10-Q/A 1 l86627ae10-qa.txt SIFCO INDUSTRIES & SUBSIDIARIES 10-Q/A 1 The following items were the subject of a Form 12b-25 and are included herein: Item 6(a) Exhibits FORM 10-Q/A QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 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) (216) 881-8600 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) 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 --- --- As of January 31, 2000, the issuer had 5,135,063 shares of common stock outstanding. 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) (Amounts in thousands, except per share data) Three Months Ended December 31 --------------------------- 2000 1999 ---- ---- NET SALES $ 25,185 $ 25,345 OPERATING EXPENSES: Cost of goods sold 20,854 21,447 Selling, general and administrative expenses 2,955 3,098 --------- --------- Total operating expenses 23,809 24,545 --------- --------- Operating income 1,376 800 INTEREST INCOME (150) (31) ------------- INTEREST EXPENSE 369 265 OTHER EXPENSE, NET 569 41 --------- --------- Income before income tax provision 588 525 INCOME TAX PROVISION 286 41 --------- --------- Net income $ 302 $ 484 ========= ========= NET INCOME PER SHARE (BASIC) $ .06 $ .09 NET INCOME PER SHARE (DILUTED) $ .06 $ .09 WEIGHTED-AVERAGE NUMBER OF COMMON SHARES (BASIC) 5,135 5,194 WEIGHTED-AVERAGE NUMBER OF COMMON SHARES (DILUTED) 5,155 5,240
See accompanying notes to unaudited consolidated condensed financial statements. 3
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Amounts in thousands, except per share data) December 31 September 30 2000 2000 ----------- ------------ (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 7,846 $ 4,687 Receivables, net 18,685 19,743 Inventories 19,156 19,878 Deferred income taxes 1,486 1,486 Prepaid expenses and other current assets 782 656 -------- -------- Total current assets 47,955 46,450 PROPERTY, PLANT AND EQUIPMENT, NET 29,482 29,009 OTHER ASSETS: Funds held by trustee for capital project 539 530 Goodwill and other intangible assets, net 3,802 3,866 Other assets 761 645 -------- -------- Total other assets 5,102 5,041 -------- -------- Total assets $ 82,539 $ 80,500 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 1,420 $ 1,420 Accounts payable 4,467 6,723 Accrued liabilities 9,547 9,631 -------- -------- Total current liabilities 15,434 17,774 LONG-TERM DEBT - NET OF CURRENT MATURITIES 14,508 11,962 OTHER LONG-TERM LIABILITIES 5,275 5,264 SHAREHOLDERS' EQUITY: Serial preferred shares - no par value -- -- Common shares, par value $1 per share 5,206 5,205 Additional paid-in-capital 6,416 6,413 Accumulated other comprehensive loss (6,793) (8,310) Retained earnings 42,942 42,641 Common shares held in treasury at cost (449) (449) -------- -------- Total shareholders' equity 47,322 45,500 -------- -------- Total liabilities and shareholders' equity $ 82,539 $ 80,500 ======== ========
See accompanying notes to unaudited consolidated condensed financial statements. 4 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)
Three Months Ended December 31 ------------------ 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 302 $ 484 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,106 1,164 CHANGES IN OPERATING ASSETS AND LIABILITIES: Receivables 1,431 2,469 Inventories 1,066 910 Prepaid expenses and other current assets (109) (444) Other assets (106) 52 Accounts payable (2,733) (686) Accrued liabilities 162 (457) Other long-term liabilities (118) -- ------- ------- Net cash provided by operating activities 1,001 3,492 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (830) (1,326) Decrease in funds held by trustee for capital project (9) -- Other 60 (59) ------- ------- Net cash used for investing activities (779) (1,385) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving credit agreement 8,252 300 Repayments of revolving credit agreement (5,406) (300) Repayments of long-term debt (300) (300) Issuance of common stock 4 37 ------- ------- Net cash provided by (used for) financing activities 2,550 (263) ------- ------- Increase in cash and cash equivalents 2,772 1,844 Cash and cash equivalents at the beginning of the period 4,687 2,022 Effect of exchange rate changes on cash and cash equivalents 387 (116) ------- ------- Cash and cash equivalents at the end of the period $ 7,846 $ 3,750 ======= ======= Supplemental disclosure of cash flow information: Cash paid for interest $ 237 $ 227 Cash paid for income taxes, net 1 4
See accompanying notes to unaudited consolidated condensed financial statements. 5 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Amounts in thousands) (Unaudited) 1. BASIS OF PRESENTATION The unaudited interim consolidated condensed financial statements included herein include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. In the opinion of management, all adjustments, which include only normal recurring adjustments, necessary for a fair presentation of the results of operations, financial position, and cash flows for the periods presented have been included. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and related notes included in the SIFCO industries, Inc. and Subsidiaries ("Company") fiscal 2000 annual report on Form 10-K. The results of operations for any interim period are not necessarily indicative of the results to be expected for other interim periods or the full year. Certain prior year amounts have been reclassified in order to conform to current year classifications. 2. ADOPTION OF NEW ACCOUNTING STANDARD The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities" on October 1, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded in earnings or other comprehensive income (loss), based on whether the instrument is designated as part of a hedge transaction and, if so, the type of hedge transaction. The Company uses an interest rate swap agreement to convert its variable rate term note to an effective fixed rate of 7.74%. In accordance with the transition provisions of SFAS No. 133, upon adoption of this standard, the Company recorded a net of tax cumulative effect type adjustment of $135 in accumulated other comprehensive (loss) income to recognize the fair value of the interest rate swap designated as a cash flow hedging instrument. The derivative was also recognized on the balance sheet at its fair value of $205. 3. INVENTORIES Inventories consist of: December 31, 2000 ----------------- Raw material and supplies $ 4,096 Work-in-progress and finished goods 15,060 ---------- Total inventories $ 19,156 ========== If the FIFO method had been used for the entire Company, inventories would have been $3,015 higher than reported at December 31, 2000. 4. INCOME TAXES At December 31, 2000, U. S. income taxes were provided on the undistributed earnings for the three months ended December 31, 2000 of non-U.S. subsidiaries in anticipation that distributions from such, to the extent they may occur in the future, would result in an additional income tax liability. The income tax provision on U.S. earnings is based on the anticipated effective rate for the year. 6 5. COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE LOSS Total comprehensive income is as follows: Three months ended December 31, 2000 ----------------- Net income $ 302 Foreign currency translation adjustment 1,534 Cumulative effective adjustment of interest rate swap agreement, net of tax 135 Loss on interest rate swap agreement (152) -------- Total comprehensive income $ 1,819 ======== The components of Accumulated Other Comprehensive Loss are as follows: December 31, 2000 ----------------- Foreign currency translation adjustment $ (6,776) Interest rate swap adjustment (17) -------- Total accumulated other comprehensive loss $ (6,793) ======== 7 6. BUSINESS SEGMENTS Reportable segments are identified by the Company based upon distinct products manufactured and services provided. The Turbine Component Services and Repair segment consists primarily of turbine component remanufacturing, precision contract machining, subassemblies, and finished parts, as well as, selective electroplating equipment, solutions and services. The Aerospace Component Manufacturing segment consists primarily of domestically produced forgings and semi-finished components primarily for the aerospace industry. Segment information is as follows:
Three months ended December 31 ------------------------------ 2000 1999 ---- ---- Net sales: Turbine Component Services and Repair $ 16,216 $ 17,743 Aerospace Component Manufacturing 8,969 7,602 ---------- ---------- Consolidated net sales $ 25,185 $ 25,345 ========== ========== Operating income: Turbine Component Services and Repair $ 1,316 $ 1,126 Aerospace Component Manufacturing 458 153 Corporate unallocated expenses (398) (479) ---------- ---------- Consolidated operating income 1,376 800 Interest expense, net 219 234 Other expense, net 569 41 ---------- ---------- Consolidated income before income tax provision $ 588 $ 525 ========== ==========
8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Management's Discussion and Analysis of Financial Condition and Results of Operations may contain 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) future business environment, including capital and consumer spending; (2) competitive factors, including the ability to replace business which may be lost due to OEM encroachment into turbine component services and repair markets; (3) successful procurement of new repair process licenses; (4) the impact of fluctuations of foreign currency (euros) exchange rates on the results of operations; (5) successful development and market introductions of new products; (6) stability of government laws and regulations, including taxes; and (7) stable governments and business conditions in economies where business is conducted. SIFCO Industries, Inc. and its subsidiaries engage in the production and sale of a variety of metalworking processes, services and products produced primarily to the specific design requirements of its customers. The processes include forging, heat treating, coating, welding, machining and electroplating; and the products include forgings, machined forged parts and other machined metal parts, remanufactured component parts for turbine engines, and electroplating solutions and equipment. A. RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED WITH THREE MONTHS ENDED DECEMBER 31, 1999 In the quarter ended December 31, 2000, net sales decreased 0.6% to $25.2 million from $25.3 million in the corresponding quarter in fiscal 2000. Net income decreased 37.6% to $0.3 million, or $0.06 per share (diluted), in the quarter ended December 31, 2000 from $0.5 million or $0.09 per share (diluted) in the same quarter in fiscal 2000. TURBINE COMPONENT SERVICES AND REPAIR GROUP ("REPAIR GROUP") SIFCO's Repair Group had net sales of $16.2 million in the first quarter of 2001, which was down 8.6% from $17.7 million in the corresponding quarter in fiscal 2000. Operating income for the first quarter 2001 increased to $1.3 million from $1.1 million in the same 2000 period. Repair volumes for the older engine types continued the decline that we experienced during 2000. As we mentioned during 2000, there has been a decline in the demand for repairs to older model JT8D engines which we expected to continue into 2001 due to the continued retirement and reduced utilization of older model aircraft such as the 737-100/200, the 727, and the DC-9. In addition, there was a reduction in repair volume related to the CFM-56 engines due principally to the encroachment of the engine OEM's into the marketplace. During the first quarter of 2001, reduced sales volumes for repair services adversely impacted the Repair Group's operating income. This negative impact was offset by the positive impact, to the Repair Group's non-U.S. operation's net sales and margins, of a weaker euro during the first quarter of 2001 when compared to the same 2000 period. Considerable cost saving efforts were put into place in the first quarter of 2001 when compared to the same period in 2000. For example, overall employment at repair facilities has been reduced by 15% in the period December 31, 1999 to December 31, 2000. AEROSPACE COMPONENT MANUFACTURING GROUP ("ACM GROUP") Net sales in the first quarter of 2001 increased 18.0% to $9.0 million, compared with $7.6 million in the same 2000 period. The sales increase is net of a reduction in selling price of $0.6 million caused by a decline in the market price of a key raw material that was passed on to customers. The increase in sales is attributable to an increase in the number of AE series new generation jet engines built by Rolls-Royce for business and regional jets, as well as transport and surveillance aircraft. First quarter fiscal 2001 sales also benefited from an increase in components sold to large aircraft manufacturers. 9 Selling, general and administrative expenses were $0.5 million in both the first quarters of fiscal 2001 and 2000. The ACM Group's operating income in the first quarter of 2001 was $0.5 million, or 5.1% of net sales in 2001, compared with $0.2 million, or 2.0% of net sales in the same 2000 period. The operating income percentage of net sales benefited in the first quarter of 2001 from the decline in the market price of a key raw material. Operating income in the first quarter of fiscal 2001 benefited from a favorable product mix and the overall increase in sales. OTHER/GENERAL Other expense, net increased by $0.5 million for the first quarter of 2001 when compared to the same 2000 period. The sudden strengthening of the euro at the end of the first quarter of 2001, resulted in a net transaction loss of $0.6 million for the quarter as compared to $0.1 million in the same 2000 period. The Company's backlog as of December 31, 2000 and September 30, 2000 was $44.6 million and $42.6 million, respectively. At December 31, 2000, approximately 2.8% of the backlog is on hold and 8.2% is scheduled for delivery beyond the next twelve months. B. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents increased to $7.8 million from $ 4.7 million at September 30, 2000. A significant portion of the Company's cash consists of undistributed earnings of non-U.S. subsidiaries. Historically, income taxes have not been provided on undistributed earnings of non-U.S. subsidiaries. The Company recorded a U.S. income tax provision applicable to all non-U.S. income that was earned during the quarter ended December 31, 2000. Cash flow activity for the first quarter of fiscal 2001 is presented in the Consolidated Condensed Statements of Cash Flows. During the three months ended December 31, 2000, the Company generated $1.0 million from its operating activities. Net income plus non-cash charges generated $1.4 million, while changes in working capital required $0.4 million. A decrease in both accounts receivable and inventories generated $2.5 million, while a decrease in accounts payable required $ 2.7 million. The reduction in accounts receivable and inventories is primarily attributable to the Company's Turbine Component Services and Repair Group's reduced sales levels. The decrease in accounts payable is attributable to lower raw material purchases at the end of the quarter in anticipation of the Company's Aerospace Component Manufacturing Group's holiday shutdown, as well as the Repair Group's overall lower sales levels. Working capital was $32.5 million at December 31, 2000, compared to $28.7 million at September 31, 2000. The current ratio for the same periods was 3.1 and 2.6, respectively. Capital expenditures were $0.8 million in the first quarter of fiscal 2001, compared to $1.3 million in the first quarter of fiscal 2000. The Company anticipates making $4.0 million of capital expenditures during fiscal 2001. These capital expenditures relate primarily to new equipment and the upgrade of existing equipment. The Company's long-term debt as a percentage of equity at December 31, 2000 was 30.7%, compared to 26.3% at September 30, 2000. As of December 31, 2000, the Company had $3.2 million outstanding against its $6.0 million revolving credit agreement, which expires March 31, 2002. The Company believes that the funds available under its credit agreements and anticipated funds generated from its operations will be adequate to meet its liquidity through the foreseeable future. C. RECENTLY ISSUED ACCOUNTING STANDARDS Effective October 1, 2000, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. The standard requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded in earnings or other comprehensive income, based on whether the instrument is designated as part of a hedge transaction and, if so, the type of hedge transaction. The adoption of SFAS No. 133 did not have a material effect on the Company's consolidated results of operations, financial position or cash flows. 10 D. EFFECTS OF FOREIGN CURRENCY AND INFLATION The Company generates a substantial portion of its revenues in international markets, which subjects its operations to the exposure of currency exchange fluctuations. The effects of foreign currency on the operating results of the Company were discussed previously. The Company believes that inflation has not materially affected its results of operations in the first quarter of fiscal 2001 and 2000 and does not expect inflation to be a significant factor for the balance of fiscal 2001. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates and in foreign currency exchange rates as part of its normal operations. During the first quarter of fiscal 2001, the Company suspended its use of foreign currency exchange contracts while it evaluates its foreign currency risk and the effectiveness of using similar hedging activities in the future to mitigate such risk. There have been no material changes in the Company's market risk during the three months ended December 31, 2000. For additional information refer to Item 7A of Form 10-K for the year ended September 30, 2000. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit No. Description ----------- ----------- (10) Material Contracts (g) Change in Control Severance Agreement between the Company and Frank Cappello dated September 28, 2000 (h) Change in Control Severance Agreement between the Company and Hudson Smith dated September 28, 2000 (i) Change in Control Severance Agreement between the Company and Remigijus Belzinskas dated September 28, 2000 (j) Change in Control Agreement between the Company and Frank Cappello dated November 9, 2000 The Company has not entered into a Change in Control Severance Agreement with Jeffrey P. Gotschall. (b) Reports on Form 8-K ------------------- The Company did not file a Current Report on Form 8-K in the first quarter of fiscal 2001. 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. and Subsidiaries (Registrant) Date February 19, 2001 /s/ Jeffrey P. Gotschall ----------------- --------------------------- Jeffrey P. Gotschall President and Chief Executive Officer Date February 19, 2001 /s/ Frank A. Cappello ----------------- --------------------------- Frank A. Cappello Vice President - Finance (Principal Accounting Officer)