<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, 1999 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 July 30, 1999
----- ----------------------------
Common Stock, $1 Par Value 5,191,395
<PAGE> 2
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
Financial Statements:
Consolidated Condensed Balance Sheets --
June 30, 1999, and September 30, 1998 2
Consolidated Condensed Statements of Income --
Three Months and Nine Months
June 30, 1999 and 1998 3
Consolidated Condensed Statements of Cash Flows --
Three Months and Nine Months
June 30, 1999 and 1998 4
Notes to Consolidated Condensed
Financial Statements 5,6,7,8
Management's Discussion and Analysis of the
Consolidated Condensed Statements of Income 9,10,11
Other Information and Signatures 12, 13
<PAGE> 3
<TABLE>
<CAPTION>
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
($000 Omitted)
June 30 Sept. 30
1999 1998
---- ----
ASSETS
Current Assets
<S> <C> <C>
Cash & Cash Equivalents $ 3,056 $ 3,503
Accounts Receivable, Net 22,586 20,073
Inventories
Raw Materials & Supplies 7,589 8,008
Work-in-Process & Finished Goods 16,845 19,631
------- -------
24,434 27,639
Prepaid Expenses and Other Current Assets 1,385 552
------- -------
TOTAL CURRENT ASSETS 51,461 51,767
Property, Plant & Equipment, Net 30,691 32,582
Goodwill, Net of Amortization 3,661 3,748
Funds Held by Trustee for Capital Project 668 922
Other Non-Current Assets 1,508 1,865
------- -------
TOTAL ASSETS $87,989 $90,884
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt 1,400 1,400
Accounts Payable 9,871 12,192
Accrued Expenses 7,380 7,355
Accrued Income Taxes 631 568
------- -------
TOTAL CURRENT LIABILITIES 19,282 21,515
Long-Term Debt - Less Current Portion 17,100 16,500
Deferred Federal Income Taxes and Other 2,966 2,979
Shareholders' Equity
Serial Preferred Shares - No Par Value -- --
Common Shares, Par Value $1 Per Share 5,191 5,170
Paid-in-Surplus 6,344 6,198
Retained Earnings 37,106 38,522
------- -------
TOTAL SHAREHOLDERS' EQUITY 48,641 49,890
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $87,989 $90,884
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
(2)
<PAGE> 4
<TABLE>
<CAPTION>
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
($000 Omitted)
Three Months Ended Nine Months Ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ 30,535 $ 31,957 $ 90,341 $ 92,804
Cost & Expenses
Cost of Goods Sold 25,958 25,434 76,381 73,327
Selling, General &
Administrative Expense 3,304 3,499 10,234 10,338
Interest Income (89) (41) (194) (144)
Interest Expense 331 334 974 899
Other (Income) Expense, Net (33) 4 (362) (337)
-------- -------- -------- --------
Total Costs & Expenses 29,471 29,230 87,033 84,083
Income Before Income Taxes 1,064 2,727 3,308 8,721
Provision for Federal, Foreign
& State Income Taxes 156 591 423 1,789
-------- -------- -------- --------
Net Income $ 908 $ 2,136 $ 2,885 $ 6,932
======== ======== ======== ========
Net Income Per Share (Basic) $ .18 $ .41 $ .56 $ 1.34
Net Income Per Share (Diluted) $ .17 $ .41 $ .55 $ 1.33
Average Shares Outstanding (Basic) 5,188 5,167 5,177 5,163
Average Shares Outstanding (Diluted) 5,229 5,233 5,220 5,228
Cash Dividends per Common Share $ .05 $ .05 $ .10 $ .10
</TABLE>
See accompanying notes to consolidated condensed financial statements.
(3)
<PAGE> 5
<TABLE>
<CAPTION>
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($000 Omitted)
Nine Months Ended
June 30
1999 1998
---- ----
Net cash provided by (used for) operating activities:
<S> <C> <C>
Net income $ 2,885 $ 6,932
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 3,278 3,003
Deferred income taxes and other (13) (335)
------- -------
Subtotal 6,150 9,600
Net cash provided by (used for) changes
in operating assets and liabilities:
Receivables (2,513) (1,320)
Inventories 3,205 (8,323)
Accrued or refundable income taxes 63 962
Prepaid expenses and other current assets (833) (877)
Accounts payable (2,321) 684
Accrued expenses 25 (30)
------- -------
Net cash provided by (used for) changes
in operating assets and liabilities (2,374) (8,904)
------- -------
Net cash provided by (used for) operating activities 3,776 696
Net cash provided by (used for) investing activities:
Purchase of property, plant & equipment (3,353) (8,214)
(Increase) decrease in funds held by trustee for capital project 254 (1,520)
Other (1,208) 257
------- -------
Net cash provided by (used for) investing activities (4,307) (9,477)
Net cash provided by (used for) financing activities:
Proceeds from additional borrowings 2,700 8,256
Repayment of borrowings (2,100) (728)
Cash dividends declared (516) (516)
------- -------
Net cash provided by (used for) financing activities 84 7,012
------- -------
Increase (decrease) in cash and cash equivalents (447) (1,769)
Cash and cash equivalents, beginning of year 3,503 2,998
------- -------
Cash and cash equivalents, end of period $ 3,056 $ 1,229
======= =======
</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, 1999
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 intercompany 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, 1999 and September 30, 1998 consisted of:
<TABLE>
<CAPTION>
June 30 Sept. 30
1999 1998
---- ----
($000 Omitted)
<S> <C> <C>
Variable Rate Industrial Development
Revenue Improvement
and Refunding Bonds $ 3,900 $ 4,100
Note payable to bank, due in quarterly
installments of $300,000 10,800 11,700
Note payable to bank, due October 31, 1999,
interest payable quarterly, at rates based
upon LIBOR and DIBOR -- 1,000
Note payable under revolving credit
agreement, at the base rate 3,800 1,100
------- -------
$18,500 $17,900
Less - current maturities 1,400 1,400
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$17,100 $16,500
======= =======
</TABLE>
(5)
<PAGE> 7
In April 1998, the Company restructured its credit facilities. It reduced the
previously existing $9 million revolving credit agreement, which was $6 million
on June 30, 1999 and 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 term
loan is repayable in quarterly payments of $0.3 million. 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 $2.8
million and $5.1 million during the nine-month period of fiscal 1999 and 1998,
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.
The Company obtained a $4.1 million, 15-year, Industrial Development bond. The
proceeds of the bond were used to refund the existing Industrial Development
bond of $1.6 million and the balance of the funds are being 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 $12.2 million at June 30, 1999.
(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 1999 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 $4,060,000
and $4,060,000 higher than reported at June 30, 1999 and September 30, 1998,
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) Comprehensive Income
--------------------
Effective October 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement requires the disclosure of comprehensive
income, which includes net income and other comprehensive income items
previously included within separate components of shareholders' equity. Since
the undistributed earnings of the Company's foreign subsidiaries are intended to
be permanently reinvested, taxes have not been provided for foreign currency
translation adjustments.
Comprehensive income for the three months and nine months ended June 30, 1999
and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 908 $ 2,136 $ 2,885 $ 6,932
Other comprehensive income (loss):
Foreign currency translation adjustments (1,107) 470 (3,783) (925)
------- ------- ------- -------
Comprehensive income $ (199) $ 2,606 $ (898) $ 6,007
======= ======= ======= =======
</TABLE>
(7)
<PAGE> 9
(9) Business Segment Information
----------------------------
The following table summarizes certain information regarding segments
of the Company's operations for the quarter ended June 30, 1999 and
1998:
<TABLE>
<CAPTION>
($000 omitted)
Three Months Ended Nine Months Ended
June 30 June 30
1999 1998 1999 1998
Net sales, including intersegment sales:
<S> <C> <C> <C> <C>
Turbine Component Services & Repair $ 20,621 $ 20,186 $ 62,812 $ 58,922
Aerospace Component Manufacturing 9,914 11,770 27,529 33,957
Intersegment sales -- 1 -- (75)
-------- -------- -------- --------
$ 30,535 $ 31,957 $ 90,341 $ 92,804
======== ======== ======== ========
Income (loss) from operations before corporate
expenses and interest expense:
Turbine Component Services & Repair $ 1,323 $ 2,157 $ 4,541 $ 7,654
Aerospace Component Manufacturing 472 1,432 1,179 3,622
-------- -------- -------- --------
1,795 3,589 5,720 11,276
Corporate expenses (489) (569) (1,632) (1,800)
Interest (expense) income, net (242) (293) (780) (755)
-------- -------- -------- --------
Income before income taxes $ 1,064 $ 2,727 $ 3,308 $ 8,721
======== ======== ======== ========
</TABLE>
(10) Basis of Presentation and Management Estimates:
-----------------------------------------------
The accompanying financial information for the three months ended June 30, 1999
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.
(8)
<PAGE> 10
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 Nine Months Ended
June 30 June 30
1999 and 1998 1999 and 1998
------------------- ------------------
<S> <C> <C> <C> <C>
Net Sales of SIFCO
Industries, Inc. $(1,422) (4)% $(2,463) (3)%
Cost of Sales 524 2% 3,054 4%
Selling, General &
Administrative (195) (6)% (104) (1)%
Interest Income 48 117% 50 35%
Interest Expense (3) (1)% 75 8%
Other Income, Net 37 -- 25 7%
Income Before Income Taxes (1,663) (61)% (5,413) (61)%
Provision for Federal,
Foreign & State Income Taxes (435) (74)% (1,366) (76)%
Net Income $(1,228) (57)% $(4,047) (58)%
</TABLE>
(9)
<PAGE> 11
MANAGEMENT'S DISCUSSION & FINANCIAL ANALYSIS
For the third quarter of fiscal 1999, compared with the third quarter of fiscal
1998:
- Net sales decreased 4.7% to $30.5 million from $32.0 million.
- Pre-tax income decreased 59.3% to $1.1 million from $2.7 million.
- Net income decreased 57.1% to $0.9 million from $2.1 million.
- Earnings per diluted share decreased to $0.17 from $0.41.
Through the nine months ending June 30, 1999, compared with the first nine
months of fiscal 1998:
- Net sales decreased 2.7% to $90.3 million from $92.8 million.
- Pre-tax income decreased 62.1% to $3.3 million from $8.7 million.
- Net income decreased 58.0% to $2.9 million from $6.9 million.
- Earnings per diluted share decreased to $0.55 from $1.33.
New orders received for the third quarter increased 4 percent to $30.2 million
from $29 million for the same quarter last year. Year-to-date, new orders are
down 8 percent to $86.1 million from $93.7 million for the first 9 months of
fiscal 1998. Backlog at June 30, 1999 fell 19.5 percent to $35.9 million from
$44.6 million last year.
SIFCO's TURBINE COMPONENT SERVICES AND REPAIR GROUP, which accounts for
approximately 70 percent of the company's revenues, had sales of $20.6 million
for the quarter, up from $20.2 million for the same quarter last year. Operating
income for the third quarter declined to $1.3 million from $2.2 million for last
year's third quarter. Higher fixed costs associated with facility expansions and
slower growth in incremental repair services contributed to the decline in
operating income for the quarter. Although aircraft utilization rates remain
high, our turbine component repair mix has changed to include a larger volume of
lower margin replacement parts rather than repair services. Customers are also
replacing older planes and engines on demanding routes. The anticipated increase
in repair services on the new engines has not yet materialized enough to offset
the decline in services on the older model engines.
Sales and operating income for the AEROSPACE COMPONENT MANUFACTURING GROUP,
consisting of the remaining 30 percent of revenues, were also below fiscal
1998's third quarter levels. Sales for the 1999 third quarter were $9.9 million,
down from $11.8 million for the year-ago quarter. Operating income also declined
to $0.5 million for the quarter from $1.4 million last year.
"We are disappointed with the results of our fiscal 1999 third quarter, but we
understand the aerospace industry's cycles and have worked through many of them
in the past." said SIFCO's president and chief executive officer Jeffrey
Gotschall. "We will continue to manage the business so that we can capitalize
when the cycle turns positive. We have invested in new facilities and processes
that will strengthen our market position and provide opportunities to convert
additional business into shareholder value. For example, our repair facility in
Ireland is state-of-the-art and one of the only dedicated turbine blade repair
stations in the world. We also have the technical expertise and licenses to
repair a significant segment of the newer generation engines and will be
servicing more of those engine components as their utilization rates increase.
We have also seen some positive signs in overall bookings. Bookings have been
higher for three quarters in a row over fourth quarter 1998. We have every
reason to remain confident that our recent investments in facilities and
technologies will benefit our long-term outlook."
(10)
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $32.2 million at June 30, 1999, compared to $30.2
million at September 30, 1998. The current ratio for the same period was 2.7 and
2.4 respectively. Total debt as a percentage of tangible shareholders' equity
was 38.3% at June 30, 1999 compared to 39.4% at September 30, 1998.
Year-to-date capital expenditures were $3.4 million compared to $8.2
million a year ago. Capital expenditures for fiscal 1999 are anticipated to be
in the range of $4 to $5 million compared to $11.3 million in fiscal 1998. The
expenditures will be primarily used to upgrade existing equipment and new
capabilities.
The Company has borrowed $3.8 million against its revolving credit line of
$6.0 million at June 30, 1999. The Company considers it has adequate financing
available to meet its needs through the foreseeable future.
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.
YEAR 2000 ISSUE
---------------
Based upon the results of efforts to date, the Company does not believe
that the Year 2000 issue will have a material adverse effect on its financial
condition or results of operations. The review includes: business applications
which are supported by internal MIS employees, standard commercial programs on
local PCs, manufacturing and building equipment and a survey of major customers
and vendors for compliance. The problems detected to date have been manageable
and correctable. The review and any changes required will be completed before
December 1999. The Company estimates its cost to be compliant at approximately
$150,000, excluding the cost of Company information technology employees.
The Company's Year 2000 program is based on various assumptions and
expectations that cannot be assured. The cost estimate does not include costs
associated with addressing and resolving issues as a result of the failure of
third parties to become Year 2000 compliant. The Company's contingency plans
include identification of alternate suppliers of key products and services used
in manufacturing and support functions. Still, having no precedent of a Year
2000 problem, it is impractical for the Company to determine what impact, if
any, would result to the Company's business if third parties do not address
their Year 2000 issues.
(11)
<PAGE> 13
SAFE HARBOR STATEMENT
---------------------
This Form 10-Q contains various forward-looking statements and includes
assumptions concerning the Company's operations, future results and prospects.
These forward-looking statements are based on current expectations and are
subject to risk and uncertainties. In connection with the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. The Company
provides the following cautionary statement identifying important economic,
political and technological factors, among others, the absence of which could
cause the actual results or events to differ materially from those set forth in
or implied by the forward-looking statements and related assumptions.
Such factors include the following: (1) continuation of the current and
projected future business environment, including interest rates and capital and
consumer spending; (2) competitive factors and competitor responses to the
Company's initiatives; (3) successful development and market introductions of
anticipated new products; (4) stability of government laws and regulations,
including taxes; (5) stable governments and business conditions in emerging
economies; (6) successful penetration of emerging economies; (7) continuation of
the favorable environment to make acquisitions, domestic and foreign, including
regulatory requirements and market values of candidates; (8) successful
identification and conversion of computer systems to address the year 2000 issue
by the Company, suppliers and vendors.
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, 1999.
(12)
<PAGE> 14
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 26, 1999 /*/ Jeffrey P. Gotschall
--------------- -----------------------------
Jeffrey P. Gotschall
Chief Executive Officer
Date July 26, 1999 /*/ Richard A. Demetter
--------------- -----------------------------
Richard A. Demetter
Vice President - Finance
(Principal Accounting Officer)
(13)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000090168
<NAME> SIFCO INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 3,056
<SECURITIES> 0
<RECEIVABLES> 22,586
<ALLOWANCES> 0
<INVENTORY> 24,434
<CURRENT-ASSETS> 51,461
<PP&E> 30,691
<DEPRECIATION> 0
<TOTAL-ASSETS> 87,989
<CURRENT-LIABILITIES> 19,282
<BONDS> 0
0
0
<COMMON> 5,191
<OTHER-SE> 43,450
<TOTAL-LIABILITY-AND-EQUITY> 87,989
<SALES> 0
<TOTAL-REVENUES> 90,341
<CGS> 76,381
<TOTAL-COSTS> 86,615
<OTHER-EXPENSES> (556)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 974
<INCOME-PRETAX> 3,308
<INCOME-TAX> 423
<INCOME-CONTINUING> 2,885
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,885
<EPS-BASIC> .56
<EPS-DILUTED> .55
</TABLE>
