<PAGE> 1
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1996 Commission File Number 1-5978
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SIFCO Industries, Inc., and Subsidiaries
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0553950
- --------------------------------------------------------------------------------
(State or other (I.R.S. Employer Identification No.)
jurisdiction of
incorporation
or organization)
970 East 64th Street, Cleveland, Ohio 44103
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (216) 881-8600
--------------
None
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Former name, former address and former fiscal year,
if changed since last report.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 April 30, 1996
- ------------------ -------------------------------
Common Stock, $1 Par Value 5,113,644
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SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
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INDEX
------
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Financial Statements:
Consolidated Condensed Balance Sheets --
March 31, 1996, and September 30, 1995 2
Consolidated Condensed Statements of Income --
Three Months and Six Months Ended
March 31, 1996 and 1995 3
Consolidated Condensed Statements of Cash Flows --
Three Months and Six Months Ended
March 31, 1996 and 1995 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>
<PAGE> 3
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
($000 Omitted)
<TABLE>
<CAPTION>
Mar. 31 Sept. 30
1996 1995
------- -------
<S> <C> <C>
ASSETS
------
Current Assets
Cash & Cash Equivalents $ 1,228 $ 1,469
Accounts Receivable, Net 17,308 15,121
Inventories
Raw Materials & Supplies 5,247 3,488
Work-in-Process & Finished Goods 9,493 9,797
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14,740 13,285
Prepaid Expenses and Other Current Assets 1,434 711
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TOTAL CURRENT ASSETS 34,710 30,586
Property, Plant & Equipment, Net 22,650 23,460
Goodwill, Net of Amortization 4,038 4,097
Funds Held by Trustee For Capital Project 262 472
Other Non-Current Assets 1,858 2,067
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TOTAL ASSETS $63,518 $60,682
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Notes Payable $ 5,500 $ 4,200
Current Portion of Long-Term Debt 2,300 2,300
Accounts Payable 7,492 6,664
Accrued Expenses 5,030 4,758
Accrued Income Taxes 200 27
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TOTAL CURRENT LIABILITIES 20,522 17,949
Long-Term Debt - Less Current Portion 6,100 6,675
Deferred Federal Income Taxes and Other 5,022 5,253
Shareholders' Equity
Serial Preferred Shares - No Par Value -- --
Common Shares, Par Value $1 Per Share 5,114 5,092
Paid-in-Surplus 5,917 5,873
Retained Earnings 20,843 19,840
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TOTAL SHAREHOLDERS' EQUITY 31,874 30,805
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $63,518 $60,682
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 4
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
($000 Omitted)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ 22,096 $ 17,374 $ 40,367 $ 33,371
Cost & Expenses
Cost of Goods Sold 17,621 13,750 32,607 26,377
Selling, General &
Administrative Expense 2,967 2,810 5,561 5,655
Interest Income (28) (30) (43) (60)
Interest Expense 298 257 578 501
Other (Income) Expense, Net 20 95 26 3
Reversal of Restructuring Charge to Income -- (1,512) -- (1,512)
-------- -------- -------- --------
Total Costs & Expenses 20,878 15,370 38,729 30,964
Income Before Income Taxes 1,218 2,004 1,638 2,407
Provision for Federal, Foreign
& State Income Taxes 116 79 174 169
-------- -------- -------- --------
Net Income (Loss) $ 1,102 $ 1,925 $ 1,464 $ 2,238
======== ======== ======== ========
Net Income (Loss) Per Share $ .22 $ .38 $ .29 $ .44
======== ======== ======== ========
Average Shares Outstanding 5,120 5,081 5,111 5,078
Cash Dividends per Common Share $ -- $ -- $ -- $ --
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 5
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------------------
($000 Omitted)
<TABLE>
<CAPTION>
Six Months Ended
March 31
1996 1995
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<S> <C> <C>
Net cash provided by (used for) operating activities:
Net income (loss) $ 1,464 $ 2,238
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,642 1,693
Deferred income taxes and other (231) 211
Reversal of restructuring charge to income -- (1,512)
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Subtotal 2,875 2,630
Net cash provided by (used for) changes
in operating assets and liabilities,
net of effect of acquisition:
Receivables (2,187) 731
Inventories (1,455) (3,374)
Accrued or refundable income taxes 173 1,212
Prepaid expenses and other current assets (723) (755)
Accounts payable 828 819
Accrued expenses 272 (270)
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Net cash provided by (used for) changes
in operating assets and liabilities (3,092) (1,637)
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Net cash provided by (used for) operating activities (217) 993
Net cash provided by (used for) investing activities:
Purchase of property, plant & equipment (1,044) (2,362)
(Increase) decrease in funds held by trustee for capital project 210 117
Other 85 654
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Net cash provided by (used for) investing activities (749) (1,591)
Net cash provided by (used for) financing activities:
Proceeds from additional borrowings 1,300 1,000
Repayment of borrowings (575) (450)
Cash dividends declared -- --
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Net cash provided by (used for) financing activities 725 550
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Increase (decrease) in cash and cash equivalents (241) (48)
Cash and cash equivalents, beginning of year 1,469 2,256
------- -------
Cash and cash equivalents, end of period $ 1,228 $ 2,208
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 6
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
---------------------------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL INFORMATION
-----------------------------------------------------
MARCH 31, 1996
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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 March 31, 1996 and September 30, 1995 consisted of:
<TABLE>
<CAPTION>
Mar. 31 Sept. 30
1996 1995
------ ------
($000 Omitted)
<S> <C> <C>
Variable Rate Industrial Development
Demand Revenue Improvement
and Refunding Bonds $2,475 $2,625
Note payable to bank, due in quarterly
installments of $150,000, at the base rate
plus 1/2% (adjusted quarterly) 2,925 3,350
Note payable to bank, due October 31, 1996,
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 2,000
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8,400 8,975
Less - current maturities 2,300 2,300
------ ------
$6,100 $6,675
====== ======
</TABLE>
5
<PAGE> 7
The Company has a $7 million revolving credit agreement subject to eligible
working capital as defined, which expires January 1, 1998. As of March 31,
1996 the Company had $5.5 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, 1996. 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 $4.6 million and $3.5 million during the six month period of
1996 and 1995, 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 $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, 1998.
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 March 31, 1996, tangible net worth
exceeded the required minimum by $3.4 million.
As part of a previous acquisition, the seller provided financing in the form
of unsecured installment notes. These notes bear interest at the base rate
plus 1/2%, payable 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 and net loss carry
forward. 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:
-------------
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 1996
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 $3,583,000 and $3,463,000 higher than reported at
March 31, 1996 and September 30, 1995, 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.
(10) Basis of Presentation:
----------------------
The accompanying financial information for the six months ended March 31,
1996 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.
7
<PAGE> 9
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 Six Months Ended
March 31 March 31
1996 and 1995 1996 and 1995
------------------- -------------------
<S> <C> <C> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ 4,722 27% $ 6,996 21%
Cost of Sales 3,871 28% 6,230 24%
Selling, General &
Administrative 157 6% (94) (2)%
Interest Income (2) (7)% (17) (28)%
Interest Expense 41 16% 77 15%
Other Expense, Net (75) (79)% 23 766%
Reversal of Restructuring
Charge to Income (1,512) N/A (1,512) N/A
Income Before Income Taxes (786) (39)% (769) (32)%
Provision for Federal,
Foreign & State Income Taxes 37 47% 5 3%
Net Income (823) (42)% (774) (35)%
</TABLE>
8
<PAGE> 10
MANAGEMENT'S DISCUSSION
- -----------------------
We are happy to announce a profit before tax of $1,218,000 on sales of
$22,096,000 for the second quarter ended March 31, 1996. This compares to last
year's profit before tax of $2,004,000 which included the reversal of a
restructuring expense to income of $1,512,000. Sales for the second quarter in
1995 were $17,374,000.
Profit before tax for the six months ended March 31, 1996 was $1,638,000 on
sales of $40,367,000, compared to $2,407,000 on sales of $33,371,000 in 1995.
Net income for the second quarter just ended was $1,102,000, or $0.22 per
share, compared to $1,925,000, or $0.38 per share last year. Net income for
the six months was $1,464,000, or $0.29 per share, compared to $2,238,000, or
$0.44 per share in 1995.
Profit before tax as well as net income for the six months ending March 31,
1995 include the reversal to income of the $1,512,000 restructuring expense
recorded in the second quarter of last year.
Forge sales increased to $6.8 million from $5.2 million last year. Operating
income for the period just ended was $348,000, up from $183,000 in 1995. The
growing strength of the rebounding aerospace industry is apparent as bookings
averaged in excess of $3 million for each month of the quarter, compared to
$1.7 million last year. A major contributor to incoming business was Boeing
Aircraft's increasing build rates for its most popular airliners, all of which
use a variety of SIFCO forgings. Defense orders were also higher with several
programs underway including the new V-22 vertical lift aircraft, the C-17 and a
retrofit for the venerable Chinook helicopter. Technical capabilities were
also updated when Forge earned certification for its heat treat facilities from
the National Aerospace and Defense Contractors Accreditation Program.
We are also pleased with the performance of the Specialty Products segment.
They achieved a substantial improvement in sales to $15.4 million, up from
$12.7 million a year ago, while operating income rose from $1,036,000 to
$1,598,000. Bookings managed a slight improvement to $15 million during the
quarter.
A welcome contribution to our turbine component repair business during the
quarter has been the surge of overhaul activity on the CFM56 series engine.
Having completed record breaking in-service times, these engines are now being
scheduled for repair. Our Just-In-Time inventory management programs which are
available for CFM56 series engines as well as other major powerplants has been
well received, particularly in the high demand environment of the past several
months and has been providing a strong marketing incentive for airline
customers.
In other areas of our Specialty Products segment, our plating personnel
enhanced the reputation of their technology as they continued to participate in
NASA's Space Habitat Program. They also earned the ISO 9002 designation for
international quality performance at their facility in the United Kingdom.
The comparison of our business segments year-to-date indicates that our
customer service techniques, product expansion efforts, and improved
efficiencies are getting the job done. For example, excluding the reversal of
the $1,512,000 restructuring expense in the second quarter last year reveals an
increase in earnings per share from $0.089 to $0.22 and an improvement in
profit before tax from $492,000 last year to $1,218,000 this reporting period.
The 27% increase in our combined sales activity for the quarter is solid
evidence that the aerospace industry is back. The increasing demands of our
customers however still occur in that highly competitive arena that
characterizes our business. We must meet the challenges of that competition to
benefit from the earnings opportunities increased business represents. To that
end, we are concentrating on refining the use of our present resources - our
facilities, our technologies and, most importantly, the capabilities of our
skilled and experienced workforce.
9
<PAGE> 11
FINANCIAL ANALYSIS
- ------------------
Net sales for the second quarter ended March 31, 1996 increased $4.7
million to $22.1 million from $17.4 million a year ago or 27%. Defense-related
sales increased $1.7 million to $3.9 million from $2.2 million. The Company
reported a net income of $1.1 million compared to $1.9 million a year ago.
Last year's quarter included the reversal of $1.5 million of restructuring
expense.
Net sales for the six months ended March 31, 1996 increased $7
million to $40.4 million from $33.4 million a year ago or 21%. Defense-related
sales were $6.0 million compared to $4.4 million last year. The Company
reported net income of $1.5 million compared to last year's $2.2 million that
included the $1.5 million of restructuring expense.
Operating income before corporate and interest expense for the quarter
was $3.0 million compared to $3.9 million last year and $1.9 million
year-to-date to $2.7 million last year. Last year's quarter and year-to-date
amounts benefited from the $1.5 million reversal of the restructuring reserve.
Net interest expense was $.3 million compared to $.2 million a year
ago. Year-to-date net interest expense was $.5 million compared to $.4 million
a year ago.
New orders received increased against last year for both the second
quarter and for the six months. New orders for the second quarter were $25.0
million compared to last year's $19.8 million and $44.2 million compared to
$35.6 million last year.
SPECIALTY PRODUCTS net sales for the quarter increased $2.7 million to
$15.4 million from $12.7 million (21%). Defense-related sales were not
significant. Specialty Products income from operations before corporate and
interest expense increased to $1.6 million from $1.0 million last year.
SPECIALTY PRODUCTS net sales for the six months increased to $29.0
million from $24.1 million (20%). Specialty Products income from operations
before corporate and interest expense increased $.3 million to $2.4 million
from $2.1 million.
FORGING SEGMENT net sales for the quarter increased $1.6 million to
$6.8 million from $5.2 million last year (31%). Defense-related sales were
$3.5 million (51%) compared to $1.8 million (25%) last year. Forging income
from operations before corporate and interest expense was $.3 million compared
to $1.7 million last year that included the $1.5 million reversal of
restructuring expense.
FORGING SEGMENT net sales for the six months increased $2.0 million to
$12.0 million from $10.0 million (20%). Defense-related sales were $5.3
million (44%) compared to $3.7 million (37%) last year. Forging income from
operations before corporate and interest expense was $.6 million compared to
$18 million last year that included the $1.5 million reversal of restructuring
expense.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital increased to $14.2 million at March 31, 1996 compared
to $12.6 million at September 30, 1995. The current ratio was 1.7 for both
dates. Total debt as a percentage of tangible shareholders' equity was 53.3% at
March 31, 1996 compared to 53.9% at September 30, 1995.
Capital expenditures were $1.0 million compared to $2.4 million a year
ago.
The Company considers it has adequate financing available to meet its
needs for the year.
10
<PAGE> 12
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 and net loss
carryforward.
11
<PAGE> 13
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 March 31, 1996.
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 April 30, 1996 /s/ Jeffrey P. Gotschall
-------------- -----------------------------
Jeffrey P. Gotschall
Chief Executive Officer
Date April 30, 1996 /s/ 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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 1,228
<SECURITIES> 0
<RECEIVABLES> 17,308
<ALLOWANCES> 0
<INVENTORY> 14,740
<CURRENT-ASSETS> 34,710
<PP&E> 22,650
<DEPRECIATION> 0
<TOTAL-ASSETS> 63,518
<CURRENT-LIABILITIES> 20,522
<BONDS> 0
<COMMON> 5,114
0
0
<OTHER-SE> 26,760
<TOTAL-LIABILITY-AND-EQUITY> 63,518
<SALES> 40,367
<TOTAL-REVENUES> 40,367
<CGS> 32,607
<TOTAL-COSTS> 38,168
<OTHER-EXPENSES> (17)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 578
<INCOME-PRETAX> 1,638
<INCOME-TAX> 174
<INCOME-CONTINUING> 1,464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,464
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>