<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, 1998 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
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(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 July 27, 1998
- -------------------------- ----------------------------
Common Stock, $1 Par Value 5,168,267
<PAGE> 2
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
Financial Statements:
<S> <C>
Consolidated Condensed Balance Sheets --
June 30, 1998, and September 30, 1997 2
Consolidated Condensed Statements of Income --
Three Months and Nine Months Ended
June 30, 1998 and 1997 3
Consolidated Condensed Statements of Cash Flows --
Three Months and Nine Months Ended
June 30, 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 8,9,10,11
Other Information and Signatures 12
</TABLE>
<PAGE> 3
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
($000 Omitted)
<TABLE>
<CAPTION>
June 30 Sept. 30
1998 1997
---- ----
ASSETS
------
<S> <C> <C>
Current Assets
Cash & Cash Equivalents $ 1,229 $ 2,998
Accounts Receivable, Net 21,836 20,516
Inventories
Raw Materials & Supplies 6,556 6,032
Work-in-Process & Finished Goods 21,613 13,814
--------- ---------
28,169 19,846
Prepaid Expenses and Other Current Assets 1,566 689
--------- ---------
TOTAL CURRENT ASSETS 52,800 44,049
Property, Plant & Equipment, Net 29,312 24,714
Goodwill, Net of Amortization 3,777 3,864
Funds Held by Trustee for Capital Project 1,520 --
Other Non-Current Assets 1,403 1,817
--------- ---------
TOTAL ASSETS $ 88,812 $ 74,444
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current Liabilities
Current Portion of Long-Term Debt 1,400 1,256
Accounts Payable 11,181 10,497
Accrued Expenses 7,518 7,548
Accrued Income Taxes 1,190 228
--------- ----------
TOTAL CURRENT LIABILITIES 21,289 19,529
Long-Term Debt - Less Current Portion 19,100 11,716
Deferred Federal Income Taxes and Other 2,296 2,631
Shareholders' Equity
Serial Preferred Shares - No Par Value -- --
Common Shares, Par Value $1 Per Share 5,168 5,160
Paid-in-Surplus 6,161 6,101
Retained Earnings 34,798 29,307
--------- ----------
TOTAL SHAREHOLDERS' EQUITY 46,127 40,568
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 88,812 $ 74,444
========= ==========
</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
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ 31,957 $ 29,999 $ 92,804 $ 80,882
Cost & Expenses
Cost of Goods Sold 25,434 23,260 73,327 63,926
Selling, General &
Administrative Expense 3,499 3,919 10,338 10,244
Interest Income (41) (43) (144) (102)
Interest Expense 334 277 899 901
Other (Income) Expense, Net 4 17 (337) 58
-------- -------- -------- --------
Total Costs & Expenses 29,230 27,430 84,083 75,027
Income Before Income Taxes 2,727 2,569 8,721 5,855
Provision for Federal, Foreign
& State Income Taxes 591 560 1,789 1,322
-------- -------- -------- --------
Net Income $ 2,136 $ 2,009 $ 6,932 $ 4,533
======== ======== ======== ========
Net Income Per Share (Basic) $ .41 $ .39 $ 1.34 $ .88
Net Income Per Share (Diluted) $ .41 $ .38 $ 1.33
$ .87
Average Shares Outstanding (Basic) 5,167 5,145 5,163 5,138
Average Shares Outstanding (Diluted) 5,233 5,190 5,228 5,183
Cash Dividends per Common Share $ .05 $---- $ .10 $ --
</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
1998 1997
---- ----
<S> <C> <C>
Net cash provided by (used for) operating activities:
Net income $ 6,932 $ 4,533
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 3,003 2,887
Deferred income taxes and other (335) (388)
------- -------
Subtotal 9,600 7,032
Net cash provided by (used for) changes in operating assets and liabilities:
Receivables (1,320) (4,700)
Inventories (8,323) (613)
Accrued or refundable income taxes 962 713
Prepaid expenses and other current assets (877) (391)
Accounts payable 684 (154)
Accrued expenses (30) 1,452
------- -------
Net cash provided by (used for) changes
in operating assets and liabilities (8,904) (3,693)
------- -------
Net cash provided by (used for) operating activities 696 3,339
Net cash provided by (used for) investing activities:
Purchase of property, plant & equipment (8,214) (3,250)
(Income) decrease in funds held by trustee for capital project (1,520) --
Other 257 (28)
------- -------
Net cash provided by (used for) investing activities (9,477) (3,278)
Net cash provided by (used for) financing activities:
Proceeds from additional borrowings 8,256 3,900
Repayment of borrowings (728) (4,089)
Cash dividends declared (516) --
------- -------
Net cash provided by (used for) financing activities 7,012 (189)
------- -------
Increase (decrease) in cash and cash equivalents (1,769) (128)
Cash and cash equivalents, beginning of year 2,998 2,130
------- -------
Cash and cash equivalents, end of period $ 1,229 $ 2,002
======= =======
</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, 1998
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 1998 classification.
(2) Debt:
-----
Long-term debt as of June 30, 1998 and September 30, 1997 consisted of:
<TABLE>
<CAPTION>
June 30 Sept. 30
1998 1997
---- ----
($000 Omitted)
<S> <C> <C>
Variable Rate Industrial Development
Demand Revenue Improvement
and Refunding Bonds $ 4,100 $ 1,900
Note payable to bank, due in quarterly
installments of $300,000 12,000 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 3,400 4,500
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$20,500 $12,972
Less - current maturities 1,400 1,256
------- -------
$19,100 $11,716
======= =======
</TABLE>
(5)
<PAGE> 7
In April 1998, the Company restructured its credit facilities. It reduced the
previously existing $9 million revolving credit agreement to $4 million, which
bears interest at the bank's base rate, and also replaced the $5.144 million
term loan with a 10-year, $12 million term loan. The loan is repayable in
quarterly payments of $0.3 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.
The average balance outstanding against the revolving credit agreement was $5.1
million and $5.3 million during the nine-month period of fiscal 1998 and 1997,
respectively. The balances outstanding under the revolving credit agreement have
been classified as long term debt. A commitment fee of 1/4% is incurred on the
remaining unused balance.
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 Company obtained 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 is reset
weekly, based on prevailing tax-exempt money market rates. The first principal
payment is $200,000 and increases each year until the final payment of $355,000
in 2013. The principal payment increases by $15,000 and $5,000 in the second and
third year, respectively, and by $10,000 in the following seven years. The bonds
are secured by the property and equipment of the facility, and 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 $10.0 million at June 30, 1998.
(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 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 $4,472,000
and $4,372,000 higher than reported at June 30, 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:
-----------------------------------------------
The accompanying financial information for the nine months ended June 30, 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)
<PAGE> 9
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:
Three Months Ended Nine Months Ended
June 30 June 30
1998 and 1997 1998 and 1997
------------- -------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ 1,958 7% $ 11,922 15%
Cost of Sales 2,174 9% 9,401 15%
Selling, General &
Administrative (420) (11)% 94 1%
Interest Income (2) (5)% 42 41%
Interest Expense 57 21% (2) --
Other Income, Net (13) (76)% 395 --
Income Before Income Taxes 158 6% 2,866 49%
Provision for Federal,
Foreign & State Income Taxes 31 6% 467 35%
Net Income 127 6% 2,399 53%
</TABLE>
(8)
<PAGE> 10
MANAGEMENT'S DISCUSSION
- -----------------------
During the third quarter our net income and sales were both up 6%
compared to the same period last year. Sales rose to $32 million for the quarter
while bookings increased 11% to $29 million. Sales for the nine months were at
$93 million while bookings increased 9% to $92 million year-to-date.
Last quarter we reviewed the major expansion of our turbine component
repair facility that is under way in Tampa and the completion of new repair
operations in Ireland. Despite the impact of the additional cost the new Ireland
facility had on the segment's performance, the increased capabilities have
already enabled us to expand our product lines and to reduce our backlog from
$46 million to $45 million by providing even faster repair times to our
customers.
The special focus of this report is on the update of company-wide
products and their application in the aerospace markets we serve worldwide. We
hope that increased understanding of our product portfolio will assist you in
gaining insight into our company, its performance and future potential.
Possibly the most important characteristic of SIFCO Industries is its
role as an independent aerospace supplier whose products and markets served are
broadly diverse. Our product lines are represented in all types of aircraft from
the smallest private jets used in business commuting to the largest wide-bodied
aircraft for commercial airlines. The list also includes products for the
Department of Defense from helicopters to advanced fighters.
SIFCO is divided into two business segments: The service and repair of
turbine components and the manufacture of products for the aerospace industry.
Our repair segment has established itself as a world class provider of
repairs for gas turbine engine "hot section" vanes, blades and related
components and represents 2/3 of our company's business.
The hot section of the gas turbine engine is directly after the
combustion chamber. The components in the hot section include stationary vanes
and rotating blades. The vanes and blades number in the hundreds, and because of
the extremes in temperature and pressure, can suffer considerable damage.
Damaged blades and vanes, however, can be repaired at lower cost than purchasing
new parts, thus offering an economical alternative for engine maintenance.
The repair of blades, vanes and other components can be a challenging
operation , demanding both considerable ability and state-of-the-art equipment
and technology, such as electron beam welding, fluoride ion cleaning, laser
drilling, coating and diffusion bonding . Each repair process and technique must
be approved by either the original manufacturer of the part or by the FAA. To
date, our list of repair approvals includes all major engine manufacturers and
most of the world's airlines. Manufacturers include General Electric, Pratt &
Whitney, Rolls-Royce, CFM International, SNECMA, AlliedSignal and Turbomeca.
Our Turbine Group has invested considerable time and effort to earn
these approvals and continues to develop new repair procedures to broaden our
product portfolio and expand repair services to our customers worldwide.
Our manufacturing segment produces thousands of different components
for a wide spectrum of the aerospace industry. SIFCO-manufactured components can
be found in a wide variety of landing gears, engine mounts, wing supports,
turbine shafts and discs, actuator cylinders and many other airframe or engine
components that demand quality, strength and integrity.
The diversity of aircraft utilizing SIFCO-manufactured products reads
like a "Who's Who" in world aviation. Not only are new aircraft utilizing
SIFCO-manufactured components, but throughout the aircraft's useful service
life, spare parts are needed to maintain airworthiness requirements. Suffice it
to say that almost all major commercial, civilian and military aircraft and
helicopters in regular use fly with components, original or spares, manufactured
by SIFCO.
At a meeting held July 28, 1998, the Board of Directors declared a cash
dividend of $.05 per share for the quarter. This dividend will be payable
September 1, 1998 on the Common Shares of the Corporation to holders of record
at the close of business on August 18, 1998. The quarterly cash dividend
reflects the company's appreciation for the continuing loyalty and support of
its shareholders and our confidence in the strength of our business segments.
(9)
<PAGE> 11
FINANCIAL ANALYSIS
- ------------------
Net sales for the third quarter ended June 30, 1998 increased $2.0
million to $32.0 million from $30.0 million a year ago. The Company reported net
income of $2.1 million compared to $2.0 million a year ago. Income from
operations before corporate and interest expense decreased $.1 million to $3.6
million from $3.7 million last year.
Net sales for the nine months ended June 30, 1998 increased $11.9
million to $92.8 million from $80.9 million a year ago. The Company reported net
income of $6.9 million compared to $4.5 million last year. Income from
operations before corporate and interest expense was $11.3 million compared to
$8.7 million last year.
Net interest expense for the third quarter was $.3 million and $.2
million last year. Year-to-date net interest expense was $.8 million for both
periods.
New orders received for the third quarter were $29.0 million, up $2.8
million from $26.2 million last year. Year-to-date, new orders received were
$94.0 million compared to $86.0 million last year.
TURBINE COMPONENT SERVICES AND REPAIR net sales for the third quarter
increased $2.1 million to $20.2 million from $18.1 million a year ago. Turbine
Component Services and Repair income from operations before corporate and
interest expense decreased slightly to $2.2 million from $2.3 million last year.
TURBINE COMPONENT SERVICES AND REPAIR net sales for the nine months
increased $8.0 million to $59.0 million from $51.0 million a year ago. Turbine
Component Services and Repair income from operations before corporate and
interest expense increased to $7.7 million from $5.7 million a year ago.
AEROSPACE COMPONENT MANUFACTURING sales for the third quarter were down
slightly to $11.8 million from $12.0 million a year ago. Aerospace Component
Manufacturing operating profit before corporate and interest expense was $1.4
million, the same as a year ago.
AEROSPACE COMPONENT MANUFACTURING sales for the nine months were $34.0
million compared to $30.2 million a year ago. Aerospace Component Manufacturing
operating profit before corporate and interest expense was $3.6 million compared
to $3.0 million last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital increased to $31.5 million at June 30, 1998, compared
to $24.5 million at September 30, 1997. The current ratio was 2.5 and 2.3
respectively. Total debt as a percentage of tangible shareholders' equity was
47.2% at June 30, 1998 compared to 35.3% at September 30, 1997. Capital
expenditures for the nine months were $8.2 million compared to $3.3 million a
year ago. The Company considers it has adequate financing available to meet its
needs for the year.
(10)
<PAGE> 12
YEAR 2000 CONVERSION
--------------------
The Company has commenced a project to identify, evaluate and implement
changes to computer systems and applications necessary to achieve a year 2000
conversion date with no effect on customers or disruptions to business
operations. The total cost of compliance and its effect on the Company's future
results of operations will be determined as part of this project. Based on
initial review, the total cost is not expected to have a material effect on the
Company's results of operations or financial statements.
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, 1998.
(11)
<PAGE> 13
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 31, 1998 /*/ Jeffrey P. Gotschall
------------- ------------------------
Jeffrey P. Gotschall
Chief Executive Officer
Date July 31, 1998 /*/ Richard A. Demetter
------------- -----------------------
Richard A. Demetter
Vice President - Finance
(Principal Accounting Officer)
(12)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000090168
<NAME> SIFCO INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 1,229
<SECURITIES> 0
<RECEIVABLES> 21,836
<ALLOWANCES> 0
<INVENTORY> 28,169
<CURRENT-ASSETS> 52,800
<PP&E> 29,312
<DEPRECIATION> 0
<TOTAL-ASSETS> 88,812
<CURRENT-LIABILITIES> 21,289
<BONDS> 0
0
0
<COMMON> 5,168
<OTHER-SE> 40,959
<TOTAL-LIABILITY-AND-EQUITY> 88,812
<SALES> 0
<TOTAL-REVENUES> 92,804
<CGS> 73,327
<TOTAL-COSTS> 83,665
<OTHER-EXPENSES> (481)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 899
<INCOME-PRETAX> 8,721
<INCOME-TAX> 1,789
<INCOME-CONTINUING> 6,932
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,932
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.33
</TABLE>
