UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended: June 30, 1997 ------------- OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------ ------------ Commission file number: 0-23804 ------- Simpson Manufacturing Co., Inc. ------------------------------------------------------ (Exact name of registrant as specified in its charter) California 94-3196943 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4637 Chabot Drive, Suite 200, Pleasanton, CA 94588 -------------------------------------------------- (Address of principal executive offices) (Registrant's telephone number, including area code): (510)460-9912 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares of the Registrant's Common Stock outstanding as of June 30, 1997: 11,472,965 ---------- PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. <TABLE> <CAPTION> SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 30, December 31, ----------------------------- (Unaudited) 1997 1996 1996 ------------ ------------ ------------ <S> <C> <C> <C> ASSETS Current assets Cash and cash equivalents $ 4,698,928 $ 12,875,191 $ 19,815,297 Short-term investments - - 3,896,428 Trade accounts receivable, net 39,701,166 30,521,398 20,930,490 Inventories 53,373,606 34,823,846 42,247,777 Deferred income taxes 3,923,455 2,493,455 2,919,455 Other current assets 1,258,106 950,650 956,565 ------------ ------------ ------------ Total current assets 102,955,261 81,664,540 90,766,012 Net property, plant and equipment 36,055,534 25,656,317 28,687,635 Investments 557,331 1,355,336 1,382,578 Other noncurrent assets 2,971,392 1,774,287 1,684,548 ------------ ------------ ------------ Total assets $142,539,518 $110,450,480 $122,520,773 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes Payable $ 26,091 $ - $ - Trade accounts payable 11,033,264 8,408,694 10,063,828 Accrued liabilities 4,855,687 3,426,457 4,137,648 Income taxes payable 2,837,187 868,164 341,626 Accrued profit sharing trust contributions 3,876,283 3,302,741 2,446,001 Accrued cash profit sharing and commissions 3,866,504 3,012,877 2,292,057 Accrued workers' compensation 809,272 809,272 809,272 ------------ ------------ ------------ Total current liabilities 27,304,288 19,828,205 20,090,432 Deferred income taxes and long-term liabilities 1,027,037 100,783 133,333 ------------ ------------ ------------ Total liabilities 28,331,325 19,928,988 20,223,765 Commitments and contingencies (Notes 5 and 6) Shareholders' equity Common stock 31,551,350 30,993,676 31,233,648 Retained earnings 82,641,173 59,572,621 70,862,906 Cumulative translation adjustment 15,670 (44,805) 200,454 ------------ ------------ ------------ Total shareholders' equity 114,208,193 90,521,492 102,297,008 ------------ ------------ ------------ Total liabilities and shareholders' equity $142,539,518 $110,450,480 $122,520,773 ============ ============ ============ </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements.
<TABLE> <CAPTION> SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net sales $ 65,554,874 $ 51,759,610 $117,482,096 $ 95,217,057 Cost of sales 39,228,286 31,508,992 71,836,850 59,864,983 ------------ ------------ ------------ ------------ Gross profit 26,326,588 20,250,618 45,645,246 35,352,074 ------------ ------------ ------------ ------------ Operating expenses: Selling 6,366,762 5,462,644 11,575,025 9,972,678 General and administrative 8,077,667 6,225,481 14,304,043 11,353,926 ------------ ------------ ------------ ------------ 14,444,429 11,688,125 25,879,068 21,326,604 ------------ ------------ ------------ ------------ Income from operations 11,882,159 8,562,493 19,766,178 14,025,470 Interest income (expense), net (18,166) 97,356 142,089 150,883 ------------ ------------ ------------ ------------ Income before income taxes 11,863,993 8,659,849 19,908,267 14,176,353 Provision for income taxes 4,843,000 3,492,000 8,130,000 5,746,000 ------------ ------------ ------------ ------------ Net income $ 7,020,993 $ 5,167,849 $ 11,778,267 $ 8,430,353 ============ ============ ============ ============ Net income per common share $ 0.59 $ 0.44 $ 0.99 $ 0.72 ============ ============ ============ ============ Weighted average shares outstanding 11,901,328 11,747,506 11,892,487 11,691,673 ============ ============ ============ ============ </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements.
<TABLE> <CAPTION> SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, 1997 1996 ------------ ------------ <S> <C> <C> Cash flows from operating activities Net income $ 11,778,267 $ 8,430,353 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of capital equipment (13,194) (15,827) Depreciation and amortization 3,817,462 2,875,084 Deferred income taxes and long-term liabilities (1,129,944) 181,000 Equity in income of affiliates (110,000) (33,000) Changes in operating assets and liabilities, net of effects of acquisitions: Trade accounts receivable (17,521,910) (9,807,467) Inventories (4,973,420) (371,546) Other current assets (235,056) 283,963 Other noncurrent assets 296,903 (40,430) Trade accounts payable (275,372) 1,033,680 Accrued liabilities (165,525) 75,029 Accrued profit sharing trust contributions 1,430,282 1,303,002 Accrued cash profit sharing and commissions 1,574,447 1,723,733 Income taxes payable 2,632,769 1,789,446 Accrued workers' compensation - (32,853) ------------ ------------ Total adjustments (14,672,558) (1,036,186) ------------ ------------ Net cash provided by (used in) operating activities (2,894,291) 7,394,167 ------------ ------------ Cash flows from investing activities Capital expenditures (6,803,126) (1,858,062) Proceeds from sale of equipment 12,730 41,560 Proceeds from sale of short-term investments 3,995,333 - Acquisitions, net of cash and equity interest already owned (9,352,706) - Equity investments - (11,637) ------------ ------------ Net cash used in investing activities (12,147,769) (1,828,139) ------------ ------------ Cash flows from financing activities Repayment of debt (254,804) (20,037) Issuance of Company's common stock 180,495 373,412 ------------ ------------ Net cash provided by (used in) financing activities (74,309) 353,375 ------------ ------------ Net increase (decrease) in cash and cash equivalents (15,116,369) 5,919,403 Cash and cash equivalents at beginning of period 19,815,297 6,955,788 ------------ ------------ Cash and cash equivalents at end of period $ 4,698,928 $ 12,875,191 ============ ============ </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements.
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation Interim Period Reporting The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnotes required by generally accepted accounting principles have been condensed or omitted. These interim statements should be read in conjunction with the consolidated financial statements and the notes thereto included in Simpson Manufacturing Co., Inc.'s (the "Company's") 1996 Annual Report on Form 10-K (the "1996 Annual Report"). The unaudited quarterly condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements, and in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial information set forth therein, in accordance with generally accepted accounting principles. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The Company's quarterly results may be subject to fluctuations. As a result, the Company believes the results of operations for the interim periods are not necessarily indicative of the results to be expected for any future period. Net Income Per Common Share Net income per common share is computed based upon the weighted average number of common shares outstanding. Common equivalent shares, using the treasury stock method, are included in the per-share calculations for all periods since the effect of their inclusion is dilutive. The number of shares used in computing primary and fully diluted net income per common share did not differ materially for the three and six months ended June 30, 1997 and 1996. Newly Issued Accounting Standards In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" and No. 129, "Disclosure of Information about Capital Structure." SFAS No. 128 establishes standards for computing and presenting earnings per share ("EPS"), replacing the presentation of primary EPS with a presentation of basic EPS. SFAS No. 129 consolidates the existing disclosure requirements regarding an entity's capital structure. SFAS No. 128 and 129 are effective for financial statements issued for periods ending after December 15, 1997, and accordingly, management has not determined the effect, if any, on the Company's financial statements for the three and six months ended June 30, 1997. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income", and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 130 established standards for reporting and display of comprehensive income and its components. SFAS No. 131 specifies revised guidelines for determining an entity's operating segments and the type and level of financial information to be disclosed. SFAS No. 130 and 131 are effective for financial statements issued for periods beginning after December 15, 1997, and accordingly, management has not determined the effect, if any, on the Company's financial statements for the three and six months ended June 30, 1997. 2. Trade Accounts Receivable Trade accounts receivable consist of the following: <TABLE> <CAPTION> At June 30, At ----------------------------- December 31, 1997 1996 1996 ------------ ------------ ------------ <S> <C> <C> <C> Trade accounts receivable $ 41,721,912 $ 32,029,660 $ 22,242,827 Allowance for doubtful accounts (1,505,868) (1,053,448) (1,108,950) Allowance for sales discounts (514,878) (454,814) (203,387) ------------ ------------ ------------ $ 39,701,166 $ 30,521,398 $ 20,930,490 ============ ============ ============ </TABLE>
3. Inventories The components of inventories consist of the following: <TABLE> <CAPTION> At June 30, At ----------------------------- December 31, 1997 1996 1996 ------------ ------------ ------------ <S> <C> <C> <C> Raw materials $ 17,426,108 $ 12,206,175 $ 15,107,660 In-process products 5,530,391 3,164,225 3,763,634 Finished products 30,417,107 19,453,446 23,376,483 ------------ ------------ ------------ $ 53,373,606 $ 34,823,846 $ 42,247,777 ============ ============ ============ </TABLE> Approximately 91% of the Company's inventories are valued using the LIFO (last-in, first-out) method. Because inventory determination under the LIFO method is only made at the end of each year based on the inventory levels and costs at that time, interim LIFO determinations must necessarily be based on management's estimates of expected year-end inventory levels and costs. Since future estimates of inventory levels and costs are subject to change, interim financial results reflect the Company's most recent estimate of the effect of inflation and are subject to final year-end LIFO inventory amounts. At June 30, 1997 and 1996, and December 31, 1996, the replacement value of LIFO inventories exceeded LIFO cost by approximately $886,000, $3,077,000 and $1,186,000, respectively. 4. Net Property, Plant and Equipment Net property, plant and equipment consists of the following: <TABLE> <CAPTION> At June 30, At ----------------------------- December 31, 1997 1996 1996 ------------ ------------ ------------ <S> <C> <C> <C> Land $ 2,440,682 $ 2,065,682 $ 2,065,682 Buildings and site improvements 12,652,353 10,382,076 10,379,901 Leasehold improvements 2,909,671 2,859,204 2,869,612 Machinery and equipment 53,188,221 42,271,683 46,311,624 ------------ ------------ ------------ 71,190,927 57,578,645 61,626,819 Less accumulated depreciation and amortization (39,480,105) (32,866,366) (35,916,354) ------------ ------------ ------------ 31,710,822 24,712,279 25,710,465 Capital projects in progress 4,344,712 944,038 2,977,170 ------------ ------------ ------------ $ 36,055,534 $ 25,656,317 $ 28,687,635 ============ ============ ============ </TABLE>
5. Debt The outstanding debt at June 30, 1997 and 1996, and the available credit at June 30, 1997, consisted of the following: <TABLE> <CAPTION> Available Debt Outstanding Credit at at June 30, June 30, ----------------------------- 1997 1997 1996 ------------ ------------ ------------ <S> <C> <C> <C> Revolving line of credit, interest at bank's reference rate (at June 30, 1997, the bank's reference rate was 8.50%), expires June 1998 $ 13,537,128 $ - $ - Revolving line of credit, interest at bank's prime rate (at June 30, 1997, the bank's prime rate was 8.50%), expires June 1998 4,937,129 - - Revolving term commitment, interest at bank's prime rate (at June 30, 1997, the bank's prime rate was 8.50%), expires June 1998 4,000,000 - - Revolving line of credit, interest rate at the bank's base rate of interest plus 2%, expires June 1998 416,075 - - Standby letter of credit facilities 525,744 - - Other notes payable - 26,091 - ------------ ------------ ------------ Total credit facilities $ 23,416,076 $ 26,091 $ - ============ ============ Standby letters of credit issued and outstanding (525,744) ------------ Total credit available $ 22,890,332 ============ </TABLE> The Company has two outstanding standby letters of credit. These letters of credit, in the aggregate amount of $525,744, are used to support the Company's self-insured workers' compensation insurance requirements. Other notes payable represent debt associated with foreign businesses acquired in March 1997. 6. Commitments and Contingencies Note 10 to the consolidated financial statements in the Company's 1996 Annual Report provides information concerning commitments and contingencies relating to pending or possible claims, legal actions and proceedings against the Company and its subsidiaries. Management believes that the final resolution of these matters, individually or in the aggregate, is not expected to have a material adverse effect on the financial position of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following is a discussion and analysis of the consolidated financial condition and results of operations for the Company for the three and six months ended June 30, 1997 and 1996. The following should be read in conjunction with the interim Condensed Consolidated Financial Statements and related Notes appearing elsewhere herein. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997, COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 1996 Net sales increased 26.7% from the second quarter of 1996 to the second quarter of 1997. The increase reflected growth throughout the United States, particularly in California. In addition, approximately 4% of the sales for the quarter resulted from the acquisitions in March 1997 of Patrick Bellion, S.A., of France ("Bellion"), and the Isometric Group, of Canada ("Isometric"). Simpson Strong-Tie's second quarter sales increased 27.9% over the same quarter last year while Simpson Dura-Vent's sales increased 21.7%. Contractor distributors and homecenters were the fastest growing connector sales channels, while dealer distributor sales increased but at a slower rate than overall sales during the quarter. The growth rate of Simpson Strong-Tie's engineered wood, seismic and epoxy product sales remained strong, while Simpson Dura-Vent sales of Direct-Vent products, sold both to OEMs and through distributors, continued to experience strong growth. Income from operations increased 38.8% from $8,562,493 in the second quarter of 1996 to $11,882,159 in the second quarter of 1997. This increase was primarily due to higher gross margins that resulted from lower overhead costs as a percentage of sales, despite an increase in depreciation and facility charges which resulted principally from expansion during 1996. The increase in gross margins was offset somewhat by the lower margins at the recently acquired businesses. Selling expenses increased 16.6% from $5,462,644 in the second quarter of 1996 to $6,366,762 in the second quarter of 1997, but decreased somewhat as a percentage of sales. The increase was primarily due to higher promotional expenses associated with the retail business and an increase in the number of salespeople. General and administrative expenses increased 29.8% from $6,225,481 in the second quarter of 1996 to $8,077,667 in the second quarter of 1997. The increase in selling, general and administrative expenses was primarily due to increased cash profit sharing, as a result of higher operating profit, as well as additional administrative costs associated with the two acquisitions earlier in the year. The effective tax rate was 40.8% in the second quarter of 1997, consistent with the first quarter of 1997. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997, COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1996 Net sales increased 23.4% from the first half of 1996 to the first half of 1997. The increase reflected growth throughout the United States. The largest percentage increase was in the Northeastern region of the country; California showed the next largest percentage increase and the largest dollar increase in sales. Simpson Strong-Tie's sales for the first half of 1997 increased 25.9% over the same period last year while Simpson Dura- Vent's sales increased 14.5%. Homecenters and contractor distributors were the fastest growing connector sales channels. The growth rate of Simpson Strong-Tie's engineered wood, seismic and epoxy product sales remained strong, while Simpson Dura-Vent sales of Direct-Vent products, sold both to OEMs and through distributors, continued to experience above average growth. Income from operations increased 40.9% from $14,025,470 in the first six months of 1996 to $19,766,178 in the first six months of 1997. This increase was primarily due to higher gross margins that resulted from lower overhead costs as a percentage of sales, despite an increase in depreciation charges which resulted principally from equipment purchased during 1996. Selling expenses increased 16.1% from $9,972,678 in the first half of 1996 to $11,575,025 in the first half of 1997, but decreased slightly as a percentage of sales. As was the case in the second quarter, the increase was primarily due to higher promotional expenses and an increase in the number of salespeople. General and administrative expenses increased 26.0% from $11,353,926 in the first half of 1996 to $14,304,043 in the first half of 1997. The increase in selling, general and administrative expenses was primarily due to increased cash profit sharing, as a result of higher operating profit, as well as additional administrative costs associated with the two acquisitions in March 1997.
LIQUIDITY AND SOURCES OF CAPITAL As of June 30, 1997, working capital was $75.7 million as compared to $61.8 million at June 30, 1996, and $70.7 million at December 31, 1996. The principal components of the increase in working capital from December 31, 1996, were increases in the Company's trade accounts receivable and inventory balances totaling nearly $29.9 million as a result of higher sales levels and seasonal buying programs. In addition, the increase in these balances were also affected by the purchases of Bellion and Isometric in March of 1997. This increase was offset somewhat by decreases in cash and cash equivalents and short-term investments which, in the aggregate, decreased a total of $19.0 million, a large portion of which was used in the two acquisitions and to purchase capital equipment. Further offsetting the increase in trade accounts receivable and inventory were increases in income taxes payable, accrued cash profit sharing and commissions and accrued contributions to the Company's profit sharing trust of approximately $2.5 million, $1.6 million and $1.4 million, respectively. The balance of the change in working capital was due to the fluctuation of various other asset and liability accounts, including trade accounts payable and deferred taxes. Without giving effect to the two acquisitions, which are included in investing activities, the working capital change combined with higher net income and noncash expenses, such as depreciation and amortization, totaling approximately $15.6 million, resulted in a net use of cash of $2.9 million. As of June 30, 1997, the Company had unused credit facilities available of approximately $22.9 million. The Company used $12.1 million in its investing activities, primarily to complete the two acquisitions and to purchase capital equipment. The Company has made $6.8 million in capital equipment purchases in the first half of 1997 to expand its capacity. The Company plans to continue this expansion throughout the remainder of the year. Partially offsetting these expenditures, the Company sold its short-term investments, which matured in March, for approximately $4.0 million. The Company believes that cash generated by operations and borrowings available under its existing credit agreements will be sufficient for the Company's working capital needs and planned capital expenditures through the remainder of 1997. Depending on the Company's future growth, it may become necessary to secure additional sources of financing.
PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company is involved in various legal proceedings and other matters arising in the normal course of business. In the opinion of management, none of such matters when ultimately resolved will have a material adverse effect on the Company's financial position or results of operations. ITEM 2. CHANGES IN SECURITIES. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Annual Meeting of Shareholders ("Annual Meeting") was held on May 15, 1997. The following seven nominees were reelected as director by the votes indicated: <TABLE> <CAPTION> Total Votes Total Votes Withheld For Each From Each Name Director Director - ------------------------ ------------ ------------ <S> <C> <C> Earl F. Cheit 10,952,557 16,686 Thomas J Fitzmyers 10,952,957 16,286 Stephen B. Lamson 10,952,657 16,586 Alan R. McKay 10,953,257 15,986 Sunne Wright McPeak 10,949,957 19,286 Barclay Simpson 10,951,136 18,107 Barry Lawson Williams 10,950,457 18,786 </TABLE> The following proposals were also adopted at the Annual Meeting by the vote indicated: <TABLE> <CAPTION> Broker Proposal For Against Abstain Non-Vote - ------------------------------------ ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> To increase by 300,000 shares (from 1,200,000 to 1,500,000) the number of shares of Common Stock reserved for issuance under the Simpson Manufacturing Co., Inc. 1994 Stock Option Plan 10,343,141 591,917 34,185 - To ratify the appointment of Coopers & Lybrand L.L.P. as independent auditors of the Company for 1997 10,935,035 1,157 33,051 - </TABLE>
ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. <TABLE> <CAPTION> a. Exhibits. EXHIBIT NO DESCRIPTION ------- ------------------------------------------------------ <S> <C> 10.1 Application for Amendment to Letter of Credit, dated May 19, 1997, between Simpson Manufacturing Co., Inc. and Wells Fargo HSBC Trade Bank, N.A. 10.2 Credit Agreement, dated June 20, 1997, between Barclays Bank PLC and Simpson Strong-Tie International, Inc. 10.3 Tri-Party Agreement, First Amendment to Lease and Purchase and Sale Agreement, dated July 25, 1997, between Vacaville Investors, Simpson Manufacturing Co., Inc. and Simpson Dura-Vent Company, Inc. 11 Statements re computation of earnings per share 27 Financial Data Schedule, which is submitted electronically to the Securities and Exchange Commission for information only and not filed. </TABLE> b. Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Simpson Manufacturing Co., Inc. ------------------------------- (Registrant) DATE: August 13, 1997 By: /s/Stephen B. Lamson --------------- ------------------------------- Stephen B. Lamson Chief Financial Officer