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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
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Commission File Number 1-5978
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SIFCO Industries, Inc. and Subsidiaries
(Exact name of registrant as specified in its charter)
Ohio 34-0553950
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
970 East 64th Street, Cleveland, Ohio 44103
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(Address of principal executive offices) (Zip Code)
(216) 881-8600
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(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
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As of January 31, 2000, the issuer had 5,135,063 shares of common stock
outstanding.
Item 6(a) of Part II of this Quarterly Report on Form 10-Q has been omitted
pursuant to Rule 12(b)-25 of the Securities Exchange Act of 1934.
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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
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2000 1999
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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
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Total operating expenses 23,809 24,545
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Operating income 1,376 800
INTEREST INCOME (150) (31)
INTEREST EXPENSE 369 265
OTHER EXPENSE, NET 569 41
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Income before income tax provision 588 525
INCOME TAX PROVISION 286 41
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Net income $ 302 $ 484
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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.
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SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts in thousands, except per share data)
December 31 September 30
2000 2000
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(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
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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
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Total other assets 5,102 5,041
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Total assets $ 82,539 $ 80,500
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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
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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)
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Total shareholders' equity 47,322 45,500
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Total liabilities and shareholders' equity $ 82,539 $ 80,500
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See accompanying notes to unaudited consolidated condensed financial statements.
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SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Three Months Ended
December 31
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2000 1999
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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) --
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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)
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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
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Net cash provided by (used for) financing
activities 2,550 (263)
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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)
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Cash and cash equivalents at the end of the period $ 7,846 $ 3,750
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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.
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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
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Raw material and supplies $ 4,096
Work-in-progress and finished goods 15,060
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Total inventories $ 19,156
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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.
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5. COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE LOSS
Total comprehensive income is as follows:
Three months ended
December 31, 2000
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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)
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Total comprehensive income $ 1,819
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The components of Accumulated Other Comprehensive Loss are
as follows:
December 31, 2000
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Foreign currency translation adjustment $(6,776)
Interest rate swap adjustment (17)
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Total accumulated other comprehensive loss $(6,793)
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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
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2000 1999
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Net sales:
Turbine Component Services and Repair $ 16,216 $ 17,743
Aerospace Component Manufacturing 8,969 7,602
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Consolidated net sales $ 25,185 $ 25,345
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Operating income:
Turbine Component Services and Repair $ 1,316 $ 1,126
Aerospace Component Manufacturing 458 153
Corporate unallocated expenses (398) (479)
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Consolidated operating income 1,376 800
Interest expense, net 219 234
Other expense, net 569 41
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Consolidated income before income
tax provision $ 588 $ 525
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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.
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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 $400,000. 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.
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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
To be filed by amendment
(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
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
SIFCO Industries, Inc. and Subsidiaries
(Registrant)
Date February 13, 2001 /s/ Jeffrey P. Gotschall
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Jeffrey P. Gotschall
President and
Chief Executive Officer
Date February 13, 2001 /s/ Frank A. Cappello
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Frank A. Cappello
Vice President - Finance
(Principal Accounting Officer)