UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-5978
SIFCO INDUSTRIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0553950
- --------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
970 East 64th Street, Cleveland Ohio 44103
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(Address of principal executive (Zip Code)
offices)
(216) 881-8600
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities and 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
requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [ ] No [X]
The number of the Registrant's Common Shares outstanding at January 31, 2003 was
5,127,733.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
DECEMBER 31,
------------------------
2002 2001
-------- --------
Net sales $ 17,424 $ 20,338
Operating expenses:
Cost of goods sold 16,935 21,071
Selling, general and administrative expenses 2,974 4,298
-------- --------
Total operating expenses 19,909 25,369
-------- --------
Operating loss (2,485) (5,031)
Interest income (32) (92)
Interest expense 197 226
Foreign currency exchange loss, net 187 105
Other income, net (25) (110)
-------- --------
Loss before income tax provision (benefit) (2,812) (5,160)
Income tax provision (benefit) 14 (1,470)
-------- --------
Net loss $ (2,826) $ (3,690)
======== ========
Net loss per share (basic) $ (0.54) $ (0.71)
Net loss per share (diluted) $ (0.54) $ (0.71)
Weighted-average number of common shares (basic) 5,258 5,225
Weighted-average number of common shares (diluted) 5,258 5,248
See notes to unaudited consolidated condensed financial statements.
-2-
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, SEPTEMBER 30,
2002 2002
-------- --------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 4,960 $ 7,583
Receivables, net 13,293 14,505
Inventories 10,196 10,701
Refundable income taxes 423 423
Prepaid expenses and other current assets 2,165 1,501
-------- --------
Total current assets 31,037 34,713
Property, plant and equipment, net 28,748 29,106
Other assets:
Goodwill, net 2,574 2,574
Other assets 1,127 946
-------- --------
Total other assets 3,701 3,520
-------- --------
Total assets $ 63,486 $ 67,339
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,440 $ 1,440
Accounts payable 4,720 4,130
Accrued liabilities 9,394 9,618
-------- --------
Total current liabilities 15,554 15,188
Long-term debt, net of current maturities 9,913 11,093
Other long-term liabilities 3,831 4,323
Shareholders' equity:
Serial preferred shares, no par value, authorized 1,000 shares -- --
Common shares, par value $1 per share, authorized 10,000 shares; issued
5,338 and 5,358 shares at December 31, 2002 and September 30, 2002,
respectively; outstanding 5,258 shares 5,338 5,358
Additional paid-in capital 6,838 6,936
Retained earnings 29,803 32,629
Accumulated other comprehensive loss (6,791) (7,034)
Unearned compensation - restricted common shares (526) (562)
Common shares held in treasury at cost, 80 and 100 shares at December 31,
2002 and September 30, 2002, respectively (474) (592)
-------- --------
Total shareholders' equity 34,188 36,735
-------- --------
Total liabilities and shareholders' equity $ 63,486 $ 67,339
======== ========
See notes to unaudited consolidated condensed financial statements.
-3-
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED
DECEMBER 31,
------------------------
2002 2001
-------- --------
Cash flows from operating activities:
Net loss $ (2,826) $ (3,690)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 1,071 1,244
Gain on disposal of property, plant and equipment (2) (8)
Deferred income taxes 10 --
Asset impairment charges -- 4,088
Changes in operating assets and liabilities:
Receivables 1,212 4,686
Inventories 505 (454)
Prepaid expenses and other current assets (664) (260)
Other assets (181) (243)
Accounts payable 590 (1,112)
Accrued liabilities (224) (2,064)
Other long-term liabilities (323) (284)
-------- --------
Net cash provided (used) by operating activities (832) 1,903
Cash flows from investing activities:
Capital expenditures (719) (1,180)
Decrease in funds held by trustee for capital project -- 92
Proceeds from sale of property, plant and equipment 15 18
Other 57 (34)
-------- --------
Net cash used for investing activities (647) (1,104)
Cash flows from financing activities:
Proceeds from revolving credit agreement 6,350 6,404
Repayments of revolving credit agreement (7,230) (9,729)
Repayments of long-term debt (300) (300)
Repurchase of common shares -- (82)
Share transactions under employee stock plan 36 23
-------- --------
Net cash used for financing activities (1,144) (3,684)
-------- --------
Decrease in cash and cash equivalents (2,623) (2,885)
Cash and cash equivalents at the beginning of the period 7,583 13,787
-------- --------
Cash and cash equivalents at the end of the period $ 4,960 $ 10,902
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ (180) $ (249)
Cash recovered from (paid for) income taxes, net 10 (237)
See notes to unaudited consolidated condensed financial statements.
-4-
SIFCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. DESCRIPTION OF BUSINESS
The unaudited consolidated condensed financial statements included herein
include the accounts of SIFCO Industries, Inc. and its wholly owned subsidiaries
(the "Company"). 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 unaudited consolidated condensed financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in the Company's fiscal 2002 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 period amounts have been reclassified in order
to conform to current period classifications.
B. NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets". This standard is effective for fiscal years beginning after
December 15, 2001. The Company adopted this standard on October 1, 2002, the
beginning of the first quarter of the Company's fiscal year 2003. The standard
changes financial accounting and reporting for acquired goodwill and indefinite
life intangible assets. SFAS No. 142 provides that intangible assets with finite
useful lives will continue to be amortized and goodwill and intangible assets
with indefinite lives will not be amortized, but rather will be tested for
impairment upon adoption and on an annual basis thereafter. The Company
completed the initial impairment test and concluded that goodwill was not
impaired as of October 1, 2002. Other than the cessation of goodwill
amortization, the adoption of SFAS No. 142 did not have an impact on the
Company's financial position or results of operations.
The following table presents pro forma net loss and net loss per share
information, as if SFAS No. 142 had been adopted on October 1, 2001.
THREE MONTHS ENDED
DECEMBER 31,
--------------------------
2002 2001
--------- ---------
Net loss as reported $ (2,826) $ (3,690)
Goodwill amortization -- 29
Trademark amortization -- 2
--------- ---------
Pro forma net loss $ (2,826) $ (3,659)
========= =========
Basic loss per share:
Net loss as reported $ (0.54) $ (0.71)
Goodwill amortization -- 0.01
Trademark amortization -- --
--------- ---------
Pro forma net loss $ (0.54) $ (0.70)
========= =========
Diluted loss per share:
Net loss as reported $ (0.54) $ (0.71)
Goodwill amortization -- 0.01
Trademark amortization -- --
--------- ---------
Pro forma net loss $ (0.54) $ (0.70)
========= =========
-5-
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". This standard addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement cost. The standard applies to legal obligations
associated with the retirement of long-lived assets that result from
acquisition, construction, development and/or the normal operation of a
long-lived asset, except for certain obligations of lessees. This standard
requires entities to record the fair value of a liability for an asset
retirement obligation in the period incurred. SFAS No. 143 is effective for
fiscal years beginning after June 15, 2002 and was adopted by the Company
effective October 1, 2002. The adoption of this standard did not have a material
impact on the Company's financial position or results of operations.
In September 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". This statement superceded SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed of" and the
accounting and reporting provisions of Accounting Principals Board Opinion No.
30, "Reporting Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions", related to the disposal of a segment of a business.
This statement amends certain provisions of Accounting Research bulletin No. 51,
"Consolidated Financial Statements". SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001 and was adopted by the Company effective
October 1, 2002. The adoption of this standard did not have a material impact on
the Company's financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure - an Amendment of FASB Statement No.
123". SFAS No. 148 provides alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for stock-based
compensation. It also requires prominent disclosure in the significant
accounting policy note of both annual and interim financial statements of the
method of accounting for stock-based compensation and the related pro forma
disclosures when the intrinsic value method continues to be used. The statement
is effective for fiscal years beginning after December 15, 2002, and disclosure
provisions are effective for the first fiscal quarters beginning after December
15, 2002. Early application of the disclosure provisions is encouraged. The
Company adopted the disclosure provisions of SFAS 148 in the quarter ended
December 31, 2002. The adoption of this standard did not have a material impact
on the Company's financial position and results of operations.
C. STOCK-BASED COMPENSATION
The Company employs the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). The following pro forma information regarding net income and earnings
per share was determined as if the Company had accounted for its stock options
under the fair value method prescribed by SFAS No. 123. For purposes of pro
forma disclosure, the estimated fair value of the stock options is amortized
over the options' vesting period. The pro forma information is as follows:
THREE MONTHS ENDED
DECEMBER 31,
--------------------------
2002 2001
--------- ---------
Net loss as reported $ (2,826) $ (3,690)
Add: Stock-based compensation expense included
In reported net loss, net of related tax effects -- --
Less: Stock-based compensation expense determined
under fair value based method for all awards, net
of related tax effects 35 25
--------- ---------
Pro forma net loss as if the fair value based
method had been applied to all awards $ (2,861) $ (3,715)
========= =========
Net loss per share:
Basic - as reported $ (0.54) $ (0.71)
Basic - pro forma $ (0.54) $ (0.71)
Diluted - as reported $ (0.54) $ (0.71)
Diluted - pro forma $ (0.54) $ (0.71)
-6-
2. INVENTORIES
Inventories consist of:
DECEMBER 31, SEPTEMBER 30,
2002 2002
------- -------
Raw materials and supplies $ 3,040 $ 3,411
Work-in-process 3,515 3,525
Finished goods 3,641 3,765
------- -------
Total inventories $10,196 $10,701
======= =======
Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method for 34% and 35% of the Company's
inventories, at December 31, 2002 and September 30, 2002, respectively. The
first-in, first-out (FIFO) method is used for the remainder of the inventories.
If the FIFO method had been used for the entire Company, inventories would have
been $3,114 higher than reported at December 31, 2002 and September 30, 2002.
3. LONG-TERM DEBT
In February 2003, the Company entered into an agreement with its lending bank to
amend certain provisions of its credit agreements. The amendment waives the
interest coverage ratio covenant through the period ended December 31, 2003. The
amendment modifies certain other financial covenants and the corresponding
interest rate. As a consequence, the term note's three-month LIBOR based
effective borrowing rate increased to 9.49%, the revolving credit agreement's
borrowing rate increased to the bank's base rate plus 0.5% and the commitment
fee on the standby letter of credit backing up the industrial development bond
increased to 2.75% effective February 13, 2003. Also, the revolving credit
agreement was reduced to $6.0 million, subject to sufficiency of collateral.
4. COMPREHENSIVE LOSS AND ACCUMULATED OTHER COMPREHENSIVE LOSS
Total comprehensive loss is as follows:
THREE MONTHS ENDED
DECEMBER 31,
----------------------
2002 2001
------- -------
Net loss $(2,826) $(3,690)
Foreign currency translation adjustment 64 (34)
Unrealized loss on interest rate swap agreement, net of income tax
provision of $10 and $20 in 2002 and 2001, respectively 19 40
Currency exchange contract adjustment 160 (415)
Minimum pension liability adjustment -- (74)
------- -------
Total comprehensive loss $(2,583) $(4,173)
======= =======
The components of accumulated other comprehensive loss are as follows:
DECEMBER 31, SEPTEMBER 30,
2002 2002
------- -------
Foreign currency translation adjustment $(6,943) $(7,007)
Interest rate swap agreement adjustment (539) (558)
Currency exchange contract adjustment 1,195 1,035
Minimum pension liability adjustment (504) (504)
------- -------
Total accumulated other comprehensive loss $(6,791) $(7,034)
======= =======
-7-
5. BUSINESS SEGMENTS
The Company identifies reportable segments based upon distinct products
manufactured and services provided. The Turbine Component Services and Repair
Group ("Repair Group") consists primarily of the repair and remanufacture of jet
engine (aerospace) and heavy industrial turbine engine components. The Repair
Group is also involved in precision component machining for aerospace
applications. The Aerospace Component Manufacturing Group consists of the
production, heat treatment and some machining of forgings in various alloys
utilizing a variety of processes for application in the aerospace industry. The
Metal Finishing Group is a provider of specialized selective electrochemical
metal finishing processes and services used to apply metal coatings to a
selective area of a component. The Company's reportable segments are separately
managed.
Segment information is as follows:
THREE MONTHS ENDED
DECEMBER 31,
------------------------
2002 2001
-------- --------
Net sales:
Turbine Component Services and Repair Group $ 8,449 $ 9,612
Aerospace Component Manufacturing Group 7,005 8,136
Metal Finishing Group 1,970 2,590
-------- --------
Consolidated net sales $ 17,424 $ 20,338
======== ========
Operating income (loss):
Turbine Component Services and Repair Group $ (1,861) $ (5,284)
Aerospace Component Manufacturing Group (101) 293
Metal Finishing Group (132) 365
Corporate unallocated expenses (391) (405)
-------- --------
Consolidated operating loss (2,485) (5,031)
Interest expense, net 165 134
Foreign currency exchange loss, net 187 105
Other income, net (25) (110)
-------- --------
Consolidated loss before income tax provision (benefit) $ (2,812) $ (5,160)
======== ========
All of the Company's goodwill of $2,574 at December 31, 2002 and September 30,
2002 are allocated to the Company's Metal Finishing Group.
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 this cautionary statement identifying important economic, political and
technological factors, among others, the absence or effect 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 increased direct involvement by the jet engine
manufacturers in turbine component services and repair markets; (3) successful
procurement of certain repair materials and new repair process licenses from jet
engine manufacturers and/or the Federal Aviation Administration; (4) fluctuating
foreign currency (primarily Euro) exchange rates; (5) successful development and
market introductions of new products, including an advanced coating technology
and the continued development of heavy industrial turbine repair processes; (6)
regressive pricing pressures on the Company's products and services, with
productivity improvements as the primary means to maintain margins; (7) success
with the further development of strategic alliances with certain turbine engine
manufacturers for turbine component repair services; (8) the long-term impact on
the aerospace industry of the September 11, 2001 terrorist attacks on the United
States, including collection risks due to the failure of airlines/engine
overhaul companies and other aerospace related industries; reduced number of
aircraft in service; and the accelerated declining use of older model jet
engines such as the JT8D; (9) successful replacement of declining demand for
repair services for turboprop engine components with component repair services
for small turbojet engines
-8-
utilized in the business and regional aircraft markets; (10) continued reliance
on several major customers for revenues; (11) the Company's ability to continue
to have access to its revolving credit facility, including the Company's ability
to (i) continue to comply with the terms of its credit agreements, including
financial covenants, (ii) continue to enter into amendments to its credit
agreement containing financial covenants, which it and its bank lender find
mutually acceptable, or (iii) continue to obtain waivers from its bank lender
with respect to its compliance with the covenants contained in its credit
agreement; (12) the difficulty in predicting the timing and outcome of legal
proceedings; and (13) stable governments, business conditions, laws, regulations
and taxes 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 and services
include forging, heat-treating, coating, welding, machining and selective
electrochemical metal finishing. The products include forgings, machined forged
parts and other machined metal parts, remanufactured component parts for turbine
engines, and selective electrochemical metal finishing solutions and equipment.
A. RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2002 COMPARED WITH THREE MONTHS ENDED DECEMBER
31, 2001
Net sales in the first three months of fiscal 2003 decreased 14.3% to $17.4
million, compared with $20.3 million for the comparable period in fiscal 2002.
Loss before income tax provision in the first three months of fiscal 2003 was
$2.8 million, compared with loss before income tax benefit of $5.2 million for
the comparable period in fiscal 2002. For the first three months of fiscal 2003
the Company incurred a net loss of $2.8 million, or $0.54 per share (diluted),
compared with a net loss of $3.7 million, or $0.71 per share (diluted) for the
comparable period in fiscal 2002.
TURBINE COMPONENT SERVICES AND REPAIR GROUP ("REPAIR GROUP")
The Repair Group had net sales of $8.4 million in the first three months of
fiscal 2003, down $1.2 million, or 12.1%, from $9.6 million in the comparable
fiscal 2002 period. Component repair sales decreased $1.2 million to $7.0
million in the first three months of fiscal 2003, compared to the same period in
fiscal 2002. Demand for component repairs for large jet engines, especially the
older model large jet engines, was down in the first three months of fiscal
2003, compared to the same period in fiscal 2002. The continued retirement and
reduced utilization of older generation aircraft that negatively impacted the
Company in fiscal 2002 continued during the first three months of fiscal 2003.
In addition, the commercial airline industry in general has experienced reduced
demand for repairs of newer model large jet engines due to reduced commercial
flight demand, which determines the need for such repairs. However, higher
demand for component repairs for smaller jet engines and heavy industrial
turbine engines partially offset the decline in demand for component repairs for
the large jet engines. Revenues associated with the demand for replacement
parts, which complement component repair services provided to customers, were
comparable in both the first three months of fiscal 2003 and 2002.
During the first three months of fiscal 2003, the Repair Group's selling,
general and administrative expenses decreased $1.4 million to $1.2 million, from
$2.6 million in the same period in fiscal 2002. Included in the $2.6 million of
selling, general and administrative expenses in the first three months of fiscal
2002 were $1.4 million of charges related to goodwill and equipment impairment.
The remaining $1.2 million of selling, general and administrative expenses in
the first three months of fiscal 2002 were comparable to such expenses in the
first three months of fiscal 2003.
The Repair Group's operating loss in the first three months of fiscal 2003
decreased $3.4 million to $1.9 million from $5.3 million in the same period in
fiscal 2002. Included in the operating loss in the first three months of fiscal
2002 were charges aggregating $4.1 million related to inventory write-down ($2.7
million), the impairment of goodwill ($0.7 million) and the impairment of
equipment ($0.7 million). During the first three months of fiscal 2002, the
Repair Group performed an evaluation of its existing operations in light of the
anticipated impacts on its business of the September 11, 2001 terrorist attacks.
The principal result of that evaluation process was the decision to optimize the
Repair Group's multiple operations by reducing certain of its capacity for the
repairing of components related to older generation jet engines, principally the
JT8D. As a result of this decision, the Repair Group recognized, during the
first three months of fiscal 2002, the aforementioned charges. The Repair
Group's $1.9 million operating loss in the first three months of fiscal 2003 is
an increase of $0.7 million, when compared to the $1.2 million operating loss,
before the $4.1 million of aforementioned impairment charges, during the first
three months of fiscal 2002. The increased operating loss was primarily due to
the negative impact on margins of the reduced sales volumes for repair services.
-9-
Currently, aerospace and heavy industrial turbine engine manufacturers and
overhaul agencies are focusing on redefining their short and medium term outside
specialist repair needs. The Repair Group, as such a specialist, continues to
evaluate its service capacity to ensure that it matches the demand level of its
customers. If additional rationalization of its operations is deemed appropriate
during the balance of fiscal 2003, such actions may result in additional
restructuring charges being incurred.
The Repair Group's backlog as of December 31, 2002, increased to $9.7 million,
of which $7.0 million is scheduled for delivery within the next twelve months
and $1.8 million is on hold, compared to a total backlog of $5.3 million as of
September 30, 2002. All orders are subject to modification or cancellation by
the customer with limited charges. The Repair Group believes that the backlog
may not necessarily be indicative of actual sales for any succeeding period.
AEROSPACE COMPONENT MANUFACTURING GROUP ("ACM GROUP")
Net sales in the first three months of fiscal 2003 decreased 13.9% to $7.0
million, compared with $8.1 million in the same fiscal 2002 period.
Approximately $0.9 million of this decrease in net sales is attributable to a
decline in the net sales of commercial aircraft airframe components, as a direct
consequence of reduced flight schedules, cancellation of aircraft orders,
workforce reductions, and declining financial performance of the airline
industry as a consequence of the September 11, 2001 terrorist attacks on the
United States. Net sales of engine components for small jet engines, consisting
primarily of the AE series latest generation jet engines built by Rolls-Royce
Corporation for business and regional jets, as well as military transport and
surveillance aircraft, increased $0.2 million in the first three months of
fiscal 2003, compared with the same period in fiscal 2002. This increase was
offset by a decline in net sales of components for large commercial jet engines
of $0.3 million in the first three months of fiscal 2003, compared with the same
period in fiscal 2002. Net sales of military airframe and engine components
during the first three months of fiscal 2003 declined $0.2 million, compared
with the same period in fiscal 2002.
Selling, general and administrative expenses were $0.6 million in both the first
three months of fiscal 2003 and 2002. Selling, general and administrative
expenses were negatively impacted in the first three months of fiscal 2003 by an
increase in the ACM Group's allowance for bad debts, offset in part by lower
variable selling expense due to product mix.
The ACM Group's operating loss in the first three months of fiscal 2003 was $0.1
million, compared with operating income of $0.3 million in the same period in
fiscal 2002. Operating results in the first three months of fiscal 2003 were
negatively impacted by $0.1 million due to higher material cost as a result of
product mix consisting of a greater percentage of products made from higher cost
materials than in the comparable period in fiscal 2002. Operating results were
also negatively impacted by a $0.1 million increase in the ACM Group's allowance
for bad debts. The remaining $0.2 million decrease in operating income in the
first three months of fiscal 2003, compared with the same period in fiscal 2002,
was due to the negative impact on operating income of the interplay between
overall lower net sales in relation to fixed manufacturing, selling, general and
administrative expenses.
The ACM Group's backlog as of December 31, 2002 and September 30, 2002 was $24.9
million. At December 31, 2002, $22.3 million of the total backlog is scheduled
for delivery over the next twelve months and $0.1 million is on hold. All orders
are subject to modification or cancellation by the customer with limited
charges. The ACM Group believes that the backlog may not necessarily be
indicative of actual sales for any succeeding period.
METAL FINISHING GROUP
Net sales in the first three months of fiscal 2003 decreased 23.9% to $2.0
million, compared with $2.6 million in the same fiscal 2002 period. In the first
three months of fiscal 2003, product net sales, consisting of selective
electrochemical metal finishing equipment and solutions, declined 18.8% to $1.2
million, compared with $1.5 million in the same period in fiscal 2002. Net sales
of certain precious metal-based solutions declined approximately $0.1 million in
the first three months of fiscal 2003 due to process enhancements implemented by
a customer that reduced their requirements for certain precious metal-based
solutions. In the first three months of fiscal 2003, contract service net sales
decreased 31.5% to $0.8 million, compared with $1.1 million in the same period
in fiscal 2002. Contract service net sales benefited in the first three months
of fiscal 2002 from several large contracts. Both product and contract service
net sales were also negatively impacted in the first three months of fiscal 2003
by the continuing overall economic weakness in many of the industries served by
the Metal Finishing Group, including the aerospace, power generation, petroleum,
steel and railroad industries.
Selling, general and administrative expenses were $0.8 million in the first
three months of fiscal 2003, compared with $0.7 million in the comparable period
of fiscal 2002. In the first three months of fiscal 2003, selling, general and
administrative
-10-
expenses were negatively impacted by higher employee compensation costs, offset
in part by lower employee incentive expenses due to the financial performance of
the Metal Finishing Group.
The Metal Finishing Group's operating loss in the first three months of fiscal
2003 was $0.1 million, compared with operating income of $0.4 million in the
comparable period of fiscal 2002. The overall lower net sales volume accounted
for a reduction in operating results of $0.1 million in the first three months
of fiscal 2003. This was offset by a decrease in employee incentive expense of
$0.1 million in the first three months of fiscal 2003, compared with the
comparable period in fiscal 2002. The remaining $0.5 million decrease in
operating income in the first three months of fiscal 2003, compared with the
same period in fiscal 2002, was due to the negative impact on operating income
of the interplay between overall lower net sales volume in relation to fixed
manufacturing, selling, general and administrative expenses.
CORPORATE UNALLOCATED EXPENSES
Corporate unallocated expense, consisting of corporate salaries and benefits,
legal and professional and other corporate expenses, were $0.4 million in both
the first three months of fiscal 2003 and 2002. In the first three months of
fiscal 2003, higher compensation expense was offset in part by lower consulting
expense, compared with the comparable period in fiscal 2002.
OTHER/GENERAL
Interest income was $0.03 million in the first three months of fiscal 2003,
compared with $0.1 million in the same period in fiscal 2002. The reduction in
interest income is attributable to lower average cash and cash equivalent
balances outstanding and to lower interest rates available from short-term
investments during the first three months of fiscal 2003, compared with the
comparable period in fiscal 2002. Interest expense was $0.2 million in both the
first three months of fiscal 2003 and 2002. The overall decrease in interest
rates was partially offset by an increase in the weighted average outstanding
balance under the Company's revolving credit agreement in the first three months
of fiscal 2003, compared with the same period of fiscal 2002.
Foreign currency exchange loss was $0.2 million in the first three months of
fiscal 2003, compared with $0.1 million in the same period in fiscal 2002. The
effect of foreign currency exchange rate fluctuations on the Company's
unamortized portion of deferred grant revenue included in accrued liabilities,
which is payable in a foreign currency, accounts for a substantial portion of
the foreign currency exchange loss in the first three months of fiscal 2003.
In the first three months of fiscal 2003, the income tax benefit related to the
Company's U.S. and non-U.S. losses was offset by a valuation allowance based
upon an assessment of the Company's ability to realize such benefits. In
assessing the Company's ability to realize its net deferred tax assets,
management considered whether it is more likely than not that some portion or
all of its net deferred tax assets may not be realized. Management considered
the scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment. Future reversal of
the valuation allowance will be achieved either when the tax benefit is realized
or when it has been determined that it is more likely than not that the benefit
will be realized through future taxable income.
B. LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased to $5.0 million at December 31, 2002 from
$7.6 million at September 30, 2002. At present, essentially all of the Company's
cash and cash equivalents are in the possession of its non-U.S. subsidiaries and
relate to undistributed earnings. During the first three months of fiscal 2003,
the Company received a distribution of $1.5 million from its non-U.S.
subsidiaries. This distribution was utilized to repay a portion of the
outstanding balance under the Company's revolving credit agreement. Effective
October 1, 2000, the Company began to provide U.S. income taxes on the
undistributed earnings of its non-U.S. subsidiaries, in anticipation that
distributions from such earnings, to the extent they may occur in the future,
would result in an additional income tax liability. As of December 31, 2002, the
Company is able to receive an additional dividend of $0.3 million from its
non-U.S. subsidiaries. Distributions from the Company's non-U.S. subsidiaries to
the Company in the form of loans or advances may be subject to statutory
restrictions, adverse tax consequences or other limitations.
Cash flow activity for the first three months of fiscal 2003 is presented in the
Consolidated Condensed Statements of Cash Flows. During the first three months
of fiscal 2003, cash was provided by a $0.6 million decrease in the ACM Group's
accounts receivable due to lower sales, including a $0.1 million increase in its
allowance for doubtful accounts in response to higher levels of credit risk
resulting from the current economic environment. Cash was further provided by a
$0.4 million decrease in the Metal Finishing Group's accounts receivable as well
as a $0.2 million decrease in the Repair Group's
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accounts receivable, both due to lower sales. ACM Group inventories decreased
$0.3 million in the first three months of fiscal 2003, and Repair Group
inventories also decreased $0.3 million, while the Metal Finishing Group's
inventories increased $0.1 million. The decline in inventory is attributable to
lower ACM and Repair Group sales levels experienced during the first three
months of fiscal 2003. During the first three months of fiscal 2003, the Metal
Finishing Group's inventory was brought to a level necessary to support
anticipated sales. However, the Metal Finishing Group did not achieve
anticipated sales levels, resulting in an increase in its inventories during the
first three months of fiscal 2003. The $0.4 million net increase in consolidated
accounts payable and accrued liabilities is caused by (i) a $0.2 million
increase in the ACM Group's accounts payable and accrued liabilities due
primarily to timing related increases in compensation and property tax accruals;
(ii) a $0.1 million decrease in the Metal Finishing Group's accrued liabilities
due primarily to the payment of fiscal 2002 employee incentives; (iii) a $0.4
million increase in the Repair Group's accrued liabilities and accounts payable
attributable primarily to the effect of foreign currency exchange rate
fluctuations on the Company's unamortized current portion of deferred grant
revenue, which is payable in a foreign currency; and (iv) a $0.1 million
decrease in Corporate accrued liabilities attributable to the payment of legal
and professional fees. Working capital was $15.5 million at December 31, 2002,
compared with $19.5 million at September 30, 2002. The current ratio was 2.0 and
2.3 at December 31, 2002 and September 30, 2002, respectively.
Capital expenditures were $0.7 million in the first three months of fiscal 2003,
compared with $1.2 million in the comparable period in fiscal 2002. Capital
expenditures in the first three months of fiscal 2003 consisted primarily of
equipment to expand and diversify the Repair Group's repair capabilities,
including heavy industrial turbine engine component repair. The Company
anticipates that total fiscal 2003 capital expenditures will not exceed $3.5
million and will be concentrated in the Repair Group. At December 31, 2002, the
Company had outstanding commitments for capital expenditures totaling $0.9
million.
The Company and certain of its U.S. subsidiaries sponsor defined benefit pension
plans covering most of its employees. In January 2003, the Company's Board of
Directors adopted a resolution effective February 28, 2003, to cease the accrual
of future benefits under the SIFCO Industries, Inc. Salaried Retirement Plan
("Plan"), which covers substantially all non-union U.S. employees of the Company
and its U.S. subsidiaries. The Plan will otherwise continue. In conjunction with
the changes to the Plan, the Company will be making certain enhancements to its
defined contribution plan that is available to substantially all non-union U.S.
employees of the Company and its U.S. subsidiaries. At this time, the Company
has not completed its analysis of the Plan curtailment's effect on the Company's
financial position or results of operations.
The Company has at December 31, 2002, a 15-year industrial development bond,
which was issued with an original face amount of $4.1 million and was used to
expand the Repair Group's Tampa, Florida facility. The interest rate is reset
weekly, based on prevailing tax-exempt money market rates. Interest rate at
December 31, 2002 was 1.75%. The outstanding balance of the industrial
development bond at December 31, 2002 was $3.2 million.
At December 31, 2002, the Company has a term note payable in quarterly
installments of $0.3 million through February 1, 2005, with the remaining
balance of $3.9 million due May 1, 2005. The term note has a variable interest
rate, which after giving effect to an interest rate swap agreement with the same
bank, becomes an effective fixed rate note, subject to adjustment based upon the
level of certain financial ratios. The outstanding balance of the term note at
December 31, 2002 was $6.6 million.
The Company has at December 31, 2002, a $10.0 million revolving credit agreement
with a bank that expires on March 31, 2004 and bears interest at the bank's base
rate. The interest rate was 4.25% at December 31, 2002. A commitment fee is
incurred on the unused balance of the revolving credit agreement. At December
31, 2002, the outstanding balance under the revolving credit agreement was $1.5
million.
Under its credit agreements, the Company is subject to certain customary
covenants. These include, without limitation, covenants (as defined) that limit
the amount of annual capital expenditures and require the maintenance of certain
specified financial ratios, including a minimum tangible net worth level, a
maximum liability to tangible net worth ratio and an interest coverage ratio.
In November 2002, the Company entered into an agreement with its bank to amend
certain provisions of its credit agreements. The amendment waives (i) the
interest coverage ratio covenant for the periods ended September 30, 2002,
December 31, 2002 and March 31, 2003; (ii) the minimum tangible net worth
covenant for the period ending September 30, 2002; and (iii) the capital
expenditure limitation for the period ended September 30, 2002. The amendment
modifies certain financial covenants and the corresponding interest rate. As a
consequence, the term note's effective three-month LIBOR based borrowing rate
increased to 8.24% effective November 26, 2002. Also, as a result of this
amendment the commitment
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fee on the unused balance of the revolving credit agreement was increased to
0.375%. The Company was in compliance with all applicable covenants at December
31, 2002.
In February 2003, the Company entered into an agreement with its lending bank to
amend certain provisions of its credit agreements. The amendment waives the
interest coverage ratio covenant through the period ended December 31, 2003. The
amendment modifies certain other financial covenants and the corresponding
interest rate. As a consequence, the term note's three-month LIBOR based
effective borrowing rate increased to 9.49%, the revolving credit agreement's
borrowing rate increased to the bank's base rate plus 0.5% and the commitment
fee on the standby letter of credit backing up the industrial development bond
increased to 2.75% effective February 13, 2003. Also, the revolving credit
agreement was reduced to $6.0 million, subject to sufficiency of collateral.
The Company's long-term debt as a percentage of equity at December 31, 2002 and
September 30, 2002 was 29.0% and 30.2%, respectively. At December 31, 2002,
taking into consideration the outstanding balance under the revolving credit
agreement and outstanding letters of credit, the Company had $8.4 million
available against its $10.0 million revolving credit agreement.
The Company believes that cash flow from its operations together with existing
cash reserves and the funds available under its revolving credit agreement will
be sufficient to meet its working capital requirements through the end of fiscal
year 2003. However, no assurances can be given as to the sufficiency of the
Company's working capital to support the Company's operations. If the existing
cash reserves, cash flow from operations and funds available under the revolving
credit agreement are insufficient, if working capital requirements are greater
than currently estimated, and/or if the Company is unable to satisfy the
covenants set forth in its credit agreements, the Company may be required to
adopt one or more alternatives, such as reducing or delaying capital
expenditures, restructuring indebtedness, selling assets or operations or
issuing additional shares of capital stock in the Company. There can be no
assurance that any of these actions could be effected, or if so, on terms
favorable to the Company or that they would enable the Company to continue to
satisfy its working capital requirements.
C. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets". This standard is effective for fiscal years beginning after
December 15, 2001. The Company adopted this standard on October 1, 2002, the
beginning of the first quarter of the Company's fiscal year 2003. The standard
changes financial accounting and reporting for acquired goodwill and indefinite
life intangible assets. SFAS No. 142 provides that intangible assets with finite
useful lives will continue to be amortized and goodwill and intangible assets
with indefinite lives will not be amortized, but rather will be tested for
impairment upon adoption and on an annual basis thereafter. The Company
completed the initial impairment test and concluded that goodwill was not
impaired as of October 1, 2002. Other than the cessation of goodwill
amortization, the adoption of SFAS No. 142 did not have an impact on the
Company's financial position or results of operations.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". This standard addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement cost. The standard applies to legal obligations
associated with the retirement of long-lived assets that result from
acquisition, construction, development and/or the normal operation of a
long-lived asset, except for certain obligations of lessees. This standard
requires entities to record the fair value of a liability for an asset
retirement obligation in the period incurred. SFAS No. 143 is effective for
fiscal years beginning after June 15, 2002 and was adopted by the Company
effective October 1, 2002. The adoption of this standard did not have a material
impact on the Company's financial position or results of operations.
In September 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". This statement superceded SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed of" and the
accounting and reporting provisions of Accounting Principals Board Opinion No.
30, "Reporting Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
events and Transactions", related to the disposal of a segment of a business.
This statement amends certain provisions of Accounting Research bulletin No. 51,
"Consolidated Financial Statements". SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001 and was adopted by the company effective
October 1, 2002. The adoption of this standard did not have a material impact on
the Company's financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure an Amendment of FASB Statement No. 123".
SFAS No. 148 provides alternative methods of transition for an entity that
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voluntarily changes to the fair value based method of accounting for stock-based
employee compensation. It also requires prominent disclosure in the significant
accounting policy note of both annual and interim financial statements of the
method of accounting for stock-based compensation and the related pro forma
disclosures when the intrinsic value method continues to be used. The statement
is effective for fiscal years beginning after December 15, 2002, and disclosure
provisions are effective for the first fiscal quarter beginning after December
15, 2002. Early application of the disclosure provisions is encouraged. The
Company adopted the disclosure provisions of SFAS 148 in the quarter ended
December 31, 2002. The adoption of this standard did not have a material impact
on the Company's financial position and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the ordinary course of business, the Company is subject to foreign currency
and interest risk. The risks primarily relate to the sale of the Company's
products and services in transactions denominated in non-U.S. dollar currencies
(primarily the Euro); the payment in local currency of wages and other costs
related to the Company's non-U.S. operations (primarily the Euro); and changes
in interest rates on the Company's long-term debt obligations. The Company does
not hold or issue financial instruments for trading purposes.
The Company believes that inflation has not materially affected its results of
operations during the first three months of fiscal 2003, and does not expect
inflation to be a significant factor in the balance of fiscal 2003.
FOREIGN CURRENCY RISK
The U.S. dollar is the functional currency for all of the Company's U.S.
operations. Effective October 1, 2001, the Company changed the functional
currency of its Irish subsidiary from the local currency to the U.S. dollar.
The functional currency was changed because a substantial majority of the
subsidiary's transactions are now denominated in U.S. dollars. For these
operations, all gains and losses from completed currency transactions are
included in income currently. For the Company's other non-U.S. subsidiaries,
the functional currency is the local currency. Assets and liabilities are
translated into U.S. dollars at the rate of exchange at the end of the period
and revenues and expenses are translated using average rates of exchange.
Foreign currency translation adjustments are reported as a component of
accumulated other comprehensive loss. Foreign currency transaction gains and
losses are included in earnings.
Historically, the Company has been able to mitigate the impact of foreign
currency risk by means of hedging such risk through the use of foreign currency
exchange contracts. However, such risk is mitigated only for the periods for
which the Company has foreign currency exchange contracts in effect, and only to
the extent of the U.S. dollar amounts of such contracts. At December 31, 2002,
the Company had several forward exchange contracts outstanding for durations of
up to six months to purchase Euros aggregating U.S. $7.1 million. A ten percent
appreciation or depreciation of the value of the U.S. dollar relative to the
currencies, in which the forward exchange contracts outstanding at December 31,
2002 are denominated, would result in a $0.8 million decline or increase,
respectively, in the value of the forward exchange contracts. The Company will
continue to evaluate its foreign currency risk, if any, and the effectiveness of
using similar hedges in the future to mitigate such risk.
INTEREST RATE RISK
The Company's primary interest rate risk exposure results from the variable
interest rate mechanisms associated with the Company's long-term debt consisting
of a term note payable to the Company's bank, a revolving credit agreement and
industrial development variable rate demand revenue bonds. These interest rate
exposures are managed in part by an interest rate swap agreement to fix the
interest rate of the term note payable to the Company's bank. If interest rates
were to increase 100 basis points (1%) from December 31, 2002 rates, and
assuming no changes in the amounts outstanding under the revolving credit
agreement and industrial development variable rate demand revenue bonds, the
additional annual interest expense to the Company would be approximately $0.05
million.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days of the filing of this report, the Company performed an
evaluation, under the supervision and with the participation of the Company's
Chief Executive and Chief Financial Officers, of the design and operation of the
Company's disclosure controls and procedures. Based on that evaluation, the
Chief Executive and Chief Financial Officers have concluded that the Company's
disclosure controls and procedures are effective. No significant changes were
noted in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of the Company's
evaluation.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 1999, an employee ("Employee") filed an employment action against the
Company in conjunction with an injury suffered by the employee during 1998. In
April 2002, the Employee dismissed this claim in conjunction with entering into
a settlement agreement between the Employee, the Company and the Company's
insurance carrier.
In connection with the preceding claim, the Company filed a complaint in the
Cuyahoga County Court of Common Pleas against the Company's insurance carrier on
the grounds that it has refused to provide indemnity to the Company for the
preceding employment action. The Company's complaint sought a declaratory
judgment that the insurance carrier owes a duty to indemnify the Company with
respect to the preceding action. In March 2002, the Company received a Ruling on
its Motion for Summary Judgment denying the Company's complaint. Management of
the Company believed that the Court's Ruling on its Motion for Summary Judgment
was not consistent with existing case law and, therefore, the Company appealed
this decision to the Cuyahoga County Court of Appeals. However, because the
outcome of this appeal was uncertain and the initial Ruling was unfavorable, the
Company provided $0.9 million in its second quarter fiscal 2002 financial
statements, the full amount of this contingent obligation. In November 2002, the
Cuyahoga County Court of Appeals reversed the Summary Judgment. In February
2003, the insurance carrier filed a Notice of Appeal with the Ohio Supreme Court
and asked the Court to exercise its discretionary jurisdiction and hear an
appeal of the Court of Appeals' November 2002 decision. Because the Ohio Supreme
Court's response to the Notice of Appeal is uncertain, the Company continues to
maintain the $0.9 million provision that it established during the second
quarter of fiscal 2002.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
No change.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed with this report or are incorporated hereby
reference to a prior filing in accordance with Rule 12b-32 under the Securities
and Exchange Act of 1934 (Asterisk denotes exhibits filed with this report.).
Exhibit
No. Description
- -------- -----------
3.1 Third Amended Articles of Incorporation of SIFCO Industries, Inc., filed
as Exhibit 3(a) of the Company's Form 10-Q dated March 31, 2002, and
incorporated herein by reference
3.2 SIFCO Industries, Inc. Amended and Restated Code of Regulations
dated January 29, 2002, filed as Exhibit 3(b) of the Company's Form
10-Q dated March 31, 2002, and incorporated herein by reference
4.1 Amended and Restated Reimbursement Agreement dated April 30, 2002
Between SIFCO Industries, Inc. and National City Bank, filed as Exhibit
4(a) of the Company's Form 10-Q dated March 31, 2002, and incorporated
herein by reference
4.2 Amended and Restated Credit Agreement Between SIFCO Industries, Inc. and
National City Bank dated April 30, 2002, filed as Exhibit 4(b) of the
Company's Form 10-Q dated March 31, 2002, and incorporated herein by
reference
-15-
4.3 Promissory Note (Term Note) dated April 14, 1998 Between SIFCO
Industries, Inc. and National City Bank, filed as Exhibit 4(c) of the
Company's Form 10-Q dated March 31, 2002, and incorporated herein by
reference
4.4 Loan Agreement Between Hillsborough County Industrial Development
Authority and SIFCO Industries, Inc., dated as of May 1, 1998, filed as
Exhibit 4(d) of the Company's Form 10-Q dated March 31, 2002, and
incorporated herein by reference
4.5 Consolidated Amendment No. 1 to Amended and Restated Credit Agreement,
Amended and Restated Reimbursement Agreement and Promissory Note dated
November 26, 2002 Between SIFCO Industries, Inc. and National City Bank,
Filed as Exhibit 4.5 of the Company's Form 10-K dated September 30,
2002, and incorporated herein by reference
* 4.6 Consolidated Amendment No. 2 to Amended and Restated Credit Agreement,
Amended and Restated Reimbursement Agreement and Promissory Note dated
February 13, 2003 Between SIFCO Industries, Inc. and National City Bank
10.1 1989 Key Employee Stock Option Plan, filed as Exhibit B of the
Company's Form S-8 dated January 9, 1990 and incorporated herein by
reference
10.2 Deferred Compensation Program for Directors and Executive Officers
(as amended and restated April 26, 1984), filed as Exhibit 10(b) of
the Company's Form 10-Q dated March 31, 2002, and incorporated
herein by reference
10.3 SIFCO Industries, Inc. 1998 Long-term Incentive Plan, filed as Appendix
A of the Company's Schedule 14A dated December 21, 1998, and
incorporated herein by reference
10.4 SIFCO Industries, Inc. 1995 Stock Option Plan, filed as Exhibit 10(d) of
the Company's Form 10-Q dated March 31, 2002, and incorporated herein by
reference
10.5 Change in Control Severance Agreement between the Company and Frank
Cappello, dated September 28, 2000, filed as Exhibit 10 (g) of the
Company's Form 10-Q dated December 31, 2000 and incorporated herein
by reference
10.6 Change in Control Severance Agreement between the Company and Hudson
Smith, dated September 28, 2000, filed as Exhibit 10 (h) of the
Company's Form 10-Q dated December 31, 2000 and incorporated herein
by reference
10.7 Change in Control Severance Agreement between the Company and
Remigijus Belzinskas, dated September 28, 2000, filed as Exhibit 10
(i) of the Company's Form 10-Q dated December 31, 2000 and incorporated
herein by reference
10.8 Change in Control Agreement between the Company and Frank Cappello,
dated November 9, 2000, filed as Exhibit 10 (j) of the Company's
Form 10-Q dated December 31, 2000 and incorporated herein by
reference
10.9 Change in Control Severance Agreement between the Company and
Timothy V. Crean, dated July 30, 2002, filed as Exhibit 10.9 of the
Company's Form 10-K dated September 30, 2002 and incorporated herein
by reference
10.10 Change in Control Severance Agreement between the Company and
Jeffrey P. Gotschall, dated July 30, 2002, filed as Exhibit 10.10 of
the Company's Form 10-K dated September 30, 2002 and incorporated
herein by reference
*99.1 Certification of Chief Financial Officer pursuant to Section 906 of
Sarbanes-Oxley Act of 2002
*99.2 Certification of Chief Executive Officer pursuant to Section 906 of
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31, 2002.
-16-
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: February 14, 2003 /s/ Jeffrey P. Gotschall
-----------------------------
Jeffrey P. Gotschall
Chairman of the Board and
Chief Executive Officer
Date: February 14, 2003 /s/ Frank A. Cappello
-----------------------------
Frank A. Cappello
Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer)
-17-
CERTIFICATIONS
I, Jeffrey P. Gotschall, certify that:
1. I have read this quarterly report on Form 10-Q of SIFCO Industries, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions);
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: February 14, 2003 /s/ Jeffrey P. Gotschall
---------------------------
Jeffrey P. Gotschall
Chairman of the Board and
Chief Executive Officer
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CERTIFICATIONS
I, Frank A. Cappello, certify that:
1. I have read this quarterly report on Form 10-Q of SIFCO Industries, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions);
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: February 14, 2003 /s/ Frank A. Cappello
---------------------
Frank A. Cappello
Vice President - Finance and
Chief Financial Officer
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