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: MARCH 31, 1998 -------------- 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): (925)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 March 31, 1998: 11,551,823 ----------
PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. <TABLE> <CAPTION> SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31, ---------------------------- (Unaudited) 1998 1997 1997 ------------ ------------ ------------ <S> <C> <C> <C> ASSETS Current assets Cash and cash equivalents $ 16,248,992 $ 3,812,205 $ 19,418,689 Trade accounts receivable, net 34,420,498 31,334,018 24,625,568 Inventories 56,766,526 53,716,313 54,982,945 Deferred income taxes 3,559,493 3,192,455 3,536,750 Other current assets 1,654,769 1,528,651 1,723,586 ------------ ------------ ------------ Total current assets 112,650,278 93,583,642 104,287,538 Net property, plant and equipment 46,391,960 35,335,825 42,925,088 Investments 548,391 507,127 559,200 Other noncurrent assets 2,955,917 3,141,989 2,993,114 ------------ ------------ ------------ Total assets $162,546,546 $132,568,583 $150,764,940 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes Payable $ 29,147 $ 280,895 $ 29,605 Trade accounts payable 12,793,780 10,919,997 8,813,196 Accrued liabilities 4,352,965 3,525,075 5,506,903 Income taxes payable 2,293,672 3,381,161 - Accrued profit sharing trust contributions 3,812,841 3,142,402 2,886,875 Accrued cash profit sharing and commissions 2,434,539 2,346,768 3,094,834 Accrued workers' compensation 659,272 809,272 659,272 ------------ ------------ ------------ Total current liabilities 26,376,216 24,405,570 20,990,685 Deferred income taxes and long-term liabilities 741,918 1,152,981 823,732 ------------ ------------ ------------ Total liabilities 27,118,134 25,558,551 21,814,417 ------------ ------------ ------------ Commitments and contingencies (Notes 5 and 6) Shareholders' equity Common stock 33,110,912 31,298,619 32,377,563 Retained earnings 102,509,459 75,620,180 96,848,685 Accumulated other comprehensive income (191,959) 91,233 (275,725) ------------ ------------ ------------ Total shareholders' equity 135,428,412 107,010,032 128,950,523 ------------ ------------ ------------ Total liabilities and shareholders' equity $162,546,546 $132,568,583 $150,764,940 ============ ============ ============ </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 March 31, ---------------------------- 1998 1997 ------------ ------------ <S> <C> <C> Net sales $ 59,254,549 $ 51,927,222 Cost of sales 37,381,156 32,608,564 ------------ ------------ Gross profit 21,873,393 19,318,658 ------------ ------------ Operating expenses: Selling 5,624,774 5,208,264 General and administrative 6,864,496 6,226,376 Compensation related to stock plans 57,000 - ------------ ------------ 12,546,270 11,434,640 ------------ ------------ Income from operations 9,327,123 7,884,018 Interest income, net 206,652 160,256 ------------ ------------ Income before income taxes 9,533,775 8,044,274 Provision for income taxes 3,873,000 3,287,000 ------------ ------------ Net income $ 5,660,775 $ 4,757,274 ============ ============ Net income per common share Basic $ 0.49 $ 0.42 ============ ============ Diluted $ 0.47 $ 0.40 ============ ============ Number of shares outstanding Basic 11,531,115 11,454,126 ============ ============ Diluted 12,044,490 11,881,875 ============ ============ </TABLE> <TABLE> <CAPTION> SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended March 31, ---------------------------- 1998 1997 ------------ ------------ <S> <C> <C> Net income $ 5,660,775 $ 4,757,274 Other comprehensive income, net of tax: Foreign currency translation adjustments (83,766) 109,221 ------------ ------------ Comprehensive income $ 5,577,009 $ 4,866,495 ============ ============ </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) Three Months Ended March 31, ---------------------------- 1998 1997 ------------ ------------ <S> <C> <C> Cash flows from operating activities Net income $ 5,660,775 $ 4,757,274 ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of capital equipment (2,000) (5,000) Depreciation and amortization 2,250,933 1,875,006 Deferred income taxes and long-term liabilities (104,560) (273,000) Equity in income of affiliates - (58,000) Changes in operating assets and liabilities, net of effects of acquisitions: Trade accounts receivable (9,687,467) (9,086,908) Trade accounts payable 3,980,584 (264,230) Income taxes payable 2,683,549 3,081,975 Inventories (1,764,013) (5,397,833) Accrued liabilities (1,153,938) (1,477,517) Accrued profit sharing trust contributions 925,966 696,401 Accrued cash profit sharing and commissions (660,295) 54,711 Other current assets 68,817 (525,526) Other noncurrent assets (21,199) 257,531 ------------ ------------ Total adjustments (3,483,623) (11,122,390) ------------ ------------ Net cash provided by (used in) operating activities 2,177,152 (6,365,116) ------------ ------------ Cash flows from investing activities Capital expenditures (5,692,243) (4,758,625) Proceeds from sale of equipment 2,380 5,000 Proceeds from sale of short-term investments - 3,995,333 Acquisitions, net of cash and equity interest already owned - (9,183,110) ------------ ------------ Net cash used in investing activities (5,689,863) (9,941,402) ------------ ------------ Cash flows from financing activities Issuance of Company's common stock 343,472 22,531 Issuance (repayment) of debt (458) 280,895 ------------ ------------ Net cash provided by financing activities 343,014 303,426 ------------ ------------ Net decrease in cash and cash equivalents (3,169,697) (16,003,092) Cash and cash equivalents at beginning of period 19,418,689 19,815,297 ------------ ------------ Cash and cash equivalents at end of period $ 16,248,992 $ 3,812,205 ============ ============ </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") 1997 Annual Report on Form 10-K (the "1997 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 Basic 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 diluted per-share calculations for all periods when the effect of their inclusion is dilutive. The following is a reconciliation of basic earnings per share ("EPS") to diluted EPS: <TABLE> <CAPTION> Three Months Ended March 31, 1998 Three Months Ended March 31, 1997 Per Per Income Shares Share Income Shares Share ------------ ------------ --------- ------------ ------------ --------- <S> <C> <C> <C> <C> <C> <C> BASIC EPS Income available to common shareholders $ 5,660,775 11,531,115 $ 0.49 $ 4,757,274 11,454,126 $ 0.42 EFFECT OF DILUTIVE SECURITIES Stock options - 513,375 (0.02) - 427,749 (0.02) ------------ ------------ --------- ------------ ------------ --------- DILUTED EPS Income available to common shareholders $ 5,660,775 12,044,490 $ 0.47 $ 4,757,274 11,881,875 $ 0.40 ============ ============ ========= ============ ============ ========= </TABLE> Newly Issued Accounting Standards In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures About Segments of an Enterprise and Related Information." 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. 131 is effective for annual 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 months ended March 31, 1998.
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income" and has presented Condensed Consolidated Statements of Comprehensive Income for the three month periods ended March 31, 1998 and 1997. The accompanying balance sheets include accumulated other comprehensive income amounts which consist entirely of foreign currency translation adjustments. 2. Trade Accounts Receivable Trade accounts receivable consist of the following: <TABLE> <CAPTION> At March 31, At ---------------------------- December 31, 1998 1997 1997 ------------ ------------ ------------ <S> <C> <C> <C> Trade accounts receivable $ 35,927,002 $ 33,020,437 $ 26,398,046 Allowance for doubtful accounts (1,202,182) (1,386,684) (1,539,691) Allowance for sales discounts (304,322) (299,735) (232,787) ------------ ------------ ------------ $ 34,420,498 $ 31,334,018 $ 24,625,568 ============ ============ ============ </TABLE> 3. Inventories The components of inventories consist of the following: <TABLE> <CAPTION> At March 31, At ---------------------------- December 31, 1998 1997 1997 ------------ ------------ ------------ <S> <C> <C> <C> Raw materials $ 18,619,797 $ 17,577,343 $ 17,882,930 In-process products 6,091,933 4,431,115 5,384,709 Finished products 32,054,796 31,707,855 31,715,306 ------------ ------------ ------------ $ 56,766,526 $ 53,716,313 $ 54,982,945 ============ ============ ============ </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 LIFO and are subject to adjustment based upon final year-end inventory amounts. At March 31, 1998 and 1997, and December 31, 1997, the replacement value of LIFO inventories exceeded LIFO cost by approximately $777,000, $1,186,000 and $852,000, respectively.
4. Net Property, Plant and Equipment Net property, plant and equipment consists of the following: <TABLE> <CAPTION> At March 31, At ---------------------------- December 31, 1998 1997 1997 ------------ ------------ ------------ <S> <C> <C> <C> Land $ 3,366,519 $ 2,440,682 $ 3,366,519 Buildings and site improvements 17,141,278 12,584,599 17,165,509 Leasehold improvements 3,334,358 2,953,492 3,474,278 Machinery and equipment 56,169,362 49,633,900 55,400,034 ------------ ------------ ------------ 80,011,517 67,612,673 79,406,340 Less accumulated depreciation and amortization (44,210,391) (37,646,354) (41,986,005) ------------ ------------ ------------ 35,801,126 29,966,319 37,420,335 Capital projects in progress 10,590,834 5,369,506 5,504,753 ------------ ------------ ------------ $ 46,391,960 $ 35,335,825 $ 42,925,088 ============ ============ ============ </TABLE> 5. Debt Outstanding debt at March 31, 1998 and 1997, and the available credit at March 31, 1998, consisted of the following: <TABLE> <CAPTION> Available Debt Outstanding Credit at at March 31, March 31, ---------------------------- 1998 1998 1997 ------------ ------------ ------------ <S> <C> <C> <C> Revolving line of credit, interest at bank's reference rate (at March 31, 1998, the bank's reference rate was 8.50%), expires June 1998 $ 12,750,066 $ - $ - Revolving line of credit, interest at bank's prime rate (at March 31, 1998, the bank's prime rate was 8.50%), expires June 1998 4,937,129 - - Revolving term commitment, interest at bank's prime rate (at March 31, 1998, 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 411,100 - - Standby letter of credit facilities 1,312,806 - - Other notes payable - 29,147 280,895 ------------ ------------ ------------ Total credit facilities $ 23,411,101 $ 29,147 $ 280,895 ============ ============ Standby letters of credit issued and outstanding (1,312,806) ------------ Total credit available $ 22,098,295 ============ </TABLE> The Company has three outstanding standby letters of credit. Two of these letters of credit, in the aggregate amount of $525,744, are used to support the Company's self-insured workers' compensation insurance requirements. The third, in the amount of $787,062, is used to guarantee performance on the Company's leased facility in the UK. Other notes payable represent debt associated with foreign businesses acquired in March 1997.
6. Commitments and Contingencies Note 9 to the consolidated financial statements in the Company's 1997 Annual Report provides information concerning commitments and contingencies. From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Certain matters discussed below are forward-looking statements that involve risks and uncertainties, certain of which are discussed in this report and in other reports filed by the Company with the Securities and Exchange Commission. Actual results might differ materially from results suggested by any forward-looking statements in this report. The following is a discussion and analysis of the consolidated financial condition and results of operations for the Company for the three months ended March 31, 1998 and 1997. 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 March 31, 1998, Compared with the Three Months Ended March 31, 1997 Sales increased 14.1% in the first quarter of 1998 as compared to the first quarter of 1997. The increase reflected sales growth throughout the United States, particularly in the Southeastern region of the country. International sales increased at a substantial rate, a significant portion of which was related to the businesses purchased in March 1997. Simpson Strong-Tie's first quarter sales increased 16.3% over the same quarter last year, while Simpson Dura-Vent's sales increased 6.0%. Homecenters were the fastest growing connector sales channel. The growth rate of Simpson Strong- Tie's engineered wood product sales remained strong and the Company's Anchoring Systems products also contributed significantly to the increase in sales, primarily as a result of the 1997 purchase of the Isometric Group. Direct-Vent products led Simpson Dura-Vent's sales with an above average growth rate. Income from operations increased 18.3% from $7.9 million in the first quarter of 1997 to $9.3 million in the first quarter of 1998, primarily due to higher sales. Gross margins decreased slightly from 37.2% in the first quarter of 1997 to 36.9% in the first quarter of 1998. Selling, general and administrative expenses increased in the first quarter of 1998, but were lower as a percentage of sales. Selling expenses increased 8.0% from $5.2 million in the first quarter of 1997 to $5.6 million in the first quarter of 1998. The increase was primarily due to higher personnel costs related to the increase in the number of salespeople, including those in the acquired businesses, offset somewhat by lower expenses related to advertising and promotions. General and administrative expenses increased 10.2% from $6.2 million in the first quarter of 1997 to $6.9 million in the first quarter of 1998. The increase was primarily due to higher administrative overhead and personnel costs, including those associated with last year's acquisitions. The effective tax rate was 40.6% in the first quarter of 1998, a slight decrease from the first quarter of 1997. Liquidity and Sources of Capital As of March 31, 1998, working capital was $86.3 million as compared to $69.2 million at March 31, 1997, and $83.3 million at December 31, 1997. The principal components of the increase in working capital from December 31, 1997, were increases in the Company's trade accounts receivable and inventory balances totaling approximately $11.6 million, primarily due to higher sales levels and seasonal buying programs, and a decrease in accrued liabilities of approximately $1.2 million as a result of the payment of sales incentives. Partially offsetting these increases was a decrease in cash and cash equivalents of nearly $3.2 million. Cash and cash equivalent balances were higher as compared to March 31, 1997. This increase was primarily due to lower cash balances after the purchases of the Isometric Group and Patrick Bellion, S.A. in March 1997. Further offsetting the increase in trade accounts receivable and inventory were increases in trade accounts payable and income taxes payable of approximately $4.0 million and $2.3 million, respectively. The balance of the change in working capital was due to the fluctuation of various other asset and liability accounts. The working capital change combined with net income and noncash expenses, such as depreciation and amortization, totaling approximately $7.9 million, resulted in net cash provided by operating activities of approximately $2.2 million. As of March 31, 1998, the Company had unused credit facilities available of approximately $22.1 million.
The Company used nearly $5.7 million in its investing activities, primarily to purchase the capital equipment needed to expand its capacity. The Company plans to continue this expansion throughout the remainder of the year and into 1999. The Company believes that cash generated by operations and borrowings available under its existing credit agreements, that are expected to be renewed with similar terms, will be sufficient for the Company's working capital needs and planned capital expenditures through the remainder of 1998. 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. From time to time, the Company is involved in various legal proceedings and other matters arising in the normal course of business. ITEM 2. CHANGES IN SECURITIES. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 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 Amendment to Loan Agreement dated January 14, 1997, dated January 21, 1998, between Simpson Manufacturing Co., Inc. and Union Bank of California, N.A. 10.2 Amendment to Loan Agreement dated January 14, 1997, dated April 10, 1998, between Simpson Manufacturing Co., Inc. and Union Bank of California, N.A. 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: MAY 14, 1998 By: /s/Stephen B. Lamson ------------ ------------------------------- Stephen B. Lamson Chief Financial Officer