10-Q/A 1 l85050ae10-qa.txt SIFCO INDUSTRIES, INC. AND SUBSIDISARIES 1 FORM 10-Q/A Amendment No. 1 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 ---------------- ------------ 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 --------------------------- -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. None -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 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 31, 2000 ----- ---------------------------- Common Stock, $1 Par Value 5,134,394 2 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES INDEX Page No. -------- 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 3 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS ($000 Omitted)
June 30, Sept. 30, 2000 1999 -------- -------- ASSETS Current Assets: Cash & Cash Equivalents $ 3,880 $ 1,487 Accounts Receivable, Net 18,854 22,192 Inventories: Raw Materials & Supplies 4,622 6,780 Work-in-Process & Finished Goods 17,346 17,155 -------- -------- 21,968 23,935 Refundable Income Taxes 260 354 Prepaid Expenses and Other Current Assets 1,303 1,365 -------- -------- 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 -------- -------- TOTAL ASSETS $ 81,107 $ 86,461 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current Portion of Long-Term Debt 1,415 1,415 Accounts Payable 9,366 11,094 Accrued Expenses 6,276 6,566 -------- -------- 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 -------- -------- TOTAL SHAREHOLDERS' EQUITY 47,627 50,046 -------- -------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY 81,107 86,461 ======== ========
See accompanying notes to consolidated condensed financial statements. (2) 4 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME ($000 Omitted)
Three Months Ended Nine Months Ended June 30, June 30, --------------------------- ---------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net Sales of SIFCO Industries, Inc. $ 26,097 $ 30,535 $ 79,624 $ 90,341 Cost & Expenses Cost of Goods Sold 22,656 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) -------- -------- -------- -------- Total Costs & Expenses 26,052 29,471 78,058 87,033 Profit Before Income Taxes 45 1,064 1,566 3,308 Income Tax Provision (Benefit) 0 156 103 423 -------- -------- -------- -------- Net Income $ 45 $ 908 $ 1,463 $ 2,885 ======== ======== ======== ======== Net Income Per Share (Basic) $ .01 $ .18 $ .28 $ .56 Net Income Per Share (Diluted) $ .01 $ .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) 5 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS ($000 Omitted)
Nine Months Ended June 30, ----------------------------- 2000 1999 ------- ------- 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) ------- ------- 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 ------- ------- Net cash provided by (used for) changes in operating assets and liabilities 3,856 (2,374) ------- ------- 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) ------- ------- 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) -- ------- ------- Net cash provided by (used for) financing activities (1,176) 181 ------- ------- Increase in cash and cash equivalents 2,393 (447) Cash and cash equivalents, beginning of year 1,487 3,503 ------- ------- Cash and cash equivalents, end of period $ 3,880 $ 3,056 ======= =======
See accompanying notes to consolidated condensed financial statements. (4) 6 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS June 30, 2000 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 June 30, 2000 and September 30, 1999 consisted of: ($000 Omitted) ----------------------------- June 30, Sept. 30, 2000 1999 ------- ------- 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 -- ------- ------- $14,117 $14,400 Less - current maturities 1,415 1,415 ------- ------- $12,702 $12,985 ======= ======= (5) 7 ((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: ------------- 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: ------------------------------ The Company has deferred to future periods the income taxes relating to timing differences between financial statement pre-tax income and taxable income. (6) 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 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 $3,329,000 and $3,789,000 higher than reported at June 30, 2000 and September 30, 1999, respectively. The Company identified an oversight in the calculation of its March 31, 2000 inventory valuation that resulted in a net overstatement of inventory of approximately $333,000. This resulted in an understatement of Cost of Goods Sold and a corresponding overstatement of Income Before Income Taxes of approximately $333,000 during the three-month period ended March 31, 2000. This inventory valuation issue reversed itself, as the inventory was sold, during the three-month period ended June 30, 2000. Consequently, during the three-month period ended June 30, 2000 Cost of Goods Sold was overstated with a corresponding understatement of Income Before Income Taxes of approximately $333,000. The Company has reflected the impact of these adjustments in its quarterly tax provisions. (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. 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:
Three Months Ended Nine Months Ended June 30, June 30, ------------------------ ------------------------- 2000 1999 2000 1999 ------- ------- ------- ------- Net Income $ 45 $ 908 $ 1,463 $ 2,885 Other comprehensive income (loss): Foreign currency translation adjustments 85 (1,107) (2,988) (3,783) ------- ------- ------- ------- Comprehensive income (loss) $ 130 $ (199) $(1,525) $ (898) ======= ======= ======= =======
(7) 9 (9) Business Segment Information ---------------------------- 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) ------------------------------------------------------------- Three Months Ended Nine Months Ended June 30, June 30, -------------------------- -------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- 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 -------- -------- -------- -------- $ 26,097 $ 30,535 $ 79,624 $ 90,341 ======== ======== ======== ======== Income from operations before corporate expenses and interest expense: Turbine Component Services & Repair $ 278 $ 1,323 $ 3,002 $ 4,541 Aerospace Component Manufacturing 589 472 897 1,179 -------- -------- -------- -------- 867 1,795 3,899 5,720 Corporate expenses (579) (489) (1,676) (1,632) Interest (expense) income, net (243) (242) (657) (780) -------- -------- -------- -------- Income before income taxes $ 45 $ 1,064 $ 1,566 $ 3,308 ======== ======== ======== ========
(10) Basis of Presentation and Management Estimates: ----------------------------------------------- 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) 10 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) ----------------------------------------------------------- Three Months Ended Nine Months Ended June 30, June 30, 2000 and 1999 2000 and 1999 ----------------------- ------------------------- Net Sales of SIFCO Industries, Inc. $ (4,438) (14)% $(10,717) (12)% Cost of Goods Sold (3,302) (13)% (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 Before Income Taxes (1,019) (96)% (1,742) (53)% Income Tax Provision (Benefit) (156) (100)% 320 (76)% Net Income (863) (95)% (1,422) (49)%
(9) 11 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 income of $.01 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. 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. Operating profit for the third quarter increased 24.8% to $589,000 from $472,000 a year ago. 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) 12 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) ---------------------------------------------- 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 --------------- 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 --------------------- 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) 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 ---------- 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 ------------- ------------------------ as amended November 10, 2000 Jeffrey P. Gotschall Chief Executive Officer Date July 31, 2000, /*/ Frank A. Cappello ------------- ----------------------- as amended November 10, 2000 Frank A. Cappello Vice President - Finance & CFO (Principal Accounting Officer) (12)