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, 1997
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:
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 20, 1998, computed
by reference to the last sale price for such stock on that date as
reported on the NASDAQ National Market System, was $226,395,000.
At February 20, 1998, there were outstanding 18,173,582 shares of
the registrant's common stock, $1.00 par value each.
Portions of the Proxy Statement for 1998 Annual Meeting of
Shareholders have been incorporated by reference in this Annual
Report on Form 10-K (Part III).
PAGE
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 fifteen plants at which its
manufacturing operations are conducted are located in Michigan,
Ohio, Indiana, North Carolina, Ontario (Canada), Federal District
of Mexico (Mexico), Halifax (United Kingdom), Lyon (France),
Barcelona (Spain), Seoul (Korea) and Sao Paulo (Brazil). The
Company also has an interest in a joint venture in Pune (India).
Reference in this report to the Company includes Simpson
Industries, Inc., and its predecessors, divisions and subsidiaries,
unless otherwise indicated by the context.
General
On December 8, 1997, by action of the Board of Directors, the
Company became subject to the provisions of Chapter 7A of the
Michigan Business Corporation Act. Chapter 7A provides, with
certain exceptions, that business combinations between a Michigan
corporation and an "interested shareholder" generally require the
approval of 90% of the votes of each class of stock entitled to be
cast by the shareholders of the corporation, and not less than 2/3
of the votes of each class of stock entitled to be cast by the
shareholders of the corporation other than voting shares owned by
such interested shareholder. An "interested shareholder" is a
person directly or indirectly owning 10% or more of the
corporation's outstanding voting power, or an affiliate of the
corporation who at any time within two years prior to the date in
question directly or indirectly owned 10% or more of such voting
power.
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 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 and Europe.
The Company's operations are organized into four management groups
- --- Noise, Vibration and Harshness Group, Transmission & Chassis
Group, Heavy Duty Group and Europe/Asia 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 $3,668,000 in 1997, $2,944,000 in 1996 and
$2,309,000 in 1995 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, 1997,
1996 and 1995 accounted for 60.1%, 63.5%, and 65.1%, 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, 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 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, 1997, the Company employed 2,355 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 $63,400,000 in 1997, $57,800,000 in 1996 and
$56,200,000 in 1995.
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 Korea 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
Gladwin, Michigan........... 5.0 Acres 71,000 Square Feet
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
Lyon, France................ 3.8 83,000
Halifax, England............ 1.7 54,000
Barcelona, Spain............ 2.2 39,000
Iztapalapa, Mexico.......... 2.8 86,000
Seoul, Korea ............... n/a 23,000
Sao Paulo, Brazil .......... n/a 73,000
TOTAL IN ACTIVE USE 119.5 1,484,500
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 1997.
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
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, 1997 and 1996 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, 1997 there were 4,352 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 5,500
additional shareholders as beneficial owners.
Bid Price Per Share Dividend
Quarter Ended High Low Paid Per
Share
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
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 1/8 .10
December 31, 1997 12 1/4 10 7/8 .10
PAGE
Item 6. SELECTED FINANCIAL DATA
Five Year Summary
(Dollar amounts in millions, except per share and per employee)
1997 1996 1995 1994 1993
Operating Data
Net sales $ 451.5 $ 408.0 $ 395.1 $ 356.6 $ 262.5
Cost of products sold 406.5 365.3 354.4 319.6 234.2
Gross profit 45.0 42.7 40.7 37.0 28.3
as a % of sales 10.0% 10.5% 10.3% 10.4% 10.8%
Operating earnings
before
provisions for
plant closings $ 30.9 $ 29.6 $ 28.8 $ 26.8 $ 19.4
as a % of sales 6.8% 7.3% 7.3% 7.5% 7.4%
Net earnings $ 10.1(1) $ 17.6(2) $ 15.3 $ 14.4 $ 6.4(3)
as a % of sales 2.2% 4.3% 3.9% 4.0% 2.5%
Net earnings per
share (diluted) $ 0.55 $ 0.97 $ 0.85 $ 0.80 $ 0.36
Dividend per share 0.40 0.40 0.40 0.38 0.37
Weighted average
shares (millions) 18.1 18.1 18.0 18.1 18.0
At Year End
Working capital $ 36.4 $ 45.0 $ 40.3 $ 31.7 $ 34.5
Total assets 341.5 249.0 232.5 207.0 186.8
Long-term debt 118.6 58.6 62.3 50.4 39.0
Shareholders' equity 117.9 116.0 105.1 98.0 91.5
Book value per share 6.50 6.42 5.84 5.47 5.12
%Debt/equity 101% 51% 59% 51% 43%
%Debt/total capital 51 35 38 35 31
Additional Statistics
New program launches 13 6 10 23 20
Content per N.A.
light vehicle $ 22 $ 22 $ 22 $ 20 $ 16
EBITDA (4) 54.3(5) 50.1 47.7 43.1 33.6
Depreciation and
amortization expense 23.4 20.5 18.9 16.3 14.2
Capital investment 29.0 26.3 31.5 38.2 37.5
% return on average
equity 8.6% 15.9% 15.1% 15.2% 7.0%
Sales per employee $ 197,687 $ 190,654 $ 186,706 $ 182,240 $163,034
Operating earnings
per employee 13,537(5) 13,832 13,594 13,704 12,041
Number of employees,
year end 2,355 2,115 2,050 2,135 1,768
Stock Activity
Price Range 9 1/8 - 8 3/8 - 8 - 7 7/8 - 10 1/2 -
12 3/4 11 1/8 12 1/8 15 21/32 14 21/32
Price at year end 11 3/4 10 57/64 9 9 1/4 14 3/32
(1) Includes $5.7 million for provision for net plant closing
costs.
(2) Includes $1.1 million for federal tax credits.
(3) Includes $3 million net charge for accounting changes.
(4) EBITDA includes operating income plus depreciation and
amortization.
(5) Before provision for plant closings of $8.8 million.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Overview
Simpson Industries acquired the Vibration Attenuation Business of
Holset Engineering Company, Ltd. from Cummins Engine Company, in
June of 1997, for an aggregate purchase price, net of cash
acquired, of $75,393,000. The acquisition of the Vibration
Attenuation (VA) Business was accounted for as a purchase, and
the results of the VA business have been included in the
accompanying consolidated statements of the Company since the
date of acquisition.
This acquisition offers the Company the best potential to build
on our North American leadership position in Noise, Vibration and
Harshness products. It will add European-, Asian-, and South
American-based capabilities and expand our customer base and
technological processes. This acquisition also extends our
product line to include viscous dampers for larger diesel
engines, increasing our available product offerings to our North
American customers and provides a manufacturing infrastructure
for all our products.
The acquisition of VA provided 67.6% of the revenue growth in
1997 over 1996.
Results of Operations
The following table summarizes the Company's results of
operations as a percentage of net sales for the years 1995
through 1997 ending December 31.
1997 1996 1995
Net sales 100.0% 100.0% 100.0%
Cost of products sold 90.0 89.5 89.7
Administrative and selling 2.9 3.2 3.0
Amortization .2 -- --
Plant closing costs 1.9 -- --
Operating income 5.0 7.3 7.3
Investment and other
income, net (.1) (.3) (.3)
Interest expense 1.7 1.3 1.4
Earnings before income taxes 3.4 6.3 6.2
Income taxes 1.2 2.0 2.3
Net earnings 2.2% 4.3% 3.9%
1997 Compared to 1996
The Company's net sales reached a new record level in 1997 at
$451,518,000, 11% over the previous record of $407,999,000 set in
1996. The increase in sales was due largely to revenues from the
Company's recent acquisition along with internal growth stemming
from new program launches. North American light vehicle
production was up 3% from 1996 fueled by growth in the light
truck segments. The Company continued to see strong shipments in
its mid-range and heavy-duty diesel engine products to CDC,
Detroit Diesel and Mack Truck.
During 1997 the Company announced the consolidation of its
Jackson and Gladwin, Michigan plants with other North American
operations and recorded a provision for plant closing costs of
$8,769,000 against earnings. These closures are anticipated to
provide annualized savings of approximately $5,500,000 a year
before taxes beginning in 1998. Cost of products sold as a
percent of sales for 1997 was 90.0% as compared to 89.5%. This
increase was due to higher start-up costs with thirteen new
programs launched in 1997 versus six in 1996 and additional
equipment moving and consolidation expenses not allowed to be
included with the aforementioned provision for plant closing
costs. Administrative and selling expenses decreased as a
percentage of sales from 3.2% in 1996 to 2.9% in 1997 due to
better control over expenses and leverage from increased sales
volume. Lastly, the Company incurred expenses for amortization of
goodwill and intangibles from the acquisition over the last half
of the year. Operating earnings, excluding the provision for the
plant closings, reached $30,919,000 in 1997, $1,346,000 or 4.6%
higher than 1996.
Investment and other income was $524,000 in 1997, down $901,000
from 1996, primarily due to lower average invested cash balances.
Interest expense increased $2,097,000 as a result of additional
debt incurred to fund the VA acquisition.
Income tax expense for 1997 reflects an effective rate of 33.8%
compared to 31.3% for 1996. 1996 benefited from federal tax
credits totaling $1,100,000 relating to prior years.
1996 Compared to 1995
Net sales for 1996, at $407,999,000 were 3% above the
$395,069,000 level of 1995. The major reason for the sales
increase from 1995 was the volume on several significant new
products in addition to an increase in production for medium-duty
engines. This was offset by automobile production being down at
the Big Three by 6% from 1995, primarily due to the work
stoppages at GM in the first and fourth calendar quarters.
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 work stoppages and lower passenger
car and heavy-duty diesel 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 represented an effective rate of
31.3% compared to 37.3% for 1995, which was lower due to the
recognition of federal tax credits totaling $1,100,000 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 $30,115,000 in 1997
compared to $50,794,000 in 1996 and $35,781,000 in 1995. The cash
flows were primarily provided from earnings and depreciation
expense and in 1997 decreased because of increased working
capital needs.
At December 31, 1997, working capital was $36,366,000, compared
to $45,038,000 at December 31, 1996. The decrease in working
capital was primarily attributable to lower cash balances which
were utilized to fund the acquisition.
During 1997 the Company invested $28,977,000 in capital equipment
and plant expansions compared to $26,296,000 in 1996. Capital
expenditures for 1998 are expected to approximate $28 million and
will principally support new business and infrastructure
enhancements both domestically and internationally.
The Company has paid uninterrupted cash dividends each year since
becoming publicly-owned in 1972. Dividends paid in 1997 were
$7,252,000 compared to $7,229,000 in 1996 and $7,192,000 in 1995.
The dividend rate for all three years was $ .40 per share.
In June 1997, the Company entered into revolving credit
agreements to allow for borrowings of up to $100 million which in
August 1997 were permanently reduced to $50 million. At December
31, 1997, borrowings outstanding under the agreements were $15
million at an interest rate of 6.4%. 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 has letters of credit committed of $1,052,000
under these facilities. At December 31, 1997 the Company has $34
million of the $50 million revolving credit facilities available.
In August 1997, the Company issued and sold $35 million of its
7.03% unsecured Senior Notes, Series A and $15 million of its
6.96% unsecured Senior Notes, Series B. Notes of both series are
due August 1, 2012. Prepayment of $1,500,000 of higher-cost debt
was made in 1997.
The Company maintains unsecured short-term credit lines with
banks under which it may borrow $12,597,000, of which $500,000
was committed as letters of credit at December 31, 1997. The
Company had no short-term borrowings at December 31, 1997.
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.
Impact of Inflation
The Company does not expect that it will be significantly
affected by inflation in 1998.
Impact of FASB Statements
The Company has not yet adopted Statement of Financial Accounting
Standard No. 130 "Reporting Comprehensive Income" or Statement of
Financial Accounting Standard No. 131 "Disclosures About Segments
of an Enterprise and Related Information", which become effective
in 1998. As both statements are disclosure requirements neither
statement will have a material effect upon future financial
statements.
"Safe Harbor" Provisions
This annual report contains forward-looking statements within the
meaning of the Private Securities Litigation Act of 1995.
Investors are cautioned that any forward-looking statements,
including statements regarding the intent, belief, or current
expectations of the Company or its management are not guarantees
of future performance and involve risks and uncertainties, and
that actual results may differ materially from those in
forward-looking statements as a result of various factors
including, but not limited to, (i) general economic conditions in
the markets in which the Company operates, (ii) fluctuation in
demand for the Company's product, and (iii) other actions taken
by the Company. The Company does not intend to update these
forward-looking statements.
PAGE
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements Of Operations
(In thousands, except per share amounts)
Year Ended December 31
1997 1996 1995
Net sales $451,518 $407,999 $395,069
Costs and expenses:
Cost of products sold 406,513 365,253 354,436
Administrative and selling 13,152 13,173 11,869
Amortization of intangible
assets 934 -- --
Provision for plant closings 8,769 -- --
429,368 378,426 366,305
Operating Earnings 22,150 29,573 28,764
Investment and other
income, net 524 1,425 1,147
Interest expense (7,451) (5,354) (5,514)
Earnings Before Income Taxes 15,223 25,644 24,397
Income taxes 5,144 8,037 9,095
Net Earnings $ 10,079 $ 17,607 $ 15,302
Basic Earnings Per Share $ .56 $ .97 $ .85
Diluted Earnings Per Share $ .55 $ .97 $ .85
See accompanying notes to consolidated financial statements.
Consolidated Statements Of Cash Flows
(In thousands) Year Ended December 31
1997 1996 1995
OPERATING ACTIVITIES
Net earnings $ 10,079 $ 17,607 $ 15,302
Adjustments to reconcile
net earnings to cash
provided by operating
activities:
Depreciation and
amortization 23,427 20,497 18,921
Provision for plant
closings 6,424 -- --
Provision for deferred
income taxes (828) (102) 1,234
Amortization of restricted
stock 356 363 330
Loss (gain) on disposition
of assets 249 217 (113)
Changes in operating
assets and liabilities:
Accounts receivable (12,118) 6,186 985
Inventories (2,466) (1,153) (1,660)
Other assets (6,381) (655) (4,052)
Accounts payable and
accrued expenses 11,373 7,834 4,834
Cash Provided by
Operating Activities 30,115 50,794 35,781
INVESTING ACTIVITIES
Acquisition of business,
net of cash acquired (75,293) -- --
Sale of marketable securities -- -- 2,491
Capital expenditures (28,977) (26,296) (31,510)
Proceeds from disposal of
property and equipment 2,105 171 1,069
Cash Used in Investing
Activities (102,165) (26,125) (27,950)
FINANCING ACTIVITIES
Cash dividends paid (7,252) (7,229) (7,192)
Principal repayments of
long-term debt (55,079) (2,078) (12,250)
Proceeds from long-term
borrowings 115,000 -- 24,050
Cash provided by stock
transactions, net -- 243 42
Cash (Used in) Provided
by Financing Activities 52,669 (9,064) 4,650
Effect of foreign currency
exchange rate changes (1,286) (193) (1,312)
Increase (Decrease) In
Cash and Cash Equivalents(20,667) 15,412 11,169
Cash and cash equivalents
at beginning of year 28,902 13,490 2,321
Cash and Cash Equivalents
at End of Year $ 8,235 $ 28,902 $ 13,490
Supplemental Disclosures:
Cash paid during the
year for:
Interest $ 5,625 $ 5,354 $ 5,514
Income Taxes 8,538 7,995 7,650
See accompanying notes to consolidated financial statements.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
December 31
1997 1996
ASSETS
Current Assets
Cash and cash equivalents $ 8,235 $ 28,902
Accounts receivable 66,055 41,032
Inventories 19,827 14,034
Customer tooling in process 7,888 4,002
Prepaid expenses and other
current assets 12,689 6,256
Total Current Assets 114,694 94,226
Property, Plant and Equipment,
at cost
Land 4,867 3,116
Buildings and improvements 55,536 49,058
Machinery and equipment 253,096 226,055
313,499 278,229
Less accumulated depreciation 139,353 126,152
Net Property, Plant and
Equipment 174,146 152,077
Intangible Assets - net 49,951 --
Other Assets 2,757 2,653
$341,548 $ 248,956
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current installments of
long-term debt $ 3,579 $ 3,579
Accounts payable 45,803 28,455
Compensation and amounts
withheld 11,350 10,203
Taxes, other than income taxes 3,072 2,597
Other current liabilities 14,524 4,354
Total Current Liabilities 78,328 49,188
Long-Term Debt, excluding
current installments 118,564 58,643
Accrued Retirement Benefits
and Other 14,663 14,015
Deferred Income Taxes 12,121 11,118
Shareholders' Equity
Common stock,
par value $1 per share:
Authorized - 55,000,000 shares
Outstanding - 18,129,202 shares
(1996 - 18,080,002 shares) 18,129 18,080
Additional paid-in capital 24,792 24,366
Retained earnings 82,101 79,274
Unamortized value of
restricted stock (2,147) (2,028)
Cumulative foreign currency
translation adjustments (4,978) (3,692)
Excess pension cost (25) (8)
Total Shareholders' Equity 117,872 115,992
$341,548 $248,956
See accompanying notes to consolidated financial statements.
Consolidated Statements Of Shareholders' Equity
(In thousands, except share and per share amounts)
Cumulative
Unamortized Foreign
Additional Value Of Currency Excess
Common Paid-In Retained Restricted Translation Pension
Stock Capital Earnings Stock Adjustments Cost Total
Balance at January 1, 1995 $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 adjustment
for the year (1,312) (1,312)
Excess pension cost adjustment (132) (132)
Balance at December 31, 1995 7,981 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 adjustment
for the year (193) (193)
Excess pension cost adjustment 124 124
Balance at December 31, 1996 18,080 24,366 79,274 (2,028) (3,692) (8) 115,992
Net earnings for 1997 10,079 10,079
Cash dividends - $.40 per share (7,252) (7,252)
Restricted stock awards, net 49 426 (475) ---
Amortization of restricted stock 356 356
Translation adjustment
for the year (1,286) (1,286)
Excess pension cost adjustment (17) (17)
Balance at December 31, 1997 $18,129 $24,792 $82,101 $(2,147) $(4,978) $(25) $117,872
See accompanying notes to consolidated financial statements.
PAGE
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, 1997, 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 the acquisition of the
Vibration Attenuation division (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, 1997.
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: Effective December 31, 1997, the Company
adopted SFAS No. 128 "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. All prior periods
have been restated.
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 -- Holset VA Acquisition
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 aggregate purchase cost for the acquisition of the
VA Business was $76.4 million. Funds for the VA Business
acquisition, net of cash received, were provided by cash and
borrowings of $60 million.
The VA Business has operations in the United Kingdom, France,
Spain, Mexico, Korea, Brazil and the United States. The VA
Business is also a minority partner in a joint venture in India.
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 purchase cost of $76.4 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 $38.7 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
(Note F) as if the transactions had occurred as of January 1 of
each year presented (in thousands, except per share data).
(Unaudited) (Unaudited)
Three Months Ended Twelve Months Ended
Dec 31 Dec 31 Dec 31 Dec 31
1997 1996 1997 1996
Net sales $123,043 $114,653 $487,505 $472,798
Net income 3,611 4,799 8,496 18,330
Net earnings per share:
Basic $ .20 $ .27 $ .47 $ 1.01
Diluted $ .20 $ .26 $ .47 $ 1.01
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 periods
presented, and is not intended to be a projection of future
results or trends.
Note C -- Provision for Plant Closings
In the third quarter of 1997, in connection with management's
efforts to reduce costs and improve operating efficiencies, the
Company recorded a provision for plant closings of approximately
$8.8 million. The principal actions in the plant closing plan
involve the closure of two manufacturing facilities. This plan is
expected to result in the elimination of approximately 300
positions. Approximately 200 of these terminations had occurred
as of December 31, 1997. The shut-down of one facility was
completed during 1997 and the shut-down of the remaining facility
is expected to be completed during the second quarter of 1998.
The major components of the plant closing charge are as follows:
(In thousands)
Severance and related costs $4,965
Write-down of property, plant and equipment 2,191
Other 1,613
Total Provision for Plant Closings $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, 1997, approximately $5.7
million of accruals are available for remaining costs.
Note D -- Inventories
The components of inventories are summarized as follows:
(In thousands) 1997 1996
Finished and in-process products $11,294 $ 9,881
Raw materials 8,533 4,153
$19,827 $14,034
The LIFO inventories comprise approximately 84% and 94% of total
inventories at December 31, 1997 and 1996, respectively.
The replacement cost of inventories exceeded the balance sheet
carrying amounts by approximately $5,900,000 and $5,600,000 at
December 31, 1997 and 1996, respectively.
Note E -- Intangible Assets
At December 31, 1997 intangible assets consisted of the
following:
Goodwill $38,728
Supply, non-compete, and license
agreements and various patents 12,200
50,928
Less accumulated amortization 977
Net Intangible Assets 49,951
Note F -- Debt
Long-term debt at December 31 consisted of the following
obligations:
(In thousands) 1997 1996
8.8% Note payable due 1999 $ 2,250 $ 3,750
9.98% Note payable due 2005 12,000 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 2,893 3,472
7.03% Series A Notes 35,000 ---
6.96% Series B Notes 15,000 ---
Revolving Credit Agreement 15,000 ---
122,143 62,222
Less current installments 3,579 3,579
Long-term debt, excluding
current installments $118,564 $58,643
As of December 31, 1997, the estimated fair value of long-term
debt, discounted at current interest rates, was $131,000,000.
In June 1997, the Company entered into revolving credit
agreements to allow for borrowings of up to $50 million under a
five-year agreement and up to $50 million under a 364-day
agreement. In August 1997, these agreements were permanently
reduced to $ 25 million each. 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, 1997, the outstanding borrowings under these
agreements are at an interest rate of approximately 6.4% and
there was $1,052,000 committed as letters of credit.
On August 1, 1997 the Company issued and sold $35 million of its
7.03% Senior Notes, Series A and $15 million of its 6.96% Senior
Notes, Series B. Notes of both series are due August 1, 2012.
The proceeds of the Notes were used to pay down and permanently
reduce the 364-Day and five-year Revolving Credit Agreements.
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, 1997, under the most
restrictive covenant retained earnings of approximately
$18,358,000 were unrestricted. The Company was in compliance
with all such covenants at December 31, 1997.
The Company also has uncommitted short-term credit lines with
banks under which it may borrow up to $12,597,000, of which
$500,000 was committed as letters of credit at December 31,1997.
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 1998 are as follows: 1999 - $4,829,000; 2000 -
$6,079,000; 2001 - $8,079,000; and 2002 - $24,442,000.
Note G -- Income Taxes
The components of earnings before income taxes were as follows:
(In thousands) 1997 1996 1995
Domestic $ 9,963 $23,047 $21,772
Foreign 5,260 2,597 2,625
$15,223 $25,644 $24,397
The provisions for income tax expense were as follows:
(In thousands) 1997 1996 1995
Current:
Federal $4,976 $ 6,730 $ 6,439
Foreign 691 822 1,109
State 305 587 313
5,972 8,139 7,861
Deferred:
Federal (1,647) 66 1,078
Foreign 947 (330) 73
State (128) 162 83
(828) (102) 1,234
$5,144 $ 8,037 $ 9,095
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) 1997 1996 1995
Income taxes at federal
statutory rate $5,235 $ 8,975 $ 8,539
State income tax, net of
federal benefit 116 487 257
Foreign operating loss 84 (310) 196
Federal tax credits (100) (1,100) --
Differences between domestic and
effective foreign tax rates (254) (107) 67
Other, net 63 92 36
$5,144 $ 8,037 $ 9,095
The tax effects of temporary differences that give rise to
significant deferred tax assets and liabilities at December 31
are as follows:
1997 1996
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
(In thousands) Assets Liabilities Assets Liabilities
Plant and
equipment $ -- $17,133 $ -- $15,880
Accrued
retirement benefits 5,398 -- 4,412 --
Other accrued expenses 4,028 -- 2,948 --
Foreign net operating
loss carryforward 468 -- 390 --
Federal tax credits 1,066 -- 1,066 --
Other items 530 929 391 804
11,490 18,062 9,207 16,684
Valuation allowance (468) -- (390) --
$11,022 $18,062 $ 8,817 $16,684
As of December 31,1997, the Company has unrecognized foreign net
operating loss carryforwards of approximately $1,400,000 that
begin expiring in 2003.
Deferred income tax assets of $5,081,000 and $3,251,000 are
included in other current assets at December 31, 1997, and 1996,
respectively.
Note H -- 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 1997, 1996 and 1995 included the
following components:
1997 1996 1995
Assumptions used were:
Discount rate 8% 7.75% 8.5%
Rate of increase in
compensation levels 5% 5% 5%
Expected annual long-term
rate of return on assets 10% 9% 9%
(In thousands) 1997 1996 1995
Benefits earned during
the year $2,210 $ 2,114 $1,548
Interest cost on projected
benefit obligation 2,613 2,307 2,142
Actual return on assets (2,174) (3,046) (2,591)
Net amortization and deferral 62 1,391 804
Multi-employer plans 510 544 574
$3,221 $ 3,310 $2,477
The following table sets forth the plan's funded status at
September 30:
1997 1996
Assumptions used were the
same as above, except:
Discount rate 7.5% 8%
Rate of increase in
compensation levels 4.5%
Plans in Which Plans in Which
Assets Accum. Assets Accum.
Exceed Benefits Exceed Benefits
Accum. Exceed Accum. Exceed
Benefits Assets Benefits Assets
Actuarial present value of:
Vested benefit obligation $22,033 $ 3,773 $ 6,849 $ 15,561
Accumulated benefit obligation $25,061 $ 4,475 $ 7,640 $ 16,821
Projected benefit obligation $32,431 $ 6,040 $ 10,360 $ 22,146
Plan assets at fair value 26,237 2,692 9,181 14,468
Deficiency of assets under
projected benefit obligation (6,194) (3,348) (1,179) (7,678)
Unrecognized net loss 3,612 451 235 3,180
Unrecognized net asset (824) 501 (309) (46)
Unrecognized prior service cost 846 351 527 482
Additional minimum liability -- (232) -- (290)
Accrued pension liability included
in the balance sheets $ (2,560) $(2,277) $ (726) $ (4,352)
The Company has recorded an additional minimum liability at
December 31, 1997 and 1996, 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 $1,330,000, $1,490,000
and $1,340,000 in 1997, 1996 and 1995, respectively.
Note I -- 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 1997, 1996 and 1995
consisted of the following:
1997 1996 1995
Assumed discount rate 8% 7.75% 8.5%
(In thousands)
Benefits earned during the year $ 598 $ 612 $ 464
Interest cost on accumulated
retiree medical benefits 759 693 770
Net amortization 3 5 12
$1,360 $ 1,310 $ 1,246
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:
1997 1996
Assumed discount rate 7.5% 8%
(In thousands)
Accumulated retiree
medical benefits obligation:
Retirees $ 3,699 $ 2,924
Fully-eligible, active
plan participants 1,134 1,390
Other active employees 5,744 5,387
10,577 9,701
Unrecognized net gain (loss) (344) 612
Unamortized prior service cost (60) (69)
$10,173 $10,244
Other actuarial assumptions used for the Company's retiree health
care plans include:
(Dollars in thousands) 1997 1996 1995
Medical cost trend rate (a) 7.5% 8% 11%
Effect of a 1% point increase
in the medical cost trend rate
on the accumulated retiree
medical benefit obligation $1,946 $ 1,574 1,761
Effect of a 1% point increase in
the medical cost trend rate on
the aggregate of the service
and interest cost $ 336 $ 270 $ 245
(a) Beginning in 1996, the medical cost trend rate was 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.
During 1997, the Company reduced its obligation for retiree
medical benefits by $770,000 related to the closing of two
plants.
Note J -- 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, 1997 there were 1,361,940 of common stock reserved
for issuance under the plans of which 830,550 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 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:
1997 1996
Net income As reported $10,079 $17,607
Pro forma $ 9,874 $17,413
Basic Earnings
per share As reported $ .56 $ .97
Pro forma $ .54 $ .96
Diluted earnings
per share As reported $ .55 $ .97
Pro forma $ .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 1997
and 1996, respectively: dividend yield of 3.8% for both years;
expected volatility of 37% and 40%; risk-free interest rates of
6.5% and 6.1%; and an expected life of 7.0 and 6.8 years.
Incentive plan activity is summarized as follows:
Stock Option Plans
Weighted
Option Average Restricted
Shares Exercise Price Shares
1996:
Outstanding
January 1, 1996 392,645 $ 9.27 185,591
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
1997:
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
Note K -- Shareholder Rights Plan
In 1997, the Company adopted a new Shareholder Rights Plan with
substantially the same terms as the prior shareholder rights plan
which expired in 1997. The Plan is 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 L -- Earnings Per Share
In thousands, except per share amounts
1997 1996 1995
Net earnings applicable to
common stock and common
stock equivalents $10,079 $17,607 $15,302
Basic Earnings per Share
Weighted average shares
outstanding 18,123 18,067 17,971
Earnings Per Share $ .56 $ .97 $ .85
Diluted Earnings per Share
Weighted average shares
outstanding 18,123 18,067 17,971
Net effect of dilutive
stock options 79 48 70
18,202 18,115 18,041
Earnings Per Share $ .55 $ .97 $ .85
Options to purchase 43,020, 75,480 and 52,740 shares of common
stock were outstanding during 1997 through 1995 respectively, at
prices ranging from $11.00 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 M -- Geographic Areas and Major Customers
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 year ended December 31, 1997 is as
follows:
(In thousands)
Revenue:
North America $425,466
Europe 30,401
Eliminations (4,349)
Total $451,518
Operating income
North America $ 20,705
Europe 1,445
Eliminations
Total $ 22,150
Identifiable Assets
North America $256,300
Europe 87,335
Eliminations (2,087)
Total $341,548
Sales between geographic areas are accounted for at prices that
provide a profit and are in accordance with the rules and
regulations of the respective governing authorities.
The Company's operations are conducted within one business
segment. Export sales to customers from the United States were
$63,409,000.
Net sales to major customers were:
(In thousands) 1997 1996 1995
General Motors Corporation $126,500 $108,800 $109,200
Ford Motor Company 88,500 86,700 92,900
Chrysler Corporation 56,500 63,400 55,000
Consolidated Diesel Company
and its parent companies,
Cummins Engine Company
Inc. and Case Corporation 47,000 38,800 36,500
Caterpillar Inc. 36,100 35,900 25,900
Aggregate receivables for these customers at December 31, 1997
and 1996 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, 1997
and 1996, 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, 1997. 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, 1997 and 1996, and the results of their operations and their
cash flows for each of the years in the three-year period ended
December 31, 1997 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Detroit, Michigan
January 27, 1998
Summary of Quarterly Results of Operations
(In thousands, except per share amounts)
Quarter Ended
Mar.31 Jun.30 Sep.30 Dec.31
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
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
Basic .22 .33 .19 .23
Diluted .22 .33 .19 .23
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 closing.
Net earnings for the quarter ended December 31, 1996 were
increased by $1,100 ($.06 per share for both basic and
diluted) 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 Proxy Statement for the 1998 Annual
Meeting of Shareholder's, and is incorporated herein by
reference, as follows:
Pages in 1998
Proxy Statement
Item 10. Directors and Executive Officers
of the Company 1-3,13
(includes information set forth in the
1998 Proxy Statement under "Further Information
- Compliance with Section 16(a) of the
Exchange Act")
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) (1) The Consolidated financial statements of the Company
and its subsidiaries, included in Item 8 herein by reference:
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Shareholders' Equity - years
ended December 31, 1997, 1996 and 1995
Consolidated Statements of Operations - years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows - years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements -
December 31, 1997
(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
3.2 * Bylaws, as amended
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)
10.19+ 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
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
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
11 * Statement regarding Computation of per share
earnings
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, 1997.
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: February 21, 1998
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, 1998.
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
Vinod M. Khilnani Officer and Treasurer
(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
3.2 * Bylaws, as amended
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)
10.19+ 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 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
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
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
11 * Statement regarding Computation of per share
earnings
21 * Subsidiaries of registrant
23 * Consent of independent public accountants
27.1 * Financial Data Schedule
* Filed with this report