1 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, 2001 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) <TABLE> <CAPTION> <S> <C> DELAWARE 94-3196943 - ---------------------------------------------- ------------------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) </TABLE> 4120 DUBLIN BOULEVARD, SUITE 400, DUBLIN, CA 94568 --------------------------------------------------------- (Address of principal executive offices) (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 March 31, 2001: 12,084,713
2 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, 2001 2000 2000 ------------- ------------- ------------- <S> <C> <C> <C> ASSETS Current assets Cash and cash equivalents $ 41,784,481 $ 45,551,211 $ 59,417,658 Trade accounts receivable, net 58,975,024 52,893,480 45,584,186 Inventories 93,635,319 76,898,347 85,269,695 Deferred income taxes 5,956,712 5,684,187 5,420,091 Other current assets 3,811,698 2,156,309 5,040,017 ------------- ------------- ------------- Total current assets 204,163,234 183,183,534 200,731,647 Property, plant and equipment, net 69,648,429 60,662,207 63,822,513 Investments 343,605 363,646 354,414 Other noncurrent assets 23,413,149 12,255,670 14,660,979 ------------- ------------- ------------- Total assets $ 297,568,417 $ 256,465,057 $ 279,569,553 ============= ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable and current portion of long-term debt $ 2,866,842 $ 487,549 $ 335,754 Trade accounts payable 13,207,540 10,192,763 14,630,941 Accrued liabilities 8,427,641 7,436,206 9,373,007 Income taxes payable 3,031,096 7,482,869 -- Accrued profit sharing trust contributions 5,038,061 1,135,525 3,929,043 Accrued cash profit sharing and commissions 4,099,837 4,808,670 2,979,060 Accrued workers' compensation 1,475,764 1,445,764 1,475,764 ------------- ------------- ------------- Total current liabilities 38,146,781 32,989,346 32,723,569 Long-term debt, net of current portion 4,565,881 2,398,651 2,069,028 Deferred income taxes and long-term liabilities 206,372 423,932 341,600 ------------- ------------- ------------- Total liabilities 42,919,034 35,811,929 35,134,197 ------------- ------------- ------------- Minority interest in consolidated subsidiaries 456,874 1,804,040 754,278 ------------- ------------- ------------- Commitments and contingencies (Notes 5 and 6) Stockholders' equity Common stock 44,297,473 44,901,418 40,968,501 Retained earnings 213,881,694 174,833,245 204,901,540 Accumulated other comprehensive income (3,986,658) (885,575) (2,188,963) ------------- ------------- ------------- Total stockholders' equity 254,192,509 218,849,088 243,681,078 ------------- ------------- ------------- Total liabilities and stockholders' equity $ 297,568,417 $ 256,465,057 $ 279,569,553 ============= ============= ============= </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements. -2-
3 SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------------------- 2001 2000 ------------ ------------ <S> <C> <C> Net sales $ 94,823,953 $ 84,615,539 Cost of sales 57,687,565 50,779,161 ------------ ------------ Gross profit 37,136,388 33,836,378 ------------ ------------ Operating expenses: Selling 10,779,049 8,553,122 General and administrative 11,893,980 10,648,327 ------------ ------------ 22,673,029 19,201,449 ------------ ------------ Income from operations 14,463,359 14,634,929 Interest income, net 460,277 643,875 ------------ ------------ Income before income taxes 14,923,636 15,278,804 Provision for income taxes 6,240,886 6,186,316 Minority interest (297,404) (195,960) ------------ ------------ Net income $ 8,980,154 $ 9,288,448 ============ ============ Net income per common share Basic $ 0.75 $ 0.77 Diluted $ 0.73 $ 0.76 Number of shares outstanding Basic 12,037,073 12,020,446 Diluted 12,277,485 12,277,453 </TABLE> SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ----------------------------- 2001 2000 ----------- ----------- <S> <C> <C> Net income $ 8,980,154 $ 9,288,448 Other comprehensive income, net of tax: Foreign currency translation adjustments (1,797,695) (300,653) ----------- ----------- Comprehensive income $ 7,128,459 $ 8,987,795 =========== =========== </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements. -3-
4 SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------------------- 2001 2000 ------------ ------------ <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 8,980,154 $ 9,288,448 ------------ ------------ Adjustments to reconcile net income to net cash used in operating activities: Gain on sale of capital equipment (13,231) (1,700) Depreciation and amortization 4,061,496 3,248,640 Minority interest (297,404) (195,960) Deferred income taxes and long-term liabilities (249,358) (472,402) Noncash compensation related to stock plans 137,700 -- Changes in operating assets and liabilities, net of effects of acquisitions: Trade accounts receivable (12,627,922) (10,571,756) Inventories (3,608,389) (5,742,118) Trade accounts payable (3,732,705) (2,519,618) Income taxes payable 7,260,210 4,179,992 Accrued profit sharing trust contributions 1,117,647 (2,367,051) Accrued cash profit sharing and commissions 1,121,057 276,818 Other current assets (677,364) (869,220) Accrued liabilities (1,381,804) (356,846) Accrued workers' compensation -- 100,000 Other noncurrent assets (1,651,658) (623,264) ------------ ------------ Total adjustments (10,541,725) (15,914,485) ------------ ------------ Net cash used in operating activities (1,561,571) (6,626,037) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (5,139,277) (2,548,553) Asset acquisitions, net of cash acquired (13,489,924) (54,698) Proceeds from sale of equipment 743 8,376 ------------ ------------ Net cash used in investing activities (18,628,458) (2,594,875) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Issuance of debt 1,324,928 149,785 Repayment of debt (53,714) (15,551) Issuance of common stock 1,399,816 127,618 ------------ ------------ Net cash provided by financing activities 2,671,030 261,852 ------------ ------------ Effect of exchange rate changes on cash (114,178) 661 ------------ ------------ Net decrease in cash and cash equivalents (17,633,177) (8,958,399) Cash and cash equivalents at beginning of period 59,417,658 54,509,610 ------------ ------------ Cash and cash equivalents at end of period $ 41,784,481 $ 45,551,211 ============ ============ </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements. -4-
5 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: <TABLE> <CAPTION> THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 2001 MARCH 31, 2000 ------------------------------------ ------------------------------------ PER PER INCOME SHARES SHARE INCOME SHARES SHARE ---------- ---------- -------- ---------- ---------- -------- <S> <C> <C> <C> <C> <C> <C> BASIC EPS Income available to common stockholders $8,980,154 12,037,073 $ 0.75 $9,288,448 12,020,446 $ 0.77 EFFECT OF DILUTIVE SECURITIES Stock options -- 240,412 (0.02) -- 257,007 (0.01) ---------- ---------- -------- ---------- ---------- -------- DILUTED EPS Income available to common stockholders $8,980,154 12,277,485 $ 0.73 $9,288,448 12,277,453 $ 0.76 ========== ========== ======== ========== ========== ======== </TABLE> 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 March 31, 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. -5-
6 2. Trade Accounts Receivable Trade accounts receivable consist of the following: <TABLE> <CAPTION> AT MARCH 31, ------------------------------- AT DECEMBER 31, 2001 2000 2000 ------------ ------------ --------------- <S> <C> <C> <C> Trade accounts receivable $ 60,999,878 $ 54,461,542 $ 47,119,344 Allowance for doubtful accounts (1,480,256) (1,088,601) (1,201,289) Allowance for sales discounts (544,598) (479,461) (333,869) ------------ ------------ ------------ $ 58,975,024 $ 52,893,480 $ 45,584,186 ============ ============ ============ </TABLE> 3. Inventories The components of inventories consist of the following: <TABLE> <CAPTION> AT MARCH 31, ---------------------------- AT DECEMBER 31, 2001 2000 2000 ----------- ----------- --------------- <S> <C> <C> <C> Raw materials $27,777,313 $23,993,755 $26,979,866 In-process products 14,428,555 8,589,328 10,882,721 Finished products 51,429,451 44,315,264 47,407,108 ----------- ----------- ----------- $93,635,319 $76,898,347 $85,269,695 =========== =========== =========== </TABLE> 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 $900,119 as of March 31, 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 the three months ended March 31, 2001 and 2000, was immaterial. 4. Property, Plant and Equipment, Net Property, plant and equipment, net consists of the following: <TABLE> <CAPTION> AT MARCH 31, --------------------------------- AT DECEMBER 31, 2001 2000 2000 ------------- ------------- --------------- <S> <C> <C> <C> Land $ 5,390,349 $ 4,311,743 $ 4,454,322 Buildings and site improvements 33,114,721 26,715,204 27,634,848 Leasehold improvements 4,912,450 3,938,741 4,042,063 Machinery and equipment 90,008,699 81,968,262 88,221,556 ------------- ------------- ------------- 133,426,219 116,933,950 124,352,789 Less accumulated depreciation and amortization (72,177,268) (61,783,333) (69,293,151) ------------- ------------- ------------- 61,248,951 55,150,617 55,059,638 Capital projects in progress 8,399,478 5,511,590 8,762,875 ------------- ------------- ------------- $ 69,648,429 $ 60,662,207 $ 63,822,513 ============= ============= ============= </TABLE> -6-
7 5. Debt Outstanding debt at March 31, 2001 and 2000, and December 31, 2000, and the available credit at March 31, 2001, consisted of the following: <TABLE> <CAPTION> DEBT OUTSTANDING ----------------------------------------------- AVAILABLE AT CREDIT AT MARCH 31, AT MARCH 31, ----------------------------- DECEMBER 31, 2001 2001 2000 2000 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Revolving line of credit, interest at bank's reference rate (at March 31, 2001, the bank's reference rate was 8.00%), expires November 2001 $ 12,137,345 $ -- $ -- $ -- Revolving term commitment, interest at bank's prime rate less 0.50% (at March 31, 2001, the bank's prime rate less 0.50% was 7.50%), expires September 2002 8,213,673 -- -- -- Revolving line of credit, interest rate at the bank's base rate of interest plus 2% (at March 31, 2001, the bank's base rate plus 2% was 7.25%), expires July 2001 359,749 -- -- -- Revolving line of credit, interest rate at 6.45%, expires June 2001 863,793 2,402,179 -- -- Term loan, fixed interest rate of 5.3%, expires September 2006 -- 120,668 148,651 119,028 Term loan, interest at LIBOR plus 1.375% (at March 31, 2001, LIBOR plus 1.375% was 6.4588%), expires May 2008 -- 2,250,000 2,550,000 2,250,000 Term loan, interest at 5.65%, expires June 2013 -- 829,770 -- -- Term loan, interest at 6.23%, expires June 2018 -- 993,395 -- -- Term loan, interest at 5.70%, expires December 2009 -- 821,454 -- -- Standby letter of credit facilities 2,648,982 -- -- -- Other notes payable and long-term debt -- 15,257 187,549 35,754 ------------ ------------ ------------ ------------ 24,223,542 7,432,723 2,886,200 2,404,782 Less current portion -- (2,866,842) (487,549) (335,754) ------------ ------------ ------------ ------------ 24,223,542 $ 4,565,881 $ 2,398,651 $ 2,069,028 ============ ============ ============ Standby letters of credit issued and outstanding (2,648,982) ------------ $ 21,574,560 ============ </TABLE> As of March 31, 2001, the Company had three outstanding standby letters of credit. Two of these letters of credit, in the aggregate amount of $1,972,655, are used to support the Company's self-insured workers' compensation insurance requirements. The third, in the amount of $676,327, is used to guarantee performance on the Company's leased facility in the United Kingdom. Other notes payable represent debt associated with foreign businesses. -7-
8 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 months ended: <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------------------- 2001 2000 ------------ ------------ <S> <C> <C> Net Sales Connector products $ 79,339,000 $ 69,515,000 Venting products 15,485,000 15,101,000 ------------ ------------ Total $ 94,824,000 $ 84,616,000 ============ ============ Income from Operations Connector products $ 12,833,000 $ 12,552,000 Venting products 1,962,000 2,152,000 All other (332,000) (69,000) ------------ ------------ Total $ 14,463,000 $ 14,635,000 ============ ============ </TABLE> <TABLE> <CAPTION> AT MARCH 31, AT ------------------------------ DECEMBER 31, 2001 2000 2000 ------------ ------------ ------------ <S> <C> <C> <C> Total Assets Connector products $204,717,000 $164,769,000 $171,150,000 Venting products 43,897,000 43,049,000 44,071,000 All other 48,954,000 48,647,000 64,348,000 ------------ ------------ ------------ Total $297,568,000 $256,465,000 $279,569,000 ============ ============ ============ </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 $39,333,000, $41,172,000 and $54,183,000 as of March 31, 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 ("BMF") of Denmark for approximately $14.0 million in cash with an additional amount of approximately $1.2 million contingent upon future operating performance. -8-
9 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, 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 March 31, 2001, Compared with the Three Months Ended March 31, 2000 Net sales increased 12.1% in the first quarter of 2001 as compared to the first quarter of 2000. Most of the sales growth occurred in California and as a result of the acquisition of BMF Bygningsbeslag A/S in Denmark in January 2001. Simpson Strong-Tie's first quarter sales increased 14.1% over the same quarter last year, while Simpson Dura-Vent's sales increased 2.5%. Contractor distributors were the fastest growing 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 Direct-Vent products decreased compared to the first quarter of 2000, while sales of its chimney and pellet vent product lines increased. Income from operations decreased 1.2% from $14,634,929 in the first quarter of 2000 to $14,463,359 in the first quarter of 2001 and gross margins decreased from 40.0% in the first quarter of 2000 to 39.2% in the first quarter of 2001. The decrease in gross margin was primarily due to the lower margins associated with BMF as well as higher fixed overhead costs. Selling expenses increased 26.0% from $8,553,122 in the first quarter of 2000 to $10,779,049 in the first quarter of 2001. The increase was primarily due to higher personnel costs related to the increase in the number of sales and merchandising personnel, particularly the additional sales personnel at BMF and those associated with the Anchoring Systems product line, as well as increased promotional expenses. General and administrative expenses increased 11.7% from $10,648,327 in the first quarter of 2000 to $11,893,980 in the first quarter of 2001. This increase was primarily due to the addition of administrative personnel and higher administrative costs related to the acquisition of BMF, Anchor Tiedown Systems in the third quarter of 2000, Masterset Fastening Systems, Inc. in the fourth quarter of 2000, and the operations of Keybuilder.com, LLC. Partially offsetting this increase was a decrease in cash profit sharing. The tax rate was 41.8% in the first quarter of 2001, an increase from 40.5% in the first quarter of 2000. Liquidity and Sources of Capital As of March 31, 2001, working capital was $166.0 million as compared to $150.2 million at March 31, 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 $17.6 million, principally as a result of the BMF acquisition, offset by increases in the Company's trade accounts receivable and inventories totaling approximately $21.8 million, primarily due to higher sales levels and acquired inventories. In addition, increases in income taxes payable and assumed notes payable, together totaling approximately $5.6 million, also contributed. 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 $13.0 million, resulted in net cash used in operating activities of approximately $1.6 million. As of March 31, 2001, the Company had unused credit facilities available of approximately $21.6 million. The Company used approximately $18.6 million in its investing activities, primarily to acquire BMF and 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. -9-
10 The Company's financing activities provided net cash of approximately $2.7 million, primarily from the issuance of stock through the exercise of stock options by its employees and through the issuance of debt to support its working capital needs in Denmark. 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. -10-
11 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. a. Exhibits. 11.Statements re computation of earnings per share 18.Letter re change in accounting principles b. Reports on Form 8-K Report on Form 8-K, dated January 11, 2001, reporting under Item 5 that the Company acquired 100% of the shares of BMF Bygningsbeslag A/S. -11-
12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SIMPSON MANUFACTURING CO., INC. -------------------------------- (Registrant) DATE: May 14, 2001 By /s/Michael J. Herbert ----------------- -------------------------------------------- Michael J. Herbert Chief Financial Officer (principal accounting and financial officer) -12-