<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, 1999 Commission File Number 1-5978
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SIFCO Industries, Inc., and Subsidiaries
----------------------------------------
(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
-------------------------
None
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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, 2000
----- -------------------------------
Common Stock, $1 Par Value 5,197,389
<PAGE> 2
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
Financial Statements:
Consolidated Condensed Balance Sheets --
December 31, 1999, and September 30, 1999 2
Consolidated Condensed Statements of Income --
Three Months
December 31, 1999 and 1998 3
Consolidated Condensed Statements of Cash Flows --
Three Months
December 31, 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
Other Information and Signatures 11, 12
<PAGE> 3
<TABLE>
<CAPTION>
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
($000 Omitted)
Dec 31 Sept. 30
1999 1999
-------- --------
ASSETS
------
<S> <C> <C>
Current Assets
Cash & Cash Equivalents $ 3,614 $ 1,487
Accounts Receivable, Net 19,136 22,192
Inventories
Raw Materials & Supplies 6,075 6,780
Work-in-Process & Finished Goods 16,266 17,155
-------- --------
22,341 23,935
Refundable Income Taxes 317 354
Prepaid Expenses and Other Current Assets 1,755 1,365
-------- --------
TOTAL CURRENT ASSETS 47,163 49,333
Property, Plant & Equipment, Net 30,678 31,392
Goodwill, Net of Amortization 3,603 3,632
Funds Held by Trustee for Capital Project 677 677
Other Non-Current Assets 1,373 1,427
-------- --------
TOTAL ASSETS $ 83,494 $ 86,461
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt 1,415 1,415
Accounts Payable 10,309 11,094
Accrued Expenses 6,159 6,566
-------- --------
TOTAL CURRENT LIABILITIES 17,883 19,075
Long-Term Debt - Less Current Portion 12,685 12,985
Deferred Federal Income Taxes and Other 4,075 4,355
Shareholders' Equity
Serial Preferred Shares - No Par Value -- --
Common Shares, Par Value $1 Per Share 5,197 5,193
Paid-in-Surplus 6,385 6,352
Accumulated Other Comprehensive Income (Loss) (4,465) (2,749)
Retained Earnings 41,734 41,250
-------- --------
TOTAL SHAREHOLDERS' EQUITY 48,851 50,046
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 83,494 $ 86,461
======== ========
</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
December 31
1999 1998
-------- --------
<S> <C> <C>
Net Sales of SIFCO
Industries, Inc. $ 25,345 $ 29,525
Cost & Expenses
Cost of Goods Sold 21,447 25,080
Selling, General &
Administrative Expense 3,098 3,438
Interest Income (31) (55)
Interest Expense 265 350
Other (Income) Expense, Net 41 (245)
Total Costs & Expenses 24,820 28,568
Income Before Income Taxes 525 957
Provision for Federal, Foreign
& State Income Taxes 41 78
-------- --------
Net Income $ 484 $ 879
======== ========
Net Income Per Share (Basic) $ .09 $ .17
Net Income Per Share (Diluted) $ .09 $ .17
Average Shares Outstanding (Basic) 5,194 5,171
Average Shares Outstanding (Diluted) 5,240 5,242
Cash Dividends per Common Share $ -- $ --
</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)
Three Months Ended
December 31
1999 1998
------- -------
<S> <C> <C>
Net cash provided by (used for) operating activities:
Net income $ 484 $ 879
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,162 1,127
Deferred income taxes and other (280) (126)
------- -------
Subtotal 1,366 1,880
Net cash provided by (used for) changes
in operating assets and liabilities:
Receivables 3,056 940
Inventories 1,594 1,148
Accrued or refundable income taxes 37 (227)
Prepaid expenses and other current assets (390) (814)
Accounts payable (785) (2,709)
Accrued expenses (407) (436)
------- -------
Net cash provided by (used for) changes
in operating assets and liabilities 3,105 (2,098)
------- -------
Net cash provided by (used for) operating activities 4,471 (218)
Net cash provided by (used for) investing activities:
Purchase of property, plant & equipment (1,305) (1,302)
(Increase) decrease in funds held by trustee for capital project -- --
Other (739) 147
------- -------
Net cash provided by (used for) investing activities (2,044) (1,155)
Net cash provided by (used for) financing activities:
Proceeds from additional borrowings -- 3,400
Repayment of borrowings (300) (300)
Cash dividends declared -- --
------- -------
Net cash provided by (used for) financing activities (300) 3,100
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Increase (decrease) in cash and cash equivalents 2,127 1,727
Cash and cash equivalents, beginning of year 1,487 3,503
------- -------
Cash and cash equivalents, end of period $ 3,614 $ 5,230
======= =======
</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, 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.
(2) Debt:
-----
Long-term debt as of December 31, 1999 and September 30, 1999 consisted of:
<TABLE>
<CAPTION>
Dec 31 Sept. 30
1999 1999
------- -------
($000 Omitted)
<S> <C> <C>
Variable Rate Industrial Development
Revenue Improvement
and Refunding Bonds $ 3,900 $ 3,900
Note payable to bank, due in quarterly
installments of $300,000 10,200 10,500
Note payable under revolving credit
agreement, at the base rate -- --
------- -------
$14,100 $14,400
Less - current maturities 1,415 1,415
------- -------
$12,685 $12,985
======= =======
</TABLE>
(5)
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE CONSOLIDATED CONDENSED STATEMENTS OF INCOME
In April 1998, the Company restructured its credit facilities. It reduced the
previously existing $9 million revolving credit agreement to $6 million which is
the current amount available on December 31, 1999. The revolving credit
agreement 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 less
than $0.1 million and $3.1 million during the three-month period of fiscal 2000
and 1999, 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 1998, the Company obtained a $4.1 million, 15-year, Industrial Development
bond. The proceeds of the 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 was $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 $12.4 million at December 31, 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 $3,789,000
and $3,789,000 higher than reported at December 31, 1999 and September 30, 1999,
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 ended December 31, 1999 and 1998 are
as follows:
<TABLE>
<CAPTION>
($000 omitted)
Three Months Ended
December 31
1999 1998
------- -------
<S> <C> <C>
Net Income $ 484 $ 879
Other comprehensive income (loss):
Foreign currency translation adjustments (1,716) (269)
------- -------
Comprehensive income $(1,232) $ 610
======= =======
</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 December 31, 1999 and 1998:
<TABLE>
<CAPTION>
($000 omitted)
Three Months Ended
December 31
1999 1998
-------- --------
<S> <C> <C>
Net sales, including intersegment sales:
Turbine Component Services & Repair $ 17,743 $ 20,715
Aerospace Component Manufacturing 7,602 8,810
Intersegment sales -- --
-------- --------
$ 25,345 $ 29,525
======== ========
Income (loss) from operations before corporate
expenses and interest expense:
Turbine Component Services & Repair $ 1,085 $ 1,611
Aerospace Component Manufacturing 153 289
-------- --------
1,238 1,900
Corporate expenses (479) (648)
Interest (expense) income, net (234) (295)
-------- --------
Income before income taxes $ 525 $ 957
======== ========
</TABLE>
(10) Basis of Presentation and Management Estimates:
-----------------------------------------------
The accompanying financial information for the three months ended December 31,
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
December 31
1999 and 1998
-------------
<S> <C> <C>
Net Sales of SIFCO Industries, Inc. $(4,180) (14.2)%
Cost of Sales (3,633) (14.5)%
Selling, General & Administrative (340) (9.9)%
Interest Income (24) (43.6)%
Interest Expense (85) (24.3)%
Other Income, Net (286) (116.7)%
Income Before Income Taxes (432) (45.1)%
Provision for Federal,
Foreign & State Income Taxes (37) (47.4)%
Net Income (395) (44.9)%
</TABLE>
(9)
<PAGE> 11
MANAGEMENT'S DISCUSSION AND FINANCIAL ANALYSIS
For the first quarter of fiscal 2000, compared with the first quarter of fiscal
1999:
- Net sales decreased 14.2% to $25.3 million from $29.5 million
- Pre-tax income decreased 45.1% to $525,000 from $957,000
- Net income decreased 44.9% to $484,000 from $879,000
- Earnings per diluted share decreased to $0.09 from $0.17
New orders received for the first quarter were $25.4 million compared to $28.3 a
year ago and $29.3 million in the quarter ended September 30, 1999. Backlog was
$39.1 million compared to $39.5 million a year ago and $39.5 million at
September 30, 1999.
Net interest expense decreased to $0.2 million from $0.3 million resulting from
lower borrowing requirements for working capital due to lower sales volume.
TURBINE COMPONENT SERVICES AND REPAIR GROUP
Turbine Component Services and Repair (TCSR) sales declined 14.3% to $17.7
million from $20.7 million a year ago. Operating profit declined 32.7% to $1.1
million from $1.6 million a year ago. As we said last quarter, repair volume for
the older engines has declined as many of the older planes powered by these
engines have been retired from the fleet. Our strategies of continuous
improvement and product development will provide us with the mechanism to gain
market share of the repair of the newer engine types.
AEROSPACE COMPONENT MANUFACTURING GROUP
Aerospace Component Manufacturing (ACM) sales declined 13.7% to $7.6 million
from $8.8 million a year ago. Operating profit declined 47.1% to $0.15 million
from $0.29 million a year ago. Boeing continues to reduce its build rate for the
large commercial aircraft. Build rates for smaller commercial aircraft (business
and regional jets) are still rising, which is good news for SIFCO.
OUTLOOK
"Our results for the first quarter were disappointing, but not unexpected in
light of market conditions. However, we have a strong balance sheet with
long-term debt-to-equity of 26% and will recover from this cycle as we have many
others in the past," said SIFCO's President and Chief Executive Officer, Jeffrey
Gotschall.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $29.3 million at December 31, 1999, compared to $30.3
million at September 30, 1999. The current ratio for the same period was 2.6 and
2.6 respectively. Total debt as a percentage of tangible shareholders' equity
was 28.7% at December 31, 1999 compared to 29.6% at September 30, 1999.
Year-to-date capital expenditures were $1.3 million compared to $1.3
million a year ago. Capital expenditures for fiscal 2000 are anticipated to be
in the range of $4 to $7 million compared to $4.9 million in fiscal 1999. The
expenditures will be primarily used to upgrade existing equipment and new
capabilities.
The Company has had no borrowing against its revolving credit line of $6.0
million at December 31, 1999. The Company considers it has adequate financing
available to meet its needs through the foreseeable future.
(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.
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 were completed in December
1999. The Company estimates its cost to be compliant at approximately $150,000,
excluding the cost of Company information technology employees. All of this
expenditure had been completed by December 31, 1999.
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 funcitons. 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.
Through January 2000, the Company did not experience any disruptions in
operations or service as a result of Year 2000 issues. However, the effects of
Year 2000 may be experienced up to several months or longer after January 1,
2000.
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
December 31, 1999.
(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 January 31, 2000 /*/ Jeffrey P. Gotschall
------------------- ----------------------------
Jeffrey P. Gotschall
Chief Executive Officer
Date January 31, 2000 /*/ 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-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,614
<SECURITIES> 0
<RECEIVABLES> 19,136
<ALLOWANCES> 0
<INVENTORY> 22,341
<CURRENT-ASSETS> 47,163
<PP&E> 30,678
<DEPRECIATION> 0
<TOTAL-ASSETS> 83,494
<CURRENT-LIABILITIES> 17,883
<BONDS> 0
0
0
<COMMON> 5,197
<OTHER-SE> 43,654
<TOTAL-LIABILITY-AND-EQUITY> 83,494
<SALES> 0
<TOTAL-REVENUES> 25,345
<CGS> 21,447
<TOTAL-COSTS> 24,545
<OTHER-EXPENSES> 10
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 265
<INCOME-PRETAX> 525
<INCOME-TAX> 41
<INCOME-CONTINUING> 484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 484
<EPS-BASIC> .09
<EPS-DILUTED> .09
</TABLE>
