UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended: September 30, 1996
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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
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Simpson Manufacturing Co., Inc.
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(Exact name of registrant as specified in its charter)
California 94-3196943
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4637 Chabot Drive, Suite 200, Pleasanton, CA 94588
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(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
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The number of shares of the Registrant's Common Stock outstanding as of
September 30, 1996: 11,437,567
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SIMPSON MANUFACTURING CO., INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
(UNAUDITED)
1996 1995 1995
------------ ------------ ------------
ASSETS
Current assets
Cash and cash equivalents $ 22,112,721 $ 4,361,559 $ 6,955,788
Trade accounts receivable, net 28,051,008 25,120,430 20,732,880
Inventories 35,957,784 34,474,299 34,471,250
Deferred income taxes 2,934,672 2,374,455 2,750,455
Other current assets 903,598 689,683 1,986,446
------------ ------------ ------------
Total current assets 89,959,783 67,020,426 66,896,819
Net property, plant and equipment 26,623,211 25,872,222 26,420,004
Investments 1,331,957 455,981 1,357,457
Other noncurrent assets 1,730,205 1,290,896 1,967,779
------------ ------------ ------------
Total assets $119,645,156 $ 94,639,525 $ 96,642,059
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes Payable $ - $ - $ 20,037
Trade accounts payable 10,214,563 6,359,845 7,375,014
Accrued cash profit sharing and commissions 3,963,668 2,850,030 1,289,144
Accrued liabilities 3,893,620 3,343,019 3,386,527
Accrued profit sharing trust contributions 1,913,458 1,677,223 1,999,739
Income taxes payable 1,750,949 1,136,943 -
Accrued workers' compensation 809,272 842,125 842,125
------------ ------------ ------------
Total current liabilities 22,545,530 16,209,185 14,912,586
Deferred income taxes and long-term liabilities 133,333 73,783 176,783
------------ ------------ ------------
Total liabilities 22,678,863 16,282,968 15,089,369
Commitments and contingencies (Notes 5 and 6)
Shareholders' equity
Common stock 31,038,763 30,395,778 30,415,716
Retained earnings 65,965,391 48,049,791 51,142,268
Cumulative translation adjustment (37,861) (89,012) (5,294)
------------ ------------ ------------
Total shareholders' equity 96,966,293 78,356,557 81,552,690
------------ ------------ ------------
Total liabilities and shareholders' equity $119,645,156 $ 94,639,525 $ 96,642,059
============ ============ ============
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)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Net sales $ 57,128,574 $ 47,069,601 $152,345,631 $124,706,784
Cost of sales 34,440,638 29,973,774 94,305,621 79,989,977
------------ ------------ ------------ ------------
Gross profit 22,687,936 17,095,827 58,040,010 44,716,807
------------ ------------ ------------ ------------
Operating expenses:
Selling 4,929,448 4,001,779 14,902,126 11,874,332
General and administrative 7,033,766 5,472,251 18,387,692 14,493,020
------------ ------------ ------------ ------------
11,963,214 9,474,030 33,289,818 26,367,352
------------ ------------ ------------ ------------
Income from operations 10,724,722 7,621,797 24,750,192 18,349,455
Interest income, net 175,048 22,573 325,931 75,952
------------ ------------ ------------ ------------
Income before income taxes 10,899,770 7,644,370 25,076,123 18,425,407
Provision for income taxes 4,507,000 2,917,000 10,253,000 7,396,000
------------ ------------ ------------ ------------
Net income $ 6,392,770 $ 4,727,370 $ 14,823,123 $ 11,029,407
============ ============ ============ ============
Net income per common share $ 0.54 $ 0.41 $ 1.26 $ 0.97
============ ============ ============ ============
Weighted average shares outstanding 11,796,062 11,499,336 11,727,496 11,428,424
============ ============ ============ ============
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)
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 14,823,123 $ 11,029,407
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of capital equipment (18,054) (856)
Depreciation and amortization 4,413,034 3,635,309
Deferred income taxes and long-term liabilities (227,667) 338,000
Equity in (income) losses of affiliates (33,000) 25,446
Changes in operating assets and liabilities, net of
effects of acquisitions:
Trade accounts receivable (7,325,900) (7,625,925)
Inventories (1,494,307) (2,948,898)
Other current assets 331,014 306,705
Other noncurrent assets (60,083) (198,793)
Trade accounts payable 2,839,549 (307,427)
Accrued liabilities 542,193 379,773
Accrued profit sharing trust contributions (86,281) (43,381)
Accrued workers' compensation (32,853) (55,000)
Accrued cash profit sharing and commissions 2,674,524 1,514,904
Income taxes payable 2,697,696 636,282
------------ ------------
Total adjustments 4,219,865 (4,343,861)
------------ ------------
Net cash provided by operating activities 19,042,988 6,685,546
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (4,291,456) (8,167,620)
Proceeds from sale of equipment 44,041 18,025
Asset acquisitions - (800,398)
Equity Investments (11,637) -
------------ ------------
Net cash used in investing activities (4,259,052) (8,949,993)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on notes payable (20,037) -
Issuance of Company's common stock 393,034 815,413
------------ ------------
Net cash provided by financing activities 372,997 815,413
------------ ------------
Net increase (decrease) in cash and cash equivalents 15,156,933 (1,449,034)
Cash and cash equivalents at beginning of period 6,955,788 5,810,593
------------ ------------
Cash and cash equivalents at end of period $ 22,112,721 $ 4,361,559
============ ============
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 three and nine months
ended September 30, 1996 and 1995.
2. Trade Accounts Receivable
Trade accounts receivable consist of the following:
SEPTEMBER 30, DECEMBER 31,
1996 1995 1995
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Trade accounts receivable $ 29,434,569 $ 26,321,654 $ 21,832,701
Allowance for doubtful accounts (1,127,853) (1,048,224) (931,321)
Allowance for sales discounts (255,708) (153,000) (168,500)
------------ ------------ ------------
$ 28,051,008 $ 25,120,430 $ 20,732,880
============ ============ ============
3. Inventories The components of inventories consist of the following:
SEPTEMBER 30, DECEMBER 31,
1996 1995 1995
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Raw materials $ 12,438,103 $ 13,468,771 $ 13,424,828
In-process products 3,478,087 2,897,300 3,180,416
Finished products 20,041,594 18,108,228 17,866,006
------------ ------------ ------------
$ 35,957,784 $ 34,474,299 $ 34,471,250
============ ============ ============
Approximately 96% 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 inflation and are subject to final year-end LIFO
inventory amounts. At September 30, 1996 and 1995, and December 31, 1995,
the replacement value of LIFO inventories exceeded LIFO cost by
approximately $2,602,000, $3,594,000 and $4,178,000, respectively.
4. Net Property, Plant and Equipment
Net property, plant and equipment consists of the following:
SEPTEMBER 30, DECEMBER 31,
1996 1995 1995
------------ ------------ ------------
Land $ 2,065,682 $ 2,065,682 $ 2,065,682
Buildings and site improvements 10,379,901 9,334,095 10,379,901
Leasehold improvements 2,826,392 2,731,412 2,688,430
Machinery and equipment 42,897,745 39,248,586 40,393,578
------------ ------------ ------------
58,169,720 53,379,775 55,527,591
Less accumulated depreciation and amortization (34,260,537) (29,245,846) (30,419,484)
------------ ------------ ------------
23,909,183 24,133,929 25,108,107
Capital projects in progress 2,714,028 1,738,293 1,311,897
------------ ------------ ------------
$ 26,623,211 $ 25,872,222 $ 26,420,004
============ ============ ============
5. Debt
As of September 30, 1996, the Company had no outstanding debt. The Company
has available to it credit facilities which consist of the following:
Amount of
Facility
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Revolving line of credit, interest at
bank's reference rate (at September 30,
1996, the bank's reference rate was
8.25%), expires June 1997 $ 11,571,000
Revolving line of credit, interest at
bank's prime rate (at September 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 September 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 June 1997 390,000
Standby letter of credit facilities 1,261,570
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Total credit facilities 21,222,570
Standby letters of credit issued and outstanding (1,261,570)
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Total credit available $ 19,961,000
============
The Company has three outstanding standby letters of credit. Two of these
letters of credit, in the aggregate amount of $832,570, are used to support
the Company's self-insured workers' compensation insurance requirements
while the other, in the amount of $429,000, is used to support the 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 and nine
months ended September 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 September 30, 1996,
Compared with the Three Months Ended September 30, 1995
Net sales increased 21.4% from the third quarter of 1995 to the third
quarter of 1996. The increase reflected solid growth throughout the United
States, although, sales in California increased at a rate slower than the
average growth rate. Simpson Strong-Tie's sales increased 23.8% while
Simpson Dura-Vent's sales increased 13.4%. Sales to dealer distributors
were the fastest growing connector sales channel, while contractor
distributor and homecenter sales growth slowed somewhat. The sales growth
rate of engineered wood products and seismic and high wind products led
Simpson Strong-Tie sales with above average increases, while Simpson Dura-
Vent sales of Direct-Vent products, sold both to OEMs and through
distributors, continued to experience strong growth. Third quarter sales
were also positively influenced by sales at the businesses acquired in the
second half of 1995. The acquisitions during the last year accounted for
1.6% of the Company's 1996 third quarter sales.
Income from operations increased 40.7% from $7,621,797 in the third quarter
of 1995 to $10,724,722 in the third quarter of 1996. This increase was
primarily due to higher gross margins, partially offset by higher general
and administrative expenses as a percentage of sales. Selling expenses
increased 23.2% in total from $4,001,779 in the third quarter of 1995 to
$4,929,448 in the third quarter of 1996. General and administrative
expenses increased 28.5% from $5,472,251 in the third quarter of 1995 to
$7,033,766 in the third 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. Interest income increased to
$175,048 in the third quarter of 1996 as a result of the increased cash
balances. The effective tax rate increased from 38.2% in the third quarter
of 1995 to 41.4% in the third quarter of 1996, primarily due to the
recognition of lower effective state tax rates in the third quarter of
1995.
Results of Operations for the Nine Months Ended September 30, 1996,
Compared with the Nine Months Ended September 30, 1995
Net sales increased 22.2% during the first nine months of 1996 as compared
to the first nine months of 1995. The increase reflected solid growth
throughout the United States, although sales in California increased at a
rate slower than the average growth rate. Simpson Strong-Tie's sales
increased 22.7% while Simpson Dura-Vent's sales increased 20.4%. The sales
growth rate of engineered wood products and seismic and high wind products
led Simpson Strong-Tie sales with above average increases, while Simpson
Dura-Vent sales of Direct-Vent products, sold both to OEMs and through
distributors, continued to experience strong growth. Year to date sales
were also positively influenced by sales at the businesses acquired in the
second half of 1995. The acquisitions during the last year accounted for
1.6% of the Company's 1996 year to date sales.
Income from operations increased 34.9% from $18,349,455 in the first nine
months of 1995 to $24,750,192 in the first nine months of 1996. This
increase was primarily due to higher gross margins, partially offset by
higher general and administrative expenses as a percentage of sales as well
as a small relative increase in selling expense. Selling expenses increased
25.5% in total from $11,874,332 in the first nine months of 1995 to
$14,902,126 in the first nine months of 1996. General and administrative
expenses increased 26.9% from $14,493,020 in the first nine months of 1995
to $18,387,692 in the first nine months 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. Interest
income increased to $325,931 in the first nine months of 1996 as a result
of the increased cash balances. The effective tax rate increased from 40.1%
in the first nine months of 1995 to 40.9% in the first nine months of 1996,
primarily due to the recognition of lower effective state tax rates in the
third quarter of 1995.
In October, Simpson Strong-Tie's quality management system was recommended
for ISO9000 registration by a third party registration organization.
Simpson Strong-Tie is the Company's largest subsidiary and, to the
Company's knowledge, no other U.S. company in the connector industry has
been ISO9000 registered. Management believes that this recommendation
reflects the Company's on-going commitment to quality.
The Company has committed to purchase or has leased additional space to
increase its capacity. Simpson Strong-Tie has expanded its research and
development and marketing support facilities by leasing a 48,000 square
foot building in San Leandro, California, and has moved its Jacksonville,
Florida, warehouse into a new leased facility with approximately twice the
square footage of its old facility. The planned expansion of the company
owned warehouse in McKinney, Texas, has commenced. This expansion will add
approximately 60,000 square feet to the existing structure. In addition,
the Company has agreed to purchase a 30,500 square foot building which it
currently leases from an unrelated party at its facility in Brea,
California.
Liquidity and Sources of Capital
As of September 30, 1996, working capital was $67.4 million as compared to
$50.8 million at September 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 and
inventories, which increased to support the higher level of sales.
Partially offsetting these increases were increases in trade accounts
payable, accrued cash profit sharing and commissions, and income taxes
payable, as a result of higher operating and taxable income, respectively.
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 $19.0 million from operating activities. As
of September 30, 1996, the Company had unused credit facilities available
of approximately $20.0 million.
In its investing activities, the Company used $4.3 million in cash to
purchase capital equipment, a rate substantially below that of the first
nine months of 1995. The Company has increased its purchases of capital
equipment in the third quarter of 1996 in order to expand its capacity and
anticipates additional expansion during the last quarter of 1996 and into
1997. These plans include the purchase of the building at its Brea facility
and additional production equipment needed to meet the expected demand.
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 September 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
the remainder 1996 and into 1997. 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.
None.
ITEM 5. OTHER INFORMATION.
On November 12, 1996, the Company's subsidiary, Simpson Strong-tie Company
Inc., signed a nonbinding Letter of Intent to purchase, for cash, the
businesses of Isometric Limited, A.D.B. Heading Limited and Dual Fastening,
Inc. (together the "Isometric Companies") for $8,000,000 (subject to
adjustment in certain circumstances) plus potential earn-out payments of up
to $2,500,000 over four years. This transaction is in the preliminary
stages and its consummation will require the satisfactory completion of due
diligence, a satisfactory audit of the Isometric Companies financial
statements, negotiation of the form of the transaction and a mutually
satisfactory purchase agreement and approval by the Company's Board of
Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits.
EXHIBIT
NO DESCRIPTION
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10.1 Lease Agreement dated July 26, 1996, between Simpson
Strong-tie Company Inc. and Richard H. Kulka
10.2 Purchase and Sale Agreement and Escrow Instructions dated
August 16, 1996, between Simpson Manufacturing Co., Inc.
and G.A. Mac Donald Construction Co. Inc.
10.3 Amendment to Letter of Credit, dated May 31, 1996, by and
among Simpson Manufacturing Co., Inc., Simpson Holdings,
Inc. and Wells Fargo Bank, N.A.
10.4 Amendment to Letter of Credit, dated May 23, 1996,
between Simpson Manufacturing Co., Inc. and Union Bank
10.5 Amendment to Credit Facilities, dated June 18, 1996,
between Simpson Strong-Tie International Inc. and
Barclays Bank PLC
11 Statements re computation of earnings per share
27 Financial Date Schedule, which is submitted
electronically to the Securities and Exchange Commission
for information only and not filed.
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.
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(Registrant)
DATE: November 13, 1996 By: /s/ Stephen B. Lamson
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Stephen B. Lamson
Chief Financial Officer