-----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, R2Q3NUK8iEz1IgJKwMl0dpi5MTz52qXe2hb/ORgUudGymk343ljtuIYFAEF7vbgr dCSd5Y488zoSWZ2dUTlXfQ== 0000950152-99-006403.txt : 19990811 0000950152-99-006403.hdr.sgml : 19990811 ACCESSION NUMBER: 0000950152-99-006403 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990803 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: 99676819 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 1 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 1999 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 30, 1999 ----- ---------------------------- Common Stock, $1 Par Value 5,191,395 2 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES INDEX Page No. -------- Financial Statements: Consolidated Condensed Balance Sheets -- June 30, 1999, and September 30, 1998 2 Consolidated Condensed Statements of Income -- Three Months and Nine Months June 30, 1999 and 1998 3 Consolidated Condensed Statements of Cash Flows -- Three Months and Nine Months June 30, 1999 and 1998 4 Notes to Consolidated Condensed Financial Statements 5,6,7,8 Management's Discussion and Analysis of the Consolidated Condensed Statements of Income 9,10,11 Other Information and Signatures 12, 13 3
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS ($000 Omitted) June 30 Sept. 30 1999 1998 ---- ---- ASSETS Current Assets Cash & Cash Equivalents $ 3,056 $ 3,503 Accounts Receivable, Net 22,586 20,073 Inventories Raw Materials & Supplies 7,589 8,008 Work-in-Process & Finished Goods 16,845 19,631 ------- ------- 24,434 27,639 Prepaid Expenses and Other Current Assets 1,385 552 ------- ------- TOTAL CURRENT ASSETS 51,461 51,767 Property, Plant & Equipment, Net 30,691 32,582 Goodwill, Net of Amortization 3,661 3,748 Funds Held by Trustee for Capital Project 668 922 Other Non-Current Assets 1,508 1,865 ------- ------- TOTAL ASSETS $87,989 $90,884 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current Portion of Long-Term Debt 1,400 1,400 Accounts Payable 9,871 12,192 Accrued Expenses 7,380 7,355 Accrued Income Taxes 631 568 ------- ------- TOTAL CURRENT LIABILITIES 19,282 21,515 Long-Term Debt - Less Current Portion 17,100 16,500 Deferred Federal Income Taxes and Other 2,966 2,979 Shareholders' Equity Serial Preferred Shares - No Par Value -- -- Common Shares, Par Value $1 Per Share 5,191 5,170 Paid-in-Surplus 6,344 6,198 Retained Earnings 37,106 38,522 ------- ------- TOTAL SHAREHOLDERS' EQUITY 48,641 49,890 TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $87,989 $90,884 ======= =======
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 1999 1998 1999 1998 ---- ---- ---- ---- Net Sales of SIFCO Industries, Inc. $ 30,535 $ 31,957 $ 90,341 $ 92,804 Cost & Expenses Cost of Goods Sold 25,958 25,434 76,381 73,327 Selling, General & Administrative Expense 3,304 3,499 10,234 10,338 Interest Income (89) (41) (194) (144) Interest Expense 331 334 974 899 Other (Income) Expense, Net (33) 4 (362) (337) -------- -------- -------- -------- Total Costs & Expenses 29,471 29,230 87,033 84,083 Income Before Income Taxes 1,064 2,727 3,308 8,721 Provision for Federal, Foreign & State Income Taxes 156 591 423 1,789 -------- -------- -------- -------- Net Income $ 908 $ 2,136 $ 2,885 $ 6,932 ======== ======== ======== ======== Net Income Per Share (Basic) $ .18 $ .41 $ .56 $ 1.34 Net Income Per Share (Diluted) $ .17 $ .41 $ .55 $ 1.33 Average Shares Outstanding (Basic) 5,188 5,167 5,177 5,163 Average Shares Outstanding (Diluted) 5,229 5,233 5,220 5,228 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 1999 1998 ---- ---- Net cash provided by (used for) operating activities: Net income $ 2,885 $ 6,932 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 3,278 3,003 Deferred income taxes and other (13) (335) ------- ------- Subtotal 6,150 9,600 Net cash provided by (used for) changes in operating assets and liabilities: Receivables (2,513) (1,320) Inventories 3,205 (8,323) Accrued or refundable income taxes 63 962 Prepaid expenses and other current assets (833) (877) Accounts payable (2,321) 684 Accrued expenses 25 (30) ------- ------- Net cash provided by (used for) changes in operating assets and liabilities (2,374) (8,904) ------- ------- Net cash provided by (used for) operating activities 3,776 696 Net cash provided by (used for) investing activities: Purchase of property, plant & equipment (3,353) (8,214) (Increase) decrease in funds held by trustee for capital project 254 (1,520) Other (1,208) 257 ------- ------- Net cash provided by (used for) investing activities (4,307) (9,477) Net cash provided by (used for) financing activities: Proceeds from additional borrowings 2,700 8,256 Repayment of borrowings (2,100) (728) Cash dividends declared (516) (516) ------- ------- Net cash provided by (used for) financing activities 84 7,012 ------- ------- Increase (decrease) in cash and cash equivalents (447) (1,769) Cash and cash equivalents, beginning of year 3,503 2,998 ------- ------- Cash and cash equivalents, end of period $ 3,056 $ 1,229 ======= =======
See accompanying notes to consolidated condensed financial statements. (4) 6 SIFCO INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL INFORMATION June 30, 1999 NOTES (1) Summary of Significant Accounting Policies: ------------------------------------------- Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain prior years' amounts have been reclassified to conform with the 1998 classification. (2) Debt: ----- Long-term debt as of June 30, 1999 and September 30, 1998 consisted of:
June 30 Sept. 30 1999 1998 ---- ---- ($000 Omitted) Variable Rate Industrial Development Revenue Improvement and Refunding Bonds $ 3,900 $ 4,100 Note payable to bank, due in quarterly installments of $300,000 10,800 11,700 Note payable to bank, due October 31, 1999, interest payable quarterly, at rates based upon LIBOR and DIBOR -- 1,000 Note payable under revolving credit agreement, at the base rate 3,800 1,100 ------- ------- $18,500 $17,900 Less - current maturities 1,400 1,400 ------- ------- $17,100 $16,500 ======= =======
(5) 7 In April 1998, the Company restructured its credit facilities. It reduced the previously existing $9 million revolving credit agreement, which was $6 million on June 30, 1999 and bears interest at the bank's base rate, and also replaced the $5.144 million term loan with a 10-year, $12 million term loan. The term loan is repayable in quarterly payments of $0.3 million. The term loan bears interest at a fixed rate of 7.24%, subject to adjustment if certain loan covenants are not maintained. The average balance outstanding against the revolving credit agreement was $2.8 million and $5.1 million during the nine-month period of fiscal 1999 and 1998, 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 obtained a $4.1 million, 15-year, Industrial Development bond. The proceeds of the bond were used to refund the 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. 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 $12.2 million at June 30, 1999. (3) Income Taxes: ------------- The provision for taxes on income, which is based on the anticipated effective rate for the year, does not bear the customary relationship to pre-tax income due primarily to foreign source income and net loss carry forward. Income tax expense differs from amounts currently payable due to certain items reported for financial statement purposes in periods which differ from those in which they are reported for tax purposes, principally accelerated depreciation. (4) Deferred Federal Income Taxes: ------------------------------ The Company has deferred to future periods the income taxes relating to timing differences between financial statement pre-tax income and taxable income. (6) 8 (5) Depreciation: ------------ For financial reporting purposes, the Company provides for depreciation of plant and equipment, principally by the straight-line method, at annual rates sufficient to amortize the cost over its estimated useful life. For tax purposes, the Company uses various accelerated methods and, accordingly, provides for the related deferred taxes. The principal rates of depreciation for financial reporting purposes are: buildings 2% to 5%, and machinery and equipment 5% to 33-1/3%. (6) Inventories: ------------ The Company follows the LIFO method of accounting for certain of its Forge Group inventories. Since the LIFO inventory determination for fiscal 1999 will be based upon year-end inventory levels and costs, the Company has provided for its anticipated "LIFO Adjustment" based on its estimated year-end inventory levels and costs. Under the Average Cost Method, inventories would have been $4,060,000 and $4,060,000 higher than reported at June 30, 1999 and September 30, 1998, respectively. (7) Other Income: ------------- Other income is comprised primarily of grant income from Irish government agencies, foreign exchange gains and losses, and royalty and fee income. (8) Comprehensive Income -------------------- Effective October 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." This statement requires the disclosure of comprehensive income, which includes net income and other comprehensive income items previously included within separate components of shareholders' equity. Since the undistributed earnings of the Company's foreign subsidiaries are intended to be permanently reinvested, taxes have not been provided for foreign currency translation adjustments. Comprehensive income for the three months and nine months ended June 30, 1999 and 1998 are as follows (in thousands):
Three Months Ended Nine Months Ended June 30 June 30 1999 1998 1999 1998 ---- ---- ---- ---- Net Income $ 908 $ 2,136 $ 2,885 $ 6,932 Other comprehensive income (loss): Foreign currency translation adjustments (1,107) 470 (3,783) (925) ------- ------- ------- ------- Comprehensive income $ (199) $ 2,606 $ (898) $ 6,007 ======= ======= ======= =======
(7) 9 (9) Business Segment Information ---------------------------- The following table summarizes certain information regarding segments of the Company's operations for the quarter ended June 30, 1999 and 1998:
($000 omitted) Three Months Ended Nine Months Ended June 30 June 30 1999 1998 1999 1998 Net sales, including intersegment sales: Turbine Component Services & Repair $ 20,621 $ 20,186 $ 62,812 $ 58,922 Aerospace Component Manufacturing 9,914 11,770 27,529 33,957 Intersegment sales -- 1 -- (75) -------- -------- -------- -------- $ 30,535 $ 31,957 $ 90,341 $ 92,804 ======== ======== ======== ======== Income (loss) from operations before corporate expenses and interest expense: Turbine Component Services & Repair $ 1,323 $ 2,157 $ 4,541 $ 7,654 Aerospace Component Manufacturing 472 1,432 1,179 3,622 -------- -------- -------- -------- 1,795 3,589 5,720 11,276 Corporate expenses (489) (569) (1,632) (1,800) Interest (expense) income, net (242) (293) (780) (755) -------- -------- -------- -------- Income before income taxes $ 1,064 $ 2,727 $ 3,308 $ 8,721 ======== ======== ======== ========
(10) Basis of Presentation and Management Estimates: ----------------------------------------------- The accompanying financial information for the three months ended June 30, 1999 has not been examined by independent public accountants. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for a fair presentation have been included. The Company prepares its financial statements in accordance with generally accepted accounting principles, which requires management to make estimates and assumptions that affect amounts reported in the financial statements for the reporting period. Actual results could differ from those based upon such estimates and assumptions. These estimates and assumptions are revised as necessary. (8) 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED CONDENSED STATEMENTS OF INCOME The following is management's discussion and analysis of certain significant factors which have affected the Company's earnings during the periods included in the accompanying consolidated condensed statements of income. A summary of the period-to-period changes in the principal items included in the consolidated condensed statements of income is shown below:
Three Months Ended Nine Months Ended June 30 June 30 1999 and 1998 1999 and 1998 ------------------- ------------------ Net Sales of SIFCO Industries, Inc. $(1,422) (4)% $(2,463) (3)% Cost of Sales 524 2% 3,054 4% Selling, General & Administrative (195) (6)% (104) (1)% Interest Income 48 117% 50 35% Interest Expense (3) (1)% 75 8% Other Income, Net 37 -- 25 7% Income Before Income Taxes (1,663) (61)% (5,413) (61)% Provision for Federal, Foreign & State Income Taxes (435) (74)% (1,366) (76)% Net Income $(1,228) (57)% $(4,047) (58)%
(9) 11 MANAGEMENT'S DISCUSSION & FINANCIAL ANALYSIS For the third quarter of fiscal 1999, compared with the third quarter of fiscal 1998: - Net sales decreased 4.7% to $30.5 million from $32.0 million. - Pre-tax income decreased 59.3% to $1.1 million from $2.7 million. - Net income decreased 57.1% to $0.9 million from $2.1 million. - Earnings per diluted share decreased to $0.17 from $0.41. Through the nine months ending June 30, 1999, compared with the first nine months of fiscal 1998: - Net sales decreased 2.7% to $90.3 million from $92.8 million. - Pre-tax income decreased 62.1% to $3.3 million from $8.7 million. - Net income decreased 58.0% to $2.9 million from $6.9 million. - Earnings per diluted share decreased to $0.55 from $1.33. New orders received for the third quarter increased 4 percent to $30.2 million from $29 million for the same quarter last year. Year-to-date, new orders are down 8 percent to $86.1 million from $93.7 million for the first 9 months of fiscal 1998. Backlog at June 30, 1999 fell 19.5 percent to $35.9 million from $44.6 million last year. SIFCO's TURBINE COMPONENT SERVICES AND REPAIR GROUP, which accounts for approximately 70 percent of the company's revenues, had sales of $20.6 million for the quarter, up from $20.2 million for the same quarter last year. Operating income for the third quarter declined to $1.3 million from $2.2 million for last year's third quarter. Higher fixed costs associated with facility expansions and slower growth in incremental repair services contributed to the decline in operating income for the quarter. Although aircraft utilization rates remain high, our turbine component repair mix has changed to include a larger volume of lower margin replacement parts rather than repair services. Customers are also replacing older planes and engines on demanding routes. The anticipated increase in repair services on the new engines has not yet materialized enough to offset the decline in services on the older model engines. Sales and operating income for the AEROSPACE COMPONENT MANUFACTURING GROUP, consisting of the remaining 30 percent of revenues, were also below fiscal 1998's third quarter levels. Sales for the 1999 third quarter were $9.9 million, down from $11.8 million for the year-ago quarter. Operating income also declined to $0.5 million for the quarter from $1.4 million last year. "We are disappointed with the results of our fiscal 1999 third quarter, but we understand the aerospace industry's cycles and have worked through many of them in the past." said SIFCO's president and chief executive officer Jeffrey Gotschall. "We will continue to manage the business so that we can capitalize when the cycle turns positive. We have invested in new facilities and processes that will strengthen our market position and provide opportunities to convert additional business into shareholder value. For example, our repair facility in Ireland is state-of-the-art and one of the only dedicated turbine blade repair stations in the world. We also have the technical expertise and licenses to repair a significant segment of the newer generation engines and will be servicing more of those engine components as their utilization rates increase. We have also seen some positive signs in overall bookings. Bookings have been higher for three quarters in a row over fourth quarter 1998. We have every reason to remain confident that our recent investments in facilities and technologies will benefit our long-term outlook." (10) 12 LIQUIDITY AND CAPITAL RESOURCES Working capital was $32.2 million at June 30, 1999, compared to $30.2 million at September 30, 1998. The current ratio for the same period was 2.7 and 2.4 respectively. Total debt as a percentage of tangible shareholders' equity was 38.3% at June 30, 1999 compared to 39.4% at September 30, 1998. Year-to-date capital expenditures were $3.4 million compared to $8.2 million a year ago. Capital expenditures for fiscal 1999 are anticipated to be in the range of $4 to $5 million compared to $11.3 million in fiscal 1998. The expenditures will be primarily used to upgrade existing equipment and new capabilities. The Company has borrowed $3.8 million against its revolving credit line of $6.0 million at June 30, 1999. The Company considers it has adequate financing available to meet its needs through the foreseeable future. PROVISION FOR TAXES ON INCOME ----------------------------- The provision for taxes on income, which is based on the anticipated effective rate for the year, does not bear the customary relationship to pre-tax income, due primarily to foreign source income. YEAR 2000 ISSUE --------------- Based upon the results of efforts to date, the Company does not believe that the Year 2000 issue will have a material adverse effect on its financial condition or results of operations. The review includes: business applications which are supported by internal MIS employees, standard commercial programs on local PCs, manufacturing and building equipment and a survey of major customers and vendors for compliance. The problems detected to date have been manageable and correctable. The review and any changes required will be completed before December 1999. The Company estimates its cost to be compliant at approximately $150,000, excluding the cost of Company information technology employees. The Company's Year 2000 program is based on various assumptions and expectations that cannot be assured. The cost estimate does not include costs associated with addressing and resolving issues as a result of the failure of third parties to become Year 2000 compliant. The Company's contingency plans include identification of alternate suppliers of key products and services used in manufacturing and support functions. Still, having no precedent of a Year 2000 problem, it is impractical for the Company to determine what impact, if any, would result to the Company's business if third parties do not address their Year 2000 issues. (11) 13 SAFE HARBOR STATEMENT --------------------- This Form 10-Q contains various forward-looking statements and includes assumptions concerning the Company's operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to risk and uncertainties. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The Company provides the following cautionary statement identifying important economic, political and technological factors, among others, the absence of which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. Such factors include the following: (1) continuation of the current and projected future business environment, including interest rates and capital and consumer spending; (2) competitive factors and competitor responses to the Company's initiatives; (3) successful development and market introductions of anticipated new products; (4) stability of government laws and regulations, including taxes; (5) stable governments and business conditions in emerging economies; (6) successful penetration of emerging economies; (7) continuation of the favorable environment to make acquisitions, domestic and foreign, including regulatory requirements and market values of candidates; (8) successful identification and conversion of computer systems to address the year 2000 issue by the Company, suppliers and vendors. Item 6.Exhibits and Reports on Form 8-K (a) The following Exhibits are included herein: Exhibit 27 Financial Data Schedule (b) No report on Form 8-K was filed during the quarter ended June 30, 1999. (12) 14 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 26, 1999 /*/ Jeffrey P. Gotschall --------------- ----------------------------- Jeffrey P. Gotschall Chief Executive Officer Date July 26, 1999 /*/ Richard A. Demetter --------------- ----------------------------- Richard A. Demetter Vice President - Finance (Principal Accounting Officer) (13) EX-27 2 EXHIBIT 27
5 0000090168 SIFCO INDUSTRIES, INC. 1,000 9-MOS SEP-30-1999 OCT-01-1998 JUN-30-1999 3,056 0 22,586 0 24,434 51,461 30,691 0 87,989 19,282 0 0 0 5,191 43,450 87,989 0 90,341 76,381 86,615 (556) 0 974 3,308 423 2,885 0 0 0 2,885 .56 .55
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