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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 0-6611
SIMPSON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-1225111
(State or other jurisdiction of IRS Employer Identification No.)
incorporation or organization)
47603 Halyard Drive, Plymouth, Michigan 48170-2429
(Address of principal executive offices) (Zip Code)
(734)207-6200
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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 Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No
At July 31, 1999 there were 18,021,211 outstanding shares of the registrant's
common stock, $1.00 par value each.
Consolidated Balance Sheets
(In thousands)
June 30, 1999 and December 31, 1998
June 30
(Unaudited) Dec. 31
----------- -------
ASSETS
Current Assets
Cash and cash equivalents $ 3,724 $ 6,145
Accounts receivable 81,394 72,785
Inventories 17,847 22,866
Customer tooling in process 3,936 1,749
Prepaid expenses and other current assets 12,144 10,994
-------- --------
Total Current Assets 119,045 114,539
Property, Plant and Equipment
Cost 343,467 328,609
Less Allowance 169,108 158,724
-------- --------
Total Property, Plant and Equipment 174,359 169,885
Intangible Assets - net 48,512 52,192
Other Assets 3,159 3,938
-------- --------
$345,075 $340,554
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current installment of long-term debt $ 4,079 $ 4,829
Notes payable 1,300 --
Accounts payable 58,723 52,039
Compensation and amounts withheld 11,438 11,694
Taxes, other than income taxes 4,172 2,483
Other current liabilities 10,958 11,298
-------- --------
Total Current Liabilities 90,670 82,343
Long-term debt, excluding current installment 97,745 105,534
Accrued Retirement Benefits and Other 16,836 17,312
Deferred Income Taxes 11,239 10,797
Shareholders' Equity 128,585 124,568
-------- --------
$345,075 $340,554
======== ========
See accompanying notes to consolidated financial statements.
Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Periods Ended June 30, 1999 and 1998
Three Months Six Months
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
Net sales $ 139,399 $ 128,704 $ 272,501 $ 254,260
Costs and expenses:
Cost of products sold 123,237 113,848 242,000 225,781
Administrative and selling 2,748 3,417 5,524 6,462
Amortization 504 482 1,025 940
---------- ---------- ---------- ----------
126,489 117,747 248,549 233,183
---------- ---------- ---------- ----------
Operating Earnings 12,910 10,957 23,952 21,077
Investment and other income, net (13) (252) (109) (325)
Interest expense (2,184) (2,502) (4,316) (4,945)
---------- ---------- ---------- ----------
Earnings Before Income Taxes 10,713 8,203 19,527 15,807
Income taxes 3,750 2,517 6,835 5,216
---------- ---------- ---------- ----------
Net Earnings $ 6,963 $ 5,686 $ 12,692 $ 10,591
========== ========== ========== ==========
Comprehensive Income - net $ 5,687 $ 4,764 $ 7,305 $ 9,273
========== ========== ========== ==========
Basic Earnings Per Share $ 0.39 $ 0.31 $ 0.70 $ 0.58
Diluted Earnings Per Share $ 0.38 $ 0.31 $ 0.70 $ 0.58
Cash dividends per share $ 0.10 $ 0.10 $ 0.20 $ 0.20
Average number of common equivalent shares:
Basic 18,065,871 18,415,792 18,105,252 18,297,418
Diluted 18,098,138 18,549,620 18,129,674 18,418,755
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Six Months Ended June 30, 1999 and 1998
1999 1998
---- ----
OPERATING ACTIVITIES
Net earnings $ 12,692 $ 10,591
Depreciation 13,790 13,072
Provision for deferred income taxes 442 565
Amortization of restricted stock 284 250
(Gain) loss on disposition of assets 57 159
Changes in operating assets and liabilities, net
of effects of acquisition of business 488 (11,040)
-------- --------
Cash Provided By Operating Activities 27,753 13,597
INVESTING ACTIVITIES
Capital expenditures (19,775) (9,291)
Proceeds from disposal of property and equipment 112 375
-------- --------
Cash Used In Investing Activities (19,663) (8,916)
FINANCING ACTIVITIES
Cash dividends paid (3,621) (3,664)
Notes Payable, net 1,300 (1,212)
Proceeds (repayments) of long-term debt, net (8,539) (2,751)
Cash used in stock transactions, net (1,389) (745)
-------- --------
Cash Used In Financing Activities (12,249) (8,372)
Effect of foreign currency exchange rate changes 1,738 (991)
-------- --------
Decrease In Cash and Cash Equivalents (2,421) (4,682)
Cash and cash equivalents at beginning of period 6,145 8,235
-------- --------
Cash and Cash Equivalents at End of Period $ 3,724 $ 3,553
======== ========
Supplemental Disclosures
Cash paid during the year for:
Interest $ 3,459 $ 4,803
Income Taxes 6,827 5,992
See accompanying notes to consolidated financial statements.
ITEM 2: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Principles
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial reporting. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The results of operations for the period
ended June 30, 1999 are not necessarily indicative of the results to be
expected for the year ending December 31, 1999.
Note 2. Lines of Credit
The Company maintains credit lines that allow for borrowings of up to $25
million under a five-year agreement and up to $50 million under a 364-day
agreement. At June 30, 1999, there were no borrowings outstanding under the
five-year agreement or the 364-day agreement. In June of 1999, the 364-day
agreement was renewed.
Borrowings under the five-year agreement are classified as long-term based on
management's intent and ability to maintain this level of borrowing for a
period in excess of one year.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Net sales for the second quarter of 1999 were a record $139.4 million, an
increase of 8.3%, or $10.7 million, over the second quarter of 1998.
Year-to-date sales increased 7.2%, or $18.2 million from the first half of
1998. Demand in North America, from both our automotive and heavy-duty
customers, continued to be strong. Sales to the "Big Three" (GM, Ford and
Daimler/Chrysler) grew 12% this quarter versus the second quarter of 1998.
Sales to our heavy-duty and mid-range diesel customers grew 7%. European
volumes were also up, although second quarter 1999 U.S. dollar translated
sales were less than second quarter 1998 due to a stronger U.S. dollar.
Cost of products sold as a percent of sales decreased from 88.5% in the
second quarter of 1998 to 88.4% this quarter. Cost of products sold as a
percentage of sales for the first six months of 1999 compared to the first
half of 1998 remained constant at 88.8%. Administrative and selling expenses
decreased from $3.4 million, or 2.7% of sales, in the second quarter of 1998
to $2.7 million, or 2.0% of sales, in the second quarter of 1999;
administrative and selling expenses for the first six months of 1999
decreased from $6.5 million, or 2.5% of sales, in 1998 to $5.5 million, or
2.0% of sales. Our overall cost structure has benefited from the
restructuring initiatives we took in 1997 and 1998.
Interest expense decreased from $4.9 million, or 1.9% of sales, in the first
six months of 1998 to $4.3 million, or 1.6% of sales in the first six months
of 1999. Second quarter interest expense decreased from $2.5 million in 1998,
or 1.9% of sales, to $2.2 million in 1999, or 1.6% of sales. The decrease was
primarily due to lower levels of outstanding debt.
Reflecting the strong sales growth and cost initiatives noted above, second
quarter operating earnings increased 17.8%, from $11.0 million in 1998 to
$12.9 million in 1999. Operating earnings for the first six months grew from
$21.0 million in 1998 to $24.0 million in 1999, an increase of 13.6%. In
addition, and despite a higher effective tax rate, net earnings rose 22.5%,
from $5.7 million in the second quarter of 1998 to a record $7.0 million in
the second quarter of 1999; net earnings rose 19.8% for the first six months
of 1999, from $10.6 million to $12.7 million.
Cash flow from operations was $27.8 million for the first six months of 1999,
an increase of $14.2 million from the first six months of 1998. Net cash used
in investing activities totaled $19.7 million for the six months ended June
30, 1999, up $10.8 million from the $8.9 million used in the first half of
1998. Strong earnings and working capital management more than offset a
significant increase in expenditures for equipment. These expenditures
represent the Company's investment in production capacity for new automotive,
light truck and diesel engine programs.
Cash flow used in financing activities increased $3.9 million, from $8.4
million through June 1998 to $12.3 million through June 1999. The Company
believes that cash flows from operations and available credit facilities will
be sufficient to meet its debt service requirements, projected capital
expenditures and dividends, and working capital requirements.
The Company maintains credit lines that allow for borrowings of up to $25
million under a five-year agreement and up to $50 million under a 364-day
agreement. At June 30, 1999, there were no borrowings outstanding under the
five-year agreement or the 364-day agreement. In June of 1999, the 364-day
agreement was renewed.
Many computer systems and software products refer to years in terms of their
final two digits only. Such programs may interpret the year 2000 to mean the
year 1900 instead. If not corrected, these programs could cause date-related
transaction failures. Although we currently believe that our systems are Year
2000 compliant in all material respects, our current systems may contain
undetected errors or defects with Year 2000 date functions that may result in
material costs.
In 1997, we developed a compliance assurance process to address the problem.
A project team, headed by the Vice President - Information Technology, has
performed a detailed assessment of all internal computer systems, and
computing-related equipment in all facilities. Our primary vendors, material
suppliers, service suppliers and banks have been asked to verify their Year
2000 readiness.
Overall, Simpson has implemented new business systems across the corporation
and has installed a new midrange and personal computing infrastructure. There
is no computing technology imbedded in our manufactured products. Shop floor
machine tool controllers have tested successfully. Although we currently
believe that our systems are Year 2000 compliant in all material respects,
our current systems may contain undetected errors or defects with Year 2000
date functions that may result in material costs.
Simpson's Year 2000 program includes:
Global business systems: Year 2000 business computing issues have been
minimized in North America by the implementation of a new enterprise system.
The new system received Year 2000 certification from the Information
Technology Association of America (ITAA) and has been implemented at all
North American locations. Implemented modules included finance, purchasing,
manufacturing, human resources and payroll. Simpson has modified and
successfully tested remaining legacy systems. European operations have
implemented new systems that have been certified as Year 2000 ready and have
tested accordingly.
Global engineering systems: Year 2000 engineering computing issues have been
minimized by the implementation of a Year 2000 compliant product data
management system. Global computer aided engineering (CAE) software and
hardware have been remediated and tested and are compliant.
Central computing: Simpson installed a new Year 2000 ready AS/400 computer
and operating system in December 1998. Other AS/400 software consists of
third party packages under provider maintenance. Third party software
readiness has been confirmed with suppliers and all software has been
upgraded to Year 2000 ready. Each European location has new Year 2000 ready
AS/400 hardware and software.
End user computing: In North America, Simpson has replaced desktop/laptop
computers and software. The new equipment and software configuration have
been thoroughly tested. Simpson's end user computing environment consists
mostly of Microsoft products, which are Year 2000 ready. In Europe, Year 2000
compliance personal computer testing has been completed and minor exceptions
are being remediated.
Environmental operations: Year 2000 impact on environmental operations has
been determined. HVAC, building security systems, phone systems, fire alarm
systems, uninterruptable power supplies (UPS), and building/plant utilities
have been remediated, as required.
Manufactured Products: Simpson products have been reviewed for Year 2000
compliance. Manufactured products do not use embedded microprocessor
technology nor do they rely on microprocessor technology for operation.
Shop floor and Technical Center: In North America, machine tools are
stand-alone (vs. integrated in a computing network). Machine tool controllers
have been tested and experienced no Year 2000 problems. In Europe and Brazil,
PLC vendors have been contacted and, for the most part, report compliance.
Simpson suppliers, agents, and service providers: Direct material suppliers
were contacted in September 1997 with a follow-up mailing in October 1998. A
two-day audit was conducted at five key suppliers. A similar Year 2000
questionnaire was sent to indirect material suppliers in December 1998. Key
agents and service providers, including utility companies (gas, electric, and
water), banks, telephone and data communications providers, have been
contacted. Replies indicate readiness by all key agents and service
providers. Additionally, our midrange-computing service provider is Year 2000
compliant. Our European locations have pursued a similar direction with key
suppliers and service providers, who have indicated they are Year 2000
compliant.
Contingency Plans: Simpson will manage Year 2000 business interruptions as it
would any other business interruptions. Simpson has developed contingency
plans relating to Year 2000 and those plans will be continuously reviewed and
revised as we learn more about the potential environment. These contingency
plans would allow Simpson to operate certain critical functions for a short
period of time without the intervention of computers. However, the
contingency plans are expected to provide relief for only a short period of
time, after which interruptions in the Company's normal business activities
could have a material adverse effect on the Company's operations.
This report contains forward-looking statements within the meaning of the
Securities Exchange Act of 1934. These statements, including those relating
to future outlook and operating performance, Year 2000 compliance and other
statements regarding the belief or current expectations of the company,
involve risks and uncertainties. Accordingly, actual results may differ
materially as a result of various factors including, but not limited to,
general economic conditions in the markets in which the company operates,
fluctuation in demand for the company's products, the activities of
competitors, and various other factors outside of the company's control. The
company does not intend to update these forward-looking statements.
Exhibit (10.25) - Second Amendment to Credit Agreement
Part II. Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report.
Exhibit No. Description
----------- -----------
10.25 Second Amendment to Credit Agreement (364
Day), dated June 15, 1999, among Simpson
Industries, Inc., certain other Borrowers,
certain Commercial Lending Institutions, ABN
AMRO Bank N.V., and Comerica Bank
11 Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1999.