UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended: JUNE 30, 1996 ------------- OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number: 0-23804 ------- SIMPSON MANUFACTURING CO., INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) CALIFORNIA 94-3196943 ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4637 CHABOT DRIVE, SUITE 200, PLEASANTON, CA 94588 -------------------------------------------------- (Address of principal executive offices) (Registrant's telephone number, including area code): (510)460-9912 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares of the Registrant's Common Stock outstanding as of June 30, 1996: 11,432,987 ----------
PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. <TABLE> <CAPTION> SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, DECEMBER 31, (UNAUDITED) 1996 1995 1995 ------------ ------------ ------------ ASSETS <S> <C> <C> <C> Current assets Cash and cash equivalents $ 12,875,191 $ 3,017,060 $ 6,955,788 Trade accounts receivable, net 30,521,398 26,235,797 20,732,880 Inventories 34,823,846 36,613,197 34,471,250 Deferred income taxes 2,493,455 2,418,455 2,750,455 Other current assets 950,650 1,175,633 1,986,446 ------------ ------------ ------------ Total current assets 81,664,540 69,460,142 66,896,819 Net property, plant and equipment 25,656,317 21,171,478 26,420,004 Investments 1,355,336 680,546 1,357,457 Other noncurrent assets 1,774,287 839,401 1,967,779 ------------ ------------ ------------ Total assets $110,450,480 $ 92,151,567 $ 96,642,059 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes Payable $ - $ - $ 20,037 Trade accounts payable 8,408,694 8,530,861 7,375,014 Accrued liabilities 3,426,457 2,921,089 3,386,527 Accrued profit sharing trust contributions 3,302,741 2,869,787 1,999,739 Accrued cash profit sharing and commissions 3,012,877 2,435,980 1,289,144 Income taxes payable 868,164 1,618,429 - Accrued workers' compensation 809,272 842,125 842,125 ------------ ------------ ------------ Total current liabilities 19,828,205 19,218,271 14,912,586 Deferred income taxes and long-term liabilities 100,783 66,783 176,783 ------------ ------------ ------------ Total liabilities 19,928,988 19,285,054 15,089,369 ------------ ------------ ------------ Commitments and contingencies (Note 6) Shareholders' equity Common stock 30,993,676 29,659,225 30,415,716 Retained earnings 59,572,621 43,322,420 51,142,268 Cumulative translation adjustment (44,805) (115,132) (5,294) ------------ ------------ ------------ Total shareholders' equity 90,521,492 72,866,513 81,552,690 ------------ ------------ ------------ Total liabilities and shareholders' equity $110,450,480 $ 92,151,567 $ 96,642,059 ============ ============ ============ </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements.
<TABLE> <CAPTION> SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1996 1995 1996 1995 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Net sales $ 51,759,610 $ 41,862,227 $ 95,217,057 $ 77,637,183 Cost of sales 31,508,992 25,980,437 59,864,983 50,016,203 ------------ ------------ ------------ ------------ Gross profit 20,250,618 15,881,790 35,352,074 27,620,980 ------------ ------------ ------------ ------------ Operating expenses: Selling 5,462,644 4,013,825 9,972,678 7,872,554 General and administrative 6,225,481 5,186,399 11,353,926 9,020,769 11,688,125 9,200,224 21,326,604 16,893,323 ------------ ------------ ------------ ------------ Income from operations 8,562,493 6,681,566 14,025,470 10,727,657 ------------ ------------ ------------ ------------ Interest income (expense), net 97,356 (11,946) 150,883 53,380 ------------ ------------ ------------ ------------ Income before income taxes 8,659,849 6,669,620 14,176,353 10,781,037 Provision for income taxes 3,492,000 2,777,000 5,746,000 4,479,000 ------------ ------------ ------------ ------------ Net income $ 5,167,849 $ 3,892,620 $ 8,430,353 $ 6,302,037 ============ ============ ============ ============ Net income per common share $ 0.44 $ 0.34 $ 0.72 $ 0.55 ============ ============ ============ ============ Weighted average shares outstanding 11,747,506 11,412,303 11,691,673 11,416,541 ============ ============ ============ ============ </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements.
<TABLE> <CAPTION> SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1996 1995 ------------ ------------ <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 8,430,353 $ 6,302,037 ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of capital equipment (15,827) (1,525) Depreciation and amortization 2,875,084 2,581,550 Deferred income taxes 181,000 287,000 Equity in (income) losses of affiliates (33,000) 14,750 Changes in operating assets and liabilities, net of effects of acquisitions: Trade accounts receivable (9,807,467) (9,011,189) Inventories (371,546) (5,456,160) Other current assets 283,963 (194,302) Other noncurrent assets (40,430) (49,166) Trade accounts payable 1,033,680 2,188,461 Accrued liabilities 75,029 (38,105) Accrued profit sharing trust contributions 1,303,002 1,149,183 Accrued workers' compensation (32,853) (55,000) Accrued cash profit sharing and commissions 1,723,733 1,100,854 Income taxes payable 1,789,446 1,117,768 ------------ ------------ Total adjustments (1,036,186) (6,365,881) ------------ ------------ Net cash provided by (used in) operating activities 7,394,167 (63,844) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (1,858,062) (2,808,549) Proceeds from sale of equipment 41,560 - Equity Investments (11,637) - ------------ ------------ Net cash used in investing activities (1,828,139) (2,808,549) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on notes payable (20,037) - Issuance of Company's common stock 373,412 78,860 ------------ ------------ Net cash provided by financing activities 353,375 78,860 ------------ ------------ Net increase (decrease) in cash and cash equivalents 5,919,403 (2,793,533) Cash and cash equivalents at beginning of period 6,955,788 5,810,593 ------------ ------------ Cash and cash equivalents at end of period $ 12,875,191 $ 3,017,060 ============ ============ </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") 1995 Annual Report on Form 10-K (the "1995 Annual Report"). The unaudited quarterly condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements, and in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial information set forth therein, in accordance with generally accepted accounting principles. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. The Company's quarterly results may be subject to fluctuations. As a result, the Company believes the results of operations for the interim periods are not necessarily indicative of the results to be expected for any future period. Net Income Per Common Share Net income per common share is computed based upon the weighted average number of common shares outstanding. Common equivalent shares, using the treasury stock method, are included in the per-share calculations for all periods since the effect of their inclusion is dilutive. The number of shares used in computing primary and fully diluted net income per common share did not differ materially for the six months ended June 30, 1996 and 1995.
2. Trade Accounts Receivable Trade accounts receivable consist of the following: <TABLE> <CAPTION> AT JUNE 30, DECEMBER 31, 1996 1995 1995 ------------ ------------ ------------ <S> <C> <C> <C> Trade accounts receivable $ 32,029,660 $ 27,887,698 $ 21,832,701 Allowance for doubtful accounts (1,053,448) (1,341,901) (931,321) Allowance for sales discounts (454,814) (310,000) (168,500) ------------ ------------ ------------ $ 30,521,398 $ 26,235,797 $ 20,732,880 ============ ============ ============ </TABLE> 3. Inventories The components of inventories consist of the following: <TABLE> <CAPTION> AT JUNE 30, DECEMBER 31, 1996 1995 1995 ------------ ------------ ------------ <S> <C> <C> <C> Raw materials $ 12,206,175 $ 13,261,894 $ 13,424,828 In-process products 3,164,225 3,351,046 3,180,416 Finished products 19,453,446 20,000,257 17,866,006 ------------ ------------ ------------ $ 34,823,846 $ 36,613,197 $ 34,471,250 ============ ============ ============ </TABLE> At June 30, 1996 and 1995, and December 31, 1995, the replacement value of LIFO inventories exceeded LIFO cost by approximately $3,077,000, $3,179,000 and $4,178,000, respectively. 4. Net Property, Plant and Equipment Net property, plant and equipment consists of the following: <TABLE> <CAPTION> AT JUNE 30, DECEMBER 31, 1996 1995 1995 ------------ ------------ ------------ <S> <C> <C> <C> Land $ 2,065,682 $ 1,340,682 $ 2,065,682 Buildings and site improvements 10,382,076 5,268,537 10,379,901 Leasehold improvements 2,859,204 4,021,807 2,688,430 Machinery and equipment 42,271,683 35,613,597 40,393,578 ------------ ------------ ------------ 57,578,645 46,244,623 55,527,591 Less accumulated depreciation and amortization (32,866,366) (27,988,937) (30,419,484) ------------ ------------ ------------ 24,712,279 18,255,686 25,108,107 Capital projects in progress 944,038 2,915,792 1,311,897 ------------ ------------ ------------ $ 25,656,317 $ 21,171,478 $ 26,420,004 ============ ============ ============ </TABLE>
5. Debt As of June 30, 1996, the Company had no outstanding debt. The Company has available to it credit facilities which consist of the following: <TABLE> <CAPTION> Amount of Facility ------------ <S> <C> Revolving line of credit, interest at bank's reference rate (at June 30, 1996, the bank's reference rate was 8.25%), expires June 1997 $ 11,267,205 Revolving line of credit, interest at bank's prime rate (at June 30, 1996, the bank's prime rate was 8.25%), expires June 1997 4,000,000 Revolving term commitment, interest at bank's prime rate (at June 30, 1996, the bank's prime rate was 8.25%), expires June 1997 4,000,000 Revolving lines of credit, interest rate at the bank's base rate of interest plus 2%, expires August 1996 687,375 Standby letter of credit facilities 1,869,926 ------------ Total credit facilities 21,824,506 Standby letters of credit issued and outstanding (1,869,926) ------------ Total credit available $ 19,954,580 ============ </TABLE> The Company has four outstanding standby letters of credit. Two of these letters of credit, in the aggregate amount of $1,137,131, are used to support the Company's self-insured workers' compensation insurance requirements while the other two, in the aggregate amount of $732,795, are used to support working capital needs of its European operations. 6. Commitments and Contingencies Note 10 to the consolidated financial statements in the Company's 1995 Annual Report provides information concerning commitments and contingencies relating to pending or possible claims, legal actions and proceedings against the Company and its subsidiaries. Management believes that the final resolution of these matters, individually or in the aggregate, is not expected to have a material adverse effect on the financial position of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following is a discussion and analysis of the consolidated financial condition and results of operations for the Company for the three months ended June 30, 1996 and 1995. 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, 1996, Compared with the Three Months Ended June 30, 1995 Net Sales increased 23.6% from the second quarter of 1995 to the second quarter of 1996. The increase reflected solid growth throughout the United States, with particularly strong sales in the Northeast. This increase was probably due, in part, to more construction and do-it-yourself activity which were negatively affected by harsh winter weather early in the year. Simpson Strong-Tie's sales increased 22.0% while Simpson Dura-Vent's sales increased 30.7%. Homecenter connector sales recovered from a slow start in the first quarter of 1996 to become the fastest growing connector sales channel while contractor distributor sales growth continued at an above average growth rate. The sales growth rate of seismic and high wind products led Simpson Strong-Tie sales with above average increases, while Simpson Dura-Vent sales of Direct- Vent products, sold to OEMs and through Simpson Dura-Vent's distribution system, continued to experience high growth, more than doubling in the second quarter of 1996 over the same period in the prior year. Second quarter sales were also positively influenced by sales at the businesses acquired in the second half of 1995. The acquisitions accounted for 1.6% of the sales in the second quarter of 1996 or approximately 8% of the aggregate increase in sales as compared to the second quarter of 1995. Income from operations increased 28.2% from $6,681,566 in the second quarter of 1995 to $8,562,493 in the second quarter of 1996. This increase was primarily due to higher gross margins and lower general and administrative expenses as a percentage of sales, partially offset by increased selling expenses. The increase in gross margins resulted from lower raw material costs and better absorption of fixed overhead costs as a result of increased production, partially offset by lower margins on the businesses acquired in late 1995. Selling expenses increased 36.1% in total from $4,013,825 in the second quarter of 1995 to $5,462,644 in the second quarter of 1996. This increase was primarily due to increased advertising and promotional expenses, including new retail displays as well as additional merchandisers hired to better support the homecenter business. General and administrative expenses increased 20.0% from $5,186,399 in the second quarter of 1995 to $6,225,481 in the second quarter of 1996. This increase was primarily due to increased cash profit sharing, as a result of higher operating profit, and higher personnel and other overhead costs. The effective tax rate decreased from 41.6% in the second quarter of 1995 to 40.3% in the second quarter of 1996, primarily due to lower estimated effective state tax rates. Results of Operations for the Six Months Ended June 30, 1996, Compared with the Six Months Ended June 30, 1995 Net sales for the first six months of 1996 increased 22.6% over the same period in 1995. The growth rate in sales was highest in the Western United States. California sales increased at a rate below the average rate during the first six months of 1996. Simpson Strong-Tie's sales increased 22.0% during the first half of the year, while Simpson Dura-Vent's sales increased 25.1%. Contractor distributors were the fastest growing connector sales channel. The sales growth rate of seismic and high wind products led Simpson Strong-Tie sales with above average increases, while Simpson Dura-Vent sales of Direct- Vent products continued to experience high growth. Income from operations increased 30.7% from $10,727,657 in the first half of 1995 to $14,025,470 in the first half of 1996. This increase was primarily due to higher gross margins, partially offset by increased selling, general and administrative expenses. The increase in gross margins resulted from lower raw material costs and better absorption of fixed overhead costs as a result of increased production, partially offset by lower margins on businesses acquired in late 1995. Selling expenses increased 26.7% in total from $7,872,554 in the first half of 1995 to $9,972,678 in the first half of 1996. This increase was primarily due to increased advertising and promotional expenses, including new retail displays as well as additional merchandisers hired to better support the homecenter business. General and administrative expenses increased 25.9% from $9,020,769 in the first half of 1995 to $11,353,926 in the first half of 1996. This increase was primarily due to increased cash profit sharing, as a result of higher operating profit, higher personnel and other overhead costs, and an increase in the Company's provision for possible losses on delinquent accounts. The effective tax rate decreased from 41.5% in the first half of 1995 to 40.5% in the first half of 1996, primarily due to lower estimated effective state tax rates.
Liquidity and Sources of Capital As of June 30, 1996, working capital was $61.8 million as compared to $50.2 million at June 30, 1995, and $52.0 million at December 31, 1995. The principal components of the increase in working capital from December 31, 1995, include an increase in trade accounts receivable, which increased to support the higher level of sales and seasonal buying programs. Offsetting these increases were increases in accrued cash profit sharing and commissions, income taxes payable, as a result of higher operating and taxable income, respectively, and trade accounts payable. In addition, accrued contributions to the Company's profit sharing trust increased, as compared to June 30, 1995, principally due to the increase in the number of employees as well as an overall increase in salaries and wages upon which they are based. This increase in working capital combined with net income and noncash expenses, such as depreciation and amortization, resulted in the increase in cash and cash equivalents of $5.9 million from operating activities. As of June 30, 1996, the Company had unused credit facilities available of nearly $20.0 million. In its investing activities, the Company used $1.9 million in cash to purchase capital equipment, a rate substantially below that of the first six months of 1995. The Company plans to increase its purchases of capital equipment in the second half of 1996 in order to expand its capacity. Financing activities provided an additional $0.4 million in cash primarily as a result of the issuance of Common Stock upon the exercise of stock options by current and former employees. There were no borrowings outstanding on long- term debt as of June 30, 1996. 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 1996. Depending on the Company's future growth, it may become necessary to secure additional sources of financing.
PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company is involved in various legal proceedings and other matters arising in the normal course of business. In the opinion of management, none of such matters when ultimately resolved will have a material adverse effect on the Company's financial position or results of operations. ITEM 2. CHANGES IN SECURITIES. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Annual Meeting of Shareholders ("Annual Meeting") was held on May 14, 1996. The following seven nominees were reelected as director by the votes indicated: <TABLE> <CAPTION> TOTAL VOTES TOTAL VOTES FOR EACH WITHHELD FROM NAME DIRECTOR EACH DIRECTOR ------------------------- ------------ ------------- <S> <C> <C> Earl F. Cheit 10,731,036 400 Thomas J Fitzmyers 10,731,026 410 Stephen B. Lamson 10,731,026 410 Alan R. McKay 10,731,036 400 Sunne Wright McPeak 10,730,275 1,161 Barclay Simpson 10,730,997 439 Barry Lawson Williams 10,731,036 400 </TABLE> The following proposal was also adopted at the Annual Meeting by the vote indicated: <TABLE> <CAPTION> BROKER PROPOSAL FOR AGAINST ABSTAIN NON-VOTE ---------------------------------- ----------- --------- --------- --------- <S> <C> <C> <C> <C> To ratify the appointment of Coopers & Lybrand L.L.P. as independent auditors of the Company for 1996 10,728,690 690 2,056 - </TABLE>
ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. <TABLE> <CAPTION> a. Exhibits. EXHIBIT NO DESCRIPTION ------- ----------------------------------------------------------- <S> <C> 10.1 Lease Agreement, dated June 25, 1996, between Simpson Strong-Tie Company Inc. and Stone Mountain Industrial Park, Inc. 10.2 Amendment to Letter of Credit, dated May 31, 1996, between Simpson Holdings, Inc. and Wells Fargo Bank, N.A. 10.3 Amendment to Letter of Credit, dated June 20, 1996, between Simpson Manufacturing Co., Inc. and Union Bank 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 of Form 8-K were filed during the quarter for which this report is filed.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SIMPSON MANUFACTURING CO., INC. ----------------------------------- (Registrant) DATE: August 13, 1996 By: /s/ Stephen B. Lamson --------------- ----------------------- Stephen B. Lamson Chief Financial Officer