> 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, 2000 -------------- 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 March 31, 2000: 12,025,423 ----------
PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> March 31, ---------------------------- (Unaudited) December 31, 2000 1999 1999 ------------ ------------ ------------ <S> <C> <C> <C> ASSETS Current assets Cash and cash equivalents $ 45,551,211 $ 33,642,222 $ 54,509,610 Trade accounts receivable, net 52,893,480 44,724,610 42,420,223 Inventories 78,380,347 59,564,149 72,751,245 Deferred income taxes 5,102,306 4,046,027 4,745,534 Other current assets 2,156,309 1,713,334 1,323,215 ------------ ------------ ------------ Total current assets 184,083,653 143,690,342 175,749,827 Property, plant and equipment, net 60,662,207 56,557,645 61,143,524 Investments 363,646 514,155 374,455 Other noncurrent assets 12,255,670 3,048,198 9,986,187 ------------ ------------ ------------ Total assets $257,365,176 $203,810,340 $247,253,993 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable and current portion of long-term debt $ 487,549 $ 327,477 $ 349,541 Trade accounts payable 10,192,763 12,371,463 12,780,621 Accrued liabilities 7,436,206 5,223,706 7,819,155 Income taxes payable 7,482,869 5,356,866 3,362,254 Accrued profit sharing trust contributions 1,135,525 4,128,707 3,504,286 Accrued cash profit sharing and commissions 4,808,670 3,732,724 4,531,861 Accrued workers' compensation 1,445,764 879,272 1,345,764 ------------ ------------ ------------ Total current liabilities 32,989,346 32,020,215 33,693,482 Long-term debt, net of current portion 2,398,651 2,557,020 2,414,562 Deferred income taxes and long-term liabilities 423,932 434,607 556,783 ------------ ------------ ------------ Total liabilities 35,811,929 35,011,842 36,664,827 ------------ ------------ ------------ Minority interest in consolidated subsidiaries 1,804,040 - - ------------ ------------ ------------ Commitments and contingencies (Notes 5 and 6) Stockholders' equity Common stock 44,901,418 33,871,198 44,716,488 Retained earnings 175,733,364 135,638,611 166,457,600 Accumulated other comprehensive income (885,575) (711,311) (584,922) ------------ ------------ ------------ Total stockholders' equity 219,749,207 168,798,498 210,589,166 ------------ ------------ ------------ Total liabilities and stockholders' equity $257,365,176 $203,810,340 $247,253,993 ============ ============ ============ </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements.
Simpson Manufacturing Co., Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, ---------------------------- 2000 1999 ------------ ------------ <S> <C> <C> Net sales $ 84,615,539 $ 74,661,590 Cost of sales 50,800,161 46,212,976 ------------ ------------ Gross profit 33,815,378 28,448,614 ------------ ------------ Operating expenses: Selling 8,553,122 7,897,807 General and administrative 10,648,327 8,121,761 ------------ ------------ 19,201,449 16,019,568 ------------ ------------ Income from operations 14,613,929 12,429,046 Interest income, net 643,875 348,357 ------------ ------------ Income before income taxes 15,257,804 12,777,403 Provision for income taxes 6,178,000 5,129,000 Minority interest (195,960) - ------------ ------------ Net income $ 9,275,764 $ 7,648,403 ============ ============ Net income per common share Basic $ 0.77 $ 0.66 Diluted $ 0.76 $ 0.63 Number of shares outstanding Basic 12,020,446 11,580,828 Diluted 12,277,453 12,093,225 </TABLE> Simpson Manufacturing Co., Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Unaudited) <TABLE> <CAPTION> Three Months Ended March 31, ---------------------------- 2000 1999 ------------ ------------ <S> <C> <C> Net income $ 9,275,764 $ 7,648,403 Other comprehensive income, net of tax: Foreign currency translation adjustments (300,653) (279,621) ------------ ------------ Comprehensive income $ 8,975,111 $ 7,368,782 ============ ============ </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> Three Months Ended March 31, ---------------------------- 2000 1999 ------------ ------------ <S> <C> <C> Cash flows from operating activities Net income $ 9,275,764 $ 7,648,403 ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of capital equipment (1,700) (20,219) Depreciation and amortization 3,248,640 2,540,621 Minority interest (195,960) - Deferred income taxes and long-term liabilities (480,718) (392,970) Changes in operating assets and liabilities, net of effects of acquisitions: Trade accounts receivable (10,571,756) (10,824,803) Inventories (5,721,118) (3,281,486) Trade accounts payable (2,519,618) 610,226 Income taxes payable 4,179,992 3,959,444 Accrued profit sharing trust contributions (2,367,051) 955,345 Accrued cash profit sharing and commissions 276,818 (287,082) Other current assets (868,559) (430,522) Accrued liabilities (356,846) (367,586) Accrued workers' compensation 100,000 - Other noncurrent assets (623,264) 57,966 ------------ ------------ Total adjustments (15,901,140) (7,481,066) ------------ ------------ Net cash provided by (used in) operating activities (6,625,376) 167,337 ------------ ------------ Cash flows from investing activities Capital expenditures (2,548,553) (4,064,037) Asset acquisitions, net of cash acquired (54,698) - Proceeds from sale of equipment 8,376 68,467 ------------ ------------ Net cash used in investing activities (2,594,875) (3,995,570) ------------ ------------ Cash flows from financing activities Issuance of debt 149,785 - Repayment of debt (15,551) (11,389) Issuance of common stock 127,618 79,394 ------------ ------------ Net cash provided by financing activities 261,852 68,005 ------------ ------------ Net decrease in cash and cash equivalents (8,958,399) (3,760,228) Cash and cash equivalents at beginning of period 54,509,610 37,402,450 ------------ ------------ Cash and cash equivalents at end of period $ 45,551,211 $ 33,642,222 ============ ============ </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") 1999 Annual Report on Form 10-K (the "1999 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 Three Months Ended March 31, 2000 March 31, 1999 ---------------------------------- ---------------------------------- Per Per Income Shares Share Income Shares Share ------------ ------------ ------ ------------ ------------ ------ <S> <C> <C> <C> <C> <C> <C> Basic EPS Income available to common stockholders $ 9,275,764 12,020,446 $ 0.77 $ 7,648,403 11,580,828 $ 0.66 Effect of Dilutive Securities Stock options - 257,007 (0.01) - 512,397 (0.03) ------------ ------------ ------ ------------ ------------ ------ Diluted EPS Income available to common stockholders $ 9,275,764 12,277,453 $ 0.76 $ 7,648,403 12,093,225 $ 0.63 ============ ============ ====== ============ ============ ====== </TABLE>
2. Trade Accounts Receivable Trade accounts receivable consist of the following: <TABLE> <CAPTION> At March 31, ---------------------------- (Unaudited) At December 31, 2000 1999 1999 ------------ ------------ ------------ <S> <C> <C> <C> Trade accounts receivable $ 54,461,542 $ 46,501,014 $ 43,952,137 Allowance for doubtful accounts (1,088,601) (1,326,334) (1,203,147) Allowance for sales discounts (479,461) (450,070) (328,767) ------------ ------------ ------------ $ 52,893,480 $ 44,724,610 $ 42,420,223 ============ ============ ============ </TABLE> 3. Inventories The components of inventories consist of the following: <TABLE> <CAPTION> At March 31, ---------------------------- (Unaudited) At December 31, 2000 1999 1999 ------------ ------------ ------------ <S> <C> <C> <C> Raw materials $ 24,432,755 $ 19,372,470 $ 22,816,584 In-process products 8,664,328 5,256,131 7,593,038 Finished products 45,283,264 34,935,548 42,341,623 ------------ ------------ ------------ $ 78,380,347 $ 59,564,149 $ 72,751,245 ============ ============ ============ </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 March 31, 2000, and December 31, 1999, LIFO cost exceeded the replacement value of LIFO inventories by approximately $1,482,000 and $1,503,000, respectively. At March 31, 1999, the replacement value of LIFO inventories exceeded LIFO cost by approximately $284,000.
4. Net Property, Plant and Equipment Net property, plant and equipment consists of the following: <TABLE> <CAPTION> At March 31, ---------------------------- (Unaudited) At December 31, 2000 1999 1999 ------------ ------------ ------------ <S> <C> <C> <C> Land $ 4,311,743 $ 3,891,519 $ 4,316,015 Buildings and site improvements 26,715,204 25,675,093 26,724,935 Leasehold improvements 3,938,741 3,448,358 3,942,613 Machinery and equipment 81,968,262 67,015,178 81,147,265 ------------ ------------ ------------ 116,933,950 100,030,148 116,130,828 Less accumulated depreciation and amortization (61,783,333) (51,851,356) (58,949,908) ------------ ------------ ------------ 55,150,617 48,178,792 57,180,920 Capital projects in progress 5,511,590 8,378,853 3,962,604 ------------ ------------ ------------ $ 60,662,207 $ 56,557,645 $ 61,143,524 ============ ============ ============ </TABLE> 5. Debt Outstanding debt at March 31, 2000 and 1999, and December 31, 1999, and the available credit at March 31, 2000, consisted of the following: <TABLE> <CAPTION> Debt Outstanding Available -------------------------------------------- Credit at at March 31, at March 31, ---------------------------- December 31, 2000 2000 1999 1999 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Revolving line of credit, interest at bank's reference rate (at March 31, 2000, the bank's reference rate was 9.00%), expires June 2000 $ 12,466,545 $ - $ - $ - Revolving term commitment, interest at bank's prime rate (at March 31, 2000, the bank's prime rate was 9.00%), 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 398,979 - - - Term loan, fixed interest rate of 5.3%, expires September 2006 - 148,651 - 164,562 Standby letter of credit facilities 1,916,828 - - - Term loan, interest at LIBOR plus 1.375% (at March 31, 2000, LIBOR plus 1.375% was 7.2938%), expires May 2008 - 2,550,000 2,850,000 2,550,000 Other notes payable and long-term debt - 187,549 34,497 49,541 ------------ ------------ ------------ ------------ 23,398,980 2,886,200 2,884,497 2,764,103 Less current portion - (487,549) (327,477) (349,541) ------------ ------------ ------------ ------------ 23,398,980 $ 2,398,651 $ 2,557,020 $ 2,414,562 ============ ============ ============ Standby letters of credit issued and outstanding (1,916,828) ------------ $ 21,482,152 ============ </TABLE>
As of March 31, 2000, 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. These letters of credit were increased to an aggregate amount of $1,710,324 in April 2000. The third, in the amount of $750,080, 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 1999 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 months ended: <TABLE> <CAPTION> Three Months Ended March 31, ---------------------------- 2000 1999 ------------ ------------ <S> <C> <C> Net Sales Connector products $ 69,515,000 $ 59,839,000 Venting products 15,101,000 14,823,000 ------------ ------------ Total $ 84,616,000 $ 74,662,000 ============ ============ Income from Operations Connector products $ 12,602,000 $ 10,276,000 Venting products 2,081,000 2,132,000 All other (69,000) 21,000 ------------ ------------ Total $ 14,614,000 $ 12,429,000 ============ ============ At March 31, ---------------------------- 2000 1999 ------------ ------------ Total Assets Connector products $166,045,000 $128,957,000 Venting products 42,462,000 37,147,000 All other 48,858,000 37,706,000 ------------ ------------ Total $257,365,000 $203,810,000 ============ ============ </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 $41,172,000 and $32,573,000 as of March 31, 2000 and 1999, respectively.
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, 2000 and 1999. 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, 2000, Compared with the Three Months Ended March 31, 1999 Net sales increased 13.3% in the first quarter of 2000 as compared to the first quarter of 1999. Most of the sales growth occurred domestically, particularly in California. International sales also contributed to the increase, due in large part to the acquisition of Furfix Products Limited in the third quarter of 1999. Simpson Strong-Tie's first quarter sales increased 16.2% over the same quarter last year, while Simpson Dura-Vent's sales increased 1.9%. 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. The Strong-Wall and Anchoring Systems products had the highest growth rates in sales. Sales of Simpson Dura-Vent's Direct-Vent and chimney product lines increased compared to the first quarter of 1999, while its other product lines declined slightly relative to the first quarter of 1999. Income from operations increased 17.6% from $12,429,046 in the first quarter of 1999 to $14,613,929 in the first quarter of 2000 as a result of higher sales and gross margins. Gross margins increased from 38.1% in the first quarter of 1999 to 40.0% in the first quarter of 2000 primarily due to better absorption of fixed overhead costs as a result of the increased production. Selling expenses increased 8.3% from $7,897,807 in the first quarter of 1999 to $8,553,122 in the first quarter of 2000. The increase was primarily due to higher personnel costs, particularly those associated with the increase in the number of sales and merchandising personnel. General and administrative expenses increased 31.1% from $8,121,761 in the first quarter of 1999 to $10,648,327 in the first quarter of 2000 primarily due to increased cash profit sharing resulting from higher operating income, and higher personnel and other administrative overhead costs, including those associated with the operation of Keybuilder.com, LLC ("Keybuilder.com"). Keybuilder.com is a joint venture 60% owned by the Company and 40% owned by Keymark Enterprises, Inc. ("Keymark"), a software developer based in Boulder, Colorado. The effective tax rate was 40.0%, after adding back the minority interest to income before income taxes, in the first quarter of 2000, a slight decrease from 40.1% in the first quarter of 1999. A large homebuilder has signed a letter of intent to investigate the feasibility of investing in Keybuilder.com. Keybuilder.com was formed to develop and market precise residential construction information accessible over the internet by architects, engineers, building material suppliers, and subcontractors. The Company has consolidated Keybuilder.com's losses for the quarter ended March 31, 2000, in its financial statements, net of Keymark's minority interest. Liquidity and Sources of Capital As of March 31, 2000, working capital was $151.1 million as compared to $111.7 million at March 31, 1999, and $142.1 million at December 31, 1999. The principal components of the increase in working capital from December 31, 1999, were increases in the Company's trade accounts receivable and inventories totaling approximately $16.1 million, primarily due to higher sales levels and seasonal buying programs. In addition, trade accounts payable and accrued profit sharing trust contributions, primarily due to an early payment of the Company's 1999 trust obligation, decreased by an aggregate of approximately $5.0 million. Offsetting these increases was an increase in income taxes payable of approximately $4.1 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 $12.5 million, resulted in net cash used in operating activities of approximately $6.6 million. As of March 31, 2000, the Company had unused credit facilities available of approximately $21.5 million. The Company used approximately $2.6 million in its investing activities, primarily to purchase the capital equipment and property needed to expand its capacity. The Company plans to continue this expansion throughout the remainder of the year and into 2001. 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 2000 and into 2001. Depending on the Company's future growth, 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.
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 Office Building Lease, dated April 21, 2000, between Koll Dublin Corporate Center, L.P., a Delaware limited partnership, and Simpson Manufacturing Co., Inc., a Delaware corporation. 10.2 Operating Agreement for Keybuilder.com, LLC, a California limited liability company, dated March 6, 2000. 11. Statements re computation of earnings per share b. Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed. </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: MAY 15, 2000 By: /s/Stephen B. Lamson ------------ ------------------------------- Stephen B. Lamson Chief Financial Officer