<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, 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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<TABLE>
<CAPTION>
Class Outstanding at April 25, 1997
- ------------- ------------------------------
<S> <C>
Common Stock, $1 Par Value 5,137,751
</TABLE>
<PAGE> 2
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
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Financial Statements:
Consolidated Condensed Balance Sheets --
March 31, 1997, and September 30, 1996 2
Consolidated Condensed Statements of Income --
Three Months and Six Months Ended
March 31, 1997 and 1996 3
Consolidated Condensed Statements of Cash Flows --
Three Months and Six Months Ended
March 31, 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>
Mar 31 Sept. 30
1997 1996
---- ----
ASSETS
------
<S> <C> <C>
Current Assets
Cash & Cash Equivalents $2,296 $2,130
Accounts Receivable, Net 20,825 17,929
Inventories
Raw Materials & Supplies 5,861 5,067
Work-in-Process & Finished Goods 12,523 12,722
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18,384 17,789
Refundable Income Taxes -0- 193
Prepaid Expenses and Other Current Assets 1,249 627
------- -------
TOTAL CURRENT ASSETS 42,754 38,668
Property, Plant & Equipment, Net 22,998 23,200
Goodwill, Net of Amortization 3,922 3,980
Other Non-Current Assets 1,982 2,122
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TOTAL ASSETS $71,656 $67,970
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<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Current Portion of Long-Term Debt 2,256 2,500
Accounts Payable 9,137 9,402
Accrued Expenses 6,233 5,906
Accrued Income Taxes 361 -0-
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TOTAL CURRENT LIABILITIES 17,987 17,808
Long-Term Debt - Less Current Portion 11,944 10,575
Deferred Federal Income Taxes and Other 3,423 3,630
Shareholders' Equity
Serial Preferred Shares - No Par Value -- --
Common Shares, Par Value $1 Per Share 5,138 5,127
Paid-in-Surplus 6,027 5,978
Retained Earnings 27,137 24,852
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TOTAL SHAREHOLDERS' EQUITY 38,302 35,957
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $71,656 $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 Six Months Ended
March 31 March 31
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ 27,122 $ 22,096 $ 50,883 $ 40,367
Cost & Expenses
Cost of Goods Sold 21,757 17,621 40,666 32,607
Selling, General &
Administrative Expense 3,271 2,967 6,325 5,561
Interest Income (25) (28) (59) (43)
Interest Expense 306 298 624 578
Other (Income) Expense, Net 4 20 41 26
-------- -------- -------- --------
Total Costs & Expenses 25,313 20,878 47,597 38,729
Income Before Income Taxes 1,809 1,218 3,286 1,638
Provision for Federal, Foreign
& State Income Taxes 383 116 762 174
-------- -------- -------- --------
Net Income $ 1,426 $ 1,102 $ 2,524 $ 1,464
======== ======== ======== ========
Net Income Per Share $ .28 $ .22 $ .49 $ .29
Average Shares Outstanding 5,189 5,120 5,181 5,111
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
1997 1996
---- ----
<S> <C> <C>
Net cash provided by (used for) operating activities:
Net income $ 2,524 $ 1,464
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,925 1,642
Deferred income taxes and other (207) (231)
------- -------
Subtotal 4,242 2,875
Net cash provided by (used for) changes in operating assets and liabilities:
Receivables (2,896) (2,187)
Inventories (595) (1,455)
Accrued or refundable income taxes 554 173
Prepaid expenses and other current assets (622) (365)
Accounts payable (265) 828
Accrued expenses 327 272
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Net cash provided by (used for) changes
in operating assets and liabilities (3,497) (2,734)
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Net cash provided by (used for) operating activities 745 141
Net cash provided by (used for) investing activities:
Purchase of property, plant & equipment (1,862) (1,044)
(Increase) decrease in funds held by trustee for capital project -- 210
Other 158 (273)
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Net cash provided by (used for) investing activities (1,704) (1,107)
Net cash provided by (used for) financing activities:
Proceeds from additional borrowings 1,600 1,300
Repayment of borrowings (475) (575)
Cash dividends declared -- --
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Net cash provided by (used for) financing activities 1,125 725
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Increase (decrease) in cash and cash equivalents 166 (241)
Cash and cash equivalents, beginning of year 2,130 1,469
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Cash and cash equivalents, end of period $ 2,296 $ 1,228
======= =======
</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, 1997
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 March 31, 1997 and September 30, 1996 consisted of:
<TABLE>
<CAPTION>
March 31 Sept. 30
1997 1996
---- ----
($000 Omitted)
<S> <C> <C>
Variable Rate Industrial Development
Demand Revenue Improvement
and Refunding Bonds $ 2,100 $ 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, 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 4,100 6,400
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$14,200 $13,075
Less - current maturities 2,256 2,500
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$11,944 $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 March 31, 1997
the Company had $4.1 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 $6.2 million and $4.6
million and during the six 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 March 31, 1997, tangible net worth exceeded
the required minimum by $6.7 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 $3,770,000
and $3,570,000 higher than reported at March 31, 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 six months ended March 31, 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 Six Months Ended
March 31 March 31
1997 and 1996 1997 and 1996
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<S> <C> <C> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ 5,026 23% $10,516 26%
Cost of Sales 4,136 23% 8,059 25%
Selling, General &
Administrative 304 10% 764 14%
Interest Income (3) (11)% 16 37%
Interest Expense 8 3% 46 8%
Other Income, Net (16) (80)% 15 58%
Income Before Income Taxes 591 49% 1,648 101%
Provision for Federal,
Foreign & State Income Taxes 267 230% 588 338%
Net Income 324 29% 1,060 72%
</TABLE>
8
<PAGE> 10
MANAGEMENT'S DISCUSSION
- -----------------------
As we complete the first half of fiscal 1997, it appears current sales
trend could be propelling us to our first $100 million sales year.
During the second quarter ended March 31, net sales increased 23% to
$27 million compared to $22 million last year. Net sales for the 6-month period
improved 26% to $51 million from $40 million in the same period in 1996.
Incoming orders attest to the strength of our aerospace markets climbing to $28
million from $25 million during the quarter and to $60 million during the 6
months from $44 million last year. The net sales and incoming order volume
strongly support our hope of achieving our first $100 million sales year.
Profit before tax for the second quarter increased 49% to $1,809,000
from $1,218,000, while earnings per share increased 27% to $0.28 compared to
$0.22 in the 1996 quarter. Profit before tax for the 6 months doubled at
$3,286,000 from $1,638,000 and earnings per share were $0.49 for an improvement
of 69% compared to the 6 months in 1996.
We have achieved an expansion of our capabilities to service new
generation power plants by GE, CFMI, Pratt & Whitney and Rolls-Royce. As a
result, our Specialty Products segment through its Turbine Group has established
itself as a world class provider of repairs for hot section vanes, blades and
related components, such as those pictured below.
The hot section of the turbine engine is positioned directly behind the
area where combustion occurs and is exposed to temperatures that can exceed
20000 F. The elements within the hot section include one or more stages of
alternate stationary and rotating airfoil section blades. The rotating blades
are carried on discs and the stationary blades (called nozzle guide vanes) are
housed in the turbine casing. These vanes and blades direct the flow of super
hot gases and provide rotational energy for the compressor stages at the front
of the engine which feed the entire process with air at high pressure. The vanes
and blades in each engine number in the hundreds and are subjected to extremes
of high temperature and pressure. Our repair service, using a variety of
state-of-the-art metalworking technologies can restore these components to like-
new specifications while providing substantial savings to our customers.
The Forge segment has greatly enhanced its reputation as a top-ranked
supplier of aerospace forgings from exotic alloys. They are able to provide
cost-competitive value on part weights from as little as 2 pounds to as much as
400 pounds, and on lot orders as small as a dozen pieces. This flexibility is
much in demand by aerospace customers.
Throughout the Company we will continue to direct our efforts to
provide products and services for the most contemporary needs of new generation
aircraft and powerplants. These efforts are not only leading us to our first
$100 million sales year in fiscal 1997, but also to opportunities for enhancing
shareholders' value in the years ahead.
9
<PAGE> 11
FINANCIAL ANALYSIS
- ------------------
Net sales for the second quarter ended March 31, 1997 increased $5.0 to
$27.1 million from $22.1 million a year ago or 23%. Defense related sales were
$3.8 million compared to $3.9 million last year. The Company reported profit
before tax of $1.8 million compared to $1.2 million last year and net income of
$1.4 million and $1.1 million, respectively.
Net sales for the six months ended March 31, 1997 increased $10.5
million to $50.9 million from $40.4 million a year ago or 26%. Defense-related
sales were $7.3 million compared to $6.0 million last year. The Company reported
profit before tax of $3.3 million compared to $1.6 million last year and net
income of $2.5 and $1.5 million, respectively.
Operating income before corporate and interest expense for the quarter
was $2.8 million compared to $1.9 million last year and $5.1 million
year-to-date compared to $3.0 million last year.
Net interest expense was $.3 million, the same as the quarter last
year. Year-to-date net interest expense was $.6 million compared to $.5 million
last year.
New orders received increased against last year for both the second
quarter and the six months. New orders for the second quarter were $27.8 million
compared to last year's $25.0 million and $59.9 million compared to $44.2
million last year.
SPECIALTY PRODUCTS net sales for the quarter increased by $1.7 million
to $17.1 million from $15.4 Million (11%). Defense-related sales were not
significant. Specialty Products income from operations before corporate and
interest expense increased to $2.0 million from $1.6 million last year.
SPECIALTY PRODUCTS net sales for the six months increased to $32.9
million from $28.6 million (15%). Specialty Products income from operations
before corporate and interest expense increased $1.0 million to $3.4 million
from $2.4 million last year.
FORGING segment sales for the quarter increased $3.3 million to $10.1
million from $6.8 million last year (48%). Defense-related sales were $3.8
million (38%) compared to $3.5 million (51%) last year. Forging income from
operations before corporate and interest expense was $.8 million compared to $.3
million last year.
FORGING segment sales for the six months increased $6.2 million to
$18.2 million from $12.0 million (51%). Defense-related sales were $6.6 million
(36%) compared to $5.3 million (44%) last year. Forging income from operations
before corporate and interest expense was $1.6 million compared to $.6 million
last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital increased to $24.8 million at March 31, 1997, compared
to $20.9 million at September 30, 1996. The current ratio was 2.4 and 2.2
respectively. Total debt as a percentage of tangible shareholders' equity was
43.4% at March 31, 1997 compared to 43.5% at September 30, 1996. Capital
expenditures for the six months were $1.9 million compared to $1.0 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
March 31, 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 April 25, 1997
-------------- ---------------------------------
Jeffrey P. Gotschall
Chief Executive Officer
Date April 25, 1997
-------------- ---------------------------------
Richard A. Demetter
Vice President - Finance
(Principal Accounting Officer)
11
<PAGE> 13
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
March 31, 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 April 25, 1997 /s/ Jeffrey P. Gotschall
-------------- --------------------------
Jeffrey P. Gotschall
Chief Executive Officer
Date April 25, 1997 /s/ 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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 2,296
<SECURITIES> 0
<RECEIVABLES> 20,825
<ALLOWANCES> 0
<INVENTORY> 18,384
<CURRENT-ASSETS> 42,754
<PP&E> 22,998
<DEPRECIATION> 0
<TOTAL-ASSETS> 71,656
<CURRENT-LIABILITIES> 17,987
<BONDS> 0
<COMMON> 5,137
0
0
<OTHER-SE> 33,165
<TOTAL-LIABILITY-AND-EQUITY> 71,656
<SALES> 0
<TOTAL-REVENUES> 50,883
<CGS> 40,666
<TOTAL-COSTS> 46,991
<OTHER-EXPENSES> (18)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 624
<INCOME-PRETAX> 3,281
<INCOME-TAX> 762
<INCOME-CONTINUING> 2,524
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,524
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
