-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ev4trZ3hMKyTgEhoW9hObvL1uW7FnkYotIHChwxDLle9RQJI3KopKvhWvfRGkLKo wcR1HMSHtyQcgXbTEtZZ/w== 0000889697-99-000044.txt : 19990325 0000889697-99-000044.hdr.sgml : 19990325 ACCESSION NUMBER: 0000889697-99-000044 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIMPSON INDUSTRIES INC CENTRAL INDEX KEY: 0000090588 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 381225111 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-06611 FILM NUMBER: 99570612 BUSINESS ADDRESS: STREET 1: 47603 HALYARD DR CITY: PLYMOUTH STATE: MI ZIP: 48170 BUSINESS PHONE: 3132076200 MAIL ADDRESS: STREET 1: 47603 HALYARD DR CITY: PLYMOUTH STATE: MI ZIP: 48170 10-K 1 ============================================================================= 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, 1998 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: (734) 207-6200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Class Title of Class -------------- -------------- Common Stock, $ 1.00 par value Common Stock Purchase Rights 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 March 1, 1999, computed by reference to the last sale price for such stock on that date as reported on the NASDAQ National Market System, was $161,791,000. At March 1, 1999, there were outstanding 18,177,179 shares of the registrant's common stock, $1.00 par value each. Portions of the Proxy Statement for the 1999 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 sixteen plants at which its manufacturing operations are conducted are located in Michigan, Ohio, Indiana, North Carolina, Tennessee, Ontario (Canada), Federal District of Mexico (Mexico), Halifax (United Kingdom), Lyon (France), Barcelona (Spain) and Sao Paulo (Brazil). The Company also has interests in joint ventures in Pune (India) and Seoul (South Korea). Reference in this report to the Company includes Simpson Industries, Inc., and 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, oil pumps, water pumps and other modular engine assemblies and transmission and driveline components that 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 and Europe. The Company's operations are organized into three self-sustaining business groups --- Noise Vibration and Harshness Products, Wheel-End and Suspension Products, and Modular Engine Products. 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 $4,313,000 in 1998, $3,668,000 in 1997 and $2,944,000 in 1996 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 whom sales exceeded 10% of total net sales include General Motors Corporation, Ford Motor Company and DaimlerChrysler 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 DaimlerChrysler Corporation during the years ended December 31, 1998, 1997 and 1996 accounted for 54.3%, 60.1% and 63.5%, 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, Cummins Engine Company Inc., Peugeot and Renault 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 decision. 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, 1998, the Company employed 2,518 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 and European 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 $ 55,200,000 in 1998, $63,400,000 in 1997 and $57,800,000 in 1996. Executive Officers Set forth below is certain information concerning the current executive officers of the Company, which group includes the Company's principal officers. Name and Age Office(s) and Length of Service ------------ ------------------------------- Roy E. Parrott, 58 .................. Director since 1989; Chief Executive Officer since 1994, Chairman since 1997 and President from 1989 to 1999 George A. Thomas, 49................. President and Chief Operating Officer since 1999 Vinod M. Khilnani, 46 ............... Vice President and Chief Financial Officer since 1997; and Treasurer during 1997 Jeoffery A. Burris, 39 .............. Vice President - N.V.H. Products since 1998, Engine/Noise, Vibration and Harshness from 1997 to 1998; and Vice President - Materials Management since 1996 George G. Gilbert, 50 ............... Vice President Strategic Development & Emerging Markets since 1998; Vice President - Technology Service since 1995; Vice President - Transmission & Chassis Group from 1993 to 1995; and Vice President - Engine Products Group from 1990 to 1993 James A. Hug, 52 .................... Vice President - Transmission & Chassis Products since 1997; Vice President - Automotive Group from 1995 to 1997; Vice President - Heavy Duty Products Group from 1992 to 1995; and Vice President - Heavy Duty Products Group - South from 1990 to 1992 James B. Painter, 49................. Vice President - Engine Products since 1998; Vice President - Heavy-Duty Group from 1995 to 1998; and Vice President - Materials Management during 1995 Mr. Thomas was an executive with the automotive supply operations of TRW, Inc. from 1972 until he joined the Company on March 1, 1999. Prior to joining the Company in July 1997, Mr. Khilnani served as Vice President and Chief Financial Officer of Dayton Superior Corporation from December, 1996; Executive Director - Treasury and Investment Evaluations for Cummins Engine Company from 1995 to 1996; Vice President - Finance and MIS of Onan Corporation and Power Generation Group of Cummins Engine from 1993 to 1995 and of Holset Engineering Company (UK) from 1991 to 1993. Prior to joining the Company in January 1996, Mr. Burris served as Purchasing Manager of Brake Steering and Suspension at Ford Motor Company since 1994, and was previously Supervisor of Purchasing Business Process Improvement and Systems Development at Ford Motor Company since 1991. Prior to joining the Company in March 1995, Mr. Painter served as General Manager, Specialty Axle Group, Rockwell Process International Automotive Operations from 1993 to 1995; President, Rockwell Clutch Company, Inc. from 1991 to 1993. Executive officers of the Company are appointed annually by the Board of Directors and serve at the pleasure of the Board. Item 2. PROPERTIES The Company's facilities are principally involved in the manufacture of the Company's products and are owned by the Company and its subsidiaries free of encumbrances, with the exception of the facilities located in Tennessee and Brazil, which are leased by the Company. 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. The following table sets forth the location and approximate size of the Company's facilities. PROPERTIES IN ACTIVE USE Approximate Approximate Location Land Area Floor Space -------- ----------- ----------- Litchfield, Michigan .......... 22.8 Acres 230,000 Square Feet Plymouth, Michigan ............ 5.5 68,000 Middleville, Michigan ......... 3.5 95,000 Fremont,Indiana ............... 13.7 105,000 Bluffton, Indiana ............. 12.5 176,000 Edon, Ohio .................... 15.2 134,000 Troy, Ohio .................... 12.2 100,000 Greenville, North Carolina .... 12.6 113,000 Thamesville, Ontario .......... 6.0 62,000 Lyon, France .................. 3.8 83,000 Halifax, England .............. 1.7 54,000 Barcelona, Spain .............. 2.2 55,000 Iztapalapa, Mexico ............ 2.8 86,000 Memphis,Tennessee ............. n/a 28,000 Sao Paulo, Brazil ............. n/a 73,000 ----- ----------- TOTAL IN ACTIVE USE ................ 114.5 1,462,000 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 1998. PART II Item 5. Market for Registrant's Common Stock 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. The quarterly range of bid prices per share, as reported by NASDAQ, and the dividends paid thereon during the years ended December 31, 1998 and 1997 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, 1998 there were 4,009 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 5,100 additional shareholders as beneficial owners. Bid Price per Share Dividend Paid ------------------- ------------- Quarter Ended High Low Per Share - ------------- ---- --- --------- March 31, 1997 $11 1/8 $ 9 1/2 $ .10 June 30, 1997 11 1/4 9 1/8 .10 September 30, 1997 12 3/4 10 .10 December 31, 1997 12 1/4 10 7/8 .10 March 31, 1998 14 11 1/2 .10 June 30, 1998 15 3/8 11 7/8 .10 September 30, 1998 13 7/8 9 1/8 .10 December 31, 1998 12 1/8 8 3/4 .10 Item 6. Selected Financial Data
Five Year Summary (Dollar amounts in millions, except per share and per employee) 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Operating Data - -------------- Net sales $496.4 $451.5 $408.0 $395.1 $356.6 Cost of products sold 446.9 406.5 365.3 354.4 319.6 Gross profit 49.5 45.0 42.7 40.7 37.0 as a % of sales 10.0% 10.0% 10.5% 10.3% 10.4% Operating earnings before provisions for restructuring and plant closings $ 34.1 $ 30.9 $ 29.6 $ 28.8 $ 26.8 as a % of sales 6.9% 6.8% 7.3% 7.3% 7.5% Net earnings $ 14.8(1) $ 10.1(2) $ 17.6(3) $ 15.3 $ 14.4 as a % of sales 3.0% 2.2% 4.3% 3.9% 4.0% Net earnings per share (diluted) $ 0.80 $ 0.55 $ 0.97 $ 0.85 $ 0.80 Dividend per share 0.40 0.40 0.40 0.40 0.38 Weighted average shares (millions) 18.4 18.2 18.1 18.0 18.1 At Year End - ----------- Working capital $ 32.2 $ 36.4 $ 45.0 $ 40.3 $ 31.7 Total assets 340.6 341.5 249.0 232.5 207.0 Long-term debt 105.5 118.6 58.6 62.3 50.4 Shareholders' equity 124.6 117.9 116.0 105.1 98.0 Book value per share 6.85 6.50 6.42 5.84 5.47 %Debt/equity 89% 104% 54% 61% 54% %Debt/total capital 47 51 35 38 35 Additional Statistics - --------------------- New program launches 15 13 6 10 23 Content per N.A. light vehicle $ 22 $ 22 $ 22 $ 22 $ 20 EBITDA (4) 60.3(5) 54.3(6) 50.1 47.7 43.1 Depreciation and amortization expense 26.1 23.4 20.5 18.9 16.3 Capital investment 19.6 29.0 26.3 31.5 38.2 % return on average equity 12.2% 8.6% 15.9% 15.1% 15.2% Sales per employee $204,512 $197,687 $190,654 $186,706 $182,240 Operating earnings per employee 14,067(5) 13,537(6) 13,832 13,594 13,704 Number of employees, year end 2,518 2,355 2,115 2,050 2,135 Stock Activity - -------------- Price Range $8 3/4-15 3/8 $9 1/8-12 3/4 $8 3/8-11 1/8 $8-12 1/8 $7 7/8-15 21/32 Price at year end 9 11/16 11 3/4 10 57/64 9 9 1/4 Notes: (1) 1998 includes $1.9 million for net restructuring provision. (2) 1997 includes $5.7 million for provision for net plant closing costs. (3) 1996 includes $1.1 million for federal tax credits. (4) EBITDA includes operating income plus depreciation and amortization. (5) Before provision for restructuring of $2.5 million. (6) Before provision for plant closings of $8.8 million.
Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations The following table summarizes the Company's results of operations as a percentage of net sales for the years ending December 31, 1996, 1997, and 1998. 1998 1997 1996 ---- ---- ---- Net sales 100.0% 100.0% 100.0% Cost of products sold 90.0 90.0 89.5 Administrative and selling 2.7 2.9 3.2 Amortization of intangible assets 0.4 0.2 -- Provision for restructuring and plant closings 0.5 1.9 -- ----- ----- ----- Operating income 6.4 5.0 7.3 Investment and other income, net -- (0.1) (0.3) Interest expense 1.9 1.7 1.3 ----- ----- ----- Earnings before income taxes 4.5 3.4 6.3 Income taxes 1.5 1.2 2.0 ----- ----- ----- Net earnings 3.0% 2.2% 4.3% 1998 Compared to 1997 Net sales in 1998 grew to a record $496,419,000, a 9.9% increase over the prior year's net sales of $451,518,000. This increase was due to the full year impact of revenues related to the June 1997 acquisition of the Vibration Attenuation (VA) Business, as well as significant growth in shipments to the medium- and heavy-duty truck markets. North American light vehicle production declined slightly in 1998, due largely to the mid-summer strike at General Motors. Cost of products sold as a percent of sales for 1998 was 90%, unchanged from 1997. In 1998, fifteen new programs were launched, up from thirteen new launches in 1997. Administrative and selling expenses decreased from 2.9% of sales in 1997 to 2.7% of sales in 1998 due to continued expense control and leverage from volume increases. Amortization expense doubled as a percent of sales, from 0.2% in 1997 to 0.4% in 1998, reflecting the mid-year 1997 acquisition of the VA Business. Plant closing and restructuring costs declined from 1.9% of sales in 1997 to 0.5% of sales in 1998. In 1997, the Company recorded a provision for plant closing costs of $8,769,000 relating to the consolidation of its Jackson and Gladwin, Michigan plants with other North American operations. In 1998, the Company announced a worldwide workforce reduction and recorded a pre-tax charge of $2,500,000, primarily to cover the expenses of severance-related payments. The action was initiated to improve the Company's long-term competitiveness and global cost structure, while maintaining a strong commitment to its new product development and customer support activities. Operating earnings increased from 5.0% of sales in 1997 to 6.4% of sales in 1998. Excluding the Plant closing/restructuring charges, operating earnings increased 10.4%, from $30,919,000 in 1997 to $34,146,000 in 1998. Investment and other income decreased $228,000 in 1998 from $524,000 in 1997 to $296,000 in 1998, primarily due to lower average invested cash balances and lower interest rates. Interest expense increased $2,137,000, reflecting the full year impact of the debt incurred for the VA acquisition. 1998 income tax expense reflects an effective rate of 34.0%. The effective income tax rate in 1997 was 33.8%. 1997 Compared to 1996 Net sales in 1997 totaled $451,518,000, an 11% increase over 1996 sales of $407,999,000. Two-thirds of the sales increase was attributable to the Company's acquisition of the VA business in June 1997. Internal growth accounted for the rest of the growth, which was a result of stronger North American light trucks and mid-range/heavy duty diesel engine markets. 1997 cost of products sold as a percent of sales was 90.0%, up slightly from 89.5% in 1996. The increase was largely due to a significant increase in new program launches, from six in 1996 to thirteen in 1997. In addition, 1997 cost of products sold reflected additional equipment moving and consolidation expenses associated with the closure of its Jackson, Michigan plant. During 1997, the company recorded a provision for plant closing costs of $8,769,000. Administrative and selling expenses decreased from 3.2% of sales in 1996 to 2.9% of sales in 1997. First time expenses for amortization of goodwill and intangibles resulted from the acquisition of the VA Business during the second half of 1997. Operating earnings, excluding the provision for plant closings, totaled $30,919,000 in 1997, a 4.6% increase versus 1996 operating earnings of $29,573,000. Investment and other income decreased from $1,425,000 in 1996 to $524,000 in 1997, reflecting lower average invested cash balances. Interest expense increased $2,097,000, to $7,451,000, due to additional debt incurred to fund the VA acquisition. The Company's effective tax rate in 1997 was 33.8%. The Company's effective tax rate in 1996 was 31.3%. In 1996, the Company used $1,100,000 in federal tax credits relating to prior years. Liquidity and Capital Resources The Company's capital requirements relate primarily to capital expenditures, debt service and the cost of acquisitions. Historically, the Company's primary sources of financing have been cash from operations, borrowings under its revolving line of credit and the issuance of long-term debt and equity. Net cash generated from operations was $40,901,000 in 1998, versus $30,115,000 in 1997, and $50,794,000 in 1996. The cash flows were primarily provided by net earnings and non-cash charges for depreciation and amortization. Working capital was $32,196,000 as of December 31, 1998, as compared to $36,366,000 at December 31, 1997, and $45,038,000 on December 31, 1996. During 1998 the Company invested $19,571,000 in capital equipment and plant expansions compared to $28,977,000 in 1997, and $26,296,000 in 1996. Capital expenditures for 1999 are expected to be in the $40-$44 million range and will principally support investments in new and replacement business both domestically and internationally. The Company has paid uninterrupted cash dividends each year since becoming publicly owned in 1972. Dividends paid in 1998 were $7,316,000 compared to $7,252,000 in 1997 and $7,229,000 in 1996. The dividend rate for all three years was $ .40 per share. In June 1998, the Company amended its revolving credit agreements, which allow for borrowings of up to $50 million. At December 31, 1998, borrowings outstanding under the agreements were $7.5 million at an interest rate of 6.0%, and associated committed letters of credit were $1,052,000. As of December 31, 1998, $41.4 million of the $50.0 million revolving credit facilities were available. The borrowings are classified as long-term based on management's intent and ability to maintain this level of borrowing for a period in excess of one year. The Company also maintains unsecured, short-term credit lines with banks under which it may borrow $23,100,000, of which $500,000 was committed as letters of credit at December 31, 1998. The Company had no short-term borrowings at December 31, 1998. The Company believes its liquidity, capital resources and cash flows from operations are sufficient to fund planned capital expenditures, working capital requirements and debt service in the absence of additional significant acquisitions. The Company intends to fund future acquisitions with cash, securities or a combination of cash and securities. To the extent the Company uses cash for all or part of any such acquisitions, it expects to raise such cash primarily from cash generated from operations, borrowings under the revolving credit agreements or, if feasible and attractive, issuance of long-term debt or additional Common Stock. Status of Year 2000 Activities Many computer systems and software products refer to years in terms of their final two digits only. Such programs may interpret the year 2000 to mean the year 1900 instead. If not corrected, these programs could cause date-related transaction failures. 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 March 31, 1999. Costs: In late 1996, we purchased and began implementation of the Y2K ready J. D. Edwards Enterprise Requirement Planning System at an investment of over $2 Million to replace existing business systems and to strengthen internal controls, all of which is Year 2000 compliant. Purchase of this system was not accelerated because of Year 2000 and implementation costs are not material. Internal costs specifically associated with modifying our business systems software were not material and are expensed as incurred. Year 2000 Risks: In light of our relatively new business systems and computing infrastructure and the fact that manufacturing operations are not computer integrated, we believe the internal risks are manageable. However, we are subject to external forces that might generally affect industry and commerce, such as utility or transportation Year 2000 compliance failures and related service interruptions. Further, to the extent the operations of any of our major customers are affected, it could have a material adverse effect on our business, results of operations and financial condition. Contingency Plans: Contingency plans will be completed by May 1999. Several automated and manual approaches are being considered to offset anticipated problems in the supply chain. Impact of FASB Statements The Company has not yet adopted Statement of Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and Hedging Activities", which becomes effective in 1999. This statement is not expected to have a material effect upon future financial statements. Impact of Inflation The Company does not expect to be significantly impacted by inflation in 1999. FORWARD-LOOKING STATEMENTS This Annual 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, Y2K compliance, capital expenditures 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. Item 8. Financial Statements and Supplementary Data Consolidated Statements Of Operations (In thousands, except per share amounts) Year Ended December 31 ---------------------------- 1998 1997 1996 ---- ---- ---- Net sales $496,419 $451,518 $407,999 Costs and expenses: Cost of products sold 446,914 406,513 365,253 Administrative and selling 13,397 13,152 13,173 Amortization of intangible assets 1,962 934 -- Provision for restructuring and plant closings 2,500 8,769 -- -------- -------- -------- 464,773 429,368 378,426 -------- -------- -------- Operating Earnings 31,646 22,150 29,573 Investment and other income, net 296 524 1,425 Interest expense (9,588) (7,451) (5,354) -------- -------- -------- Earnings Before Income Taxes 22,354 15,223 25,644 Income taxes 7,599 5,144 8,037 -------- -------- -------- Net Earnings $ 14,755 $ 10,079 $ 17,607 ======== ======== ======== Basic Earnings Per Share $ .81 $ .56 $ .97 ======== ======== ======== Diluted Earnings Per Share $ .80 $ .55 $ .97 ======== ======== ======== See accompanying notes to consolidated financial statements.
Consolidated Statements Of Cash Flows (In thousands) Year Ended December 31 ---------------------------------- 1998 1997 1996 ---- ---- ---- OPERATING ACTIVITIES Net earnings $ 14,755 $ 10,079 $ 17,607 Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation and amortization 26,115 23,427 20,497 Provision for restructuring and plant closings 2,500 6,424 -- Provision for deferred income taxes (665) (828) (102) Amortization of restricted stock 487 356 363 Loss (gain) on disposition of assets 223 249 217 Changes in operating Assets and liabilities: Accounts receivable (6,070) (12,118) 6,186 Inventories (2,404) (2,466) (1,153) Other assets 6,006 (6,381) (655) Accounts payable and accrued expenses (46) 11,373 7,834 --------- --------- --------- Cash Provided by Operating Activities 40,901 30,115 50,794 INVESTING ACTIVITIES Acquisition of business, net of cash acquired -- (75,293) -- Capital expenditures (19,571) (28,977) (26,296) Proceeds from disposal of property and equipment 450 2,105 171 --------- --------- --------- Cash Used in Investing Activities (19,121) (102,165) (26,125) FINANCING ACTIVITIES Cash dividends paid (7,316) (7,252) (7,229) Notes payable - net (1,211) -- -- Principal repayments of long-term debt (16,780) (55,079) (2,078) Proceeds from long-term borrowings 5,000 115,000 -- Repurchase of common stock (2,774) -- -- Exercise of stock options, net 327 -- 243 --------- --------- --------- Cash (Used in) Provided by Financing Activities (22,754) 52,669 (9,064) Effect of foreign currency exchange rate changes (1,116) (1,286) (193) --------- --------- --------- Increase (Decrease) In Cash and Cash Equivalent (2,090) (20,667) 15,412 Cash and cash equivalents at beginning of year 8,235 28,902 13,490 --------- --------- --------- Cash and Cash Equivalents at End of Year $ 6,145 $ 8,235 $ 28,902 ========= ========= ========= Supplemental Disclosures: Cash paid during the year for: Interest $ 9,808 $ 5,625 $ 5,354 Income Taxes 8,436 8,538 7,995 Non cash transactions: The Company issued shares of common stock and a note payable in connection with the acquisition of Stahl International. See accompanying notes to consolidated financial statements.
Consolidated Balance Sheets (In thousands, except share amounts) December 31 ---------------------- 1998 1997 ---- ---- ASSETS Current Assets Cash and cash equivalents $ 6,145 $ 8,235 Accounts receivable 72,785 66,055 Inventories 22,866 19,827 Customer tooling in process 1,749 7,888 Prepaid expenses and other current assets 10,994 12,689 --------- --------- Total Current Assets 114,539 114,694 Property, Plant and Equipment, at cost Land 4,642 4,867 Buildings and improvements 59,165 55,536 Machinery and equipment 264,802 253,096 --------- --------- 328,609 313,499 Less accumulated depreciation 158,724 139,353 --------- --------- Net Property, Plant and Equipment 169,885 174,146 Intangible Assets - net 52,192 49,951 Other Assets 3,938 2,757 --------- --------- $ 340,554 $ 341,548 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current installments of long-term debt $ 4,829 $ 3,579 Accounts payable 52,039 45,803 Compensation and amounts withheld 11,694 11,350 Taxes, other than income taxes 2,483 3,072 Other current liabilities 11,298 14,524 --------- --------- Total Current Liabilities 82,343 78,328 Long-Term Debt, excluding current installments 105,534 118,564 Accrued Retirement Benefits and Other 17,312 14,663 Deferred Income Taxes 10,797 12,121 Shareholders' Equity Common stock, par value $1 per share: Authorized - 55,000,000 shares Outstanding - 18,176,750 shares (1997 - 18,129,202 shares) 18,177 18,129 Additional paid-in capital 25,468 24,792 Retained earnings 89,540 82,101 Unamortized value of restricted stock (2,220) (2,147) Accumulated other comprehensive income (6,397) (5,003) --------- --------- Total Shareholders' Equity 124,568 117,872 --------- --------- $ 340,554 $ 341,548 ========= ========= See accompanying notes to consolidated financial statements.
Consolidated Statements Of Shareholders' Equity and Comprehensive Income (In thousands) Unamortized Accumulated Additional Value of Other Common Paid-In Retained Restricted Comprehensive Comprehensive Stock Capital Earnings Stock Income Income Total ----- ------- -------- ---------- ------------- ------------- ----- Balance at January 1, 1996 $17,981 $23,646 $68,896 $(1,815) $ (3,631) $105,077 Net earnings for 1996 17,607 $ 17,607 17,607 Other comprehensive income, net of tax Foreign currency translation adjustment (193) (193) Excess pension cost adjustment 124 124 -------- Other comprehensive income (69) (69) -------- Comprehensive income $ 17,538 -------- 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 ------ ------ ------ ------ ------ -------- ------- Balance at December 31, 1996 18,080 24,366 79,274 (2,028) (3,700) 115,992 Net earnings for 1997 10,079 $ 10,079 10,079 Other comprehensive income, net of tax Foreign currency translation adjustment (1,286) (1,286) Excess pension cost adjustment (17) (17) -------- Other comprehensive income (1,303) (1,303) -------- Comprehensive income $ 8,776 -------- Cash dividends - $.40 per share (7,252) (7,252) Restricted stock awards, net 49 426 (475) -- Amortization of restricted stock 356 356 ------ ------ ------ ------ ------ -------- ------- Balance at December 31, 1997 18,129 24,792 82,101 (2,147) (5,003) 117,872 Net earnings for 1998 14,755 $ 14,755 14,755 Other comprehensive income, net of tax Foreign currency translation adjustment (1,116) (1,116) Excess pension cost adjustment (278) (278) -------- Other comprehensive income (1,394) (1,394) -------- Comprehensive income $ 13,361 -------- Cash dividends - $.40 per share (7,316) (7,316) Issuance of shares for acquisition 200 2,411 2,611 Exercise of stock options, net 46 281 327 Repurchase of common stock (239) (2,535) (2,774) Restricted stock awards, net 41 519 (560) -- Amortization of restricted stock 487 487 ------- ------- ------- ------- -------- --------- -------- Balance at December 31, 1998 $18,177 $25,468 $89,540 $(2,220) $ (6,397) $124,568 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 and Europe. 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, 1998, the fair value of these financial instruments approximates the carrying amount with the exception of long-term debt as discussed in Note F. 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. Amortization: Cost in excess of fair-market value of net assets acquired (goodwill), arising from acquisitions (see Note B), is amortized on a straight-line basis over 40 years. Specific intangibles including a supply, a non-compete and various license agreements and various patents are amortized on a straight-line basis over the estimated periods benefited with periods ranging from 2.5 to 40 years. The carrying value of intangible assets is to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment would be recognized when the expected undiscounted future operating cash flow derived from such intangible assets is less than their carrying value. The Company believes that no impairment exists at December 31, 1998. 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, which would be incurred on repatriation of the permanently reinvested portion of unremitted earnings of the foreign subsidiaries. Net Earnings Per Share: Basic earnings per share are computed based upon the weighted average shares of common stock outstanding during the year. Diluted earnings per share are calculated to give effect to common stock equivalents (stock options) outstanding during the year. Stock Based Compensation: The Company applies "Accounting for Stock-Based Compensation," prescribed by SFAS No. 123, by making the required disclosures only. This standard does 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. Comprehensive Income: On January 1,1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income consists of net income, net foreign currency translation adjustments, and excess pension costs and is presented in the consolidated statements of shareholders' equity and comprehensive income. The statement requires only additional disclosures in the consolidated financial statements; it does not affect the Company's financial position or results of operations. Prior year financial statements have been reclassified to conform to the requirements of SFAS No. 130. Note B -- Business Acquisitions On April 1, 1998, the Company purchased Stahl International, Inc. ("Stahl") for 200,074 shares of common stock and a $1,000,000 note payable for a total of $3.7 million. Stahl, located in Memphis, Tennessee, manufactures torsional vibration dampers and flywheels for all types of diesel engines. The acquisition was accounted for as a purchase transaction and accordingly, the results of the Stahl business' operations are included in the consolidated financial statements since the date of acquisition. The purchase cost of $3.7 million has been allocated to assets and liabilities acquired based upon their estimated fair values at the acquisition date. The excess of purchase price over assets acquired (goodwill) of $2.9 million is being amortized over 40 years. Pro forma unaudited financial data are not presented, as the effect is insignificant. On June 27, 1997, the Company, through a wholly owned subsidiary, purchased the Vibration Attenuation division of Holset Engineering Company Limited ("VA Business") from Cummins Engine Company. The VA Business has operations in the United Kingdom, France, Spain, Mexico, Korea, Brazil and the United States. The VA Business manufactures rubber and viscous dampers and supplies three main markets including heavy truck, light truck and automotive and industrial. The acquisition was accounted for as a purchase transaction and accordingly, the results of the VA Business' operations are included in the consolidated financial statements since the date of acquisition. The final purchase cost of $77.4 million has been allocated to assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date. The excess of the purchase price over net assets acquired (goodwill) approximated $39.7 million and is being amortized over 40 years. The following pro forma unaudited financial data is presented to illustrate the estimated effects of (i) the VA Business acquisition and (ii) the completion of the new credit agreements as if the transactions had occurred as of January 1, 1997 (in thousands, except per share data). (Unaudited) Twelve Months Ended Dec 31, 1997 ------------------- Net sales $487,505 Net income 8,496 Net earnings per share: Basic $ .47 Diluted $ .47 The pro forma information above does not purport to be indicative of the results that actually would have been achieved if the transactions had occurred at the beginning of the period presented, and is not intended to be a projection of future results or trends. Note C -- Provision for Restructuring and Plant Closings In the fourth quarter of 1998, in connection with management's continuing efforts to reduce costs and improve efficiencies, the Company recorded a provision for reduction of its worldwide salary workforce of approximately $2.5 million. The reduction is for approximately 10% of its salary workforce and is expected to result in the elimination of 50 positions. These reductions will be completed during the second quarter of 1999. In the third quarter of 1997, the Company recorded a provision for plant closings of approximately $8.8 million. The principal actions in the plant-closing plan involved the closure of two manufacturing facilities. The major components of the provisions are as follows: (In thousands) 1998 1997 ---- ---- Severance and related costs $2,500 $4,965 Write-down of property, plant and equipment -- 2,191 Other -- 1,613 ------ ------ Total Provision $2,500 $8,769 ====== ====== These charges were recorded in the appropriate period in accordance with the requirements of Emerging Issues Task Force Pronouncement 94-3. At December 31, 1998, approximately $4.2 million of accruals are available for remaining costs. Note D -- Inventories The components of inventories are summarized as follows: (In thousands) 1998 1997 ---- ---- Finished and in-process products $10,329 $11,294 Raw materials 12,537 8,533 ------- ------- $22,866 $19,827 ======= ======= The LIFO inventories comprise approximately 75% and 84% of total inventories at December 31, 1998 and 1997, respectively. The replacement cost of inventories exceeded the balance sheet carrying amounts by approximately $5,200,000 and $5,900,000 at December 31, 1998 and 1997, respectively. Note E -- Intangible Assets The components of intangible assets are summarized as follows: (In thousands) 1998 1997 ---- ---- Goodwill $43,072 $38,728 Supply, non-compete, and license agreements and various patents 12,276 12,200 ------- ------- 55,348 50,928 Less accumulated amortization 3,156 977 ------- ------- Net Intangible Assets $52,192 $49,951 ======= ======= Note F -- Debt Long-term debt at December 31 consisted of the following obligations: (In thousands) 1998 1997 ---- ---- 8.8% Note payable due 1999 $ 750 $ 2,250 9.98% Note payable due 2005 9,750 12,000 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 2,363 2,893 7.03% Series A Notes due 2012 35,000 35,000 6.96% Series B Notes due 2012 15,000 15,000 Revolving Credit Agreement 7,500 15,000 -------- -------- 110,363 122,143 Less current installments 4,829 3,579 -------- -------- Long-term debt, excluding current installments $105,534 $118,564 ======== ======== As of December 31, 1998, the estimated fair value of long-term debt, discounted at current interest rates, was $121,000,000. In June 1998, the Company amended revolving credit agreements which allow for borrowings of up to $25 million under a five-year agreement and up to $25 million under a 364-day agreement. Borrowings under the credit agreements bear interest, at the election of the Company, at a floating rate of interest equal to (a) the higher of ABN AMRO's prime lending rate and the federal funds rate plus .5% or (b) the Eurodollar rate plus the applicable borrowing margin. At December 31, 1998, the outstanding borrowings under these agreements are at an interest rate of approximately 6.0% and there was $1,052,000 committed as letters of credit. Under the terms of its loan agreements, the Company is subject to restrictions concerning additional borrowings and maintenance of minimum net worth. At December 31, 1998, under the most restrictive covenant retained earnings of approximately $19,100,000 were unrestricted. The Company was in compliance with all such covenants at December 31, 1998. The Company also has uncommitted short-term credit lines with banks under which it may borrow up to $23,100,000, of which $500,000 was committed as letters of credit at December 31,1998. 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 1999 are as follows: 2000 - $6,079,000; 2001 - $8,079,000; 2002 - $9,442,000; and 2003 $16,412,000. Note G -- Income Taxes The components of earnings before income taxes were as follows: (In thousands) 1998 1997 1996 ---- --- ---- Domestic $ 19,502 $ 9,963 $ 23,047 Foreign 2,852 5,260 2,597 -------- -------- -------- $ 22,354 $ 15,223 $ 25,644 ======== ======== ======== The provisions for income tax expense were as follows: (In thousands) 1998 1997 1996 ---- ---- ---- Current: Federal $ 5,799 $ 4,976 $ 6,730 Foreign 1,953 691 822 State 512 305 587 -------- -------- -------- 8,264 5,972 8,139 -------- -------- -------- Deferred: Federal (599) (1,647) 66 Foreign (70) 947 (330) State 4 (128) 162 -------- -------- -------- (665) (828) (102) -------- -------- -------- $ 7,599 $ 5,144 $ 8,037 ======== ======== ======== 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) 1998 1997 1996 ---- ---- ---- Income taxes at federal statutory rate $ 7,824 $ 5,235 $ 8,975 State income tax, net of federal benefit 338 116 487 Foreign operating loss 1,697 84 (310) Federal tax credits (950) (100) (1,100) Foreign Sales Corporation (450) -- -- Differences between domestic and effective foreign tax rates (812) (254) (107) Other, net (48) 63 92 ------- ------- ------- $ 7,599 $ 5,144 $ 8,037 ======= ======= ======= The tax effects of temporary differences that give rise to significant deferred tax assets and liabilities at December 31 are as follows: 1998 1997 --------------------- -------------------- Deferred Deferred Deferred Deferred Tax Tax Tax Tax (In thousands) Assets Liabilities Assets Liabilities -------- ---------- -------- ----------- Plant and equipment $ -- $ 17,858 $ -- $ 17,133 Accrued retirement benefits 6,557 -- 5,398 -- Other accrued expenses 2,851 -- 4,028 -- Foreign net operating loss carryforward 1,782 -- 468 -- Federal tax credits 2,144 -- 1,866 -- Other items 733 177 530 929 -------- -------- -------- -------- 14,067 18,035 12,290 18,062 Valuation allowance (2,407) -- (1,268) -- -------- -------- -------- -------- $ 11,660 $ 18,035 $ 11,022 $ 18,062 ======== ======== ======== ======== Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 1998. As of December 31,1998, the Company has unrecognized foreign net operating loss carryforwards of approximately $5,300,000 that begin expiring in 2003. Deferred income tax assets of $4,422,000 and $5,081,000 are included in other current assets at December 31, 1998, and 1997, respectively. Note H - Pension and Other Postretirement Benefits 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. In addition to the Company's defined benefit pension plans, 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 Company's retiree medical benefits are not funded.
Pension Benefits Other Benefits ---------------- ---------------- 1998 1997 1998 1997 ---- ---- ---- ---- Change in benefit obligation Benefit obligation at beginning of year $ 38,471 $ 32,506 $ 10,577 $ 9,701 Service cost 2,508 2,210 595 598 Interest cost 2,849 2,613 777 759 Benefits paid (1,858) (2,812) (716) (484) Actuarial (gains) and losses 2,830 4,031 (292) 3 Plan amendments 131 -- -- -- Foreign exchange rate changes (233) (78) -- -- -------- -------- -------- -------- Benefit obligation at end of year 44,698 38,470 10,941 10,577 Change in plan assets Fair value of plan assets at beginning of year 28,929 23,649 Actual return on plan assets 885 5,295 Contributions by the employer 1,554 2,732 Benefits paid (1,676) (2,657) Foreign exchange rate changes (166) (90) -------- -------- Fair value of plan assets at end of year 29,526 28,929 Funded status (15,172) (9,541) (10,941) (10,577) Unrecognized net loss 8,334 4,062 55 344 Unrecognized net asset (181) (323) -- -- Unrecognized prior service cost 1,193 1,197 55 60 -------- -------- -------- -------- Net amount recognized $ (5,826) $ (4,605) $(10,831) $(10,173) ======== ======== ======== ======== Amounts recognized in the statement of financial position consist of: Prepaid benefit cost $ -- $ 7 $ -- $ -- Accrued benefit liability (6,764) (4,845) (10,831) (10,173) Intangible asset 461 195 -- -- Accumulated other comprehensive income 477 38 -- -- -------- -------- -------- -------- Net amount recognized $ (5,826) $ (4,605) $(10,831) $(10,173) ======== ======== ======== ======== Pension Benefits Other Benefits ---------------- -------------- 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- Weighted-average assumptions as of December 31 Discount rate 7% 7.5% 8% 7% 7.5% 8% Expected return on plan assets 10% 10% 10% Rate of compensation increase 4% 4.5% 5% 4% 4.5% 5%
For measurement purposes in 1996, the medical cost trend was assumed to be 8.0% and to decrease .5% per year to 5.0% in 2002 and remaining at that level thereafter.
Pension Benefits Other Benefits Components of net periodic --------------------------- ------------------------ benefit cost 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- Service cost $ 2,508 $ 2,210 $ 2,114 $ 595 $ 598 $ 612 Interest cost 2,849 2,613 2,307 777 759 693 Expected return on plan assets (2,490) (2,174) (3,046) -- -- -- Net amortization and deferral 310 62 1,391 2 3 5 Multi-employer plans 72 510 544 -- -- -- ------- ------- ------- ------- ------- ------- Net periodic benefit cost $ 3,249 $ 3,221 $ 3,310 $ 1,374 $ 1,360 $ 1,310 ======= ======= ======= ======= ======= =======
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
1-Percentage- 1-Percentage- Point Increase Point Decrease -------------- -------------- Effect on total of service and interest cost components $372 $(291) Effect on postretirement benefit obligation 2,076 (1,684)
In the United Kingdom, Simpson International (UK) Limited is in the process of obtaining final approval from Inland Revenue for a defined benefit pension plan. Approval is expected in the first half of 1999. 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 $1,390,000, $1,330,000 and $1,490,000 in 1998, 1997 and 1996 respectively. Note I -- 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, 1998 there were 1,244,700 shares of common stock reserved for issuance under the plans of which 657,630 are available for future grants. The Company applies APB Opinion No. 25 in accounting for its stock compensation plans. Accordingly, no compensation cost has been recognized for the stock options granted in 1998, 1997 or 1996. Had compensation cost for these options been determined on the basis of fair value pursuant to SFAS No. 123, The Company's pro forma net income and earnings per share would have been as indicated below: 1998 1997 1996 ---- ---- ---- Net income As reported $14,755 $10,079 $17,607 Pro forma $14,536 $ 9,874 $17,413 Basic Earnings per share As reported $ .81 $ .56 $ .97 Pro forma $ .80 $ .54 $ .96 Diluted earnings per share As reported $ .80 $ .55 $ .97 Pro forma $ .79 $ .54 $ .96 The fair value of each option grant is estimated on the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions used for grants in 1998, 1997 and 1996, respectively: dividend yield of 3.8% for all years; expected volatility of 35%, 37% and 40%; risk-free interest rates of 5.8%, 6.5% and 6.1%; and an expected life of 7.1, 7.0 and 6.8 years. Incentive plan activity is summarized as follows: Stock Option Plans Weighted Option Average Restricted Shares Exercise Price Shares ------ -------------- ---------- 1997: Outstanding January 1,1997 442,115 $ 9.44 214,343 Granted/awarded 100,760 9.76 64,020 Exercised (1,485) 6.67 -- Restrictions lapsed -- -- (33,039) Canceled/forfeited (10,000) 9.94 (14,986) Outstanding 531,390 9.50 230,338 Exercisable 287,774 -- -- Weighted-average fair value of options granted during the year $ 9.76 1998: Granted/awarded 106,080 $ 12.75 66,840 Exercised (50,400) 4.68 -- Restrictions lapsed -- -- (46,227) Canceled/forfeited -- -- (26,500) Outstanding 587,070 10.50 224,451 Exercisable 333,778 -- -- Weighted-average fair value of options granted during the year $ 12.75 Note J -- Shareholder Rights Plan In 1997, 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. The Plan provides 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 or commences a tender or exchange offer which would result in a person or group acquiring 20% or more of the Company's common stock. In addition, the Plan 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 causes 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 $.005 per Right until a person or group has been declared an "Adverse Person" or the close of business on the tenth business day after a public announcement that a 20% position has been acquired. If a 20% position is acquired, a person or group is declared an "Adverse Person," the Company is acquired or certain other events occur after the Rights become exercisable, each Right will entitle its holder to purchase, for the exercise price, a number of the Company's or acquiring company's common shares having a market value of twice the exercise price. Rights were issued in 1997 to shareholders and will be attached to each share issued thereafter until the Rights become exercisable, expire or are redeemed. Rights expire May 9, 2007, unless extended by the Board of Directors. Note K -- Earnings Per Share In thousands, except per share amounts 1998 1997 1996 ---- ---- ---- Net earnings applicable to common stock and common stock equivalents $14,755 $10,079 $17,607 Basic Earnings per Share Weighted average shares outstanding 18,285 18,123 18,067 Earnings Per Share $ .81 $ .56 $ .97 ======= ======= ======= Diluted Earnings per Share Weighted average shares outstanding 18,285 18,123 18,067 Net effect of dilutive stock options 89 79 48 ------- ------- ------- 18,374 18,202 18,115 Earnings Per Share $ .80 $ .55 $ .97 ======= ======= ======= Options to purchase 64,560, 43,020, and 75,480 shares of common stock were outstanding during 1998 through 1996 respectively, at prices ranging from $12.33 to $14.67. These shares were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. Note L - Comprehensive Income The accumulated balances for each classification of comprehensive income are as follows: Accumulated Foreign Minimum Other Currency Pension Comprehensive (In thousands) Items Liability Income -------- --------- ------------- Balance at January 1, 1996 $(3,499) $ (132) $(3,631) Net of tax amount (193) 124 (69) ------- ------- ------- Balance at December 31, 1996 (3,692) (8) (3,700) Net of tax amount (1,286) (17) (1,303) ------- ------- ------- Balance at December 31, 1997 (4,978) (25) (5,003) Net of tax amount (1,116) (278) (1,394) ------- ------- ------- Balance at December 31, 1998 $(6,094) $ (303) $(6,397) The income tax effect related to the above items is not significant. Note M -- Segment Information Reporting Segment The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," during 1998. SFAS No. 131 established standards for reporting information about operating segments in annual financial statements and related disclosures about products and geographic areas. The Company manages its business under three similar product groups that are aggregated together as one segment in the global vehicular industry. These groups have similar long-term financial performance and economic characteristics. The products from all three groups utilize similar manufacturing processes. The production of the finished parts from the three focused groups uses similar machining equipment which may be interchanged from group to group. The Company distributes and sells final product to the same type of customers from all its three product groups. Geographic segments The Company operated entirely in North America prior to 1997. With the acquisition of the Holset VA business during 1997, the Company expanded its operations to Europe. The Company's geographic data for the years ended December 31, 1998 and 1997 are as follows: 1998 1997 ---- ---- Net sales North America $ 431,657 $ 421,117 Europe 64,762 30,401 --------- --------- Total $ 496,419 $ 451,518 Operating income North America $ 31,342 $ 29,474 Europe 2,804 1,445 Restructuring/plant closings (2,500) (8,769) --------- --------- 31,646 $ 22,150 Identifiable assets North America $ 256,284 $ 256,589 Europe 84,270 84,959 --------- --------- Total $ 340,554 $ 341,548 Net sales to major customers were: 1998 1997 1996 (In thousands) ---- ---- ---- General Motors Corporation $123,700 $126,500 $108,800 Ford Motor Company 85,100 88,500 86,700 DaimlerChrysler Corporation 61,000 56,500 63,400 Consolidated Diesel Company and its parent companies, Cummins Engine Company Inc. and Case Corporation 52,400 47,000 38,800 Caterpillar Inc. 41,800 36,100 35,900 Aggregate receivables for these customers at December 31, 1998 and 1997 approximate the same percent of total receivables as aggregate sales to these customers bear to total sales. Note N -- 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. 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, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity and comprehensive income and cash flows for each of the years in the three-year period ended December 31, 1998. 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, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998 in conformity with generally accepted accounting principles. KPMG LLP Detroit, Michigan January 27, 1999 Summary of Quarterly Results of Operations (In thousands, except per share amounts) Quarter Ended Mar.31 Jun.30 Sep.30 Dec.31 ------ ------ ------ ------ 1998 Net sales $ 125,556 $ 128,704 $ 110,016 $ 132,143 Gross profit 13,623 14,856 6,284 14,742 Net earnings 4,905 5,686 929 3,235 Net earnings per share Basic .27 .31 .05 .18 Diluted .27 .31 .05 .18 1997 Net sales $ 105,874 $ 110,274 $ 112,327 $ 123,043 Gross profit 10,816 13,040 9,472 11,677 Net earnings 4,387 5,418 (3,337) 3,611 Net earnings per share Basic .24 .30 (.18) .20 Diluted .24 .30 (.18) .20 Net earnings for the quarter ended December 31, 1998 were decreased by $1,900 ($.10 per share for both basic and diluted) for the provision for restructuring. Net earnings for the quarter ended September 30, 1997 were decreased by $5,700 ($.31 per share for both basic and diluted) for the provision for plant closings. Item 9. Changes in and Disagreements with Accountants and Financial Disclosure NONE PART III The information called for by the items within this part is included in the Company's Proxy Statement for the 1999 Annual Meeting of Shareholder's, and is incorporated herein by reference, as follows: Pages in 1999 Proxy Statement --------------- Item 10. Directors ..................................... 1-4 Item 11. Executive Compensation ........................ 5-11 Item 12. Security Ownership of Certain Beneficial Owners and Management ................................ 11-12 Item 13. Certain Relationships and Related Transactions N/A PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) The Consolidated Financial Statements of the Company and its subsidiaries, included in Item 8 herein by reference: Consolidated Balance Sheets - December 31, 1998 and 1997 Consolidated Statements of Shareholders' Equity and Comprehensive Income - years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Operations years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows - years ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements - December 31, 1998 (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 31,1997 and incorporated herein by reference) 3.2 Bylaws, as amended (previously filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,1997 and incorporated herein by reference) 4.2 Rights Agreement, dated as of February 28, 1997, between Simpson Industries, Inc. and Harris Trust and Savings Bank, as Rights Agent (previously filed as Exhibit 4.2 to the Company's Current Report on Form 8-K, dated April 22, 1997 and incorporated herein by reference) 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) Amendment No. 2 to Note Agreement with Aetna Life Insurance Company, dated as of June 17, 1997 (previously filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 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) Amendment No. 1 to Note Agreement with Massachusetts Mutual Life Insurance Company, dated as of June 17, 1997 (previously filed as Exhibit 10.11 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 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) Amendment No. 2 to Term Loan Agreement with Comerica Bank, dated as of June 17, 1997 (previously filed as Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference) 10.18+ Letter Agreement, dated December 16,1994, with George G. Gilbert (previously filed as Exhibit 10.18 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) Amendment No. 2 to Term Loan Agreement with Comerica Bank, dated as of June 17, 1997 (previously filed as Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 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) Amendment No. 2 to Term Loan Agreement with Comerica Bank, dated as of June 17, 1997 (previously filed as Exhibit 10.21 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference) 10.23+ Letter Agreement, dated March 1, 1996, with James B. Painter (previously filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference) 10.24 Credit Agreement, dated June 17, 1997, among Simpson Industries and certain other Borrowers, certain Commercial Lending Institutions, ABN AMRO Bank N.V. and Comerica Bank (previously filed as Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference) Amendment to Credit Agreement, dated August 22, 1997 among Simpson Industries, Inc. and certain other Borrowers, certain Commercial Lending Institutions, ABN AMRO Bank N.V. and Comerica Bank (previously filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year December 31,1997, and incorporated herein by reference) Amendment to Credit Agreement, dated June 16, 1998, among Simpson Industries, Inc. and certain other Borrowers, certain Commercial Lending Institutions, ABN AMRO Bank N.V. and Comerica Bank (previously filed as Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,1998, and incorporated herein by reference) 10.25 Credit Agreement, dated June 17, 1997, among Simpson Industries and certain other Borrowers, certain Commercial Lending Institutions, ABN AMRO Bank N.V. and Comerica Bank (previously filed as Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference) Amendment to Credit Agreement, dated August 22, 1997 among Simpson Industries, Inc. and certain other Borrowers, certain Commercial Lending Institutions, ABN AMRO Bank N.V. and Comerica Bank (previously filed as Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997, and incorporated herein by reference) Amendment to Credit Agreement, dated June 16, 1998, among Simpson Industries, Inc. and certain other Borrowers, certain Commercial Lending Institutions, ABN AMRO Bank N.V. and Comerica Bank (previously filed as Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference) 10.26 Note Agreement, dated August 1, 1997 with Northwestern Mutual Life Insurance Company, Chubb Life Insurance Company of America, Chubb Colonial Life Insurance Company, Allstate Life Insurance Company and United of Omaha Life Insurance Company (previously filed as Exhibit 10.26 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 and incorporated herein by reference) 10.27+ Letter Agreement, dated September 1, 1997, with Vinod M. Khilnani (previously filed as Exhibit 10.27 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference) 10.28+* Letter Agreement dated February 5, 1999, with George A. Thomas 10.29+* Letter agreement dated March 1, 1999 with George A. Thomas 21 * Subsidiaries of registrant 23 * Consent of independent public accountants 27.1 * Financial Data Schedule *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, 1998. 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, Chairman and Chief Executive Officer Date: March 1, 1999 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 March 1, 1999. Signature Title --------- ----- /s/ Roy E. Parrott Chairman and Chief Executive Roy E. Parrott Officer and Director (principal executive officer) /s/ Vinod M. Khilnani Vice President, Chief Financial Officer Vinod M. Khilnani (principal financial officer) (principal accounting officer) /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/ Robert W. Navarre Director Robert W. Navarre /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 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 31,1997 and incorporated herein by reference) 3.2 Bylaws, as amended (previously filed as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,1997 and incorporated herein by reference) 4.2 Rights Agreement, dated as of February 28, 1997, between Simpson Industries, Inc. and Harris Trust and Savings Bank, as Rights Agent (previously filed as Exhibit 4.2 to the Company's Current Report on Form 8-K, dated April 22, 1997 and incorporated herein by reference) 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) Amendment No. 2 to Note Agreement with Aetna Life Insurance Company, dated as of June 17, 1997 (previously filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 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) Amendment No. 1 to Note Agreement with Massachusetts Mutual Life Insurance Company, dated as of June 17, 1997 (previously filed as Exhibit 10.11 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 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) Amendment No. 2 to Term Loan Agreement with Comerica Bank, dated as of June 17, 1997 (previously filed as Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference) 10.18+ Letter Agreement, dated December 16,1994, with George G. Gilbert (previously filed as Exhibit 10.18 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) Amendment No. 2 to Term Loan Agreement with Comerica Bank, dated as of June 17, 1997 (previously filed as Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 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) Amendment No. 2 to Term Loan Agreement with Comerica Bank, dated as of June 17, 1997 (previously filed as Exhibit 10.21 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference) 10.23+ Letter Agreement, dated March 1, 1996, with James B. Painter (previously filed as Exhibit 10.23 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference) 10.24 Credit Agreement, dated June 17, 1997, among Simpson Industries and certain other Borrowers, certain Commercial Lending Institutions, ABN AMRO Bank N.V. and Comerica Bank (previously filed as Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference) Amendment to Credit Agreement, dated August 22, 1997 among Simpson Industries, Inc. and certain other Borrowers, certain Commercial Lending Institutions, ABN AMRO Bank N.V. and Comerica Bank (previously filed as Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year December 31,1997, and incorporated herein by reference) Amendment to Credit Agreement, dated June 16, 1998, among Simpson Industries, Inc. and certain other Borrowers, certain Commercial Lending Institutions, ABN AMRO Bank N.V. and Comerica Bank (previously filed as Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,1998, and incorporated herein by reference) 10.25 Credit Agreement, dated June 17, 1997, among Simpson Industries and certain other Borrowers, certain Commercial Lending Institutions, ABN AMRO Bank N.V. and Comerica Bank (previously filed as Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference) Amendment to Credit Agreement, dated August 22, 1997 among Simpson Industries, Inc. and certain other Borrowers, certain Commercial Lending Institutions, ABN AMRO Bank N.V. and Comerica Bank (previously filed as Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997, and incorporated herein by reference) Amendment to Credit Agreement, dated June 16, 1998, among Simpson Industries, Inc. and certain other Borrowers, certain Commercial Lending Institutions, ABN AMRO Bank N.V. and Comerica Bank (previously filed as Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference) 10.26 Note Agreement, dated August 1, 1997 with Northwestern Mutual Life Insurance Company, Chubb Life Insurance Company of America, Chubb Colonial Life Insurance Company, Allstate Life Insurance Company and United of Omaha Life Insurance Company (previously filed as Exhibit 10.26 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 and incorporated herein by reference) 10.27+ Letter Agreement, dated September 1, 1997, with Vinod M. Khilnani (previously filed as Exhibit 10.27 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, and incorporated herein by reference) 10.28+* Letter Agreement dated February 5, 1999, with George A. Thomas 10.29+* Letter agreement dated March 1, 1999 with George A. Thomas 21 * Subsidiaries of registrant 23 * Consent of independent public accountants 27.1 * Financial Data Schedule * Filed with this report EX-10.28 2 Exhibit 10.28 February 5, 1999 Mr. George A. Thomas 13695 Timberwyck Shelby Township, Michigan 48315 Dear George: As a part of your employment offer, you will be extended a severance package. The terms of this package are as follows: In the event your employment with Simpson Industries, Inc., is severed within a 12-month period beginning March 1, 1999, for any reason other than "just cause", you will receive 12 months of base salary and certain benefits. The benefits include Health / Dental, Life Insurance and Lease Car. These benefits will terminate at the earlier of 12 months or when such coverage begins at a new employer. In each case, participation in these benefit plans is subject to the terms and conditions of those plans (including employee cost sharing, etc.) Finally, you will also be granted outplacement benefits. Sincerely, Roy E. Parrott EX-10.29 3 Exhibit 10.29 March 1, 1999 Mr. George A. Thomas Simpson Industries, Inc. 47603 Halyard Drive Plymouth, Michigan 48170-2429 Dear George: 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, 1999; provided, however, that commencing on January 1, 2000 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 13d-3 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 opinion 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 re-elect 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 Company'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 agreement 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 entitled 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 certified or 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 1st day of March, 1999 George A. Thomas EX-21 4 EXHIBIT 21 Subsidiaries of Registrant State or Jurisdiction of Percent Name of Subsidiary Incorporation Owned - ------------------ --------------- ------- R.J.Simpson Manufacturing Company Ontario, Canada 100% (Canada) Ltd. Simpson Industries, S.A. de C.V. Federal District 99% of Mexico Dampers SAS Lyon, France 100% Simpson International (U.K.) Ltd. Halifax, England 100% EX-23 5 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Shareholders Simpson Industries, Inc. We consent to the incorporation by reference in the registration statement (No. 33-39679) on Form S-8 pertaining to the Simpson Industries, Inc. Savings Plan, to incorporation by reference in the registration statement (No. 33-39678) on Form S-8 pertaining to the Simpson Industries, Inc. Fremont Operation Savings Plan, to incorporation by reference in the registration statement (No. 2-95425) on Form S-8 pertaining to the Simpson Industries, Inc. 1984 Stock Option Plan, incorporation by reference in the registration statement (No. 33-62806) on Form S-8 pertaining to the 1993 Executive Long-Term Incentive Plan, to incorporation by reference in the registration statement (No. 33-62802) 1993 Non-Employee Director Stock Option Plan, and to incorporation by reference to the registration statement (No. 333-52843) on Form S-3 pertaining to the offering of shares in connection with the acquisition of Stahl International, Inc., of our report dated January 27, 1999, relating to the consolidated balance sheets of Simpson Industries, Inc., and subsidiaries as of December 31, 1998, and 1997, and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 1998, which report appears in the December 31, 1998, annual report on Form 10-K of Simpson Industries, Inc. /S/ KPMG LLP Detroit, Michigan. March 19, 1999 EX-27.1 6
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S AUDITED FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDING DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 JAN-01-1998 12-MOS DEC-31-1998 DEC-31-1998 6,145 0 72,785 0 22,866 114,539 328,609 158,724 340,554 82,343 0 18,177 0 0 106,391 340,554 496,419 496,715 446,914 462,273 2,500 0 9,588 22,354 7,599 14,755 0 0 0 14,755 0.81 0.80
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