1 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 September 30, 2000 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 October 31, 2000 there were 17,866,753 outstanding shares of the registrant's common stock, $1.00 par value each. 2 ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets (In thousands) September 30, 2000 and December 31, 1999 Sep.30 (Unaudited) Dec. 31 ----------- ------- ASSETS Current Assets Cash and cash equivalents $ 7,672 $ 7,362 Accounts receivable 82,472 84,124 Inventories 19,157 19,448 Customer tooling in process 4,343 6,404 Prepaid expenses and other current assets 11,291 11,960 -------- ------- Total Current Assets 124,935 129,298 Property, Plant and Equipment Cost 383,740 362,259 Less Accumulated Depreciation 194,424 179,346 -------- -------- Net Property, Plant and Equipment 189,316 182,913 Intangible Assets - net 41,838 46,847 Other Assets 2,117 2,398 -------- -------- $358,206 $361,456 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current installment of long-term debt $ 8,079 $ 6,079 Notes payable 13,797 10,908 Accounts payable 55,852 62,654 Compensation and amounts withheld 11,930 12,614 Taxes, other than income taxes 2,503 3,797 Other current liabilities 8,160 10,261 -------- -------- Total Current Liabilities 100,321 106,313 Long-term debt, excluding current installment 97,254 98,955 Accrued Retirement Benefits and Other 15,974 16,098 Deferred Income Taxes 11,094 7,058 Minority Interest in Joint Venture 462 - Shareholders' Equity 133,101 133,032 -------- -------- $358,206 $361,456 ======== ======== See accompanying notes to condensed consolidated financial statements. 3 ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidated Statements of Operations (Unaudited) (Dollars in thousands, except per share amounts) Periods Ended September 30, 2000 and 1999 Three Months Nine Months 2000 1999 2000 1999 ----------- ---------- ---------- ----------- Net sales $ 116,468 $ 124,220 $ 399,605 $ 396,721 Costs and expenses: Cost of products sold 108,903 114,382 360,108 356,382 Administrative and selling 3,543 3,201 10,333 8,725 Amortization 485 508 1,538 1,533 --------- --------- --------- --------- 112,931 118,091 371,979 366,640 --------- --------- --------- --------- Operating Earnings 3,537 6,129 27,626 30,081 Investment and other income (loss), net (276) 177 (617) 68 Interest expense (2,434) (2,178) (6,960) (6,494) --------- --------- --------- --------- Earnings Before Income Taxes 827 4,128 20,049 23,655 Income taxes (363) 1,278 6,365 8,113 --------- --------- --------- --------- Net Earnings $ 1,190 $ 2,850 $ 13,684 $ 15,542 ========= ========= ========= ========= Comprehensive Income (Loss) - net $ (3,175) $ 3,836 $ 8,721 $ 11,141 ========= ========= ========= ========= Basic Earnings Per Share $ 0.07 $ 0.16 $ 0.77 $ 0.86 Diluted Earnings Per Share $ 0.07 $ 0.16 $ 0.76 $ 0.86 Cash dividends per share $ 0.10 $ 0.10 $ 0.30 $ 0.30 Average number of common equivalent shares: Basic 17,874,139 18,033,679 17,884,865 18,081,394 Diluted 17,874,424 18,098,532 17,896,626 18,119,294 See accompanying notes to condensed consolidated financial statements. 4 ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine Months Ended September 30, 2000 and 1999 2000 1999 --------- --------- OPERATING ACTIVITIES Net earnings $ 13,684 $ 15,542 Depreciation and amortization 21,587 20,800 Provision for deferred income taxes 4,036 753 Other 302 540 Changes in operating assets and liabilities (6,687) (13,876) -------- -------- Cash Provided By Operating Activities 32,922 23,759 INVESTING ACTIVITIES Capital expenditures (28,466) (29,604) Proceeds from disposal of property and equipment 35 789 -------- -------- Cash Used In Investing Activities (28,431) (28,815) FINANCING ACTIVITIES Cash dividends paid (5,364) (5,425) Notes payable, net 2,889 10,400 Proceeds (repayments) of long-term debt, net 67 (184) Cash used in stock transactions, net (949) (1,485) -------- -------- Cash (Used In) Provided By Financing Activities (3,357) 3,306 Effect of foreign currency exchange rate changes (824) 1,322 -------- -------- Increase (Decrease) In Cash and Cash Equivalents 310 (428) Cash and cash equivalents at beginning of period 7,362 6,145 -------- -------- Cash and Cash Equivalents at End of Period $ 7,672 $ 5,717 ======== ======== Supplemental Disclosures Cash paid during the period for: Interest $ 7,643 $ 6,208 Income Taxes 8,162 7,744 See accompanying notes to condensed consolidated financial statements. 5 ITEM 1: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1. Significant Accounting Principles The accompanying unaudited consolidated financial statements of Simpson Industries Inc. (Company) 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 September 30, 2000 are not necessarily indicative of the results to be expected for the year ending December 31, 2000. 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 September 30, 2000, there were no borrowings outstanding under the 364-day agreement, and $21.6 million outstanding under the five-year agreement. At September 30, 2000, $10 million of 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. Note 3. Proposed Merger of Company The Company has entered into a definitive agreement to merge with an affiliate of Heartland Industrial Partners, LP. Under the terms of the agreement, each shareholder of the Company is expected to receive $13.00 in cash per share at the closing. The value of the transaction, including the assumption of debt, is estimated to be approximately $350 million. 6 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net sales for the third quarter of 2000 were $116.5 million, a decrease of $7.8 million, or 6.2%, compared to $124.2 million in the third quarter of 1999. Year-to-date sales increased 0.7%, or $2.9 million from the first nine months of 1999. Demand in North America from our automotive customers continued to be strong. Sales to the "Big Three" (GM, Ford and DaimlerChrysler) grew 6% this quarter versus the third quarter of 1999. Sales to our heavy-duty and mid-range diesel customers decreased 28% following a general decline in these markets. European sales were up 3% versus the third quarter of 1999, despite a stronger U.S. dollar. Cost of products sold as a percent of sales increased slightly from 92.1% in the third quarter of 1999 to 93.5% this quarter. Cost of products sold as a percentage of sales for the first nine months of 2000 compared to the first nine months of 1999 increased from 89.8% to 90.1%. During the first nine months of 2000, the Company added staff to support new program development and launch costs. As a result, administrative and selling expenses increased from $3.2 million, or 2.6% of sales, in the third quarter of 1999 to $3.5 million, or 3.0% of sales, in the third quarter of 2000; administrative and selling expenses for the first nine months of 2000 increased from $8.7 million, or 2.2% of sales, in 1999 to $10.3 million, or 2.6% of sales. Third quarter interest expense increased from $2.2 million in 1999, or 1.8% of sales, to $2.4 million in 2000, or 2.1% of sales. Interest expense increased from $6.5 million, or 1.6% of sales, in the first nine months of 1999 to $7.0 million, or 1.7% of sales in the first nine months of 2000. Higher interest rates and increased outstanding debt were factors in the increase for both the third quarter and year-to-date interest expense. Operating earnings for the first nine months decreased to $27.6 million in 2000 compared to $30.1 million in 1999. Third quarter operating earnings decreased 42.3%, from $6.1 million in 1999 to $3.5 million in 2000, due to lower sales and increased startup costs for new programs. As a result, net earnings were down 58.2%, from $2.9 million in the third quarter of 1999 to $1.2 million in the third quarter of 2000; net earnings decreased 12.0% for the first nine months of 2000, from $15.5 million to $13.7 million. Cash flow from operations was $32.9 million for the first nine months of 2000, an increase of $9.2 million from the first nine months of 1999. Net cash used in investing activities totaled $28.4 million for the nine months ended September 30, 2000, down $0.4 million from the $28.8 million used in the first nine months of 1999. These expenditures represent the Company's investment in production capacity for new automotive, light truck and diesel engine programs. Cash flow from financing activities decreased $6.7 million, from $3.3 million through September 1999 to ($3.4) million through September 2000. 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. 7 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 September 30, 2000, there were no borrowings outstanding under the 364-day agreement, and $21.6 million outstanding under the five-year agreement. At September 30, 2000, $10 million of 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. The Company has entered into a definitive agreement to merge with an affiliate of Heartland Industrial Partners, LP. Under the terms of the agreement, each shareholder of the Company is expected to receive $13.00 in cash per share at the closing. The value of the transaction, including the assumption of debt, is estimated to be approximately $350 million. Derivative Instruments and Hedging Activities: SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", was issued in June 1998. It establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133, as amended by FASB Statement No. 137 and SFAS No. 138 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. Any future effects will be incorporated into the current year's financial statements. The Company is in the process of completing its review to determine the impact on its financial statements. 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, new programs expected to be launched, 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, fluctuations in demand for the Company's products, the activities of competitors, and various other factors outside the Company's control. The Company does not intend to update these forward-looking statements. 8 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For the period ended September 30, 2000, the Company did not experience any material change in market risk exposures affecting the quantitative and qualitative disclosures as presented in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 9 Part II. Other Information ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are part of this report. Exhibit No. Description 2 Agreement and Plan of Merger dated September 29, 2000 among Simpson Industries, Inc., Simmer Acquisition Company LLC and Simmer Acquisition Corporation (previously filed as Exhibit 99.1 to the Company's Current Report on Form 8-K, dated October 12, 2000 and incorporated herein by reference). 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 September 30, 2000. 10 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 November 07, 2000 /s/Vinod M. Khilnani Vinod M. Khilnani Vice President and Chief Financial Officer 11 Exhibit Index ------------- Exhibit No. Description - ----------- ----------- 11 Computation of Earnings Per Share 27 Financial Data Schedule