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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1998 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
--- ---
Class Outstanding at April 25, 1998
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Common Stock, $1 Par Value 5,164,584
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SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
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Financial Statements:
Consolidated Condensed Balance Sheets --
March 31, 1998, and September 30, 1997 2
Consolidated Condensed Statements of Income --
Three Months and Six Months Ended
March 31, 1998 and 1997 3
Consolidated Condensed Statements of Cash Flows --
Three Months and Six Months Ended
March 31, 1998 and 1997 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
1998 1997
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<S> <C> <C>
ASSETS
------
Current Assets
Cash & Cash Equivalents $ 2,312 $ 2,998
Accounts Receivable, Net 21,114 20,516
Inventories
Raw Materials & Supplies 6,166 6,032
Work-in-Process & Finished Goods 19,729 13,814
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25,895 19,846
Prepaid Expenses and Other Current Assets 1,372 689
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TOTAL CURRENT ASSETS 50,693 44,049
Property, Plant & Equipment, Net 26,912 24,714
Goodwill, Net of Amortization 3,806 3,864
Other Non-Current Assets 1,457 1,817
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TOTAL ASSETS $82,868 $74,444
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt 1,256 1,256
Accounts Payable 13,282 10,497
Accrued Expenses 6,918 7,548
Accrued Income Taxes 629 228
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TOTAL CURRENT LIABILITIES 22,085 19,529
Long-Term Debt - Less Current Portion 14,688 11,716
Deferred Federal Income Taxes and Other 2,337 2,631
Shareholders' Equity
Serial Preferred Shares - No Par Value --- ---
Common Shares, Par Value $1 Per Share 5,162 5,160
Paid-in-Surplus 6,145 6,101
Retained Earnings 32,451 29,307
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TOTAL SHAREHOLDERS' EQUITY 43,758 40,568
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $82,868 $74,444
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</TABLE>
See accompanying notes to consolidated condensed financial statements.
2
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SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
($000 Omitted)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31 March 31
1998 1997 1998 1997
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ 30,949 $ 27,122 $ 60,847 $ 50,883
Cost & Expenses
Cost of Goods Sold 24,681 21,757 47,893 40,666
Selling, General &
Administrative Expense 3,398 3,271 6,839 6,325
Interest Income (53) (25) (103) (59)
Interest Expense 308 306 565 624
Other (Income) Expense, Net (202) 4 (341) 41
-------- -------- -------- --------
Total Costs & Expenses 28,132 25,313 54,853 47,597
Income Before Income Taxes 2,817 1,809 5,994 3,286
Provision for Federal, Foreign
& State Income Taxes 448 383 1,198 762
-------- -------- -------- --------
Net Income $ 2,369 $ 1,426 $ 4,796 $ 2,524
======== ======== ======== ========
Net Income Per Share (Basic) $ .46 $ .28 $ .93 $ .49
Net Income Per Share (Diluted) $ .45 $ .28 $ .92 $ .49
Average Shares Outstanding (Basic) 5,161 5,138 5,161 5,135
Average Shares Outstanding (Diluted) 5,231 5,189 5,226 5,181
Cash Dividends per Common Share $ .05 $ ----- $ .05 $ -----
</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
1998 1997
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<S> <C> <C>
Net cash provided by (used for) operating activities:
Net income (loss) $ 4,796 $ 2,524
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 2,065 1,925
Deferred income taxes and other (294) (207)
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Subtotal 6,567 4,242
Net cash provided by (used for) changes
in operating assets and liabilities:
Receivables (598) (2,896)
Inventories (6,049) (595)
Accrued or refundable income taxes 401 554
Prepaid expenses and other current assets (683) (622)
Accounts payable 2,785 (265)
Accrued expenses (630) 327
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Net cash provided by (used for) changes
in operating assets and liabilities (4,774) (3,497)
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Net cash provided by (used for) operating activities 1,793 745
Net cash provided by (used for) investing activities:
Purchase of property, plant & equipment (5,063) (1,862)
Other (130) 158
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Net cash provided by (used for) investing activities (5,193) (1,704)
Net cash provided by (used for) financing activities:
Proceeds from additional borrowings 3,600 1,600
Repayment of borrowings (628) (475)
Cash dividends declared (258) ---
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Net cash provided by (used for) financing activities 2,714 1,125
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Increase (decrease) in cash and cash equivalents (686) 166
Cash and cash equivalents, beginning of year 2,998 2,130
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Cash and cash equivalents, end of period $ 2,312 $ 2,296
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</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
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SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL INFORMATION
MARCH 31, 1998
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.
(2) Debt:
-----
Long-term debt as of March 31, 1998 and September 30, 1997 consisted of:
<TABLE>
<CAPTION>
March 31 Sept. 30
1998 1997
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($000 Omitted)
<S> <C> <C>
Variable Rate Industrial Development
Demand Revenue Improvement
and Refunding Bonds $ 1,700 $ 1,900
Note payable to bank, due in quarterly
installments of $214,000, at the base rate 5,144 5,572
Note payable to bank, due October 31, 1998,
interest payable quarterly, at rates based
upon LIBOR and DIBOR 1,000 1,000
Note payable under revolving credit
agreement, at the base rate 8,100 4,500
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$15,944 $12,972
Less - current maturities 1,256 1,256
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$14,688 $11,716
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</TABLE>
5
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The Company had a $9 million revolving credit agreement as of March 31, 1998
which was to expire on March 31, 1999. The Company had $8.1 million outstanding
under this agreement at March 31, 1998. The average balance outstanding against
the revolving credit was $6.0 million and $6.2 million during the six month
period of fiscal 1998 and 1997, respectively. The balances outstanding under
this credit agreement have been classified as long term debt. A commitment fee
of 1/4% is incurred on the remaining unused balance.
In April 1998, the Company restructured its credit facilities reducing the $9
million revolving credit agreement to $3 million, which bears interest at the
bank's base rate, and replacing the $5.144 million term loan with a 10-year, $12
million term loan. The loan is repayable in quarterly payments of $.3 million
beginning August 1, 1998. The term loan bears interest at a fixed rate of 7.24%,
subject to adjustment if certain loan covenants are not maintained.
In addition, the Company has a $1.15 million credit facility, which is used for
an irrevocable letter of credit that secures the $1 million loan from an Irish
bank due October 31, 1998. The loan has a variable interest rate based on a
combination of LIBOR and DIBOR (Dublin Interbank Rates) rates.
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 $.1 million, with the final balance due on
May 1, 2002. The property and equipment of the facility secure the bonds and is
backed by an irrevocable bank letter of credit which expires on May 1, 1998.
The Company is in the process of obtaining a $4.2 million, 15-year, Industrial
Development bond. The proceeds of the bond will be used to refund the existing
Industrial Development bond and the balance of the funds will be used to expand
the Turbine Component Services and Repair facility in Tampa, Florida. The
interest rate would be reset weekly, based on prevailing tax-exempt money market
rates, payable quarterly. The property and equipment of the facility will secure
the bonds and be backed by an irrevocable letter of credit.
Among other covenants, the Company is required to maintain a minimum tangible
net worth (as defined) of $30.0 million, increasing by 50% of net income
subsequent to September 30, 1997. Tangible net worth exceeded the required
minimum by $9.1 million at March 31, 1998.
(3) Income Taxes:
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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
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(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 1998 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 $4,422,000
and $4,372,000 higher than reported at March 31, 1998 and September 30, 1997,
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:
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The accompanying financial information for the six months ended March 31, 1998
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
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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
1998 and 1997 1998 and 1997
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<S> <C> <C> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ 3,827 14% $ 9,964 19%
Cost of Sales 2,924 13% 7,227 18%
Selling, General &
Administrative 127 4% 514 8%
Interest Income 28 112% 44 75%
Interest Expense 2 1% (59) (9)%
Other Income, Net 206 ---- 382 ----
Income Before Income Taxes 1,008 56% 2,708 82%
Provision for Federal,
Foreign & State Income Taxes 65 17% 436 57%
Net Income 943 66% 2,272 90%
</TABLE>
8
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MANAGEMENT'S DISCUSSION
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We are pleased with the performance of both of our business segments. Through
their combined efforts, second quarter profit before tax increased 56% to
$2,817,000, and net income improved 66% to $2,369,000, compared to last year's
quarter. The six months also made strong gains as profit before tax was up 82%
to $5,994,000, and net income rose 90% to $4,796,000. Sales were up 14% to
$30,949,000 for the quarter and 19% to $60,487,000 for the six-month period.
New orders again reflect the relative strength of the aerospace markets we
serve as new orders in the quarter were $33,400,000 compared to last year's
$27,800,000, and $64,800,000 for the six months compared to $59,900,000 a year
ago. Backlog at March 31, 1998 was $48,000,000 against $51,500,000 last year.
Our business segments continued to grow in the first half of fiscal 1998 with
a 22% sales increase in Aerospace Component Manufacturing and an 18% sales gain
in Turbine Component Services and Repair.
Although sales for our manufacturing segment outgained repair operations
during the quarter, our repair segment dominated our business activity with 62%
of our total sales.
To facilitate the present as well as the anticipated growth of our business
segments, we have been concentrating on expanding our facilities through new
construction and the upgrading of existing plants and equipment.
Two of the largest projects include a new operation located in a
26,000-square-foot, custom-built facility on a five-acre site at Lough Mahon
Technology Park in Cork, Ireland. The new capacity is designed for the exclusive
refurbishment of turbine blades.
We are also completing a major addition to our repair operations in Tampa to
house several new families of repair products.
These projects have expanded the capacity of our combined repair facilities
by 25% and are significantly improving our repair capabilities for the product
volume and diversity that are necessary to meet the growing demands of our
customers in the airlines industry.
In addition to new construction, programs have been initiated or completed to
increase production efficiencies. New operations strategies have been developed
in our repair segment that involve organizing facilities around product families
rather than the traditional department structure. As a result, the new plant in
Cork is exclusively equipped and organized to do blade repair. This
specialization significantly improves the efficiency and utilization of
equipment as well as the special capabilities of the work force. Other plants in
the repair segment are being organized using the same strategies. A wide variety
of modifications in procedures and facilities have also been initiated by our
Aerospace Component Manufacturing operations. The segment has also updated its
quality control procedures and recently received its ISO 9002 reaccreditation.
At a meeting on April 28, 1998, our Board of Directors declared a cash
dividend of $.05 per share for the fiscal 1998 second quarter. This dividend
will be payable June 2, 1998 on the Common Shares of the Corporation to holders
of record at the close of business on May 19, 1998. Our most recent cash
dividend was $.05 per share for the first quarter of fiscal 1998.
Please note that we are now paying dividends on a quarterly rather than
annual schedule.
The dividend reflects the strong performance of our business segments during
the past quarter as well as our optimism for the year ahead. We thank you for
your continued support.
9
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FINANCIAL ANALYSIS
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Net sales for the second quarter ended March 31, 1998 increased $3.8 to $30.9
million from $27.1 million a year ago or 14%. The Company reported profit before
tax of $2.8 million compared to $1.8 million last year and net income of $2.4
million and $1.4 million, respectively.
Net sales for the six months ended March 31, 1998 increased $9.9 million to
$60.8 million from $50.9 million a year ago or 19%. The Company reported profit
before tax of $6.0 million compared to $3.3 million last year and net income of
$4.8 and $2.5 million, respectively.
Operating income before corporate and interest expense for the quarter was
$3.6 million compared to $2.8 million last year and $7.7 million year-to-date
compared to $5.1 million last year.
Net interest expense was $.3 million, the same as the quarter last year.
Year-to-date net interest expense was $.5 million compared to $.6 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 $33.4 million
compared to last year's $27.8 million and $64.8 million compared to $59.9
million last year. Backlog at March 31, 1998 was $48.0 million compared to $51.5
a year ago.
TURBINE COMPONENT SERVICES AND REPAIR net sales for the quarter increased by
$2.2 million to $19.3 million from $17.1 Million (13%). Turbine Component
Services and Repair income from operations before corporate and interest expense
increased to $2.5 million from $2.0 million last year.
TURBINE COMPONENT SERVICES AND REPAIR net sales for the six months increased
to $38.7 million from $32.9 million (18%). Turbine Component Services and Repair
income from operations before corporate and interest expense increased $2.1
million to $5.5 million from $3.4 million last year.
AEROSPACE COMPONENT MANUFACTURING sales for the quarter increased $1.5
million to $11.6 million from $10.1 million last year (15%). Aerospace Component
Manufacturing income from operations before corporate and interest expense was
$1.2 million compared to $.8 million last year.
AEROSPACE COMPONENT MANUFACTURING sales for the six months increased $4.0
million to $22.2 million from $18.2 million (22%). Aerospace Component
Manufacturing income from operations before corporate and interest expense was
$2.2 million compared to $1.6 million last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital increased to $28.6 million at March 31, 1998, compared to
$24.5 million at September 30, 1997. The current ratio was 2.3 and 2.3
respectively. Total debt as a percentage of tangible shareholders' equity was
38.5% at March 31, 1998 compared to 35.3% at September 30, 1997. Capital
expenditures for the six months were $5.1 million compared to $1.9 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,
1998.
SIGNATURES
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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 28, 1998 /s/ Jeffrey P. Gotschall
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Jeffrey P. Gotschall
Chief Executive Officer
Date April 28, 1998 /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-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 2,312
<SECURITIES> 0
<RECEIVABLES> 21,114
<ALLOWANCES> 0
<INVENTORY> 25,895
<CURRENT-ASSETS> 50,693
<PP&E> 26,912
<DEPRECIATION> 0
<TOTAL-ASSETS> 82,868
<CURRENT-LIABILITIES> 22,085
<BONDS> 0
0
0
<COMMON> 5,162
<OTHER-SE> 38,596
<TOTAL-LIABILITY-AND-EQUITY> 82,868
<SALES> 0
<TOTAL-REVENUES> 60,847
<CGS> 47,893
<TOTAL-COSTS> 54,732
<OTHER-EXPENSES> (444)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 565
<INCOME-PRETAX> 5,994
<INCOME-TAX> 1,198
<INCOME-CONTINUING> 4,796
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<NET-INCOME> 4,796
<EPS-PRIMARY> .93
<EPS-DILUTED> .92
</TABLE>
