<PAGE> 1
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 1996 Commission File Number 1-5978
-------------------- ---------
SIFCO Industries, Inc., and Subsidiaries
----------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0553950
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification 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
--------------
None
- --------------------------------------------------------------------------------
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 January 31, 1997
- ------------ ---------------------------------
Common Stock, $1 Par Value 5,137,044
<PAGE> 2
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
($000 Omitted)
<TABLE>
<CAPTION>
Dec 31 Sept. 30
1996 1996
---- ----
ASSETS
<S> <C> <C>
Current Assets
Cash & Cash Equivalents $ 1,850 $ 2,130
Accounts Receivable, Net 19,193 17,929
Inventories
Raw Materials & Supplies 5,164 5,067
Work-in-Process & Finished Goods 13,024 12,722
------- -------
18,188 17,789
Refundable Income Taxes -0- 193
Prepaid Expenses and Other Current Assets 1,001 627
------- -------
TOTAL CURRENT ASSETS 40,232 38,668
Property, Plant & Equipment, Net 23,686 23,200
Goodwill, Net of Amortization 3,951 3,980
Other Non-Current Assets 2,162 2,122
------- -------
TOTAL ASSETS $70,031 $67,970
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt 2,256 2,500
Accounts Payable 7,152 9,402
Accrued Expenses 4,500 5,906
Accrued Income Taxes 186 -0-
------- -------
TOTAL CURRENT LIABILITIES 14,094 17,808
Long-Term Debt - Less Current Portion 14,144 10,575
Deferred Federal Income Taxes and Other 3,692 3,630
Shareholders' Equity
Serial Preferred Shares - No Par Value -- --
Common Shares, Par Value $1 Per Share 5,135 5,127
Paid-in-Surplus 6,024 5,978
Retained Earnings 26,942 24,852
------- -------
TOTAL SHAREHOLDERS' EQUITY 38,101 35,957
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $70,031 $67,970
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
<PAGE> 3
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
($000 Omitted)
<TABLE>
<CAPTION>
Three Months Ended
December 31
1996 1995
---- ----
<S> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ 23,761 $ 18,271
Cost & Expenses
Cost of Goods Sold 18,909 14,986
Selling, General &
Administrative Expense 3,054 2,594
Interest Income (34) (15)
Interest Expense 318 280
Other (Income) Expense, Net 37 6
Total Costs & Expenses 22,284 17,851
Income Before Income Taxes 1,477 420
Provision for Federal, Foreign
& State Income Taxes 379 58
-------- --------
Net Income $ 1,098 $ 362
======== ========
Net Income Per Share $ .21 $ .07
Average Shares Outstanding 5,174 5,104
Cash Dividends per Common Share $ -- $ --
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($000 Omitted)
Three Months Ended
December 31
1996 1995
---- ----
<S> <C> <C>
Net cash provided by (used for) operating activities:
Net income (loss) $ 1,098 $ 362
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 951 851
Deferred income taxes and other 62 (109)
------- -------
Subtotal 2,111 1,104
Net cash provided by (used for) changes
in operating assets and liabilities:
Receivables (1,264) 45
Inventories (399) (948)
Accrued or refundable income taxes 379 58
Prepaid expenses and other current assets (374) (128)
Accounts payable (2,250) (616)
Accrued expenses (1,406) (100)
------- -------
Net cash provided by (used for) changes
in operating assets and liabilities (5,314) (1,689)
------- -------
Net cash provided by (used for) operating activities (3,203) (585)
Net cash provided by (used for) investing activities:
Purchase of property, plant & equipment (783) (341)
(Increase) decrease in funds held by trustee for capital project -- 144
Other 381 (304)
------- -------
Net cash provided by (used for) investing activities (402) (501)
Net cash provided by (used for) financing activities:
Proceeds from additional borrowings 3,900 1,000
Repayment of borrowings (575) (225)
Cash dividends declared -- --
------- -------
Net cash provided by (used for) financing activities 3,325 775
------- -------
Increase (decrease) in cash and cash equivalents (280) (311)
Cash and cash equivalents, beginning of year 2,130 1,469
------- -------
Cash and cash equivalents, end of period $ 1,850 $ 1,158
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 5
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL INFORMATION
DECEMBER 31, 1996
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 1997 classification.
(2) Debt:
-----
Long-term debt as of December 31, 1996 and September 30, 1996 consisted of:
<TABLE>
<CAPTION>
Dec 31 Sept. 30
1996 1996
---- ----
($000 Omitted)
<S> <C> <C>
Variable Rate Industrial Development
Demand Revenue Improvement
and Refunding Bonds $ 2,200 $ 2,300
Note payable to bank, due in quarterly
installments of $214,000, at the base rate 6,000 2,375
Note payable to bank, due October 31, 1996,
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 6,200 6,400
------- -------
$16,400 $13,075
Less - current maturities 2,256 2,500
------- -------
$14,144 $10,575
======= =======
</TABLE>
5
<PAGE> 6
The Company has a $9 million revolving credit agreement subject to eligible
working capital as defined, which expires March 31, 1999. As of December 31,
1996 the Company had $6.2 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, 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 $7.8 million and $4.2
million and during the three 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 December 31, 1996, tangible net worth
exceeded the required minimum by $5.8 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> 7
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 $3,570,000
and $3,570,000 higher than reported at December 31, 1996 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) Basis of Presentation and Management Estimates:
-----------------------------------------------
The accompanying financial information for the three months ended December 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.
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> 8
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
Dec 31
1996 and 1995
-------------------------
<S> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ 5,490 30%
Cost of Sales 3,923 26%
Selling, General &
Administrative 460 18%
Interest Income 19 127%
Interest Expense 38 14%
Other Income, Net (31) --
Income Before Income Taxes 1,057 252%
Provision for Federal,
Foreign & State Income Taxes 321 553%
Net Income $ 736 203%
</TABLE>
8
<PAGE> 9
MANAGEMENT'S DISCUSSION
- -----------------------
We are very pleased to report an excellent beginning for our new fiscal year.
Compared to the first quarter last year, net sales substantially improved,
bookings were up $13 million to $32 million, and net income increased 200%.
Profit before tax was $1,477,000 on sales of $23,761,000 for the quarter. This
compares to a profit before tax of $420,000 on sales of $18,271,000 for the same
period last year. Net earnings were $1,098,000 or $0.21 per share compared to
$362,000 or $0.07 per share a year ago.
The aerospace markets we serve are continuing to experience a strong resurgence.
All of this, of course, is very good news. The increase in aircraft production
and flight activity has expanded the demand for original equipment products as
well as turbine component repairs. As a result of our long-term focus on a
variety of market development programs, we are now able to respond to those
growing needs with a greater variety of products and services worldwide.
The Forging segment continues to benefit from the increase in build rates for
commercial aircraft. Their backlog and bookings are both improved compared to
last year. In order to meet the strong surge of incoming business, they have
hired additional personnel in areas where production bottlenecks were
threatening to develop. Because of the streamlined work programs instituted
during their restructuring phase, they have been able to hold the total
workforce increases to a minimum and still meet the needs of their customers.
In addition to components for commercial airlines, the Forge is also providing
parts for many military aircraft including the new F-18E/F by McDonnell Douglas.
They have also become a major supplier to most helicopter manufacturers and are
producing forged components for Bell/Boeing's V-22 Osprey, Sikorsky's S76 and
Blackhawk, the Boeing CH-46 and CH-47 Chinook, as well as models by Bell
Helicopter, Schweizer and Mitsubishi.
Our Specialty Products segment was substantially improved in sales and earnings
compared to a year ago. Turbine Component personnel continued to develop
additional repair programs, particularly for the latest generation of aircraft
powerplants such as the Rolls-Royce Trent engine, Pratt & Whitney's PW4000 and
International Aero Engine's V2500. Other Specialty Product operations have been
continuing to develop additional products and services in selective plating as
well as OEM machining applications. These programs support strategic efforts to
anticipate the future needs of the diverse markets we serve.
A creative and experienced team serves as the foundation of any business
enterprise. In this regard we are well served. Our collective expertise gathered
additional strength in December when Arthur M. Greenberg joined SIFCO as General
Manager and leader of our Selective Plating team. He has over 27 years
experience in industrial electrochemistry management, sales and technical
development. We are pleased to welcome Arthur to our SIFCO family.
We are confident that the resurgence of the aerospace industry will continue to
strengthen the demand for our products and services. We are also confident that
our SIFCO team will continue to respond to the accelerated needs of our
customers with the same expertise and dedicated service that has become the
hallmark of our company in all of the markets we serve worldwide.
9
<PAGE> 10
FINANCIAL ANALYSIS
- ------------------
Net sales for the first quarter ended December 31, 1996 increased to
$23.8 million from $18.3 million a year ago or 30%. Defense related sales were
$3.1 million compared to $2.1 million a year ago. The Company reported net
income of $1.1 million compared to $.4 million a year ago.
Net interest expense increased to $.284 million from $.265 million a
year ago, reflecting additional borrowing for increased working capital needed
to support additional sales.
New orders received increased to $32 million from $19 last year.
SPECIALTY PRODUCTS net sales increased to $15.7 million from $13.2
million last year. Specialty Products income from operations before corporate
and interest expense increased to $1.4 million compared to $.8 million last
year.
FORGING segment sales increased to $8.1 million from $5.2 million last
year. Defense related sales were $3.1 million (38%) compared to $1.8 million
(35%) last year. Forging income from operations before corporate and interest
expense was $.8 million compared to $.2 million last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital was $26.1 million at December 31, 1996 and $20.9 million at
September 30, 1996. The current ratio for the same period was 2.9 and 2.1
respectively. Total debt as a percentage of tangible shareholders' equity was
52.7% at December 31, 1996 compared to 43.5% at September 30, 1996.
In December 1996, the Company refunded the two outstanding term loans it had
with its lead bank into a new $6 million, five-year term loan and reduced the
amount of its revolving credit to $9 million from $10 million. The net result
was approximately a $3 million increase in the credit facility.
The Company has borrowed $6.2 million against its revolving credit line of $9.0
million at December 31, 1996. The Company considers it has adequate financing
available to meet its needs through the current 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.
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, 1996.
10
<PAGE> 11
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 February 6, 1997 /*/ Jeffrey P. Gotschall
---------------- --------------------------
Jeffrey P. Gotschall
Chief Executive Officer
Date February 6, 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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,850
<SECURITIES> 0
<RECEIVABLES> 19,193
<ALLOWANCES> 0
<INVENTORY> 18,188
<CURRENT-ASSETS> 40,232
<PP&E> 23,686
<DEPRECIATION> 0
<TOTAL-ASSETS> 70,031
<CURRENT-LIABILITIES> 14,094
<BONDS> 14,144
<COMMON> 5,135
0
0
<OTHER-SE> 32,966
<TOTAL-LIABILITY-AND-EQUITY> 38,101
<SALES> 0
<TOTAL-REVENUES> 23,761
<CGS> 18,909
<TOTAL-COSTS> 21,963
<OTHER-EXPENSES> 37
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 284
<INCOME-PRETAX> 1,477
<INCOME-TAX> 379
<INCOME-CONTINUING> 1,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,098
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
