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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 September 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 October 31, 1999 there were 18,008,728 outstanding shares of the
registrant's common stock, $1.00 par value each.
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Consolidated Balance Sheets
(In thousands)
September 30, 1999 and December 31, 1999
Sept. 30
(Unaudited) Dec. 31
----------- -------
ASSETS
Current Assets
Cash and cash equivalents $ 5,717 $ 6,145
Accounts receivable 81,978 72,785
Inventories 17,617 22,866
Customer tooling in process 6,271 1,749
Prepaid expenses and other current assets 11,358 10,994
-------- --------
Total Current Assets 122,941 114,539
Property, Plant and Equipment
Cost 352,785 328,609
Less Allowance 175,105 158,724
Total Property, Plant and Equipment 177,680 169,885
Intangible Assets - net 48,423 52,192
Other Assets 3,016 3,938
-------- --------
$352,060 $340,554
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current installment of long-term debt $ 4,079 $ 4,829
Notes payable 10,400 --
Accounts payable 50,307 52,039
Compensation and amounts withheld 10,838 11,694
Taxes, other than income taxes 3,105 2,483
Other current liabilities 8,372 11,298
-------- --------
Total Current Liabilities 87,101 82,343
Long-term debt, excluding current installment 106,100 105,534
Accrued Retirement Benefits and Other 16,901 17,312
Deferred Income Taxes 11,550 10,797
Shareholders' Equity 130,408 124,568
-------- --------
$352,060 $340,554
======== ========
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Periods Ended September 30, 1999 and 1998
Three Months Nine Months
---------------------------- ----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 124,220 $ 110,016 $ 396,721 $ 364,276
Costs and expenses:
Cost of products sold 114,382 103,732 356,382 329,513
Administrative and selling 3,201 2,924 8,725 9,386
Amortization 508 524 1,533 1,464
------------ ------------ ------------ ------------
118,091 107,180 366,640 340,363
------------ ------------ ------------ ------------
Operating Earnings 6,129 2,836 30,081 23,913
Investment and other income, net 177 904 68 579
Interest expense (2,178) (2,353) (6,494) (7,298)
------------ ------------ ------------ ------------
Earnings Before Income Taxes 4,128 1,387 23,655 17,194
Income taxes 1,278 458 8,113 5,674
------------ ------------ ------------ ------------
Net Earnings $ 2,850 $ 929 $ 15,542 $ 11,520
============ ============ ============ ============
Comprehensive Income - net $ 3,836 $ 1,368 $ 11,141 $ 10,641
============ ============ ============ ============
Basic Earnings Per Share $ 0.16 $ 0.05 $ 0.86 $ 0.63
Diluted Earnings Per Share $ 0.16 $ 0.05 $ 0.86 $ 0.63
Cash dividends per share $ 0.10 $ 0.10 $ 0.30 $ 0.30
Average number of common equivalent shares:
Basic 18,033,679 18,318,644 18,081,394 18,304,493
Diluted 18,098,532 18,395,029 18,119,294 18,410,846
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Nine Months Ended September 30, 1999 and 1998
1999 1998
---- ----
OPERATING ACTIVITIES
Net earnings $ 15,542 $ 11,520
Depreciation and amortization 20,800 19,237
Provision for deferred income taxes 753 924
Other 540 544
Changes in operating assets and liabilities (13,876) (14,334)
-------- --------
Cash Provided By Operating Activities 23,759 17,891
INVESTING ACTIVITIES
Capital expenditures (29,604) (14,894)
Proceeds from disposal of property and equipment 789 391
-------- --------
Cash Used In Investing Activities (28,815) (14,503)
FINANCING ACTIVITIES
Cash dividends paid (5,425) (5,494)
Notes Payable, net 10,400 2,488
Proceeds (repayments) of long-term debt, net (184) (1,389)
Cash used in stock transactions, net (1,485) (1,724)
-------- --------
Cash Provided From (Used In) Financing Activities 3,306 (6,119)
Effect of foreign currency exchange rate changes 1,322 (661)
-------- --------
Decrease In Cash and Cash Equivalents (428) (3,392)
Cash and cash equivalents at beginning of period 6,145 8,235
-------- --------
Cash and Cash Equivalents at End of Period $ 5,717 $ 4,843
======== ========
Supplemental Disclosures
Cash paid during the year for:
Interest $ 6,208 $ 7,628
Income Taxes 7,744 7,440
See accompanying notes to consolidated financial statements.
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 September 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 September 30, 1999, there was $10 million outstanding under the
five-year agreement and no borrowings outstanding under the 364-day
agreement.
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 third quarter of 1999 were a record $124.2 million, an
increase of 12.9%, or $14.2 million, over the third quarter of 1998.
Year-to-date sales increased 8.9%, or $32.4 million from 1998. Demand in
North America from our automotive customers continued to be strong. Sales to
the "Big Three" (GM, Ford and Daimler/Chrysler) grew 21% this quarter versus
the third quarter of 1998. Sales to our heavy-duty and mid-range diesel
customers decreased 1%. European sales were also up, although third quarter
1999 U.S. dollar translated sales remained relatively flat with the third
quarter 1998 due to a stronger U.S. dollar.
Cost of products sold as a percent of sales decreased from 94.3% in the third
quarter of 1998 to 92.1% this quarter. Cost of products sold as a percentage
of sales for the first nine months of 1999 compared to the first nine months
of 1998 decreased from 90.5% to 89.8%. Administrative and selling expenses as
a percent of sales decreased from 2.7% in the third quarter of 1998 to 2.6%
this quarter; administrative and selling expenses for the first nine months
of 1999 decreased from $9.4 million, or 2.6% of sales, in 1998 to $8.7
million, or 2.2% of sales. Our overall cost structure has benefited from the
restructuring initiatives we took in 1997 and 1998.
Third quarter interest expense decreased from $2.4 million in 1998, or 2.1%
of sales, to $2.2 million in 1999, or 1.8% of sales. Interest expense
decreased from $7.3 million, or 2.0% of sales, for the nine months ended
September 30, 1998 to $6.5 million, or 1.6% of sales for the nine months
ended September 30, 1999. The decrease was primarily due to lower levels of
outstanding debt.
Third quarter operating earnings increased $3.3 million, from $2.8 million in
1998 to $6.1 million in 1999, mainly due to the GM strike in the third
quarter of 1998. Year to date operating earnings grew from $23.9 million in
1998 to $30.1 million in 1999, an increase of 25.8%. In addition, net
earnings rose $1.9 million, from $0.9 million in the third quarter of 1998 to
$2.8 million in the third quarter of 1999; year-to-date net earnings rose
34.9%, from $11.5 million to $15.5 million.
Cash flow from operations was $23.8 million for the first nine months of
1999, an increase of $5.9 million over the first nine months of 1998. Net
cash used in investing activities totaled $28.8 million for the nine months
ended September 30, 1999, up $14.3 million from the $14.5 million used in the
nine months ended September 30, 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 provided from financing activities increased $9.4 million, from a
use of $6.1 million through September 1998 to providing $3.3 million through
September 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 September 30, 1999, there was $10 million outstanding under the
five-year agreement and no borrowings outstanding under the 364-day
agreement.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
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.
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 were 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.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 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 suppliers, 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, if
any occur 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.
Furthermore, since the Company's operations are also dependent upon key
suppliers and service providers beign Year 2000 compliant on a timely basis,
there can be no assurance that our effors will prevent a material adverse
impact on the Company's operations should such suppliers and service
providers experience significant problems.
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, Year 2000 compliance 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
----------- -----------
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,
1999.
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 10, 1999 /s/Vinod M. Khilnani
Vinod M. Khilnani
Vice President and Chief Financial Officer
Exhibit (11) - Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic:
Average shares
outstanding 18,033,679 18,318,644 18,081,394 18,304,493
Net earnings applicable
to common stock and
common stock
equivalents $ 2,850,000 $ 929,000 $15,542,000 $11,520,000
Basic earnings per share $ 0.16 $ 0.05 $ 0.86 $ 0.63
Diluted:
Average shares
outstanding 18,033,679 18,318,644 18,081,394 18,304,493
Net effect of dilutive stock
options based on treasury
stock method using the
average market price to
common stock and common stock
equivalents 64,853 76,385 37,900 106,353
----------- ----------- ----------- -----------
Average number of common
shares and common
equivalent shares 18,098,532 18,395,029 18,119,294 18,410,846
=========== =========== =========== ===========
Net earnings applicable
to common stock and
common stock
equivalents $ 2,850,000 $ 929,000 $15,542,000 $11,520,000
Diluted earnings
per share $ 0.16 $ 0.05 $ 0.86 $ 0.63
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED
FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD
ENDING SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<PERIOD-TYPE> 9-MOS
<CASH> 5,717
<SECURITIES> 0
<RECEIVABLES> 81,978
<ALLOWANCES> 0
<INVENTORY> 17,617
<CURRENT-ASSETS> 122,941
<PP&E> 352,785
<DEPRECIATION> 175,105
<TOTAL-ASSETS> 352,060
<CURRENT-LIABILITIES> 87,101
<BONDS> 0
<COMMON> 18,037
0
0
<OTHER-SE> 112,371
<TOTAL-LIABILITY-AND-EQUITY> 352,060
<SALES> 396,721
<TOTAL-REVENUES> 396,789
<CGS> 356,382
<TOTAL-COSTS> 10,258
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,494
<INCOME-PRETAX> 23,655
<INCOME-TAX> 8,113
<INCOME-CONTINUING> 15,542
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,542
<EPS-BASIC> 0.86
<EPS-DILUTED> 0.86
</TABLE>
