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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1994 Commission File Number 1-5978
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SIFCO Industries, Inc., and Subsidiaries
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(Exact name of registrant as specified in its charter)
Ohio 34-0553950
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
970 East 64th Street, Cleveland, Ohio 44103
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 881-8600
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None
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Former name, former address and former fiscal year, if changed since last
report.
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Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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 requirement for the past 90 days. Yes X No
---
Class Outstanding at January 31, 1995
- --------------- ----------------------------------
Common Stock, $1 Par Value 5,066,369
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<TABLE>
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
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INDEX
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<CAPTION>
Page No.
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<S> <C>
Financial Statements:
Consolidated Condensed Balance Sheets --
December 31, 1994, and September 30, 1994 2
Consolidated Condensed Statements of Income --
Three Months Ended
December 31, 1994 and 1993 3
Consolidated Condensed Statements of Cash Flows --
Three Months Ended
December 31, 1994 and 1993 4
Notes to Consolidated Condensed
Financial Statements 5,6,7,8
Management's Discussion and Analysis of the
Consolidated Condensed Statements of Income 9,10,11
Other Information and Signatures 12
</TABLE>
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<TABLE>
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
($000 Omitted)
<CAPTION>
Dec. 31 Sept. 30
1994 1994
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<S> <C> <C>
ASSETS
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Current Assets
Cash & Cash Equivalents $ 1,900 $ 2,256
Accounts Receivable, Net 11,643 12,883
Inventories
Raw Materials & Supplies 1,953 1,847
Work-in-Process & Finished Goods 9,450 8,493
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11,403 10,340
Refundable Income Taxes 960 1,039
Prepaid Expenses and Other Current Assets 928 416
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TOTAL CURRENT ASSETS 26,834 26,934
Property, Plant & Equipment, Net 21,708 21,476
Goodwill, Net of Amortization 4,183 4,213
Funds Held by Trustee For Capital Project 616 733
Other Non-Current Assets 2,269 2,428
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TOTAL ASSETS $ 55,610 $ 55,784
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LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------
Current Liabilities
Notes Payable $ 3,800 $ 2,400
Current Portion of Long-Term Debt 1,900 1,900
Accounts Payable 4,851 6,206
Accrued Expenses 3,910 4,067
Accrued Restructuring Expense 2,647 2,686
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TOTAL CURRENT LIABILITIES 17,108 17,259
Long-Term Debt - Less Current Portion 6,750 6,975
Deferred Federal Income Taxes and Other 4,206 4,280
Shareholders' Equity
Serial Preferred Shares - No Par Value --- ---
Common Shares, Par Value $1 Per Share 5,066 5,062
Paid-in-Surplus 5,860 5,849
Retained Earnings 16,620 16,359
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TOTAL SHAREHOLDERS' EQUITY 27,546 27,270
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 55,610 $ 54,784
========= ========
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
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<TABLE>
SIFCO INDUSTRIES,INC. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
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($000 Omitted)
<CAPTION>
Three Months Ended
December 31
1994 1993
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<S> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ 15,997 $ 16,415
Cost & Expenses
Cost of Goods Sold 12,627 13,235
Selling, General &
Administrative Expense 2,845 2,817
Interest Income (30) (14)
Interest Expense 244 155
Other (Income) Expense, Net (92) (31)
Total Costs & Expenses 15,594 16,162
Income (Loss) Before Income Taxes 403 253
Provision (Benefit) for Federal, Foreign
& State Income Taxes 90 70
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Net Income (Loss) $ 313 $ 183
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Net Income (Loss) Per Share $ .06 $ .04
======== =======
Average Shares Outstanding 5,077 5,054
Cash Dividends per Common Share $ --- $ ---
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
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<TABLE>
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
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($000 Omitted)
<CAPTION>
Three Months Ended
December 31
1994 1993
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<S> <C> <C>
Net cash provided by (used for)
operating activities:
Net income (loss) $ 313 $ 183
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 838 769
Deferred income taxes and other (74) (77)
-------- ---------
Net cash provided by operations 1,077 875
Net cash provided by (used for) changes
in operating assets and liabilities,
net of effect of acquisition:
Receivables (1,240) (1,075)
Inventories (1,063) 233
Accrued or refundable income taxes 79 72
Prepaid expenses and other current assets (512) (169)
Accounts payable (1,355) (1,061)
Accrued expenses (157) 200
Accrued restructuring (39) ---
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Net cash provided by (used for) changes
in operating assets and liabilities (1,807) (1,800)
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Net cash provided by operating activities (730) (925)
Net cash provided by (used for) investing activities:
Purchase of property, plant & equipment (1,149) (463)
(Increase) decrease in funds held by trustee for capital project 117 145
Other 231 (40)
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Net cash provided by (used for) investing activities (801) (358)
Net cash provided by (used for) financing activities:
Proceeds from additional borrowings 1,400 1,400
Repayment of borrowings (225) (225)
Cash dividends declared --- ---
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Net cash provided by (used for) financing activities 1,175 1,175
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Increase (decrease) in cash and cash equivalents (356) (108)
Cash and cash equivalents, beginning of year 2,256 1,187
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Cash and cash equivalents, end of period $ 1,900 $ 1,079
======== ========
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
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SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL INFORMATION
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DECEMBER 31, 1994
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NOTES
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(1) Summary of Significant Accounting Policies:
-------------------------------------------
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant inter-company accounts and transactions have been
eliminated. Certain prior years' amounts have been reclassified to
conform with the current year's classification. The Company accounts
for its 15% investment in the common stock of Shanghai Chia Tai SIFCO
Forge Co., Ltd., on the cost method.
(2) Debt:
----
<TABLE>
Long-term debt as of December 31, 1994 and September 30, 1994 consisted of:
<CAPTION>
Dec. 31 Sept. 30
1994 1994
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($000 Omitted)
<S> <C> <C>
Variable Rate Industrial Development
Demand Revenue Improvement
and Refunding Bonds $ 2,850 $ 2,925
Note payable to bank, due in quarterly
installments of $150,000, at the base rate
plus 1/2% (adjusted quarterly) 1,800 1,950
Note payable to bank, due October 31, 1995,
interest payable quarterly, at rates based
upon LIBOR and DIBOR (adjusted quarterly) 1,000 1,000
Note payable to seller of Selectrons, Ltd.,
at the base rate plus 1/2% (adjusted quarterly) 3,000 3,000
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8,650 8,875
Less - current maturities 1,900 1,900
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$ 6,750 $ 6,975
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</TABLE>
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The Company has a $6 million revolving credit agreement subject to
eligible working capital as defined, which expires January 1, 1996.
As of December 31, 1994, the Company had $3.8 million outstanding
under this agreement. In addition, the Company has a $1.15 million
credit capacity which is used for an irrevocable letter of credit
which secured the $1 million loan from an Irish bank due October 31,
1995. A commitment fee of 3/8% is incurred on the remaining unused
balance. Interest is at the base rate plus 1/4% and is payable
quarterly. The average balance outstanding against the remaining
capacity was $3.0 million and $1.0 million during the three month
period of 1994 and 1993, respectively.
The Company also has a term loan agreement. Interest is at the base
rate plus 1/2%. Repayment terms are twenty quarterly installments of
$150,000, plus interest. The Company has available an additional
$2,000,000 which can be drawn down prior to September 30, 1995. The
repayment terms for the additional amount are interest only the first
year, followed by sixteen quarterly payments of principal plus
interest.
The Industrial Development bond interest rate is reset weekly, based
on prevailing tax-exempt money market rates, and is payable quarterly.
Principal is payable in quarterly installments of $75,000 through May
1, 1996, becoming $100,000 quarterly thereafter, with the final
balance due on May 1, 2002. The bonds are secured by the property and
equipment of the facility, and backed by an irrevocable bank letter of
credit which expires on May 1, 1996.
The revolving credit, term loan and Industrial Development bonds are
secured by the Company's domestic accounts receivable, inventory and
equipment.
Among other covenants, the Company is required to maintain a minimum
tangible net worth (as defined) of $19.8 million, increasing by 50% of
net income subsequent to September 30, 1993. At December 31, 1994,
tangible net worth was $21.7 million.
As part of the acquisition of Selectrons, Ltd., the seller provided
financing in the form of unsecured installment notes. These notes
bear interest at the base rate plus 1/2%, payable and adjustable
quarterly. Principal is payable in annual installments of
approximately $1 million, commencing July 1, 1993.
The $1 million note payable revolving to the bank has a variable
interest rate based on a combination of both LIBOR and DIBOR (Dublin
Interbank Rates) rates.
(3) Income Taxes:
-------------
The provision for taxes on income, which is based on the anticipated
effective rate for the year, does not bear the customary relationship
to pre-tax income due primarily to foreign source income. Income tax
expense differs from amounts currently payable due to certain items
reported for financial statement purposes in periods which differ from
those in which they are reported for tax purposes, principally
accelerated depreciation.
(4) Deferred Federal Income Taxes:
------------------------------
The Company has deferred to future periods the income taxes relating
to timing differences between financial statement pre-tax income and
taxable income.
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(5) Depreciation:
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For financial reporting purposes, the Company provides for
depreciation of plant and equipment, principally by the straight-line
method, at annual rates sufficient to amortize the cost over its
estimated useful life. For tax purposes, the Company uses various
accelerated methods and, accordingly, provides for the related
deferred taxes. The principal rates of depreciation for financial
reporting purposes are: buildings 2% to 5%, and machinery and
equipment 5% to 33 1/3%.
(6) Inventories:
------------
The Company follows the LIFO method of accounting for certain of its
Forge Group inventories. Since the LIFO inventory determination for
fiscal 1995 will be based upon year-end inventory levels and costs,
the Company has provided for its anticipated "LIFO Adjustment" based
on its estimated year-end inventory levels and costs. Under the
Average Cost Method, inventories would have been $3,378,000 and
$3,378,000 higher than reported at December 31, 1994 and September 30,
1994, respectively.
(7) Postretirement Health Care Benefits:
------------------------------------
The Company and its domestic subsidiaries provide certain health care
benefits for non-union retired employees which are subject to the
provisions of SFAS 106. The Company amended its current plan to
freeze the Company's contribution to insurance premiums and exclude
any active employees who retire after December 31, 1993 from
eligibility for benefits. As a result of the amendments to the plan,
the adoption of SFAS 106 did not have a material impact on the results
of operations or financial position of the Company.
(8) Other Income:
-------------
Other income is comprised primarily of grant income from Irish
government agencies, foreign exchange gains and losses, and royalty
and fee income.
(9) Acquisition of Business and Non-Competition Agreement:
------------------------------------------------------
On June 17, 1992, the Company acquired certain domestic net assets and
the foreign subsidiaries of Selectrons, Ltd. ("Selectrons") at an
aggregate purchase cost of approximately $6 million, including the
assumption of $1.7 million of debt previously owed to the
shareholders. The purchase price was provided from existing cash
balances, a term loan from a bank, and an unsecured term loan from the
seller.
7
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The acquisition was accounted for as a purchase. The results of
operations of the acquisition were combined with those of the Company
commencing July 1, 1992. This acquisition is not material to the
consolidated totals and its results of operations have been included
in the accompanying statements of income since the acquisition date.
The fair value of net assets acquired and liabilities assumed was
approximately $2.6 million. The excess of purchase price over the
fair value of the net assets purchases was $3.4 million, and such
excess is being amortized over 40 years by the straight-line method.
The Company is pursing legal action against the seller of Selectrons
with respect to breach of contract. Any settlement will be treated as
a reduction of previously recorded goodwill.
(10) Basis of Presentation:
----------------------
The accompanying financial information for the three months ended
December 31, 1994 has not been examined by independent public
accountants. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary for a fair
presentation have been included.
8
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SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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OF THE CONSOLIDATED CONDENSED STATEMENTS OF INCOME
--------------------------------------------------
The following is management's discussion and analysis of certain significant
factors which have affected the Company's earnings during the periods included
in the accompanying consolidated condensed statements of income.
A summary of the period-to-period changes in the principal items included in
the consolidated condensed statements of income is shown below:
<TABLE>
<CAPTION>
Three Months Ended
December 31
1994 and 1993
_____________________
<S> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ (418) ( 2%)
Cost of Sales (608) ( 5%)
Selling, General &
Administrative 28 1%
Interest Income 16 N/A
Interest Expense 89 57%
Other Income, Net 61 197%
Income Before Income Taxes 150 59%
Provision for Federal,
Foreign & State Income Taxes 20 29%
Net Income 130 71%
</TABLE>
9
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MANAGEMENT'S DISCUSSION
- -----------------------
We are pleased to report a profit before tax of $403,000 on sales of
$15,997,000 for the first quarter ended December 31, 1994. This compares to a
profit before tax of $253,000 on sales of $16,415,000 for the same period in
1993.
Net earnings were $313,000, or $0.06 per share, compared to $183,000, or $0.04
per share in 1993.
Net sales for the first quarter ended December 31, 1994 declined 2% to $16.0
million from $16.4 million a year. Defense-related sales increased to $2.4
million from $2.0 million.
More importantly, new orders received increased 17% to $15.8 million from $13.6
million last year. The increase in new orders was achieved despite a decrease
in defense-related orders from $1.5 million to $1.4 million in the first
quarter of 1995.
Most welcome this quarter is the news that our Forge segment was able to
generate an operating profit in contrast to the loss it sustained in the same
period last year. Increased productivity and better cost containment
contributed to improved earnings performance despite some reduction in sales
volume.
Continued dedication to the restructuring is resulting in ongoing improvements
throughout the operation.
The Forge Group's continued emphasis on cooperative involvement with customers
throughout all levels of production is illustrated by awards received during
the quarter. American Braking System awarded our Forge operation the rank of
"Certified Supplier" and named them as Number One supplier in their size range.
This was in recognition of the Forge having achieved 100% quality performance
for the entire production year. Excellent quality performance during the
quarter also earned the Forge the "Gold" award - the highest quality
achievement rating bestowed on suppliers by McDonnell-Douglas.
One of the most interactive efforts our Forge operation has participated in is
Allied Signal's TQS program - "Total Quality through Speed." A "TQS" team of
Allied Signal personnel has been in the Forge working with SIFCO people to
assist in the reduction of lead times and improved efficiencies. The
cooperative effort represents an unusual commitment to the spirit of customer
satisfaction and has been well received by all Forge personnel. These programs
are leading examples of the "Spirit of Partnering" and emphasis on customer
satisfaction which are at the core of the Forge restructuring philosophy.
Much effort has been made to offer the same interactive customer service to
foreign sources with very good results. SIFCO is now the sole source of
several aircraft forgings for an overseas aircraft manufacturer and, as a
preferred vendor, has first right of refusal for forgings in SIFCO's size
category.
As we described in the annual report, the new emphasis on customer service is
pervasive throughout the company. The Specialty Products segment, and
particularly the Turbine Component Repair Group, is offering customers a fairly
unique assistance program in the management of parts inventories. The program
assures the on-time delivery of the desired part while keeping the customer's
inventory costs to a minimum. Recently, the Ireland facilities have entered
into a J.I.T. (Just In Time) inventory management program with a major European
10
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customer and a service agreement with a major airline based in Asia. These
programs should establish our Ireland facility as a major innovator in customer
service in the industry.
We believe that the strong first quarter performance of our Forge segment
demonstrates the effectiveness of restructuring efforts to date. We are also
confident that our Specialty Product segment's expanded product lines will
continue to provide us entry to new and larger markets. Our renewed commitment
to customer satisfaction has had the added benefit of increasing our employee
satisfaction. We are hopeful that our performance will also enhance our
shareholder satisfaction.
FINANCIAL ANALYSIS
- ------------------
Net sales for the first quarter ended December 31, 1994 declined to $16.0
million from $16.4 million a year ago or 2%. Defense-related sales increased
to $2.4 million from $2.0 million. The Company reported a net profit of $.313
million compared to $.183 million a year ago.
Net interest expense increased to $.214 million from $.141 million a year ago.
New orders received increased to $15.8 million from $13.6 million last year.
Specialty Products net sales were basically flat at $11.4 million compared to
$11.3 million last year. Specialty Products income from operations before
corporate and interest expense was also flat at $1.0 million this and last
year.
Forging segment sales decreased to $4.8 million from $5.6 million last year.
Defense-related sales were $1.9 million (40%), compared to $2.2 million (39%)
last year. Forging income from operations before corporate and interest
expense was $.1 million compared to a loss of $.2 million last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital was $9.7 million at December 31, 1994 and September 30, 1994.
The current ratio for the same period was 1.6 and 1.6 respectively. Excluding
the restructuring reserve from current liabilities for both periods, the
majority of which will have no impact on working capital, the current ratio
would be 1.9 and 1.9 respectively. Total debt as a percentage of tangible
shareholders' equity was 57.4% at December 31, 1994 compared to 53.2% at
September 30, 1994. The Company has borrowed $3.8 million against its
revolving credit line and has an additional $2.0 million term loan available.
The Company considers it has adequate financing to meet its needs through the
coming year.
PROVISION FOR TAXES ON INCOME
-----------------------------
The provision for taxes on income, which is based on the anticipated
effective rate for the year, does not bear the customary relationship to
pre-tax income, due primarily to foreign source income.
11
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Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) The following Exhibits are included herein:
Exhibit 27 Financial Data Schedule
(b) No report on Form 8-K was filed during the quarter ended
December 31, 1994
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 January 27, 1995 Jeffrey P. Gotschall
---------------- ---------------------------
Jeffrey P. Gotschall
Chief Executive Officer
Date January 27, 1995 Richard A. Demetter
---------------- ---------------------------
Richard A. Demetter
Vice President _ Finance
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000090168
<NAME> SIFCO INDUSTRIES,INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,900
<SECURITIES> 0
<RECEIVABLES> 11,643
<ALLOWANCES> 0
<INVENTORY> 11,403
<CURRENT-ASSETS> 26,834
<PP&E> 21,708
<DEPRECIATION> 0
<TOTAL-ASSETS> 55,610
<CURRENT-LIABILITIES> 17,108
<BONDS> 6,750
<COMMON> 5,066
0
0
<OTHER-SE> 22,480
<TOTAL-LIABILITY-AND-EQUITY> 55,610
<SALES> 15,997
<TOTAL-REVENUES> 15,997
<CGS> 12,627
<TOTAL-COSTS> 15,472
<OTHER-EXPENSES> (92)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 214
<INCOME-PRETAX> 403
<INCOME-TAX> 90
<INCOME-CONTINUING> 313
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 313
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
