Simpson Manufacturing Company - 10-Q quarterly report FY

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UNITED STATES

FORM 10-Q

(Mark One)

For the Quarterly period ended: June 30, 2001

OR

For the transition period from ___________________ to ___________________

Commission file number:0-23804

Simpson Manufacturing Co., Inc.

4120 Dublin Boulevard, Suite 400, Dublin, CA 94568

(Registrant’s telephone number, including area code): (925) 560-9000

     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, 2001: 12,124,639

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Simpson Manufacturing Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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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 accounting principles generally accepted in the United States of America 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”) 2000 Annual Report on Form 10-K (the “2000 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, except for the change in accounting for inventory described in Note 3) necessary to present fairly the financial information set forth therein, in accordance with accounting principles generally accepted in the United States of America. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. 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:

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Adoption of Statements of Financial Accounting Standards

In January 2001, the Company adopted Financial Accounting Standards Board (“FASB”) statement No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended. The adoption of this standard by the Company has not had a material effect on its financial position as of June 30, 2001, or results of operations for the period then ended.

Reclassifications

Certain prior period amounts have been reclassified to conform to the 2001 presentation with no effect on net income or retained earnings as previously reported.

2. Trade Accounts Receivable

Trade accounts receivable consist of the following:

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3. Inventories

The components of inventories consist of the following:

Effective January 1, 2001, the Company changed its method of valuing inventories from the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method. The Company believes that the new method is preferable because the FIFO method more effectively allocates fixed overhead costs in times of increased production and, therefore more closely matches current costs and revenues. In addition, the adoption of the FIFO method will enhance the comparability of the Company’s financial statements by changing to the predominant method utilized in its industry and conforms all of the Company’s inventories to the same accounting method. The Company has applied this change retroactively by restating its financial statements as required by Accounting Principles Board No. 20, “Accounting Changes,” which has resulted in a one time decrease in previously reported retained earnings of $795,023 as of June 30, 2000, and a one time increase in previously reported retained earnings of $89,837 as of December 31, 2000. The effect of the change in accounting principle for both the three and six months ended June 30, 2000, was immaterial.

4. Property, Plant and Equipment, Net

Property, plant and equipment, net consists of the following:

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5. Debt

Outstanding debt at June 30, 2001 and 2000, and December 31, 2000, and the available credit at June 30, 2001, consisted of the following:

As of June 30, 2001, the Company had three outstanding standby letters of credit. Two of these letters of credit, in the aggregate amount of $2,055,423, are used to support the Company’s self-insured workers’ compensation insurance requirements. The third, in the amount of $664,781, is used to guarantee performance on the Company’s leased facility in the United Kingdom.

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6. Commitments and Contingencies

Note 9 to the consolidated financial statements in the Company’s 2000 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 six months ended:

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 $44,972,000, $49,147,000 and $54,183,000 as of June 30, 2001 and 2000, and December 31, 2000, respectively.

8. Acquisition

In January 2001, the Company’s subsidiary, Simpson Strong-tie International, Inc., acquired 100% of the shares of BMF Bygningsbeslag A/S of Denmark for approximately $13.7 million in cash with an additional amount of approximately $1.2 million contingent upon future operating performance.

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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 and six months ended June 30, 2001 and 2000. 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, 2001, Compared with the Three Months Ended June 30, 2000

Net sales increased 18.4% in the second quarter of 2001 as compared to the second quarter of 2000. The sales growth occurred throughout the United States, particularly in California and in the southeastern region of the country, as well as in Europe as a result of the acquisition of BMF Bygningsbeslag A/S (“BMF”) in Denmark in January 2001. Simpson Strong-Tie’s second quarter sales increased 20.6% over the same quarter last year, while Simpson Dura-Vent’s sales increased 6.0%. Contractor distributors and homecenters were the fastest growing Simpson Strong-Tie connector sales channels. The sales increase was broad based across most of Simpson Strong-Tie’s major product lines. Strong-Wall and Anchor Systems product lines had the highest growth rates in sales. Sales of Simpson Dura-Vent’s chimney and pellet vent product lines increased compared to the second quarter of 2000 while sales of its Direct-Vent products decreased.

Income from operations increased 16.3% from $17,983,997 in the second quarter of 2000 to $20,913,401 in the second quarter of 2001 and gross margins decreased from 40.2% in the second quarter of 2000 to 39.2% in the second quarter of 2001. The decrease in gross margin was primarily due to the lower margins associated with the acquisition of BMF. The acquisition of BMF also contributed to the increase in operating expenses. Selling expenses increased 4.6% from $9,728,488 in the second quarter of 2000 to $10,172,994 in the second quarter of 2001. The increase was primarily due to higher personnel costs related to the increase in the number of sales and merchandising personnel. General and administrative expenses increased 23.4% from $11,647,056 in the second quarter of 2000 to $14,374,917 in the second quarter of 2001. This increase was due in part to a non-cash charge to write off the remaining Keybuilder.com software license, additional administrative personnel and higher administrative costs, including those associated with the acquisitions of Anchor Tiedown Systems (“ATS”) and Masterset Fastening Systems, Inc. (“Masterset”). The tax rate was 42.4% in the second quarter of 2001, an increase from 41.1% in the second quarter of 2000.

Results of Operations for the Six Months Ended June 30, 2001, Compared with the Six Months Ended June 30, 2000

Net sales increased 15.5% in the first six months of 2001 as compared to the first six months of 2000. Most of the sales growth occurred in California and in Europe as a result of the acquisition of BMF. Simpson Strong-Tie’s first half sales increased 17.6% over the same period last year, while Simpson Dura-Vent’s sales increased 4.2%. Contractor distributors were the fastest growing Simpson Strong-Tie connector sales channel. The sales increase was broad based across most of Simpson Strong-Tie’s major product lines. Strong-Wall and Anchor Systems product lines had the highest growth rates in sales. Sales of Simpson Dura-Vent’s chimney and pellet vent product lines increased compared to the first half of 2000 while sales of its Direct-Vent products decreased.

Income from operations increased 8.5% from $32,618,926 in the first half of 2000 to $35,376,760 in the first half of 2001 and gross margins decreased from 40.1% in the first half of 2000 to 39.2% in the first half of 2001. The decrease in gross margin was primarily due to the lower margins associated with BMF. The acquisition of BMF also contributed to the increases in operating expenses. Selling expenses increased 14.6% from $18,281,610 in the first half of 2000 to $20,952,043 in the first half of 2001. The increase was primarily due to higher personnel costs related to the increase in the number of sales and merchandising personnel, including those associated with the Anchoring Systems product line, as well as increased promotional expenses. General and administrative expenses increased 17.8% from $22,295,382 in the first half of 2000 to $26,268,897 in the first half of 2001. This increase was due in part to a non-cash charge to write-off the remaining Keybuilder.com software license, additional administrative personnel and higher administrative costs, including those associated with the acquisitions of ATS and Masterset. Partially offsetting this increase was a decrease in cash profit sharing. The tax rate was 42.2% in the first

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half of 2001, an increase from 40.8% in the first half of 2000.

In June 2001, Financial Accounting Standards Board (“FASB”) Statement No. 141, “Business Combinations” and FASB Statement No. 142, “Goodwill and Other Intangible Assets,” were issued. FASB statement No. 141 applies to all business combinations initiated after June 30, 2001, and requires them to be accounted for using the purchase method. FASB Statement No. 142, which will become effective for the Company’s 2002 financial statements, relates to how goodwill and intangible assets that are acquired should be accounted for upon their acquisition as well as after their acquisition. During the three and six month periods ended June 30, 2001, amortization of goodwill amounted to approximately $1,450,000 and $2,232,000, respectively. The Company is currently examining the effect that adoption of these statements will have on its financial position or results of operations.

Liquidity and Sources of Capital

As of June 30, 2001, working capital was $172.6 million as compared to $161.7 million at June 30, 2000, and $168.0 million at December 31, 2000. The primary components of the change in working capital from December 31, 2000, included the decrease in cash and cash equivalents of $12.4 million, principally as a result of the BMF acquisition, offset by increases in the Company’s trade accounts receivable of approximately $24.2 million, primarily due to higher sales levels and seasonal buying programs. Inventories increased approximately $3.4 million, as a result of the BMF acquisition, but decreased elsewhere in the Company on an overall basis. Offsetting the increases in trade accounts receivable and inventories were increases in accrued cash profit sharing and commissions and income taxes payable, together totaling approximately $6.8 million. The balance of the change in working capital was due to the fluctuation of various other asset and liability accounts. The working capital change and changes in noncurrent assets and liabilities combined with net income and noncash expenses, primarily depreciation and amortization, totaling approximately $30.3 million, resulted in net cash provided by operating activities of approximately $17.0 million. As of June 30, 2001, the Company had unused credit facilities available of approximately $22.8 million.

     The Company used approximately $31.7 million in its investing activities. Of this, approximately $10.5 million was used for real estate and related purchases, approximately $7.6 million was used for capital equipment purchases and approximately $13.7 million to acquire BMF. The Company plans to continue to expand throughout the remainder of the year and into 2002.

     The Company’s financing activities provided net cash of approximately $2.4 million, primarily from the issuance of Company stock through the exercise of stock options by its employees. The balance of the cash provided from financing activities was through the issuance of debt to support its working capital needs in Europe.

     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 2001. Depending on the Company’s future growth and possible acquisitions, it may become necessary to secure additional sources of financing.

     The Company believes that the effect of inflation on the Company has not been material in recent years, as inflation rates have remained relatively low.

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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.

The Annual Meeting of Shareholders (“Annual Meeting”) was held on May 18, 2000. The following two nominees were elected as directors by the votes indicated:

The following proposal was also adopted at the Annual Meeting by the vote indicated:

Item 5. Other Information.

None.

Item 6. Exhibits and Reports on Form 8-K.

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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.

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