<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, 1997 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, 1998
- ------------------ ---------------------------------
Common Stock, $1 Par Value 5,160,679
<PAGE> 2
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
Financial Statements:
Consolidated Condensed Balance Sheets --
December 31, 1997, and September 30, 1997 2
Consolidated Condensed Statements of Income --
Three Months Ended
December 31, 1997 and 1996 3
Consolidated Condensed Statements of Cash Flows --
Three Months Ended
December 31, 1997 and 1996 4
Notes to Consolidated Condensed
Financial Statements 5,6,7,8
Management's Discussion and Analysis of the
Consolidated Condensed Statements of Income 9,10
Other Information and Signatures 11
<PAGE> 3
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
($000 Omitted)
<TABLE>
<CAPTION>
Dec. 31 Sept. 30
1997 1997
------- -------
ASSETS
------
<S> <C> <C>
Current Assets
Cash & Cash Equivalents $ 3,711 $ 2,998
Accounts Receivable, Net 20,927 20,516
Inventories
Raw Materials & Supplies 5,798 6,032
Work-in-Process & Finished Goods 15,624 13,814
------- -------
21,422 19,846
Prepaid Expenses and Other Current Assets 1,378 689
------- -------
TOTAL CURRENT ASSETS 47,438 44,049
Property, Plant & Equipment, Net 25,549 24,714
Goodwill, Net of Amortization 3,835 3,864
Other Non-Current Assets 1,638 1,817
------- -------
TOTAL ASSETS $78,460 $74,444
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt 1,256 1,256
Accounts Payable 10,047 10,497
Accrued Expenses 7,508 7,548
Accrued Income Taxes 672 228
------- -------
TOTAL CURRENT LIABILITIES 19,483 19,529
Long-Term Debt - Less Current Portion 13,902 11,716
Deferred Federal Income Taxes and Other 2,507 2,631
Shareholders' Equity
Serial Preferred Shares - No Par Value --- ---
Common Shares, Par Value $1 Per Share 5,161 5,160
Paid-in-Surplus 6,116 6,101
Retained Earnings 31,291 29,307
------- -------
TOTAL SHAREHOLDERS' EQUITY 42,568 40,568
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $78,460 $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
December 31
1997 1996
---- ----
<S> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ 29,898 $ 23,761
Cost & Expenses
Cost of Goods Sold 23,212 18,909
Selling, General &
Administrative Expense 3,441 3,054
Interest Income (50) (34)
Interest Expense 257 318
Other (Income) Expense, Net (139) 37
Total Costs & Expenses 26,721 22,284
Income Before Income Taxes 3,177 1,477
Provision for Federal, Foreign
& State Income Taxes 750 379
-------- --------
Net Income $ 2,427 $ 1,098
======== ========
Net Income Per Share (Basic) $ .47 $ .21
Net Income Per Share (Diluted) $ .47 $ .21
Average Shares Outstanding (Basic) 5,160 5,133
Average Shares Outstanding (Diluted) 5,206 5,174
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>
Three Months Ended
December 31
1997 1996
---- ----
<S> <C> <C>
Net cash provided by (used for) operating activities:
Net income (loss) $ 2,427 $ 1,098
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,052 951
Deferred income taxes and other (124) 62
------- -------
Subtotal 3,355 2,111
Net cash provided by (used for) changes in
operating assets and liabilities:
Receivables (411) (1,264)
Inventories (1,576) (399)
Accrued or refundable income taxes 444 379
Prepaid expenses and other current assets (689) (374)
Accounts payable (450) (2,250)
Accrued expenses (48) (1,406)
------- -------
Net cash provided by (used for) changes
in operating assets and liabilities (2,730) (5,314)
------- -------
Net cash provided by (used for) operating activities 625 (3,203)
Net cash provided by (used for) investing activities:
Purchase of property, plant & equipment (2,153) (783)
Other 55 381
------- -------
Net cash provided by (used for) investing activities (2,098) (402)
Net cash provided by (used for) financing activities:
Proceeds from additional borrowings 2,500 3,900
Repayment of borrowings (314) (575)
Cash dividends declared --- ---
------- -------
Net cash provided by (used for) financing activities 2,186 3,325
------- -------
Increase (decrease) in cash and cash equivalents 713 (280)
Cash and cash equivalents, beginning of year 2,998 2,130
------- -------
Cash and cash equivalents, end of period $ 3,711 $ 1,850
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE> 6
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL INFORMATION
DECEMBER 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.
(2) Debt:
-----
Long-term debt as of December 31, 1997 and September 30, 1997 consisted
of:
<TABLE>
<CAPTION>
Dec. 31 Sept. 30
1997 1997
------- -------
($000 Omitted)
<S> <C> <C>
Variable Rate Industrial Development
Demand Revenue Improvement
and Refunding Bonds $ 1,800 $ 1,900
Note payable to bank, due in quarterly
installments of $214,000, plus interest, at 5,358 5,572
base rate with LIBOR option
Note payable to bank, due October 31, 1998,
interest payable quarterly, at rates based
upon LIBOR and DIBOR, adjusted quarterly 1,000 1,000
Note payable under revolving credit
agreement, at the base rate with LIBOR option 7,000 4,500
------- -------
$15,158 $12,972
Less - current maturities 1,256 1,256
------- -------
$13,902 $11,716
======= =======
</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 December 31,
1997 the Company had $7.0 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 1/4% 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 $4.7 million and $7.8
million and during the three month period of fiscal 1998 and 1997, 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 $100,000, 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 $30.0 million, increasing by 50% of net income
subsequent to September 30, 1997. At December 31, 1997, tangible net worth
exceeded the required minimum by $8.0 million.
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.
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
<PAGE> 8
(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 $4,372,000
and $4,372,000 higher than reported at December 31, 1997 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 three months ended December 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
Dec. 31
1997 and 1996
------------------------
<S> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ 6,137 26%
Cost of Sales 4,303 23%
Selling, General &
Administrative 387 13%
Interest Income 16 47%
Interest Expense (61) (19)%
Other Income, Net 176 N/A
Income Before Income Taxes 1,700 115%
Provision for Federal,
Foreign & State Income Taxes 371 98%
Net Income $ 1,329 121%
</TABLE>
8
<PAGE> 10
MANAGEMENT'S DISCUSSION
- -----------------------
We are pleased to report that we have entered the new fiscal year with
considerable strength and enthusiasm. Net sales for the first quarter of fiscal
1998 were up 26%, while profit before tax, net earnings and earnings per share
were all double the performance LEVELS we achieved in the same period last year.
Profit before tax was $3,177,000 on sales of $29,898,000 for the quarter. This
compares to a profit before tax of $1,477,000 on sales of $23,761,000 last year.
Net income was $2,427,000, or $.47 per share, compared to $1,098,000 or $.21 per
share in the 1997 period.
Our combined bookings of $31 million and our company-wide backlog of $46 million
reflect the continuing strength of our airline markets for both OEM products and
repair services.
The strength of our sales portfolio reflects two major assets: the diversity of
our customer base and the shift in our major business activity from OEM forgings
to turbine component services and repair. Our product diversity and change in
product mix are a result of long-term strategies that were designed to protect
us from the vacillations that have historically dominated the aircraft industry
and its supply markets.
We are following a new format. Each future report will provide the usual
financial review but, in addition, will include as its theme a focus on a
predetermined subject such as new products, improved facilities or the
acquisition or special training of personnel. These are the elements that
contribute to our reputation for expertise in technology, quality and customer
service. It is this reputation that has given us a competitive advantage. That
advantage was strengthened during the quarter by the acquisition and promotion
of key personnel.
John Parkinson joined SIFCO during the quarter as Senior Vice President of the
Turbine Component Services and Repair Group. In this new position John will
assume certain responsibilities worldwide, as well as manage the turbine
component repair facilities in the United States. John will report to Tim Crean,
President of the Turbine Component Repair Group.
John began his career with Rolls-Royce PLC and comes to us from Howmet
Corporation where he was responsible for Howmet's five component repair
facilities in the United States. The facilities provided advanced technology
turbine engine airfoil repair to airlines worldwide.
We are pleased to have acquired an executive of John's caliber and technical
experience. His addition to our staff demonstrates to our customers our
continuing commitment to provide the very finest in turbine component repair
services worldwide.
During the quarter our Forge Group operations were enhanced by the promotion of
Hudson Smith to the new position of Forge Group President.
Hudson has been with the company for over 23 years in a variety of managerial,
financial and sales positions and has also served as a Director of the Company
since 1988.
Hud's comprehensive knowledge of the forging industry is an important asset for
the continued growth and success of our forging business.
All of our training programs directly or indirectly focus on our company-wide
commitment to assure that our customers receive the best service, quality and
technology available worldwide.
9
<PAGE> 11
For example, the Forge Group has developed a sophisticated curriculum of
computer-based interactive training subjects covering everything from basic work
skills to the application of sophisticated techniques in forging and finishing
processes. The training facility is in the plant operations area and its use is
scheduled for the convenience of employees off-time use.
Our repair segment has also developed a curriculum of subjects designed to give
the employee/trainee insights into the interpersonal skills and attitudes
necessary for effective participation in a team-oriented work environment.
At our Annual Meeting January 27, 1998, our Board of Directors declared a cash
dividend of $.05 per share for the fiscal 1998 first quarter. This dividend will
be payable March 3, 1998 on the Common Shares of the Corporation to holders of
record at the close of business on February 17, 1998. As you may recall, our
most recent cash dividend had been $.15 per share for the 1997 fiscal year.
The first quarter declaration follows the Company's decision to shift from
annual to quarterly dividend payments. The dividend also reflects the strong
performance of our business segments during this past quarter as well as our
optimism for the year ahead. We appreciate your continued loyalty and look
forward to rewarding your support in the future.
FINANCIAL ANALYSIS
- ------------------
Net sales for the first quarter ended December 31, 1997 increased to $29.9
million from $23.8 million a year ago or 26%. The Company reported net income of
$2.4 million compared to $1.1 million a year ago.
Net interest expense decreased to $.207 million from $.284 million a year ago,
reflecting lower borrowing requirements for increased working capital needed to
support additional sales as cash flow improved.
New orders received were basically flat at $31 million compared to $32 million
last year while backlog declined to $46 million from $51 million a year ago.
TURBINE COMPONENT SERVICE AND REPAIR net sales increased to $19.5 million from
$15.7 million last year. Income from operations before corporate and interest
expense increased to $3.0 million compared to $1.4 million last year.
AEROSPACE COMPONENT MANUFACTURING segment sales increased to $10.1 million from
$8.1 million last year. Income from operations before corporate and interest
expense was $1.0 million compared to $.8 million last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working capital was $28.0 million at December 31, 1997 and $24.5 million at
September 30, 1997. The current ratio for the same period was 2.4 and 2.3
respectively. Total debt as a percentage of tangible shareholders' equity was
38.7% at December 31, 1997 compared to 35.3% at September 30, 1997.
The Company has borrowed $7.0 million against its revolving credit line of $9.0
million at December 31, 1997. The Company considers it has adequate financing
available to meet its needs through the current 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 December 31, 1997.
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 February 5, 1998 /*/ Jeffrey P. Gotschall
---------------- ------------------------------
Jeffrey P. Gotschall
Chief Executive Officer
Date February 5, 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> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,711
<SECURITIES> 0
<RECEIVABLES> 20,927
<ALLOWANCES> 0
<INVENTORY> 21,422
<CURRENT-ASSETS> 47,438
<PP&E> 25,549
<DEPRECIATION> 0
<TOTAL-ASSETS> 78,460
<CURRENT-LIABILITIES> 19,483
<BONDS> 0
0
0
<COMMON> 5,161
<OTHER-SE> 37,407
<TOTAL-LIABILITY-AND-EQUITY> 78,460
<SALES> 0
<TOTAL-REVENUES> 29,898
<CGS> 23,212
<TOTAL-COSTS> 26,653
<OTHER-EXPENSES> (189)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 257
<INCOME-PRETAX> 3,177
<INCOME-TAX> 750
<INCOME-CONTINUING> 2,427
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,427
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
</TABLE>
