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, 1997 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)
(313)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, 1997 there were 18,128,212 outstanding shares of the registrant's
common stock, $1.00 par value each.
PAGE
Consolidated Balance Sheets (Unaudited)
(In thousands)
June 30, 1997 and December 31, 1996
June 30 Dec. 31
ASSETS
Current Assets
Cash and cash equivalents $ 920 $ 28,902
Accounts receivable 63,589 41,032
Inventories 18,206 14,034
Customer tooling in process 6,455 4,002
Prepaid expenses and other
current assets 5,440 6,256
Total Current Assets 94,610 94,226
Property, Plant and Equipment
Cost 309,327 278,229
Less Allowance 135,460 126,152
Total Property, Plant and Equipment 173,867 152,077
Unallocated Purchase Cost 38,843 -
Other Assets 15,625 2,653
$322,945 $248,956
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 490 -
Current installment of
long-term debt 3,579 $ 3,579
Accounts payable 33,307 28,455
Compensation and amounts withheld 7,573 10,203
Taxes, other than income taxes 2,326 2,597
Other accrued expenses 9,825 4,354
Total Current Liabilities 57,100 49,188
Long-term debt, excluding current
installment 116,854 58,643
Accrued Retirement Benefits 14,750 14,015
Deferred Income Taxes 12,261 11,118
Shareholders' Equity 121,980 115,992
$322,945 $248,956
PAGE
Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Periods Ended June 30, 1997 and 1996
Six Months Three Months
1997 1996 1997 1996
Net sales $216,148 $211,470 $110,274 $110,049
Costs and expenses:
Cost of products sold 192,292 186,821 97,234 95,783
Administrative and selling 6,223 6,199 3,191 3,364
198,515 193,020 100,425 99,147
Operating Earnings 17,633 18,450 9,849 10,902
Investment and other
income, net 526 159 107 35
Interest expense (2,717) (2,724) (1,424) (1,384)
Earnings Before Income Taxes 15,442 15,885 8,532 9,553
Income taxes 5,637 5,957 3,114 3,582
Net Earnings $ 9,805 $ 9,928 $ 5,418 $ 5,971
Net Earnings Per Share $0.54 $0.55 $0.30 $0.33
Cash dividends per share $0.20 $0.20 $0.10 $0.10
Average number of common
equivalent shares 18,163,432 18,096,326 18,177,427 18,118,936
PAGE
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Six Months Ended June 30, 1997 and 1996
1997 1996
OPERATING ACTIVITIES
Net earnings $ 9,805 $ 9,928
Depreciation 10,556 10,192
Provision for deferred income taxes 598 552
Amortization of restricted stock 163 159
(Gain) loss on disposition of assets (85) 237
Changes in operating assets and liabilities,
net of effects of acquisition
of business (11,370) (3,053)
Cash Provided By Operating Activities 9,667 18,015
INVESTING ACTIVITIES
Acquisition of business, net of cash
acquired (74,388) -
Capital expenditures (17,699) (9,671)
Proceeds from disposal of property
and equipment 206 43
Cash Used In Investing Activities (91,881) (9,628)
FINANCING ACTIVITIES
Cash dividends paid (3,626) (3,616)
Proceeds (repayments) of long-term
debt, net 58,211 (1,788)
Cash provided by stock transactions, net - 242
Cash Provided From (Used In)
Financing Activities 54,585 (5,162)
Effect of foreign currency exchange
rate changes (353) 64
Increase (Decrease)In Cash and
Cash Equivalents (27,982) 3,289
Cash and cash equivalents at
beginning of period 28,902 13,490
Cash and Cash Equivalents at End
of Period $ 920 $16,779
Supplemental Disclosures
Cash paid during the year for:
Interest $ 2,590 $ 2,677
Income Taxes 4,207 3,673
PAGE
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, 1997 are not necessarily indicative of the results to be
expected for the year ending December 31, 1997.
Goodwill is amortized on a straight-line basis over 40 years. Specific
intangibles are amortized on a straight-line basis over the estimated periods
benefited with periods ranging from 5 to 20 years. For further information
regarding the Company's accounting policies, refer to the Consolidated
Financial Statements and related notes included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.
Note 2. Holset VA Acquisition
On June 27, the Company through a wholly owned subsidiary purchased the
Vibration Attenuation division of Holset Engineering Company Limited ("Holset
VA") from Cummins Engine Company. The aggregate purchase cost for the
acquisition of the Holset VA Business was $76.6 million. Funds for the Holset
VA Business acquisition, net of cash received, were provided by cash and
borrowings of $60 million under the Credit Agreements as described in Note 4.
The Holset VA Business has operations in the United Kingdom, France, Spain,
Mexico, Korea, Brazil, the United States and India. Holset VA manufactures
rubber and viscous dampers and supplies three main markets including heavy
truck, light truck and automotive and industrial.
The acquisition was accounted for as a purchase transaction. The purchase
cost of $76.6 million has been allocated to assets and liabilities acquired
based upon their preliminary estimated fair values at the acquisition date.
The excess of purchase price over estimated values for assets and liabilities
has been reflected as unallocated purchase cost which is being amortized over
forty years. The final allocation of the purchase cost to assets and
liabilities will depend on the final results of appraisals that are not yet
available and investigations into liabilities assumed that are not yet
complete. Therefore, the final allocation will probably differ from the
estimated allocation, possibly by substantial amounts. The preliminary
allocation at June 27, 1997 of the $76.6 million purchase cost is summarized
as follows:
(In thousands)
Current assets $17,748
Property, plant and equipment 15,806
Unallocated purchase cost, principally
goodwill 38,843
Intangible assets 12,728
Other noncurrent assets 841
Current liabilities (9,346)
Total purchase cost $76,620
The operations of the Holset VA Business from the acquisition date to June 30,
1997 were not material to the consolidated Statement of Income of the Company.
See Note 3 for pro forma information.
NOTE 3. Pro Forma Information
The following pro forma unaudited financial data is presented to illustrate
the estimated effects of (i) the Holset VA acquisition and (ii) the completion
of the new credit agreements (Note 4) as if the transactions had occurred as
of January 1 of each year presented (in thousands, except per share data).
_____________________________________________________________
Six Months Ended
June 30 June 30
1997 1996
Net sales 251,911 246,800
Net income 10,228 10,665
Net income per share $0.56 $0.59
_____________________________________________________________
The pro forma information above does not purport to be indicative of the
results that actually would have been achieved if the transactions had
occurred prior to the years presented, and is not intended to be a projection
of future results or trends.
Note 4. Debt
In June, 1997, the Company entered into revolving credit agreements to allow
for borrowings of up to $50 million under a five-year agreement and up to $50
million under a 364-day agreement. Borrowings outstanding under these
agreements at June 30, 1997 were $50 million at an interest rate of 6.3% and
$10 million at an interest rate of 8.25%, respectively. The 364-day agreement
is classified as long-term based on management's intent to renew it each year.
Borrowings under the credit agreements bear interest, at the election of the
Company, at a floating rate of interest equal to (a) the higher of ABN AMRO's
prime lending rate and the federal funds rate plus .5% or (b) the Eurodollar
rate plus the applicable borrowing margin.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net sales reached a record high in the second quarter of 1997, increasing
$225,000 from the second quarter of 1996. Year-to-date sales increased 2.2%
or $4,678,000 from the first half of 1996. The increased sales for the quarter
and the first half of the year reflect strong sales to diesel engine customers
and a new wheel-end suspension program that went on line in late 1996 offset
by the effects of a decline in auto production and strikes at two key
customers.
Cost of products sold as a percent of sales for the first six months of 1997
compared to the first half of 1996 increased to 89.0% from 88.3%. Cost of
products sold as a percent of sales for the second quarter of 1997 compared to
the second quarter of 1996 increased to 88.2% from 87.0%. The increase in
cost of products sold in both the three- and six-month periods ended June 30,
1997 reflects the recovery of some out-of-period start-up costs recorded in
the second quarter of 1996.
Administrative and selling costs remained at approximately 3% of sales for the
six- and three-month periods ending June, 30 1996 and 1997. Interest expense
for the six- and three-month periods ending June 30, 1997 and 1996 remained
approximately the same.
In July the company announced the closing of its Jackson, Michigan
manufacturing plant. A pre-tax charge of approximately $4 million will be
recorded in the third quarter ending September 30, 1997. This closure is
anticipated to provide annualized savings of approximately $2.5 million a year
beginning in 1998.
In June, 1997, the Company entered into revolving credit agreements to allow
for borrowings of up to $50 million under a five-year agreement and up to $50
million under a 364-day agreement. Borrowings outstanding under these
agreements at June 30, 1997 were $50 million at an interest rate of 6.3% and
$10 million at an interest rate of 8.25%, respectively. The 364-day agreement
is classified as long-term based on management's intent to renew it each year.
Borrowings under the credit agreements bear interest, at the election of the
Company, at a floating rate of interest equal to (a) the higher of ABN AMRO's
prime lending rate and the federal funds rate plus .5% or (b) the Eurodollar
rate plus the applicable borrowing margin.
On June 27, 1997, the Company purchased the Vibration Attenuation division of
Holset Engineering Company Limited ("Holset VA") from Cummins Engine Company
for an aggregate purchase price of $76.6 million. Net funds used for the
acquisition totaled $74.4 million.
Cash flow from operations was $9.7 million for the first half of 1997. Net
cash used in investing activities was $91.9 million and $9.6 million for the
six months ending June 30, 1997 and 1996, respectively. The primary reason
for the increase in investing activities was the Holset VA acquisition, as
described above. The Company's investment in production capacity for new
automotive, light truck and diesel engine programs also increased from $9.7
million in 1996 to $17.7 million in 1997. The increase was primarily due to
the new program launches occurring in 1997.
Net cash used in investing activities and dividends paid during the six months
ended June 30, 1997, exceeded cash flows from operations and net proceeds from
borrowings, discussed above, resulting in a reduction of $28 million in cash
and cash equivalents. 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 working capital requirements.
Certain statements in this report may be "forward-looking statements" under
the Securities Exchange Act of 1934. Statements regarding future operating
performance, new programs expected to be launched and other future prospects
and developments are based on current expectations and involve certain risks
and uncertainties that could cause the actual results and developments to
differ materially from the forward-looking statements. Potential risks and
uncertainties include such factors as demand for the Company's products,
pricing and other actions taken by competitors, and general economic
conditions affecting the markets served by the Company.
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
3.1 Restated Articles of Incorporation, as amended
10.3 Amendment to Note Agreement with Travelers Life
Insurance Company, dated as of May 30, 1997
(Amendment No. 2 to original Note Agreement Dated as
of June 12, 1986 with Aetna Life Insurance Company)
10.11 Amendment to Note Agreement with Massachusetts
Mutual Life Insurance Company, dated as of May 30,
1997 (Amendment No. 1 to original Note Agreement Dated as
of August 15, 1991 with Massachusetts Mutual Life
Insurance Company)
10.15 $20,000,000 Renewal Term Note Due December 31, 2008,
with Comerica Bank, dated as of June 17, 1997
10.20 $3,230,357.07 Renewal Term Note Due January 25, 2003,
with Comerica Bank, dated as of June 17, 1997
10.21 $20,000,000 Renewal Term Note Due February 7, 2005,
with Comerica Bank, dated as of June 17, 1997
10.22 Letter Agreement with Comerica Bank, dated June 17, 1997
10.24 Credit Agreement (Five Year), dated June 17, 1997,
among Simpson Industries and certain other Borrowers,
certain Commercial Lending Institutions, ABN AMRO Bank
N.V. and Comerica Bank
10.25 Credit Agreement (364 Day), dated June 17, 1997, among
Simpson Industries and 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) The following reports on Form 8-K were filed during the quarter ended
June 30, 1997.
(i) April 1, 1997 - Form 8-K relating to the Holset VA acquisition.
(ii) June 20, 1997 - Form 8-K relating to the Holset VA acquisition.
PAGE
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, thereunto duly authorized.
SIMPSON INDUSTRIES, INC.
Registrant
August 11, 1997 /S/ROY E. PARROTT
Roy E. Parrott
President and Chief
Executive Officer
INDEX TO EXHIBITS
Exhibit No. Description
3.1 Restated Articles of Incorporation, as amended
10.3 Amendment to Note Agreement with Travelers Life
Insurance Company, dated as of May 30, 1997
(Amendment No. 2 to original Note Agreement Dated as
of June 12, 1986 with Aetna Life Insurance Company)
10.11 Amendment to Note Agreement with Massachusetts
Mutual Life Insurance Company, dated as of May 30,
1997 (Amendment No. 1 to original Note Agreement Dated as
of August 15, 1991 with Massachusetts Mutual Life
Insurance Company)
10.15 $20,000,000 Renewal Term Note Due December 31, 2008,
with Comerica Bank, dated as of June 17, 1997
10.20 $3,230,357.07 Renewal Term Note Due January 25, 2003,
with Comerica Bank, dated as of June 17, 1997
10.21 $20,000,000 Renewal Term Note Due February 7, 2005,
with Comerica Bank, dated as of June 17, 1997
10.22 Letter Agreement with Comerica Bank, dated June 17, 1997
10.24 Credit Agreement (Five Year), dated June 17, 1997,
among Simpson Industries and certain other Borrowers,
certain Commercial Lending Institutions, ABN AMRO Bank
N.V. and Comerica Bank
10.25 Credit Agreement (364 Day), dated June 17, 1997, among
Simpson Industries and 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