-----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, J9cNirH4IHl1/prOfo9NAe55xFhuYPgAnO4bFk0CRP2jYO8NFymHWVyitWrhPm9k KeYEd/SoQgJLqt6PLIAfNw== 0000935799-97-000002.txt : 19970430 0000935799-97-000002.hdr.sgml : 19970430 ACCESSION NUMBER: 0000935799-97-000002 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970324 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIMPSON INDUSTRIES INC CENTRAL INDEX KEY: 0000090588 STANDARD INDUSTRIAL CLASSIFICATION: 3714 IRS NUMBER: 381225111 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-06611 FILM NUMBER: 97561747 BUSINESS ADDRESS: STREET 1: 32100 TELEGRAPH RD - SUITE 120 CITY: BINGHAM FARMS STATE: MI ZIP: 48025 BUSINESS PHONE: 3135406200 MAIL ADDRESS: STREET 1: 32100 TELEGRAPH ROAD STREET 2: SUITE 120 CITY: BINGHAM FARMS STATE: MI ZIP: 48025-2453 10-K405 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, 1996 Commission File Number 0-6611 SIMPSON INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Michigan 38-1225111 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 47603 Halyard Drive, Plymouth, Michigan 48170 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:(313)207-6200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $ 1.00 par value (Title of Class) Common Stock Purchase Rights (Title of Class) Indicate by check mark whether the Registrant (1) has filed all annual, quarterly and other reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant has been required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the registrant's voting stock held by non-affiliates of the registrant as of February 21, 1997, computed by reference to the last sale price for such stock on that date as reported on the NASDAQ National Market System, was $175,718,574. At February 21, 1997, there were outstanding 18,072,226 shares of the registrant's common stock, $1.00 par value each. Portions of the Proxy Statement for 1997 Annual Meeting of Shareholders have been incorporated by reference in this Annual Report on Form 10-K (Part III). PART I ITEM 1. BUSINESS Introduction Simpson Industries, Inc. (the "Company") was organized under Michigan law in 1945. The Company's executive offices are located in Plymouth, Michigan, and the eleven plants at which its manufacturing operations are conducted are located in Michigan, Ohio, Indiana, North Carolina, Ontario (Canada) and Federal District of Mexico (Mexico). Reference in this report to the Company includes Simpson Industries, Inc., its predecessors, divisions and subsidiaries, unless otherwise indicated by the context. Principal Products and Markets The Company manufactures vibration control and other products for automobile, light-truck and diesel engines, air conditioning compressor components, wheel-end and suspension components and assemblies, and transmission and driveline components which are machined from castings and forgings. These products are produced principally for original equipment manufacturers of automobiles, light trucks, diesel engines and heavy duty equipment in North America. The Company's operations are organized into two management groups - - --- Automotive Group and Heavy Duty Group. The Company maintains product design and process development staffs which work with customers' engineers, principally in the design, testing and development of new products, as well as in the on-going refinement of existing products. The Company also conducts its own research and development activities which are separate from the product development activities conducted in cooperation with its customers. The Company expended $2,944,000 in 1996, $2,309,000 in 1995 and $2,033,000 in 1994 for its research and development. Competition in the sale of all of the Company's products is primarily based on engineering, product design, process capability, quality, cost, delivery and responsiveness. The Company believes that its performance record in these respects places it in a strong competitive position. The Company believes that, in the manufacture of its products, it competes with numerous supplier companies, some of which are larger and have greater financial resources than the Company. In addition, many of the Company's larger customers are capable of performing their own machining work. The Company's customers to which sales exceeded 10% of total net sales include General Motors Corporation, Ford Motor Company and Chrysler Corporation. Substantially all of the Company's sales are based on competitive proposals on requests from customers. Sales of all products to General Motors Corporation, Ford Motor Company and Chrysler Corporation during the years ended December 31, 1996, 1995 and 1994 accounted for 63.5%, 65.1%, and 71.1%, respectively, of the Company's total sales during those periods. In recent years, sales to other significant customers, in particular Consolidated Diesel Corporation, Caterpillar Incorporated, Mitsubishi Motors Corporation and other Japanese manufacturers, have grown in importance as the Company has broadened its customer base and more narrowly focused its product direction. However, the loss of all or a substantial portion of sales to major customers could have a detrimental effect on the Company's business. The Company believes that such a loss is unlikely because the Company's products, which generally have a life of five to ten years, require a substantial initial investment in engineering, equipment and tooling. Moreover, sales to automotive customers consist of a large number of different products as well as different types of the same products, which are sold to separate divisions and operating groups within each customer's organization. These customer operating units generally act independently when making their purchasing decisions. Because the Company principally ships to its customers' scheduled needs, information concerning its backlog is not meaningful to an understanding of its business. Purchase orders for machined products that do not necessarily represent firm contracts are generally received from larger customers. Customers issue short-term releases against the purchase orders from time to time during the year and these releases are firm orders that typically remain open for acceptance by the Company for a period of 30 days or less. The basic raw materials for the Company's products include aluminum and ferrous castings, steel forgings, steel bar stock and rubber, all of which are available from a large number of sources. The Company has been purchasing such materials from several sources. The Company holds various patents and, from time to time, in the ordinary course of its business, files patent applications. However, the Company does not consider any individual patent or patent application to be material to the operation of its business. The Company's operations, in common with those of manufacturers generally, are subject to numerous federal, state and local laws and regulations pertaining to the discharge of materials into the environment or otherwise relating to the protection of the environment. Compliance with such laws and regulations has not had and is not anticipated to have a material effect on the capital expenditures, earnings or competitive position of the Company. At December 31, 1996, the Company employed 2,115 people on an active basis. Since most of the Company's machined products are for engines, transmissions and drive trains, they are generally not affected by style changes and their production and delivery continue at a relatively uniform rate. However, the Company's operations are affected by the cyclical nature of the United States automobile, light-truck and heavy-duty vehicle markets. The Company's operations are conducted within one business segment and sales attributable to customers outside the United States from U.S. operations were $57,800,000 in 1996, $56,200,000 in 1995 and $46,800,000 in 1994. ITEM 2. PROPERTIES The following table sets forth the location and approximate size of the Company's facilities. Principally, owned properties are facilities involved in the manufacture of the Company's products and are owned by the Company and its subsidiaries free of encumbrances. All of these properties, as well as the related machinery and equipment, are considered to be well-maintained, suitable and adequate for their intended purpose. PROPERTIES IN ACTIVE USE Approximate Approximate Location Land Area Floor Space Gladwin, Michigan........... 5.0 Acres 71,000 Square Feet Jackson, Michigan........... 11.0 93,000 Litchfield, Michigan........ 22.8 230,000 Plymouth, Michigan.......... 5.5 68,000 Middleville, Michigan....... 3.5 82,500 Fremont, Indiana............ 13.7 99,000 Bluffton, Indiana........... 12.5 170,000 Edon, Ohio.................. 15.2 134,000 Troy. Ohio.................. 12.2 100,000 Greenville, North Carolina.. 12.6 113,000 Thamesville, Ontario........ 6.0 59,000 Iztapalapa, Mexico.......... 2.8 86,000 TOTAL IN ACTIVE USE 122.8 1,305,500 ITEM 3. LEGAL PROCEEDINGS No material legal proceeding is pending to which the Company or any of its subsidiaries is a party, or of which any of their property is subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted by the Company to a vote of security holders through the solicitation of proxies or otherwise, during the fourth quarter of 1996. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS STOCK PRICE AND DIVIDEND INFORMATION The Company's common stock is traded on the NASDAQ National Market Issue under the symbol SMPS. Stock prices are quoted in the automated quotation system operated by the National Association of Securities Dealers Automated Quotation System (NASDAQ). The quarterly range of bid prices per share, as reported by NASDAQ, and the dividends paid thereon during the years ended December 31, 1996 and 1995 are shown in the accompanying table. Such prices may represent interdealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. At December 31, 1996 there were 3,928 individual shareholders of record of Simpson common stock. Other Simpson common shares outstanding were held in bank, money management, company and brokerage house "nominee" accounts for an estimated 4,500 additional shareholders as beneficial owners. Bid Price Per Share Dividend Quarter Ended High Low Paid Per Share March 31, 1995 10 1/8 9 .10 June 30, 1995 11 1/4 9 3/8 .10 September 30, 1995 12 1/8 8 5/8 .10 December 31, 1995 9 7/8 8 .10 March 31, 1996 10 1/8 8 3/8 .10 June 30, 1996 10 1/4 8 5/8 .10 September 30, 1996 10 1/2 8 1/2 .10 December 31, 1996 11 1/8 9 1/2 .10 PAGE Item 6. Selected Financial Data Five Year Summary (Dollar amounts in millions, except per share and per employee) 1996 1995 1994 1993 1992 Operating Data Net sales $408.0 $395.1 $356.6 $262.5 $222.8 Cost of products sold 365.3 354.4 319.6 234.2 197.3 Gross profit 42.7 40.7 37.0 28.3 25.5 as a % of sales 10.5 10.3 10.4 10.8 11.5 Operating earnings 29.6 28.8 26.8 19.4 16.7 as a % of sales 7.3 7.3 7.5 7.4 7.5 Net earnings 17.6* 15.3 14.4 6.4*** 8.0 as a % of sales 4.3 3.9 4.0 2.5 3.6 Net earnings per share 0.97 0.85 0.80 0.36 0.47 Dividend per share 0.40 0.40 0.38 0.37 0.37 Weighted average shares (millions) 18.1 18.0 18.0 17.9 16.9 AT YEAR END Current assets $94.2 $82.0 $70.5 $70.9 $76.9 Working capital 45.0 40.3 31.7 34.5 49.7 Total assets 249.0 232.5 207.0 186.8 170.0 Long-term debt 58.6 62.3 50.4 39.0 37.0 Shareholders' equity 116.0 105.1 98.0 91.5 91.8 Book value per share 6.42 5.84 5.47 5.12 5.16 % Debt/equity 51 59 51 43 40 % Debt/total capital 35 38 35 31 30 Additional Statistics New program launches 6 10 23 20 N/A Content per N.A.light vehicle $22 $22 $20 $16 $15 Sales per share $22.53 $21.91 $19.81 $14.64 $13.16 Depreciation 20.5 18.9 16.3 14.2 13.4 Capital investment 26.3 31.5 38.2 37.5 22.4 % return on average equity 15.9 15.1 15.2 7.0 10.2 Sales per employee 190,654 186,706 182,240 163,034 148,451 Operating earnings per employee 13,832 13,594 13,704 12,041 11,147 Number of employees, year end 2,115 2,050 2,135 1,768 1,507 Stock Activity Price Range 8 3/8 - 8 - 7 /78- 10 1/2- 8 - 11 1/8 12 1/8 15 21/32 14 21/32 13 5/32 Price at year end 10 57/64 9 9 1/4 14 3/32 10 13/32 * Includes $1.1 million for tax credits. ** Includes $3 million net charge for accounting changes. N/A - Not available for 1992 and earlier years. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. Results of Operation 1996 Compared to 1995 The company's net sales reached a new record level in 1996 at $407,999,000, 3% over the previous record of $395,069,000 set in 1995. Six new product programs were launched during 1996, but the major factors contributing to higher volumes were the annualized effects of the 10 more-significant 1995 launches. Additionally, the strength in the company's diesel engine business, particularly in support of medium-duty engine production levels boosted sales volume. Light vehicle production was up 2% in North America, on the strength of light trucks. Automobile production volume for the year was down at the Big 3 by 6% from 1995, reflective of the work stoppages at GM in the first and fourth calendar quarters which reduced the company's sales. Management expects sales for 1997 to be comparable to 1996, as light vehicle and heavy-duty truck markets continue to experience some softness. Operating earnings increased 2.8% from $28,764,000 to $29,573,000 for 1996. The operating margin, at 7.3% remained comparable to 1995 as our Mexican operation was profitable all year and we experienced improvements in certain key operations. This was offset by the effect of the GM strikes and lower passenger car and heavy-duty engine production levels at customers. Investment and other income was $1,425,000 in 1996, up $278,000 from 1995, due to higher average invested balances and interest on tax refunds. Interest expense decreased $160,000 from 1995 as a result of lower average debt balances. Income tax expense for 1996 represents an effective rate of 31.3% compared to 37.3% for 1995, which is lower due to the recognition of federal tax credits totaling $1,100,000 relating to prior years. 1995 Compared to 1994 Net sales for 1995, at $395,069,000 were 11% above the $356,643,000 level of 1994. The major reason for the sales increase from 1994 to 1995 was the volume on several significant new product programs in addition to an increase in production levels for medium and heavy-duty diesel engines for vehicles and non-vehicular use. Operating earnings, as a percentage of sales, were 7.3% and 7.5% for 1995 and 1994, respectively. This margin decreased slightly due principally to a shift in product mix and margin pressure caused by higher fixed costs and relatively flat volume in the second half of the year. Offsetting some of these effects were the impact of productivity gains on existing production lines and lower new program launch costs than in 1994. Investment and other income was $1,147,000 in 1995, up from $617,000 in 1994 due to higher average invested balances. Interest expense increased $1,170,000 from 1994 as a result of additional long-term borrowing in 1995. The effective rate for income tax expense was 37.3% for 1995 compared to 37.8% for 1994 due to the reduced influence of state and foreign taxes. Liquidity and Capital Resources Net cash generated from operations was $50,794,000 in 1996 compared to $35,781,000 in 1995 and $20,778,000 in 1994. The cash flows were primarily provided from earnings and depreciation expense and, in 1996, reduced working capital needs. During 1996, $26,296,000 was invested in capital equipment and plant expansions compared to $31,510,000 in 1995. The investment was lower in 1996 due to the completion in 1995 of various building and infrastructure improvements and due to lower investment needed for new program spending. Capital expenditures for 1997 are expected to approximate $35 million and will principally support new business and infrastructure enhancements around the organization. During 1995, the Company entered into bank term loan agreements for $20,000,000 and $4,050,000. The $20,000,000 debt agreement carries an interest rate of 8.45% and is payable over a 10-year period. The $4,050,000 debt agreement carries an interest rate of 8.82% and is payable over 8 years. During 1995 the Company repaid a $10,000,000 bank term loan and additional cash was used to prepay $750,000 of higher-cost debt in addition to the $1,500,000 scheduled repayment. During 1994, the Company drew down the remaining $15,000,000 under a $20,000,000 unsecured loan agreement, originated in 1993, at an interest rate of 6.75% and payable over 15 years. Prepayments of $1,500,000 of higher-cost debt were also made in 1994. The Company has paid uninterrupted cash dividends each year since becoming publicly-owned in 1972. Dividends paid in 1996 were $7,229,000 compared to $7,192,000 in 1995 and $6,930,000 in 1994, reflecting the increased dividend rate in mid-1994. The per-share dividend rate for years 1996, 1995 and 1994 was $.40 per share, $.40 per share and $.38 per share, respectively. The Company maintains a revolving credit facility and other short-term borrowing arrangements which total $24,620,000, of which $3,172,000 was committed as letters of credit at December 31,1996. The Company had no short-term borrowings at December 31, 1996 or December 31, 1995. The Company's long-term debt (excluding current installments) was $58,643,000 at December 31, 1996 compared to $62,270,000 at December 31, 1995. Interest rates on the long-term debt range from 6.75% to 9.98%. The Company is subject to restrictions on additional borrowing and maintenance of minimum net worth and working capital requirements. The Company believes that existing cash balances, cash from operations, and borrowings available under its revolving credit facility and other short-term arrangements will be sufficient to meet its anticipated operating cash needs for the foreseeable future. Impact of Inflation The Company does not expect that it will be significantly affected by inflation in 1997. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year Ended December 31 1996 1995 1994 Net sales $407,999 $395,069 $356,643 Costs and expenses: Cost of products sold 365,253 354,436 319,557 Administrative and selling 13,173 11,869 10,268 378,426 366,305 329,825 Operating Earnings 29,573 28,764 26,818 Investment and other income, net 1,425 1,147 617 Interest expense (5,354) (5,514) (4,344) Earnings Before Income Taxes 25,644 24,397 23,091 Income taxes 8,037 9,095 8,722 Net Earnings $ 17,607 $ 15,302 $ 14,369 _______ _______ ________ Net Earnings Per Share $.97 $.85 $.80 See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31 1996 1995 1994 OPERATING ACTIVITIES Net earnings $17,607 $15,302 $14,369 Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation 20,497 18,921 16,330 Provision for deferred income taxes (102) 1,234 (874) Amortization of restricted stock 363 330 272 Loss (gain) on disposition of assets 217 (113) (41) Changes in operating assets and liabilities: Accounts receivable 6,186 985 (14,660) Inventories (1,153) (1,660) (2,797) Other assets (655) (4,052) 5,443 Accounts payable and accrued expenses 7,834 4,834 2,736 Cash Provided By Operating Activities 50,794 35,781 20,778 INVESTING ACTIVITIES Sale of marketable securities -- 2,491 83 Capital expenditures (26,296) (31,510) (38,239) Proceeds from disposal of property and equipment 171 1,069 478 Cash Used In Investing Activities (26,125) (27,950) (37,678) FINANCING ACTIVITIES Cash dividends paid (7,229) (7,192) (6,930) Principal repayments of long-term debt (2,078) (12,250) (3,000) Proceeds from long-term borrowings --- 24,050 15,000 Cash provided by stock transactions, net 243 42 78 Cash (Used In) Provided By Financing Activities (9,064) 4,650 5,148 Effect of foreign currency exchange rate changes (193) (1,312) (1,420) Increase (Decrease) In Cash and Cash Equivalents 15,412 11,169 (13,172) Cash and cash equivalents at beginning of year 13,490 2,321 15,493 Cash And Cash Equivalents At End Of Year $28,902 $13,490 $ 2,321
See accompanying notes to consolidated financial statements. CONSOLIDATED BALANCE SHEETS (In thousands) December 31 1996 1995 ASSETS Current Assets Cash and cash equivalents $28,902 $ 13,490 Accounts receivable 41,032 47,218 Inventories 14,034 12,881 Customer tooling in process 4,002 1,334 Prepaid expenses and other current assets 6,256 7,068 Total Current Assets 94,226 81,991 Property, Plant and Equipment, at cost Land 3,116 3,146 Buildings and improvements 49,058 45,777 Machinery and equipment 226,055 205,651 278,229 254,574 Less accumulated depreciation 126,152 107,908 Net Property, Plant and Equipment 152,077 146,666 Other Assets 2,653 3,854 $248,956 $232,511 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current installments of long-term debt $ 3,579 $ 2,030 Accounts payable 28,455 21,353 Compensation and amounts withheld 10,203 9,876 Taxes, other than income taxes 2,597 2,942 Other accrued expenses 4,354 5,532 Total Current Liabilities 49,188 41,733 Long-Term Debt, excluding current installments 58,643 62,270 Accrued Retirement Benefits 14,015 12,439 Deferred Income Taxes 11,118 10,992 Shareholders' Equity Common stock, par value $1 per share: Authorized - 35,000,000 shares Outstanding - 18,080,002 shares (1995 - 17,981,485 shares) 18,080 17,981 Additional paid-in capital 24,366 23,646 Retained earnings 79,274 68,896 Unamortized value of restricted stock (2,028) (1,815) Cumulative foreign currency translation adjustments (3,692) (3,499) Excess pension cost (8) (132) Total Shareholders' Equity 115,992 105,077 $248,956 $232,511 See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands) Cumulative Unamortized Foreign Additional Value Of Currency Excess Common Paid-In Retained Restricted Translation Pension Stock Capital Earnings Stock Adjustments Cost Total Balance at Jan- uary 1, 1994 $11,914 $28,586 $53,347 $(1,410) $ (767) $ (123) $91,547 Net earnings for 1994 14,369 14,369 Cash dividends -$.38 per share (6,930) (6,930) 3-for-2 stock distribution 5,975 (5,977) (2) Exercise of stock options, net 14 66 80 Restricted stock awards, net 26 526 (552) --- Amortization of restricted stock 272 272 Translation adjust- ment for the year (1,420) 1,420) Excess pension cost adjustment 123 123 Balance at December 31, 1994 17,929 23,201 60,786 (1,690) (2,187) --- 98,039 Net earnings for 1995 15,302 15,302 Cash dividends -$.40 per share (7,192) (7,192) Exercise of stock options, net 7 35 42 Restricted stock awards, net 45 410 (455) --- Amortization of restricted stock 330 330 Translation adjust- ment for the year (1,312) (1,312) Excess pension cost adjustment (132) (132) Balance at Decem- ber 31, 1995 17,981 23,646 68,896 (1,815) (3,499) (132) 105,077 Net earnings for 1996 17,607 17,607 Cash dividends -$.40 per share (7,229) (7,229) Exercise of stock options, net 35 208 243 Restricted stock awards, net 64 512 (576) --- Amortization of restricted stock 363 363 Translation ad- justment for the year (193) (193) Excess pension cost adjustment 124 124 Balance at Decem- ber 31, 1996 $18,080 $24,366 $79,274 $(2,028) $(3,692) $ (8) $115,992
See accompanying notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A - Significant Accounting Policies Description of the Business: The Company is a supplier of precision-machined powertrain and chassis products to the global automotive and heavy duty diesel engine markets, supplying in excess of 700 different components and assemblies to original equipment manufacturers located principally in North America. Principles of Consolidation: The consolidated financial statements include the accounts of the Company and all subsidiaries after elimination of intercompany accounts and transactions. Foreign Currency Translation: Translation adjustments from foreign subsidiaries are reflected in the financial statements as a separate component of shareholders' equity. Foreign currency gains and losses resulting from transactions are included in determining net earnings. Cash Equivalents: Cash equivalents include all liquid investments purchased with a maturity of three months or less. Financial Instruments: Financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable and long-term debt. At December 31, 1996, the fair value of these financial instruments approximates the carrying amount with the exception of long-term debt as discussed in Note C. Inventories: Inventories are stated at the lower of cost or market. Costs are determined by the last-in, first-out (LIFO) method for domestic inventories and by the first-in, first-out (FIFO) method for foreign inventories. Depreciation: Depreciation is computed using the straight-line method at annual rates which are sufficient to amortize the cost over the estimated useful lives. Customer Tooling: Costs incurred for customer-owned tooling in excess of amounts billed to date are recorded as customer tooling in process. Costs for customer-owned tooling which will be recovered as parts are shipped are included with other assets. Income Taxes: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. No deferred income taxes have been provided for the income tax liability of approximately $350,000 which would be incurred on repatriation of the permanently reinvested portion of unremitted earnings of the foreign subsidiaries. Net Earnings Per Share: Net earnings per share are computed based upon the weighted average shares of common stock and common stock equivalents (stock options) outstanding during the year as adjusted for a 3-for-2 stock distribution in 1994. The average common and common equivalent shares used in the computation of earnings per share was 18,108,439 in 1996; 18,035,060 in 1995; and 18,000,795 in 1994. Long-Lived Assets: The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Adoption of this statement did not have an impact on the Company's financial position or results of operations. Stock Based Compensation: Effective January 1, 1996, the Company adopted SFAS No. 123 "Accounting for Stock-Based Compensation". The Company adopted this standard by making the required disclosures only. The adoption of this standard did not have an effect on the Company's financial position or results of operations. Use Of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make reasonable estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported net earnings for the period. Ultimate resolution of uncertainties could cause actual results to differ from these estimates. Note B - Inventories The components of inventories are summarized as follows: (In thousands) 1996 1995 Finished and in-process products $ 9,881 $ 7,971 Raw materials 4,153 4,910 $14,034 $12,881 The LIFO inventories comprise approximately 94% and 96% of total inventories at December 31, 1996 and 1995, respectively. The replacement cost of inventories exceeded the balance sheet carrying amounts by approximately $5,600,000 and $5,500,000 at December 31, 1996 and 1995, respectively. Note C - Debt Long-term debt at December 31 consisted of the following obligations: (In thousands) 1996 1995 8.8% Note payable due 1999 $ 3,750 $ 5,250 9.98% Note payable due 2006 15,000 15,000 6.75% Bank term note due 2008 20,000 20,000 8.45% Bank term note due 2005 20,000 20,000 8.82% Bank term note due 2003 3,472 4,050 62,222 64,300 Less current installments 3,579 2,030 Long-term debt, excluding current installments $58,643 $62,270 As of December 31, 1996 the estimated fair value of long-term debt, discounted at current interest rates, was $67,200,000. Under the terms of its loan agreements, the Company is subject to restrictions concerning additional borrowings and maintenance of minimum net worth and working capital. At December 31, 1996, retained earnings of approximately $35,830,000 were unrestricted. The Company has a revolving bank loan agreement under which it may borrow up to $12,000,000 through April 1, 2001 with interest at the lower of the bank's prime interest rate or a Eurodollar rate. Commitment fees are paid on the available credit. The Company also has short-term credit lines with banks under which it may borrow up to $12,620,000, of which $3,172,000 was committed as letters of credit at December 31,1996. The contract amount of the letters of credit approximate their fair value. The lines do not have termination dates, but are reviewed periodically. No compensating balances are required by any of the loan agreements. Principal maturities of long-term debt during the four years following 1997 are as fol-lows: 1998 - $3,579,000; 1999 - $4,829,000; 2000 - $6,079,000; and 2001 - $8,079,000. Interest paid approximates interest expense for each year. Note D - Income Taxes The components of earnings before income taxes were as follows: (In thousands) 1996 1995 1994 Domestic $23,047 $21,772 $19,849 Foreign 2,597 2,625 3,242 $25,644 $24,397 $23,091 The provisions for income tax expense were as follows: (In thousands) 1996 1995 1994 Current: Federal $6,730 $6,439 $7,430 Foreign 822 1,109 1,584 State 587 313 582 8,139 7,861 9,596 Deferred: Federal 66 1,078 (684) Foreign (330) 73 (44) State 162 83 (146) (102) 1,234 (874) $8,037 $9,095 $8,722 Income taxes paid $7,995 $7,650 $9,434 A reconciliation of income tax expense to the amount computed by applying the statutory federal income tax rate to earnings before income taxes follows: (In thousands) 1996 1995 1994 Income taxes at federal statutory rate $8,975 $8,539 $7,982 State income tax, net of federal benefit 487 257 285 Foreign operating loss (310) 196 435 Federal tax credits (1,100) --- --- Other, net (15) 103 20 $8,037 $9,095 $8,722 The tax effects of temporary differences that give rise to significant deferred tax assets and liabilities at December 31 are as follows: 1996 1995 Deferred Deferred Deferred Deferred Tax Tax Tax Tax (In thousands) Assets Liabilities Assets Liabilities Plant and equipment $ ---- $15,880 $ --- $14,458 Accrued retirement benefits 4,412 --- 4,382 --- Other accrued expenses 2,948 --- 2,725 --- Foreign net operating loss carryforward 390 --- 696 --- Federal tax credits 1,066 --- --- --- Other items 391 804 372 990 9,207 16,684 8,175 15,448 Valuation allowance (390) --- (696) --- $8,817 $16,684 $7,479 $15,448 As of December 31,1996, the Company has unrecognized foreign net operating loss carryforwards of approximately $1,100,000 that begin expiring in 2003. Deferred income tax assets of $3,251,000 and $3,023,000 are included in other current assets at December 31, 1996 and 1995, respectively. Note E - Pension Plans The Company has non-contributory defined benefit pension plans covering substantially all employees, subject to eligibility requirements. Benefits are based upon a percentage of compensation or monthly rates times years of service. Plan assets are held by a trustee and invested in marketable debt and equity securities and short-term investments. Benefits for certain employees are provided through multi-employer defined benefit plans. The Company also has an unfunded supplemental executive retirement plan for senior management with benefits based on compensation and years of service. Contributions to pension plans are sufficient to provide for both current service costs and amortization of past service costs over a reasonable period. Net pension expense for 1996, 1995 and 1994 included the following components: 1996 1995 1994 Assumptions used were: Discount rate 7.75% 8.5% 7.5% Rate of increase in compensation levels 5% 5% 5% Expected annual long-term rate of return on assets 9% 9% 9% (In thousands) Benefits earned during the year $2,114 $1,548 $1,656 Interest cost on projected benefit obligation 2,307 2,142 1,982 Actual return on assets (3,046) (2,591) (316) Net amortization and deferral 1,391 804 (1,313) Multi-employer plans 544 574 506 $3,310 $2,477 $2,515 The following table sets forth the plan's funded status at September 30: 1996 1995 Assumptions used were the same as above, except: Discount rate 8.0% 7.75% Plans in Which Plans in Which Assets Accum. Assets Accum. Exceed Benefits Exceed Benefits (In thousands) Accum. Exceed Accum. Exceed Benefits Assets Benefits Assets Actuarial present value of: Vested benefit obligation $6,849 $15,561 $6,712 $13,911 Accumulated benefit obligation 7,640 16,821 $7,125 $14,318 Projected benefit obligation 10,360 22,146 $10,270 $19,512 Plan assets at fair value 9,181 14,468 8,148 11,912 Deficiency of assets under pro- jected benefit obligation (1,179) (7,678) (2,122) (7,600) Unrecognized net loss 235 3,180 1,760 3,550 Unrecognized net asset (309) (46) (407) (97) Unrecognized prior service cost 527 482 581 432 Additional minimum liability --- (290) --- (569) Accrued pension liability included in the balance sheets $ (726) $(4,352) $ (188) $(4,284) The Company has recorded an additional minimum liability at December 31, 1996 and 1995, representing the excess of the unfunded accumulated benefit obligations over the fair value of plan assets and accrued pension liabilities. The additional liability has been offset by intangible assets to the extent of previously unrecognized prior service cost. Certain employees participate in Company-sponsored 401(k) savings plans. Under the plans, the Company contributes a defined amount to individual employee accounts based on the respective employee's contribution. Contributions approximated $1,490,000; $1,340,000 and $1,050,000 in 1996, 1995 and 1994, respectively. Note F - Retiree Medical Benefits The Company provides medical benefits to certain retired employees, their covered dependents, and beneficiaries. Generally, employees who have attained age 55 and who have rendered 10 years of service are eligible for these benefits. Certain medical plans are contributory and other medical plans are noncontributory. The retiree medical benefit cost for 1996, 1995 and 1994 consisted of the following: 1996 1995 1994 Assumed discount rate 7.75% 8.5% 7.5% (In thousands) Benefits earned during the year $ 612 $ 464 $ 547 Interest cost on accumulated retiree medical benefits 693 770 739 Net amortization 5 12 88 $1,310 $1,246 $1,374 The Company's retiree medical benefits are not funded. The following table presents the actuarial present value of the obligation at September 30 reconciled with amounts recognized in the balance sheet: 1996 1995 Assumed discount rate 8.0% 7.75% (In thousands) Accumulated retiree medical benefits obligation: Retirees $ 2,924 $ 3,002 Fully-eligible, active plan participants 1,390 1,212 Other active employees 5,387 6,302 9,701 10,516 Unrecognized net gain (loss) 612 (1,068) Unamortized prior service cost (69) (74) $10,244 $ 9,374 Other actuarial assumptions used for the Company's retiree health care plans include: (Dollars in thousands) 1996 1995 1994 Medical cost trend rate (a) 8% 11% 12% Effect of a 1% point increase in the medical cost trend rate on the accumulated retiree medical benefit obligation $1,574 $1,761 $1,517 Effect of a 1% point increase in the medical cost trend rate on the aggregate of the service and interest cost $ 270 $ 245 $ 193 (a) Beginning in 1996, the medical cost trend rate is assumed to be 8% and to decrease .5% per year to 5.5% in 2001 and remaining at that level thereafter. In 1995, the medical cost trend rate was set at 11% and assumed to decrease 1% per year to 6% in 2000 and remaining at that level thereafter. The unrecognized net gain (loss) is amortized over the average remaining service period of 15 years of active plan participants. Note G - Long-Term Incentive Plans The Company has long-term incentive plans under which employees or directors may be granted stock options or other long-term incentives. The 1984 Plan, which allowed for options to be granted for up to 1,687,500 common shares, was terminated in 1993. Options and restricted shares previously granted under the 1984 Plan remain outstanding for up to 10 years. Stock appreciation rights (SARs), which provide that optionees may receive cash in lieu of shares, were also granted in conjunction with stock option grants. In 1993, the Company adopted the 1993 Executive Long-Term Incentive Plan for employees. The 1993 Plan permits the grant of stock options, restricted stock, stock appreciation rights, performance shares and performance units. The authorized share pool for making grants under the 1993 Plan is 1,350,000 common shares. Also in 1993, the Company adopted the 1993 Non-Employee Director Stock Option Plan. Under this plan, nonqualified stock options may be granted to non- employee directors for up to 150,000 common shares. Options granted have varying exercise dates within five years after grant date and generally expire after ten years. At December 31, 1996 there were 1,427,445 of common stock reserved for issuance under the plans of which 985,330 are available for future grants. The Company applies APB Opinion 25 in accounting for its stock compensation plans. Accordingly, no compensation cost has been recognized for the stock options granted in 1996 or 1995. Had compensation cost for these options been determined on the basis of fair value pursuant to SFAS No. 123, net income and earnings per share would not have been significantly different. Incentive plan activity is summarized as follows: Stock Option Plans Option Weighted Average Restricted Shares Exercise Price Shares 1995: Outstanding January 1, 1995 321,900 $8.93 167,000 Granted/awarded 101,360 10.00 66,560 Exercised (22,365) 6.67 --- Restrictions lapsed --- --- (29,597) Canceled/forfeited (8,250) 12.02 (18,472) Outstanding 392,645 9.27 185,591 Exercisable 222,825 --- Weighted-average fair value of options granted during the year $10.01 1996: Granted/awarded 107,240 9.24 74,980 Exercised (37,050) 5.61 --- Restrictions lapsed --- --- (34,726) Canceled/forfeited (20,720) 12.11 (11,502) Outstanding 442,115 9.44 214,343 Exercisable 226,143 --- Weighted-average fair value of options granted during the year $9.25 Note H - Shareholder Rights Plan In 1987 the Company adopted a Shareholder Rights Plan designed to discourage partial or two-tier tender offers which could result in unequal treatment of shareholders. Under the Plan, the right to purchase one share of common stock was distributed for each outstanding share of the Company's common stock. This plan was amended in 1989 to provide that the Rights become exercisable if a person or group acquires, in a transaction not approved by the Board of Directors, 20% or more of the Company's common stock. In addition, the amendment permits the Board of Directors to declare a person or group owning 10% or more of the Company's common stock an "Adverse Person," under certain circumstances which also cause the Rights to become exercisable. When exercisable, each Right entitles shareholders to purchase one share of the Company's common stock at a specified exercise price. The Company will be entitled to redeem the Rights at $.05 per Right up to, and including, the tenth business day after the announcement that a 20% position has been acquired. If the Company is acquired or certain other transactions occur after the Rights become exercisable, each Right will entitle its holder to purchase, for the exercise price, a number of the acquiring or surviving Company's common shares having a market value of twice the exercise price. Rights were issued in 1987 to shareholders and attached to each share issued thereafter until the earlier of the dates the Rights become exercisable, expire or are redeemed. Rights expire May 11, 1997, unless extended by the Board of Directors. Note I - Commitments and Contingencies The Company has been identified as a potentially responsible party under federal environmental regulations to share in the cost of cleanups at two waste disposal sites along with many other companies. While management believes the Company's responsibility in these matters is minimal, it has established reserves which it believes are adequate to cover potential liabilities. Note J - Major Customers The Company's operations are conducted within one business segment. Export sales to customers from the United States were $57,800,000. Net sales to major customers were: (In thousands) 1996 1995 1994 General Motors Corporation $108,800 $109,200 $109,800 Ford Motor Company 86,700 92,900 89,300 Chrysler Corporation 63,400 55,000 54,400 Consolidated Diesel Company and its parent companies, Cummins Engine Company, Inc. and Case Corporation 38,800 36,500 32,300 Caterpillar Inc. 35,900 25,900 20,000 Aggregate receivables for these customers at December 31, 1996 and 1995 approximate the same percent of total receivables as aggregate sales to these customers bear to total sales. INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Simpson Industries, Inc. We have audited the accompanying consolidated balance sheets of Simpson Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 31,1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Simpson Industries, Inc. and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Detroit, Michigan January 27, 1997 SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (In thousands, except per share amounts) Quarter Ended Mar.31 Jun.30 Sep.30 Dec.31 1996 Net sales $101,421 $110,049 $98,228 $98,301 Gross profit 10,383 14,266 8,919 9,178 Net earnings 3,957 5,971 3,443 4,236 Net earnings per share .22 .33 .19 .23 1995 Net sales $107,237 $103,600 $86,338 $97,894 Gross profit 12,381 11,912 6,625 9,715 Net earnings 5,562 4,911 1,435 3,394 Net earnings per share .31 .27 .08 .19 Net earnings for the quarter ended December 31, 1996 were increased by $1,100,000 ($.06 per share)from federal tax credits. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure NONE PART III The information called for by the items within this part is included in the Company's 1997 Proxy Statement, and is incorporated herein by reference, as follows: Pages in 1997 Proxy Statement Item 10. Directors and Executive Officers of the Registrant (includes information set forth in the 1997 Proxy Statement under "Further Information - Compliance with Section 16(a) of the Exchange Act") 1-3,13 Item 11. Executive Compensation 5-11 Item 12. Security Ownership of Certain Beneficial Owners and Management 12 Item 13. Certain Relationships and Related Transactions N/A PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (2) All financial statement schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions. (3) Exhibits. The following exhibits designated with a "+" symbol represent the Company's management contracts or compensatory plans or arrangements for executive officers: 3.1 Restated Articles of Incorporation, as amended (previously filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988 and incorporated herein by reference) 3.2 Bylaws, as amended (previously filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 and incorporated herein by reference) 4.1 Rights Agreement between Simpson Industries, Inc. and NBD Bank, N.A., as Rights Agent, dated as of December 18, 1989 (previously filed as Exhibit 4(a) to the Company's Current Report on Form 8-K, dated January 12, 1990 and incorporated herein by reference) Letter from Simpson Industries, Inc. to State Street Bank and Trust, N.A., dated July 8, 1994, appointing the latter as successor Rights Agent; and letter from State Street Bank and Trust, N.A., to Simpson Industries, Inc., dated July 10, 1994, accepting such appointment (previously filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated herein by reference) 10.2 Revolving Credit and Term Loan Agreement with Manufacturers National Bank of Detroit and Continental Bank, N.A., dated as of October 5, 1989, as amended (previously filed as Exhibits 10.11, 10.2 and 10.2, respectively, to the Company's Quarterly Reports on Form 10-Q for the quarters ended September 30, 1989, September 30, 1991 and September 30, 1992, and incorporated herein by reference) Amendment No. 1 to Amended and Restated Revolving Credit Agreement with Comerica Bank (successor in interest by reason of merger to Manufacturers Bank N.A., formerly known as Manufacturers National Bank of Detroit) and Bank of America Illinois (formerly known as Continental Bank, N.A.), dated as of December 17, 1993 (previously filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference) Amendment No. 2 to Amended and Restated Revolving Credit Agreement with Comerica Bank (successor in interest by reason of merger to Manufacturers Bank N.A., formerly known as Manufacturers National Bank of Detroit) and Bank of America Illinois (formerly known as Continental Bank, N.A.), dated as of November 1, 1994 (previously filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated herein by reference) Amendment No. 3 to Amended and Restated Revolving Credit Agreement with Comerica Bank, dated as of August 1, 1996 (previously filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996) 10.3 Note Agreement with Aetna Life Insurance Company, dated June 12, 1986 (previously filed as Exhibit 10.3 to the Company's Current Report on Form 8-K, dated June 12, 1986 and incorporated herein by reference) Amendment to Note Agreement with Aetna Life Insurance Company, dated November 17, 1994 (previously filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated herein by reference) 10.4 1984 Stock Option Plan, as amended (previously filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988 and incorporated herein by reference) 10.8 Supplemental Executive Retirement Plan (previously filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, and incorporated herein by reference) 10.10 Letter Agreement, dated September 12, 1989, with Roy E. Parrott (previously filed as Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1989 and incorporated herein by reference) Amendment to Letter Agreement with Roy E. Parrott, dated March 15, 1994 (previously filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated herein by reference) 10.11 Note Agreement with Massachusetts Mutual Life Insurance Company, dated August 15, 1991 (previously filed as Exhibit 10.11 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1991 and incorporated herein by reference) 10.13 Simpson Industries, Inc. 1993 Executive Long-Term Incentive Plan (previously filed as Exhibit 10. 13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated herein by reference) 10.14 Simpson Industries, Inc. 1993 Non-Employee Director Stock Option Plan (previously filed as Exhibit 10. 14 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated herein by reference) 10.15 Term Loan Agreement with Comerica Bank, dated as of December 17, 1993 (previously filed as Exhibit 10. 15 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference) Amendment to Term Loan Agreement with Comerica Bank, dated as of November 1, 1994 (previously filed as Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated herein by reference) 10.16 Letter Agreement, dated October 25, 1994, with Robert W. Navarre (previously filed as Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994 and incorporated herein by reference) 10.17 Letter Agreement, dated December 16, 1994, with Kathryn L. Williams (previously filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated herein by reference) 10.19 Letter Agreement, dated December 16, 1994, with James A. Hug (previously filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated herein by reference) 10.20 Term Note Agreement with Comerica Bank, dated as of January 25, 1995 (previously filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated herein by reference) 10.21 Term Note Agreement with Comerica Bank, dated as of February 7, 1995 (previously filed as Exhibit 10.21 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated herein by reference) 10.23 *Letter Agreement, dated March 1, 1996, with James B. Painter 11. *Statement regarding Computation of per share earnings 21. *Subsidiaries of registrant 23. *Consent of independent public accountants *Filed with this report (b) No reports on Form 8-K were filed during the last quarter of the Company's fiscal year ended December 31, 1996. SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIMPSON INDUSTRIES, INC. By: /s/ Roy E. Parrott Roy E. Parrott, President and Chief Executive Officer Date: February 21, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 21, 1997. Signature Title /s/ Roy E. Parrott President and Chief Executive Officer Roy E. Parrott and Director (principal executive officer) /s/ Kathryn L. Williams Vice President Strategic Development Kathryn L. Williams and Treasurer (principal financial officer) (principal accounting officer) /s/ Robert W. Navarre Chairman of the Board and Director Robert W. Navarre /s/ Michael E. Batten Director Michael E. Batten /s/ Susan F. Haka Director Susan F. Haka /s/ George R. Kempton Director George R. Kempton /s/ Walter J. Kirchberger Director Walter J. Kirchberger /s/ Ronald L. Roudebush Director Ronald L. Roudebush /s/ F. Lee Weaver Director F. Lee Weaver /s/ Frank K. Zinn Director and Secretary Frank K. Zinn INDEX TO EXHIBITS Exhibit Number Exhibits 10.23 Letter Agreement, dated March 1, 1996, with James B. Painter 11 Statement regarding computation of per share earnings 21 Subsidiaries of registrant 23 Consent of independent public accountants 27.1 Financial Data Schedule EX-10.23 2 LETTER AGREEMENT, DATED MARCH 1, 1996, WITH JAMES B. PAINTER SIMPSON INDUSTRIES, INC. 47603 Halyard Drive Plymouth, Michigan 481702429 March 1, 1996 Mr. James B. Painter Simpson Industries, Inc. 47603 Halyard Drive Plymouth, Michigan 48170-2429 Dear Jim: Simpson Industries, Inc. (the "Company") considers a dedicated and vital management team to be essential for protecting and enhancing the best interests of the Company and its shareholders. In this connection, the Company recognizes that the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders. Accordingly, the Board of Directors of the Company (the "Board") has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's senior management, including yourself, to their assigned duties without distraction in the face of the potentially disturbing circumstances arising from the possibility of change in control of the Company. This letter agreement sets forth the severance benefits which the Company agrees will be provided to you in the event your employment with the Company is terminated subsequent to a "Change in Control of the Company" (as defined in Section 3 hereof) under the circumstances described below. 1. Company's Right to Terminate. The Company may terminate your employment at any time, subject to providing the benefits hereinafter specified in accordance with the terms hereof and subject to any other benefits which the Company has agreed in writing to provide you. 2. Term of Agreement. This Agreement shall commence on the date hereof and shall continue in effect until December 31, 1996; provided, however, that commencing on January 1, 1997 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless at least 30 days prior to such January 1 date, the Company shall have given notice that it does not wish to extend this Agreement; and provided, further, that this Agreement shall continue in effect beyond the term provided herein if a change in control of the Company as defined in Section 3 hereof, shall have occurred during such term. 3. Change in Control. No benefits shall be payable hereunder unless there shall have been a change in control of the Company, as set forth below, and your employment by the Company shall thereafter have been terminated in accordance with Section 4 below. For purposes of this Agreement, a "Change in Control of the Company" shall mean a Change in Control of a nature that would be required to be reported in response to the requirements of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act") provided that, without limitation, such a Change in Control shall be deemed to have occurred if (i) any "person" [as such term is used in Sections 13(d) and 14(d) of the Exchange Act] is or becomes the "beneficial owner" (as defined in Rule 13d3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25 percent or more of the combined voting power of the Company's then outstanding securities; or (ii) during any period of two consecutive calendar years, individuals who at the beginning of such period constitute the Board cease for any reason to constitute at least a majority thereof unless the election or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. 4. Termination Following Change in Control. If any of the events described in Section 3 hereof constituting a Change in Control of the Company shall have occurred, you shall be entitled to the benefits provided in Section 5 hereof upon the subsequent termination of your employment within two years from the date of such Change in Control unless such termination is (a) because of your death, (b) by the Company for Cause or Disability or (c) by you other than for Good Reason. (i) Disability. Termination by the Company of your employment based on "Disability" shall mean termination because of your absence from your duties with the Company on a full time basis for 180 consecutive calendar days, as a result of your incapacity due to physical or mental illness, unless within 30 days after Notice of Termination (as hereinafter defined) is given following such absence you shall have returned to the full time performance of your duties. (ii) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness), after a demand for substantial performance is delivered to you by the Chief Executive Officer of the Company or by the Chairman of the Board of Directors which specifically identifies the manner in which such executive believes that you have not substantially performed your duties, or (B) the willful engaging by you in misconduct which is materially injurious to the Company, monetarily or otherwise. For purposes of this paragraph, no act, or failure to act, on your part shall be considered "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a Notice of Termination from the Chief Executive Officer of the Company after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Chief Executive Officer, finding that in the good faith option of such executive you were guilty of conduct set forth above in clauses (A) or (B) of the first sentence of this paragraph and specifying the particulars thereof in detail. (iii) Good Reason. Termination by you of your employment for "Good Reason" shall mean termination based on: (A) the assignment to you of any duties inconsistent with your position, duties, responsibilities and status with the Company immediately prior to a Change in Control, or a change in your reporting responsibilities, titles or offices as in effect immediately prior to a Change in Control, or any removal of you from or any failure to reelect you to any of such positions, except in connection with the termination of your employment for Cause or Disability or as a result of your death or by you other than for Good Reason; (B) a reduction by the Company in your base salary as in effect on the date hereof or as the same may be increased from time to time; (C) a failure by the Company to continue the Company's incentive bonus plans as the same may be modified from time to time but substantially in the form currently in effect (the "Plans"), or a failure by the Company to continue you as a participant in the Plans on at least the present basis or to pay you the amounts which you would be entitled to receive based on the Com pany's performance in accordance with the Plans; (D) the Company's requiring you to be based anywhere other than your present location or the Company's principal executive offices except for required travel on the Company's business to an extent substantially consistent with your present business travel obligations, or in the event you consent to any such relocation, the failure by the Company to pay (or reimburse you for) all reasonable moving expenses incurred by you or to indemnify you against any loss realized in the sale of your principal residence in connection with any such relocation; (E) the failure by the Company to continue in effect any benefit, retirement or compensation plan, savings and profit sharing plan, stock ownership plan, stock purchase plan, stock option plan, life insurance plan, health and accident plan, dental plan or disability plan in which you are participating at the time of a Change in Control of the Company (or plans pro viding you with no less favorable benefits), the taking of any action by the Company which would adversely affect your participation in or materially reduce your benefits under any of such plans or deprive you of any material fringe benefit enjoyed by you at the time of the Change in Control, or the failure by the Company to provide you with the number of paid vacation days to which you are then entitled in accordance with the Company's normal vacation policy in effect on the date hereof; (F) the failure by the Company to obtain the assumption of the agreement to perform this Agreement by any successor as contemplated in Section 6 hereof; or (G) any purported termination of your employment which is not effected pursuant to a Notice of Termination satisfying the requirements of paragraph (iv) below [and, if applicable, paragraph (ii) above]; and for purposes of this Agreement, no such purported termination shall be effective. (iv) Notice of Termination. Any purported termination by the Company pursuant to paragraph (i) or (ii) above or by you pursuant to paragraph (iii) above shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) Date of Termination. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that you shall not have returned to the performance of your duties on a full-time basis during such 30 day period), (B) if your employment is terminated pursuant to paragraph (ii) above, the date specified in the Notice of Termination, and (C) if your employment is terminated for any other reason, the date on which a Notice of Termination is given; provided if within 30 days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agree ment of the parties, by a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). 5. Compensation upon Termination or During Disability. (i) During any period that you fail to perform your duties hereunder as a result of incapacity due to physical or mental illness, you shall continue to receive your full base salary at the rate then in effect and any bonus payments under the Plans paid during such period until this Agreement is terminated pursuant to paragraph 4(i) hereof. Thereafter, your benefits shall be determined in accordance with the Company's long-term disability plan then in effect. (ii) If your employment shall be terminated for Cause, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and the Company shall have no further obligation to you under this Agreement. (iii) If your employment by the Company shall be terminated (A) by the Company other than for Cause or Disability or (B) by you for Good Reason, then you shall be entitled to the benefits provided below: (A) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given and the amount, if any, with respect to any year then ended which pursuant to the Plans would have accrued to you on the basis of the Company's performance but which has not yet been paid to you; (B) From the date of Termination through a period of 24 months following the Change in Control or until your normal retirement date (whichever first occurs), you shall be entitled to receive as severance pay (i) a monthly payment equal to your monthly salary for the last full month immediately preceding termination, plus 1/12 of the average of the short-term incentive bonus payments paid to you or accrued with respect to each of the two years preceding termination; (ii) continued treatment as an "employee" under any stock option, employee benefit or other compensation arrangement (for the remaining period); (iii) full benefits under each employee welfare benefit plan in which you were entitled to participate immediately prior to date of termination; (iv) the right to immediately exercise in full all outstanding stock options; (v) full credit under the Company's retirement plans for service through the remaining period. (C) The Company shall also pay to you all legal fees and expenses incurred by you as a result of any controversy over this Agreement, to the extent you are successful in legal proceedings against the Company. (iv) Notwithstanding the foregoing, no payments shall be provided under subsection (iii) to the extent that they would (A) constitute an "excess parachute payment" under Section 280G of the Internal Revenue Code, (B) disqualify an employee benefit plan or trust under the Internal Revenue Code, or (C) cause an employee benefit plan or trust to violate the Employee Income Retirement Security Act of 1974, as amended. 6. Successors; Binding Agreement. (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be en titled hereunder if you terminated your employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this paragraph 6 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there be no such designee, to your estate. 7. Notice. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, returned receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement, provided that all notices to the Company shall be directed to the attention to the Chief Executive Officer of the Company with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by you and such officer as may be specifically designated by the Board of Directors of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Michigan. 9. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 10. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Oakland County, Michigan in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. To confirm your acceptance, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our agreement on this subject. Sincerely, SIMPSON INDUSTRIES, INC. By: Roy E. Parrott, President Agreed to this day of March , 1997 James B. Painter EX-11 3 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS Year Ended December 31 1996 1995 1994 Primary Average shares outstanding 18,066, 17,971, 17,916, Net effect of dilutive stock options based on the treasury stock method using average stock price 41,888 63,644 84,407 Average number of common and common 18,108, 18,035, 18,000, equivalent shares 439 060 795 Net earnings applicable to common stock and common stock $17,607, $15,302, $14,369, equivalents 000 000 000 Earnings per share $.97 $.85 $.80 Fully Diluted Average shares outstanding 18,066, 17,971, 17,916, 551 416 388 Net effect of dilutive stock options based on the treasury stock method using the year-end market price, if higher than the average market price 44,820 66,774 86,921 Average number of common and common equivalent shares 18,111, 18,038, 18,003, 371 190 309 Net earnings applicable to common stock and common stock $17,607, $15,302, $14,369, equivalents 000 000 000 Earnings per share $.97 $.85 $.80 EX-21 4 SUBSIDIARIES OF REGISTRANT State or Jurisdiction of Percent Name of Subsidiary Incorporation Ownership R. J. Simpson Manufacturing Ontario 100% Company (Canada) Ltd. Simpson Industries, S.A. de Federal 99% C.V. District of Mexico EX-23 5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors and Shareholders Simpson Industries, Inc.: We consent to incorporation by reference in the registration (No. 33-39679) on Form S-8 pertaining to the Simpson Industries, Inc. Savings Plan, in the registration statement (No. 33-39678) on Form S-8 pertaining to the Simpson Industries, Inc. - Fremont Operation Savings Plan, and in the registration statement (No. 2-95425) on Form S-8 pertaining to the Simpson Industries, Inc. 1984 Stock Option Plan, of our report dated January 27, 1997, relating to the consolidated balance sheets of Simpson Industries, Inc., and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, which report appears in the December 31, 1996, annual report on Form 10-K of Simpson Industries, Inc. Detroit, Michigan March 21, 1997 EX-27.1 6
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDING DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 JAN-01-1996 12-MOS DEC-31-1996 DEC-31-1996 28,902 0 41,032 0 14,034 94,226 278,229 126,152 248,956 49,188 0 18,080 0 0 97,912 248,956 407,999 409,424 365,253 13,173 0 0 5,354 25,644 8,037 17,607 0 0 0 17,607 0.97 0.97
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