-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QceP07Gj8gRrCHM7csL9VJHZHwTJ5FyhOe89SyxRuYdxEsoZh76/uFKfmRyVkB7h Ff81aS4T8qVKQBdsUH7blw== 0000950152-98-006339.txt : 19980805 0000950152-98-006339.hdr.sgml : 19980805 ACCESSION NUMBER: 0000950152-98-006339 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980804 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIFCO INDUSTRIES INC CENTRAL INDEX KEY: 0000090168 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT ENGINES & ENGINE PARTS [3724] IRS NUMBER: 340553950 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05978 FILM NUMBER: 98676789 BUSINESS ADDRESS: STREET 1: 970 E 64TH ST CITY: CLEVELAND STATE: OH ZIP: 44103 BUSINESS PHONE: 2168818600 MAIL ADDRESS: STREET 1: 970 EAST 64TH STREET CITY: CLEVELAND STATE: OH ZIP: 44103 FORMER COMPANY: FORMER CONFORMED NAME: STEEL IMPROVEMENT & FORGE CO DATE OF NAME CHANGE: 19690520 10-Q 1 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES--FORM 10-Q 1 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 1998 Commission File Number 1-5978 ---------------- -------- SIFCO Industries, Inc., and Subsidiaries ---------------------------------------- (Exact name of registrant as specified in its charter) Ohio 34-0553950 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 970 East 64th Street, Cleveland, Ohio 44103 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (216) 881-8600 ---------------------------- None - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicated by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes X No --- Class Outstanding at July 27, 1998 - -------------------------- ---------------------------- Common Stock, $1 Par Value 5,168,267 2 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES INDEX
Page No. -------- Financial Statements: Consolidated Condensed Balance Sheets -- June 30, 1998, and September 30, 1997 2 Consolidated Condensed Statements of Income -- Three Months and Nine Months Ended June 30, 1998 and 1997 3 Consolidated Condensed Statements of Cash Flows -- Three Months and Nine Months Ended June 30, 1998 and 1997 4 Notes to Consolidated Condensed Financial Statements 5,6,7 Management's Discussion and Analysis of the Consolidated Condensed Statements of Income 8,9,10,11 Other Information and Signatures 12
3 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS ($000 Omitted)
June 30 Sept. 30 1998 1997 ---- ---- ASSETS ------ Current Assets Cash & Cash Equivalents $ 1,229 $ 2,998 Accounts Receivable, Net 21,836 20,516 Inventories Raw Materials & Supplies 6,556 6,032 Work-in-Process & Finished Goods 21,613 13,814 --------- --------- 28,169 19,846 Prepaid Expenses and Other Current Assets 1,566 689 --------- --------- TOTAL CURRENT ASSETS 52,800 44,049 Property, Plant & Equipment, Net 29,312 24,714 Goodwill, Net of Amortization 3,777 3,864 Funds Held by Trustee for Capital Project 1,520 -- Other Non-Current Assets 1,403 1,817 --------- --------- TOTAL ASSETS $ 88,812 $ 74,444
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities Current Portion of Long-Term Debt 1,400 1,256 Accounts Payable 11,181 10,497 Accrued Expenses 7,518 7,548 Accrued Income Taxes 1,190 228 --------- ---------- TOTAL CURRENT LIABILITIES 21,289 19,529 Long-Term Debt - Less Current Portion 19,100 11,716 Deferred Federal Income Taxes and Other 2,296 2,631 Shareholders' Equity Serial Preferred Shares - No Par Value -- -- Common Shares, Par Value $1 Per Share 5,168 5,160 Paid-in-Surplus 6,161 6,101 Retained Earnings 34,798 29,307 --------- ---------- TOTAL SHAREHOLDERS' EQUITY 46,127 40,568 TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 88,812 $ 74,444 ========= ==========
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 1998 1997 1998 1997 ---- ---- ---- ---- Net Sales of SIFCO Industries, Inc. $ 31,957 $ 29,999 $ 92,804 $ 80,882 Cost & Expenses Cost of Goods Sold 25,434 23,260 73,327 63,926 Selling, General & Administrative Expense 3,499 3,919 10,338 10,244 Interest Income (41) (43) (144) (102) Interest Expense 334 277 899 901 Other (Income) Expense, Net 4 17 (337) 58 -------- -------- -------- -------- Total Costs & Expenses 29,230 27,430 84,083 75,027 Income Before Income Taxes 2,727 2,569 8,721 5,855 Provision for Federal, Foreign & State Income Taxes 591 560 1,789 1,322 -------- -------- -------- -------- Net Income $ 2,136 $ 2,009 $ 6,932 $ 4,533 ======== ======== ======== ======== Net Income Per Share (Basic) $ .41 $ .39 $ 1.34 $ .88 Net Income Per Share (Diluted) $ .41 $ .38 $ 1.33 $ .87 Average Shares Outstanding (Basic) 5,167 5,145 5,163 5,138 Average Shares Outstanding (Diluted) 5,233 5,190 5,228 5,183 Cash Dividends per Common Share $ .05 $---- $ .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 1998 1997 ---- ---- Net cash provided by (used for) operating activities: Net income $ 6,932 $ 4,533 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 3,003 2,887 Deferred income taxes and other (335) (388) ------- ------- Subtotal 9,600 7,032 Net cash provided by (used for) changes in operating assets and liabilities: Receivables (1,320) (4,700) Inventories (8,323) (613) Accrued or refundable income taxes 962 713 Prepaid expenses and other current assets (877) (391) Accounts payable 684 (154) Accrued expenses (30) 1,452 ------- ------- Net cash provided by (used for) changes in operating assets and liabilities (8,904) (3,693) ------- ------- Net cash provided by (used for) operating activities 696 3,339 Net cash provided by (used for) investing activities: Purchase of property, plant & equipment (8,214) (3,250) (Income) decrease in funds held by trustee for capital project (1,520) -- Other 257 (28) ------- ------- Net cash provided by (used for) investing activities (9,477) (3,278) Net cash provided by (used for) financing activities: Proceeds from additional borrowings 8,256 3,900 Repayment of borrowings (728) (4,089) Cash dividends declared (516) -- ------- ------- Net cash provided by (used for) financing activities 7,012 (189) ------- ------- Increase (decrease) in cash and cash equivalents (1,769) (128) Cash and cash equivalents, beginning of year 2,998 2,130 ------- ------- Cash and cash equivalents, end of period $ 1,229 $ 2,002 ======= =======
See accompanying notes to consolidated condensed financial statements. (4) 6 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL INFORMATION JUNE 30, 1998 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 inter-company accounts and transactions have been eliminated. Certain prior years' amounts have been reclassified to conform with the 1998 classification. (2) Debt: ----- Long-term debt as of June 30, 1998 and September 30, 1997 consisted of:
June 30 Sept. 30 1998 1997 ---- ---- ($000 Omitted) Variable Rate Industrial Development Demand Revenue Improvement and Refunding Bonds $ 4,100 $ 1,900 Note payable to bank, due in quarterly installments of $300,000 12,000 5,572 Note payable to bank, due October 31, 1998, interest payable quarterly, at rates based upon LIBOR and DIBOR 1,000 1,000 Note payable under revolving credit agreement, at the base rate 3,400 4,500 ------- ------- $20,500 $12,972 Less - current maturities 1,400 1,256 ------- ------- $19,100 $11,716 ======= =======
(5) 7 In April 1998, the Company restructured its credit facilities. It reduced the previously existing $9 million revolving credit agreement to $4 million, which 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 loan is repayable in quarterly payments of $0.3 million beginning August 1, 1998. 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 $5.1 million and $5.3 million during the nine-month period of fiscal 1998 and 1997, 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 addition, the Company has a $1.15 million credit facility, which is used for an irrevocable letter of credit that secures the $1 million loan from an Irish bank due October 31, 1998. The loan has a variable interest rate based on a combination of LIBOR and DIBOR (Dublin Interbank Rates) rates. The Company obtained a $4.2 million, 15-year, Industrial Development bond. The proceeds of the bond will be used to refund the existing Industrial Development bond and the balance of the funds will be used to expand the Turbine Component Services and Repair facility in Tampa, Florida. The interest rate is reset weekly, based on prevailing tax-exempt money market rates. The first principal payment is $200,000 and increases each year until the final payment of $355,000 in 2013. The principal payment increases by $15,000 and $5,000 in the second and third year, respectively, and by $10,000 in the following seven years. The bonds are secured by the property and equipment of the facility, and backed by an irrevocable letter of credit. Among other covenants, the Company is required to maintain a minimum tangible net worth (as defined) of $30.0 million, increasing by 50% of net income subsequent to September 30, 1997. Tangible net worth exceeded the required minimum by $10.0 million at June 30, 1998. (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) 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 1998 will be based upon year-end inventory levels and costs, the Company has provided for its anticipated "LIFO Adjustment" based on its estimated year-end inventory levels and costs. Under the Average Cost Method, inventories would have been $4,472,000 and $4,372,000 higher than reported at June 30, 1998 and September 30, 1997, 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) Basis of Presentation and Management Estimates: ----------------------------------------------- The accompanying financial information for the nine months ended June 30, 1998 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. (7) 9 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: Three Months Ended Nine Months Ended June 30 June 30 1998 and 1997 1998 and 1997 ------------- -------------
Net Sales of SIFCO Industries, Inc. $ 1,958 7% $ 11,922 15% Cost of Sales 2,174 9% 9,401 15% Selling, General & Administrative (420) (11)% 94 1% Interest Income (2) (5)% 42 41% Interest Expense 57 21% (2) -- Other Income, Net (13) (76)% 395 -- Income Before Income Taxes 158 6% 2,866 49% Provision for Federal, Foreign & State Income Taxes 31 6% 467 35% Net Income 127 6% 2,399 53%
(8) 10 MANAGEMENT'S DISCUSSION - ----------------------- During the third quarter our net income and sales were both up 6% compared to the same period last year. Sales rose to $32 million for the quarter while bookings increased 11% to $29 million. Sales for the nine months were at $93 million while bookings increased 9% to $92 million year-to-date. Last quarter we reviewed the major expansion of our turbine component repair facility that is under way in Tampa and the completion of new repair operations in Ireland. Despite the impact of the additional cost the new Ireland facility had on the segment's performance, the increased capabilities have already enabled us to expand our product lines and to reduce our backlog from $46 million to $45 million by providing even faster repair times to our customers. The special focus of this report is on the update of company-wide products and their application in the aerospace markets we serve worldwide. We hope that increased understanding of our product portfolio will assist you in gaining insight into our company, its performance and future potential. Possibly the most important characteristic of SIFCO Industries is its role as an independent aerospace supplier whose products and markets served are broadly diverse. Our product lines are represented in all types of aircraft from the smallest private jets used in business commuting to the largest wide-bodied aircraft for commercial airlines. The list also includes products for the Department of Defense from helicopters to advanced fighters. SIFCO is divided into two business segments: The service and repair of turbine components and the manufacture of products for the aerospace industry. Our repair segment has established itself as a world class provider of repairs for gas turbine engine "hot section" vanes, blades and related components and represents 2/3 of our company's business. The hot section of the gas turbine engine is directly after the combustion chamber. The components in the hot section include stationary vanes and rotating blades. The vanes and blades number in the hundreds, and because of the extremes in temperature and pressure, can suffer considerable damage. Damaged blades and vanes, however, can be repaired at lower cost than purchasing new parts, thus offering an economical alternative for engine maintenance. The repair of blades, vanes and other components can be a challenging operation , demanding both considerable ability and state-of-the-art equipment and technology, such as electron beam welding, fluoride ion cleaning, laser drilling, coating and diffusion bonding . Each repair process and technique must be approved by either the original manufacturer of the part or by the FAA. To date, our list of repair approvals includes all major engine manufacturers and most of the world's airlines. Manufacturers include General Electric, Pratt & Whitney, Rolls-Royce, CFM International, SNECMA, AlliedSignal and Turbomeca. Our Turbine Group has invested considerable time and effort to earn these approvals and continues to develop new repair procedures to broaden our product portfolio and expand repair services to our customers worldwide. Our manufacturing segment produces thousands of different components for a wide spectrum of the aerospace industry. SIFCO-manufactured components can be found in a wide variety of landing gears, engine mounts, wing supports, turbine shafts and discs, actuator cylinders and many other airframe or engine components that demand quality, strength and integrity. The diversity of aircraft utilizing SIFCO-manufactured products reads like a "Who's Who" in world aviation. Not only are new aircraft utilizing SIFCO-manufactured components, but throughout the aircraft's useful service life, spare parts are needed to maintain airworthiness requirements. Suffice it to say that almost all major commercial, civilian and military aircraft and helicopters in regular use fly with components, original or spares, manufactured by SIFCO. At a meeting held July 28, 1998, the Board of Directors declared a cash dividend of $.05 per share for the quarter. This dividend will be payable September 1, 1998 on the Common Shares of the Corporation to holders of record at the close of business on August 18, 1998. The quarterly cash dividend reflects the company's appreciation for the continuing loyalty and support of its shareholders and our confidence in the strength of our business segments. (9) 11 FINANCIAL ANALYSIS - ------------------ Net sales for the third quarter ended June 30, 1998 increased $2.0 million to $32.0 million from $30.0 million a year ago. The Company reported net income of $2.1 million compared to $2.0 million a year ago. Income from operations before corporate and interest expense decreased $.1 million to $3.6 million from $3.7 million last year. Net sales for the nine months ended June 30, 1998 increased $11.9 million to $92.8 million from $80.9 million a year ago. The Company reported net income of $6.9 million compared to $4.5 million last year. Income from operations before corporate and interest expense was $11.3 million compared to $8.7 million last year. Net interest expense for the third quarter was $.3 million and $.2 million last year. Year-to-date net interest expense was $.8 million for both periods. New orders received for the third quarter were $29.0 million, up $2.8 million from $26.2 million last year. Year-to-date, new orders received were $94.0 million compared to $86.0 million last year. TURBINE COMPONENT SERVICES AND REPAIR net sales for the third quarter increased $2.1 million to $20.2 million from $18.1 million a year ago. Turbine Component Services and Repair income from operations before corporate and interest expense decreased slightly to $2.2 million from $2.3 million last year. TURBINE COMPONENT SERVICES AND REPAIR net sales for the nine months increased $8.0 million to $59.0 million from $51.0 million a year ago. Turbine Component Services and Repair income from operations before corporate and interest expense increased to $7.7 million from $5.7 million a year ago. AEROSPACE COMPONENT MANUFACTURING sales for the third quarter were down slightly to $11.8 million from $12.0 million a year ago. Aerospace Component Manufacturing operating profit before corporate and interest expense was $1.4 million, the same as a year ago. AEROSPACE COMPONENT MANUFACTURING sales for the nine months were $34.0 million compared to $30.2 million a year ago. Aerospace Component Manufacturing operating profit before corporate and interest expense was $3.6 million compared to $3.0 million last year. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Working capital increased to $31.5 million at June 30, 1998, compared to $24.5 million at September 30, 1997. The current ratio was 2.5 and 2.3 respectively. Total debt as a percentage of tangible shareholders' equity was 47.2% at June 30, 1998 compared to 35.3% at September 30, 1997. Capital expenditures for the nine months were $8.2 million compared to $3.3 million a year ago. The Company considers it has adequate financing available to meet its needs for the year. (10) 12 YEAR 2000 CONVERSION -------------------- The Company has commenced a project to identify, evaluate and implement changes to computer systems and applications necessary to achieve a year 2000 conversion date with no effect on customers or disruptions to business operations. The total cost of compliance and its effect on the Company's future results of operations will be determined as part of this project. Based on initial review, the total cost is not expected to have a material effect on the Company's results of operations or financial statements. 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. 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, 1998. (11) 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 July 31, 1998 /*/ Jeffrey P. Gotschall ------------- ------------------------ Jeffrey P. Gotschall Chief Executive Officer Date July 31, 1998 /*/ Richard A. Demetter ------------- ----------------------- Richard A. Demetter Vice President - Finance (Principal Accounting Officer) (12) EX-27 2 EXHIBIT 27
5 0000090168 SIFCO INDUSTRIES, INC. 1,000 9-MOS SEP-30-1998 OCT-01-1997 JUN-30-1998 1,229 0 21,836 0 28,169 52,800 29,312 0 88,812 21,289 0 0 0 5,168 40,959 88,812 0 92,804 73,327 83,665 (481) 0 899 8,721 1,789 6,932 0 0 0 6,932 1.34 1.33
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