<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, 1997 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
incorporation or organization) Identification 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
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Class Outstanding at July 25, 1997
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Common Stock, $1 Par Value 5,149,354
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SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
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Financial Statements:
Consolidated Condensed Balance Sheets --
June 30, 1997, and September 30, 1996 2
Consolidated Condensed Statements of Income --
Three Months and Nine Months Ended
June 30, 1997 and 1996 3
Consolidated Condensed Statements of Cash Flows --
Three Months and Nine Months Ended
June 30, 1997 and 1996 4
Notes to Consolidated Condensed
Financial Statements 5,6,7
Management's Discussion and Analysis of the
Consolidated Condensed Statements of Income 8,9,10
Other Information and Signatures 11
<PAGE> 3
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
($000 Omitted)
<TABLE>
<CAPTION>
June 30 Sept. 30
1997 1996
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ASSETS
<S> <C> <C>
Current Assets
Cash & Cash Equivalents $ 2,002 $ 2,130
Accounts Receivable, Net 22,629 17,929
Inventories
Raw Materials & Supplies 6,160 5,067
Work-in-Process & Finished Goods 12,242 12,722
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18,402 17,789
Refundable Income Taxes -0- 193
Prepaid Expenses and Other Current Assets 1,018 627
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TOTAL CURRENT ASSETS 44,051 38,668
Property, Plant & Equipment, Net 23,037 23,200
Goodwill, Net of Amortization 3,893 3,980
Other Non-Current Assets 1,883 2,122
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TOTAL ASSETS $72,864 $67,970
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt 2,256 2,500
Accounts Payable 9,248 9,402
Accrued Expenses 7,358 5,906
Accrued Income Taxes 520 -0-
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TOTAL CURRENT LIABILITIES 19,382 17,808
Long-Term Debt - Less Current Portion 10,630 10,575
Deferred Federal Income Taxes and Other 3,242 3,630
Shareholders' Equity
Serial Preferred Shares - No Par Value -- --
Common Shares, Par Value $1 Per Share 5,149 5,127
Paid-in-Surplus 6,045 5,978
Retained Earnings 28,416 24,852
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TOTAL SHAREHOLDERS' EQUITY 39,610 35,957
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $72,864 $67,970
======= =======
</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 Nine Months Ended
June 30 June 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ 29,999 $ 23,142 $ 80,882 $ 63,509
Cost & Expenses
Cost of Goods Sold 23,260 18,126 63,926 50,733
Selling, General &
Administrative Expense 3,919 3,291 10,244 8,852
Interest Income (43) (28) (102) (71)
Interest Expense 277 294 901 872
Other (Income) Expense, Net 17 (9) 58 17
-------- -------- -------- --------
Total Costs & Expenses 27,430 21,674 75,027 60,403
Income Before Income Taxes 2,569 1,468 5,855 3,106
Provision for Federal, Foreign
& State Income Taxes 560 78 1,322 252
-------- -------- -------- --------
Net Income $ 2,009 $ 1,390 $ 4,533 $ 2,854
======== ======== ======== ========
Net Income Per Share $ .38 $ .27 $ .87 $ .56
Average Shares Outstanding 5,190 5,133 5,183 5,117
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>
Nine Months Ended
June 30
1997 1996
---- ----
<S> <C> <C>
Net cash provided by (used for) operating activities:
Net income $ 4,533 $ 2,854
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 2,887 2,404
Deferred income taxes and other (388) (262)
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Subtotal 7,032 4,996
Net cash provided by (used for) changes in operating assets and liabilities:
Receivables (4,700) (2,795)
Inventories (613) (2,788)
Accrued or refundable income taxes 713 250
Prepaid expenses and other current assets (391) (582)
Accounts payable (154) 2,395
Accrued expenses 1,452 611
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Net cash provided by (used for) changes
in operating assets and liabilities (3,693) (2,909)
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Net cash provided by (used for) operating activities 3,339 2,087
Net cash provided by (used for) investing activities:
Purchase of property, plant & equipment (3,250) (1,758)
(Increase) decrease in funds held by trustee for capital project -- 321
Other (28) 251
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Net cash provided by (used for) investing activities (3,278) (1,186)
Net cash provided by (used for) financing activities:
Proceeds from additional borrowings 3,900 1,900
Repayment of borrowings (4,089) (925)
Cash dividends declared -- --
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Net cash provided by (used for) financing activities (189) 975
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Increase (decrease) in cash and cash equivalents (128) 1,876
Cash and cash equivalents, beginning of year 2,130 1,469
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Cash and cash equivalents, end of period $ 2,002 $ 3,345
======= =======
</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, 1997
NOTES
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(1) Summary of Significant Accounting Policies:
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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 1997 classification.
(2) Debt:
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Long-term debt as of June 30, 1997 and September 30, 1996 consisted of:
<TABLE>
<CAPTION>
June 30 Sept. 30
1997 1996
---- ----
($000 Omitted)
<S> <C> <C>
Variable Rate Industrial Development
Demand Revenue Improvement
and Refunding Bonds $ 2,000 $ 2,300
Note payable to bank, due in quarterly
installments of $214,000, at the base rate 5,786 2,375
Note payable to bank, due October 31, 1997,
interest payable quarterly, at rates based
upon LIBOR and DIBOR 1,000 1,000
Note payable to seller of acquired business
at the base rate plus 1/2% 1,000 1,000
Note payable under revolving credit
agreement, at the base rate 3,100 6,400
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$12,886 $13,075
Less - current maturities 2,256 2,500
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$10,630 $10,575
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</TABLE>
5
<PAGE> 7
The Company has a $9 million revolving credit agreement subject to eligible
working capital as defined, which expires March 31, 1999. As of June 30, 1997
the Company had $3.1 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, 1997. A commitment fee of 3/8% is incurred on the remaining unused
balance. Interest is at the base rate and is payable quarterly. The average
balance outstanding against the revolving credit was $5.3 million and $5.0
million and during the nine month period of fiscal 1997 and 1996, respectively.
The balances outstanding under this credit agreement have been classified as
long term debt.
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 June 30, 1997, tangible net worth exceeded
the required minimum by $7.8 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 and adjustable quarterly. The final principal payment of
approximately $1 million is due July 1, 1997.
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:
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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 1997 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 $3,920,000
and $3,570,000 higher than reported at June 30, 1997 and September 30, 1996,
respectively.
(7) Other Income:
-------------
Other income is comprised primarily of grant income from Irish government
agencies, foreign exchange gains and losses, and royalty and fee income.
(8) Earnings Per Share:
-------------------
In March 1997, the Financial Accounting Standards Board issued SFAS 128 on
"Earnings Per Share." SFAS 128 will change the manner in which earnings per
share is computed effective in fiscal year 1998 and applied retroactively.
Management's preliminary estimates are that adoption of SFAS 128 will not have a
material impact on earnings per share as previously reported under the earlier
accounting standard.
(9) Basis of Presentation and Management Estimates:
-----------------------------------------------
The accompanying financial information for the nine months ended June 30, 1997
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.
The Company prepares its financial statements in accordance with generally
accepted accounting principles, which requires management to make estimates and
assumptions that affect amounts reported in the financial statements for the
reporting period. Actual results could differ from those based upon such
estimates and assumptions. These estimates and assumptions are revised as
necessary.
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 Nine Months Ended
June 30 June 30
1997 and 1996 1997 and 1996
------------------ -----------------
<S> <C> <C> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ 6,857 30 % $ 17,373 27%
Cost of Sales 5,134 28 % 13,193 26%
Selling, General &
Administrative 628 19 % 1,392 16%
Interest Income 15 53 % 31 44%
Interest Expense (17) (6)% 29 3%
Other Income, Net (26) N/A (41) (241%)
Income Before Income Taxes 1,101 75 % 2,749 88%
Provision for Federal,
Foreign & State Income Taxes 482 618 % 1,070 425%
Net Income 619 45 % 1,679 59%
</TABLE>
8
<PAGE> 10
MANAGEMENT'S DISCUSSION
- -----------------------
We are happy to report that our third quarter performance was the strongest we
have achieved in several years.
In the third quarter ended June 30, net sales increased 30% to $30 million
compared to $23 million last year. Net sales for the nine-month period improved
27% to $81 million from $64 million in the same 1996 period. Incoming orders
were down just slightly for the quarter, but were up $14 million to $86 million
year-to-date. We commented in our last quarterly report that our sales
performance during the first half of fiscal 1997 could be leading us to our
first $100 million sales year. We now anticipate that accomplishment with
increased certainty as we move into the last 1997 fiscal quarter.
Profit before tax for the third quarter climbed 75% to $2,569,000 from
$1,468,000, while earnings per share rose 40% to $0.38 compared to $0.27 in the
same 1996 period. Profit before tax year-to-date increased 88% from $3,106,000
to $5,855,000, and earnings per share improved 55% to $0.87 from $0.56 last
year. We are pleased with the earnings performance of both of our business
segments. They are demonstrating excellent ability to control costs and improve
production efficiencies while meeting the demands of increased sales volume.
We have recently broken ground for an expansion of our turbine component repair
capability in Ireland. The additional capacity will significantly increase our
ability to provide customers with the timely and comprehensive repair services
they have learned to expect from SIFCO.
SIFCO has built much of its sales success on a foundation of dedicated customer
service. A program that has demonstrated itself to be an extremely effective
marketing tool has been the Turbine Group's just-in-time (JIT) inventory
management partnership. Although the JIT partnership is not unique to SIFCO, the
Turbine Group is the first to apply the system in the turbine component repair
markets it serves. We have described the program in past reports, but mention it
here again because of its increasing success in consolidating customer
relationships.
The growth of customer response to JIT no doubt results in part from the demands
being made now on aircraft maintenance schedules as air traffic continues to
experience the effects of a strengthening economy and expanding air travel. As
the pressure increases on airline maintenance, our Turbine Group's ability to
supply the right part promptly as needed is an important asset. It relieves the
customer from the costly expense of maintaining extensive inventories and helps
protect against delays and aircraft down times due to parts shortages.
We should also mention the professional pride Forge personnel experienced when
Boeing and Bell Textron announced initial sales for their new 609 civilian tilt
rotor aircraft at the Paris Air Show. The Forge Group has several forgings in
this 21st century aircraft. Forge participated in the earlier military prototype
version designated the V-22 with a large variety of forgings. The 609 combines
the take-off, hover and landing qualities of a helicopter with the high speed
range and efficiency of a turboprop aircraft. The 609 can attain speeds twice as
fast and range twice as far as current helicopters, and the people in SIFCO
Forge Group have made a substantial contribution to the production of this
break-through technology.
As we enter the final quarter of 1997, we do so with confidence that our sales
and earnings performance will continue to build on the solid foundation that our
past performance has established. We have the range of products, the human
resources and the expertise to effectively meet the needs of our customers and
thereby serve the interests of our loyal shareholders.
9
<PAGE> 11
FINANCIAL ANALYSIS
- ------------------
Net sales for the third quarter ended June 30, 1997 increased $6.9 to
$30.0 million from $23.1 million a year ago. Defense related sales were $5.4
million compared to $4.3 million a year ago. The Company reported net income of
$2.0 million compared to $1.4 million a year ago. Income from operations before
corporate and interest expense increased to $3.7 million from $2.3 million last
year.
Net sales for the nine months ended June 30, 1997 increased $17.4
million to $80.9 million from $63.5 million a year ago. Defense-related sales
were $5.4 million compared to $10.5 million a year ago. The Company reported a
net income of $4.5 million compared to $2.9 million a year ago. Income from
operations before corporate and interest expense was $8.7 million compared to
$5.3 million last year.
Net interest expense for the third quarter was $.2 million and $.3
million last year. Year-to-date net interest expense was $.8 million for both
periods.
New orders received for the third quarter were $26.2 million, down
slightly from $28.8 million a year ago. Year-to-date, new ordered received were
$86 million compared to $72 million a year ago.
SPECIALTY PRODUCTS net sales for the third quarter increased $2.2
million to $18.1 million from $15.9 million a year ago. Specialty Products
income from operations before corporate and interest expense increased to $2.3
million from $1.9 million last year.
SPECIALTY PRODUCTS net sales for the nine months increased $6.6 million
to $51.0 million from $44.4 million a year ago. Specialty Products income from
operations before corporate and interest expense increased to $5.7 million from
$4.4 million a year ago.
FORGING segment sales for the quarter were $12.0 million compared to
$7.5 million a year ago. Defense related sales were the same as last year at
$4.0 million. Forging operating profit before corporate and interest expense was
$1.4 million compared to $.4 million a year ago.
FORGING net sales for nine months were $30.2 million compared to $19.6
million a year ago. Forging operating profit before corporate and interest
expense was $3.0 million compared to $1.0 million a year ago.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital increased to $24.7 million at June 30, 1997 from $20.9
million at September 30, 1996. The current ratio was 2.3 at June 30, 1997 and
2.2 at September 30, 1996. Total debt as a percentage of tangible shareholders'
equity was 37.0% at June 30, 1997 compared to 43.5% at September 30, 1996.
Capital expenditures for the nine months were $3.3 million compared to $1.8
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.
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, 1997.
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 July 29, 1997 /*/ Jeffrey P. Gotschall
------------- --------------------------
Jeffrey P. Gotschall
President & Chief Executive Officer
Date July 29, 1997 /*/ Richard A. Demetter
------------- -------------------------
Richard A. Demetter
Vice President - Finance
(Principal Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000090168
<NAME> SIFCO INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,002
<SECURITIES> 0
<RECEIVABLES> 22,629
<ALLOWANCES> 0
<INVENTORY> 18,402
<CURRENT-ASSETS> 44,051
<PP&E> 23,037
<DEPRECIATION> 0
<TOTAL-ASSETS> 72,864
<CURRENT-LIABILITIES> 19,382
<BONDS> 0
<COMMON> 5,149
0
0
<OTHER-SE> 34,461
<TOTAL-LIABILITY-AND-EQUITY> 72,864
<SALES> 0
<TOTAL-REVENUES> 80,882
<CGS> 63,926
<TOTAL-COSTS> 74,170
<OTHER-EXPENSES> (44)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 901
<INCOME-PRETAX> 5,855
<INCOME-TAX> 1,322
<INCOME-CONTINUING> 4,533
<DISCONTINUED> 0
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<NET-INCOME> 4,533
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
</TABLE>
