10-Q 1 e10-q.txt FORM 10-Q 1 ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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, 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) (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, 2000 there were 17,874,374 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) June 30, 2000 and December 31, 1999

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 June 30, 2000 and 1999

See accompanying notes to condensed consolidated financial statements. 4 ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Six Months Ended June 30, 2000 and 1999

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 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, 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 June 30, 2000, there were no borrowings outstanding under the 364-day agreement, and $13.4 million outstanding under the five-year agreement. At June 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. In June of 2000, the 364-day agreement was renewed. 6 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net sales for the second quarter of 2000 were $138.6 million, a small decrease of $0.8 million, or 0.6%, compared to the record $139.4 million in the second quarter of 1999. Year-to-date sales increased 3.9%, or $10.6 million from the first half of 1999. Demand in North America from our automotive customers continued to be strong. Sales to the "Big Three" (GM, Ford and DaimlerChrysler) grew 5% this quarter versus the second quarter of 1999. Sales to our heavy-duty and mid-range diesel customers decreased 17% following a general decline in these markets. European sales were up 13% versus the second quarter of 1999, despite a stronger U.S. dollar. Sales in local currencies are running 20% better than 1999 levels. Cost of products sold as a percent of sales increased slightly from 88.4% in the second quarter of 1999 to 88.5% this quarter. Cost of products sold as a percentage of sales for the first six months of 2000 compared to the first half of 1999 decreased from 88.8% to 88.7%. During the first six months of 2000, the Company added staff to support new programs. As a result, administrative and selling expenses increased from $2.7 million, or 2.0% of sales, in the second quarter of 1999 to $3.5 million, or 2.5% of sales, in the second quarter of 2000; administrative and selling expenses for the first six months of 2000 increased from $5.5 million, or 2.0% of sales, in 1999 to $6.8 million, or 2.4% of sales. Interest expense increased from $4.3 million, or 1.6% of sales, in the first six months of 1999 to $4.5 million, or 1.6% of sales in the first six months of 2000. Second quarter interest expense increased from $2.2 million in 1999, or 1.6% of sales, to $2.3 million in 2000, or 1.6% of sales. Operating earnings for the first six months remained almost constant with $24.1 million in 2000 compared to $24.0 million in 1999. Second quarter operating earnings decreased 7.5%, from $12.9 million in 1999 to $11.9 million in 2000. As a result, net earnings were down 8.8%, from $7.0 million in the second quarter of 1999 to $6.3 million in the second quarter of 2000; net earnings decreased 1.6% for the first six months of 2000, from $12.7 million to $12.5 million. Cash flow from operations was $13.2 million for the first six months of 2000, a decrease of $14.6 million from the first six months of 1999. This is the result of an increase in customer tooling to support new programs and higher receivable balances due to increasing sales volumes. In addition, cash flow for the first six months of 1999 was impacted favorably by a change in supplier payment terms. Net cash used in investing activities totaled $17.9 million for the six months ended June 30, 2000, down $1.8 million from the $19.7 million used in the first half of 2000. These expenditures represent the Company's investment in production capacity for new automotive, light truck and diesel engine programs. 7 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cash flow from financing activities increased $16.4 million, from ($12.2) million through June 1999 to $4.2 million through June 2000. To offset the cash used in operations as explained earlier, the Company increased its total borrowings with $8.7 million during the first six months of 2000 compared to a reduction of $7.2 million in the first six months of 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, 2000, there were no borrowings outstanding under the 364-day agreement, and $13.4 million outstanding under the five-year agreement. At June 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. In June of 2000, the 364-day agreement was renewed. 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. As issued SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. In 1999 the Financial Accounting Standards Board deferred the effective date of SFAS No. 133 with FASB Statement No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133. SFAS No. 137 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. 8 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For the period ended June 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 filed as part of this report. Exhibit No. Description 10.10 Amendment to Letter Agreement with Roy E. Parrot, dated June 23, 2000 10.25 Third Amendment to Credit Agreement (364 Day), dated June 14, 2000, among Simpson Industries, Inc., certain other Borrowers, certain Commercial Lending Institutions, ABN AMRO Bank N.V., and Comerica Bank 10.27 Amendment to Letter Agreement with Vinod M. Khilnani, dated June 23, 2000 10.29 Amendment to Letter Agreement with George A. Thomas, dated June 23, 2000 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, 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 August 10, 2000 /s/Vinod M. Khilnani Vinod M. Khilnani Vice President and Chief Financial Officer 11 Exhibit Index ------------- Exhibit No. Description 10.10 Amendment to Letter Agreement with Roy E. Parrot, dated June 23, 2000 10.25 Third Amendment to Credit Agreement (364 Day), dated June 14, 2000, among Simpson Industries, Inc., certain other Borrowers, certain Commercial Lending Institutions, ABN AMRO Bank N.V., and Comerica Bank 10.27 Amendment to Letter Agreement with Vinod M. Khilnani, dated June 23, 2000 10.29 Amendment to Letter Agreement with George A. Thomas, dated June 23, 2000 11 Computation of Earnings Per Share 27 Financial Data Schedule

SIMPSON INDUSTRIES INC 10-Q