance threshold amount. Such threshold in fiscal 2012 was principally related to the achieved level of EBITDA,
as described above. The targeted annual incentive compensation amounts of $130,900 for Mr. J. P. Woidke and $91,500 for Mr. F. A. Cappello, respectively, are earned based upon the achievement of the above described performance targets. For
fiscal 2012, Mr. J. P. Woidke and Mr. F. A. Cappello received no annual incentive compensation, for the reasons outlined above.
Because of the relative importance of annual incentive compensation awards to total compensation and their direct link to the achievement of specific performance targets, the Company believes that the
annual incentive compensation awards remain an important part of its compensation program.
Long-Term Equity-Based
Incentive Compensation
- Prior to 2007, the primary form of the Companys long-term incentive compensation consisted of stock option plans established to promote the long-term financial interest of the Company by providing for the award
of equity-based incentives to executive officers and other senior management who provide critical, value-added services to the Company. The Compensation Committee previously granted all of the stock option awards available under the Companys
previous long-term equity-based incentive compensation plans, and no further stock options are available to be awarded under such plans.
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With the change in the accounting treatment of options, the Company, like many other
companies, re-examined the cost and competitive need for options, which process included a review of competitive data regarding equity-based awards. The Company determined that a combination of equity-based, long-term incentive compensation awards
(e.g. stock options, time-based stock appreciation rights, performance-based restricted stock units, etc.) would provide a package of incentive compensation vehicles that would more effectively align the interests of the Companys executives
with the interests of its shareholders and provide a balance between (i) rewards for achieving specified financial targets and (ii) rewards for growth in market value over time. Accordingly, the Company adopted the SIFCO Industries, Inc.
2007 Long-Term Incentive Plan (2007 LTIP). Mr. J. P. Gotschall, Mr. M. S. Lipscomb, Mr. J. P. Woidke and Mr. F. A. Cappello have been granted performance-based share awards under the 2007 LTIP as of September 30,
2012. The actual number of performance-based shares that each executive officer will ultimately earn under the 2007 LTIP will be determined based on the Companys achievement of certain predetermined financial performance targets over a three
(3) fiscal year performance period beginning with the fiscal year in which such performance-based shares were granted. Members of the Board of Directors, including Mr. M. S. Lipscomb, have been granted restricted share awards under the
2007 LTIP as of September 30, 2012. The Boards restricted shares will be earned based on completion of years of service as a director.
Other Benefits
- The Company maintains certain other plans which provide, or may provide, compensation and benefits to our executive officers. These plans are principally our pension plan,
supplemental executive retirement plan, and 401(k) plan, which are generally made available to all employees of the Company who meet certain eligibility requirements.
Pension Plan
The Company maintains a defined benefit pension plan for all non-union, salaried employees of the Companys U. S. operations that were hired prior to March 1,
2003, including the executive officers and certain other key employees. This defined benefit pension plan was frozen as of March 1, 2003 and, consequently, although the plan will otherwise continue, the plan ceased the accrual of additional
pension benefits for periods after March 1, 2003.
Supplemental Executive Retirement Plan
- The Company has
a supplemental executive retirement plan, which provides supplemental retirement income to those employees whose maximum annual benefit payable under the Pension Plan was limited by the Internal Revenue Code, as amended (IRC). The only
employee of the Company that had earned an accrued benefit under the Pension Plan that exceeds such IRC limitation was Mr. J. P. Gotschall. As with the Pension Plan, this plan was also frozen as of March 1, 2003 and, consequently, although
the plan will otherwise continue, the plan ceased the accrual of additional pension benefits for periods after March 1, 2003.
401(k) Plan
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The Company maintains a defined contribution plan, which has been qualified under section 401(k) of the IRC, and which covers all non-union, salaried employees of
the Companys U. S. operations, including the executive officers and certain other key employees. The plan provides that covered employees may defer and contribute to the plan a certain percentage of their annual salary, as defined and subject
to certain IRC limitations, and the Company will provide a nondiscretionary matching contribution equal to (i) 100.0% of the employees contributed amount, up to the initial 1.0% of the employees elective deferral contribution, and
(ii) 80.0% of the next 5.0% of the employees elective deferral contribution. Covered employees may also contribute pre-tax amounts in excess of 6.0%, subject to certain IRC limitations, that will not be eligible for the Company matching
contributions. If and/or when Company performance levels support it, there may also be a discretionary Company matching contribution amount, up to 4.0% of the covered employees annual cash compensation (and also based on the employees elective
deferral contribution level), to be determined annually by the Board of Directors of the Company. For fiscal 2012, the Company will make an additional discretionary matching
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contribution of approximately 1.0%. The employees contributions and the Company matching contribution may be placed, at the direction of the employee, in various combinations of fixed
income and equity investments. For fiscal 2012, the Companys combined matching contributions provided under its 401(k) plan to Mr. J. P. Gotschall, Mr. J. P. Woidke and Mr. F. A. Cappello were valued at $14,600, $17,800 and
$16,900, respectively.
Perquisites and Other Benefits
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The following other benefits are
generally available to all salaried employees of the Company (i) 100% of the premium cost for term life insurance coverage with a death benefit equal to 150% of such employees annual cash compensation and (ii) 50% of the
premium cost for long term disability coverage (if such coverage is elected by the employee) with income replacement equal to 60% of such employees annual base compensation up to a maximum of $200,000 per year.
Change-in-Control Agreements and Severance Agreements
The Company has entered into change-in-control agreements
and/or severance agreements with certain of its executive officers because it believes that such agreements serve to protect the Company and such executive officers in the event of involuntary termination of such executives for other than cause
and/or as a result of a change-in-control of the Company. The purpose of these agreements is to reinforce and encourage the continued attention and dedication of these executive officers to their assigned duties without distraction in the face of
(i) solicitations by other employers and (ii) the potentially disturbing circumstances arising from the possibility of a change in control of the Company. These agreements are discussed below under Potential Payments upon Termination
or Change-in-Control.