<PAGE> 1
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1995 Commission File Number 1-5978
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SIFCO Industries, Inc., and Subsidiaries
----------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Ohio 34-0553950
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
970 East 64th Street, Cleveland, Ohio 44103
- --------------------------------------- ------------
(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.
_________________________________________________________________________________
_________________________________________________________________________________
</TABLE>
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 July 28, 1995
- -------------------------- ----------------------------
Common Stock, $1 Par Value 5,067,381
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SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Financial Statements:
Consolidated Condensed Balance Sheets --
June 30, 1995, and September 30, 1994 2
Consolidated Condensed Statements of Income --
Three Months and Nine Months Ended
June 30, 1995 and 1994 3
Consolidated Condensed Statements of Cash Flows --
Three Months and Nine Months Ended
June 30, 1995 and 1994 4
Notes to Consolidated Condensed
Financial Statements 5,6,7,8
Management's Discussion and Analysis of the
Consolidated Condensed Statements of Income 9,10,11,12
Other Information and Signatures 13
</TABLE>
<PAGE> 3
<TABLE>
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
($000 Omitted)
<CAPTION>
June 30 Sept. 30
1995 1994
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<S> <C> <C>
ASSETS
------
Current Assets
Cash & Cash Equivalents $ 2,240 $ 2,256
Accounts Receivable, Net 13,092 12,883
Inventories
Raw Materials & Supplies 2,428 1,847
Work-in-Process & Finished Goods 11,129 8,493
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13,557 10,340
Refundable Income Taxes --- 1,039
Prepaid Expenses and Other Current Assets 1,230 416
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TOTAL CURRENT ASSETS 30,119 26,934
Property, Plant & Equipment, Net 22,500 21,476
Goodwill, Net of Amortization 4,125 4,213
Funds Held by Trustee For Capital Project 616 733
Other Non-Current Assets 2,064 2,428
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TOTAL ASSETS $59,424 $55,784
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------
Current Liabilities
Notes Payable $ 4,200 $ 2,400
Current Portion of Long-Term Debt 2,275 1,900
Accounts Payable 5,765 6,206
Accrued Expenses 4,959 4,067
Accrued Restructuring Expense --- 2,686
Accrued Income Taxes 283 ---
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TOTAL CURRENT LIABILITIES 17,482 17,259
Long-Term Debt - Less Current Portion 6,925 6,975
Deferred Federal Income Taxes and Other 4,453 4,280
Shareholders' Equity
Serial Preferred Shares - No Par Value --- ---
Common Shares, Par Value $1 Per Share 5,067 5,062
Paid-in-Surplus 5,864 5,849
Retained Earnings 19,633 16,359
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TOTAL SHAREHOLDERS' EQUITY 30,564 27,270
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $59,424 $55,784
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 4
<TABLE>
SIFCO INDUSTRIES,INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
($000 Omitted)
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales of SIFCO
Industries, Inc. $17,721 $14,419 $51,092 $45,831
Cost & Expenses
Cost of Goods Sold 14,633 11,667 41,010 37,755
Selling, General &
Administrative Expense 2,636 2,545 8,291 7,949
Interest Income (37) (23) (97) (54)
Interest Expense 288 198 789 519
Other (Income) Expense, Net 1 (95) 4 (261)
Total Costs & Expenses 17,521 14,292 49,997 45,908
Operating Income (Loss) 200 127 1,095 (77)
Reversal of Restructuring Charge to Income ----- ----- 1,512 -----
Income (Loss) Before Income Taxes 200 127 2,607 (77)
Provision (Benefit) for Federal, Foreign
& State Income Taxes 110 110 279 222
------- ------- ------- -------
Net Income (Loss) $ 90 $ 17 $ 2,328 $ (299)
======= ======= ======= =======
Net Income (Loss) Per Share $ .02 $ .00 $ .46 $ (.06)
======= ======= ======= =======
Average Shares Outstanding 5,085 5,068 5,080 5063
Cash Dividends per Common Share $ $ $ ----- $ -----
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 5
<TABLE>
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($000 Omitted)
<CAPTION>
Nine Months Ended
June 30
1995 1994
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<S> <C> <C>
Net cash provided by (used for)
operating activities:
Net income (loss) $ 2,328 $ (299)
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 2,571 2,300
Deferred income taxes and other 173 457
Reversal of restructuring charge to income (1,512) -----
------- -------
Subtotal 3,560 2,458
Net cash provided by (used for) changes
in operating assets and liabilities,
net of effect of acquisition:
Receivables (209) (1,299)
Inventories (3,217) (851)
Accrued or refundable income taxes 1,322 1,463
Prepaid expenses and other current assets (814) (258)
Accounts payable (441) (195)
Accrued expenses (282) (1,903)
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Net cash provided by (used for) changes
in operating assets and liabilities (3,641) (3,043)
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Net cash provided by operating activities (81) (585)
Net cash provided by (used for) investing activities:
Purchase of property, plant & equipment (3,060) (1,597)
(Increase) decrease in funds held by trustee for capital project 117 320
Other 883 619
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Net cash provided by (used for) investing activities (2,060) (658)
Net cash provided by (used for) financing activities:
Proceeds from additional borrowings 3,800 2,000
Repayment of borrowings (1,675) (675)
Cash dividends declared --- ---
------- -------
Net cash provided by (used for) financing activities 2,125 1,325
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Increase (decrease) in cash and cash equivalents (16) 82
Cash and cash equivalents, beginning of year 2,256 1,187
------- -------
Cash and cash equivalents, end of period $ 2,240 $ 1,269
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 6
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
---------------------------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL INFORMATION
-----------------------------------------------------
JUNE 30, 1995
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NOTES
- -----
(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.
(2) Debt:
Long-term debt as of June 30, 1995 and September 30, 1994 consisted of:
<TABLE>
<CAPTION>
June 30 Sept. 30
1995 1994
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($000 Omitted)
<S> <C> <C>
Variable Rate Industrial Development
Demand Revenue Improvement
and Refunding Bonds $ 2,700 $ 2,925
Note payable to bank, due in quarterly
installments of $275,000, at the base rate
plus 1/2% (adjusted quarterly) 3,500 1,950
Note payable to bank, due October 31, 1995,
interest payable quarterly, at rates based
upon LIBOR and DIBOR (adjusted quarterly) 1,000 1,000
Note payable to seller of Selectrons, Ltd.,
at the base rate plus 1/2% (adjusted quarterly) 2,000 3,000
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9,200 8,875
Less - current maturities 2,275 1,900
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$ 6,925 $ 6,975
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</TABLE>
5
<PAGE> 7
The Company has a $6 million revolving credit agreement subject to eligible
working capital as defined, which expires January 1, 1996. As of June 30,
1995 the Company had $4.2 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 $3.7 million and $0.5 million during the nine month period of
1995 and 1994, respectively.
The Company also has a term loan agreement. Interest is at the base rate
plus 1/2%. Repayment terms are quarterly installments of $275,000, 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, excluding the $1.5 million reversal to
income of the restructuring reserve that occurred in the second quarter of
1995. At June 30, 1995, tangible net worth exceeded the required minimum by
$2.1 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.
6
<PAGE> 8
(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 $3,393,000 and $3,378,000 higher than reported at
June 30, 1995 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
<PAGE> 9
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 has concluded legal action against the seller of Selectrons with
respect to breach of contract. The amount of the damage award was not
material.
(10) Basis of Presentation:
----------------------
The accompanying financial information for the nine months ended June 30,
1995 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
<PAGE> 10
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
---------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
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 Nine Months Ended
June 30 June 30
1995 and 1994 1995 and 1994
------------------ -----------------
<S> <C> <C> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ 3,302 23% $ 5,261 11%
Cost of Sales 2,966 25% 3,255 9%
Selling, General &
Administrative 91 4% 342 4%
Interest Income 14 61% 43 80%
Interest Expense 90 45% 270 52%
Other Expense, Net 96 N/A 265 N/A
Operating Income (Loss) 73 57% 1,172 N/A
Reversal of Restructuring
Charge to Income ----- N/A 1,512 N/A
Income Before Income Taxes 73 57% 2,684 N/A
Provision for Federal,
Foreign & State Income Taxes -0- 0% 57 26%
Net Income $ 73 429% $ 2,627 N/A
</TABLE>
9
<PAGE> 11
MANAGEMENT'S DISCUSSION
- -----------------------
We are pleased to report a profit before tax of $200,000 on sales of
$17,721,000 for the third quarter ended June 30, 1995. This compares to a
profit before tax of $127,000 on sales of $14,419,000 a year ago and represents
our fifth consecutive quarterly profit.
Profit before tax for the nine months ended June 30, 1995 was $2,607,000 on
sales of $51,092,000, compared to a loss of $77,000 on sales of $45,831,000
last year. The nine months earnings figures for 1995 include a benefit of
$1,512,000, recorded in the second quarter, from our original reserve of
$6,500,000, established in September of 1993 to cover costs associated with the
restructuring of the Company's Forge Group.
Net income for the third quarter was $90,000 or $.02 per share, compared to
income of $ 17,000 or $.00 per share for the same period last year. Net income
for the nine months including the reserve reversal was $2,328,000 or $.46 per
share, compared to a loss of $77,000, or $.06 per share in 1994.
Trends so far this fiscal year remain positive in sales and earnings
categories.
For example, our Forge segment sales during the quarter were up 47% to
$6,400,000, compared to the same period last year, and in June they achieved
the highest one month sales total since December of 1982. Forge sales for the
nine month period were up 15% to $16,400,000, and their operating profit before
corporate and interest expense was approximately $500,000, compared to a loss
of $900,000 a year ago.
Our Specialty Products segment achieved a 13% improvement in sales for the
quarter to $ 11,800,000, compared to 1994, and a 9% sales increase to
$35,900,000 for the nine months.
The segment's operating profit before corporate and interest expense increased
to $2,600,000 year-to-date from $2,300,000 a year ago.
The Forge segment has completed an agreement with the Wyman-Gordon Company of
North Grafton, Massachusetts. As a result our forging operations will work with
Wyman-Gordon in both technical and marketing areas to serve the aerospace
industry.
Wyman-Gordon is closing its Worcester, Massachusetts hammer forging operation
and the majority of that location's production has been transferred to other
Wyman-Gordon facilities in Massachusetts and Texas. Wyman-Gordon's customers
will be offered continued production of product not transferred to the other
locations at our Cleveland, Ohio forging operations. This strategic alliance
strengthens our position in the aerospace forging market. We are extremely
pleased to join forces with a company that is considered the technological
leader in the industry. We look forward to a close working relationship with
Wyman-Gordon as their selected successor to supply the future needs of our
mutual customers.
During the quarter we experienced a high demand from our customers for products
with relatively low margins. This created an unfavorable product mix and
contributed substantially to the disparity we experienced in sales versus
earnings performance. Consequently, as we continue to generate additional
business, we remain dedicated to our long-term product development strategy --
a strategy which focuses our technical expertise to serve not only the present
demands of our customers worldwide, but also prepares products and services in
anticipation of their future needs -- a strategy that we are confident is well
designed to enhance our future profitability.
10
<PAGE> 12
FINANCIAL ANALYSIS
- ------------------
Net sales for the third quarter ended June 30, 1995 increased $3.3 million to
$17.7 million from $14.4 million a year ago or 16%. Defense-related sales
were $1.9 million compared to $1.5 a year ago. The Company reported net income
of $.09 million compared to $.017 million a year ago. Income from operations
before corporate and interest expense increased to $.8 million from $.6 million
last year.
Net sales for the nine months ended June 30, 1995 increased $5.3 million to
$51.1 million from $45.8 million a year ago. Defense-related sales were $6.4
million compared to $5.6 million a year ago. The Company reported a net income
of $2.3 million compared to a loss of $.3 million a year ago. Net income for
the nine months benefited $1.5 million from the reversal, in the second
quarter, of the reserve that was established in September 1993 for the
restructuring of the Forge Group. Income from operations before corporate and
interest expense increased to $3.1 million from $1.4 million last year.
Net interest expense for the third quarter was $.3 million compared to $.2
million a year ago. Year-to-date net interest expense was $.7 million compared
to $.5 million a year ago.
New orders received for the third quarter were $18.5 million down from $20.4
million a year ago. Included in the third quarter last year was $7 million of
orders relating to a helicopter retrofit program. Year-to-date, new ordered
received were $54.1 million compared to $48.6 million a year ago.
SPECIALTY PRODUCTS net sales for the third quarter increased $1.4 million to
$11.8 million from $10.4 million a year ago. Specialty Products income from
operations before corporate and interest expense increased to $.6 million from
$.4 million a year ago.
SPECIALTY PRODUCTS net sales for the nine months increased $2.9 million to
$35.9 million from $33.0 million a year ago. Specialty Products income from
operations before corporate and interest expense increased to $2.6 million from
$2.3 million a year ago.
FORGING net sales for the quarter were $6.4 million compared to $4.4 million
a year ago. Defense-related sales were $2.2 million (34%) compared to $1.6
million (34%) a year ago. Forging operating profit before corporate and
interest expense was $.2 million compared to break even a year ago.
FORGING net sales for the nine months were $16.4 million compared to $14.3
million a year ago. Forging operating profit before corporate and interest
expense was $.5 million compared to a loss of $.9 million a year ago.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital increased to $12.6 million at June 30, 1995 from $9.7 million
at September 30, 1994. The current ratio was 1.7 at June 30, 1995 and 1.6 at
September 30, 1994. Total debt as a percentage of tangible shareholders'
equity was 57.1% at June 30, 1995 compared to 53.2% at September 30, 1994.
11
<PAGE> 13
Capital expenditures for the nine months were $3.1 million compared to $1.6
million a year ago.
The Company considers it has adequate financing available to meet its needs
for the 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.
12
<PAGE> 14
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
June 30, 1995.
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 August 2, 1995 /*/ Jeffrey P. Gotschall
______________ ______________________________
Jeffrey P. Gotschall
Chief Executive Officer
Date August 2, 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> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 2,240
<SECURITIES> 0
<RECEIVABLES> 13,092
<ALLOWANCES> 0
<INVENTORY> 13,557
<CURRENT-ASSETS> 30,119
<PP&E> 22,500
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<CURRENT-LIABILITIES> 17,482
<BONDS> 6,925
<COMMON> 5,067
0
0
<OTHER-SE> 25,497
<TOTAL-LIABILITY-AND-EQUITY> 59,424
<SALES> 51,092
<TOTAL-REVENUES> 51,092
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