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, 1998 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, 1998 there were 18,339,120 outstanding shares of the registrant's
common stock, $1.00 par value each.
Consolidated Balance Sheets
(In thousands)
June 30, 1998 and December 31, 1997
June 30 Dec. 31
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 3,553 $ 8,235
Accounts receivable 73,257 66,055
Inventories 20,894 19,827
Customer tooling in process 3,844 7,888
Prepaid expenses and other current assets 11,597 12,689
Total Current Assets 113,145 114,694
Property, Plant and Equipment
Cost 321,374 313,499
Less Allowance 149,258 139,353
Total Property, Plant and Equipment 172,116 174,146
Intangible Assets - net 52,864 49,951
Other Assets 3,325 2,757
$341,450 $341,548
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current installment of long-term debt 2,829 $ 3,579
Accounts payable 46,745 45,803
Compensation and amounts withheld 10,995 11,350
Taxes, other than income taxes 2,305 3,072
Other current liabilities 5,902 14,524
Total Current Liabilities 68,776 78,328
Long-term debt, excluding current
installment 117,573 118,564
Accrued Retirement Benefits and Other 16,413 14,663
Deferred Income Taxes 12,686 12,121
Shareholders' Equity 126,002 117,872
$341,450 $341,548
See accompanying notes to consolidated financial statements.
Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Periods Ended June 30, 1998 and 1997
Six Months Three Months
1998 1997 1998 1997
Net sales $254,260 $216,148 $128,704 $110,274
Costs and expenses:
Cost of products sold 225,781 192,292 113,848 97,234
Administrative and selling 6,462 6,223 3,417 3,191
Amortization 940 - 482 -
233,183 198,515 117,747 100,425
Operating Earnings 21,077 17,633 10,957 9,849
Investment and other income, net (325) 526 (252) 107
Interest expense (4,945) (2,717) (2,502) (1,424)
Earnings Before Income Taxes 15,807 15,442 8,203 8,532
Income taxes 5,216 5,637 2,517 3,114
Net Earnings $10,591 $ 9,805 $ 5,686 $ 5,418
Comprehensive Income - net $ 9,273 $ 9,327 $ 4,764 $ 5,081
Basic Earnings Per Share $0.58 $0.54 $0.31 $0.30
Diluted Earnings Per Share $0.58 $0.54 $0.31 $0.30
Cash dividends per share $0.20 $0.20 $0.10 $0.10
Average number of common
equivalent shares:
Basic 18,297,418 18,116,990 18,415,792 18,133,025
Diluted 18,418,755 18,173,434 18,549,620 18,183,959
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Six Months Ended June 30, 1998 and 1997
1998 1997
OPERATING ACTIVITIES
Net earnings $10,591 $ 9,805
Depreciation 13,072 10,556
Provision for deferred income taxes 565 598
Amortization of restricted stock 250 163
(Gain) loss on disposition of assets 158 (85)
Changes in operating assets and
liabilities, net of effects of
acquisition of business (11,039) (11,370)
Cash Provided By Operating Activities 13,597 9,667
INVESTING ACTIVITIES
Acquisition of business, net of cash
acquired - (74,388)
Capital expenditures (9,291) (17,699)
Proceeds from disposal of property
and equipment 375 206
Cash Used In Investing Activities (8,916) (91,881)
FINANCING ACTIVITIES
Cash dividends paid (3,664) (3,626)
Notes Payable, net (1,212)
Proceeds (repayments) of
long-term debt, net (2,751) 58,211
Cash provided by stock
transactions, net (745) -
Cash Provided From (Used In)
Financing Activities (8,372) 54,585
Effect of foreign currency exchange
rate changes (991) (353)
Increase (Decrease)In Cash and
Cash Equivalents (4,682) (27,982)
Cash and cash equivalents at
beginning of period 8,235 28,902
Cash and Cash Equivalents at
End of Period $ 3,553 $ 920
Supplemental Disclosures
Cash paid during the year for:
Interest $ 4,803 $ 2,590
Income Taxes 5,992 4,207
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, 1998 are not necessarily indicative of the results to be
expected for the year ending December 31, 1998.
Note 2. Stahl International, Inc. Acquisition
On April 1, 1998, the Company purchased Stahl International, Inc. ("Stahl")
for $3.7 million. Stahl, located in Memphis, Tennessee, manufactures torsional
vibration dampers and flywheels for all types of diesel engines. The
acquisition was accounted for as a purchase transaction. The purchase cost of
$3.7 million has been allocated to assets and liabilities acquired based upon
their estimated fair values at the acquisition date. The excess of purchase
price over assets acquired (Goodwill) of $2.9 million is being amortized over
40 years.
Note 3. Lines of Credit
As discussed in Simpson's 1997 Annual Report on Form 10-K, the Company
maintains credit lines that allow for borrowings of up to $25 million under a
five-year agreement and up to $25 million under a 364-day agreement. At June
30, 1998 there were no borrowings outstanding under the 364-day agreement and
there was $15 million outstanding under the five-year agreement. In June of
1998 the 364-day line of credit was renewed. In addition, the restrictive
covenants for both the 364-day and the five-year agreements were renegotiated
during June 1998.
The 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 reached a record high in the second quarter of 1998, increasing
16.7% or $18,430,000 from the second quarter of 1997. Year-to-date sales
increased 17.6% or $38,112,000 from the first half of 1997. The increased
sales for both periods are primarily attributable to the inclusion of the VA
Business acquisition in the third quarter of 1997. In addition, the General
Motors strike reduced sales in both periods by approximately $3,500,000. The
strike effect was offset by increased sales to heavy-duty customers.
Cost of products sold as a percent of sales for the second quarter of 1998
compared to the second quarter of 1997 increased marginally to 88.5% from
88.2%. Cost of products sold as a percent of sales for the first six months
of 1998 compared to the first half of 1997 decreased marginally to 88.8% from
89.0%.
Administrative and selling costs remained at a relatively constant level for
the second quarter, decreasing slightly from 2.9% of sales in the 1997 second
quarter to 2.7% of sales in the 1998 second quarter. The decrease from 2.9%
for the six months ending June 30, 1997 to 2.5% for the six months ending June
30, 1998 is partially due to the timing of expenses and partially due to
increased efficiencies due to volume leveraging. Interest expense for the six-
and three-month periods ending June 30, 1998 increased over the same periods
in 1997 due to the additional debt used to fund the Holset VA acquisition
which occurred in June of 1997.
As discussed in Simpson's 1997 Annual Report on Form 10-K, the Company
maintains credit lines that allow for borrowings of up to $25 million under a
five-year agreement and up to $25 million under a 364-day agreement. At June
30, 1998 there were no borrowings outstanding under the 364-day agreement and
there was $15 million outstanding under the five-year agreement. In June of
1998 the 364-day line of credit was renewed. In addition, the restrictive
covenants for both the 364-day and the five-year agreements were renegotiated
during June 1998.
The 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.
Cash flow from operations was $13.6 million for the first half of 1998 up from
$9.7 million in 1997. Net cash used in investing activities was $8.9 million
and $91.9 million for the six months ending June 30, 1997 and 1996,
respectively. The primary reason for the decrease in investing activities was
the Holset VA acquisition that occurred during the second quarter of 1997.
The Company's investment in production capacity for new automotive, light
truck and diesel engine programs also decreased from $17.7 million in 1997 to
$9.3 million in 1998. The decrease 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, 1998, exceeded cash flows from operations and net proceeds from
borrowings, discussed above, resulting in a reduction of $4.7 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.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 133 "Accounting for Derivative Instruments and Hedging
Activities which becomes effective for fiscal quarters of fiscal years
beginning after June 15, 1999. The Company expects to adopt this Standard
during 1999, but does not believe that it will have a material impact upon
future financial statements.
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.
The Company will be required to modify or replace substantially all of the
computer systems that it uses to prepare for the year 2000. The Company has
completed an assessment of the costs of making its computer systems Year 2000
compliant and has determined that such costs will not be material. The
Company expects to complete the required changes by January 1, 1999.
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
10.24 Amendment to Credit Agreement, dated June 16, 1998,
among Simpson Industries Inc. and certain other
Borrowers, certain Commercial Lending Institutions,
ABN AMRO Bank N.V. and Comerica Bank
10.25 Amendment to Credit Agreement, dated June 16, 1998,
among Simpson Industries Inc. 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) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1998.
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 10, 1998 By: /S/VINOD M. KHILNANI
Vinod M. Khilnani
Vice President and
Chief Financial Officer
INDEX TO EXHIBITS
Exhibit No. Description
10.24 Amendment to Credit Agreement, dated June 16, 1998,
among Simpson Industries Inc. and certain other
Borrowers, certain Commercial Lending Institutions,
ABN AMRO Bank N.V. and Comerica Bank
10.25 Amendment to Credit Agreement, dated June 16, 1998,
among Simpson Industries Inc. 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