SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
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 (I.R.S. Employer
incorporation or organization) Identification No.)
47603 Halyard Drive, Plymouth, Michigan 48170
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(313)207-6200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $ 1.00 par value
(Title of Class)
Common Stock Purchase Rights
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
annual, quarterly and other reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the
registrant has been required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the registrant's voting stock held
by non-affiliates of the registrant as of February 21, 1997,
computed by reference to the last sale price for such stock on
that date as reported on the NASDAQ National Market System, was
$175,718,574.
At February 21, 1997, there were outstanding 18,072,226 shares of
the registrant's common stock, $1.00 par value each.
Portions of the Proxy Statement for 1997 Annual Meeting of
Shareholders have been incorporated by reference in this Annual
Report on Form 10-K (Part III).
PART I
ITEM 1. BUSINESS
Introduction
Simpson Industries, Inc. (the "Company") was organized under
Michigan law in 1945. The Company's executive offices are
located in Plymouth, Michigan, and the eleven plants at which its
manufacturing operations are conducted are located in Michigan,
Ohio, Indiana, North Carolina, Ontario (Canada) and Federal
District of Mexico (Mexico). Reference in this report to the
Company includes Simpson Industries, Inc., its predecessors,
divisions and subsidiaries, unless otherwise indicated by the
context.
Principal Products and Markets
The Company manufactures vibration control and other products for
automobile, light-truck and diesel engines, air conditioning
compressor components, wheel-end and suspension components and
assemblies, and transmission and driveline components which are
machined from castings and forgings. These products are produced
principally for original equipment manufacturers of automobiles,
light trucks, diesel engines and heavy duty equipment in North
America.
The Company's operations are organized into two management groups
- - --- Automotive Group and Heavy Duty Group. The Company maintains
product design and process development staffs which work with
customers' engineers, principally in the design, testing and
development of new products, as well as in the on-going
refinement of existing products. The Company also conducts its
own research and development activities which are separate from
the product development activities conducted in cooperation with
its customers. The Company expended $2,944,000 in 1996,
$2,309,000 in 1995 and $2,033,000 in 1994 for its research and
development.
Competition in the sale of all of the Company's products is
primarily based on engineering, product design, process
capability, quality, cost, delivery and responsiveness. The
Company believes that its performance record in these respects
places it in a strong competitive position. The Company believes
that, in the manufacture of its products, it competes with
numerous supplier companies, some of which are larger and have
greater financial resources than the Company. In addition, many
of the Company's larger customers are capable of performing their
own machining work.
The Company's customers to which sales exceeded 10% of total net
sales include General Motors Corporation, Ford Motor Company and
Chrysler Corporation. Substantially all of the Company's sales
are based on competitive proposals on requests from customers.
Sales of all products to General Motors Corporation, Ford Motor
Company and Chrysler Corporation during the years ended December
31, 1996, 1995 and 1994 accounted for 63.5%, 65.1%, and 71.1%,
respectively, of the Company's total sales during those periods.
In recent years, sales to other significant customers, in
particular Consolidated Diesel Corporation, Caterpillar
Incorporated, Mitsubishi Motors Corporation and other Japanese
manufacturers, have grown in importance as the Company has
broadened its customer base and more narrowly focused its product
direction. However, the loss of all or a substantial portion of
sales to major customers could have a detrimental effect on the
Company's business. The Company believes that such a loss is
unlikely because the Company's products, which generally have a
life of five to ten years, require a substantial initial
investment in engineering, equipment and tooling. Moreover,
sales to automotive customers consist of a large number of
different products as well as different types of the same
products, which are sold to separate divisions and operating
groups within each customer's organization. These customer
operating units generally act independently when making their
purchasing decisions.
Because the Company principally ships to its customers' scheduled
needs, information concerning its backlog is not meaningful to an
understanding of its business. Purchase orders for machined
products that do not necessarily represent firm contracts are
generally received from larger customers. Customers issue short-term releases
against the purchase orders from time to time
during the year and these releases are firm orders that typically
remain open for acceptance by the Company for a period of 30 days
or less.
The basic raw materials for the Company's products include
aluminum and ferrous castings, steel forgings, steel bar stock
and rubber, all of which are available from a large number of
sources. The Company has been purchasing such materials from
several sources.
The Company holds various patents and, from time to time, in the
ordinary course of its business, files patent applications.
However, the Company does not consider any individual patent or
patent application to be material to the operation of its
business.
The Company's operations, in common with those of manufacturers
generally, are subject to numerous federal, state and local laws
and regulations pertaining to the discharge of materials into the
environment or otherwise relating to the protection of the
environment. Compliance with such laws and regulations has not
had and is not anticipated to have a material effect on the
capital expenditures, earnings or competitive position of the
Company.
At December 31, 1996, the Company employed 2,115 people on an
active basis.
Since most of the Company's machined products are for engines,
transmissions and drive trains, they are generally not affected
by style changes and their production and delivery continue at a
relatively uniform rate. However, the Company's operations are
affected by the cyclical nature of the United States automobile,
light-truck and heavy-duty vehicle markets.
The Company's operations are conducted within one business
segment and sales attributable to customers outside the United
States from U.S. operations were $57,800,000 in 1996, $56,200,000
in 1995 and $46,800,000 in 1994.
ITEM 2. PROPERTIES
The following table sets forth the location and approximate size
of the Company's facilities. Principally, owned properties are
facilities involved in the manufacture of the Company's products
and are owned by the Company and its subsidiaries free of
encumbrances. All of these properties, as well as the related
machinery and equipment, are considered to be well-maintained,
suitable and adequate for their intended purpose.
PROPERTIES IN ACTIVE USE
Approximate Approximate
Location Land Area Floor Space
Gladwin, Michigan........... 5.0 Acres 71,000 Square Feet
Jackson, Michigan........... 11.0 93,000
Litchfield, Michigan........ 22.8 230,000
Plymouth, Michigan.......... 5.5 68,000
Middleville, Michigan....... 3.5 82,500
Fremont, Indiana............ 13.7 99,000
Bluffton, Indiana........... 12.5 170,000
Edon, Ohio.................. 15.2 134,000
Troy. Ohio.................. 12.2 100,000
Greenville, North Carolina.. 12.6 113,000
Thamesville, Ontario........ 6.0 59,000
Iztapalapa, Mexico.......... 2.8 86,000
TOTAL IN ACTIVE USE 122.8 1,305,500
ITEM 3. LEGAL PROCEEDINGS
No material legal proceeding is pending to which the Company or
any of its subsidiaries is a party, or of which any of their
property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted by the Company to a vote of security
holders through the solicitation of proxies or otherwise, during
the fourth quarter of 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
STOCK PRICE AND DIVIDEND INFORMATION
The Company's common stock is traded on the NASDAQ National
Market Issue under the symbol SMPS.
Stock prices are quoted in the automated quotation system
operated by the National Association of Securities Dealers
Automated Quotation System (NASDAQ). The quarterly range of bid
prices per share, as reported by NASDAQ, and the dividends paid
thereon during the years ended December 31, 1996 and 1995 are
shown in the accompanying table. Such prices may represent
interdealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
At December 31, 1996 there were 3,928 individual shareholders of
record of Simpson common stock. Other Simpson common shares
outstanding were held in bank, money management, company and
brokerage house "nominee" accounts for an estimated 4,500
additional shareholders as beneficial owners.
Bid Price Per Share Dividend
Quarter Ended High Low Paid Per Share
March 31, 1995 10 1/8 9 .10
June 30, 1995 11 1/4 9 3/8 .10
September 30, 1995 12 1/8 8 5/8 .10
December 31, 1995 9 7/8 8 .10
March 31, 1996 10 1/8 8 3/8 .10
June 30, 1996 10 1/4 8 5/8 .10
September 30, 1996 10 1/2 8 1/2 .10
December 31, 1996 11 1/8 9 1/2 .10
PAGE
<PAGE>
Item 6. Selected Financial Data
Five Year Summary
(Dollar amounts in millions, except per share and per employee)
1996 1995 1994 1993 1992
Operating Data
Net sales $408.0 $395.1 $356.6 $262.5 $222.8
Cost of products
sold 365.3 354.4 319.6 234.2 197.3
Gross profit 42.7 40.7 37.0 28.3 25.5
as a % of sales 10.5 10.3 10.4 10.8 11.5
Operating earnings 29.6 28.8 26.8 19.4 16.7
as a % of sales 7.3 7.3 7.5 7.4 7.5
Net earnings 17.6* 15.3 14.4 6.4*** 8.0
as a % of sales 4.3 3.9 4.0 2.5 3.6
Net earnings per
share 0.97 0.85 0.80 0.36 0.47
Dividend per share 0.40 0.40 0.38 0.37 0.37
Weighted average
shares (millions) 18.1 18.0 18.0 17.9 16.9
AT YEAR END
Current assets $94.2 $82.0 $70.5 $70.9 $76.9
Working capital 45.0 40.3 31.7 34.5 49.7
Total assets 249.0 232.5 207.0 186.8 170.0
Long-term debt 58.6 62.3 50.4 39.0 37.0
Shareholders'
equity 116.0 105.1 98.0 91.5 91.8
Book value per
share 6.42 5.84 5.47 5.12 5.16
% Debt/equity 51 59 51 43 40
% Debt/total capital 35 38 35 31 30
<PAGE>
Additional Statistics
New program launches 6 10 23 20 N/A
Content per N.A.light
vehicle $22 $22 $20 $16 $15
Sales per share $22.53 $21.91 $19.81 $14.64 $13.16
Depreciation 20.5 18.9 16.3 14.2 13.4
Capital investment 26.3 31.5 38.2 37.5 22.4
% return on average
equity 15.9 15.1 15.2 7.0 10.2
Sales per employee 190,654 186,706 182,240 163,034 148,451
Operating earnings
per employee 13,832 13,594 13,704 12,041 11,147
Number of employees,
year end 2,115 2,050 2,135 1,768 1,507
Stock Activity
Price Range 8 3/8 - 8 - 7 /78- 10 1/2- 8 -
11 1/8 12 1/8 15 21/32 14 21/32 13 5/32
Price at year end 10 57/64 9 9 1/4 14 3/32 10 13/32
* Includes $1.1 million for tax credits.
** Includes $3 million net charge for accounting changes.
N/A - Not available for 1992 and earlier years.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.
Results of Operation
1996 Compared to 1995
The company's net sales reached a new record level in 1996 at
$407,999,000, 3% over the previous record of $395,069,000 set in
1995. Six new product programs were launched during 1996, but
the major factors contributing to higher volumes were the
annualized effects of the 10 more-significant 1995 launches.
Additionally, the strength in the company's diesel engine
business, particularly in support of medium-duty engine
production levels boosted sales volume. Light vehicle production
was up 2% in North America, on the strength of light trucks.
Automobile production volume for the year was down at the Big 3
by 6% from 1995, reflective of the work stoppages at GM in the
first and fourth calendar quarters which reduced the company's
sales. Management expects sales for 1997 to be comparable to
1996, as light vehicle and heavy-duty truck markets continue to
experience some softness.
Operating earnings increased 2.8% from $28,764,000 to $29,573,000
for 1996. The operating margin, at 7.3% remained comparable to
1995 as our Mexican operation was profitable all year and we
experienced improvements in certain key operations. This was
offset by the effect of the GM strikes and lower passenger car
and heavy-duty engine production levels at customers.
Investment and other income was $1,425,000 in 1996, up $278,000
from 1995, due to higher average invested balances and interest
on tax refunds. Interest expense decreased $160,000 from 1995 as
a result of lower average debt balances.
Income tax expense for 1996 represents an effective rate of 31.3%
compared to 37.3% for 1995, which is lower due to the recognition
of federal tax credits totaling $1,100,000 relating to prior
years.
1995 Compared to 1994
Net sales for 1995, at $395,069,000 were 11% above the
$356,643,000 level of 1994. The major reason for the sales
increase from 1994 to 1995 was the volume on several significant
new product programs in addition to an increase in production
levels for medium and heavy-duty diesel engines for vehicles and
non-vehicular use.
Operating earnings, as a percentage of sales, were 7.3% and 7.5%
for 1995 and 1994, respectively. This margin decreased slightly
due principally to a shift in product mix and margin pressure
caused by higher fixed costs and relatively flat volume in the
second half of the year. Offsetting some of these effects were
the impact of productivity gains on existing production lines and
lower new program launch costs than in 1994.
Investment and other income was $1,147,000 in 1995, up from
$617,000 in 1994 due to higher average invested balances.
Interest expense increased $1,170,000 from 1994 as a result of
additional long-term borrowing in 1995.
The effective rate for income tax expense was 37.3% for 1995
compared to 37.8% for 1994 due to the reduced influence of state
and foreign taxes.
Liquidity and Capital Resources
Net cash generated from operations was $50,794,000 in 1996
compared to $35,781,000 in 1995 and $20,778,000 in 1994. The
cash flows were primarily provided from earnings and depreciation
expense and, in 1996, reduced working capital needs.
During 1996, $26,296,000 was invested in capital equipment and
plant expansions compared to $31,510,000 in 1995. The investment
was lower in 1996 due to the completion in 1995 of various
building and infrastructure improvements and due to lower
investment needed for new program spending. Capital expenditures
for 1997 are expected to approximate $35 million and will
principally support new business and infrastructure enhancements
around the organization.
During 1995, the Company entered into bank term loan agreements
for $20,000,000 and $4,050,000. The $20,000,000 debt agreement
carries an interest rate of 8.45% and is payable over a 10-year
period. The $4,050,000 debt agreement carries an interest rate
of 8.82% and is payable over 8 years. During 1995 the Company
repaid a $10,000,000 bank term loan and additional cash was used
to prepay $750,000 of higher-cost debt in addition to the
$1,500,000 scheduled repayment. During 1994, the Company drew
down the remaining $15,000,000 under a $20,000,000 unsecured loan
agreement, originated in 1993, at an interest rate of 6.75% and
payable over 15 years. Prepayments of $1,500,000 of higher-cost
debt were also made in 1994.
The Company has paid uninterrupted cash dividends each year since
becoming publicly-owned in 1972. Dividends paid in 1996 were
$7,229,000 compared to $7,192,000 in 1995 and $6,930,000 in 1994,
reflecting the increased dividend rate in mid-1994. The per-share dividend rate
for years 1996, 1995 and 1994 was $.40 per
share, $.40 per share and $.38 per share, respectively.
The Company maintains a revolving credit facility and other
short-term borrowing arrangements which total $24,620,000, of
which $3,172,000 was committed as letters of credit at December
31,1996. The Company had no short-term borrowings at December
31, 1996 or December 31, 1995.
The Company's long-term debt (excluding current installments) was
$58,643,000 at December 31, 1996 compared to $62,270,000 at
December 31, 1995. Interest rates on the long-term debt range
from 6.75% to 9.98%. The Company is subject to restrictions on
additional borrowing and maintenance of minimum net worth and
working capital requirements.
The Company believes that existing cash balances, cash from
operations, and borrowings available under its revolving credit
facility and other short-term arrangements will be sufficient to
meet its anticipated operating cash needs for the foreseeable
future.
Impact of Inflation
The Company does not expect that it will be significantly
affected by inflation in 1997.
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended December 31
1996 1995 1994
Net sales $407,999 $395,069 $356,643
Costs and expenses:
Cost of products sold 365,253 354,436 319,557
Administrative and selling 13,173 11,869 10,268
378,426 366,305 329,825
Operating Earnings 29,573 28,764 26,818
Investment and other income, net 1,425 1,147 617
Interest expense (5,354) (5,514) (4,344)
Earnings Before Income Taxes 25,644 24,397 23,091
Income taxes 8,037 9,095 8,722
Net Earnings $ 17,607 $ 15,302 $ 14,369
_______ _______ ________
Net Earnings Per Share $.97 $.85 $.80
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<S> <C> <C> <C>
Year Ended December 31
1996 1995 1994
OPERATING ACTIVITIES
Net earnings $17,607 $15,302 $14,369
Adjustments to reconcile net earnings
to cash provided by operating
activities:
Depreciation 20,497 18,921 16,330
Provision for deferred income taxes (102) 1,234 (874)
Amortization of restricted stock 363 330 272
Loss (gain) on disposition of assets 217 (113) (41)
Changes in operating assets and
liabilities:
Accounts receivable 6,186 985 (14,660)
Inventories (1,153) (1,660) (2,797)
Other assets (655) (4,052) 5,443
Accounts payable and accrued
expenses 7,834 4,834 2,736
Cash Provided By Operating
Activities 50,794 35,781 20,778
INVESTING ACTIVITIES
Sale of marketable securities -- 2,491 83
Capital expenditures (26,296) (31,510) (38,239)
Proceeds from disposal of property
and equipment 171 1,069 478
Cash Used In Investing Activities (26,125) (27,950) (37,678)
FINANCING ACTIVITIES
Cash dividends paid (7,229) (7,192) (6,930)
Principal repayments of long-term debt (2,078) (12,250) (3,000)
Proceeds from long-term borrowings --- 24,050 15,000
Cash provided by stock transactions, net 243 42 78
Cash (Used In) Provided By Financing
Activities (9,064) 4,650 5,148
Effect of foreign currency exchange
rate changes (193) (1,312) (1,420)
Increase (Decrease) In Cash and Cash
Equivalents 15,412 11,169 (13,172)
Cash and cash equivalents at beginning
of year 13,490 2,321 15,493
Cash And Cash Equivalents At
End Of Year $28,902 $13,490 $ 2,321
</TABLE>
See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31
1996 1995
ASSETS
Current Assets
Cash and cash equivalents $28,902 $ 13,490
Accounts receivable 41,032 47,218
Inventories 14,034 12,881
Customer tooling in process 4,002 1,334
Prepaid expenses and other
current assets 6,256 7,068
Total Current Assets 94,226 81,991
Property, Plant and Equipment, at cost
Land 3,116 3,146
Buildings and improvements 49,058 45,777
Machinery and equipment 226,055 205,651
278,229 254,574
Less accumulated depreciation 126,152 107,908
Net Property, Plant and Equipment 152,077 146,666
Other Assets 2,653 3,854
$248,956 $232,511
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current installments of
long-term debt $ 3,579 $ 2,030
Accounts payable 28,455 21,353
Compensation and amounts withheld 10,203 9,876
Taxes, other than income taxes 2,597 2,942
Other accrued expenses 4,354 5,532
Total Current Liabilities 49,188 41,733
Long-Term Debt, excluding current
installments 58,643 62,270
Accrued Retirement Benefits 14,015 12,439
Deferred Income Taxes 11,118 10,992
Shareholders' Equity
Common stock, par value $1 per share:
Authorized - 35,000,000 shares
Outstanding - 18,080,002 shares
(1995 - 17,981,485 shares) 18,080 17,981
Additional paid-in capital 24,366 23,646
Retained earnings 79,274 68,896
Unamortized value of restricted stock (2,028) (1,815)
Cumulative foreign currency translation
adjustments (3,692) (3,499)
Excess pension cost (8) (132)
Total Shareholders' Equity 115,992 105,077
$248,956 $232,511
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Cumulative
Unamortized Foreign
Additional Value Of Currency Excess
Common Paid-In Retained Restricted Translation Pension
Stock Capital Earnings Stock Adjustments Cost Total
Balance at Jan-
uary 1, 1994 $11,914 $28,586 $53,347 $(1,410) $ (767) $ (123) $91,547
Net earnings
for 1994 14,369 14,369
Cash dividends
-$.38 per share (6,930) (6,930)
3-for-2 stock
distribution 5,975 (5,977) (2)
Exercise of
stock options,
net 14 66 80
Restricted stock
awards, net 26 526 (552) ---
Amortization of
restricted stock 272 272
Translation adjust-
ment for the year (1,420) 1,420)
Excess pension cost
adjustment 123 123
Balance at
December 31, 1994 17,929 23,201 60,786 (1,690) (2,187) --- 98,039
Net earnings for
1995 15,302 15,302
Cash dividends
-$.40 per share (7,192) (7,192)
Exercise of stock
options, net 7 35 42
Restricted stock
awards, net 45 410 (455) ---
Amortization of
restricted stock 330 330
Translation adjust-
ment for the year (1,312) (1,312)
Excess pension cost
adjustment (132) (132)
Balance at Decem-
ber 31, 1995 17,981 23,646 68,896 (1,815) (3,499) (132) 105,077
Net earnings
for 1996 17,607 17,607
Cash dividends
-$.40 per share (7,229) (7,229)
Exercise of stock
options, net 35 208 243
Restricted stock
awards, net 64 512 (576) ---
Amortization of
restricted stock 363 363
Translation ad-
justment for the
year (193) (193)
Excess pension
cost adjustment 124 124
Balance at Decem-
ber 31, 1996 $18,080 $24,366 $79,274 $(2,028) $(3,692) $ (8) $115,992
</TABLE>
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Significant Accounting Policies
Description of the Business: The Company is a supplier of
precision-machined powertrain and chassis products to the global
automotive and heavy duty diesel engine markets, supplying in
excess of 700 different components and assemblies to original
equipment manufacturers located principally in North America.
Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and all subsidiaries after
elimination of intercompany accounts and transactions.
Foreign Currency Translation: Translation adjustments from foreign
subsidiaries are reflected in the financial statements as a
separate component of shareholders' equity. Foreign currency
gains and losses resulting from transactions are included in
determining net earnings.
Cash Equivalents: Cash equivalents include all liquid investments
purchased with a maturity of three months or less.
Financial Instruments: Financial instruments consist primarily of
cash and cash equivalents, accounts receivable, accounts payable
and long-term debt. At December 31, 1996, the fair value of these
financial instruments approximates the carrying amount with the
exception of long-term debt as discussed in Note C.
Inventories: Inventories are stated at the lower of cost or
market. Costs are determined by the last-in, first-out (LIFO)
method for domestic inventories and by the first-in, first-out
(FIFO) method for foreign inventories.
Depreciation: Depreciation is computed using the straight-line
method at annual rates which are sufficient to amortize the cost
over the estimated useful lives.
Customer Tooling: Costs incurred for customer-owned tooling in
excess of amounts billed to date are recorded as customer tooling
in process. Costs for customer-owned tooling which will be
recovered as parts are shipped are included with other assets.
Income Taxes: Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date. No deferred income taxes have been provided for
the income tax liability of approximately $350,000 which would be
incurred on repatriation of the permanently reinvested portion of
unremitted earnings of the foreign subsidiaries.
Net Earnings Per Share: Net earnings per share are computed based
upon the weighted average shares of common stock and common stock
equivalents (stock options) outstanding during the year as
adjusted for a 3-for-2 stock distribution in 1994. The average
common and common equivalent shares used in the computation of
earnings per share was 18,108,439 in 1996; 18,035,060 in 1995; and
18,000,795 in 1994.
Long-Lived Assets: The Company adopted the provisions of SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, on January 1, 1996. This
statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may
not be recoverable. Adoption of this statement did not have an
impact on the Company's financial position or results of
operations.
Stock Based Compensation: Effective January 1, 1996, the Company
adopted SFAS No. 123 "Accounting for Stock-Based Compensation".
The Company adopted this standard by making the required
disclosures only. The adoption of this standard did not have an
effect on the Company's financial position or results of
operations.
Use Of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make reasonable estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of
the financial statements and the reported net earnings for the
period. Ultimate resolution of uncertainties could cause actual
results to differ from these estimates.
Note B - Inventories
The components of inventories are summarized as follows:
(In thousands)
1996 1995
Finished and in-process products $ 9,881 $ 7,971
Raw materials 4,153 4,910
$14,034 $12,881
The LIFO inventories comprise approximately 94% and 96% of total
inventories at December 31, 1996 and 1995, respectively.
The replacement cost of inventories exceeded the balance sheet
carrying amounts by approximately $5,600,000 and $5,500,000 at
December 31, 1996 and 1995, respectively.
Note C - Debt
Long-term debt at December 31 consisted of the following
obligations:
(In thousands) 1996 1995
8.8% Note payable due 1999 $ 3,750 $ 5,250
9.98% Note payable due 2006 15,000 15,000
6.75% Bank term note due 2008 20,000 20,000
8.45% Bank term note due 2005 20,000 20,000
8.82% Bank term note due 2003 3,472 4,050
62,222 64,300
Less current installments 3,579 2,030
Long-term debt, excluding current
installments $58,643 $62,270
As of December 31, 1996 the estimated fair value of long-term
debt, discounted at current interest rates, was $67,200,000.
Under the terms of its loan agreements, the Company is subject to
restrictions concerning additional borrowings and maintenance of
minimum net worth and working capital. At December 31, 1996,
retained earnings of approximately $35,830,000 were unrestricted.
The Company has a revolving bank loan agreement under which it may
borrow up to $12,000,000 through April 1, 2001 with interest at
the lower of the bank's prime interest rate or a Eurodollar rate.
Commitment fees are paid on the available credit.
The Company also has short-term credit lines with banks under
which it may borrow up to $12,620,000, of which $3,172,000 was
committed as letters of credit at December 31,1996. The contract
amount of the letters of credit approximate their fair value. The
lines do not have termination dates, but are reviewed
periodically.
No compensating balances are required by any of the loan
agreements.
Principal maturities of long-term debt during the four years
following 1997 are as fol-lows: 1998 - $3,579,000; 1999 -
$4,829,000; 2000 - $6,079,000; and 2001 - $8,079,000.
Interest paid approximates interest expense for each year.
Note D - Income Taxes
The components of earnings before income taxes were as follows:
(In thousands) 1996 1995 1994
Domestic $23,047 $21,772 $19,849
Foreign 2,597 2,625 3,242
$25,644 $24,397 $23,091
The provisions for income tax expense were as follows:
(In thousands) 1996 1995 1994
Current:
Federal $6,730 $6,439 $7,430
Foreign 822 1,109 1,584
State 587 313 582
8,139 7,861 9,596
Deferred:
Federal 66 1,078 (684)
Foreign (330) 73 (44)
State 162 83 (146)
(102) 1,234 (874)
$8,037 $9,095 $8,722
Income taxes paid $7,995 $7,650 $9,434
A reconciliation of income tax expense to the amount computed by
applying the statutory federal income tax rate to earnings before
income taxes follows:
(In thousands) 1996 1995 1994
Income taxes at federal statutory rate $8,975 $8,539 $7,982
State income tax, net of federal benefit 487 257 285
Foreign operating loss (310) 196 435
Federal tax credits (1,100) --- ---
Other, net (15) 103 20
$8,037 $9,095 $8,722
The tax effects of temporary differences that give rise to
significant deferred tax assets and liabilities at December 31 are
as follows:
1996 1995
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
(In thousands) Assets Liabilities Assets Liabilities
Plant and equipment $ ---- $15,880 $ --- $14,458
Accrued retirement benefits 4,412 --- 4,382 ---
Other accrued expenses 2,948 --- 2,725 ---
Foreign net operating loss
carryforward 390 --- 696 ---
Federal tax credits 1,066 --- --- ---
Other items 391 804 372 990
9,207 16,684 8,175 15,448
Valuation allowance (390) --- (696) ---
$8,817 $16,684 $7,479 $15,448
As of December 31,1996, the Company has unrecognized foreign net
operating loss carryforwards of approximately $1,100,000 that
begin expiring in 2003.
Deferred income tax assets of $3,251,000 and $3,023,000 are
included in other current assets at December 31, 1996 and 1995,
respectively.
Note E - Pension Plans
The Company has non-contributory defined benefit pension plans
covering substantially all employees, subject to eligibility
requirements. Benefits are based upon a percentage of
compensation or monthly rates times years of service. Plan assets
are held by a trustee and invested in marketable debt and equity
securities and short-term investments. Benefits for certain
employees are provided through multi-employer defined benefit
plans. The Company also has an unfunded supplemental executive
retirement plan for senior management with benefits based on
compensation and years of service. Contributions to pension plans
are sufficient to provide for both current service costs and
amortization of past service costs over a reasonable period.
Net pension expense for 1996, 1995 and 1994 included the following
components:
1996 1995 1994
Assumptions used were:
Discount rate 7.75% 8.5% 7.5%
Rate of increase in
compensation levels 5% 5% 5%
Expected annual long-term
rate of return on assets 9% 9% 9%
(In thousands)
Benefits earned during the year $2,114 $1,548 $1,656
Interest cost on projected
benefit obligation 2,307 2,142 1,982
Actual return on assets (3,046) (2,591) (316)
Net amortization and deferral 1,391 804 (1,313)
Multi-employer plans 544 574 506
$3,310 $2,477 $2,515
The following table sets forth the plan's funded status at
September 30:
1996 1995
Assumptions used were the
same as above, except:
Discount rate 8.0% 7.75%
Plans in Which Plans in Which
Assets Accum. Assets Accum.
Exceed Benefits Exceed Benefits
(In thousands) Accum. Exceed Accum. Exceed
Benefits Assets Benefits Assets
Actuarial present value of:
Vested benefit obligation $6,849 $15,561 $6,712 $13,911
Accumulated benefit obligation 7,640 16,821 $7,125 $14,318
Projected benefit obligation 10,360 22,146 $10,270 $19,512
Plan assets at fair value 9,181 14,468 8,148 11,912
Deficiency of assets under pro-
jected benefit obligation (1,179) (7,678) (2,122) (7,600)
Unrecognized net loss 235 3,180 1,760 3,550
Unrecognized net asset (309) (46) (407) (97)
Unrecognized prior service cost 527 482 581 432
Additional minimum liability --- (290) --- (569)
Accrued pension liability
included in the balance sheets $ (726) $(4,352) $ (188) $(4,284)
The Company has recorded an additional minimum liability at December 31, 1996
and 1995, representing the excess of the unfunded accumulated benefit
obligations over the fair value of plan assets and accrued pension liabilities.
The additional liability has been offset by intangible assets to the extent of
previously unrecognized prior service cost.
Certain employees participate in Company-sponsored 401(k) savings plans. Under
the plans, the Company contributes a defined amount to individual employee
accounts based on the respective employee's contribution. Contributions
approximated $1,490,000; $1,340,000 and $1,050,000 in 1996, 1995 and 1994,
respectively.
Note F - Retiree Medical Benefits
The Company provides medical benefits to certain retired employees, their
covered dependents, and beneficiaries. Generally, employees who have attained
age 55 and who have rendered 10 years of service are eligible for these
benefits. Certain medical plans are contributory and other medical plans are
noncontributory.
The retiree medical benefit cost for 1996, 1995 and 1994 consisted of the
following:
1996 1995 1994
Assumed discount rate 7.75% 8.5% 7.5%
(In thousands)
Benefits earned during the year $ 612 $ 464 $ 547
Interest cost on accumulated retiree
medical benefits 693 770 739
Net amortization 5 12 88
$1,310 $1,246 $1,374
The Company's retiree medical benefits are not funded. The following table
presents the actuarial present value of the obligation at September 30
reconciled with amounts recognized in the balance sheet:
1996 1995
Assumed discount rate 8.0% 7.75%
(In thousands)
Accumulated retiree medical benefits
obligation:
Retirees $ 2,924 $ 3,002
Fully-eligible, active plan participants 1,390 1,212
Other active employees 5,387 6,302
9,701 10,516
Unrecognized net gain (loss) 612 (1,068)
Unamortized prior service cost (69) (74)
$10,244 $ 9,374
Other actuarial assumptions used for the Company's retiree health care plans
include:
(Dollars in thousands) 1996 1995 1994
Medical cost trend rate (a) 8% 11% 12%
Effect of a 1% point increase in the
medical cost trend rate on the accumulated
retiree medical benefit obligation $1,574 $1,761 $1,517
Effect of a 1% point increase in the medical
cost trend rate on the aggregate of the
service and interest cost $ 270 $ 245 $ 193
(a) Beginning in 1996, the medical cost trend rate is assumed to be 8% and to
decrease .5% per year to 5.5% in 2001 and remaining at that level thereafter.
In 1995, the medical cost trend rate was set at 11% and assumed to decrease 1%
per year to 6% in 2000 and remaining at that level thereafter.
The unrecognized net gain (loss) is amortized over the average remaining
service period of 15 years of active plan participants.
Note G - Long-Term Incentive Plans
The Company has long-term incentive plans under which employees or directors may
be granted stock options or other long-term incentives. The 1984 Plan, which
allowed for options to be granted for up to 1,687,500 common shares, was
terminated in 1993. Options and restricted shares previously granted under the
1984 Plan remain outstanding for up to 10 years. Stock appreciation rights
(SARs), which provide that optionees may receive cash in lieu of shares, were
also granted in conjunction with stock option grants.
In 1993, the Company adopted the 1993 Executive Long-Term Incentive Plan for
employees. The 1993 Plan permits the grant of stock options, restricted stock,
stock appreciation rights, performance shares and performance units. The
authorized share pool for making grants under the 1993 Plan is 1,350,000 common
shares. Also in 1993, the Company adopted the 1993 Non-Employee Director Stock
Option Plan. Under this plan, nonqualified stock options may be granted to non-
employee directors for up to 150,000 common shares.
Options granted have varying exercise dates within five years after grant date
and generally expire after ten years. At December 31, 1996 there were 1,427,445
of common stock reserved for issuance under the plans of which 985,330 are
available for future grants.
The Company applies APB Opinion 25 in accounting for its stock compensation
plans. Accordingly, no compensation cost has been recognized for the stock
options granted in 1996 or 1995. Had compensation cost for these options been
determined on the basis of fair value pursuant to SFAS No. 123, net income and
earnings per share would not have been significantly different.
Incentive plan activity is summarized as follows:
Stock Option Plans
Option Weighted Average Restricted
Shares Exercise Price Shares
1995:
Outstanding January 1, 1995 321,900 $8.93 167,000
Granted/awarded 101,360 10.00 66,560
Exercised (22,365) 6.67 ---
Restrictions lapsed --- --- (29,597)
Canceled/forfeited (8,250) 12.02 (18,472)
Outstanding 392,645 9.27 185,591
Exercisable 222,825 ---
Weighted-average fair
value of options granted
during the year $10.01
1996:
Granted/awarded 107,240 9.24 74,980
Exercised (37,050) 5.61 ---
Restrictions lapsed --- --- (34,726)
Canceled/forfeited (20,720) 12.11 (11,502)
Outstanding 442,115 9.44 214,343
Exercisable 226,143 ---
Weighted-average fair value
of options granted during
the year $9.25
Note H - Shareholder Rights Plan
In 1987 the Company adopted a Shareholder Rights Plan designed to discourage
partial or two-tier tender offers which could result in unequal treatment of
shareholders. Under the Plan, the right to purchase one share of common stock
was distributed for each outstanding share of the Company's common stock. This
plan was amended in 1989 to provide that the Rights become exercisable if a
person or group acquires, in a transaction not approved by the Board of
Directors, 20% or more of the Company's common stock. In addition, the
amendment permits the Board of Directors to declare a person or group owning 10%
or more of the Company's common stock an "Adverse Person," under certain
circumstances which also cause the Rights to become exercisable.
When exercisable, each Right entitles shareholders to purchase one share of the
Company's common stock at a specified exercise price. The Company will be
entitled to redeem the Rights at $.05 per Right up to, and including, the tenth
business day after the announcement that a 20% position has been acquired. If
the Company is acquired or certain other transactions occur after the Rights
become exercisable, each Right will entitle its holder to purchase, for the
exercise price, a number of the acquiring or surviving Company's common shares
having a market value of twice the exercise price. Rights were issued in 1987 to
shareholders and attached to each share issued thereafter until the earlier of
the dates the Rights become exercisable, expire or are redeemed. Rights expire
May 11, 1997, unless extended by the Board of Directors.
Note I - Commitments and Contingencies
The Company has been identified as a potentially responsible party under federal
environmental regulations to share in the cost of cleanups at two waste disposal
sites along with many other companies. While management believes the Company's
responsibility in these matters is minimal, it has established reserves which it
believes are adequate to cover potential liabilities.
Note J - Major Customers
The Company's operations are conducted within one business segment. Export sales
to customers from the United States were $57,800,000.
Net sales to major customers were:
(In thousands) 1996 1995 1994
General Motors Corporation $108,800 $109,200 $109,800
Ford Motor Company 86,700 92,900 89,300
Chrysler Corporation 63,400 55,000 54,400
Consolidated Diesel Company
and its parent companies,
Cummins Engine Company, Inc.
and Case Corporation 38,800 36,500 32,300
Caterpillar Inc. 35,900 25,900 20,000
Aggregate receivables for these customers at December 31, 1996 and 1995
approximate the same percent of total receivables as aggregate sales to these
customers bear to total sales.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Simpson Industries, Inc.
We have audited the accompanying consolidated balance sheets of Simpson
Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31,1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Simpson Industries,
Inc. and subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Detroit, Michigan
January 27, 1997
SUMMARY OF QUARTERLY RESULTS OF OPERATIONS
(In thousands, except per share amounts)
Quarter Ended
Mar.31 Jun.30 Sep.30 Dec.31
1996
Net sales $101,421 $110,049 $98,228 $98,301
Gross profit 10,383 14,266 8,919 9,178
Net earnings 3,957 5,971 3,443 4,236
Net earnings per share .22 .33 .19 .23
1995
Net sales $107,237 $103,600 $86,338 $97,894
Gross profit 12,381 11,912 6,625 9,715
Net earnings 5,562 4,911 1,435 3,394
Net earnings per share .31 .27 .08 .19
Net earnings for the quarter ended December 31, 1996 were increased by
$1,100,000 ($.06 per share)from federal tax credits.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
NONE
PART III
The information called for by the items within this part is included in the
Company's 1997 Proxy Statement, and is incorporated herein by reference, as
follows:
<PAGE>
Pages in 1997
Proxy Statement
Item 10. Directors and Executive Officers of the
Registrant (includes information set forth
in the 1997 Proxy Statement under "Further
Information - Compliance with Section 16(a)
of the Exchange Act") 1-3,13
Item 11. Executive Compensation 5-11
Item 12. Security Ownership of Certain Beneficial
Owners and Management 12
Item 13. Certain Relationships and Related Transactions N/A
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (2) All financial statement schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions.
(3) Exhibits. The following exhibits designated with a "+" symbol
represent the Company's management contracts or compensatory plans or
arrangements for executive officers:
3.1 Restated Articles of Incorporation, as amended (previously filed
as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988 and incorporated herein by reference)
3.2 Bylaws, as amended (previously filed as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 and
incorporated herein by reference)
4.1 Rights Agreement between Simpson Industries, Inc. and NBD Bank,
N.A., as Rights Agent, dated as of December 18, 1989 (previously filed as
Exhibit 4(a) to the Company's Current Report on Form 8-K, dated January 12, 1990
and incorporated herein by reference)
Letter from Simpson Industries, Inc. to State Street Bank and Trust,
N.A., dated July 8, 1994, appointing the latter as successor Rights Agent; and
letter from State Street Bank and Trust, N.A., to Simpson Industries, Inc.,
dated July 10, 1994, accepting such appointment (previously filed as Exhibit 4.1
to the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1994, and incorporated herein by reference)
10.2 Revolving Credit and Term Loan Agreement with Manufacturers
National Bank of Detroit and Continental Bank, N.A., dated as of October 5,
1989, as amended (previously filed as Exhibits 10.11, 10.2 and 10.2,
respectively, to the Company's Quarterly Reports on Form 10-Q for the quarters
ended September 30, 1989, September 30, 1991 and September 30, 1992, and
incorporated herein by reference)
Amendment No. 1 to Amended and Restated Revolving Credit Agreement
with Comerica Bank (successor in interest by reason of merger to Manufacturers
Bank N.A., formerly known as Manufacturers National Bank of Detroit) and Bank of
America Illinois (formerly known as Continental Bank, N.A.), dated as of
December 17, 1993 (previously filed as Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated
herein by reference)
Amendment No. 2 to Amended and Restated Revolving Credit Agreement
with Comerica Bank (successor in interest by reason of merger to Manufacturers
Bank N.A., formerly known as Manufacturers National Bank of Detroit) and Bank of
America Illinois (formerly known as Continental Bank, N.A.), dated as of
November 1, 1994 (previously filed as Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, and
incorporated herein by reference)
Amendment No. 3 to Amended and Restated Revolving Credit Agreement
with Comerica Bank, dated as of August 1, 1996 (previously filed as Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996)
10.3 Note Agreement with Aetna Life Insurance Company, dated June 12,
1986 (previously filed as Exhibit 10.3 to the Company's Current Report on Form
8-K, dated June 12, 1986 and incorporated herein by reference) Amendment to Note
Agreement with Aetna Life Insurance Company, dated November 17, 1994 (previously
filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, and incorporated herein by reference)
10.4 1984 Stock Option Plan, as amended (previously filed as Exhibit
10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988 and incorporated herein by reference)
10.8 Supplemental Executive Retirement Plan (previously filed as
Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988, and incorporated herein by reference)
10.10 Letter Agreement, dated September 12, 1989, with Roy E. Parrott
(previously filed as Exhibit 10.10 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1989 and incorporated herein by
reference)
Amendment to Letter Agreement with Roy E. Parrott, dated March 15,
1994 (previously filed as Exhibit 10.10 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, and incorporated herein by
reference)
10.11 Note Agreement with Massachusetts Mutual Life Insurance
Company, dated August 15, 1991 (previously filed as Exhibit 10.11 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991
and incorporated herein by reference)
10.13 Simpson Industries, Inc. 1993 Executive Long-Term Incentive
Plan (previously filed as Exhibit 10. 13 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1992, and incorporated herein by
reference)
10.14 Simpson Industries, Inc. 1993 Non-Employee Director Stock
Option Plan (previously filed as Exhibit 10. 14 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992, and incorporated
herein by reference)
10.15 Term Loan Agreement with Comerica Bank, dated as of December
17, 1993 (previously filed as Exhibit 10. 15 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by
reference)
Amendment to Term Loan Agreement with Comerica Bank, dated as of
November 1, 1994 (previously filed as Exhibit 10.15 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994, and
incorporated herein by reference)
10.16 Letter Agreement, dated October 25, 1994, with Robert W. Navarre
(previously filed as Exhibit 10.16 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994 and incorporated herein by
reference)
10.17 Letter Agreement, dated December 16, 1994, with Kathryn L.
Williams (previously filed as Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, and incorporated herein
by reference)
10.19 Letter Agreement, dated December 16, 1994, with James A. Hug
(previously filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994, and incorporated herein by
reference)
10.20 Term Note Agreement with Comerica Bank, dated as of January 25,
1995 (previously filed as Exhibit 10.20 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, and incorporated herein by
reference)
10.21 Term Note Agreement with Comerica Bank, dated as of February 7,
1995 (previously filed as Exhibit 10.21 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, and incorporated herein by
reference)
10.23 *Letter Agreement, dated March 1, 1996, with James B. Painter
11. *Statement regarding Computation of per share earnings
21. *Subsidiaries of registrant
23. *Consent of independent public accountants
*Filed with this report
(b) No reports on Form 8-K were filed during the last quarter of the Company's
fiscal year ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 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.
By: /s/ Roy E. Parrott
Roy E. Parrott,
President and Chief Executive Officer
Date: February 21, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on February 21, 1997.
Signature Title
/s/ Roy E. Parrott President and Chief Executive Officer
Roy E. Parrott and Director
(principal executive officer)
/s/ Kathryn L. Williams Vice President Strategic Development
Kathryn L. Williams and Treasurer
(principal financial officer)
(principal accounting officer)
/s/ Robert W. Navarre Chairman of the Board and Director
Robert W. Navarre
/s/ Michael E. Batten Director
Michael E. Batten
/s/ Susan F. Haka Director
Susan F. Haka
/s/ George R. Kempton Director
George R. Kempton
/s/ Walter J. Kirchberger Director
Walter J. Kirchberger
/s/ Ronald L. Roudebush Director
Ronald L. Roudebush
/s/ F. Lee Weaver Director
F. Lee Weaver
/s/ Frank K. Zinn Director and Secretary
Frank K. Zinn
INDEX TO EXHIBITS
Exhibit
Number Exhibits
10.23 Letter Agreement, dated March 1, 1996, with James B. Painter
11 Statement regarding computation of per share earnings
21 Subsidiaries of registrant
23 Consent of independent public accountants
27.1 Financial Data Schedule
SIMPSON INDUSTRIES, INC.
47603 Halyard Drive
Plymouth, Michigan 481702429
March 1, 1996
Mr. James B. Painter
Simpson Industries, Inc.
47603 Halyard Drive
Plymouth, Michigan 48170-2429
Dear Jim:
Simpson Industries, Inc. (the "Company") considers a dedicated and vital
management team to be essential for protecting and enhancing the best interests
of the Company and its shareholders. In this connection, the Company recognizes
that the possibility of a change in control may exist and that such possibility,
and the uncertainty and questions which it may raise among management, may
result in the departure or distraction of management personnel to the detriment
of the Company and its shareholders. Accordingly, the Board of Directors of the
Company (the "Board") has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's senior management, including yourself, to their assigned duties
without distraction in the face of the potentially disturbing circumstances
arising from the possibility of change in control of the Company.
This letter agreement sets forth the severance benefits which the Company agrees
will be provided to you in the event your employment with the Company is
terminated subsequent to a "Change in Control of the Company" (as defined in
Section 3 hereof) under the circumstances described below.
1. Company's Right to Terminate. The Company may terminate your employment at
any time, subject to providing the benefits hereinafter specified in accordance
with the terms hereof and subject to any other benefits which the Company has
agreed in writing to provide you.
2. Term of Agreement. This Agreement shall commence on the date hereof and
shall continue in effect until December 31, 1996; provided, however, that
commencing on January 1, 1997 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless at
least 30 days prior to such January 1 date, the Company shall have given notice
that it does not wish to extend this Agreement; and provided, further, that this
Agreement shall continue in effect beyond the term provided herein if a change
in control of the Company as defined in Section 3 hereof, shall have occurred
during such term.
3. Change in Control. No benefits shall be payable hereunder unless there
shall have been a change in control of the Company, as set forth below, and your
employment by the Company shall thereafter have been terminated in accordance
with Section 4 below. For purposes of this Agreement, a "Change in Control of
the Company" shall mean a Change in Control of a nature that would be required
to be reported in response to the requirements of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act") provided that, without limitation, such a Change in Control shall be
deemed to have occurred if (i) any "person" [as such term is used in Sections
13(d) and 14(d) of the Exchange Act] is or becomes the "beneficial owner" (as
defined in Rule 13d3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25 percent or more of the combined voting
power of the Company's then outstanding securities; or (ii) during any period of
two consecutive calendar years, individuals who at the beginning of such period
constitute the Board cease for any reason to constitute at least a majority
thereof unless the election or the nomination for election by the Company's
shareholders, of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of the
period.
4. Termination Following Change in Control. If any of the events described in
Section 3 hereof constituting a Change in Control of the Company shall have
occurred, you shall be entitled to the benefits provided in Section 5 hereof
upon the subsequent termination of your employment within two years from the
date of such Change in Control unless such termination is (a) because of your
death, (b) by the Company for Cause or Disability or (c) by you other than for
Good Reason.
(i) Disability. Termination by the Company of your employment based on
"Disability" shall mean termination because of your absence from your duties
with the Company on a full time basis for 180 consecutive calendar days, as a
result of your incapacity due to physical or mental illness, unless within 30
days after Notice of Termination (as hereinafter defined) is given following
such absence you shall have returned to the full time performance of your
duties.
(ii) Cause. Termination by the Company of your employment for "Cause"
shall mean termination upon (A) the willful and continued failure by you to
substantially perform your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness), after a
demand for substantial performance is delivered to you by the Chief Executive
Officer of the Company or by the Chairman of the Board of Directors which
specifically identifies the manner in which such executive believes that you
have not substantially performed your duties, or (B) the willful engaging by you
in misconduct which is materially injurious to the Company, monetarily or
otherwise. For purposes of this paragraph, no act, or failure to act, on your
part shall be considered "willful" unless done, or omitted to be done, by you
not in good faith and without reasonable belief that your action or omission was
in the best interest of the Company. Notwithstanding the foregoing, you shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to you a copy of a Notice of Termination from the Chief
Executive Officer of the Company after reasonable notice to you and an
opportunity for you, together with your counsel, to be heard before the Chief
Executive Officer, finding that in the good faith option of such executive you
were guilty of conduct set forth above in clauses (A) or (B) of the first
sentence of this paragraph and specifying the particulars thereof in detail.
(iii) Good Reason. Termination by you of your employment for "Good
Reason" shall mean termination based on:
(A) the assignment to you of any duties inconsistent with your
position, duties, responsibilities and status with the Company immediately prior
to a Change in Control, or a change in your reporting responsibilities, titles
or offices as in effect immediately prior to a Change in Control, or any removal
of you from or any failure to reelect you to any of such positions, except in
connection with the termination of your employment for Cause or Disability or as
a result of your death or by you other than for Good Reason;
(B) a reduction by the Company in your base salary as in effect on
the date hereof or as the same may be increased from time to time;
(C) a failure by the Company to continue the Company's incentive
bonus plans as the same may be modified from time to time but substantially in
the form currently in effect (the "Plans"), or a failure by the Company to
continue you as a participant in the Plans on at least the present basis or to
pay you the amounts which you would be entitled to receive based on the Com
pany's performance in accordance with the Plans;
(D) the Company's requiring you to be based anywhere other than
your present location or the Company's principal executive offices except for
required travel on the Company's business to an extent substantially consistent
with your present business travel obligations, or in the event you consent to
any such relocation, the failure by the Company to pay (or reimburse you for)
all reasonable moving expenses incurred by you or to indemnify you against any
loss realized in the sale of your principal residence in connection with any
such relocation;
(E) the failure by the Company to continue in effect any benefit,
retirement or compensation plan, savings and profit sharing plan, stock
ownership plan, stock purchase plan, stock option plan, life insurance plan,
health and accident plan, dental plan or disability plan in which you are
participating at the time of a Change in Control of the Company (or plans pro
viding you with no less favorable benefits), the taking of any action by the
Company which would adversely affect your participation in or materially reduce
your benefits under any of such plans or deprive you of any material fringe
benefit enjoyed by you at the time of the Change in Control, or the failure by
the Company to provide you with the number of paid vacation days to which you
are then entitled in accordance with the Company's normal vacation policy in
effect on the date hereof;
(F) the failure by the Company to obtain the assumption of the
agreement to perform this Agreement by any successor as contemplated in Section
6 hereof; or
(G) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
paragraph (iv) below [and, if applicable, paragraph (ii) above]; and for
purposes of this Agreement, no such purported termination shall be effective.
(iv) Notice of Termination. Any purported termination by the
Company pursuant to paragraph (i) or (ii) above or by you pursuant to paragraph
(iii) above shall be communicated by written Notice of Termination to the other
party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated.
(v) Date of Termination. "Date of Termination" shall mean (A)
if your employment is terminated for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the
performance of your duties on a full-time basis during such 30 day period), (B)
if your employment is terminated pursuant to paragraph (ii) above, the date
specified in the Notice of Termination, and (C) if your employment is terminated
for any other reason, the date on which a Notice of Termination is given;
provided if within 30 days after any Notice of Termination is given the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agree ment of
the parties, by a binding and final arbitration award or by a final judgment,
order or decree of a court of competent jurisdiction (the time for appeal
therefrom having expired and no appeal having been perfected).
5. Compensation upon Termination or During Disability.
(i) During any period that you fail to perform your duties hereunder as a
result of incapacity due to physical or mental illness, you shall continue to
receive your full base salary at the rate then in effect and any bonus payments
under the Plans paid during such period until this Agreement is terminated
pursuant to paragraph 4(i) hereof. Thereafter, your benefits shall be
determined in accordance with the Company's long-term disability plan then in
effect.
(ii) If your employment shall be terminated for Cause, the Company shall
pay you your full base salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given and the Company shall have no
further obligation to you under this Agreement.
(iii) If your employment by the Company shall be terminated (A) by the
Company other than for Cause or Disability or (B) by you for Good Reason, then
you shall be entitled to the benefits provided below:
(A) The Company shall pay you your full base salary through the Date
of Termination at the rate in effect at the time Notice of Termination is given
and the amount, if any, with respect to any year then ended which pursuant to
the Plans would have accrued to you on the basis of the Company's performance
but which has not yet been paid to you;
(B) From the date of Termination through a period of 24 months
following the Change in Control or until your normal retirement date (whichever
first occurs), you shall be entitled to receive as severance pay (i) a monthly
payment equal to your monthly salary for the last full month immediately
preceding termination, plus 1/12 of the average of the short-term incentive
bonus payments paid to you or accrued with respect to each of the two years
preceding termination; (ii) continued treatment as an "employee" under any stock
option, employee benefit or other compensation arrangement (for the remaining
period); (iii) full benefits under each employee welfare benefit plan in which
you were entitled to participate immediately prior to date of termination;
(iv) the right to immediately exercise in full all outstanding stock options;
(v) full credit under the Company's retirement plans for service through the
remaining period.
(C) The Company shall also pay to you all legal fees and expenses
incurred by you as a result of any controversy over this Agreement, to the
extent you are successful in legal proceedings against the Company.
(iv) Notwithstanding the foregoing, no payments shall be provided under
subsection (iii) to the extent that they would (A) constitute an "excess
parachute payment" under Section 280G of the Internal Revenue Code, (B)
disqualify an employee benefit plan or trust under the Internal Revenue Code, or
(C) cause an employee benefit plan or trust to violate the Employee Income
Retirement Security Act of 1974, as amended.
6. Successors; Binding Agreement.
(i) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any succession
shall be a breach of this Agreement and shall entitle you to compensation from
the Company in the same amount and on the same terms as you would be en titled
hereunder if you terminated your employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which executes and delivers
the agreement provided for in this paragraph 6 or which otherwise becomes bound
by all the terms and provisions of this Agreement by operation of law.
(ii) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
be no such designee, to your estate.
7. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, returned receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention to the Chief
Executive Officer of the Company with a copy to the Secretary of the Company, or
to such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon receipt.
8. Miscellaneous. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
signed by you and such officer as may be specifically designated by the Board of
Directors of the Company. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of Michigan.
9. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
10. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Oakland
County, Michigan in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction.
To confirm your acceptance, kindly sign and return to the Company the enclosed
copy of this letter which will then constitute our agreement on this subject.
Sincerely,
SIMPSON INDUSTRIES, INC.
By:
Roy E. Parrott, President
Agreed to this
day of March , 1997
James B. Painter
Year Ended December 31
1996 1995 1994
Primary
Average shares outstanding 18,066, 17,971, 17,916,
Net effect of dilutive stock options
based on the treasury stock method
using average stock price 41,888 63,644 84,407
Average number of common and common 18,108, 18,035, 18,000,
equivalent shares 439 060 795
Net earnings applicable to common
stock and common stock $17,607, $15,302, $14,369,
equivalents 000 000 000
Earnings per share $.97 $.85 $.80
Fully Diluted
Average shares outstanding 18,066, 17,971, 17,916,
551 416 388
Net effect of dilutive stock options
based on the treasury stock method
using the year-end market price, if
higher than the average market price 44,820 66,774 86,921
Average number of common and common
equivalent shares 18,111, 18,038, 18,003,
371 190 309
Net earnings applicable to common
stock and common stock $17,607, $15,302, $14,369,
equivalents 000 000 000
Earnings per share $.97 $.85 $.80
State or
Jurisdiction of Percent
Name of Subsidiary Incorporation Ownership
R. J. Simpson Manufacturing Ontario 100%
Company (Canada) Ltd.
Simpson Industries, S.A. de Federal 99%
C.V. District of
Mexico
The Board of Directors and Shareholders
Simpson Industries, Inc.:
We consent to incorporation by reference in the registration (No. 33-39679) on
Form S-8 pertaining to the Simpson Industries, Inc. Savings Plan, in the
registration statement (No. 33-39678) on Form S-8 pertaining to the Simpson
Industries, Inc. - Fremont Operation Savings Plan, and in the registration
statement (No. 2-95425) on Form S-8 pertaining to the Simpson Industries, Inc.
1984 Stock Option Plan, of our report dated January 27, 1997, relating to the
consolidated balance sheets of Simpson Industries, Inc., and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996, which report appears in the December
31, 1996, annual report on Form 10-K of Simpson Industries, Inc.
Detroit, Michigan
March 21, 1997
<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 DECEMBER
31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
<MULTIPLIER> 1,000
<PERIOD-START> JAN-01-1996
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 28,902
<SECURITIES> 0
<RECEIVABLES> 41,032
<ALLOWANCES> 0
<INVENTORY> 14,034
<CURRENT-ASSETS> 94,226
<PP&E> 278,229
<DEPRECIATION> 126,152
<TOTAL-ASSETS> 248,956
<CURRENT-LIABILITIES> 49,188
<BONDS> 0
<COMMON> 18,080
0
0
<OTHER-SE> 97,912
<TOTAL-LIABILITY-AND-EQUITY> 248,956
<SALES> 407,999
<TOTAL-REVENUES> 409,424
<CGS> 365,253
<TOTAL-COSTS> 13,173
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,354
<INCOME-PRETAX> 25,644
<INCOME-TAX> 8,037
<INCOME-CONTINUING> 17,607
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,607
<EPS-PRIMARY> 0.97
<EPS-DILUTED> 0.97
</TABLE>
