============================================================================= 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 March 31, 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 April 30, 1999 there were 18,084,179 outstanding shares of the registrant's common stock, $1.00 par value each. Consolidated Balance Sheets (In thousands) March 31, 1999 and December 31, 1998 March 31 (Unaudited) Dec. 31 ----------- ------- ASSETS Current Assets Cash and cash equivalents $ 5,439 $ 6,145 Accounts receivable 84,025 72,785 Inventories 19,945 22,866 Customer tooling in process 3,150 1,749 Prepaid expenses and other current assets 12,424 10,994 Total Current Assets 124,983 114,539 Property, Plant and Equipment Cost 332,601 328,609 Less Allowance 164,851 158,724 Total Property, Plant and Equipment 167,750 169,885 Intangible Assets - net 50,377 52,192 Other Assets 2,673 3,938 -------- -------- $345,783 $340,554 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current installment of long-term debt $ 4,829 $ 4,829 Accounts payable 54,161 52,039 Compensation and amounts withheld 9,427 11,694 Taxes, other than income taxes 5,222 2,483 Other current liabilities 12,121 11,298 Total Current Liabilities 85,760 82,343 Long-term debt, excluding current installment 106,889 105,534 Accrued Retirement Benefits and Other 17,422 17,312 Deferred Income Taxes 10,898 10,797 Shareholders' Equity 124,814 124,568 -------- -------- $345,783 $340,554 ======== ======== See accompanying notes to consolidated financial statements. 2 Consolidated Statements of Operations (Unaudited) (Dollars in thousands, except per share amounts) Periods Ended March 31, 1999 and 1998 Three Months 1999 1998 ---- ---- Net sales $ 133,102 $ 125,556 Costs and expenses: Cost of products sold 118,763 111,933 Administrative and selling 2,776 3,045 Amortization of intangible assets 521 458 ------------ ------------ 122,060 115,436 ------------ ------------ Operating Earnings 11,042 10,120 Investment and other income, net (96) (73) Interest expense (2,132) (2,443) ------------ ------------ Earnings Before Income Taxes 8,814 7,604 Income taxes 3,085 2,699 ------------ ------------ Net Earnings 5,729 4,905 ============ ============ Comprehensive Income - net $ 1,618 $ 4,509 ============ ============ Basic Earnings Per Share $ 0.32 $ 0.27 Diluted Earnings Per Share $ 0.32 $ 0.27 Cash dividends per share $ 0.10 $ 0.10 Average number of common equivalent shares: Basic 18,144,632 18,179,043 Diluted 18,161,211 18,287,889 See accompanying notes to consolidated financial statements. 3 Consolidated Statements of Cash Flows (Unaudited) (In thousands) Three Months Ended March 31, 1999 and 1998 1999 1998 ---- ---- OPERATING ACTIVITIES Net earnings $ 5,729 $ 4,905 Depreciation and amortization 6,879 6,160 Provision for deferred income taxes 101 275 Other 199 116 Changes in operating assets and liabilities (7,708) (7,926) -------- -------- Cash Provided By Operating Activities 5,200 3,530 INVESTING ACTIVITIES Capital expenditures (5,035) (4,275) Proceeds from disposal of property and equipment 53 6 -------- -------- Cash Used In Investing Activities (4,982) (4,269) FINANCING ACTIVITIES Cash dividends paid (1,815) (1,824) Notes payable - net -- 10,000 Proceeds (repayments) of long-term debt, net 1,355 (96) Cash (Used in) provided by stock transactions (728) 322 -------- -------- Cash (Used In) provided from Financing Activities (1,188) 8,402 Effect of foreign currency exchange rate changes 264 (292) -------- -------- Increase (Decrease)In Cash and Cash Equivalents (706) 7,371 Cash and cash equivalents at beginning of period 6,145 8,235 Cash and Cash Equivalents at End of Period $ 5,439 $ 15,606 ======== ======== Supplemental Disclosures Cash paid during the year for: Interest $ 2,789 $ 3,257 Income Taxes 1,505 2,085 See accompanying notes to consolidated financial statements. 4 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 March 31, 1999 are not necessarily indicative of the results to be expected for the year ending December 31, 1999. Note 2. Lines of Credit As discussed in Simpson's 1998 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 March 31, 1999, there were no borrowings outstanding under the 364-day agreement, and $9 million outstanding under the five-year agreement. 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. 5 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net sales for the first quarter of 1999 increased 6.0%, or $7.5 million, over the first quarter of 1998. Weakness in the European market was offset by strong North American sales growth, particularly within the medium- and heavy-duty truck markets. Approximately $1.0 million of the sales growth was due to the April 1, 1998, acquisition of Stahl International, Inc. Cost of products sold as a percent of sales increased slightly, from 89.1% in the first quarter of 1998 to 89.2% in the first quarter of 1999 reflecting a slight increase in direct production costs. Administrative and selling costs decreased from 2.4% of sales for the first quarter of 1998 to 2.1% of sales for the first quarter of 1999. The decrease can be attributed to the effects of recent cost cutting initiatives. Interest and other expense decreased from 2.0% of sales in the first quarter of 1998 to 1.6% of sales in the first quarter of 1999, primarily due to lower debt levels. As a result, operating earnings increased 9.1%, from $10.1 million as of March 31, 1998 to $11.0 million as of March 31, 1999 and net earnings rose 16.8%, from $4.9 million to $5.7 million over the same period. Cash flow from operations increased $1.7 million, from $3.5 million for the first three months of 1998 to $5.2 million for the first three months of 1999. Net cash used in investing activities totaled $5.0 million as of March 31, 1999, up $0.7 million from the $4.3 million used as of March 31, 1998. These expenditures represent the Company's investment in production capacity for new automotive, light truck and diesel engine programs. Cash Flow Before Financing Activities increased $0.9 million, from ($0.7) million as of March 31, 1998 to $0.2 million as of March 31, 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 $25 million under a 364-day agreement. Since December 31, 1998, up to $10 million has been borrowed under the five-year agreement. At March 31, 1999, $9 million in borrowings were outstanding under the five-year agreement. 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, Year 2000 compliance 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, fluctuation in demand for the company's products, the activities of competitors, and various other factors outside of the company's control. The company does not intend to update these forward-looking statements. The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging Activities", which establishes accounting and reporting standards for derivative instruments and hedging activities. Any future effects will be incorporated into the current year's financial statements. Many computer systems and software products refer to years in terms of their final two digits only. Such programs may interpret the year 2000 6 to mean the year 1900 instead. If not corrected, these programs could cause date-related transaction failures. 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. 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 have been asked to verify their Year 2000 readiness. We plan to conduct audits at key supplier locations by June 30, 1999. Our computer operations provider and disaster recovery site have advised us they will be compliant by the same date. Our central computing hardware and operating software have been updated and are now compliant. While many of our machine tools use programmable logic controllers, they operate independently and are not connected to a computer network. These controllers will be tested by July 31, 1999. Contingency plans will be completed by May 1999. Several automated and manual approaches are being considered to offset anticipated problems in the supply chain. 7 Part II. Other Information ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of shareholders of Simpson Industries, Inc. was held on April 20, 1999 in Bluffton, IN. The following matters were submitted to a vote of security holders. 1. The following persons were elected to the Board of Directors until the 2000 annual meeting: Votes In Nominee Favor Withheld ------- -------- -------- George R. Kempton 15,013,351 637,911 Ronald L. Roudebush 15,039,164 612,098 George A. Thomas 15,023,852 627,410 F. Lee Weaver 15,035,833 615,429 2. Proposal to eliminate classification of Board of Directors and provide for the annual election of all Directors: Votes In Favor 12,247,182 Votes Against 385,582 Votes Withheld/Abstentions 984,519 Non-Votes 2,033,979 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 March 31, 1999. 8 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 May 11, 1999 /s/Vinod M. Khilnani ----------------------- Vinod M. Khilnani Vice President and Chief Financial Officer 9