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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2000 Commission File Number 1-5978
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SIFCO Industries, Inc., and Subsidiaries
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(Exact name of registrant as specified in its charter)
Ohio 34-0553950
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
970 East 64th Street, Cleveland, Ohio 44103
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 881-8600
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Former name, former address and former fiscal year, if changed since last
report.
None
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Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes X No
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Class Outstanding at July 31, 2000
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Common Stock, $1 Par Value 5,134,394
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SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
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Financial Statements:
Consolidated Condensed Balance Sheets --
As of June 30, 2000 and September 30, 1999 2
Consolidated Condensed Statements of Income --
Three Months and Nine Months Ended
June 30, 2000 and 1999 3
Consolidated Condensed Statements of Cash Flows --
Nine Months Ended June 30, 2000 and 1999 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
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SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
($000 Omitted)
June 30, Sept. 30,
2000 1999
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ASSETS
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Current Assets:
Cash & Cash Equivalents $ 3,880 $ 1,487
Accounts Receivable, Net 18,854 22,192
Inventories:
Raw Materials & Supplies 4,497 6,780
Work-in-Process & Finished Goods 17,471 17,155
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21,968 23,935
Refundable Income Taxes 260 354
Prepaid Expenses and Other Current Assets 1,303 1,365
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TOTAL CURRENT ASSETS 46,265 49,333
Property, Plant & Equipment, Net 29,635 31,392
Goodwill, Net of Amortization 3,545 3,632
Funds Held by Trustee for Capital Project 523 677
Other Non-Current Assets 1,139 1,427
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TOTAL ASSETS $81,107 $86,461
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current Liabilities:
Current Portion of Long-Term Debt 1,415 1,415
Accounts Payable 9,366 11,094
Accrued Expenses 6,276 6,566
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TOTAL CURRENT LIABILITIES 17,057 19,075
Long-Term Debt - Less Current Portion 12,702 12,985
Deferred Federal Income Taxes and Other 3,721 4,355
Shareholders' Equity:
Serial Preferred Shares - No Par Value --- ---
Common Shares, Par Value $1 Per Share 5,134 5,193
Capital in excess of par value 6,035 6,352
Accumulated Other Comprehensive Income (Loss) (5,737) (2,749)
Retained Earnings 42,195 41,250
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TOTAL SHAREHOLDERS' EQUITY 47,627 50,046
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $81,107 $86,461
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See accompanying notes to consolidated condensed financial statements.
(2)
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SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
($000 Omitted)
Three Months Ended Nine Months Ended
June 30, June 30,
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2000 1999 2000 1999
---- ---- ---- ----
Net Sales of SIFCO Industries, Inc. $ 26,097 $ 30,535 $ 79,624 $ 90,341
Cost & Expenses
Cost of Goods Sold 22,989 25,958 67,596 76,381
Selling, General &
Administrative Expense 3,147 3,304 9,711 10,234
Interest Income (31) (89) (118) (194)
Interest Expense 274 331 775 974
Other (Income) Expense, Net 6 (33) 94 (362)
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Total Costs & Expenses 26,385 29,471 78,058 87,033
Profit (Loss) Before Income Taxes (288) 1,064 1,566 3,308
Income Tax Provision (Benefit) (179) 156 103 423
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Net Income (Loss) $ (109) $ 908 $ 1,463 $ 2,885
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Net Income (Loss) Per Share (Basic) $ (.02) $ .18 $ .28 $ .56
Net Income (Loss) Per Share (Diluted) $ (.02) $ .17 $ .28 $ .55
Average Shares Outstanding (Basic) 5,144 5,188 5,172 5,177
Average Shares Outstanding (Diluted) 5,164 5,229 5,203 5,220
Cash Dividends per Common Share $ .05 $ .05 $ .10 $ .10
See accompanying notes to consolidated condensed financial statements.
(3)
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SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
($000 Omitted)
Nine Months Ended
June 30,
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2000 1999
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Net cash provided by (used for) operating activities:
Net income $ 1,463 $ 2,885
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 3,446 3,278
Deferred income taxes and other (635) (13)
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Subtotal 4,274 6,150
Net cash provided by (used for) changes
in operating assets and liabilities:
Receivables 3,338 (2,513)
Inventories 1,967 3,205
Accrued or refundable income taxes 94 63
Prepaid expenses and other current assets 475 (833)
Accounts payable (1,728) (2,321)
Accrued expenses (290) 25
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Net cash provided by (used for) changes
in operating assets and liabilities 3,856 (2,374)
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Net cash provided by (used for) operating activities 8,130 3,776
Net cash provided by (used for) investing activities:
Purchase of property, plant & equipment (3,188) (3,353)
(Increase) decrease in funds held by trustee for
capital project 154 254
Other (1,527) (1,305)
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Net cash provided by (used for) investing activities (4,561) (4,404)
Net cash provided by (used for) financing activities:
Proceeds from additional borrowings 832 2,700
Issuance of Common Shares 73 97
Repayment of borrowings (1,115) (2,100)
Cash dividends declared (517) (516)
Repurchase of Common Stock (449) --
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Net cash provided by (used for) financing activities (1,176) 181
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Increase in cash and cash equivalents 2,393 (447)
Cash and cash equivalents, beginning of year 1,487 3,503
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Cash and cash equivalents, end of period $ 3,880 $ 3,056
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See accompanying notes to consolidated condensed financial statements.
(4)
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SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2000
NOTES
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(1) Summary of Significant Accounting Policies:
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Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
(2) Debt:
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Long-term debt as of June 30, 2000 and September 30, 1999 consisted of:
($000 Omitted)
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June 30, Sept. 30,
2000 1999
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Variable Rate Industrial Development
Revenue Improvement and Refunding Bonds $ 3,685 $ 3,900
Note payable to bank 9,600 10,500
Note payable under revolving credit
agreement, at the base rate 832 --
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$14,117 $14,400
Less - current maturities 1,415 1,415
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$12,702 $12,985
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(5)
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((2) - continued)
The Company has an available revolving credit agreement in the amount of $6.0
million as of June 30, 2000. The revolving credit agreement bears interest at
the bank's base rate. The average balance outstanding against the revolving
credit agreement was $257,000 and $2.8 million during the nine-month periods 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.
The Company has a 10-year, $12.0 million term note payable. The term note
payable requires quarterly payments of 300,000 and bears interest at a fixed
rate of 7.24%, subject to adjustment if certain loan covenants are not
maintained.
The Company has outstanding $4.1 million of 15-year, Industrial Development
bonds. The proceeds of the bond were used to refund an 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. Principal payments increase and are payable through 2013.
Among other covenants, the Company is required to maintain a minimum tangible
net worth (as defined) of $30.0 million, increasing by 50% of net income
subsequent to September 30, 1997. Tangible net worth exceeded the required
minimum by $9.4 million at June 30, 2000.
(3) Income Taxes:
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The provision (benefit) 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 (loss) due primarily to foreign source income. Income tax expense
(benefit) 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:
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The Company has deferred to future periods the income taxes relating to timing
differences between financial statement pre-tax income and taxable income.
(6)
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(5) Depreciation:
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For financial reporting purposes, the Company provides for depreciation of plant
and equipment, principally by the straight-line method, at annual rates
sufficient to amortize the cost over its estimated useful life. For tax
purposes, the Company uses various accelerated methods and, accordingly,
provides for the related deferred taxes. The principal rates of depreciation for
financial reporting purposes are: buildings 2% to 5%, and machinery and
equipment 5% to 33-1/3%.
(6) Inventories:
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The Company follows the LIFO method of accounting for certain of its
inventories. Since the LIFO inventory determination for fiscal 2000 will be
based upon year-end inventory levels and costs, the Company will provide for an
anticipated "LIFO Adjustment," if any, based on its estimated year-end inventory
levels and costs. Under the Average Cost Method, inventories would have been
$3,789,000 higher than reported at June 30, 2000 and September 30, 1999.
(7) Other Income:
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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
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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. For the
Company, this consists of foreign currency translation adjustments. 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 and nine months ended June 30, 2000 and 1999
are as follows:
($000 omitted)
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Three Months Ended Nine Months Ended
June 30, June 30,
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2000 1999 2000 1999
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Net Income (loss) $(109) $ 908 $ 1,463 $ 2,885
Other comprehensive income (loss):
Foreign currency translation adjustments 85 (1,107) (2,988) (3,783)
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Comprehensive income (loss) $ (24) $ (199) $(1,525) $ (898)
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(7)
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(9) Business Segment Information
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The following table summarizes certain information regarding segments of the
Company's operations for the three and nine months ended June 30, 2000 and 1999:
($000 omitted)
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Three Months Ended Nine Months Ended
June 30, June 30,
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2000 1999 2000 1999
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Net sales, including intersegment sales:
Turbine Component Services & Repair $16,476 $20,621 $53,562 $62,812
Aerospace Component Manufacturing 9,621 9,914 26,062 27,529
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$26,097 $30,535 $79,624 $90,341
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Income from operations before corporate
expenses and interest expense:
Turbine Component Services & Repair $ 278 $ 1,323 $ 3,002 $ 4,541
Aerospace Component Manufacturing 256 472 897 1,179
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534 1,795 3,899 5,720
Corporate expenses (579) (489) (1,676) (1,632)
Interest (expense) income, net (243) (242) (657) (780)
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Income (loss) before income taxes $ (288) $ 1,064 $ 1,566 $ 3,308
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(10) Basis of Presentation and Management Estimates:
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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.
In the opinion of the Company, the financial information in this Form 10-Q
includes all adjustments, including those of a normal recurring nature,
necessary to fairly state the results for the periods.
(8)
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE CONSOLIDATED CONDENSED STATEMENTS OF INCOME
The following is management's discussion and analysis of the financial
condition, changes in financial condition, and the results of operations 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:
($000 omitted)
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Three Months Ended Nine Months Ended
June 30, June 30,
2000 and 1999 2000 and 1999
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Net Sales of SIFCO
Industries, Inc. $(4,438) (14)% $(10,717) (12)%
Cost of Goods Sold (2,969) (11)% (8,785) (12)%
Selling, General &
Administrative Expense (157) (5)% (523) (5)%
Interest Income (58) (65)% (76) (39)%
Interest Expense (57) (17)% (199) (20)%
Other Income, Net (39) N/A (456) N/A
Profit (Loss) Before Income Taxes (1,352) N/A (1,742) (53)%
Income Tax Provision (Benefit) (335) N/A 320 (76)%
Net Income (Loss) (1,017) N/A (1,422) (49)%
(9)
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MANAGEMENT'S DISCUSSION & FINANCIAL ANALYSIS (continued)
For the third quarter of fiscal 2000, compared with the third quarter of fiscal
1999:
- Net sales decreased 14% to $26.1 million from $30.5 million
- Net loss of $.02 per diluted share, compared to net earnings of $0.17
per diluted share
Through the first nine months of fiscal 2000, compared with the first nine
months of fiscal 1999:
- Net sales decreased 12% to $79.6 million from $90.3 million
- Earnings per diluted share decreased to $0.28 from $0.55
New orders for the third quarter decreased to $26.0 million from last year's
$30.2 million, and for the nine months new orders decreased to $79.4 million
from $86.1 million. Backlog at June 30, 2000, was $37.7 million, compared to
$35.9 million a year ago.
TURBINE COMPONENT SERVICES AND REPAIR GROUP
Turbine Component Services and Repair Group sales declined 20.1% for the third
quarter to $16.5 million from $20.6 million a year ago. Sales for the first nine
months of fiscal 2000 decreased 14.7% to $53.6 million from $62.8 million a year
ago. Operating profit for the third quarter decreased 78.9% to $278,000 from
$1.3 million a year ago. Operating profit for the nine months decreased 33.9% to
$3.0 million from $4.5 million in fiscal 1999. The $4.1 million reduction in
revenue for the third quarter can be related principally (approximately 50%) to
the decline in the demand for JT8D engine overhaul. The reduced demand for older
model JT8D engine repair is attributable to the retirement or reduced
utilization of older model aircraft, such as the 737-100/200, the 727, and the
DC-9, which is expected to continue. This has been compounded by a reduced level
of business from a number of customers that have been experiencing their own
internal operating issues. The Repair Group has recognized that the JT8D market
is mature; however, newer models of this engine still hold promise for future
repair sales. The balance of the shortfall in revenue can be linked to CFM56 and
RB211 engine overhaul push outs and the continued encroachment of the engine
OEM's into the overhaul and repair marketplace. The Repair Group is responding
to these changes by tailoring resources to throughput and accelerating its
product introduction on the newer engine types. The $1.0 million reduction in
operating profit was primarily attributable to the inability of the company to
fully absorb certain of its overhead costs during the third quarter due to
reduced sales volumes. Product sales mix also contributed to the third quarter
drop in operating profit.
AEROSPACE COMPONENT MANUFACTURING GROUP
Aerospace Component Manufacturing Group sales for the third quarter decreased
3.0% to $9.6 million from $9.9 million a year ago. Sales for the first nine
months of fiscal 2000 decreased 5.3% to $26.1 million from $27.5 million a year
ago. Operating profit for the third quarter decreased 45.8% to $256,000 from
$472,000 a year ago. The reduction in the large aircraft build cycle from its
peak in 1999, partially offset by growth in the small aircraft volumes, accounts
for the decline in revenue so far this year. SIFCO is encouraged by the
significant improvement in outlook recently announced by the large manufacturers
like Boeing. The Aerospace Component Manufacturing Group has continued to push
into the regional jet market, which continues to expand and hold promise for
near-term revenue growth.
(10)
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LIQUIDITY AND CAPITAL RESOURCES
Working capital was $29.2 million at June 30, 2000, compared to $30.3
million at September 30, 1999. The current ratio as of those dates was 2.7 and
2.6, respectively. Total debt as a percentage of tangible shareholders' equity
was 28.5% at June 30, 2000 compared to 29.6% at September 30, 1999.
The Company announced in February 2000 that its board of directors had
authorized a repurchase of up to 100,000 shares, or approximately 2% of the
common shares outstanding. The shares, when purchased, will be used for
corporate purposes, including the issuance of shares pursuant to the exercise of
outstanding stock options. These purchases can be made in the open market or in
negotiated transactions, depending on market conditions. Any such repurchase of
shares will use a portion of the Company's working capital. Through June 30,
2000, the Company had repurchased 70,700 shares at an average price of $6.35.
Year-to-date capital expenditures were $3.2 million compared to $3.4
million a year ago. Capital expenditures for fiscal 2000 are anticipated to be
approximately $5.0 million compared to $4.9 million in fiscal 1999. The
expenditures will be primarily used to upgrade existing equipment and develop
new capabilities, particularly in the Turbine Component Services and Repair
Group.
The Company has borrowed $832,000 against its revolving credit line of $6.0
million at June 30, 2000. The Company believes it has adequate financing
available to meet its needs through the foreseeable future.
PROVISION (BENEFIT) FOR TAXES ON INCOME (LOSS)
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The provision (benefit) for taxes on income (loss), 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
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Through June 30, 2000, the Company has not experienced any noticeable
disruptions in its operations or in its ability to provide service to its
customers as a result of Year 2000 issues. Furthermore, the Company has no
knowledge of any conditions that exist, relative to the Year 2000 issue, that
will present problems in the future that would have a material adverse effect on
its financial condition or results of operations. Cumulative expenditures,
excluding the cost of Company information technology personnel, made through
December 31, 1999 related to the Year 2000 issue amounted to approximately
$150,000. No such related expenditures were incurred during the second or third
fiscal quarters of 2000.
SAFE HARBOR STATEMENT
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This Annual Report 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.
(11)
<PAGE> 13
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, 2000.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
SIFCO INDUSTRIES, INC.
(Registrant)
Date July 31, 2000 /*/ Jeffrey P. Gotschall
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Jeffrey P. Gotschall
Chief Executive Officer
Date July 31, 2000 /*/ Frank A. Cappello
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Frank A. Cappello
Vice President - Finance & CFO
(Principal Accounting Officer)
(12)
