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: September 30, 1999 ------------------ 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) Delaware 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 September 30, 1999: 12,016,209 ----------
PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> September 30, ---------------------------- (Unaudited) December 31, 1999 1998 1998 ------------ ------------ ------------ <S> <C> <C> <C> ASSETS Current assets Cash and cash equivalents $ 44,174,362 $ 34,515,012 $ 37,402,450 Trade accounts receivable, net 50,461,040 38,265,344 34,089,122 Inventories 68,867,778 51,699,130 56,340,053 Deferred income taxes 4,400,358 3,289,767 3,749,599 Other current assets 1,505,336 1,504,676 1,282,814 ------------ ------------ ------------ Total current assets 169,408,874 129,273,929 132,864,038 Property, plant and equipment, net 60,024,345 53,462,633 54,964,704 Investments 385,264 535,773 524,964 Other noncurrent assets 10,452,557 2,993,033 3,246,045 ------------ ------------ ------------ Total assets $240,271,040 $186,265,368 $191,599,751 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes payable and current portion of long-term debt $ 300,000 $ 331,724 $ 330,704 Trade accounts payable 14,637,458 14,166,453 11,761,237 Accrued liabilities 7,622,273 5,416,675 5,591,292 Income taxes payable 3,469,005 1,304,227 1,465,384 Accrued profit sharing trust contributions 2,696,669 2,463,741 3,173,362 Accrued cash profit sharing and commissions 5,973,646 5,009,136 4,019,806 Accrued workers' compensation 1,145,764 779,272 879,272 ------------ ------------ ------------ Total current liabilities 35,844,815 29,471,228 27,221,057 Long-term debt, net of current portion 2,584,345 2,722,720 2,565,182 Deferred income taxes and long-term liabilities 621,840 592,453 531,149 ------------ ------------ ------------ Total liabilities 39,051,000 32,786,401 30,317,388 ------------ ------------ ------------ Commitments and contingencies (Notes 5 and 6) Shareholders' equity Common stock 44,655,797 33,607,488 33,723,845 Retained earnings 156,827,894 120,118,389 127,990,208 Accumulated other comprehensive income (263,651) (246,910) (431,690) ------------ ------------ ------------ Total shareholders' equity 201,220,040 153,478,967 161,282,363 ------------ ------------ ------------ Total liabilities and shareholders' equity $240,271,040 $186,265,368 $191,599,751 ============ ============ ============ </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements.
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMNETS OF OPERATIONS (UNAUDITED) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net sales $ 88,807,636 $ 77,207,820 $247,221,970 $207,248,839 Cost of sales 52,358,565 47,024,623 147,660,284 126,114,476 ------------ ------------ ------------ ------------ Gross profit 36,449,071 30,183,197 99,561,686 81,134,363 ------------ ------------ ------------ ------------ Operating expenses: Selling 8,123,050 6,550,624 24,062,580 18,304,870 General and administrative 10,193,192 8,584,612 28,110,528 24,365,243 Compensation related to stock plans 85,000 18,000 289,135 120,000 ------------ ------------ ------------ ------------ 18,401,242 15,153,236 52,462,243 42,790,113 ------------ ------------ ------------ ------------ Income from operations 18,047,829 15,029,961 47,099,443 38,344,250 Interest income, net 476,698 232,500 1,080,243 553,454 ------------ ------------ ------------ ------------ Income before income taxes 18,524,527 15,262,461 48,179,686 38,897,704 Provision for income taxes 7,408,000 6,027,000 19,342,000 15,628,000 ------------ ------------ ------------ ------------ Net income $ 11,116,527 $ 9,235,461 $ 28,837,686 $ 23,269,704 ============ ============ ============ ============ Net income per common share Basic $ 0.93 $ 0.80 $ 2.45 $ 2.01 Diluted $ 0.90 $ 0.77 $ 2.36 $ 1.93 Number of shares outstanding Basic 11,968,123 11,570,904 11,777,481 11,554,623 Diluted 12,311,909 12,028,293 12,218,050 12,047,356 </TABLE> SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net income $ 11,116,527 $ 9,235,461 $ 28,837,686 $ 23,269,704 Other comprehensive income, net of tax: Foreign currency translation adjustments 559,600 92,451 168,039 28,815 ------------ ------------ ------------ ------------ Comprehensive income $ 11,676,127 $ 9,327,912 $ 29,005,725 $ 23,298,519 ============ ============ ============ ============ </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements.
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> Nine Months Ended September 30, ---------------------------- 1999 1998 ------------ ------------ <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 28,837,686 $ 23,269,704 ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities: (Gain) loss on sale of capital equipment (43,308) 17,918 Depreciation and amortization 8,148,734 6,476,887 Deferred income taxes and long-term liabilities (560,068) 15,702 Equity in (income) loss of affiliates 107,273 (9,000) Noncash compensation related to stock plans 119,800 169,894 Changes in operating assets and liabilities, net of effects of acquisitions: Trade accounts receivable (16,310,469) (13,609,741) Inventories (11,664,237) 3,297,761 Trade accounts payable 2,876,221 5,353,257 Income taxes payable 8,275,688 1,859,638 Accrued profit sharing trust contributions (476,693) (423,134) Accrued cash profit sharing and commissions 1,953,840 1,914,302 Other current assets (222,522) 218,911 Accrued liabilities 2,030,982 (90,228) Accrued workers' compensation 266,492 120,000 Other noncurrent assets (1,619,970) (180,252) ------------ ------------ Total adjustments (7,118,237) 5,131,915 ------------ ------------ Net cash provided by operating activities 21,719,449 28,401,619 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (11,903,467) (16,874,152) Asset acquisitions, net of cash acquired (7,833,090) - Proceeds from sale of equipment 260,476 39,397 ------------ ------------ Net cash used in investing activities (19,476,081) (16,834,755) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Issuance of debt 202,040 3,111,314 Repayment of debt (213,581) (86,475) Issuance of common stock 4,540,085 504,620 ------------ ------------ Net cash provided by financing activities 4,528,544 3,529,459 ------------ ------------ Net increase in cash and cash equivalents 6,771,912 15,096,323 Cash and cash equivalents at beginning of period 37,402,450 19,418,689 ------------ ------------ Cash and cash equivalents at end of period $ 44,174,362 $ 34,515,012 ============ ============ </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") 1998 Annual Report on Form 10-K (the "1998 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. Certain prior year amounts have been reclassified to conform to the 1999 presentation with no effect on net income as previously reported. 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 Three Months Ended September 30, 1999 September 30, 1998 ---------------------------------- ---------------------------------- Per Per Income Shares Share Income Shares Share ------------ ------------ ------ ------------ ------------ ------ <S> <C> <C> <C> <C> <C> <C> BASIC EPS Income available to common shareholders $ 11,116,527 11,968,123 $ 0.93 $ 9,235,461 11,570,904 $ 0.80 EFFECT OF DILUTIVE SECURITIES Stock options - 343,786 (0.03) - 457,389 (0.03) ------------ ------------ ------ ------------ ------------ ------ DILUTED EPS Income available to common shareholders $ 11,116,527 12,311,909 $ 0.90 $ 9,235,461 12,028,293 $ 0.77 ============ ============ ====== ============ ============ ====== </TABLE>
<TABLE> <CAPTION> Nine Months Ended Nine Months Ended September 30, 1999 September 30, 1998 ---------------------------------- ---------------------------------- Per Per Income Shares Share Income Shares Share ------------ ------------ ------ ------------ ------------ ------ <S> <C> <C> <C> <C> <C> <C> BASIC EPS Income available to common shareholders $ 28,837,686 11,777,481 $ 2.45 $ 23,269,704 11,554,623 $ 2.01 EFFECT OF DILUTIVE SECURITIES Stock options - 440,569 (0.09) - 492,733 (0.08) ------------ ------------ ------ ------------ ------------ ------ DILUTED EPS Income available to common shareholders $ 28,837,686 12,218,050 $ 2.36 $ 23,269,704 12,047,356 $ 1.93 ============ ============ ====== ============ ============ ====== </TABLE> 2. Trade Accounts Receivable Trade accounts receivable consist of the following: <TABLE> <CAPTION> At September 30, ---------------------------- (Unaudited) December 31, 1999 1998 1998 ------------ ------------ ------------ <S> <C> <C> <C> Trade accounts receivable $ 52,066,509 $ 39,858,760 $ 35,550,836 Allowance for doubtful accounts (1,205,142) (1,243,048) (1,173,656) Allowance for sales discounts (400,327) (350,368) (288,058) ------------ ------------ ------------ $ 50,461,040 $ 38,265,344 $ 34,089,122 ============ ============ ============ </TABLE> 3. Inventories The components of inventories consist of the following: <TABLE> <CAPTION> At September 30, ---------------------------- (Unaudited) December 31, 1999 1998 1998 ------------ ------------ ------------ <S> <C> <C> <C> Raw materials $ 20,807,497 $ 16,941,620 $ 18,904,545 In-process products 7,368,534 5,308,232 5,255,755 Finished products 40,691,747 29,449,278 32,179,753 ------------ ------------ ------------ $ 68,867,778 $ 51,699,130 $ 56,340,053 ============ ============ ============ </TABLE> Approximately 88% 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 September 30, 1999, the LIFO cost exceeded the replacement value of LIFO inventories by approximately $620,000 and at September 30, 1998, and December 31, 1998, the replacement value of LIFO inventories exceeded LIFO cost by approximately $438,000 and $359,000, respectively.
4. Net Property, Plant and Equipment Net property, plant and equipment consists of the following: <TABLE> <CAPTION> At September 30, ---------------------------- (Unaudited) December 31, 1999 1998 1998 ------------ ------------ ------------ <S> <C> <C> <C> Land $ 4,321,061 $ 3,891,519 $ 3,891,519 Buildings and site improvements 26,762,081 18,704,333 25,743,968 Leasehold improvements 3,887,913 3,380,305 3,463,063 Machinery and equipment 74,568,615 59,631,004 67,052,907 ------------ ------------ ------------ 109,539,670 85,607,161 100,151,457 Less accumulated depreciation and amortization (56,420,453) (48,146,143) (49,498,717) ------------ ------------ ------------ 53,119,217 37,461,018 50,652,740 Capital projects in progress 6,905,128 16,001,615 4,311,964 ------------ ------------ ------------ $ 60,024,345 $ 53,462,633 $ 54,964,704 ============ ============ ============ </TABLE> 5. Debt Outstanding debt at September 30, 1999 and 1998, and December 31, 1998, and the available credit at September 30, 1999, consisted of the following: <TABLE> <CAPTION> Debt Outstanding Available -------------------------------------------- Credit at at September 30, at September 30, ---------------------------- December 31, 1999 1999 1998 1998 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Revolving line of credit, interest at bank's reference rate (at September 30, 1999, the bank's reference rate was 8.25%), expires June 2000 $ 12,443,472 $ - $ - $ - Revolving term commitment, interest at bank's prime rate (at September 30, 1999, the bank's prime rate was 8.25%), expires June 2000 8,616,628 - - - Revolving line of credit, interest rate at the bank's base rate of interest plus 2%, expires July 2000 411,252 - - - Term loan, fixed interest rate of 5.3%, expires September 2006 - 154,819 - - Standby letter of credit facilities 1,939,901 - - - Term loan, interest at LIBOR plus 1.375% (at September 30, 1999, LIBOR plus 1.375% was 6.8125%), expires May 2008 - 2,700,000 3,000,000 2,850,000 Other notes payable and long-term debt - 29,526 54,444 45,886 ------------ ------------ ------------ ------------ 23,411,253 2,884,345 3,054,444 2,895,886 Less current portion - 300,000 331,724 330,704 ------------ ------------ ------------ ------------ 23,411,253 $ 2,584,345 $ 2,722,720 $ 2,565,182 Standby letters of credit issued ============ ============ ============ and outstanding (1,939,901) ------------ $ 21,471,352 ============ </TABLE>
As of September 30, 1999, the Company had three outstanding standby letters of credit. Two of these letters of credit, in the aggregate amount of $1,166,748, are used to support the Company's self-insured workers' compensation insurance requirements. The third, in the amount of $773,153, is used to guarantee performance on the Company's leased facility in the United Kingdom. Other notes payable represent debt associated with foreign businesses. 6. Commitments and Contingencies Note 9 to the consolidated financial statements in the Company's 1998 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. 7. Segment Information The Company is organized into two primary segments. The segments are defined by types of products manufactured, marketed and distributed to the Company's customers. The two product segments are connector products and venting products. These segments are differentiated in several ways, including the types of materials used, the production process, the distribution channels used and the applications in which the products are used. Transactions between the two segments were immaterial for each of the periods presented. The following table illustrates certain measurements used by management to assess the performance of the segments described above as of or for the three and nine months ended: <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net Sales Connector products $ 71,607,000 $ 61,895,000 $199,989,000 $167,592,000 Venting products 17,201,000 15,313,00 47,233,000 39,657,000 ------------ ------------ ------------ ------------ Total $ 88,808,000 $ 77,208,000 $247,222,000 $207,249,000 ============ ============ ============ ============ Income from Operations Connector products $ 15,360,000 $ 12,806,000 $ 40,100,000 $ 33,769,000 Venting products 2,575,000 1,999,000 7,010,000 4,751,000 All other 113,000 225,000 (11,000) (176,000) ------------ ------------ ------------ ------------ Total $ 18,048,000 $ 15,030,000 $ 47,099,000 $ 38,344,000 ============ ============ ============ ============ </TABLE> <TABLE> <CAPTION> At September 30, ---------------------------- 1999 1998 ------------ ------------ <S> <C> <C> Total Assets Connector products $149,661,000 $111,793,000 Venting products 43,020,000 37,594,000 All other 47,590,000 36,878,000 ------------ ------------ Total $240,271,000 $186,265,000 ============ ============ </TABLE> Cash collected by the Company's subsidiaries is routinely transferred into the Company's cash management accounts and, therefore, has been included in the total assets of the segment entitled "All other." Cash and cash equivalent balances in this segment were approximately $41,607,000 and $33,376,000 as of September 30, 1999 and 1998, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERAITONS. 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 and nine months ended September 30, 1999 and 1998. 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 SEPTEMBER 30, 1999, COMPARED WITH THE THREE MONTHS ENDED SEPTEMBER 30, 1998 Sales increased 15.0% in the third quarter of 1999 as compared to the third quarter of 1998. The increase reflected sales growth throughout the United States, particularly in California and the midwestern and southeastern portions of the country. Sales in most of the Company's international markets continued to grow, due in part to the acquisition of Furfix Products Limited late in the third quarter. Simpson Strong-Tie's third quarter sales increased 15.7% over the same quarter last year, while Simpson Dura-Vent's sales increased 12.3%. Contractor distributors were the fastest growing connector sales channel. The sales increase was broad based across most of Simpson Strong-Tie's major product lines. Anchoring Systems products had the highest growth rate in sales and the Company's new Strong-Wall product line also experienced strong sales growth. Sales of most of Simpson Dura-Vent's major product lines increased compared to the third quarter of 1998, led by above average growth rates for its Direct-Vent product line. Income from operations increased 20.1% from $15,029,961 in the third quarter of 1998 to $18,047,829 in the third quarter of 1999 as a result of higher sales and gross margins. Gross margins increased from 39.1% in the third quarter of 1998 to 41.0% in the third quarter of 1999 primarily due to better absorption of fixed overhead costs as a result of increased production. Selling expenses increased 24.0% from $6,550,624 in the third quarter of 1998 to $8,123,050 in the third quarter of 1999. The increase was primarily due to higher promotional expenses as well as higher costs related to an increase in the number of sales and merchandising personnel. General and administrative expenses increased 18.7% from $8,584,612 in the third quarter of 1998 to $10,193,192 in the third quarter of 1999 primarily due to increased cash profit sharing resulting from higher operating income. The effective tax rate was 40.0% in the third quarter of 1999, a slight increase from the third quarter of 1998. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED WITH THE NINE MONTHS ENDED SEPTEMBER 30, 1998 Sales increased 19.3% in the first nine months of 1999 as compared to the first nine months of 1998. The increase reflected sales growth throughout the United States, particularly in California and the midwestern and southeastern portions of the country. Sales in most of the Company's international markets continued to grow. Simpson Strong-Tie's sales through the first nine months of 1999, increased 19.3% over the same period in the prior year, while Simpson Dura-Vent's sales increased 19.1%. Homecenters were the fastest growing connector sales channel. The sales increase was broad based across most of Simpson Strong-Tie's major product lines. Anchoring Systems products had the highest growth rate in sales and the Company's new Strong-Wall product line also experienced strong sales growth. Sales of most of Simpson Dura-Vent's major product lines increased in the first nine months of 1999 compared to the same period in 1998, led by above average growth rates for its Direct-Vent and chimney product lines. Income from operations increased 22.8% from $38,344,250 in the first nine months of 1998 to $47,099,443 in the first nine months of 1999 as a result of higher sales and gross margins and lower general and administrative costs as a percentage of sales. Gross margins increased from 39.1% in the first nine months of 1998 to 40.3% in the first nine months of 1999 primarily due to better absorption of fixed overhead costs as a result of increased production. Selling expenses increased 31.5% from $18,304,870 in the first nine months of 1998 to $24,062,580 in the first nine months of 1999. The increase was primarily due to higher promotional expenses as well as higher costs related to an increase in the number of sales and merchandising personnel. General and administrative expenses increased 15.4% from $24,365,243 in the first nine months of 1998 to $28,110,528 in the first nine months of 1999 primarily due to increased cash profit sharing resulting from higher operating income. The effective tax rate was 40.1% in the first nine months of 1999, a slight decrease from the first nine months of 1998.
LIQUIDITY AND SOURCES OF CAPITAL As of September 30, 1999, working capital was $133.6 million as compared to $99.8 million at September 30, 1998, and $105.6 million at December 31, 1998. The principal components of the increase in working capital from December 31, 1998, were increases in the Company's trade accounts receivable and inventories totaling approximately $28.9 million, primarily due to higher sales levels and additional production capacity that has been added recently. Partially offsetting these increases were increases in trade accounts payable, accrued liabilities and accrued cash profit sharing. These accounts increased an aggregate of approximately $6.9 million. In addition, income taxes payable increased by approximately $2.0 million, but overall had a positive effect on cash flow of approximately $8.3 million, due to a $6.3 million tax benefit resulting from the exercise of stock options by employees of the Company. The balance of the change in working capital was due to the fluctuation of various other asset and liability accounts. The working capital change, changes in noncurrent assets and liabilities, excluding the acquisition of intangible assets related to Furfix Products Limited, combined with net income and noncash expenses, primarily depreciation and amortization, totaling approximately $37.1 million, resulted in net cash provided by operating activities of approximately $21.7 million. As of September 30, 1999, the Company had unused credit facilities available of approximately $21.5 million. The Company used approximately $19.5 million in its investing activities, primarily to purchase the capital equipment and property needed to expand its capacity and to acquire the assets of Furfix Products Limited. The Company plans to continue this expansion throughout the remainder of the year and into 2000. Financing activities provided the Company with approximately $4.5 million in cash. Substantially all of this cash was generated by the issuance of stock upon the exercise of stock options by current employees and a director of the Company. 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 1999 and into 2000. Depending on the Company's future growth, it may become necessary to secure additional sources of financing. YEAR 2000 PROBLEM The year 2000 problem is primarily the result of computer programs and computer controlled equipment using two digits rather than four to define the applicable year. Such software may recognize a date using "00" as the year 1900 rather than the year 2000. This could potentially result in system failures or miscalculations leading to disruptions in the Company's activities or those of its significant customers, suppliers and banks. The Company does not produce or sell any computer components, software or electronic parts in its normal business environment and, therefore, does not believe that it has any material risk of product liability or obsolescence resulting from the year 2000 problem. In 1998, the Company established a Year 2000 Committee (the "Committee") to evaluate the extent, if any, of its year 2000 and associated problems, to make any required changes and to establish contingency plans. The Company's computer systems are PC based with few interfaces to other internal systems. These systems use a date handling routine that the Company believes to be year 2000 compliant. The Company has completed tests of its internal software which demonstrated no significant risk from the year 2000 problem. The Company is also focusing on major customers, suppliers and equipment used in its operations to assess compliance. The Committee will continue to evaluate these areas of exposure and, where possible, will develop contingency plans and alternative sources to avoid interruptions in the Company's business. Nevertheless, the Company cannot give any assurance that there will not be a material adverse effect on the Company if third parties with whom the Company conducts business do not adequately address the year 2000 problem and, therefore, are unable to conduct operations without interruption. Costs related to the year 2000 problem are funded through operating cash flows. The Committee estimates that the costs of addressing the year 2000 problem are expected to be less than $100,000, most of which has been spent. The Company presently expects that the total cost of achieving year 2000 compliant systems will not be material to its financial condition, liquidity or results of operations.
Time and cost estimates are based on currently available information. Developments that could affect estimates include, but are not limited to, the availability and cost of trained personnel, the ability to locate and correct all relevant computer code and systems, and the degree of remediation success of the Company's customers, suppliers and banks in finding and resolving their year 2000 problems.
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. The Company adopted a Shareholder Rights Plan on July 29, 1999, as previously reported in the Company's report on Form 8-K dated July 29, 1999. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITME 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. <TABLE> <CAPTION> a. Exhibits. EXHIBIT NO DESCRIPTION ------- ------------------------------------------------------ <S> <C> 4.1 Rights Agreement, dated July 30, 1999, between Simpson Manufacturing Co., Inc. and BankBoston, N.A.. 10.1 Agreement for the purchase of the businesses and certain assets of Easy Arches Limited and Furfix Product Limited, dated August 31, 1999, between Donald Furr and Others, Icon PLC, Easy Arches Limited and Furfix Products Limited and Simpson Strong-Tie International, 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. b. Reports on Form 8-K Report on Form 8-K, dated July 29, 1999, reporting under Item 5 that the Company had adopted a Stockholder Rights Plan. Report on Form 8-K, dated September 3, 1999, reporting under Item 5 that the Company had completed the acquisition of Furfix Products Limited and Easy Arches Limited. </TABLE>
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: NOVEMBER 11, 1999 By: /s/Stephen B. Lamson ------------------ ------------------------------- Stephen B. Lamson Chief Financial Officer